密歇根天然氣 (DTE) 2006 Q3 法說會逐字稿

Good day, everyone and welcome to today's DTE Energy's third-quarter 2006 earnings conference call. Today's call is being recorded and at this time for opening remarks and introductions, I would to turn the call over to Mr. Dave Meador. Please go ahead, sir.

Thank you. Good morning and welcome to our third-quarter earnings call. I encourage you before we get started to read the Safe Harbor statement on page 2, including the reference to forward-looking statements.

With me this morning I have our VP and Treasurer, Nick Khouri; Peter Oleksiak, our Corporate Controller. Additionally, I have some members of my team in the room that I might call upon during the Q&A session.

I am going to start on page 4. We laid out our 2006 plans for you late last year and each quarter this year we have reported back to you that we are delivering on our commitments and we will do the same thing again this quarter.

The two utilities continue to deliver solid results. In the Non Utility businesses, we had very strong results in our field transportation and marketing group. In our unconventional gas business, even though we're selling forward into strong prices, 2006 production has been impacted. The prices have been impacted by the lower gas prices and that is affecting the net income in the group this year. And we will talk more about that as we go through the earnings.

The power and industrial group had good results in the steel-related solid fuels business. However, it was impacted by Biomass tax impairments and merchant generation losses that you can expect to go away through restructuring or sales and we'll talk more about that down the road.

As you know, we restarted all of our synfuel machines. They are all running full out. This provides significant upside and cash flows compared to the full phaseout range we have previously provided of $1 billion. For 2006, synfuels will provide a projected $300 million in cash flow and $0.53 to $0.65 per share in net income and that is not included in our guidance.

A key driver of success for DTE is the performance excellence process. We are on track on that process. All cost and performance ideas have been identified. They are being tracked and they are in the process of being implemented. To date, we have reduced our workforce by over 400 employees and will drive $50 million to $100 million in savings this year.

Another driver of success is the utility growth investments. This will increase our equity base by over $1 billion by 2011 with required investments such as Detroit Edison's environmental expenditures where we are on track this year with $152 million in expenditures year-to-date and the pipeline safety program at MichCon, which is also on track.

Let me turn to page 5. Another driver of success, in addition to the growth at the utilities, is the growth investments in our Non Utility business lines. In power and industrial this year, we have invested $57 million so far at our targeted returns and projects, like the energy asset project at our auto manufacturing facility. We have also invested in a pulverized coal project and an expansion project at the Chrysler Jeep plant in Ohio.

In addition, we have entered into a purchase power agreement as we optimize our Michigan peakers and there will be more to come on our thinking on our merchant peakers in a moment.

In unconventional gas, we have invested $138 million year-to-date. We have 39 new Barnett wells on line. Production is up over 375%. We are currently running 19 million cubic feet per day in production and we have acquired 15,000 acres, which brings our total position there to 91,000 acres.

Our fuel transportation and marketing group, we have invested $55 million, including a new coal terminal that is currently under construction in Chicago and 15 Bcf of non-regulated storage in Michigan.

Turning to page 6, we have spent our summer exploring ways to unlock the hidden value in our non-regulated businesses. We have made great investments in all three of the business groups and we have created significant value, but now we are going to take steps to ensure that our shareholders benefit from our successful track record. Tony Earley and Gerry Anderson will lay out our plans at EEI next Tuesday. We have a presentation at 1.30 Eastern Standard Time and I encourage you to attend the presentation or listen to the webcast. So today I want to focus this call on the quarter.

The impairments we took this quarter set the context for the larger strategic initiatives that you're going to hear about next week. So let me go through some of the actions we took. This quarter we recognized an impairment for our River Rouge and Crete merchant plants. We will not operate the River Rouge plant and the Crete investment that we have will be sold. The remaining merchant plants, an 80 megawatt plant in Indiana and a 320 megawatt Michigan peaker group will be discussed next week at EEI. So there is more to come on those.

The two power plants that we did impair this quarter resulted in a $47 million write-down and that will improve forward earnings by $7 million. Our waste coal pilot that you have heard us talk about, known as PepTec, was shut down and we recorded a $13 million impairment, which will improve forward earnings by $4 million. And then our landfill gas business was impacted by a partial phaseout of tax credits this year and those credits will go away under any circumstance after next year. That business will be restructured and the contracts will be renegotiated and some of the sites will be closed. Here we booked a $2 million impairment and that business line lost money this quarter and you see that in the results as Peter Oleksiak will talk about the results, but you should expect that to be profitable going forward.

