密歇根天然氣 (DTE) 2007 Q2 法說會逐字稿

Good day, everyone. Welcome to DTE Energy second quarter 2007 earnings conference call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Mr. Dave Meador. Please go ahead, sir.

Thank you and good morning, everybody, and welcome to our second quarter conference call.

With me this morning is Peter Oleksiak, our VP and Controller, and Nick Khouri, our VP and Treasurer.

Lisa Muschong is on maternity leave and enjoying time with her newest daughter, Maya Rose, and both mother and baby are doing well and we wish them a happy time together and look forward to Lisa rejoining us later this fall. I also have with me new members of the management team that I might upon during the Q&A session.

Before we get started, I'd like to encourage you to read the Safe Harbor statement on Slide 2 regarding forward-looking statements.

Now let me start on Slide 4 with an overview of this morning's discussion. First, our utility growth plans are on track. Detroit Edison's rate case is under way. We also have reached a settlement agreement subject to MPSC approval at MichCon that I'll talk more about on a future slide.

Our capital projects are on track and both utilities are expected to earn 11% returns this year. The non-utility restructuring efforts have gone very well and have exceeded our expectations. The after-tax proceeds are about $1.5 billion and the stock buyback program is targeted at $900 million.

I'll update you also on our refocused Barnett plan in a few slides. The quarterly results that Peter and Nick will present are solid and we are maintaining our guidance of 450 to $485 million for the year, excluding synfuels.

Now let's turn to Slide 6, where I have an update on our utility growth plans. For Detroit Edison, as you know, we filed our rate case in April. We expect staff testimony in January of 2008 and a final order on the third quarter of next year.

The temporary rate reduction, which is worth $79 million on an annual basis will expire next April. Given the recent decision by the Michigan Court of Appeals regarding the November 2004 MPSC order that this allowed recovery of merger control premium cost, we plan on filing a supplemental filing to the rate case and will do that later this fall.

On the Detroit Edison capital project side of the business, we are on track with the 2000 capital investments. This includes this year's portion of the multiple year expenditures on environmental controls. We are working on a plan to file the application for a new unit at Fermi by the end of next year and we are also initiating a multi-year advanced metering project, which will be about a $330 million project and those expenditures will occur over the next six years.

On slide 7 is a MichCon update. As I indicated, we signed a settlement agreement with all the parties on a base gas storage approach that is a win-win for customers and shareholders. This provides MichCon the opportunity to earn 11% return on equity without a customer rate increase and it also provides regulatory certainty for this business.

We are optimistic that the settlement will be approved by the MPSC at our future meeting in the near-term here. This is another example, and we've had several in a row here, of improved regulatory relationships and an indication of an improved regulatory environment in Michigan.

In the meantime, while we're working on that process, the capital investments continue at MichCon. We continue to make investments in the western Michigan pipeline expansion, the utility storage expansion, as well as the pipeline integrity expenditures that we've laid out for you, which is all part of the increased investments at MichCon.

On Slide 8 is an update on the non-utility restructuring plan. As I indicated, this process has gone extremely well. We closed the Antrim sale on June 29. The next day we announced the 50% sale and recapitalization of a portion of the power and industrial business.

On the peakers, the Georgetown transaction closed in July for $23 million and we have reached an agreement to sell our interest in the Crete unit. I'll cover our refined Barnett focus on the next slide, but first let me comment on the right-hand side of Slide 8.

The results of the restructuring demonstrate what we have previously communicated to you. We have created significant shareholder value in the investments that we've made in the non-utility businesses over the last ten years and now we're in the process of returning that value to you.

The after-tax proceeds will be about $1.5 billion. As of August 10th, we have repurchased over $625 million of the $900 million in common stock that we expect to buy back by the end of the year. Additionally, we will pay down $700 million of parent company debt.

Turning to Slide 9 for an update on our Barnett process. When we announced the Antrim sale we indicated that we would get back to you in the future on our thinking on the Barnett properties. There are some details in the appendix but let me summarize where we are in the Barnett.

