Q1 2020 Earnings Call
[music].
Good morning, everyone and welcome to CMS energy plenty plenty first quarter results.
The earnings news release issued earlier today in the presentation used in this webcast are available on CMS Energy's website, and the Investor Relations section.
This call is being recorded.
After the presentation, we will conduct a question answer session instructions will be provided at that time.
If it anytime during the conference you need to reach an operator. Please press the star followed by zero.
Just a reminder, there will be a rebroadcast of this conference call today.
Beginning at <unk> PM Eastern time running through May four.
This presentation is also being webcast and is available on CMS Energy's website, and the Investor Relations section.
At this time I'd like to turn the conference over to Mr., Srivatsa Potty, Vice President of Treasury and Investor Relations.
Thank you Allison and good morning, everyone and thank you for joining US today with me are paid Bobby President and Chief Executive Officer, and Reggie <unk> Executive Vice President and Chief Financial Officer.
Presentation contains forward looking statements, which are subject to risks and uncertainties.
Please refer to our FCC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation. Also includes non-GAAP measures reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website now I'll turn the call over Patty.
Thank you sorry, and thank you everyone for joining us today for our first quarter earnings call, we hope that you're staying safe and healthy during these extraordinary time.
This morning, I'll discuss our first quarter results in long term outlook as well as provide an update on our response to the covert 19 pandemic Reggie will add more details on our financial results later in disgust sensitivities related to covert 19, and as always we'll close with you in may.
You know I'd like to start by acknowledging that this health crisis is affecting scores of people in really unimaginable ways. My heart is with each of you and I know that there will be a post covance may your family and friends be stronger closer and that piece when all of this is behind us.
You know what always keeps my team and I anchored is our focus on the long term and our commitment to the triple bottom line of people planet and profit.
We have a track record of delivering industry, leading financial performance and we have solid fundamentals in our favor that have served us well in years past and will enable us to navigate today and in the future now let's get to the numbers.
We delivered adjusted earnings per share of 86 cents in the first quarter, despite challenging weather conditions in the onset of this unprecedented global pandemic. Our first quarter results were 11 cents better than 2019 results for the same period, mostly driven by cost management regulatory outcomes and our ability to adapt.
To changing conditions, whether it be the temperature is outside or adjusting to life under a stay at home order.
As the stay home stay safe order is still in place for Michigan and the situation is continuing to evolve it's too soon to provide an update on our guidance we issued on January thirtyth.
So given the fluidity of the situation at this time, we're not changing our guidance for the year of $2.64 to $2.68.
So the current circumstances, certainly challenging our investment thesis remains intact and our business model resilient.
Both of which will support our long term operational and financial objectives. As we continue to target long term annual earnings and dividend per share growth of 6% to 8%.
Let's take a moment to get everyone up speed on what we're seeing here in Michigan and what we're doing to lessen covert related impacts on the communities that we serve.
On March 20, Threerd Governor Witmer issue to stay at home order, requiring all non essential businesses to close until April 13th which has now been extended until mid may with some loosening of retail and recreational restrictions previously in place schools are closed for the remainder of the academic year.
Prior to the Governor's order, we established our incident command structure or I see us. So we were already functioning in our emergency response mode as conditions worsened, particularly in the southeast portion of the state.
Early on we retained a chief medical officer to help guide or operational decision, making and ensure we could perform are necessary work safely we instituted a travel ban for business activities and the necessary self quarantining for employees. After any personal travel we quickly transitioned to a remote workforce and I'm pleased.
The team responded with great agility for team members and critical onsite operational roles, including those working in control rooms, and generating plants and natural gas compression stations, we've implemented numerous safety protocols falling all CDC guy that guidelines, including and in some cases sequestrations.
For the remaining workforce, our coworkers are either working from home or reporting directly to the job site from their homes to continue operations in the field and ensure their safety.
At this time, we've experienced zero fatalities and 11 of our over 8000 coworkers are worked family have tested positive for covert 19.
Yeah, we're thankful that seven of those coworkers have been able to return to work and they each identified case has yielded fewer and fewer ancillary cases of contact which means our social distancing is working.
Our covert 19 case rate is three times less than the broader Michigan rate. We believe that are safe work practices have been essential and protecting our co workers from exposure to this virus.
We're taking biweekly poll surveys of our coworkers to see how they're doing during this time and I'm very proud to report that over 90% of our team is satisfied with how we're handling the covert 19 pandemic as a company.
Our safety culture and commitment to our people has been a source of strength for all of us and will remain deliberate and our efforts to keep our coworkers and our customer safe.
Beyond safety, we know our customers are facing economic challenges and we've stepped up to support them.
Some of them all deeply impacted at this time, our small business customers, who are the heart of Michigan's economic engine.
When we get on the other side of this current crisis and there will be another side, our small businesses will serve as an essential role and fueling the economy once again.
We know and love these customers and understand the hardships, they're going through and have tailored our services accordingly.
We've redeployed our business customer care team to help our customers navigate the state and federal assistance programs. We trained our team on the federal and state funding available and created scripts and content, specifically tailored to our small business customers.
And on a personal level. Some of you may have seen my husband, Eric and I set up the Dream maker fund at the onset of the crisis with a personal contribution which has provided emergency relief to our small businesses in Jackson, Michigan, where we live in where the company is headquartered this has given US a front row seat on the small business impact.
Covert 19 here in Michigan.
The company and consumers Energy Foundation have also taken a number of actions to help our vulnerable residential customers, including our extending our payment protection plans through June 1st disbursing over a million dollars in grants and donations to facilitate the needs of our healthcare workers supporting our local food banks and charities as.
Well as matching our coworkers donations to local charities.
Needless to say, we haven't lost track of view our investors, we're mindful of the covert related risks on our business and we're always on the job identifying those risks and managing the work every year in every aspect of the business.
We operate both the natural gas and electric business and natural gas represents one third of our revenues at the utility and is the fastest growing segment. The bulk of our gas business margin comes from our residential customers and has earned in the heating season, which ended in March and we expect residential gas sales to be normal in the fourth quarter.
While our electric deliveries are certainly down year over year will remind you that we have a track record of mitigating financial risk given the inherent volatility in our business, which I'll cover on the next flight.
We are grateful for the leadership and partnership our public Service Commission has demonstrated we're working together to make sure a co workers are safe and our customers are cared for.