So if you look at the power and industrial group, we have taken significant actions, but when you look at the earnings results and then the guidance, we will still lose $15 million in the segment this year and it is primarily because of the losses incurred prior to the restructuring actions that are now underway.

The actions that we have taken are step one to create visibility to strong business lines and also to help simplify our operations and allow us to create focus, scale and transparency. And this is just the beginning. Please come next week to hear the rest of the exciting story that Tony and Gerry will lay out. And now I will turn it over to Peter who will take you through the third-quarter results.

Thanks, Dave and good morning to everyone. Let's turn to page 7 of our standard slide that shows the performance for the quarter. Overall, operating earnings for DTE were $1.44. I'd like to remind everyone that a reconciliation to GAAP reported earnings is contained in the appendix.

A major contributor to the quarter's results was Detroit Edison at $0.82 reflecting a continued return to financial health for our Electric Utility. The Non Utility segments combined to contribute $0.73. The primary driver to the Non Utility quarter results for the fuel transportation and marketing segment were $0.42 driven by realized gains at Energy Trading.

In addition, our synfuel segment contributed $0.28. Starting with this quarter, we are now reporting synfuels as a separate Non Utility segment in our SEC filings. With a drop in oil prices in the quarter, we restarted production at all of our synfuel units in September and October and lowered our phaseout reserves established in the first half of 2006. Details of the synfuel impact on the quarter will be covered later in the presentation.

Moving on to page 8 where we can see a summary of each segment's performance quarter-over-quarter, I will be covering each segment in more detail later in the presentation. Overall, operating earnings are up $250 million, including synfuel, and are up $248 million when you exclude the impact of synfuel. As I mentioned on a previous page, performance at Detroit Edison continues to improve.

In addition, the quarter had a significant increase in earnings from Energy Trading due mainly to large accounting timing loss recognized in the 2005 third quarter.

Let's continue on to slide 9 and go through some details beginning with Detroit Edison. Operating earnings for Edison was up $38 million or 49% in the quarter. A key driver for our Electric Utility was the residential rate cap expiring this year, allowing the flow-through of the November 2004 rate order. We can also continue to experience a step down in the volume of Choice, which improves operating margins.

While weather was milder than the previous year, high power prices and the impact the residential rate caps offset a majority of the weather benefit in 2005. A reduction in territory sales also impacted margins for the quarter. A 12-month rolling ROE for Edison was 10.6%.

Moving on to page 10 and a review of MichCon's performance. Losses during the third quarter are typical of gas LDCs. While still a loss for the quarter, MichCon was up $10 million quarter-over-quarter impacted by strong storage market and lower operating costs. On a weather normalized basis, our Gas Utility is performing as expected. The rolling ROE for MichCon is 8% and with the mild weather that we experienced in the first quarter, on a weather normalized basis, it is 10%.

Let us turn to page 11 and the Non Utility business segments. Total Non Utility operating earnings for the third quarter of 2006 are $130 million compared to a loss of $80 million for the third quarter of 2005. Power and industrial was up in the quarter due mainly to improvements in our steel projects within our energy service business offset by our Biomass performance.

As previously mentioned, Energy Trading was impacted by significant accounting timing losses in 2005. If you look at this slide, you can see a table in the lower right hand that shows quarter-over-quarter. There has been a reduction in the mark-to-market losses in the third quarter of 2006, as well as strong realized gains. A combination of the two is a $206 million improvement quarter-over-quarter. I will cover both synfuel and unconventional gas in the next two pages.

Moving to page 12 and the details of the synfuel earnings for the quarter. While 2006 synfuel earnings are almost the same as 2005, the components are very different. Production-related income was minimal for the third quarter reflecting the suspension of production during most of the quarter. Given current oil price forward curves, we have reversed a portion of the year-to-date reserves related to tax credit phaseout and payments received from our partners that are refundable. More synfuel earnings details included in the appendix.

Turn to page 13 for our update on Barnett Shale. We have been showing this schedule every quarter so you can track the progress on this investment. In 2006, we continue to meet our plan to significantly increase production. We entered the year at a production rate of 4 Mmcf per day and increased it to 9 Mmcf per day by mid-October. We currently have an additional 5 to 10 Mmcf per day of waiting completion of pipeline connections.

During the quarter, we have also increased our hedge position as we increased the production of our reserves. While production continues to be on track as expected, the segment's income performance has been impacted by the drop in gas prices this year.

