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Original Source: FD (FAIR DISCLOSURE) WIRE
. Laura Mountcastle, CMS Energy Corp., VP, Treasurer . Dave Joos, CMS Energy Corp., President, CEO . Tom Webb, CMS Energy Corp., CFO
. John Kiani, Deutsche Bank, Analyst . Paul Ridzon, KeyBanc, Analyst
. Ashar Khan, SAC Capital, Analyst . Reza Hatefi, Polygon Investment Partners, Analyst . Brian Russo, Ladenburg Thalmann, Analyst . Andrew Levy, Brencourt, Analyst . Clark Orsky, KDP Investment Advisors, Analyst . David Grumhaus, Copia Capital, Analyst . Ted Heyn, Citigroup, Analyst . Steven Huang, Citadel, Analyst . Sam Brothwell, Wachovia Securities, Analyst
Management discussed 4Q06 & 2006 results, reporting a net loss of $0.41 per share and adjusted EPS of $1.08. Guidance was for 2007 and 2008 adjusted net income per share of $0.80 and $1.20 respectively.
A. Key Data From Call 1. 4Q06 loss = $0.41. 2. 4Q06 adjusted EPS = $1.08. 3. 2006 cash = $188m at year-end. 4. 2008 adjusted net income guidance = $1.20. 5. 2007 adjusted net income guidance = $0.80.
S1. 2007 & 2008 Earnings (L.M.) 1. Guidance: 1. CMS Energy anticipates 2007 and possibly 2008 reported earnings will be substantially lower than adjusted earnings due to expected effect of asset sales. 2. Co. is not providing reported earnings guidance reconciliation
because of uncertainties associated with those factors.
S2. 4Q06 & 2006 Performance, Updates (D.J.) 1. Overview: 1. 2006 a good year, with strong operating performance. 2. Exceeded goals for adjusted earnings and cash flow and put some important uncertainties behind. 3. Recently announced asset sales will transform co.,
accelerating financial improvement plan and increasing focus
on investment in consumers' energy in Michigan utility. 4. 2007 will be a transition year. 1. Will lose earnings from asset sales and not replace them until incremental equity investment in consumers is reflected in rates. 5. Expects 2007 adjusted net income of approx. $0.80 a share. 6. Expects to be back on track in 2008, forecasting adjusted net income of about $1.20 a share next year. 7. Cash flow in 2007 should be very good. 1. Asset sales. 2. Operating cash flow. 8. Still some uncertainty about potential major investment in a new generating plant, but Michigan's recently issued 21st Century energy plan a major step in right direction. 2. Highlights: 1. 2006, received several constructive regulatory orders from MPSC that will provide significant cash flow and earnings in 2007 and beyond. 2. Received high rankings from gas and electric residential customers in recent J.D. Power and other customer satisfaction surveys. 3. Settled ERISA and securities class auction lawsuits in 2006. 1. Awaiting court approval on those. 4. Settled dispute with construction contractor for Dearborn industrial generating facility. 5. Significant progress on business plan, selling interests in MCV and investing $200m in utility. 6. Signed an agreement to sell Palisades nuclear plant. 1. Hopes to close by May 1. 7. Proceeds from recently announced sale of enterprises businesses totaling $1.2b will be used to invest in utility and reduce parent co. debt, further improving outlook. 8. After sales completed, CMS will have essentially exited international marketplace. 3. Dividend Reinstatement:
1. Reinstatement of common stock dividend announced last month.
2. Board and senior management confident in business plan. 3. Expects to move dividend yield closer to sector average over
time. 4. Financial Highlights: 1. Adjusted EPS, excluding mark-to-market, was $1.08, exceeding target of $1. 2. Actual cash flow before capex was $763m, $323m better than targeted.
1. Lower natural gas prices and sale of MCV interest. 2. Offset somewhat by delay of planned enterprises asset sales into 2007. 3. Debt to capital ratio of 72% was 1 point higher than target.
1. Shareholder litigation settlement and gas Atacama impairment.
4. Consolidated debt was $900m better than target. 1. Elimination of MCV debt. 2. Improved free cash flow. 5. Regulatory Front:
1. 2006 was another busy year on regulatory front. 2. Commission's orders were generally favorable. 1. Pleased with commission's December 21 order, setting a temporary factor for 2007 power supply cost recovery plan case. 2. Order allows co. to roll $155m of prior-year under-recoveries into 2007 rates vs. waiting for later
reconciliation case. 1. Will contribute to expected strong cash flow this year. 3. Commission expeditiously approved MCV sale only four months after filing. 4. Late November, commission issued final order in gas rate case, largely adopting administrative law judge's recommendations and increasing rates by $81m.
1. Commission deviated from judge in setting rates based on a lower sales forecast. 5. Filed a new $88m gas rate case on February 9. 1. Growing rate base. 2. Higher level of equity. 6. Plans to file an electric rate case in 1Q. 7. In response to 21st Century energy plan, consumers plans to file in 2Q a resource plan that will address measures to meet forecasted demand over next 20 years. 6. February 9 Gas Rate Case Filing: 1. Case is based on a 2008 test year and reflects the $400m of equity that parent plans to infuse this year, bringing financial equity level to roughly 50%. 2. Commission has encouraged co. to strengthen utility's balance sheet. 1. Co. anticipates favorable reception. 3. Filing includes a revenue decoupling mechanism for recovery of fixed costs that did not vary with deliveries and proposes a residential energy efficiency and conservation program.
4. No schedule for case yet. 1. Will be set at March 21 pre-hearing conference. 5. Staff has already begun reviewing filing. 1. Simplicity of case will support an order in 4Q. 7. 21st Century Plan: 1. Late January, Public Service Commission chairman submitted
state's 21st Century energy plan to governor in response to
her request of last April. 2. Plan forecasts 1.2% load growth.
1. Down substantially from earlier capacity need forum report.
3. Proposes aggressive energy efficiency program, funded by a
wires charge on all customers to shrink load even further.
4. Proposes a 10% RPS standard, requiring that all load-serving
entities obtain at least 10% of their energy supplies from
renewable resources by 2015. 5. Despite aggressive goals, plan recognizes need for a new base load coal plant by 2015 and several other base load units shortly thereafter. 1. Last base load plant constructed in Michigan was almost 20 years ago. 6. Implementation of plan will require legislation. 1. Repeal or significant reform of Michigan's electric choice law.
7. Plan supports pre-approval of new plants through a certificate
of need process. 1. Also supports recovery of financing costs during plant construction. 8. Co. expects to file its resource plan in 2Q. 1. Has not yet settled on a specific generating technology or site. 1. Expects to propose construction of new base load plant.
8. 2007 Priorities: 1. Needs to close sale of Palisades and $1.2b of enterprises sales announced over past several weeks. 2. Needs to complete auction of CPEE Jamaica and Atacama assets
as announced. 3. Those steps will allow for pay-down of parent co. debt in advance of earlier plans and improve business position.
1. Also allows co. to reduce overhead costs substantially, supporting higher earnings in 2008 and beyond. 4. Plans to invest $400m of proceeds in utility. 1. Already filed gas rate case and will soon file an electric rate case, both reflecting higher investment. 2. Will work to expedite both proceedings and anticipates
orders in 4Q. 5. Future will be even more focused on utility investment including potential for investment in new base load
generation. 1. Will seek approval for that in conjunction with …