CMS Energy Corporation (CMS)

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CMS Energy Corporation (CMS)

Q2 2011 Earnings Call

July 28, 2011 9:00 AM ET

Executives

Laura Mountcastle – VP and Treasurer

John Russell – President and CEO

Thomas Webb – EVP and CFO

Analysts

Daniel Eggers – Credit Suisse

Greg Gordon – ISI Group

Ali Agha – SunTrust

Mark Barnett – Morningstar

Paul Ridzon – KeyBanc

Brian Russo – Ladenburg

Mark Segal – Canaccord Genuity

Jonathan Arnold – Deutsche Bank

Presentation

Operator

Good morning, everyone and welcome to the CMS Energy 2011 Second 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 August 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 like to turn the call over to Ms. Laura Mountcastle, Vice President and Treasurer. Please go ahead.

Laura Mountcastle

Thank you. Good morning and thank you for joining us today. With me are John Russell, President and Chief Executive Officer; and Tom Webb, Executive Vice President and Chief Financial Officer.

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 sections 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. Reported earnings could vary because of several factors, such as legacy issues associated with prior asset sales. Because of those uncertainties, the company isn’t providing reported earnings guidance.

Now I’ll turn the call over to John.

John Russell

Thanks, Laura and good morning everyone. I appreciate you joining us today for our second quarter earnings call. I’ll begin the presentation with a few brief comments about the quarter before turning the call over to Tom for a more detailed discussion on the financial results and the outlook for the remainder of the year. Then we will close with Q&A.

Second quarter adjusted earnings per share was $0.26, the same as last year. The benefit from electric and gas rate relief was offset by higher rate base investment cost, storm restoration cost and accelerated investments in system reliability.

The first half adjusted earnings per share was $0.77, up $0.13 or 20% over last year, primarily reflecting a rate relief and favorable first quarter weather. Tom will review the details with you in a few minutes.

We remain on track to achieve our adjusted earnings per share guidance of a $1.44 a share. Let me give you an update on the Michigan Public Service Commission before I talk about our regulatory agenda.

Commissioner Monica Martinez’s term officially ended July 2. However, she has agreed to remain a Commissioner for a while. The governor has been interviewing several candidates, but I can’t comment on the timing of the appointment, it’s his decision.

Moving to the Regulatory Agenda. There are several important orders and filings during the second quarter. In June, we filed a new electric rate case requesting a $195 million increase based on a 10.7% return on equity. I’ll review the details of this filing on the next slide.

The Commission approved the reconciliation of our energy optimization plan cost for 2009 and approved a $6 million incentive for exceeding the plan targets. We also requested approval to collect an $8 million incentive for exceeding the 2010 targets.

More than 200,000 customers have participated in our energy efficiency programs. Also in June, the Commission approved our amended renewable energy plan authorizing us to reduce the surcharge by $54 million annually. This will provide headroom to minimize the customer rates going forward.

On the gas side of the business, the Commission approved a rate case settlement authorizing us to increase our natural gas rates by $31 million effective May 27th based on 10.5 return on equity.

We anticipate filing a new gas rate case in the third quarter of this year. In keeping with our plan, we filed a new electric rate case on June 10th. The request seeks to recover new investments in system reliability and environmental compliance.

We’ve lowered our O&M cost by $31 million to reflect employee benefit plan changes and increased productivity. This was partially offset by a proposed $13 million increase and forestry expense and a projected $14 million increase in uncollectable accounts due to the expected reduction in funding.

We also adjusted our sales forecast to reflect a higher level of sales to retail up and access customers. We plan to sales implement a rate increase in December with a final order in June of next year.

From our customer’s perspective, the renewable energy surcharge reduction and the DoEs settlement refund which Tom will discuss in a few minutes are expected to provide over $75 million to help offset the impact of this case.

Let me give you an update on some recent operational highlights. We received a favorable vote on our special land use permit for our first wind park, the 100 megawatt Lake Winds energy park.

Construction of this $232 million project is planned for the start – this plant is start to this fall. By the end of 2012 about 8% of our power will come from renewable energy resources developed in Michigan.

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