Q3 2021 CMS Energy Corp Earnings Call
CMS Energy's website in the Investor Relations section.
At this time I would like to turn the call over to Mr. Shrimati Party Treasurer, and Vice President of Finance and Investor Relations. Please go ahead.
Thank you Rocco good morning, everyone and thank you for joining US today with me are Garik Rochelle, President and Chief Executive Officer, and Richard Heyse, Executive Vice President and Chief Financial Officer. This presentation contains forward looking statements, which are subject to risks and uncertainties. Please refer to our SEC 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 to Gary.
Thank you Sri and thank you everyone for joining us today.
I'm pleased to share we have delivered another strong quarter and continue to be ahead of plan for the year.
Walk through the specifics in a moment, but I couldnt be more pleased with the strong execution demonstrated by the team both operationally and financially.
We continued to deliver every day for our customers coworkers and for you our investors.
Earlier this month, we completed the sale of interbank grossing over $1 billion in proceeds I want to thank the entire team that brought this to close.
The sale of the bank simplifies and focuses our business model squarely on energy.
Primarily the regulated utility and important step as we continue to lead the clean energy transformation.
The proceeds from this sale will fund key initiatives in our utility business related to safety reliability resiliency.
And our clean energy transformation.
As shared in previous calls we have eliminated our equity needs from 2022 through 2024.
Furthermore, <unk>, who will highlight in his prepared remarks, while we have continued to reduce this year's equity needs as well.
The keyword there continued.
As we double down on the clean energy transformation I'm also pleased to share that we received approval for our voluntary green pricing program.
Which would add an additional 1000 megawatts of owned renewable generation to our growing renewable portfolio.
This program is in high demand and currently oversubscribed.
And more importantly, what our customers are asking for an important step in offering renewable energy solutions for our customers.
As we prepare for the grid of the future we have a highly visible in detailed capital plan outlined in our recently filed electric distribution infrastructure investment plan.
This plan provides a five year view of the projects.
Down to the circuit level, where we plan to invest to ensure the reliability and resiliency of our electric infrastructure and aligned with our operational and financial plans.
As always we balance these investments with customer affordability.
Our prices remain competitive as the average rep average residential customer pays about $2 a day to heat their homes.
And $4 a day to keep the lights on.
And because we know our most vulnerable customers still struggled.
Our team has mobilized resources at the state and federal levels to ensure their protection and.
In fact, as we approach the winter heating season or.
Our 90 day arrears are back to pre pandemic levels with an 80% reduction in our uncollectible accounts.
Our commitment to identifying and eliminating waste means that we keep our prices affordable.
This commitment is evident in our results.
And the first nine months of this year, we surpassed our full year cost reduction target of more than $40 million.
The CE way.
Is in our DNA and.
And we continue to deliver savings in the near term and well into the future.
Speaking of the future. This year, we grew our EV program with power My fleet.
This is part of our long term planning and collaboration with Michigan businesses governments and school systems looking to electrify their vehicle fleets.
Within just a few months of the program introduction, we are working with nearly 20 different customers on their fleets and have another 50, who have indicated interest the next launch.
Exceeding our expectations.
This is an important contribution to our long term sales growth.
And finally.
One of my favorites, which speaks to our culture, our coworkers and our ability to attract the best talent.
Our commitment to diversity equity and inclusion continues to be recognized nationwide.
And most recently by Forbes, where.
We are ranked the number one utility in the U S for both America's best employers for women.
And number one for diversity.
Delivering excellence everyday continues to position the business for sustainable long term growth.
Strong execution leads to strong result, with two are linked one drives the other.
In early August we experienced one of the worst storms in our company's history.
Our team established an incident command structure to deploy resources and took decisive actions to restore customers.
We had a record number of crews on our system.
The speed of our response led to the highest positive customer sentiment.
Ever received during a major storm.
I'd be remiss, if I didn't take a moment to thank all of our coworkers who responded to the call.
During the storm, we had more than 3700 members of our team working around the clock.