We had 440 Bcf in reserves at the end of last year. We update our reserves once a year. 40% of the reserves were proven and 60% were unproven. If you contrast that to the Antrim properties, the reserves were 90% proven, so the Barnett field is less mature and statistically as we've laid out for you than the Antrim properties.

Our net acreage is about 84,000 acres and the number of producing wells currently in Barnett is 151 wells and that's up from 137 wells at the end of the first quarter and at production is 25 million cubic feet per day, which is up from 21 at the end of the first quarter.

As you know, this is one of the hottest gas plays in the United States. In terms of the value creation, we're very encouraged with the development of the western properties, where we have 41,000 acres.

Recent horizontal wells in that region have indicated that there's incremental value that could be created over an already economically viable vertical well in the western area. We have a lot of experience in the shale like we see in the western area of the Barnett and we're going to bring the focus of the management team and our capital to those 41,000 acres.

Given that, we plan to drill about 40 wells in the western properties in 2007 and we see the western development consuming 80 to $150 million annually over the next several years. We also will explore opportunities to monetize some or all of the remaining Barnett properties. We see an encouraging transactions in the basin recently, and we might test the market soon for the nonwestern properties.

Given our monetization track record, we're also going to do what is right for shareholders. That might mean taking some of the value off the table from time to time, but I want to make it clear that we're not in a fire sale mode and will be very selective about what we're going to monetize and when that might happen.

Given this description, I suspect that some of you might be interested in having us break down the Barnett data, the wells, the reserves, the production into western and nonwestern properties, and since we might be entering a competitive sales process for some of the properties soon, we won't be able to provide any more details than what we provided today at this time.

With that update, let me turn it over to Peter who will take you through the quarter results.

Thanks, Dave, and good morning to everyone.

I'd like to start with Slide 11, a summary of the quarter results. For the second quarter we had mixed but overall solid performance for both utilities.

Detroit Edison results were impacted by the temporary rate reduction from the show cause settlement and system start-up costs as we implemented a suite of financial and work management systems in April of this year. A cold April (inaudible) should help the results of our MichCon business this year versus last year.

As Dave mentioned in his opening remarks, both utilities are on track to earn their authorized return in 2007. On the non-utilities side of our business, we saw improvement in all segments. I'll be laying out more details over the next few pages.

Now turn to Slide 12 for a layout of the quarter results. For the quarter, operating earnings per share for DTE was $0.59. I'd like to remind everyone that reconciliation to GAAP reported earnings is contained in the appendix.

Detroit Edison contributed $0.37 while MichCon, which typically has a small loss in the second quarter, came in at a loss of $0.01. The non-utility segments combined to contribute $0.39. The primary driver [at] the non-utility quarter results was synfuel at $0.21, a significant increase in production this year versus last.

We continue to see solid performance in our Coal and Gas Midstream segment with a $0.06 contribution this quarter. Finally, corporate and other was a loss of $0.16 in the quarter.

Moving on to Page 13, where we can see a summary of each segment's performance quarter-over-quarter. I'll be covering each segment in more detail later in the presentation.

Overall, operating earnings are up $23 million excluding synfuel and are up $102 million when you include the impact of synfuel. As I mentioned on the previous page, performance at Detroit Edison was impacted by the temporary show cause settlement rate reduction and costs associated with the implementation of the suite of new enterprise systems. However, this reduction was partially offset by improved results at MichCon.

In addition, the quarter had increased contributions from all non-utility segments and most significantly at Energy Trading due to mark- to-market accounting timing loss recognized in the 2006 quarter. The higher loss at corporate and other is due to taxes and higher financing costs.

Let's turn to Page 14 and go through some details, starting with Detroit Edison. Operating earnings for Edison was $64 million, down $17 million from the prior year. Improved margin contribution for the quarter was driven by a positive quarter in the power supply cost recovery reconciliation case.

This order allowed Detroit Edison to a keep a portion of the over recovery for those customers on a rate caps during the 2004 and 5 time period. Warmer weather in the quarter was more than offset by the temporary rate reduction from last year's show cause rate settlement and overall lower territory commercial usage. We continue to see weakness in the territory sales for the region.