The commission is collecting and reviewing cost related to cope with 19, including uncollectible accounts and Sequestrations and quarantine related costs. The commission established deferred accounting for uncollectible expense above what's currently approved in rates, which Reggie will elaborate on later and speaks to the constructive regulatory environment here in Michigan.
As we turn to slide six will remind you that we've seen significant unforeseen challenges and double digit EPS downside in previous years in fact in 2016 and 2017, we had as much as 13 and 16 cents of negative variance and through Conservative planning and a bottoms up approach to cost management.
We were able to deliver on our operational and financial objectives.
With that said as result of anticipated cobot related financial risks. This year like most we've implemented several cost control measures such as a hiring freeze reduced overtime and minimize travel and training expenses.
Plus more sustainably will rely on our ability to accelerate cost savings and waste elimination through our consumers energy way to pursue our financial objectives without compromising customer service.
Brad you will provide some of the sensitivities for the risks, we've highlighted and potential offsets.
As we gain more visibility in Q2 and beyond we'll adjust our plan accordingly to remain agile and make choices that mitigate the impact in 2020 and protect our long term operational and financial performance.
While we don't know the ultimate impact of Cobot 19, we do know how to manage and operate a world class business the delivers over the long term.
And that brings us full circle as we talk to you today.
Our long term investment thesis remains unchanged. Despite the near term uncertainty presented by covert 19.
Over the years, we've been good stewards of the balance sheet, maintaining a healthy level of liquidity and we plan conservatively, we still have a large and aging system in need of significant investment we still have a constructive regulatory environment and we still have the way that enables us to serve our customers while keeping their eye.
Energy costs affordable with that I'll hand, the call over to Reggie.
Thank you Patty and good morning, everyone. Let me first echo patties comments by wishing each of you and your loved ones safe passage through these trying times in which we live.
As Patti highlighted we're pleased to report our first quarter results for 2020.
We delivered adjusted net income of $245 million or 86 cents per share. Our adjusted earnings excludes luck nonrecurring items, primarily related to costs, resulting from a voluntary coworker separation program, which we commenced in the fourth quarter 29 team.
And the favorable reversal of an accrued expense related to tax reform for.
For comparative purposes, or first quarter adjusted EPS was 11 cents.
Above our Q1, 2018 result, largely driven by rate relief that investment related expenses of utility and solid cost performance throughout the throughout our business.
Switching gears for the co. The 19 related financial risk as Patti noted we are ever mindful to potential impacts of cobot nineteena business have begun to implement cost control measures to mitigate these risks.
On slide nine we've we've provided a summary of potential impacts as well several mitigating factors, which should help reduce our exposure to some degree.
First I'll start with utility, which I'll remind you represents over 90 about 90% of our business.
The effective pandemic in Michigan, the Patti referencing unsurprisingly reduced commercial industrial activity in the state, which he began to materialize in our electric sales.
Based on daily volumetric trends extracted from our smart meters over the past month or so we've seen declines in weather normalized commercial industrial load of about 20% to 25%.
The senior loan production has been partially offset by residential load, which is up over 5% over the same timeframe, presumably due to mass teleworking and sell quarantine measures as noted in the past the residential customer segment offers our highest margins and Webster represents over 60% of our customer contribution for electric and gas combine.
Line, which I'll discuss in more till later.
The other noteworthy financial risk utility attributable to cope with 19 or potential increase costs and uncollectible accounts due to delays and customer payments and sequestration and quarantine related costs to ensure the safety of our co workers as mentioned, we're working hard to mitigate these risks and cost control measures and customer outreach programs. We are.
Also recently received an accounting order from the commission.
To apply deferred accounting to uncollectable accounts expenses in excess of rates as Patti noted and will soon followed response to this initial order seeking approval to for other costs related to covert 19, including sequestration and quarantine related costs.
As for non utility businesses, which collectively represent about 10% of earnings the potential risks are largely on the revenue side and broadly speaking are fairly well mitigated enterprises. The vast majority of its revenue streams are contracted a fixed prices with creditworthy counterparties.
It is also worth noting that Supreme Court of Michigan recently issued an order upholding the mpsvs ability to enforce a local clearing requirement for all energy providers in the state longer term. This decision could create opportunities for dig given the favorable trends we've observed in the last two planning resource auctions in MISO per zone seven.
Which just cleared at the cost of new entry.
With regards to Enerbank the primary risks in the current environment, our loan origination volume and a potential increase in charge offs, but it's important to remember that the business model interbank is unique we are not underwriting mortgages are making auto were small business loans Enerbank underwrites home improvement loans, primarily to premium credit quality borrowers.
Whose average FICO scores are above 750.
This Barclays has proven to be relatively more resilient during economic downturns and in fact in 2008 Enerbank originations increased given the relative elasticities of its core borrower base and through market share gains at the expense of weaker capitalized competitors.
The final notable risk from an earnings perspective is in our parent and other segment, which is largely comprised of nonrecoverable financing costs I'm pleased to report that due to proactive and cost effective liquidity management from our Treasury team, we have no remaining maturities in 2020.
On a fully priced our planned equity issuance needs for the year through forward contracts, which will elaborate on light there.
Circling back on the utility sales risk, which we view as the most substantial risk to our business in the current environment Slide 10 highlights the relative contribution mix of our customer segments and the load reductions we've witnessed since late March.
I will note the residential segment represents approximately 60% and 75% of the customer contribution for the electric and gas businesses, respectively and over 60% of the total customer contribution at the utilities I highlighted earlier.
So any uptick and growth in the residential segment should partially offset the expected declines, we anticipate and the commercial and industrial segments. All in given the current sales trends we've observed since the public response, the pandemic, we estimate approximately three to four cents.
EPS dilution per month.
As Patti noted at this point, it's too early to tell how long and to what extent social distancing measures will remain in place or how strong the economic recovery in Michigan will be upon its conclusion.
As such we have provided this monthly sensitivity for your modeling purposes, and we'll keep you abreast of any material changes to our plan.
On slide 11 in a waterfall chart you can see the key factors impacting our financial performance relative to 2019.
Despite an unusually warm winter, which offer 23 cents of negative variance versus Q1 of 29 team.