Moving on to page 14 and an update on our 2006 earnings guidance. As we layed out in the beginning of the year, we expect that operating earnings, excluding synfuels, to be in the $2.41 to $2.66 range. Now with three quarters of the year behind us, we have tightened our range and expect to deliver earnings per share of $2.42 to $2.53.

Improved performance at Detroit Edison driven by Choice customers return and the warmer weather will offset the impact of the mild (indiscernible) sitting at MichCon and the tax credit phaseout and restructuring impacts of our Biomass and PepTec businesses. As mentioned before, low gas prices during the year will reduce the earnings from our unconventional gas business. However, our gas midstream and coal services businesses within the fuel transportation and marketing segment have solid results and our Energy Trading will improve earnings barring a significant run-up in gas prices at the end of the year.

Excluding from our guidance, we expect synfuel earnings per share of $0.53 to $0.65 assuming no significant change in oil price going forward. What that, I would like to turn the discussion over to Nick Khouri.

Thank you, Peter and good morning. Improved cash flow and balance sheet strength remains a key priority for management and the Board of Directors and as expected cash flow is improving from the levels of the past couple of years. Page 15 compares year-to-date cash this year with the same period in 2005. DTE's internally generated cash, including synfuel payments, totaled almost $1.4 billion for the first nine months of this year, representing an increase of $500 million or over 60% from the prior year.

Part of the year-over-year growth is intrayear timing and will reverse in the fourth quarter. Nevertheless, adjusted cash from operations is expected to be up significantly for the full year. Driving the higher cash this year is working capital improvements at both MichCon and the Non Utility businesses.

Capital expenditures are also higher. Year-to-date, nearly $400 million above 2005, leaving net cash after dividends positive this year compared to negative last year at this time. In summary, a solid first three quarters for cash.

For the full year 2006, cash and capital forecast has not changed and is detailed in the appendix. The right side of slide 15 details year-to-date capital spending. As you can see, we are stepping up our investments in the utility and Non Utility businesses. Detroit Edison's capital totaled $735 million year-to-date with increases in both base utility operations and environmental remediation.

For the Non Utility businesses, investment is up about $100 million or over 70% from 2005. We continue to target a strong BBB, BAA2 credit rating. Page 16 shows the major balance sheet metrics followed by us and the rating agencies. Reflecting higher underlying cash, funds from operations as a percentage of debt and leverage is improved from the same period last year. Now let me turn it back over to Dave to wrap up.

Thanks, Nick and I am turning to page 17. During our meetings with you this year, we have laid out our plans to create significant value for our shareholders over the next five years. The two utilities are well-positioned to grow earnings 5% to 6% per year while focusing on performance and customer satisfaction. The Non Utility lines are well-positioned and all have investment opportunities that will grow both earnings and cash flows over the next five years also.

As Nick laid out for you, the balance sheet is stable. Cash flows this year are very strong and our credit metrics are on track. And our dividend is attractive and as we've said before, as our payout declines as we grow the bottom line, we are open to a dividend increase down the road.

On page 18, we look forward to seeing you next week at EEI. Our presentation, as I indicated, is at 1.30 Eastern Standard Time and I would encourage you to come or join the webcast. Additionally, we are planning on providing 2007 guidance in December of this year after we have reviewed our 2007 plans with our Board of Directors. And now we would be more than happy to take your questions on the third quarter. So Nick, if you could open up for questions, that would be great.

(OPERATOR INSTRUCTIONS). Dan Eggers, Credit Suisse.

Can you just give a little more help on the trading business, just kind of the volatility and the swings year-to-year, what we should be expecting as we look out and just kind of why the volatility has been so great in the contribution?

Sure. I think the first place to start is to think on an accounting basis. If you went back over the last five years, we average on an accounting basis net income in the $30 million to $40 million range. That is obviously moved by mark-to-market adjustments that is predominantly driven by storage accounting.

Just refer back to some previous presentations. We put gas in the ground and then we sell it forward. The gas in the ground is accounted for at average costs and the forward sale is mark-to-market. So last year's third quarter, given the run-up in prices, we had a very significant mark-to-market loss that was recorded. That is reversing and at the same time, what you are seeing is a higher portion of the earnings shifting into the realized category.

So a combination of the movement from unrealized to realized earnings and then also just the mark-to-market moving as gas prices have gone to a more normalized level is how to think about that. The unusual event was actually last year and what you are seeing this year is just strong earnings coming through driven by realized earnings.

Was any of the third-quarter benefit monetization of earnings for next year or was this all related to '06 and I guess the mark-to-market from last year yet?