Electric choice has continued to decline, which is positive for bundled sales, with levels down 50%, but favorable margin impact was offset by the choice incentive mechanism. As mentioned earlier, in April this year, we implemented a suite of financial and work management systems across the enterprise.

For the quarter we incurred higher O&M costs related to the start-up of those systems and we are progressing through the implementation. In the quarter we also had a small increase in the reliability (inaudible) spend related to our distribution system and generating plants.

The quarter was also impacted by a regulatory lag on higher plant-related costs as we implemented our utility growth plan. (Inaudible) is $400 million higher this quarter versus last year. The 12-month rolling operating ROE for Edison is 10%.

Let's turn to Page 15 and review MichCon's performance for the quarter. Operating earnings for MichCon was a loss of $3 million, up $7 million over the prior year. Weather for the quarter was slightly warmer than normal, but was colder than 2006 second quarter. We also experienced a slight reduction in customer conservation this quarter.

Similar to our electric business, MichCon was also impacted by the system start-up costs, but favorable financing costs more than offset this impact. The 12-month rolling operating ROE for MichCon is 11% and almost 12% when you weather normalize the income.

Let us turn to Page 16 and the non-utility business segments. Total non-utility operating earnings for the first quarter of 2007 are $67 million compared to a loss of $55 million in the first quarter of '06. We continue to have solid performance in our Coal and Gas Midstream segment, higher storage and pipeline revenues contribute to the increased earnings.

Higher Barnett production contributed to the improvement in our Unconventional Gas segment. Power and Industrial was up in the quarter, due primarily to the restructuring actions taken last year related to our non-utility peaking plants and our waste coal project in our [biomass] business.

As previously mentioned, Energy Trading was impacted by a sizable mark-to-market accounting timing loss in the second quarter of '06. This year's trading income results have also been impacted negatively by mark- to- market accounting timing.

Finally, synfuel realized a sizable loss in '06 as we stopped production in May of last year and established accounting reserves related to the uncertainty of tax credit phaseout.

On Slide 17 is an update on our operating earnings guidance for 2007. As Dave mentioned in his opening remarks, our net income guidance of 450 to 485 excluding synfuel is continuing with that guidance. Actually, this guidance is consistent with the update that we provided in our Power and Industrial monetization call back on July 2.

We have narrowed the range of our synfuel earnings guidance, as we believe 100% phaseout of tax credits has a very low probability given the year-to-date oil prices. The earning range is now reflect at 25 to 75% expected phaseout in 2007.

With that, I'd like to turn the discussion over to Nick Khouri.

Thanks, Peter.

Improved cash flow and balance sheet strength remains a key priority for management and the Board of Directors. The combination of improved underlying cash flow and sale proceeds from the Antrim gas properties led to a favorable net cash position of over $1.6 billion for the first six months of this year.

Page 19 compares 2007 net cash year-to-date with the same period in 2006. DTE's adjusted cash from operations, including synfuel payments, totaled $1.2 billion in the first six months of 2007, up 12% from 2006. The year-over-year increase in underlying cash flow was driven by lower working capital requirements at Detroit Edison, and as Peter mentioned, higher synfuel production this year.

Of course, the big cash news was a $1.2 billion of pretax asset sales in June, received for the sale of DTE's Antrim oil and gas properties. Year-to-date capital spending is down from the prior year, which we will detail on a later page.

In total, net cash after dividends and capital was over $1.6 billion for the first six months. And as mentioned, this cash has been used to buy back stock and retire parent company debt.

Page 20 details year-to-date capital expenditures. Detroit Edison capital is down so far this year, driven mainly by intrayear timing of outages for our generation fleet.

MichCon capital is up from last year, with expansions to the system accounting for over half of the utility's Cap Ex. In total, capital spending was $630 million for the first half of 2007 compared with $754 million in 2006.

Page 21 shows revised 2007 guidance for cash flow post monetization. Adjusted cash from operations will actually be reported as down from the original estimate, but this is due entirely to the increased tax payments from the monetization program. The offset, of course, is in the $2 billion to 2.1 of pretax monetization proceeds.

