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Event Brief of Q1 2008 CMS Energy Corp. Earnings Conference Call - Final.

Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE

PARTICIPANTS

. Tom Webb, CMS Energy Corp., EVP and CFO . Dave Joos, CMS Energy Corp., CEO and COO . Paul Patterson, Glenrock Associates, Analyst

. John Kiani, Deutsche Bank Securities, Analyst . Brian Russo, Ladenburg Thalmann & Co, Analyst . Paul Ridzon, Keybanc Capital Mkts, Analyst . Ashar Khan, SAC Capital, Analyst

OVERVIEW

CMS reported 1Q08 non-GAAP adjusted EPS of $0.44 and reported GAAP EPS of $0.44. Expects full-year 2008 adjusted EPS of $1.20.

FINANCIAL DATA

A. Key Data From Call 1. 1Q08 reported GAAP EPS = $0.44. 2. 1Q08 non-GAAP adjusted EPS = $0.44. 3. Full-year 2008 adjusted EPS guidance = $1.20.

PRESENTATION SUMMARY

S1. 1Q08 Business Review (D.J.) 1. Highlights: 1. Operating results were right on plan. 2. Non-GAAP adjusted EPS was $0.44, up $0.02 from 1Q07. 3. GAAP EPS was $0.44. 4. Full-year adjusted EPS guidance remains unchanged from the target set over a year ago of $1.20. 2. Regulatory & Legislation Update: 1. Co. is in the final stages of electric rate case proceedings that began last year. 2. Administrative law judge has recommended $210m revenue

increase vs. request for $265m. 1. Primary differences are: 1. Lower recommended ROE. 2. Proposed disallowance of certain Palisades sale transaction cost. 2. Recommended 10.4% ROE vs. Co.'s request for 11.25%, represents a pretax difference of $27m.

3. Palisades transaction cost represents another $15m pretax.

3. Case is right for decision, which Co. anticipates before

mid-year. 4. MCV Regulatory: 1. Last Sept., exercised regulatory out provision of Midland Cogeneration Venture (MCV) power purchase agreement and reduced payments to MCV to amounts collected from customers. 1. This action eliminated losses associated with contract. 2. Because Co. exercises this right, MCV partnership has contractual right to terminate or reduce amount of capacity sold to CMS under the agreement. 2. Partnership has until mid-June to notify CMS if it intends to do this. 3. Filed at MPSE asking to increase cost recovery from customers. 5. Gas Rate Case: 1. In Feb., filed a new gas rate case requesting $91m increase, assumes: 1. 11% ROE. 2. 50% equity ratio on a financial basis or about 43% on a regulatory basis. 3. $2.6b avg. rate base for 2009 test year.

2. Majority of increase relates to improved capitalization and

higher rate base along with higher state taxes. 6. Requested that commission authorize a revenue decoupling mechanism for residential customers that would eliminate impact of planned energy efficiency and conservation programs. 1. Staff testimony is due Aug. 25. 7. Two weeks ago, Michigan House of Representatives passed a package of energy reform bills on a strong bipartisan vote of 78-30. 1. Package is now in state Senate and indications are that they intend to act on it before mid-year. 3. Primary Provisions of the Bills: 1. House bill 5524 deals with Public Act 141, electric customer choice law. 1. Establishes 10% limit on electric customer choice, roughly three times higher than amount of choice Co. currently has in the State and is a limit that would give CMS sufficient certainty to allow investing in new base load generation.

2. Establishes certificate of need process for power generation

projects costing more than $500m and long-term power purchase agreements.

3. Approved projects will have improved assurance of long-term

cost recovery and utilities will also be allowed cash recovery of interest cost during construction period. 4. Bill significantly improves State's general ratemaking process, Specifies: 1. Utilities may use forward test years in their rate filings. 2. Requires commission to process cases in 12 months or they become final as filed. 3. Allows Utilities to self-implement increases subject to

refund as early as six months after filing. 5. Mandates elimination of, so-called, rate skewing in the State. 1. Requires MPSE to transition over a five-year period to rates based on a defined cost-of-service methodology. 2. House bill 5525 creates a new Michigan energy efficiency

program with defined targets and associated incentives.

1. Explicitly allows for revenue decoupling for natural gas utilities to spend at least 0.5% of revenues on energy-efficiency programs, cost of which is recoverable. 3. House bills 5548 and 5549 establish a renewable energy program and provide a separate funding surcharge.

1. RPS standard is 4% by 2012 and 10% by 2015. 4. Bills provide off ramps that cap impact on customers. 1. 5% of consumers' energies current generation portfolio qualifies under legislation. 2. Co. would already be in compliance with 2012 standard. 5. Bills are now in state Senate for consideration. 1. Senator Patterson, chairs Senate Energy Policy and Public Utilities Committee, indicated his desire to move energy legislation by June-end.

S2. 1Q08 Financial Review (T.W.) 1. Highlights: 1. Reported EPS of $0.44, up from a loss of $0.97 last year. 2. Adjusted EPS of $0.44, equal to plan and up $0.02 from adjusted earnings last year. 1. Excluded losses related primarily to asset sales.

3. Utility contributed $0.54 and Enterprise was break even. 1. Offset partially by interest expense of $0.10. 4. $0.02 improvement in earnings from 1Q07 includes: 1. Increase of Utility of $0.08.

2. Decline at Enterprises and parent of $0.06. 5. Higher Utility results reflect: 1. Benefits of exercising MCV regulatory...

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