CMS Energy Corp Earnings Call Nuggets: Decoupling, FTE Count

On Thursday, CMS Energy Corp (NYSE:CMS) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.


Kevin Cole – Credit Suisse: So I guess the first question would just be just on the change of decoupling, and so as I understand it, the ruling even restricts very narrow decoupling that would focused on energy efficiency only, and so from here do you expect the MPSC to take this back to court or to abandon decoupling totally, or can they just simply call it a tracker instead of decoupling and call it a day?

John G. Russell – President and CEO: Kevin, it’s really up to them to decide what they want to do. The unique position about us in this is that it is a DTE case. I mean, ABATE has also sued us, and our case is pending, so we are a bit of an observer in this rather than an active party. So, it’s really up to the commission to decide what they want to do, they have issued a request for parties to submit by, I think, the middle of this – middle of May comments about this ruling, so that’s the first step that they have taken. They’ll have to decide along with ABATE and DTE what they want to do in the next steps, so we’ll kind of follow their action. It’s hard for us to lead on this one because we really, it’s not our case.

CMS Energy Earnings Cheat Sheet>>

Kevin Cole – Credit Suisse: Then I guess on your weather slide where you list the recovery actions, should I read it as the categories under complete, those are for the most part are already locked in for the year, and we should see them probably more so in the third quarter, and then the underway is – are still yet to be seen, but are on your goals?

Thomas J. Webb – EVP and CFO: Good description. The complete categories are done. Decisions are done and actions have either been taken or completed, but you will see those roll into the second quarter and third quarter, most of them like the low cost financing you’re going to see that soon. The pension cost is actually one that is already been picked up upon. So, there is a lot of good things happening there. The underway would your interesting side because under efficiencies includes a restructuring program that John just described that we’re doing, and on the economy we are seeing a stronger tick up in sales, so there’s a little piece of sales that’s flowing through that we just didn’t anticipate and we’re still using our approach of being pretty conservative. We’d rather be wrong and surprised on the favorable side on this sort of thing, but it looks so good that we pretty much have to pick it up. So, we feel pretty good about what’s on the underway as well, but yes good characterization, complete. We finished underway coming events that are being worked on now.

FTE Count

Paul Ridzon – KeyBanc: Can you give a sense of maybe a headcount or FTE count on the early out?

John G. Russell – President and CEO: Yeah, it’s still early. I mean Paul, the request closed Tuesday evening of this week, and just for everybody’s benefit, we do this a little bit different than most companies, it’s not based on everybody that submits gets this. It’s basically we select who gets it, based on the fact, can we do business without that position in the future. Right now, I’d say though we will probably be anywhere, could potentially be anywhere from 5% to 7% of our salaried workforce, which is around 300 people. That doesn’t include the union results, because as I said we’re still in negotiations with them.

Paul Ridzon – KeyBanc: I guess the first question touched on this, but is there anything legislative approach to getting decoupling reinstated?

John G. Russell – President and CEO: There may be, but I mean the fact that the appeals court looked at the law and what they’ve ruled even though it’s disappointing for us, particularly because of the right-off, the word electric is not in the law, so it’s hard to argue with the fact that if it was intentional, they should have included it in there and since it was excluded, the judgment seems logical, but there are other ways that we can get around this. I really want to – we’re not getting around the law, but are the things the regulators can do and I think that’s why they’re asking for the utilities to respond back to them in the next few weeks to decide what approach do we use. As Tom said, they resolved – they ensured that the trackers – they supported trackers, so there’s ways you can track revenue, there’s ways you can track other things, which is fine and I’m glad to see they endorsed that during the hearing. So that will be a published case, which means that should have a lot of substance in the future for how we actually go about looking at this. So there are opportunities, we will have to see what the commission decides to do, what DTE decides to do, and then we will certainly support what we can in that case.

Paul Ridzon – KeyBanc: Can you just kind of touch on – big topic this quarter has been coal to gas switching and potential for burns, just kind of where CMS stands on that (indiscernible)?

Thomas J. Webb – EVP and CFO: We have seen the same thing, as I mentioned, in our Zeeland plant, which I am really glad we purchased a few years ago, has gone from a peaking plant to a baseload plant. We have even seen at times, certainly the combined cycle is dispatched ahead of coal at times, particularly some of our coal plants. But even peaking, even the simple cycle has dispatched some coal on some certain timeframe. So we are seeing that as an advantage that we have the gas plants, a disadvantage, that we are really cycling the coal plants, a lot more than we have in the past, and right now some of the coal plants are out of market. So it kind of fell in line with the strategy that we have had, is to take some of these older units, and mothball them in the next couple of years anyway.

John G. Russell – President and CEO: There is another little benefit that comes with this downside, as those coal inventories that I mentioned are a little high. But the benefit is, our PSCR costs are dropping sharply, benefitting from these low gas prices. So you remember, we talked a lot about keeping our base rate increases, at or below the level of inflation, but we said GCR costs, and PSCR costs were important to us. GCR costs are obviously negative each year, creating lots of headroom for our customers, and PSCR costs, which we have been worried about, they are now half of the size we were looking at, maybe the last time we talked to you everyone in New York. So there is lot of benefits that come through this.

Thomas J. Webb – EVP and CFO: Paul, that’s the headroom we are looking for.