In sum, the net cash of $1.5 to $1.6 billion in 2007 is more than sufficient to support the debt repayment and the share repurchase program while also improving DTE's balance sheet metrics.

Finally, Page 22 details full-year 2007 capital spending. Utility capital is expected to total $1 billion to $1.1 billion this year, which is about 30% above historical levels, and as shown on Page 22, significantly above depreciation.

Non-utility spending, forecasted at roughly last year's level, will of course depend on finding projects to meet our strict, risk-adjusted return requirements. In total, capital spending is expected this year to reach 1.4 to $1.6 billion, in line with actual spending in 2006.

Now, let me turn it back over to Dave to wrap up.

Thanks, Nick.

I will wrap up on Slide 24. We're very excited about where we are at this point in the year. The restructuring process is almost done and the businesses are all performing well, as Nick and Peter laid out. Given this context, we are well positioned to create value going forward.

As we've laid out, we are executing on the utility growth plan with a real focus on customer satisfaction. We will also continue to make investments in our Coal and Gas Midstream, Unconventional Gas, and Power and Industrial businesses. As Nick laid out, we've earmarked 300 to $400 million this year for these groups in incremental investments.

Also as Nick indicated, the balance sheet is stable and we have the capacity to execute our plan. Our dividend is attractive and when combined with our utility growth of 5 to 6% and another percent growth from our non-utility businesses, DTE Energy provides an attractive total shareholder return.

On the next slide we indicate the sum of our upcoming IR events. The next event for us will be September 4 at the Lehman conference and then as always as the EEI fall conference in Orlando this year.

And with that we'd be happy to answer any of your questions. So Leanna, if we could open it up for questions?

Certainly. (OPERATOR INSTRUCTIONS) Our first question comes from Paul Ridzon with KeyBanc.

Good morning. How are you?

Good morning, Paul.

Just little maybe thinking on how you arrived at the decision to retain the western relative to the other pieces and then what kind of time line we could expect to see driving your decision on whether to possibly monetize the core and southern regions?

I'll get started. I have Paul Teske on line with us. Paul is our new President of that business and he's running the Fort Worth Barnett operations.

If you recall, we showed this chart in the Antrim call that talked about the value curve and when we see properties that are mature and transparent and we don't see a lot of upside, they would be candidates for monetization. On the flip side are things that are less mature and we see a lot of upside in terms of development.

I think the characteristics of the western properties are such that we see significant upside from the investments that we can make there and the southern acreage would be characterized as slightly different in terms of time frame. While there might be significant upside there, it's going to take longer for that to play out.

We were just talking earlier that one of the pure plays in that area describes the Barnett basin in total as kind of in the third inning of a nine-inning game and they characterize the southern properties as in the first inning of a nine-inning game. So we see the southern properties having value, but there's a time horizon that is much different than the western properties.

But, Paul, if you want to comment on the western properties?

Yes. I think from our -- as Dave outlined, the western area is more of an expansion portion of the play and from our perspective, we see a lot of opportunities there to not only bring up the curve what we currently own through the development, but also expand our position there. So we see a lot of ability to improve total value creation in the west.

Then the second part of your question was timing on the potential sale and I would say that could play out anytime, but in this current environment, certainly by year-end, we would make a decision. You know, one variable is always the market and if the market softened for any reason, including gas prices, we're more than willing to sit back a little bit and hold this property until the market's right.

Just a follow-up on your previous announcements. What sales have not yet closed and what impact have you seen the credit markets -- what concern do you have with the credit markets having deteriorated that the deal could not close?

The Antrim sale, as we indicated, did close at the end of June. The other large transaction is the Power and Industrial transaction that we indicated that we would expect to close in the September time frame. Given the chopiness in the credit markets, we see a slight delay in the timing of that.

We believe that we've got a very solid transaction with a very good set of assets and customer relationships that are locked in through contracts. So we think as the markets settle down, this would be the type of transaction that would be easier to finance than others, but there's going to be a slight delay in the closing of that transaction.