It is related to '06 and the reversal of the mark-to-market from last year.

So thinking about this as a -- back to the 35 to 40 type contribution, we should be comfortable with that for next year?

Yes.

Okay. I don't want to get ahead of Gerry and Tony next week, but on the asset impairments, can you give us a look at the book value after impairment on the assets on the balance sheet now?

I am not sure that I have that with me.

I can talk to it generally. The River Rouge, as Dave mentioned -- we are essentially going to be shutting down that line. So there is -- minimum. It's really just a salvage value at this point in time.

So it's pretty close to 0.

Pretty close to zero. On the Crete asset, it is pretty close to the market comps that are out there. So we are zeroing probably about $200 to $250 per kW.

And then we will get more color on the other ones at EEI?

If you went down the list on page 6, PepTec is written down to zero and Biomass, there is some book value there, but I am not sure that is as relevant. I think you are interested in the other peaker assets that we will give you an update on next week.

And if I could just one more on the unconventional gas production business. You guys talked about costs rising fairly meaningfully and pressure on that front. Can you just give a little more color on is that drilling and service cost pressure? Is that a lifting and then what are you guys seeing from a basis differential perspective?

I have Dick Redmond on the line with us. Dick is the President of that group that runs both the Antrim and the Barnett and I will let him speak to those questions.

In terms of the cost, I am not sure that was mentioned today, but with all the pressure down in the Barnett, there has been some increase there. I think 10% to 15% a year, but with the gas price drop, which was really the biggest thing commented on today, that has impacted us, but we've continued to stay cash flow positive. We actually haven't seen any increases dramatically in Michigan in terms of the cost structure.

In terms of basis, if you look at the Barnett -- during the summer, basis had collapsed some. It actually had come down and we saw numbers in the $0.60 to $0.70. It had been up higher last winter in the $1.20 to $1.30 range. I think production is outpacing the pipe construction down there. The pipes are being put in place, if that addresses the question.

Got it. And Dick, while I have you on the phone, can you give a little color on what the infrastructure looks like from a gas gathering perspective in the southern Barnett right now?

In the southern Barnett, some of the major out of the basin pipes are currently going in. Down in the very south, I think it would be fair to characterize the eastern portion and the western portion as in place and we bring wells on as we drill them there. In the middle portion, there is still infrastructure to be built there. We are probably, in our case, 15 to 20 miles outside the infrastructure in some of the further south acreage.

Paul Patterson, Glenrock Associates.

Just wanted to get a little bit more clarity on what exactly caused the impairments at these. What caused this -- in the third quarter, why did all these generation plants and waste coal -- what was it that caused these guys to get impaired all of a sudden?

As I said, we spent the summer going through our strategic review. We believe that we've made a series of great investments that -- our shareholders weren't benefiting from. So we have gone through a larger strategic review that Gerry and Tony will talk about next week.

Part of that would be looking at ways to create scale and focus. So if I have smaller businesses or businesses that were losing money, we have determined that we are either going to sell, we are going to restructure or we are going to close down and once you've made those determinations, you actually trigger accounting actions at that point in time.

For example, PepTec, we decided to close down that business and we are not incurring losses anymore and in doing that, I have to write off the book value of that asset would be an example. And so we are taking actions and this is basically setting the context for some things you will hear much more about next week.

Got you. So then let me ask you this. These projected earnings for 2006 -- $5 million for River Rouge, $2 million for Crete and $4 million for PepTec. How does that go going forward after the -- that's basically I assume -- these losses are not going to be there. So in 2007, what would the impact of these businesses -- what would the impact be going I guess for the full year of 2007 or -- do you follow me?

We will give 2007 guidance in December. It won't be helpful to even call these out to try to show you the year-over-year impact, but what we provided was annualized 2006 losses. It would be reasonable to say that without me taking action, these would carry forward into the future. So if I hadn't taken action, they would be losses that would have continued to next year that are going to be gone now.

So these numbers roughly speaking are the annual impact of the losses and they won't be there going forward.

That's correct.

That's correct.

Just wanted to make sure. And then with respect to the synfuel, it looks like you guys -- you reversed the reserve and there still looks to me like there is still some reserve. Is that correct? And how much reserve do you still have I guess on the books and does this reserve reversal that happened this quarter have to do with the potential outlook for 2007 as well or what exactly was reversed if you follow me?

