Q2 2020 CMS Energy Corp Earnings Call

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Just a reminder, there will be a rebroadcast of this conference call today, beginning the 12 PM Eastern time running through August.

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. screen body parts, Vice President of Treasury and Investor Relations.

Thank you Rocco good.

Good morning, everyone and thank you for joining US today with me are Patti Poppy, President and Chief Executive Officer, and Richie Hey, Executive Vice President and Chief Financial Officer.

This presentation contains forward looking statements, which are subject to risks and uncertainties.

Please refer to where I see filing 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 measure or included in the appendix and posted on our website now turn the call over the Patty.

Thank you sorry, and thanks for joining us today for a second quarter earnings call everyone. It's great to be with you. A this morning I'll discuss our strong first half results in the actions we've taken to adapt to the challenges in the current year, while keeping an eye on delivering our long term growth in 2021 and beyond Reggie will add more.

Details on our financial results, including impacts related to covert 19, and offsets were seeing from the seaway among other items and as always we'll close with Q and <unk>.

For the first half we delivered adjusted earnings per share of $1.35 up 25% from the same period in 2019. Our first half results were primarily driven by best in class cost management favorable sales mix and timely regulatory recovery as we continue to respond to the ongoing an ever changing.

In circumstances presented by covert 19.

As we've demonstrated through our commitment to the triple bottom line and the way we can tack on surpass extreme challenges operationally and financially presented by this pandemic and its resulting economic impact.

Given the better visibility we have on the pandemic and Michigan's economy reopening we're pleased to reaffirm our adjusted guidance for the year of $2.64 to $2.68 with a bias to the midpoint.

We continue to target long term annual earnings and dividend per share growth of 6% to 8% again with the bias to the midpoint.

Well, yes, she has been a more prominent topic recently for US. It's nothing now our long term thesis is built on our commitment to the triple bottom line of people planet and profit underpinned by performance, which is our way of talking about an activating F G and our decision making process.

Sees.

It starts with people of course, our coworkers our customers and the communities that we serve we've continued to provide an essential service. During these unpredictable times, while keeping our coworker safe to smart work practices, including working from home direct to job site reporting social distancing and our work location.

And ensuring we have adequate testing NPP.

During this pandemic, the social awakening and the local flooding in Midland, Michigan, We've leveraged our foundation to support our customers and communities.

Our ability to respond and deeply care for our coworkers and communities is made possible through the diverse team. We have here at CMS energy, we've maintained a strong commitment to diversity at CMS for many years and this is reflected in the makeup of our board and our management team.

But our work is far from complete which is why I'm excited about our recent promotion of Angela Tomkins as our vice President and Chief Diversity Officer, all of US on the efforts to improve diversity equity and inclusion at all levels Angelos leadership will be vital for us now and in the future Angela co authored our D. and.

Strategy in conjunction with the senior management team over the past several years as a result of this focus we were prepared for this time and the important conversations that are underway inside our company and nationwide.

Our focus on the planet has not wavered, we have net zero plans for both our gas and electric businesses, which are among the most aggressive in the industry. Both in terms of magnitude and timing, while our efforts in the future our ambitious including over six gigawatts of added solar over the next 20 years I like to remind folks we've already.

Made an enormous amount of progress with the closure of our seven of our 12 coal plants with the next two scheduled for closure in 2023.

In addition to new renewables were replacing our retiring capacity with new and innovative solutions such as our demand response program. We ramped up this year with our first of its kind partnership with Google to offer 100000 nest thermostat free to our customers.

We believe in a clean and lean energy future and we plan to lead the way.

All our efforts and success wouldn't be possible without the capital you provide so that last P. For profit is always top of mind as you can see in the numbers and as we're highlighting for you. This morning, our co workers have been busy since we last updated you successfully identifying over $65 million of operating cost reductions since the path.

Demick began in addition to a variety of year over year savings totaling 19 cents year to date and our foot is on the gas our lean operating system provides the ability to create reductions like these in the current year and enables delivering in the years to come as the savings carry forward.

And back by popular demand, it's time for my story of the month. This one comes from our Jackson generating station, where twice a year, we replaced couplings that help maintain lubrication on each of the six gas engines. There. So that's 12 replacements over the course severe.

Now while this is often routine work the team at the plant didn't just follow the routine they brought their 18 years of on the job experience to the table and recommended an alternative coupling which had the same performance in life expectancy, but at a fraction of the cost the team took ownership with the way as they propose this cost saving idea.

This simple, but important change led to over $30000 of annual savings.

Now some of you may be saying petty some on $30000 is not a lot of money, but what you forget is that there are thousands of stories like this across our company and when you add up nickels and Dimes you get dollars in five so I'd like to give a shout out to my three coworkers who made this.

Happen head, Dave and Butch. Thank you guys for taking full ownership of our Companys financial and operational targets and delivering for all of our stakeholders. This is just one example of how our coworkers are feeling empowered to apply the way to their everyday work and ultimately.