And then just over to the merger premium, what do you see as a time line there? I guess you're going to wrap it in your rate case, but has there been any language out of the commission about the receptivity of that?

I know the previous staff commission basically wanted to hang the premium on the balance sheet as a reg asset and it would essentially earn a return. Is that how you plan to present it to the commission, something consistent with what staff recommended last time?

I have Don Stanczak with us. He's our Director in the Regulatory Affairs Group and is on point on this.

But the answer to the first question is that this is just going to go through the regulatory process with this rate case so it's, you know, think of it as an amendment to the rate case. So as we supplement that rate case this fall, it'll play out between now and a year from now when that rate proceeding plays out and I think your first indication on where they stand will be staff testimony which will be filed early next year.

But Don, do you want to add any other commentary?

Well, just a couple of things, Dave. One, there's a potential appeal to that appeals court ruling to our Supreme Court in Michigan and ironically, the due date for that appeal is today. So we may find out if some of the parties seek to appeal that ruling to the Supreme Court.

In addition, like Dave said, we will -- we're planning to supplement the current rate case and ask for a recovery of the merger premium going forward. But we're at the, relatively, at the beginning of the process and it's kind of premature to know what the final outcome's going to be.

If you were to get a decent commission ruling on that, would that be an asset that could be securitizable?

It's hard to say at this point. Without having an order that approves recovery of anything yet, it's really premature.

And then just last question. On the SAP costs that hit the quarter, should that continue to flow into the year or is that pretty much behind us?

I would offer just a little bit of background. This is a pretty complicated project that we've been working on for multiple years, as you know now, replacing many legacy systems and finance, HR, procurement and all of our work management systems. There's more likely going to be additional cost in the third quarter as we work our way through that.

Actually, these types of projects can be disruptive and then on the back end they provide very significant benefits. So it's very likely you'll see a little bit more of that push through in the third quarter, but we're still committed to our guidance, which includes the 11% target. So to the extent we see some additional costs, we're just going to have to work hard to offset it.

Thank you very much.

Okay.

We'll move on to Dan Eggers with Credit Suisse.

Good morning.

On the SAP comment, how much in total do you expect that overall cost to be in '07? Numbers if you could help quantify that. And, I guess, from a benefit perspective, as you look at '08, how much net uptake or net cost benefit would we look for '08 versus '07?

I'm going to ask Peter Oleksiak to help us.

If you remember, though, the original investment that we're making was around $380 million. This is -- what you're seeing come through on the income statement now is described by some that do these types of projects as productivity dips. It's really the overtime and incremental expenses that get incurred as you're actually going through your cutover to the new systems.

But, Peter, do you want to comment on any additional costs and then the benefit?

Yes, Dan, when we, as you go on benchmark, we were told even before go, as we go live, as we call it here, to expect about a six-month stabilization period. If you look at the Edison results and pretax, it's roughly over $30 million we've had around these stabilization costs.

With the six-month time horizon, we'll expect some of the third quarter as well. I'm hoping it's [controller], that it's probably be maybe be half that if not less than half.

In terms of the benefit realization, actually, we have been talking around this PEP program. This is going to be an enabler, especially for the support groups having common systems, common ERP across the Company realize those PEP savings. We're expecting, basically, those savings to start flowing through in 2008 and beyond.

So we would look for the reversal of the $30 million in '08 versus '07 and then productivity on top of that?

Definitely as a one-time type of start-up costs, this new system.

Okay.

On the Barnett project, you, obviously, negative free cash flow operations. Do you see a point where that business becomes a free cash flow neutral or positive business, or is this just going to be a truly spend the money, develop it, and then flip out of it.

My sense is the latter. That this is going to be one where we take these less mature properties and we make significant investments to prove up the properties and then monetize them. And in the process, also hit our objectives in terms of returns, which are targeted returns are 15 to 20% on this business.

And then on the AMI program you guys are looking at, any thoughts on the level of technology you're looking at? Is it going to be the two-way communication that the California utilities are favoring right now and does this implement a, kind of a conservation and time of use rate design? Is this where this is ultimately going?

