CMS Energy Corporation (CMS)

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CMS Energy Corporation (CMS)

Q1 2011 Earnings Call

April 28, 2011 9:00 am ET

Executives

Laura Mountcastle - Vice President and Treasurer

John Russell - President and CEO

Tom Webb - EVP and CFO

Analysts

Mark Segal - Canaccord Genuity

Andy Levi - Caris & Company

Brian Russo - Ladenburg Thalmann

Lauren Duke - Deutsche Bank

Leslie Rich - JPMorgan

Edward Hyne - Catapult Capital Management

Kevin Cole - Credit Suisse

Ali Agha - SunTrust

Presentation

Operator

Good morning, everyone, and welcome to the CMS Energy 2011 First Quarter Results and Outlook Call. This call is being recorded. Just a reminder, there will be a rebroadcast of this conference call today beginning at noon Eastern Time, running through May 5th. This presentation is also being webcast and is available on CMS Energy’s website in the Investor Relations section. At this time, I would now like to turn the call over to Ms. Laura Mountcastle, Vice President and Treasurer. Please go ahead, ma’am.

Laura Mountcastle

Thank you. Good morning and thank you for joining us today. With me are John Russell, President and CEO; and Tom Webb, Executive Vice President and CFO. Our earnings press release issued earlier today and the presentation used in this webcast are available on our website.

This presentation contains forward-looking statements. These statements are subject to risks and uncertainties and should be read in conjunction with our Form 10-Ks and 10-Qs. The forward-looking statements and information and risk factors section discuss important factors that could cause results to differ materially from those anticipated in such statements.

This presentation also includes non-GAAP measures. A reconciliation of each of these measures to the most directly comparable GAAP measure is included in the appendix and posted in the Investor section of our website. We expect 2011 reported earnings to be about the same as adjusted earnings. Reported earnings could vary because of several factors. We are not providing reported earnings guidance reconciliation because of the uncertainties associated with those factors.

Now I’ll turn the call over to John.

John Russell

Thanks, Laura. Good morning everyone. Thanks for joining us on our first quarter earnings call. I will begin the presentation with a few brief comments about the quarter before I turn the call over to Tom for a more detailed discussion and the financial results and outlook for the remainder of the year. And then as usual we will close out with Q&A.

We started the year with a good first quarter reporting adjusted earnings of $0.51 a share up $0.13 or 34% from 2010. The increase was due primarily to colder weather this year compared to 2010 and the benefit from an electric rate order received last November.

The business model we developed several years ago is working. And working well and continues to deliver consistent results. Our plan to invest over $6 billion in the utility over the next five years creates rate base and earnings per share growth of 5 to 7% and by using our NOLs we avoid the need for any new block equity during this period.

The good news for our customers is that we can grow rate base and earnings while minimizing base rate increases to levels at or below the rate of inflation and I will discuss this in more detail in a minute. I am also pleased to affirm our guidance at $1.44 a share. A good first quarter provides more flexibility to reinvest in customer reliability.

During the February call, I made reference to our plans to upgrade the Ludington pumped storage plant, to improve its efficiency and increase its role to support green energy sources in Michigan. This slide illustrates several of the operational benefits associated with the upgrade.

Due to its proximity to several proposed wind power developments including our Lake Winds Energy Park, the plant will act as a giant battery to store renewable energy produced during off-peak periods making renewable energy more affordable and reliable.

This project will increase the generating capacity of the plant by 15% to about 2,200 megawatts, plus the increased pumping efficiency will further decrease the plants operating cost resulting in reliable, low cost power for our customers.

As a reminder, Consumers Energy operates the plant and owns 51% of the facility. DTE owns the other 49%. Consumers Energy will spend approximately $400 million over the next 10 years to complete the upgrade.

About 25% of our $6 billion capital investment plan over the next five years will be spent to meet State and Federal environmental laws and regulations. The most recently proposed EPA rules on hazardous air pollutants and maximum available control technology are inline with our expectations and our plan. We will continue to closely monitor the development of these regulations to determine the potential effect on our operations.

By switching to low-sulfur coal and making significant investments in control technology, we reduced emissions at our coal-fired generating plants resulting in significant improvements in Michigan's air quality.

Since 1990, these investments have reduced sulfur dioxide and nitrogen oxides emission by approximately 70%.

Till 2015, we plan to spend another $1.5 billion on our five largest coal-fired plants to further reduce emissions, keeping Michigan's air the cleanest it's been in decades.

We expect to fully recover the cost of complying with environmental laws and regulations from our customers in our rates. The decision to upgrade our seven smaller coal-fired plants will be made after EPA regulations are final and we've had a chance to evaluate all of the economic factors. These units have a high utilization rate and generate power at a competitive price in today's market.

Read the rest of this transcript for free on seekingalpha.com