Yes, let me --. On page 23 in the appendix does kind of layout pieces of the synfuel and this really relates -- the majority of the reserve that was reversed is the capital contributions. These are the funding for the net operating losses from our partners and that is really tied to the level of the phaseout on the cash that we are to receive. So in the second quarter, we had a much higher phaseout assumption. With the drop in oil prices, we have assumed a lower phaseout. So naturally that reserve just gets adjusted and trued up. We will continue to do that on a quarterly basis. So that was really the majority of the reserve that was reversed out.

We still have some reserve left for that and also reserve associated with the notes receivable. What we are going to be doing is really at this point is kind of accounting for that on a cash basis. As received, we will be recognizing the earnings.

So how much reserve is remaining?

If you look on page 23, it really does weigh out in terms of where we are at right now. We have overall deferrals and reserves of 130.

Gregg Orrill, Lehman Brothers.

Just was wondering if I could get an update on how much of the synfuel production going forward that you have hedged?

I want to defer this question to next week because we have done additional hedging as prices have come down and what we will lay out for you next -- all I did today was give you the 2006 numbers and I will give you 2007 and forward next week as part of the story that we want to tell next week as the additional actions we have taken and help you see through now what we believe is the minimum cash number and then the potential upside number and we will provide that on Tuesday.

Maybe one other question then. On the power and industrial projects, how do you see that business growing going forward? Maybe you could provide an update on what projects you might be looking at?

That also is something that people have asked recently about, pipeline of investments and we are actually seeing a stronger opportunity set there than we have seen in some time and that is something that Gerry will talk through next week. But what you are going to see is continued growth in what I would describe as the solid fuel businesses. So areas like coke batteries, pulverized coal and conversion of businesses that are operating on natural gas to those fossil fuels and then also ongoing projects in the energy services space similar to the DaimlerChrysler project, which has gone very well. They have come back to us already with an expansion and as we grow scale in that business and our reputation is growing, there is more opportunities there.

So next week what Gerry will lay out is our outlook for investments in power and industrial, coal services and the midstream business, which I think are three areas we want to have everyone have a better understanding in addition to what we have already laid out for unconventional gas.

Great. Look forward to it.

Ashar Khan, SAC Capital.

Do you have any of the tax bases for your ATM reserves in the Barnett? Is there some way you could share with us what the tax basis is?

I don't have it and we will check with the team to see if that is something that we would want to share next week. Let me look at it and we'll talk about it because I know when people are -- we have talked in the past about opportunities to take money off the table for example and monetize it, people are very interested in book and tax and we have not provided that and I don't have that with me. So let me get with the team and we can let you know next week whether we will talk about it and what the numbers are.

David, the other question if I heard it earlier, you said that if you had normalized for weather, the gas company was earning a 10% ROE. Is that correct? That's what I heard.

On a rolling basis, 12-month rolling.

Because I had assumed you guys were going to plan to file a gas case sometime this year which got delayed. So is there no intention to file any gas case going forward?

No, actually right now, the base plan right now is that we have to file an electric case and we will file that most likely in the second quarter of next year, and that current thinking is we will also be filing a gas case next year.

So at the same time?

Well, they will be staggered not only for our workflow, but we have to be mindful of the workload at the commission.

Okay. But David, which one will come first, the electric or the gas?

Electric will come first.

Paul Ridzon, KeyBanc.

Actually, you indicated that there was net carryforwards of about $1 billion. So given '06 and '07, I mean we are at $1.3 billion now, and '07 would be incremental?

We will tell you Tuesday. I am not trying to be difficult here. As I have indicated, there is good news, and there is upside to the numbers that we've previously shown you. And we have already decided that Gerry and Tony will include that in their presentation next week, so I don't want to preempt them.

I hope you schedule two hours for your presentation.

Well, this is going to be a good session and I expect some interest and we are going to be there all day. So we look forward to seeing everyone either at the presentation or in some of the follow-up sessions.

At the risk of getting shot down again --.

You can try.

(technical difficulty) that the strategic review is more a tightening of focus, or do we just have to wait until Tuesday?

Let's just wait. It's only a couple days away. If it was farther away, then I would say I was being unfair, but we are just a couple days away. And they have put a lot of time and effort into this project and also a lot of thinking into the presentation, and I would rather let Tony and Gerry give it.

Daniele Seitz, Dahlman Rose.

Actually, I was going to ask you the CapEx for '07. I guess it is for the [EI] as well. Do you have any -- would it be relatively flat in terms of the CapEx for '07?

Well, I think the best guidance of the CapEx is the IR material that we have been using on the road more recently where we gave five years' projections on. I think that is your best guidance right now, and then for '07 we will give more refined guidance when we provide the guidance in December. So those presentations are still out on the website or if you can't find it, give us a call and we will give it to you.