Absence of the substantial service restoration costs due to storms, we experienced last year, coupled with last September supportive gas rate order and cost performance throughout the business delivered 11 cents of net positive variance versus the first quarter of 2019.
Depending on the extent to which the financial risks of Cobot 19 manifest we believe the glide path illustrated on this slide could enable us to achieve our EPS guidance as we plan for normal weather and anticipate a constructive order in our pending gas case in mid October.
As mentioned the ultimate impact of Cobot 19 on Michigan's economy, and our business remains uncertain. So we have referenced the estimated monthly EPS dilution of three to four cents in the event the level of sales degradation that we have witnessed a date persists.
Further we will closely monitor the potential risk to our business some of which had been mitigated through regulatory support.
We've also added the historical range of annual financial risk that we have successfully mitigated over the past several years, which equates to approximately 10 to 15 cents per share or $40 million to $70 million pretax.
Clearly, we have a strong track record of managing the work and delivering cost reductions through our lean operating system, the CE way and other initiatives and as Patti noted we've already implemented an initial wave of cost control measures.
Needless to say, we are not here to represent that any downside scenario can be overcome.
Typically given the unprecedented nature of this global pandemic. However, we are confident that we can minimize the financial risks in 2020 without jeopardizing, our long term value proposition to our customers and investors.
As we execute our risk mitigation strategies, you will note on slide 12, but we have prioritized liquidity management and have over $2.3 billion of net liquidity available, which includes unrestricted cash and on top the untapped.
Revolving credit facility capacity as of March 30 Onest.
We've always managed our balance sheet and conservative manner, and so while there have been a lot of concerns regarding access to the commercial paper market I'll remind everyone that we do not reliant CP as a permanent layer funding nor do we have any outstanding at this time.
As part of our funding strategy for the year, we put in place term loans at the parent and utility for $300 million, each and those don't mature until 2021 and in mid March we issued $575 million a first mortgage bonds at a rate of 3.5%, which addressed our sole maturity across our debt issue entities in 2020.
And funds our capital programs.
From an equity financing perspective, we announced our Q4 call our plans to issue up up to $250 million of equity all of which is priced under existing equity forward contracts.
And we drew down approximately $100 million of that capacity in late March.
We expect future equity issuances can be completed through our ATM program, which we will likely re filed in the coming months.
All of our financings have been executed at terms favorable to our plan, which offer entry year savings and help de risk the future as we look forward, we'll continue to maintain flexibility and capitalize on accommodative market conditions when they emerge.
I'll end with our credit metrics on slide 13, which remained well above the threshold for investment grade ratings. Among all three credit rating agencies are focused on maintaining a strong financial position, coupled with a supportive regulatory environment and predictive predictable operating cash flow growth supports our strong ratings and we'll look to.
Maintain our strong credit quality with an eye toward the future to the benefit of customers investments and investors and with that I'll pass it back to Patty for some closing comments before we open up the lines for QNX.
Thanks Randy.
My coworkers and I remain on the job every day for our customers and for you. Our owners, we're focused on delivering an essential service to nearly 6.7 million of our fellow Michigan Anders The capital you. All provide is critical and our long term track record of managing that capital speaks to that commitment.
As I mentioned Weve, Ben good stewards of our balance sheet with prudent planning and our conservative liquidity management continues already for 2020, we executed financings at attractive rates that enable us to fund our capital programs.
Our operational excellence shines through during times like fees.
As we continue to rely on the CE way and lean in on that lean operating system. We have in place we improve each and every day, we put to work efficiencies that drive down costs and eliminate waste and I can tell you that system is in overdrive, right now, which speaks to our agility as we shift accordingly, depending on how this current invite.
Ironman evolves.
That's a 2008 energy law with established and updated again in 2016, Michigan has remained at top tier regulatory jurisdiction.
Forward looking past years, and 10 month rate cases, we're fortunate to have such a constructive regulatory framework in statute. We also have a supportive commission as you can see by the recent order responding to the pandemic for the protection of vulnerable customers, while being mindful of utility being able to find its operations and attract low.
Costs long term capital.
Our system remains in great need of replacements and upgrades and that won't go away as a result of the current pandemic again, we're fortunate that our plans have embedded structural cost reductions in the form of retiring coal plants in PA is expiring.
Finally, none of this comes at a price to our planet and the great State of Michigan, We all love So dearly, our net zero carbon and methane goals remain as important today as the day, we establish them.
Our model holds together well that's why this thesis remains intact and that's why we can rely on our triple bottom line to get us through this current crisis. Just has it has in the past and we'll do so in the future.
With that Allison we please open the lines for acuity.
Thank you very much Patty.
The question and answer session will be conducted electronically if he would like to ask a question. Please do so by pressing star key followed by the digit one on your touch 10 telephone.
If you are using a speaker phone so.
Please make sure you pick up your hand handset.
Proceed in the order you said, Noah and we'll take as many questions as time permits.
If you do find that your question has been answered you may remember yourself by pressing the star key followed by that that's a two on your touched 10 peloton.
Well pause for just a second.
Our first question will come from Saar Parisa of Guggenheim Partners. Please go ahead.
One moment please.
Thank you.
And sorry. Your line is now open. Please proceed with your question.
Hey, good morning, guys.
Hi shark warning.
Couple of questions here. So first off you talk about three to four cents impact per month based on the sale sensitivities that provided on slide 10, you're you're obviously levelized than this but should we expect any kind of peaks or troughs over the next two quarters in some utilities assume business closes in Q2, some return in Q3 and then.
More of a mean reversion in Q4 I know, we're only two months into this but just trying to get a sense on the monthly profile with your sensitivities you assume and plan are really what the guidance can withstand.
Obviously on slide four there seems to be little bit of cautious language around the uncertainty of duration in the full impact to covert. So I know what are your prelim thoughts here, even though it's very early stage.
Sure. Thanks for asking we've tried to be really transparent here you know we have a track record of offsetting negative impacts EPS as you mentioned ranging and as much 10 to 15 cents. We also have a track record of transparency, which is why we've tried to be a direct and forthcoming as we can about the C and I sales that have to.
Dropped 20% to 25% versus expectations and with than the offsetting residential sales up over 5% the earnings impact as you mentioned in what we've said is three to four cents per month under the current conditions now here's the variables how fast will businesses bounce back how soon will people gather and public spaces.
