CMS Energy Corporation (CMS)

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CMS Energy Corporation (CMS)

Bank of America Power and Gas Leaders Conference Call

September 19, 2012 3:00 pm ET


Jimmy Addison – Chief Financial Officer, SCANA Corp.

Thomas J. Webb – Executive Vice President and Chief Financial Officer

Phillip McAndrews – Director-Investor Relations


Steven Fleishman – Bank of America/Merrill Lynch


Steven Fleishman – Bank of America/Merrill Lynch

For next panel, we’ve got rate base growth story and both these companies have very substantial investment plan that we’ll hear more about today. First of all, we have Tom Webb, Tom is the Chief Financial Officer of CMS Energy, and he want me to say, he has been the CEO for the last 30 years. And then we’ll have Jimmy Addison, Jimmy is the Chief Financial Officer of SCANA Corp. So let me turn it over to Tom to kick it off. Thank you.

Thomas J. Webb

Thank you for that CEO thing, in fact you’re going to do it seriously now. I was going to tell him, I want to getting the full attention I would do. Steve, thank you for having us. This is one of the greatest conferences that you’re having, so it’s a privilege to be here in front of you, next to Jimmy and be invited, Steve to be the part of where we are now.

What I got to do first here is, as you start reading now with care because I’m not forwarding until you’re done. So put your hands up when you’re finished reading through this and while you are taking a look at it, I do have Phil McAndrews with me here somewhere off there in the back, with investor relations. He is a real pro, and most of you know him and for all the questions you asked later on, that I don’t have answers too, he does.

And on this slide be careful on our forward-looking statements and make sure you look at the GAAP reconciliation that we have provided on our website and the risk factors that we have and we hope we are in pretty good shape.

Okay today, I’m going to do some material in a very brief period of time that should look familiar to you, but when we’re talking about the theme at least for this particular section about where we’re doing in rate making, and what’s unique, I’m going to talk a little bit about an interesting self-limitation that we have told many of you about that have seen this before, that we put upon ourselves that causes us to grow a little bit slower. And you could say why? But I believe almost every utility does this in some fashion or not, but some may be with more passion than others and more needs than others whatever it may be.

So this is the model that we’ve been using for nearly 10 years now, very simple. We’re investment driven that’s not too unique for most utilities. We have a bunch of enablers, and I’m going to right through them and show them to you now, which includes things like the Energy Law that was the comprehensive law in the State of Michigan gives us forward test year, gives us all kinds of features to make the regulatory process smoother so we’re fortunate to have that.

We have good constructive regulation; I will show you a little bit about that. A lean O&M, I know every CFO is going to get up and tell you here that we’re really lean, but we could be leaner. So and it’s never meant as a personal comment, because and I’ll get all my button around it, so it’s not that kind of lean, but we’re proud of where we are and I think we have more than we can do in taking costs out of the company big enabler. And to the extent, that you have a good sales recovery that for us, isn’t a profit making or a cash flow making thing, but it provides a more headroom in our service territory where there is more opportunity to split our costs over greater base. And then the NOL and who is not familiar with our piece of the NOL story, allows us to avoid having the issue in a big box of equity for a long time.

Now the unique part I’m going to come to is the self-limitation. Why would anybody limit themselves on their ability to grow, and ours is on rate. It’s very simple and I’ll show you a slide on it, but I’ll tell you right upfront. I think it’s the key message for us. If we can keep our base rate growth below the level of inflation and it’s different for you and it’s different for you. But we’ve got to look at some averages to figure out how to do this; then we have a chance to have a long-term sustainable growth plan. If we come in spurts, then there is a chance that there will be more resistance and it will be more difficult to execute your plan. So that is the thing that I think is a little bit different for some companies and certainly for us.

Here is an example on how this works. So our next five years, we’re planning to invest capital to the tune of about $6.6 billion over a five year period. We could easily be investing $10 billion, so why not? And it’s a great opportunity to increase your earnings growth and generating more revenue and cash flow, but the reason is that sustainability. If you look at the bottom of this slide, you’ll see right there that, as long as we stay in that $6 billion, $7 billion zone in general, then our customer base rates will go up a little less than 2%. But if we were to go over to the $10 billion side, even if there was practical, possible and we that we can do it. Then we be closer to 4% and that’s probably just too much in this inflation environment to ask your customers.

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