And in terms of Choice, are your forecasts also haven't changed on that, what you anticipate the return of customers, etc.?

We're continuing to monitor really the market prices that are out there. There is sensitivity around that. So with the recent drop in gas prices, we may see some migration back to the Choice.

But in the settlement that we recently entered into, there is this Choice tracking mechanism that operates around a midpoint of 3400 GW hours and our projections right now are that Choice will operate within that bandwidth there. So if Choice went up slightly for example, we would recover $0.90 on the dollar over 3400 GW up to a cap and we believe that our forecast is right now we will operate within that bandwidth. So there is not -- from our view right now, there is not significant exposure.

That being said, that is one of the issues that will be addressed in next year's rate case that we think that what is in place right now is a good temporary solution, but it is not the right permanent fix to Choice.

You anticipate that the 3400 might be reduced eventually or something? You think that it is a conservative estimate?

Well the 3400 is what -- when we started the year, Choice was at 4800. When we entered into the settlement, it was at 3400. It is actually below that right now and given current market -- given the structure that is in place and the current market prices, we think it is going to continue to operate about that level.

As far as last question, performance excellence, do you have estimates as to what you can reach for '06 and any numbers for '07?

Yes, we have previously provided -- Mike, do you have the '06 and '07 PEP?

I have it right here.

It is on 29. If you look at the '06 numbers I talked about earlier in my comments, it's $50 million to $100 million and that is a combination of O&M and capital, then also PSCR savings for customers. Then for next year, it grows to $200 million to $250 million and 2008, $250 million to $350 million.

That does not change?

No, it is not changed.

(OPERATOR INSTRUCTIONS). Leon Debov, Zimmer Lucas Partners.

I had to drop off the call for a little, so I apologize if you went through this. Just wanted to check on the new revised guidance. Does the new range now include the impairments that were taken this quarter or are those stripped out?

No, they are stripped out. It's a one-time charge that will be in reported earnings, but not operating earnings.

Great. I just wanted to double check. Thank you.

[Vic Cayton], Deutsche Asset Management.

When you talked about (indiscernible) growth, is that pre-approved by the Commission or are you assuming that it will be approved as you go along?

It is assumed that will be approved as we go along and one of the areas that we want to address in the electric rate proceeding next year is pursuing a tracking mechanism on environmental because that is really the significant driver of rate base over that period. We are well aware that around the country companies are pursuing these and some already have them and we want to address that on the rate case because that is the only way that I can get that is in a rate proceeding.

Then going forward, that would give us the ability to have environmental expenditures moved into rates without having to go into a rate case. If we went into a rate case, it would be for other reasons other than environmental.

And the metric this growth would be what? You said $1 billion will be the overall growth, but on an annualized basis, what kind of rate growth are we looking at?

Let me grab that real quick.

Probably 200 to 250. We're really projecting that growth to be over the next five years.

I'm sorry? 150 to 250?

200 to 250. We are really projecting -- look back at some of the previous IR decks. Over the next five years, a really significant spend around the environmental.

And will this result into any meaningful or equal amount of rate increase or how do you see the rate increase need to meet this rate base growth?

There is a slide that we show and we will talk about it again next week is that this has a lot to do with (indiscernible) initiated this performance excellence program that we are taking out $350 million to $400 million in cost because we want to first of all drive towards first quartile performance, but we're also mindful of the challenges of getting rate increases in this environment. So we are trying to push rate increases out and make sure that when we do pursue a rate increase that it is not a double-digit rate increase. That it is something in the single digits and that we have earned our rights to that rate increase and avoid what I think you or I would call the risk of rate shock during a period of high capital expenditures.

So the environmental tracker also plays into that. If you have an environmental tracker and you can tether in increases annually based on expenditures, it also I think removes one of those regulatory risks of being out of rate cases for a long time and then coming in for a significant increase.

I see. So finally I guess -- again, I may have to wait till next week, but you said 5%, 6% utility growth, earnings growth and then 10% to 15% unregulated growth. So is that still the goal?

Yes.

Mr. Meador, it appears there are no further questions. I will turn the conference back over to you for any additional or closing remarks.

Thanks, Nick and thank you, everybody, for joining the call today and we look forward to seeing you hopefully at 1.30 Eastern Standard Time on Tuesday. Thanks again.

Thank you. That does conclude today's conference. We thank you for joining. Have a wonderful day.