Norman throughout the whole company.

The visual on slide six my personal favorite serves as another reminder of our team's ability to adapt to deliver the financial results you've come to expect regardless of the headwinds.

7% EPS growth every year is not an accident.

We wrote the book on adapting to changing conditions and delivering results in the current year that enable next year's success consistency is our hallmark and this year is no different.

We continue to rise that roller coaster and it's been a wild ride. So far this year. So that you can count on the predictable S and dividend growth you've come to expect.

Looking to regulatory matters Commissioner damn scripts was recently named chair of the public Service Commission here in Michigan, He's taken over for Commissioner Talbert Who's being considered for a new role at the ERCOT Board beginning in January 2021, we want to thank Sally for her leadership and look forward to continuing to work with her through the remain.

Our of her time on the commission, we congratulate care scripts as he transitions into his new role.

I will remind you that the commission ordered utility to defer uncollectible accounts and track those expenses above with currently approved in rates, which speaks to our constructive regulatory environment here in Michigan, where thankful to be able to work with the commission to serve our customers in a carrying way during this very uncertain time.

We also have pending gas and electric rate cases, and the MPS you staffs position in both demonstrate great alignment with our capital investment plan and rate base growth. We expect an order in our gas case in October and in <unk> and on our electric case by the end of the year.

Thanks to low priced commodities are cost saving capability and no big bets investment philosophy, we can both invest in safety reliability and resilience of our infrastructure and protect customers from price spikes and surprises through tough economic times like these.

The needs of our system do not change because of a global pandemic and our customers expectations don't either our business model allows us to serve both.

Now turning to enterprises.

I'm pleased to highlight them in a measured growth of our contracted renewables business. As you may have seen last week, we acquired a majority ownership of a 525 megawatt contracted wind project construction of the project is largely complete and has an expected commercial online date set for later this month the projects will offer utility like.

Returns and is largely committed to Facebook in mcdonalds as customers. The bulk of the project is being financed with tax equity and the remainder will be financed with cash on hand from our upsize hybrid offering and without the need to issue incremental equity beyond our planned $250 million. This year. This project continues our.

Track record of developing renewables for key corporate customers, while minimizing risk and providing attractive returns that complement our existing portfolio of assets, including did.

While the growth of our business will be dominated by our investment in the utility we'll continue to seek low risk opportunities to grow our contracted renewable business the enterprises by leveraging our relationships with customers and capabilities as world class operators.

As you are well aware, especially this year conditions are always changing our entire team has demonstrated our ability to adapt for the good of the people. We're privileged to serve this agility has enabled us in the past and will enable us in the future to deliver consistent industry, leading performance year at.

FTR year after year.

With that I'll turn the call over to Reggie.

Thank you Betty and good morning, everyone.

The second quarter, we delivered adjusted net income of $139 million, which translates to 49 cents per share.

Our second quarter results were 16 cents above our Q2 2019 results largely due to cost performance favorable weather and rate relief that of investment related costs futility.

Our non utility business performed as expected as Enerbank had increased origination volume and enterprises had planned outages at its greatly and creating facilities.

Adjusted earnings for the quarter excludes select nonrecurring items, primarily related to severance and retention costs associated with the pending retirement of our corn coal facilities and expenses, resulting from a voluntary co worker separation program.

Both of which commenced in the fourth quarter 2019.

Year to date, we have delivered adjusted net income of $384 million, a $1.35 cents per share up 25% from the same period in 2019 as Patti noted.

All in we are tracking as planned and navigating the impacts of the pandemic by delivering on cost reduction initiatives and planning conservatively conservatively.

As highlighted during our first quarter call. We're closely monitoring our electric sales of utility, which has historically been on most sensitive financial metric during economic downturns, particularly in commercial industrial segments.

At the end of April when we were in the initial stage of the Pandemics with extensive social distance distancing measures in place state wide.

And most businesses close we experienced significant declines in our commercial and industrial normalized load or residential load increases people stayed home while I'm pleased to report there with the phase reopening of Michigan's economy over the past few months.

Electric sales can be done to recover particularly in the higher margin commercial segment and what we are witnessing in Michigan is that while businesses will reopen their maintaining high levels of mass teleworking, which drives power consumption at homes doing business hours. So our residential sales have remained elevated while commercial and industrial sales are starting to.

Turn to their pre pandemic levels.

Our normalized load trends for the quarter reflect some of this or even more encouraged by what we've observed in July given the visibility afforded by our smart meter technology.

The Bar chart on the upper left hand side of slide 11 highlights our year to date normalized load trends would show total electric sales down about 5% exclusive of one large low margin customer. However, the aforementioned favorable sales mix has largely mitigated the year to date decline in normalized load.

And I'll remind you that every 1% change in residential sales equates to over three cents EPS impact on a full year basis, and our combined electric and gas customer contribution skews towards the residential segment.