How quickly will manufacturers be able to start making non essential goods again.
Our stay at home or is still in place on May 15th will the government stimulus help it so that the small businesses can come back. After this you know at this point, there's just too many unknowns shire and so while we will continue to remain conservative we don't feel that we know enough right now and so I guess I would offer this thing once.
You can count on us to do is to call it straight.
We've never over promise and then under delivered.
Nor have we really under promise and over delivered we do what we say.
I am comfortable in the fact their long term fundamentals are the same and our short term actions will stand the test. The time you know one of the thing Charlotte I think about a lot is that our customers are co workers and our regulators will long remember how we handle these temporary times I feel good about that because we're doing the right thing.
And we like always are acting with the long term in mind and a long term outlook has not changed in our fundamentals remain sound. So as we think about any adjustments we would make this year or any actions. We would take this year, we're always thinking about the next year and the next and so we're balancing all those factors and doing everything we can.
To serve the triple bottom line.
Got it let me just let's let's assume this is a little bit more protracted.
Can you talk about sort of the incremental levers as you mentioned 12 to 10 to 15 cents of historical flux range on slide 11, do you have more.
You know.
What I would say is our historical performance is a good indicator, but we've also now were about four years in to the way and that things on Overdrive man. Our team is on the job, they're looking for waste elimination all across the organization.
We have 1254 projects already identified this year.
Started day time reduction some of the Ah things that we're doing now as a result of the crisis.
Such as job site reporting are actually saving money and so it's both a combination of current factors. There's current environmental things that allow us to save money, plus our seaway and the waste elimination and our ability to deploy our team to as much long term.
Capital work are the kinds of ways that we see tackling this challenge in a sustainable way, we're always thinking about the next year and the next and so the cost savings that we would do would only be those.
That don't do damage to the future the one thing.
We think about we're not going to pull out all the stops and do damage to future years to hit some kind of unreasonable outcome. This year, we're going to be in it for the long haul and I think thats why people I Trust us and invest in us.
Got it and just lastly, the volume reductions on the scene and I saw the 20% to 25% production that you've seen since March Kim is that sort of auto auto supplier related with what drove that.
You know, we have limited exposure to auto less than 2% tier one suppliers plus the automotive themselves to our margin. What we're seeing is more the stay home order closed all restaurants at closed all retail other than non essential retail like grocery and so that.
Where we're really seeing a lot and small manufacturers that aren't making essential goods.
You know as I mentioned my husband and I did this fund and so we've had an opportunity to look at all the applications just in Jackson County, and it's a whole range of things golf courses restaurants, bakeries retail how little manufacturing shops welding shops, there in a holding pattern right now waiting for the order to be lifted.
And some of those businesses even after the order is lifted will be affected by People's reticence to gather and groups others will get right back at it and so we see a balance between some of them just purely waiting for may 15th and they'll be back on it full time and there'll be others that may have a a demand reduction because of peoples.
Beer and so again, there's a lot of unknowns and Fortunately are smart meter data is very accurate and we can see real time, what's happening in it helps us make better decisions a better choices.
Terrific. Thank you guys spaces in the we'll see you soon thank shire.
Our next question will come from screenplay Smith will restart LLC. Please go ahead.
Great. Thank you.
Sorry Reggie.
Hope, you're all doing well and your families.
Steve Good morning.
Yeah.
Good so.
Just first on the.
Sales that marks April data do you have just an overall number.
Across cookware, the overall sales trends.
Oh, Reggie what's our total sales adjustment then.
Yes, so we don't have.
If you're talking about post Q1 beyond March 31st we do not have a full read across all of our customers because smart new data all hit good portion of our customers are select classes of large.
Industrial and commercial customers that do not have smart smart smart meter data available we do get good anecdotal evidence from those customers and do get good visibility, but we don't get perfect information really until we get to the ended the quarter. So there are some limitations in that but I would say Steve that the patties comment.
The 20, 25% we highlight here again.
It is not indicative of all of our customers, but it's a decent read for now for that monthly read that we've offered from late March.
Through kind of mid to late April so thats, a again, it's not a every single customer, but it's a decent portion of them.
Okay, Yes, just curious because when we've looked at regions were not really seeing any region down more than.
10% or so.
And obviously that doesn't get to individual states are territories.
So I'm just kind of trying to compare it to from a regional data we've seen.
Steve I would say, 10%, 10% total is yes.
Recent bogey that for for our customer base is while you're in the neighborhood for sure that's exactly right. Okay.
Great and then on the this three to four cents per month.
And data.
Our water utilities have different.
Herb depending on the season.
The earnings impact to the same sales change can Barry like a summer bonds might be worth more than a shoulder month.
So could you just talk about the seasonality of that sensitivity.
And just thinking about it this year.
Well you know we always.
Deal with seasonality in the weather and that's what we certainly whether in storms, we've done a good job overcoming in this scenario. There's so many I would suggest Steve bigger drivers than just the weather.
That seasonality is obviously clearly a variable but not nearly as much as some of the unknowns associated with.
The rate that businesses return to action I don't know Reggie you might want to add something to that they'll go ahead. So the only thing I would add is certainly the timing of this is.
Somewhat fortunate because we do expect higher volumes as it starts to go little order little lower particularly the residential class now so we'll see more industrial activities sort of as you get paso shoulder months and so.
The timing of this I guess, if you could have it happened at any time, which you don't root for this would be the time to have it and so certainly there greater expectations for load once you get beyond sort of the March April timeframe to them.
Maybe I should ask a question differ.
Well I'll just chime in one last thing Steve that one of the points that we recognizes the even after an order is lifted its likely and I'm hearing from a lot of businesses that they'll keep their stay there people working from home if they can and so that residential bomb may continue into the summer months, and obviously air conditioning load is.
Big driver in Michigan to sales.
In the summertime and so if all those folks are still or if a lot of people are still working from home that obviously has a favorable impact in the summer months.
Okay, maybe I should just at the habit.
Summer.
Winter or kind of rate differential or is it pretty much the same rate or your.
Generally the same rate all year. So next year will be implementing a more of a summer peak rate, but it's generally about the same throughout the year.
Got it Okay and then one last question just could you talk a little bit about the trends you're seeing so far on non payments.
And kind of how notable that might be.
Any color there.
