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CMS Energy Corporation (CLD)

Q32012 Earnings Call

October 25, 2012 9:00 am ET


Glenn Barba - Vice President, Controller and Chief Accounting Officer

John Russell - President and Chief Executive Officer

Tom Webb - Executive Vice President and Chief Financial Officer


Mark Barnett - Morningstar

Paul Ridzon - KeyBanc Capital Markets

Ashar Khan - Visium Asset Management

Ali Agha - SunTrust Robinson Humphrey

Jonathan Arnold - Deutsche Bank

Leslie Rich - J.P. Morgan

Paul Patterson - Glenrock Associates



Good morning everyone and welcome to the CMS Energy 2012 third quarter results and outlook conference 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 November 1. 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 conference over to your host for today, Mr. Glenn Barba, Vice President, Controller and Chief Accounting Officer. Please go ahead.

Glenn Barba

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 news 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 Forms 10-K and 10-Q. 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 Investors' section of our website. CMS Energy provides financial results on both a reported Generally Accepted Accounting Principles and adjusted or non-GAAP basis.

Management views adjusted earnings as a key measure of the company's present operating financial performance, unaffected by discontinued operations, asset sales, impairments, regulatory items from prior years or other items. Certain of these items have the potential to impact favorably or unfavorably, the company's reported earnings for 2012. The company is not able to estimate the impact of these matters and is not providing reported earnings guidance.

Now I will turn the call over to John.

John Russell

Thanks, Glenn, and good morning, everyone. Thanks for joining us on our third quarter earnings call. I will begin the presentation with a few brief comments about the quarter before I turn the call over to Tom to discuss the financial results and the outlook for the remainder of the year and then, as usual, close with Q&A.

Third quarter adjusted EPS was $0.54 a share, up a penny from last year. Year-to-date results of $1.31 a share, keeps us on track to achieve our full-year adjusted EPS guidance of $1.52 to $1.55. By rightsizing the business over the past three years, we have positioned ourselves to take advantage of increased productivity and system efficiencies reducing the workforce by 7% in those years helps us keep our customer base rates at or below the rate of inflation for the next five years.

In September, we filed electric rate case seeking an increase of $148 million. Tom and I will detail some of the features of this case in a minute. Operationally, we remain on track to achieve our long-term capital investment plan. I will update you on a few of the major projects as well as our position on a ballot proposal that could result in significantly greater investments in renewable energy.

In just a few years, we see a capacity shortfall. In order to meet our peak load requirements, we will need to fill that shortfall. I will discuss a few of the options we are considering as well as the impact on our financial plan.

As mentioned, we filed a new electric rate case seeking $148 million in rate relief. 85% of the request is made up of capital investments. These investments enable us to deliver safe, reliable energy and keep our O&M cost down. As you can see on the right panel, we continue to bring capital driven cases to the commission. In the future we believe that annual rate cases may be avoided if there is an adjustment mechanism to recover projected investments.

We are also requesting a 10.5% return on equity, up from our current authorized level of 10.3%. Tom will discuss some of the specific mechanisms we have proposed to help streamline future rate cases.

Operationally, we continue to make good progress on our long-term capital investment plan. As you know, we have a disciplined plan which limits our investments to hold customer rates to an affordable price. The Ludington Pumped Storage Project is underway. All six units will be upgraded one at a time during an outage that starts in September and runs until May. The first urban upgrade will be completed in May 2014. When the last outage is completed in 2019, we will have increased the capacity by 300 megawatts and improved the operational efficiency and reliability.

At Lake Winds, we are on scheduled to begin commercial operation of this 101 megawatt wind park later this year, with all of the 56 turbines having been constructed and we are currently in the testing phase.

Our smart meter program is underway on the West side of the state. As we ramp up installations, we expect to have installed 250,000 meters by the end of next year.

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