Our sales outlook for the full year reflects a sustained level of favorable mix residential sales up around year to date levels and whats conservative assumptions around the recovery of the commercial industrial segments Lastly, given that the Corona virus is not yet fully contained the low end of our sales outlook range incorporates a stress scenario, which assumes a second.

During the latter part of the year.

Switching gears TPS you can see the key items impacting our financial performance relative between 19 in a waterfall chart on slide 12.

I can summarize into words, the key driver of our financial performance in the first half a 2020 it would be cost performance as noted in the table on the left hand side of the pages. Patti noted, we delivered 19 cents of positive variance versus 2019 by reducing operating in non operating costs throughout the business, which more than offset the.

Seven cents, a negative variance due to weather in the first half of the year and the Cnf sales degradation and emerging costs directly attributable to the pandemic.

It is also worth noting that level of levels of cost savings achieved and just the first half of year exceed previously referenced historical levels of cost performance over the past 10 years as we step into the second half of the year as always we plan for normal weather, which in this case implies seven cents of negative variance versus the prior year. We're also assuming.

Constructive outcome in our pending gas case, which equates to two cents per share pickup.

Lastly, we were ever mindful that potential resurgence in the buyers in Michigan and other common sources of risk to our business such as mild weather and storms as such we're planning conservatively by continuing to deliver on our cost reduction initiatives to establish sufficient contingency should any of the aforementioned risks arrives you can see on the table.

The right hand side of the page our estimates for the potential as impacts of the forecasted sales range I referenced on the prior slide which as noted incorporates a potential second wave, Michigan as well as additional expenses related to the pandemic, which we estimate at nine cents per share in aggregate.

To offset these potential cost potential risks, we're on track to deliver another 10 cents per share cost savings, which is further supported by an additional 10 cents per share of weather related tailwinds that we've observed in our July electric sales.

This glide path provides good financial flexibility heading into the final five months the year to mitigate risk that emerge in 2020, well beginning to de risk 2021, and beyond through operational costs pull ahead and other means to the benefit of customers and investors.

Now on the capital our customer investment plan remains on track for the years, we continue to make progress on our numerous electric and gas supply and infrastructure projects, while keeping our coworker safe by tier into the CDC guidelines, we're often asked whether we've seen disruptions in our supply chain for renewable projects I'm pleased to report the remit we remain on track.

Track on all fronts in fact, our grass should and Hillsdale Windfarm project, which will collectively supply over 300 megawatts and help us meet Michigan, 15% renewable standard by 2020 2021.

On course for commercial operation in 2020.

Similarly, we continue to make progress towards the 1100 megawatts of new solar supplies through build transfer agreements and contracted solutions by 2024. As a reminder, this represents the first tranche of the 6000 megawatt program that Patti noted as approved in our integrated resource plan in June of last year.

Sure.

Longer term our current plan calls for approximately 12 in the quarter $1 billion of customer investments over the next five years and supports rate base growth of 7% over that period.

This capital plan reflects the continued monetization of our electric and gas infrastructure as well as increased investments.

Two decarbonize our electric generation assets will also remind you that our five year customer investment plan is not limited by the needs of our system, but instead by balance sheet constraints workforce capacity and customer affordability.

To elaborate on the point around customer affordability as we work toward delivering on cost reduction initiatives in 2020, our bias remains toward projects to deliver sustainable savings to create long term headroom and customer bills.

As you'll note on slide 14, our five and a half billion dollar cost structure offers ample opportunities to reduce costs to the extra exploration of high price PPH. The retirement of our coal fleet capital enabled savings as we modernize our electric and gas distribution systems and the continued maturation of the CE way.

Long term headroom created in our electric and gas bills by these efforts will support our substantial customer investment needs of the utility to the benefit of customers and investors.

You can see the long term effects of our historical cost reduction efforts in the chart on the writing inside of the slide which illustrates how we've managed to keep customer bills low on an absolute basis and relative to other household staples in Michigan, while investing over $17 billion of capital over that timeframe.

As I've said in the past paying five to $6 per day for clean safe reliable electricity and natural gas is an extraordinary value proposition due in no small parts to our cost discipline and triple bottom line mindset.

Switching gears to our financing plan, we are quite active in the second quarter Opportunistically tapping the market to complete the vast majority of our plan financings for the year.

From an equity financing perspective, we announced in our Q4 call our plan to issue up to $250 million of equity all of which is priced.

In equity forward contracts.

We exercised $100 million back capacity in late March with the remaining $150 million front still outstanding.

We also filed a prospectus supplement during the quarter for $500 million to refresh or ATM program, which is intended to cover our equity needs over the next three years.

All of our financings have been executed it turns favorable to our plan, which offer intra year savings and help de risk the future.

We've also maintained a healthy biased towards liquidity management with over $3 billion of net liquidity available in the event the capital markets become choppy again.