<unk> fleet restore customers.
Like we do every year with storms.
And amex.
And on seasonal weather, we continued to deliver.
And when there is upside we reinvest.
This is the CMS model of.
Responding to changing conditions that allows us to deliver consistently year after year.
Year to date, we have delivered ahead of plan with adjusted earnings per share of $2 18.
For continuing operations, our strong performance coupled with the completion of the interbank transaction and the financial flexibility that provide gives us further confidence in our ability to meet our full year guidance, which we've raised to $2 63.
To $2 65 from $2 61 to.
$2 65 for continuing operations.
For 2022, we are reaffirming our adjusted full year guidance of $2 85 to $2 87 per share and our continued strong performance in 2021 builds momentum for 2022 and beyond.
Longer term, we are committed to growing our adjusted EPS toward the high end of our 6% to 8% growth range as we highlighted on our Q2 call.
As previously stated we are committed to growing the dividend in 2022 and beyond.
It's what you expect why you own us and we know it's a big part of our value.
As we move forward, we continue to see long term dividend growth of 6% to 8% with a targeted payout ratio of about 60% over time.
Many of you have asked about gas prices.
And the impact on our business and more importantly, our customers.
Let me tell you about our gas business.
We have one of the largest storage fields in the U S.
And compression resources to match.
That is a significant advantage.
We started putting natural gas into our storage field in April and.
And continued throughout the summer when natural gas prices were low.
Right now our fields are full.
Eddie to deliver for our customers heating needs throughout the winter months.
Most of the gas is already locked in at just under $3 per thousand cubic feet, which is well below current levels in the spot market and offers tremendous customer value.
Given the operational certainty of storage.
As well as the financial protection of our pass through clause, our customer stay safe and warm all winter long and affordable bills.
Heat and Michigan is not an option and we don't leave it up to the market, we by store and deliver.
That's what we do.
Michigan strong regulatory construct is known across the industry as one of the best.
It includes the integrated resource plan process.
Which is a result of legislation designed to ensure timely recovery of the necessary investments to advance safe reliable and clean energy and our state.
Michigan's forward looking test years, and three year pre approval structure of the IRB process gives visibility on our future growth.
It enables the company and the commission to align on long term generation supply planning and provide certainty as we invest in our clean energy transformation.
Here's what I like about our recently filed ERP.
There is a win for everyone.
It is a remarkable plan that addresses many of the interests of our stakeholders and ensure supply reliability it reduces cost and it delivers industry, leading carbon emission reductions it's clean.
We continue to have constructive dialogue with the staff and other stakeholders and we anticipate gain their positions later today.
And with that.
I will turn the call over to Reggie.
Thank you Derek and good morning, everyone.
I am pleased to offer the details of another strong quarter of financial performance at CMS as a result of solid execution across the company.
As a brief reminder, throughout our materials, we report the financial performance of interbank.
As discontinued operation, thereby removing it as a reportable segment and reporting our quarterly and year to date results from continuing operations in accordance with generally accepted accounting principles.
Now onto the results for.
For the third quarter, we delivered adjusted net income of $156 million or <unk> 54 per share. The key drivers for the quarter were higher service restoration expenses attributable to the August storms that Eric mentioned and planned increases in other operating and maintenance expenses in support of key customer.
And operational initiatives.
These sources of negative variance for the quarter were partially offset by favorable weather the.
The continued recovery of commercial and industrial sales in our electric business and higher rate relief net of investment related expenses.
Year to date, we've delivered adjusted net income of $628 million or $2 18 per share, which is up 19 per share versus the first nine months of 2020 exclusive of interbank financial performance. All in we continue to trend ahead of plan and have substantial.
Financial flexibility heading into the fourth quarter.
The waterfall chart on slide eight provides more detail on key year to date drivers of our financial performance versus 2020.
For the first nine months of the year right.
It really continues to be the primary driver of our positive year over year variance.