We are watching that the one of the things with the uncollectible accounts as they do lag and so we can see to some degree. It's very early if you can imagine it's at a met minimum a 30 day lag built before we know if somebody didnt pay their bills and so sometimes the uncollectible UC.
Sounds really take almost three to six months to show up.
And to really be accounted for and so we're watching we're seeing a a slight uptick but it's early and we haven't even crossed all the cycles for some other customers.
Okay, great. Thank you.
Thank you welcome Thanks, Steve stay well.
Our next question will come from Michael line of Credit Suisse.
So my hat.
Hi, good morning.
Good morning.
Hey.
Just a follow up with some of those last questions.
Can you speak to how some of this will be handled and the ongoing rate.
Almost annually.
Oh.
I'm not going here.
So how does how does that Jason get updated for just a low changes just on flexible.
Yeah, you know.
The cases are filed our gas case, we filed in December in our electric case, we filed here in February.
So there's not a clean way to have a significant substantive change to sales and frankly, it would be hard to do it because we have forward test years, So what sales figure where we predict.
So we expected our rate cases will continue as planned and because we do annual filings in the future if theres a permanent degradation to sales than we would reflect it but it's pretty hard to capture a temporary degradation in sales like the one we're seeing in any kind of active filing to the good news.
Visit our commission has been very supportive <unk> you know just a shout out to the Michigan Public Service Commission and other folks for adapting so quickly to this changing condition. They've already started holding you know there meetings and conducting business remotely through webcast. They too have had a significant impacts so thanks to all of the.
I'm for acting so quickly and working with us on a this new order for the CV 19 costs as well as the uncollectible accounts and trying to make sure that we have the utility are in a position to serve our customers well do what's right care for our most vulnerable customers and know that we can still function.
In a in a strong financial position that that reflects the capital a traction that we need to demonstrate and so great partnership with the commission and all their team working so hard to just figure out these unknowables together.
And could you contemplate lower capital spending is if necessary. Thank you Greg on long enough.
Right now, we're not seeing that in the plan and in fact I, we're working hard to make sure that for example, our power plants, because energy load and demand is down our an economic reserve a couple of our coal plants and so that gives us an opportunity to pull ahead, a capital outage a at that plant earlier in the.
The year than we had originally planned so I don't we don't have any plans in the near term odd to have any adjustment to our capital plan. In fact, we're going to really work hard to make sure we keep that plan on track.
Got it and.
Oh I'm on Big just wanted to.
As for the local content requirements it looks like the.
Tax of that Supreme Court decision.
Just like 24 beyond just wondering.
Yeah that it because dig it basically fully contracted a it doesn't have any certain impact on 2020 minimal in 2021, but there could be some out year impact that could be beneficial, but again, just keep in mind that dig as a predominantly contracted as Reggie had managed.
And a with a high quality off takers.
We are pleased with the outcome of that order, though and shout out to our legal team took it all the way to the Supreme Court of Michigan did a great job advocating for the public service Commission in their authority to require a local clearing requirement you know the law that we worked so hard to pass back in 2016 that was.
Fundamental element of it to make sure that Michigan as the Peninsula zone, seven has adequate supply to serve the load and with our kind of hybrid retail open access 10%. It does put at risk reliability in the state so very happy with that I'll comment very thankful I'm proud of my legal team for the great work that they did.
Yeah it looks good.
One last question on AMC credits and acceleration in the stimulus Bill.
You guys quantify though.
Yeah. So we benefited a and remember citic cash benefit, but about $30 million of AMTI credits a will pull forward in 2020 that would have originally been refunded and 2021 again that just effects cash not earnings in anyway.
That's all I have take care guys to stay healthy. Thanks, Michael Thank you so much.
Our next question will come puns only in the volume of Bank of America Merrill Lynch. Please go ahead.
Hey, good morning to Europe, you all are low morning, Julian you too.
Excellent.
So just wanted to follow up so you you or me to your guidance. So wouldn't when you think about the sales forecast that you're embedding isn't that I understand the three four cents year. It's sort of is the sensitivity what are you specifically thinking about making it even to reaffirm rather than withdraws we've seen.
More so in other sectors and to be more even more specific about it I think you alluded to perhaps.
15, or 16 cents historical perhaps cost flexibility in your plans.
Can you talk that sewage you figure out what.
The latitude reaffirmed.
So Julian and I now [laughter], everyone wants precision.
And these uncertain time [laughter], there's a reason why the word unprecedented is like the number one word and use. These days you know we just haven't been here before so you know as we said, it's just too soon for us to update our guidance.
And it would mean that we know exactly how to health care, how how the health crisis ends.
The economy will look afterwards and.
Frankly, we don't know and so there are reasons to believe in a bounce back the federal stimulus is working we're watching it helps small businesses, but.
And the businesses get access to it construction manufacturing and can bounce back quickly and work safely, but will there be demand you know I talked to an office furniture CEO.
Most of the office furniture in the World is made right here in Michigan and I talked to one of the field last weekend.
They may be at all time highs because they save workplaces need to be reorganized and and new furniture is going to be required or maybe none of us are reporting to an office ever again, you know there's just a lot of changes will there be a drive in residential electricity demand we've talked about that already maybe there will be the shelter in play.
Its order can be lifted, but how long will people feel will it be before people feel safe to congregate and a public gathering I don't know, we don't know, but here's what we do know Julien we know that we need our coworkers healthy and motivated to do our capital plan and it's a good infrastructure plan that serves the people of Michigan, we need our regs.
Leaders to trust that we're doing what's right and Kate taking care of both our coworkers and our customers we need our customers to be with us into survive. This pandemic can be open for business. When it's over which is why we're working so hard to serve them with new information and helps them navigate the circumstances, what we can.
Do is continue to run this business and look to mitigate costs and risks as they come up.
And never lose focus and as I mentioned earlier on the long term fundamentals there solid right. The fundamentals of the business are the same how we handle it in this temporary condition as I mentioned will be long remembered until the cost savings additional cost savings what we would do to mitigate it are all going to be with an eye on the future.
We're not going to take short term risks on Tomorrow's performance and so we're going to do our Darndest you know US you know how we think in how we operate again RC way is a great source of comfort to me because we've actually develop some real capability across the organization and then overdrive as I mentioned so given.