As we look ahead, we'll continue to maintain flexibility and capitalize on accommodative market conditions will may emerge and with that I'll pass it back capacity for some closing remarks before we open up lines for Kuni.

Thanks, Reggie our team is committed to delivering for customers and you are investors. The capital you provide is critical and our long term track record of managing that capital speaks to that commitment.

We remain good stewards of our balance sheet with prudent planning and already this year, we've executed financings at attractive rates that enable us to fund our capital programs. We continue to rely on the way and lean into that lean operating system, we have in place and as a result, we improve both our cost structure and our customer experience.

Since each and everyday Michigan continues to remain a top tier regulatory jurisdiction with forward looking test years, and 10 month rate cases, we're fortunate to have such a constructive regulatory framework Institute.

Our system remains in great Nita replacements and upgrades that won't go away as a result of the current pandemic. We're fortunate that our plans have embedded structural cost reductions in the form of retiring coal plants NPPA threes retiring.

None of this comes at a price to our planet and our home state of Michigan.

Net zero carbon and methane plans remain as important today as a day, we established them our model holds together well and that's why the thesis remains strong and that's why we can rely on our triple bottom line to get us through this ongoing pandemic just as it has in the past and we'll do in the future.

With that Rocco will you. Please open the lines for today.

Thank you very much body. The question answer session will be conducted electronically.

If you like to ask a question. Please do so by pressing the star key followed by the digit one under touched on telephone.

If you're using the speaker function. Please make sure you picked up for handset.

Well for seems to be orders or loss I will take as many questions as time permits.

Do find your question has been answered you're going to remove or so we're pursuing the starts you followed by the 200 plus still volatile.

We'll pause for just one sir.

Our first question today comes from James Celgar will be around capital markets. Please go ahead.

Good morning, guys how are you.

Great. Good morning few James.

Just real quick follow up and maybe this one through you read you know clearly july's been hot and you've actually had the benefit of the the mix.

With rosy continuing to be very very strong commercials kind of trending on the on the lower end of where your forecast was but industrials kind of on the higher end.

As you as you think about through the full year. It seems like those things have kind of balanced out in kind of kept in check as you've pushed cost savings through but.

Did you mention kind of sort of maybe we see a double dip on uncoated as we go into the back half of the year. How are you thinking about those sales forecast as we think about the second half in case, we do have sort of a resurgence in the virus.

James Good question. So we did take that into account and so I'll point, you to slide 11, where we show the downside range embedded in our full year forecast in the lower left hand corner. The page and so you can see we are taking into account.

A potential second definite stress scenario and so that shows commercial backing up to around 12% on a full year basis, which obviously means that the latter two quarters will be quite bad and then you can see industrial at 18% again on the low end and that excludes one large low margin customer, which would even make that number a little.

Lower and so we are taking into account and I'll also point you to the next slide Slide 12, we estimate what that margin impact will be at seven cents of EPS dilution. We're always we're also mindful of the potential emerging costs that may come around if there is a second def and so we're taking into account quarantine related expenses.

Central sequestration related costs, and we think that Thats, probably another two cents and so all in we think theres about nine cents of EPS related dilution in the event Theres a double dip and so when we look at July sales based on our smart meter data coupled with our cost savings that we feel very good about achieving over the second half of the year, we feel like we have.

Sufficient cushion to stelmach that downside case now obviously, it's a pandemic and so this is unprecedented but we feel good about the road ahead, just based on our current calibrations.

Okay, great. Thanks for a thanks for pointing that out I appreciate it.

Valuations on a great quarter. Thanks.

Our next question today comes from Jonathan Arnold with vertical Research partners. Please go ahead.

Hi, Good morning, guys Corning Jonathan.

Richard can I would you guys just asking to give us a little bit more of a sense of the sort of trajectory, but you've seen on them. Yeah. The sales in different classes. You obviously showing this year to date, we have the.

Second quarter in the release and then you made some comments about July that's sort of trending.

Better I think before we talk about the weather just took just a feel for kind of how you may be the sort of lots of part of this period is looking relative to the Q2 outwards.

Yeah. So I would say it's been a very nice progression. If you think about the months in Q2, obviously April I would say represented the.

The bottom and bottoming out and so as we highlighted in our Q1 call, where we had pretty good visibility on April we were down about 20% to 25% and then as we progressed into May and June we saw a very nice progression as the state we opened.

And so first you have the industrial sector start to come back around mid mid mid may.

And then non essential retail shortly thereafter, and so with the gradual reopened reopening of the state we're now seeing.

Cnine levels really come in and so to give you a data point.

For.

June for commercial we're about 9% down.

And we were basically 20% to 25% down in April and so there's been a nice recovery and the July trends at this point, it's early days and so I really tried not to overreact to smart meter data, but we're looking at at about 90% to 95% of pre pre pandemic levels for our commercial industrial sales and so there's been a very nice.