To the tune of <unk> 45 per share given the constructive regulatory outcomes achieved in the second half of 2020 for our electric and gas businesses.
As a reminder, our rate relief figures are stated net of investment related costs, such as depreciation and amortization.
Pretty taxes and funding costs at the utility.
This upside has been partially offset by the aforementioned storms in the quarter, which drove 16 cents per share of negative variance versus the third quarter of 2020, and <unk> 11 per share of downside on a year to date basis versus the comparable period in 2020.
To round out the customer initiatives bucket planned.
Planned increases in our operating and maintenance expenses to fund safety reliability and de carbonization initiatives added the balance of spend for the first nine months of the year, which in addition to the August storm activity added <unk> 35 per share of negative variance versus the comparable period in 2020.
Cost savings realized to date, which is Derek mentioned have already exceeded our target for the year with more upside to come.
To close out our year to date performance. We also benefited from favorable weather relative to 2020, and the amount of <unk> <unk> per share and another <unk> <unk> per share of upside largely driven by recovering commercial and industrial load.
As we look ahead to the remainder of the year.
We feel quite good about the glide path for delivering on our EPS guidance range, which had been revised upward to $2 63 to $2 65 per share as Garik noted as we look ahead, we continue to plan for normal weather, which in this case translates to <unk> <unk> per share of positive variance given the absence of the unfavorable weather.
<unk> in the fourth quarter of 2020.
We will also continue to benefit from the residual impact of our 2020 rate orders, which equates to <unk> <unk> per share and is not subject to any further mps's actions.
And we'll make steady progress on our operational and customer related initiatives, which are forecasted to have a financial impact of roughly <unk> <unk> per share of negative variance versus the comparable period. In 2020, lastly will assume the usual conservatism in our utility non weather sales assumptions in our non utility segment.
<unk>.
All in we are pleased with our strong execution to date in 2021 and are well positioned for the remainder of the year.
Turning to slide nine I am pleased to highlight that this year's financing plan has been completed ahead of schedule in the third quarter, we issued $300 million of.
A first mortgage bonds at a coupon rate of 265% one of the lowest rates ever achieved at consumers energy. We also remarketed $35 million of tax exempt revenue bonds earlier this month at a rate of under 1% through 2026.
Due to the strong execution implied by these record setting issuances, coupled with the interbank sale, which provided approximately $60 million of upside relative to the sale price announced signing we now have the flexibility to reduce our equity needs for the year, even further which will now be limited to the $57 million of equity for.
<unk>, we have already contracted.
And with that I'll turn the call back to Eric for some concluding remarks before we open it up for Q&A.
Thanks Reggie.
Our simple investment thesis has stood the test of time.
And continues to be our approach going forward.
It is fits grounded in a balanced commitment to all our stakeholders and enabled us to continue to deliver on our financial objectives.
As we've highlighted today, we've executed on our commitment to the triple bottom line through the first nine months of the year. We're pleased to have delivered strong results.
And CMS energy.
With that <unk>.
<unk> please.
Please open the lines for Q&A.
Thank you very much Gary good.
A question and answer session will be conducted electronically.
Ashwin question. Please do so by pressing the star followed by the digital.
100 touch tone telephone.
Is there anything the speaker function. Please make sure you can pick up your handset.
We'll proceed in the order you signals and we'll take as many questions as time permits.
If you identified in your question has been answered you may remove yourself from pension and <unk>, followed by the digit too on your Touchtone telephone.
We'll pause for just a second.
And today's first question comes from Shar <unk> with Guggenheim Partners. Please go ahead.
Hi, Good morning team, it's actually compensate here for Shire and congrats on a challenging but successful quarter.
Thanks Scott.
I have a question quick question on the cadence of long term growth.
<unk>.
Reiterated today, so the 'twenty two guidance imply the top of the range performing as you mentioned and kind of do you expect to execute at the high end.
And one of the opportunities obviously, the ERP, but that may take some time for approval of execution engine.
The 8% growth imply some incremental capex of the prior plan or any kind of financing items and is there any change to the glide path or timing.