We're going through the evaluation of that right now and we're actually going to select a vendor by year-end. I would offer that it does threaten to some of the Michigan 21st Century Energy Plan, where we look at not only the new capacity additions that are needed in Michigan, but also when you think about energy efficiency and energy conservation, obviously this could be an enabler for that.

Behind all of the 21st Century Energy Plan is still the need for legislation that we are hopeful still that legislation will be introduced later this summer or early fall, but we do need this hybrid structure in Michigan addressed that would allow us not only to aggressively pursue energy efficiency and conservation, but other things including renewables and new generation.

Would that, on the AMI side, would that be just a normal rate case event for recovery, or would it be possible with some legislation that this would have a separate adder that would make it more efficient as you spend capital you get a return?

I think right now our base thinking is this is just like other capital expenditures that would be recovered through rate proceedings, but what you're suggesting would have to play out in the legislation process, which the legislation hasn't been introduced yet, but it's possible, but I think the more likely outcome is that this is just viewed as regular capital that's recovered through rate proceedings.

On that legislation (inaudible) what has been the Company's involvement so far and are there any big things that you guys are looking to try to get changed in this process?

The Company has been active, as has the other major utility in Michigan, speaking out regarding the hybrid environment in the state and that's the major issue that has to be addressed here is the issue that has allowed customer choice to exist. Our concerns around making significant new investments, especially in generation which is going to be needed in Michigan without that hybrid structure being addressed.

We have been pretty forthright about the fact that we need the structure to be changed and we are looking for that to be changed through legislation, which would address the customer choice exposure that we have today. It's very small today given market prices, but that exposure is still there and we are taking a position that we're not going to add new generation to the utility and take on that risk without the structure being changed.

That's really the primary thing that needs to be addressed that will allow us to make new investments, not only in generation, but like a new nuclear plant, but also renewable energy.

Okay. Thank you, guys.

We'll now hear from Scott Thomas with Lehman Brothers.

Just had a quick question about sort of zooming in on the settlement proposed for the sale of the gas, the base gas at MichCon. Can you walk us through how that works exactly, and when you might expect to sort that out in terms of milestones and completion of the deal?

Sure. I'm going to ask from help from Don Stanczak on this but this is a tentative settlement, still has to be approved by the MPSC. All parties have signed on this and there's an upcoming meeting later in August that hopefully this will get addressed by the MPSC, but I'll have Don take you through the pieces of this.

What we've done is we've expanded the capabilities of some of our storage fields, so we've drilled some new wells, changed some piping, that type of thing so we can cycle the storage field deeper.

What that's allowed us to do is get access to gas that was in the field when it was first discovered. These are old production fields that were turned into storage fields. And what the deal is that this gas that was -- this base gas, we get to sell it, has a very low book value, we get to sell it, half of it goes to our customers, but the other half we get to keep the proceeds.

And again, the market value of the gas is significantly higher than the book value of the gas. When that will occur, physically, it will happen around the end of the withdrawal season in '08 and '09. So April of '08 and '09 is when we expect it to happen when the gas and storage is at its lowest.

And it's your option about when to sell that in terms of timing and that kind of thing?

Yes. It will physically have to happen in '08 and '09 because that's consistent with the new capabilities of the field.

So a way to think about this is that we have non-utility storage is a utility storage within MichCon. The propose is we could basically harvest some of this base gas, share in the proceeds, and what that allows us to do is to postpone a MichCon rate case.

If you recall when asked previously about our intentions there, we were going file a rate case this year and it allows us to postpone the need to do that. It allows the customers not to have a rate increase, and it provides regulatory certainty for this business.

Do you have any sense about what the timing for the MPSC to approve this is, if it gets sort of a near-term event?

We have a signed settlement by all the parties that were in the case. So we're optimistic that the commission in the near future will approve it.

Like Dave said, the next commission meeting is the 21st so we're optimistic they're going to approve it, because all the parties signed off.

Great. Thanks a lot, guys.

Okay.