That I would say a too soon to say, but trust me, we're not a waiting on the sidelines to to figure it out.
And then related questions quicker you all are working proactively with the kids figure to address a recovery of certain items. How do you think about that being reflected again the numbers specifically wondering here as you continue to both through the course here as you want to be clear about that given some.
Differences in the sector well, we're gonna have to see we'll be filing our response they've asked for comments, which is a very important and constructive we need to hear from a lot of people as we make these determinations wants the a core the accounting has clarified and we've got certainty about that then we can account for it and they will have benefits obviously in 22.
Many they've been pretty clear about the uncollectible expenses as a result of a mandate to not shut off our most vulnerable customers our seniors and low income through June 1st until they've been pretty clear about those uncollectible expenses and the accounting treatment there off but it's really some of the other expense.
It is and exactly the timing of that Uncollectibles, when it materializes et cetera, so other well be weighing in and certainly I can't speak for the MPSV.
But I can just say that we're working together to make sure that we're able to serve the most vulnerable constructively.
All right well I'll leave it there. Thank you all very much thanks Julien.
Our next question will come from Stephen Byrd of Morgan Stanley. Please go ahead.
Hi, good morning.
Steven.
Wanted to give congrats on all the community outreach efforts that you all are making it looks like a lot of great stuff going on.
Thanks.
One or two a lot of my questions have been addressed but just on the interbank side of things could you just talk a little bit more about new business opportunities.
[noise] that you're seeing I guess, I'm, certainly not a bank analysts, but I I would've thought sort of home improvement activity would be will be going down a great deal, but I was just curious what you're seeing on certain new business.
Well I've been doing all the talking so I'm going [laughter] handed over to read to you the chairman of the unnerving Ford I'll, let him speak about the great work that the interbank team is up to go ahead, Reggie Thanks, Betty and good morning, Steven Steven I would say that.
Certainly we did see a little bit of a slowdown in March on origination volume, but we've actually been encouraged with what we're seeing in April and it's important to note a couple of things. So every state has a different approach to the executive orders that have rolled out but financial services is deemed an essential service and Thats a federal mandate and so we've managed to continue.
You are underwriting and also construction products projects that are working progress are equipped for all intents and purposes. Those bits of work have also been permitted to continue on and so we really haven't seen the type of slowdown you would anticipate for some of the loans that analyte Enerbank has historically underwritten so.
I would say encouraged by what we're seeing in April and surprisingly a little bit of a slowdown in March and we still think they started the quarter off or the yourself pretty well about a penny above the prior year and we're only asking for about a penny to two of growth.
Year over year for them and they appear to be on track and so.
The other opportunities as you think about origination volume is also on the Gainshare side and so what we've seen in the past, particularly in a way to nine is you had a lot of weaker capitalize competitors, who kind of fell by the wayside, we've already seen anecdotally some large customers come our way because they know that enerbank is in it for the long haul dish.
As their primary focus and so we've actually taken some share which we also did in a way to nine and so just existing originations and continuing to execute on our plan as well is taking share also create opportunities. This year in so we feel good about the road ahead, where we sit at this point.
But that's really helpful. Reggie. Thank you and then just one other question on your.
2020 bps slide slide 11.
More of a housekeeping item, but just you mentioned the on.
Historical flux range of 10 to 15 cents on that slide and I just wondered what timeframe is that a is that annuals out for the nine months to go as you sort of make sure I understood that.
[noise] Reggie can go ahead, Sir great. So, yes, we look at that range and it's based on what we've done historically over the last several years and so we've seen the that leveled negative variance in the quarter, we've seen over the course of year, but we've managed to and historical context overcome levels of flat.
Of that magnitude or levels of negative variance of that magnitude as I look at this year. We certainly think that 10 to 15 cents year to go is certainly within us and let's just think about what that map equates do so on the low end about 40 million pre tax on the high end call. It 60 to 65 million.
And when you think about our year to go spend you know we've got about a $1 billion of all say actionable opportunities between operating non operating costs pool, so that reduction equates to a little more than 5%, which is certainly within us and so not to suggest it's easy into patties earlier point, we're not going to do anything thats rash or detrimental to the years to calm and so we do.
We feel like it's within us, but at the end of they will have to see how this inflation, Michigan materializes and we'll make prudent decisions as we always do.
That's great. Thank you that's all I have.
Thanks Steven.
Our next question will come from Jonathan Arnold Vertical research. Please go ahead.
Hi, Jonathan Amendment, one moment please.
And Jonathan Your line is helping please proceed.
Hi, guys. My question is we just answered.
Thank you.
Thanks, John Okay. Yes. Thank you are now and our next question will come from Andrew Weisel, That's kind of merchant Bank. Please go ahead.
One moment please.
Okay Mr. Whitestone your line is open.
Hi, Good morning, everyone, Hi, Andrew good.
To go back to this three to four cents monthly EPS impact from lower volumes, if im reading that correctly. That's only on the electric side do you have preliminary April data for gas demand and what would that might mean for monthly run rate. It's a shoulder season of course, but do you have any kind of ballpark rule of thumb for the gas side.
Yeah, you know first of all as I mentioned, Andrew are the bulk of our gas is certainly during the heating season and that is behind us that ends in March and so the three to four cents represents electric and gas for your sensitivity.
Okay. Good thank you.
Last question is after the two rate cases outstanding how the conversations changed much given covert 19, I know you're always laser focused on affordability, but are you hearing more concerns about things like the jump in unemployment and that were presumably in a recession.
And as part of that you see any potential for the timing to be elongated whether that's due to logistics or affordability concerns.
You know affordability is always factored into our filings to begin with and so for example gas.
Gas bills are customers bills are down, 30% or because of commodity benefits and so I personally think there's no time like now with the commodity prices, where they are and how it's clear they're going to remain where they are that we make the system safer.
The system safety and the priority of the infrastructure investments on that system I don't change because of this and thankfully the commodity prices. So low. So we can continue to keep our bills affordable both on the electric and the gas.
Net net a we're starting to really pay attention to the percent of household wallet that our bills play and they're in a 3% to 3.5% combined gas and electric and we feel like that's extremely affordable and and so that's always been the focus in our case isn't it will continue to be but we feel good.
Given the combination of the commodity price plus a the value that the infrastructure investments has for customers.