The offset is kind of the near term dilution from the business optimizations.
Well, let me tag team this with <unk>, but here's what I'll offer and here's what you should hear from this call.
High confidence in 2021.
And that that momentum carries into 2022, and we reaffirmed our guidance.
For that time period that the 285 to $2 87.
And as we've said in previous calls when I look out at 2000 office 2022 base. It continues to be at this growth rate of 6% to 8% and I would expect us to be toward the high end of that.
Now you know we plan conservatively and in Q4, we will provide our capital plan, we expect that capital plan to grow with the things you would be familiar with the gas system electric system and the supply system.
However, the ERP and particularly the covert plant in 2023 and the big assets in 2025 are upside to that plan and.
Once we have complete certainty.
On that IRB process on those provide the opportunity for upside to the plan and so I mean thats the theres a great deal of confidence that I have about.
This five year window, when I look at from 2021 through 2025, but certainly rajeev jump in to add some additional context and with Derek I think you laid it out well in constant and the only thing I would add just to give you a bit more specifics around the numbers. So our current plan that we're executing on.
For five years or 21 through 2025 is about $13 2 billion and we have not changed that but we are assuming that will increase that by about $1 billion next year and the next vintage and to <unk> comments that does not <unk>.
Pre suppose any outcome for the ERP and Theres about a $1 three of additional capital investment opportunities that is on the outside looking in which just gives us more confidence in the plan. We also are not planning to issue equity and so there is a funding efficiency that will also be accretive to our financial performance as we see it and what's also not in the plan from a capital investment perspective, the <unk> off.
<unk> in his prepared remarks was a voluntary green pricing program that we got approval on which offers about a gigawatt of capital investment opportunities specifically renewable spend that we would own.
24 through 27, and so all of that's on the outside looking in so you can see why we have great confidence in our ability to deliver towards that high end off of the 2022 base.
Perfect.
Very comprehensive and maybe just shifting to the regulatory process for that.
Yeah.
Just on the ERP.
Can you talk about how you're building kind of some of the stakeholder comp comfort with the kind of asset retirement, and Reg asset treatment in the kind of.
The mechanisms that youre proposing.
Does any of the thinking changed around the generation portfolio in light of the commodity shifts that we've seen.
Offer this one and then just credit to the team here at consumers energy and CMS energy, there's been an extensive stakeholder process and engagement.
With staff with intervenors with the public that's led up to the filing and has continued through the filing process and so I feel really confident about that with the messages and the testimony are strong in.
Solid and will yield really good outcomes, but.
In my prepared remarks, I said there is a win in this for everyone and I really believe that when you look at this plan.
Our 2018 2019 ERP was a great plan. This is even better the resiliency and reliability of our electric supply we've done the modeling it's more reliable plan in the past.
It's more affordable $650 million of savings in this plan over the previous plant and we cut carbon emissions by 60% by 2025, well ahead of the Paris accord the equivalent of taking $12 5 million cars off the road and.
From my Vantage point standpoint here in the regulatory asset treatment.
As I shared in the Q2 call great testimony and I think we're going to have a constructive constructive dialogue and certainly a supportive dialogue, we'll see this afternoon.
And the intervenor comments and so there is a win in here for everyone and when Theres a win and therefore, everyone has a great path to a great outcome and I believe that we saw that in 2018 in 2019, and so I'm looking forward to seeing staff and intervenor testimony. This afternoon, it's going to be supportive and it'll be balanced it will be constructive and where they are.
Differences, we've done that before.
At our 2018 2019, AARP I feel good about the <unk>.
Where we're at in the process.
Perfect. Thank you.
That's very comprehensive.
Jump back in the queue.
Correct.
Thank you.
And in our sourcing today comes from Jeremy Tonet JP Morgan. Please go ahead.
Hi, good morning.
And just wanted to pick up on the Capex side here and just wanted to see how you're thinking about grid hardening investments at this point specifically do you think.