[OPERATOR INSTRUCTIONS] We'll move on to Yiktak Fung with Zimmer Lucas Partners.

Good morning.

Good morning.

I just want to drill down further on the MichCon settlement with regards to the gas storage. What are you currently earning in MichCon or what's expected for 2007?

Our expectation is to earn the authorize, which is 11%. So all indications for the first six months is that we're going to be achieving that.

If you go back to the guidance page, we've provided the guidance for this business at the 11% level. So MichCon is expected to earn 80 to $85 million.

Is your internal expectation as to how much excess gas you'll gain in '09 that will be available for sale?

I think at this time we're in a tentative settlement process that we have parties that signed. When the MPSC approves this, obviously, there'll be much more details that'll be available and I would just rather wait and also my other caution, even though this is really exciting, this is not an upside to the business. This is an enabler for this business to earn its authorized return this year, next year, and in 2009.

When we eventually give you guidance for those years, that's what you're going to see out of this utility. It provides a lot more stability and removes the risk of needing to go in for a rate case during that period.

I guess final question with regards to the advanced metering infrastructure project, have those investments been, I guess, preapproved by the MPSC?

No. No, this is a -- even though a lot of things that we do, there's obviously conversations, this should just be considered like any other capital expenditure, so I would contrast that to other states where there have been preapprovals on programs like this.

We don't see the need to necessarily ask for that and we will treat this just like other Cap Ex for Detroit Edison and MichCon.

So basically it'll just be recovered in a rate case rather than any sort of a rider or anything like that?

Yes.

Okay. Thank you very much.

We'll move on to Andrew Levy with [Frencord] Advisors.

Hi, guys. I just want to apologize up-front. I missed the part that you talked about something was going to take a little bit longer to close because of the credit markets. What was that?

It's the Power and Industrial sale, was the second large transaction we did where we sold 50% equity in a portion of that business and then recapitalized the balance sheet. It's really the debt portion of that transaction. Just given the chopiness of the markets, we think we're going to have a slight delay in the closing on that transaction.

Okay. Thank you for that.

And then just real quick, are you guys seeing any evidence of a weakening economy, beyond, obviously, Detroit's had its problems to begin with, but just over the last month, kind of with all the things in the news, the credit issues, have there been any difference that you've seen in your demand or in your economy or anything like that?

No. We've been in an unfortunate prolonged recession as Detroit and the autos are going through a restructuring and that started a couple years ago. What we saw was flat to slightly negative load and that's not changed.

So the one area where we have seen improvement is in our bad debt expense, and that's something that we'll have to, like many others, will have to continue to monitor. We do have in MichCon, we have a bad debt tracker where we have an amount in rate and then any expense over that, we actually recover 90% on the dollar, but even in MichCon, we've seen the bad debt expense come down significantly year-over-year.

Thank you very much.

Okay.

We'll move on to Patrick Thornton with Tejas Securities.

Good morning and thanks for taking my question.

With respect to your advanced metering project, it sounds like you're close to naming a vendor. What is the rough schedule for deployment and what does the ramp-up look like?

Actually, we're not that close to naming a vendor. I think we're going to go through a process this fall and we have not laid out a detailed plan on this, so it's something that we just wanted to indicate that in addition to the capital that we have laid out for Detroit Edison in the past, there's another $330 million expenditure that is basically an upside to that business.

What I would imagine is when we come to the fall EEI conference, there's a handful of things that we're going to have to provide more detail and more insights on and that would be an example of one of those. For right now, we just wanted to indicate there's capital expenditure opportunity beyond anything that we've laid out, which is predominantly environmental, and we'll give more details this fall.

Okay. And then I just want to make sure I understand this correctly. You're not waiting for regulatory approval to move forward with that project?

No.

Thank you.

We have no further questions at this time. Mr. Meador, I'd like to turn the call back over to you for any additional or closing remarks.

Thank you, Leanna, and thank you, everybody, for joining us this morning. We look forward to seeing you at our next event at the Lehman investor conference on September 4. Thanks again.

That does conclude today's conference. We thank you for your participation and have a great day.