CMS Energy's CEO Discusses Q2 2012 Results - Earnings Call Transcript

CMS Energy Corp. (CMS)

Q2 2012 Earnings Call

July 26, 2012 09:00 am ET


Glenn Barba - VP, Controller & CAO

John Russell - President & CEO

Tom Webb - EVP & CFO


Kevin Cole - Credit Suisse

Naaz Khumawala - Bank of America Merrill Lynch

Paul Ridzon - KeyBanc

Ali Agha - SunTrust

Brian Russo - Ladenburg Thalmann

Mark Barnett - Morningstar

Andrew Weisel - Macquarie Capital



Good morning everyone, and welcome to the CMS Energy 2012 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 3. 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 Mr. Glenn Barba, Vice President, Controller and Chief Accounting Officer. Please go ahead, sir.

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 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 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 measures is included in the appendix and posted in the Investor section of our website.

CMS Energy provides financial results, both on 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 in 2012.

The company is not able to estimate the impact of these matters and is not providing reported earnings guidance.

Now, I’ll turn the call over to John.

John Russell

Thanks, Glenn. And good morning, everyone. Thank you for joining us today on our second quarter earnings call. I’ll 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. Then as usual, we’ll close with Q&A.

Second quarter adjusted EPS was $0.40 per share, up $0.14 from last year. Strong second quarter results give us the opportunity to reinvest back into the system to further improve reliability and customer service. Year-to-date results of $0.77 a share keeps us firmly on track to achieve our full-year adjusted EPS guidance of $1.52 to $1.55 a share.

In June, the Michigan Public Service Commission authorized us to increase our electric rates by $118 million and our gas rates by $16 million. A significant portion of the amount authorized reflects our investment in distribution and generation reliability, environmental compliance and technology.

We’ve experienced extremely hot weather in Michigan during the past two months. We set a record peak load for June and broke the all-time record on July 17, beating the previous mark by 2% set in July of 2011.

During this heat wave, our system performed very well and I’ll give you more details of that in a minute and later Tom will discuss the financial impacts from the weather and the recovery of the Michigan economy.

As you know, we settled the gas rate case for the second consecutive time. In part due to the relatively small size of the request. The larger electric rate case was approved at $118 million in line with the amount we self implemented. This case was primarily a recovery of investment costs representing 111% of the final order and lower operating cost, down $38 million from the prior order.

The Commission also adopted our sales forecast to reflect the 10% level of retail open access sales, up from 4% in prior rates. This adjustment increased our gross margin by $48 million. The commission approved a 10.3% ROE for both gas and electric.

Over the past few months, our system has been tested by the hot weather and it performed very well given the extreme conditions. On average, we have 10 days a year with temperatures of 90 degrees or warmer. So far this year, we’ve had 26 days with temperatures over 90 degrees and two days over 100 degrees. 10 of these days were in the second quarter, contributing $0.03 of earnings to the electric business.

For the second consecutive year, we set a new peak load record. This year’s peak load was over 9000 megawatts surpassing the previous mark set last year in July by 2%. The trend line shows that peak demand has grown by 200 megawatts since 2006.

Weather was a key factor as it was last year, but a growing economy also contributed. Weather adjusted sales are up 5% over the past three years led by industrial sales and are expected to grow about 1% annually over the next five years.

To meet the growing demand, we have invested over $640 million to increase capacity and improve reliability over the past five years and we plan to invest another 155 million this year. Continued investments are necessary to meet the future peak loads, I also anticipate the need for additional generation capacity in a few years from now due to the load growth and the environmental rules affecting our coal fleet.

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