In reaction to the storms this summer and we could kind of see.
More movement in my prepared remarks.
We had a great response during the storm and I'll be really clear. The fact pattern of storms has been different across the state we've had one major storm.
But if you stand back and look at the Big picture.
Sure and look forward.
I'm a strategy perspective, there certainly is a call for greater resiliency and grid hardening and Thats, an opportunity opportunity from an investment perspective, and an opportunity to create greater value for our customers.
And so I think theres a couple of things driving that one we're seeing more severe weather not just in Michigan, but across the U S. So that is certainly a driver in the equation and then two when we think about the transition to electric vehicles and be able to support those vehicles not only do we need the capacity out there to be able to do that but also we won.
To ensure that when we do have an interruption in service.
Today, it's just the refrigerator tomorrow at the refrigerator in the EV and their ability to get to work that's a whole new standard of performance and so.
Again Big picture perspective, looking at for the future I see this as an opportunity an inflection point, where we spend more time on thinking about resiliency and grid hardening I'll share one last point on this I've had the opportunity.
Post storm to talk with the Governor to talk with the chair scripts.
I can't speak for them, but certainly certainly a positive direction and we will talk about how do we design the grid for the future with climate change and was severe weather in mind and so again, it's an opportunity for our investors and an opportunity to create additional value for our customers.
Got it that's very helpful. Thanks for that.
And maybe just thinking about load as we exit the pandemic care just wondering if you could provide thoughts I guess as far as trend.
Trends by class and really on the residential side, how youre seeing I guess.
Stickiness, there and just any thoughts that you could share on that side.
Yes, Jeremy this is Reggie I can offer some color there and we do have a.
A slide in our appendix of the presentation, which is helpful. Slide 13, I'll point you to also the detailed a 15 page Digest also has some good content on load, but what I can say at a very high level as we continue to be in.
<unk> by the residential.
Weather normalized load we are seeing.
So you probably saw year to date down roughly 2%, but thats certainly compares favorable to plan, where we assumed a more aggressive return to facilities for workers and so we do think that this sort of hybrid format.
Our mass teleworking trend should carry on and.
Potentially be part of a new normal and so in our budget, we had much more bearish expectations. This year, we actually thought there'd be a quicker recovery and you see us down 2% that's in excess of plan and so we see.
<unk> performance to the upside there and then we also comparator to the pre pandemic level and relative to 2019 were up about two 5%.
And so we do think there is a very nice bit of resiliency to the residential load and again it offers a higher margin relative to the other customer classes as you as you know.
Got it that's very helpful. Thank you. Thank.
Thank you.
And our next question today comes from Golar.
Goldman Sachs. Please go ahead.
Hi, Andrew back Entre into thanks for taking our question.
For the ALJ decision on your rate case, it was roughly 25% of your request data revenue increase so can you describe which items constitute the difference and then if this gets adopted would this impact your 2023, Chris trajectory.
Well I'll offer this I really view this the PFD from the ALJ as a bookend.
<unk>.
Michigan's constructive regulatory environment and this commission in previous commissions have really shown a balanced and constructive approach.
Again, I can't speak for the commissioners, but my interaction with the commissioners would suggest this that they believe in and support healthy utilities, good outcomes from electric and gas rate cases, and when you have those and similar goals.
Leads to good outcomes and so.
<unk>, we're going to get an outcome in this electric order Thats in December that's both constructive and balanced good for Michigan's residents, Michigan, our customers and frankly, good for CMS energy, but.
Rich if you want to just jump into some of the differences, yes, Rebecca thanks for the question so.
So what I would add there is you do have a few sources or I'll say buckets of variance that lead to that delta between.
We requested and where the PFD ended up and so I would say cost of capital is a component. So we asked for 10, 5% Roe.
The ALJ was at nine spot seven and so that makes up a good portion of the difference also you see a difference in equity thickness and so we were at 52% equity relative to debt.
And the PFD was about a point lower than that at call. It 51 and change and so those are the primary sources of difference. There also were differences in opinion on the capital required.