Andrew You also asked about just process and timing and the only thing I would add to that end is that the commission has like a lot of organizations and businesses in Michigan has transitioned quite nicely.
To mass teleworking, and they have not missed a beat to date and so we've had very close communications with them. They have managed to keep up there adjudicated processes and we also highlighted that they had a meeting on the 15th where they gave us that very constructive order on cobot 19 related costs. So they are on track, but it's also worth.
Noting that per the statute there was a 10 months stipulated period and so in the event.
The or delays, we do have.
Legal right to self implement that 10 month period, which for gas is around mid March in for electric it's in very late December.
Got it okay. That's very helpful and just to clarify the on affordability I see it goes a great recap of your side of it. My question was more up from Interveners or regulators themselves or staff has there been any kind of.
Heightened concern about it given what's going on I mean economy.
I think their concerns are consistent with concerns in the past that we will be concerned and they are too and so we're pretty well aligned in that attention and focus.
Okay, great. Thank you Andrew one more thing just to circle back part apologies, but gas the timing of that is mid October I mentioned mid March mid October excuse me.
Okay and our next question will come from Travis Miller of Morningstar. Please go ahead.
Thank you.
Oh.
Good morning Travis.
Okay.
I Wonder if you could talk a little bit about what you're seeing on the renewable side. How much were you expecting in terms of project completion or contracts. The signed this year ends what are your thoughts what are you seeing in terms of being able to get to those numbers plus or minus your expectations for the year.
Our big projects. This year are a couple of wind projects that are scheduled to close by year end and both of those are on track.
We haven't issued force majeure letters, but that doesn't mean that work stops. It's just sort of a four warning that there may be a shortage in access to equipment, whether its turbans or some other equipment. So we have been notified but to date the projects have not been delayed and so we are on track. We've continued construction through this time period.
And so as of now everything is on track.
Correct, what about contracts signed or are the other projects third party projects are saying are they going along also.
Yes, Yep Everything's Everything's on track for this calendar year Yup, Okay, and then real quick on the dividends and then obviously the board decided the dividends well before we knew the seriousness of the coven situation any transfer any metrics that they might be looking out here in the next couple of quarters in terms of.
Making a dividend change given.
The raise last quarter.
Yeah, I would suggest that there's no plans change to our dividend policy or strategy things would have to train changed very dramatically for there to be a change.
In that light. So we have a board meeting next week, we'll be reviewing with them certainly our urban it later this week rather we've got a board meeting and so we'll obviously be talking with them about a range of scenarios, but none of those scenarios at this time contemplate any change to the dividend payout policy.
Okay, great. Thanks, so much.
Our next question will come from Durgesh Chopra of Evercore ISI. Please go ahead.
Hey, good morning, Thanks for sneaking me here and I appreciate the drag the granularity in this slide is always just.
Just wanted to start with a quick clarification, I think I am I understanding this correctly, but.
In response to Steves question, you mentioned, 10% decline is that across all classes. So the sensitivity of two to four cents EPS hit Vermont that is based on the commercial industrial 20, 25%, that's what you're seeing as of March for the 10% as it is across outside all classes that right right.
Yeah.
Okay perfect. Thank you then just.
A follow up.
Mentioned, you previously been able to offset double digit.
Yes headwinds through some some of the cost mitigation efforts could you point do something in terms of what can you do are those all those things onetime in nature or could you could you take costs out of the business longer term good any examples or any color would be helpful.
Well durgesh. Thank you for asking I've been waiting to share my story the month I'm just going to assume that's what you're asking me for so here we go.
Even in these times.
So in fact, I think this one might be a the story of this era.
We've discovered that we can work remotely. So let me just give me some numbers. So in an annual period, we typically spend about $10 million a year reimbursing mileage.
We have a large geographic service area and people are felt compelled to be in person for meetings and advanced frankly, I'm. The one who makes them I like to see people I'd like to be with people. So I say, hey come on out be in person.
But based on this circumstance in the covert 19, we've been forced to learn to use technology and it's working actually and it's sort of a triple bottom line storia them of the month because first of all people are safer certainly at this time because of covert but also minimizing mileage and driving.
Reduces the risk of a vehicle accident. The plan is better off with less vehicle emissions.
And our profits are better because the costs are lower so we can do video calls. They work you know I used to avoid the face to face video calls, we just do the dial in and they're not the same and we've learned and frankly I think there is a business to be had for the Judy jetson masks and if you're too young to know what I'm talking about just you too.
Judy [laughter] mask [laughter], there's an opportunity can sometimes we don't want to see our messy here and a without the salon being open everyone Theres looking pretty messy and the dogs barking, but the truth be told we've said this big ambition that we come together by staying at par and we're finding our culture is getting activated people actually are coming closer.
There is very interesting time, but on the fundamental cost $10 million in mileage you can bet, we're going to be reimbursing less than that there's other things that we do on the waste elimination.
We've got a host as I said, you know 1254 projects. Some of it is shortening our what's called non premise time when I went to accrue goes to a service center shows up to pick up materials, and then reports to the job site. There can be an hour. There that is considered non premise time that's expense.
Their capital work doesn't.
Commence until they start on the job site. So the fact that we can get people to job sites more quickly and were read redesigning our supply chain. So the materials can be available on site as opposed to people having to come to service centers is actually another great example of how this current circumstances is creating innovation, but permanent waste elimination that week.
And deploy in years to come.
Got it. Thank you, yes definitely there. Thank you so much I appreciate it.
Our next question today will come from Ryan Levine of Citi. Please go ahead.
Good morning.
I'm doing your do an easier owing to hammer Capex Contractive force majeure contract provisions that are impacted by this a pandemic.
Well as I mentioned Weve had force majeure notices on some of our large renewable projects, but they're not affecting the timing or the outcome of those projects at this time.
There's no impact on though and I'm contracts or.
The other subjects.
We've not had any notifications of that on our other contracts.
Okay, and then can you give anymore color on the potential items included in the cost reduction initiatives that you highlighted and what portion are more.
Temporary nature for so long term.
Yeah. So you know a hiring freezes, obviously temporary but things like we started using technology and we were just starting this before the pandemic thats why I am so grateful that RC way has been in place now for several years, because we've been deploying capabilities to our time.