Gradual recovery month over month over the course of Q2 announced in July. So we're cautiously optimistic and you can see that reflected in the full year forecast, but needless to say, we plan conservatively and so in the event. There is a double dip twin peak whatever you want to call. It we're going to make sure we have enough cost savings and other sources of.

Contingency to mitigate that risk is that helpful. Jonathan Thats great. Thank you for that and then just on the there was a number of mentioned of 65 million on cost saving and it does I had I think it was probably is.

Hi, good remarks that was incrementals or will you delivered in hot first half, but it's just that could you just talked about 65 back to what you said on slide 12.

I'll go where is that.

Yeah, Jonathan that is embedded in the.

19 cents year to date savings, but part of the 65 million will carry through.

And be realized as the year progresses, so there really sort of apples and oranges, but let me be clear about a couple of things $65 million is definitely not the finish line and again as you've noted it doesn't reflect all of the year over year savings year to date, the teams identified $65 million in operational cost reductions so.

Our this year and so when we add and other year over year additional non operational savings.

That's again, what gave Regius point about 19 cents year to date, but again, that's not the full year number and it is a little bit apples and oranges, but one of the things to remind you as that you know our best ever performance was 15 cents for a full year, we talked about that in Q1, and so you can see why we're so proud of this team and why I.

I'm glad that we started preparing for this year four years ago. When we launched the way you can't make a friend when you need one and it takes time and so I'm grateful that we are not launching a cost savings program. This year, we're relying on our friends the seaway and she is delivering record levels. This year right.

On time.

So you know I'd be happy to give some additional color to that but just like the story them on that literally is happening all over the company and it's been for years and the making so proud of the team.

Thank you very mode.

Remember questions today comes from Julien Dumoulin Smith with Bank of America. Please go ahead.

Hey, good morning team congratulations on a continued success as you say on the right.

But.

Perhaps start where were the last question left off.

Can you talk about how much contingency you left in your program, obviously I imagine in even prepared for second quarter results. The way that the July weather has trended already has shifted the need.

And your overall expectations for contingency even relative to the content that you laid out for the back up here. So can you talk about how this even positions you into 21.

Based on what you've been Youre disclosing here. It's that's a fair would ask the question as well yeah. It's a great question Julien cause we're thinking about it all the time Reggie talked about the 10 cents and so that's sort of in our pockets in the event of greater risk because a year progresses, but we're always redeploying cost savings back into the business. So it's never.

A question of what's sustainable for us or a whether we're constantly.

Finding those savings we're constantly eliminating waste and then read redeploying those savings as needed what's cool about these smaller savings and the way we do it as it gives us optionality.

I will improve the number of miles trimmed for example per dollar or reduce the cost prevented service replaced but then if we can trim more trees or replace more services we will.

Whether that's in the current year, because we've got favorability or in the future year because in fact, we pull ahead work.

So we've gotten 19 cents of year over year cost savings or about 75 million, which again that's on an accident. We're in the process of planning for 2021, but the key is like every year, we maintain a significant amount of flexibility to manage our business to meet both the commitments to customers and to you are a investors and.

Great analysts like you Julien we ride this roller coaster so that no. One else has two they you know everyone else all of you get to count on those consistent predictable outcomes, because we're making those choices year in and year out. So now and we look at what we've achieved year to date and expect for that.

Rest of the year quite a bit of that can carry over into next year, but again, we always fine tune and in a particular year. We align the plan also to our what 10 rates and so we're just continuing to conclude our rate cases, which will be able to align with our approved plans and then our.

Cost savings can be deployed as required.

Does that outlook it absolutely. Thank you.

If I can pivot a little bit more to the strategic question. Here. Obviously, you guys are getting deeper into the contracted wind signed outside of rate base can you speak a little bit more to how you see that business evolving.

And capital commitments within that and maybe if I can ask it. This way how do you think about that as a percent of good total growth over time in the six to eight are really kind of.

Supplementary complimentary however, you want to however, you want to figures or frame it but I'm curious just given how large is this this initial investment to.

On the platform question, Great question, Julien I'll start and then I'll, let Reggie.

And some more of the additional details.

Theres key criteria for us as we look at these opportunities.

They're always opportunistic you know given the market conditions, given the demand we need to make sure that three things are true number one that their customer driven.

We aren't doing one off auction auctions to acquire assets were not way back in the development phases of projects, we're working with customers to have a repeatable business.

And so for the example, aviator it wasnt an auction we needed a developer and these customers have a desire to grow their renewable energy and weren't a great position to further those needs. It's a key component of the planet part of our Triple bottom line number two they have to have utility like or better returns.

Our utility business has a lot of demands for capital. It's got a lot of opportunity for growth. So a project like aviator has to compete with other utility projects given that the bulk of our growth for the company is driven by the utility.

These projects has to be really good for them to get to yes from us here a number three they need to not add risk to the consolidated business. So this project. For example has two high quality credit worthy off takers you saw in the press release, Mcdonald's and Facebook.

The term of the PPA phase or greater than 10 years. So it's a good example of an opportunistic project that came to us because we've got a reputation being able to close the deal and operate it well and when it meets that criteria. Then we continue looking at it and so when we think though about the long term growth of the company to your question about the role it plays.

It's in six to eight it plate.

The enterprises business plays.

About a 5% of our earnings now we don't expect to have non regulated growth beyond that 10% of our totally a company portfolio. So the bulk of our growth as a utility that's our bread and butter. That's what we focus the bulk of our time on but where enterprises can grow.

With the utility doing what we do well, which is operate renewable projects and we serve customers well then that's a nice complement to the a and a portion of a piece of that 6% to 8% Julien the only thing I would add to pad is good comments is you know.

Patti mentioned in her prepared remarks, if there was a slug of tax equity and that was not an insufficient slogan. So.

If you look just on the surface and see 525 megawatts and then apply what you think is a standard cost per kilowatt.

You could think the investments quite sizable but again as a pretty material slug of tax equity and were also a joint owner of the of the common equity for lack of a better characterization and so this really is not all that significant and investment from our perspective in fact, it's quite comparable to the size investment we did for northwest, Ohio year, and a half ago and so.

We are being as Patti noted opportunistic we're trying to hit singles and doubles here, we're not swinging for the fences and so we'll approach this as.

The type of business, we're gonna can be I think to your words complimentary or supplement our portfolio, but again.

Triples in home runs here.

Now I'll leave it there. Thank you thanks Julien.

Our next person goes for Andrew Weisel were Scotiabank. Please go ahead.

Good morning. Thanks.

Hi, everyone.

I wanted to ask a little bit more about the financing year to date and page 15.

It looks like you're well ahead of the initial plan a and a lot of that seems like it was done since the one Q call. So it wasn't purely reaction to the uncertainties around cobot I'm sure you just walk us through while you were still aggressive with the debt. What your plans are for those term loans and how that how you think about the liquidity at over 3 billion.

Yeah. So.

Andrew I'll take the last part of your question for something at the end of the day, we do not intend to have a bunch of lazy capital sitting on our balance sheet and so we fully expect a 3 billion to come down quite a bit by the end of the year, but again as I mentioned in my prepared remarks, we are biasing towards liquidity management, because the viruses and get contained in so it.

The event Theres increase or continued volatility in the capital market. We want to just make sure. We have sufficient liquidity now as you think about the components on page 15, you can see for.

From a first mortgage bond perspective at the Opco were well in excess of what we hadn't planned at 1 billion to but I'll I'll. Just note that there were a couple of maturities were dressing that will make those numbers look a bit more normalized and so we have a term loan that you can see that we have yet to repay again in the interest of just airing on inside of extra liquidity, particularly given the relatively low cost and.

So that's a 300 million dollar term loan. We also pulled forward on maturity at the Opco in 2022 that had a five handle and so a very nice positive carrying that trade and so you take the two of those together that year to date first mortgage bonds issued to date looks much more normalize relative to what we are.

And plan and again.

Thinking about that same logic at the Holdco, we did the hybrid which is a little higher than what we anticipated, but thats again, we have some flexibility in prepaying a term loan.

Before it comes due or as it comes due so I wouldn't overreact, we're just being opportunistic and really again erring on the side of liquidity, but again by the end of year I'd be surprised if we were at that level of.

Excess liquidity again by year end, particularly given the capital needs we have at the utility.

Okay, Great. That's helpful. Messed up just to be very clear on page 12, the waterfall for the six months ago that risks and opportunity box, obviously, you're showing.

Somewhere between two and nine cents of negatives versus 20 cents of positives.

That I believe the minus 7% to minus three since you have for cost savings usage. Another I am I reading this right that you're basically saying that negative is kind of what you're expecting from Kobe, but you have 10 cents of additional costs offset and 10 cents of July weather that should help you out and if that's the case if.

Nothing else changes would you be able to reinvest those 20 cents by yearend.

Yes, so quick answers, we feel quite good about the contingency that weve expect to accumulate over time, particularly when you take July weather.

So you have effectively some excess contingency based some numbers were seeing what I'll note that just for.

Clarity as that.

Thank you.

[laughter], there's a lot more in that than just the items, we've enumerated in that table and so it's a hodgepodge of things.

But we just highlighted here what we think is most noteworthy and again we've taken into account in this math on the table a stress scenario, which obviously is in our base case, where we're seeing even in the event that we start to see margin erosion for commercial industrial life.

11, it's been a structured.

We still think that couple.

Oh gosh, that's come again, if you have a secondly, we feel like we have generated the will generate about savings as wells with the July weather, where we have sufficient contingency the Pat if you would like to add to that by all means well I'll just.

Get to the latter half of your question Andrew you know we.

Ah expect that we'll be able to redeploy funds this year for the benefit of customers and we're always planning for next year. So.