<unk> waste opportunity. So here's a great example, we've been whats called auto dispatching a storm crews. So in the past we would wait for in a you know called a year ago, we would have a customer call us notify that their power was out we would start to aggregate all that data in a dispatch center and then a.
Person would determine okay. We have this many outages on this circuit and they would schedule accrue well now that we have automated all of that we've used our digital capabilities are I T team and our engineering and operations teams have been working together, an agile team to actually all across the company, but this is one example of how they.
Now auto dispatched storm crews that say 30 minutes on an outage per customer.
And it eliminates the actual work of doing the dispatching 'cause it's done by a computer it's more accurate and it's cheaper. So it's just things like that all across the company. You know I think it's tempting for management teams to want to have big line items were a believer in the way in our continuous improvement mindset.
Says little line items, all across the company are going to be more sustainable and have grander benefits in the long run to both the experience for customers as well as our fundamental cost structure.
Thanks, and then last question for me what are you seeing in terms of working capital fluctuations in light of the.
Directionally, 10% low decline or post coven name is there any meaningful fluctuations that impact your financing plan.
Reggie you want to talk through the financing plan, a little that Youre happy too.
Yes. So the quick answer is working capital actually has been.
Fairly smoother, let's just say aligning with plant as mentioned we have.
No CP outstanding in generally that would be I'll say, a supplemental source of financing if we saw unpredictable working capital swings, but we obviously.
I've been able to manage the working capital of low volatility today than there has been much of that and so we have not seen at this point any really material changes in working capital, but as Pat you highlighted earlier theres a bit of a lag when it comes to receivables aging and so we'll continue to.
Keep an eye on that we obviously are very flush out from a cash perspective as evidenced by our proactive financings that we did at the end of the quarter. So a little over $700 million in cash in that plus our revolving facility capacity gets is about a 2.3 billion dollar met liquidity position. So we certainly feel like we have enough dry powder to manager.
Any future volatility, but haven't seen a whole lot state to be honest.
Thank you.
Thanks.
Ryan.
And our next question today will come from David Smith of Goldman Sachs. Please go ahead.
Hi, good morning.
David Thanks for taking my question.
Just wanted to go back to a cnine demand numbers again, I think I remember that there was a large customer kind of pre cobot. That's sort of you know already was a bit of a drag on your kind of your year on year comparable.
Am I, remembering that correctly and kind of how much of that 20% to 25% that a customer represent those already known.
Ah that is correct, we have one large customer who had some contracts I bought out at the end actually partway through last year and so they are reflected in last year sales and this year sales and they are they're operating now so they are actually a center.
Well, which is good but they are at diminished load. So they are a portion of that 20% to 25%.
Okay.
But some of that then would already have been plan for when you were thinking about 2020 guidance.
That's true I think we really factor that into our plans for this year.
Okay, and then I'm not the I guess beat a dead horse here, but just on the flex range. When we think about the 10 to 15 cents that you guys have talked about historically speaking now I know, there's a lot of unknowns going forward with 2020, but when you kind of achieved those levels those were more or less kind of meet your earnings target specifically like you had a search.
And amount of negative in that year, and then you flex to meet that and that's kind of what you're illustrating for US here today, that's right that's right and its and its been true on the other side as well that when we've had favorability we've pulled in costs and prepared for the next year and so the thing that I don't want lost on anyone is that.
We are always preparing not just for this quarter or this year, but for years to calm and that's why has made us so reliable at delivering and doing exactly what we said, we're going to do and so that flex has upside and downside that's why slide six shows that.
That range of up and down and obviously this is a down here and we are doing everything we can to leverage our skills and capability of.
Adapting in that range.
Great. Thank you Brad if those are my question Sopa everyone's families. The second healthy. Thank you David you too.
Our next question will come from Paul Patterson of Glenrock Associates. Please go ahead.
Hey, good morning, right Paul Great.
Just first well congratulations on the Supreme Court victory you said.
That's that's it for the state, but is there any other appeal or anything going on at the federal level or where we finally finished with the so.
This proceeding.
Oh, there's one other aspect to the local clearing requirement that is still being determined and it's it's a very procedural element, but fundamentally re author or reconfirming that the public service Commission has the authority to establish a local clearing requirement.
Wasn't very important outcome, they have returns and the proceedings the procedures back to the M. P. S. C for implementation. So there's its still needs to be implemented I guess I should say, but it. It. The order was very important then the ruling by the Supreme Court was very import.
Okay, Great and then with respect to all the bill payment trends that the people been asking about I'm, sorry, if I Miss this but in terms of let's say technically whats uncollectible were bad debt or anything like that but just in general.
<unk>.
If you gave it I apologize for for missing it but so just what the the cadence has been in terms of people paying what Super April but for instance, we're hearing I saw one statistic that one third of people didn't you know this nationwide to pay the rent.
ER for April that they were sort of wheat ping.
The first few weeks.
<unk> numbers sort of like that for what you're sort of experiencing the on the ground you know not yet, but we do know we do have call volume from business and residential customers asking for what we would call Grace an extension of payment plans and so we are doing that you know as we talk to these businesses.
We have three big concerns one is rent as you've described two is payroll three as utilities and so we've been able to be a source of support to them and we feel comfortable extending those payment plans, but that doesn't necessarily then translate into an uncollectible, particularly for our business customers.
And so a and we've got some really good community action agencies and support resources for residential customers that can help them make their payments on time in the short run as well. So I would suggest that our forecast isn't good yet there's more to calm and more to learn and certainly by Q2 will have a much better I.
On a being able to quantify that.
Okay, and then just finally on enterprises.
The force of benefit I apologize again, it's like I just missed this but what would.
What drove that.
Where do you want to talk through the enterprise a quarter happy to give us a Paul was a combination of two things one it was just the absence of an outage in Q1, So filer city did an outage last year and so there was the absence of that and then just good cost performance at enterprises and so that's really what drove the four sent positive variance.
Okay, great. Thanks, so much hanging in there. Thank you. Thank you too.
Ladies and gentlemen, well conclude our question and answer fashion at this time I'd like to turn the conference back over the Patti popping for any closing remarks.
Thank you Allison and again, thank you everyone for joining us today on our call. Please continue to stay safe and be well and you know we really look forward to seeing you face to face when we can we Miss you all thanks so much.
The conference has now concluded we thank you for attending today's presentation and you may now disconnect your lines.