We just want to make sure that we always and we have great capability to deploy those funds as required and pull ahead expenses until we've got ample time to between now and year end.

To make those adjustments and we've had some success with some regulatory treatment.

Your rate year end, where we can push forward some programs and some benefits for customers into future years, and so we really think that theres a good opportunity for us to leverage any favorability that we would have this year to serve customers and investors.

Good position to be and I'm sure you're trees will be will trim by year end [laughter] that serve our customers love that answered away.

Great one last one if I can on the rate cases, your neighbors in Michigan recently settled their natural gas kits into for the electric case by a year I know that no to utilities or rate cases are the same but do you see potential for something similar for your rate cases are there certain inspectors that may preclude taking actions like those.

You know it is a creative option leveraging those deferred income taxes, and so certainly we'd be open to considering it well keep looking at it we've got good alignment with the staff on both our electric and our gas cases, there both in flight as we speak and so we would look at it.

But I will remind you that we do we don't object to annual filings for two reasons number one it allows us to flex the capital planning all of our rate cases are forward looking and so as needs of the system change as conditions emerge and because we don't have a big bet capital plan, we can modify our plan on an annual basis to bear.

Just reflect the greatest needs for customers and so that's important to us, but I'd also say that our rate cases are also opportunity is opportunities to pass on cost savings to customers and so a you know we think about the last seven years. For example, we've invested $15 billion capital and our electric bills are down five.

For sat in our gas bills are down 30%.

I mean this is just that that's the math that backs up our business model that says, we can invest capital, particularly capital that saves customers money and the transition to cleaner energy and the reduction of these large PA is that are coming forward skipping rate cases actually prevents us from passing along side.

Thanks to customers. So we certainly are taking a look at the deferred income tax and perhaps delaying a case, but it isn't necessary for us to protect the affordability for our customers.

Great. Thank you so much yep. Thank you.

Remember of course, but it comes from showed Peru preserve Provo with Guggenheim Partners. Please go ahead.

Morning show Hi, Good morning, Hi, Good morning, it's actually Comping being here for sharp wrap every quarter.

Thank you a lot of questions have been already answered and so it's going very comprehensive just going back to the aviator project just wanted to kind of get get some thoughts on kind of given that this acquisition was prompted kind of relatively.

Outside of plan I guess does that imply returns above utility always and kind of how does this acquisition said within the current Capex plan.

Yes, so I can take the constitution and thanks for the question. So it's probably noted I mean, we evaluate all these projects.

When we're looking at.

Capital allocation across the company because it is quite competitive internally, we make sure that the returns are comparable to those of the utility if not better and so we feel quite good about the economic profile. This project and again as Patti noted we also want to make sure that were not describing a lot of terminal value to these types of projects and that theres.

Very good credit worthy offtake, and we feel like this project checks as boss now checks those boxes now we do not conflate utility capital investments with the sensor projects to the tune a quarter billion that we highlighted in our Q4 2019 call. We're still on track to deliver that and this is again opportunistic it's not changing our financing plan as Patti noted and so.

We feel like this is a nice opportunity to take advantage of its not a trippler homeowners to single or double in this aligns with I would like to evaluate and take on projects like this going forward.

Your next question comes from Merck warrants, New with credit Suisse. Please go ahead.

Hi, guys.

Hi, Mike.

And one of my questions were answered, but I wanted to go to slide 21, just to the Nols and credits that are increasing overtime is that because you have more renewable projects that you're expecting to bring in overtime or is that just from the existing.

Project portfolio.

Yes, it's more the form running we've always had a good balance of Ano wells and credits, but we do see.

A little bit of accretion in the balance because of some of the renewables. We expect so thats largely but that is Michael.

So I mean that would imply that you're probably not going up much of a tax appetite and you would probably have to continue using tax equity.

As you invest in these renewals, yes, where we sit at this point, we don't expect to be really a meaningful federal taxpayer until around 2024, and so our senses the tax equity will likely be this financing vehicle does your for some time.

Yeah, I mean is it possible could you give us a sense of the cost the euro you're seeing for out there.

Where's the yes, it's the capital Yeah, I'll say, it's attractive as you know obviously, it's not as cheap as a debt a plane or common debt financing.

But also it's not as expensive as traditional common equity and so it's in between and we think the rates that we've.

Negotiated for this particular transaction are quite competitive.

That's something that you're not seeing for instance, a decline in investor appetite due to lower tax rates or.

Now we actually we like I said this a pretty meaningful slug of tax equity that's been in this project in a for other projects that we evaluate from time to time, we haven't seen any contraction in the market for tax equity, but we'll see I mean, obviously, if there is another bit of volatility in the market because there's a double dip or twin peak whatever you want to call that melt market may backup for now.

So it's been quite accommodative.

Okay and one last question I mean is would be increase in any wells that you heard a tax credits or and that on slide 21, how many more projects do you think that sort of implies.

24, Yeah, I wouldn't say, it's that I wouldn't say our financial planning is that prescriptive again, we intend to be opportunistic on these types of projects and so we're assuming I think a modest level of additional project flow and Thats, where you see again, a modest bit of credit accretion. So again, we're not swinging for the fences here and assuming that.

There's going to be material increase and our I know wells or a credit specifically because of projects like this.

Okay, alright, thanks, a lot Reggie thanks, a lot Patty.

Thanks, Michael.

Our next question comes from Germany, Pervert with JP Morgan. Please go ahead.

Hi, Good morning. Thanks, just one question Yeah. Good morning, just one question for me here with the bank side just wanted to see if you could provide a little bit more color on how things shaped up the second quarter relative to your expectations, there and just general that.

The thoughts and trend has.

The through the balance of the year on the bank side would be helpful.

Sure I think the quick answer is the bank is on track and so we guided to 18 to 20 cents for the full year and they are on course to deliver that now.

You'll see for the quarter.

For the period over period comp they were behind by about a penny that was per plan.

Because they started the year quite well and obviously, we've implemented the new accounting standard current expected credit losses, and so that has a material impact on the provision for loan losses, and so when you comp into 2019, you may see in the odd quarter, a little bit of leakage quarter over quarter, but were fully on track Weve continued to see very good origination volume across.

Most of the projects that we provide financing for and I think June was a historical month of loan approvals and loan originations and so we're trending on plan and really haven't seen much backup but for I'd say April to for for a little period of time.

That's very helpful. Thank you for taking my question. Thank you.

Jeremy.

First person goes control Charles Moore with Morningstar. Please go ahead.

Good morning, everyone.

Yes.

Oh not to belabor. This year budget go back to slide 12, again, and just wanted to triple check I'm understanding. So the 19 cents you save so far this year and then going into the right side. The tons subs are those the same number such that when you talk about redeploying.

Operating costs or anything other than any other savings, but the 19 SUNS would then go to 10 cents for the full year or is it something else going on the.

Not understanding yeah, so just to be clear Travis so in the first half for the year that 19 cents remember that as a comp relative to 29 team and so you have a few things flowing through that some non operating savings you can see some flex and work optimization that 10 cents that you see in the right hand side that align.

And with the 65 million that pad another released a good portion of it that we have identified and realized to date and so that's the what you see in the year to go is really the vast majority of the 65 million of operating cost savings that we've delivered through the CE CE way so the lean operating system supply.

Hi changed a little bit.

Work mix that was favorable as we take on M. resources over to capital projects, particularly during the shoulder months and we were quite effective at that and so that 10 cents is largely the 65 million again that Patti noted in her prepared remarks.

Okay, Okay, very good and <unk>.

<unk> is there's a scenario where if you continue to have the favorable weather that you could actually.

I have that number come down such that you pull ahead more cost so you might have.

Incurred in a 21 or 22.

You have in the past years.

That's great that's right Jeremy or Travis we definitely pull ahead, a those savings and when we can prepare for 2021 and so.

You know to get really specific a 19 cents plus a 10 cents, that's all opportunity and so when you look at our slide six which is what I, sometimes refer to as the Swiss swish slight [laughter]. The roller coaster slide we will as the year materializes have options about how to deploy those savings whether they have to the benefit of this year.

Or to the benefit of 21 and 22. So we're definitely in forward planning right now for next year on how best to de risk 2021, with the upside that we've identified through these cost savings.

Okay, Great I appreciate it and it's all that yep. Thanks. Thank you.

Your next question comes from Burger stroke ROE were Evercore ISI. Please go ahead.

Hey, guys. Good morning lot of good discussion I just have one question.

Going back to these on M. savings how should we think about how are they handled in your near ongoing rate cases has your so better you mentioned you know 21. So we think about 21 should we assume that this will be reflected in your rate plans in other words some of those or most of this goes back to the customers. How are you sort of.

Dealing with that in your ongoing rate cases.

Yeah, because we have forward looking rate, making we always align our rates in our own out. So you know internally when a rate cases approved then we align the spending to match it a and so when we have favorability or we have cost savings that are in addition to whats in a rate case in year than in.

In that current year, we may have a short term benefit of that but that's why I will take those short term benefits and reinvest them for example trend more trees or do more maintenance or pull ahead. Some expenses from next year, but we're always because of that forward looking test year, we really are able to align our spending and our rate outcomes.

Understood appreciate it guys great quarter. Thank you. Thank you.

And ladies and gentlemen, this includes of course alerts or some other vertical back over to probably probably for bundle worse.

Thank you Rocco great to be with everyone. Today. Thanks, so much for tuning in and now please be safe and be well I hope you on your families are able to come together, a and b healthy. During this very challenging time, we do look forward to seeing you face to face someday, we can't wait and now we'll Miss you.

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Thank you. This concludes today's conference call. Thank you everyone for your participation have a great debt.

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