To really strengthen and harden the system and so I think if memory serves me there is about a quarter of a $1 billion of capital investments that we're proposing for resiliency and reliability, which obviously, we think it's critically important particularly on the heels of the August storm activity. We saw and we saw that also as a recommended disallowance of future spend and so on.
I'd say those are the major buckets, there and I think once you normalize for where the prevailing ROE and equity thickness or you start to tighten that gap, but it's primarily to those buckets.
Okay. Thanks, and then for <unk>, how much of that is in your five year base plan and would that be incremental to your rate base or earnings growth.
Paul.
Im sorry, I missed the first part you said for your what.
The EBIT filing.
Hey, Brandon.
Yes, so the $4 billion that does.
Capital to be clear the $4 billion of capital attributable to the to <unk> and further to announce out there. It's the electric distribution infrastructure investment plan that does align with the spend rate we've been on for some time and so in our current five year capital plan of $13 2 billion about 5%.
$5 billion of that is attributable to electric distribution and so we're on this sort of run rate of over $1 billion, a year $1 billion per year of capital investment and we think that's appropriate to balance resilience reliability as well as affordability and so that's effectively what this Egypt proposes.
Okay. Thanks, so much.
Thank you.
And on our questions of that comes from Jonathan Arnold with vertical research. Please go ahead.
Morning, guys.
Good morning.
You just mentioned on the roll forward of the capital plan.
They are currently.
About $1 billion.
With that could you.
Just.
Is that the voluntary green pricing.
<unk> ROE there and is it something else.
<unk> <unk> incremental maybe a little more color on that color.
Sure Jonathan so to be clear the <unk>.
Billion dollars that will likely add to our next five year plan from 2022 to 2026 that does not include the BGP and the opportunity there for that gigawatt of renewables nor does it include any of the potential capital investment opportunity associated with the ERP, what it will likely entail.
As you May recall, we had when we rolled out our 10 year plan.
I'd say the back half of 2019, if memory serves me. We said, we had about $3 billion to $4 billion of upside capital investment opportunities, which were not part of that 10 year $25 billion plan and it largely had to do with electric and gas infrastructure modernization and so those will be the likely components that are <unk>.
Added to.
To the.
The capital plan going forward and represent that call. It roughly $1 billion of upside I also think we're going to obviously roll forward our ERP.
A related solar investments that are part of just the existing IOP that we're executing on and so you'll probably see some of that come into the plant as well as we add another year to.
Our five year Rolling Capex plan is that helpful. Yeah very helpful. Ready. So said another way that creates a $4 billion is still there.
Despite the BGP of the IOP.
That's exactly right. Okay, and then can I just first of all.
You mentioned that the <unk>.
CGP is already oversubscribed.
Any flavor of sort of by how much and in what.
The pathway to potentially expanding that.
Yes.
Well I'd offer this one some of those are non disclosure agreements, but just some public announcements on Earth day of this year I was with the governor and were announced.
We're supporting the states.
Facilities and their move to renewable energy. So that's an example, I'll share with you that I was with a large customer just yesterday.
A global company and they were looking at their large manufacturing facilities here in Michigan.
And looking at renewable type options and so we're seeing a definite directional direction in terms of sustainability among our large industrial customers and this serves their serves their needs and so I'm not going to get into how how much or.
From an oversubscription standpoint, but hopefully those examples provide some color on the context of opportunity there and Jonathan the only thing I would add.
If the spirit of your question is whether there will be sufficient demand for that gigawatt of opportunity, we certainly feel very confident.
There'll be requisite demand and meet the gigawatt of opportunity for the voluntary program.
The question was a bit more of your oversubscribed. How you then you need to add to it in order to to keep up.
Yes, having those conversations.
And as we see it that's what the voluntary Green program would offer up about a gigawatt of additional capacity that we would own in the form of most likely.
<unk> rebuilt.
At this point I mean to answer your question Jonathan at this point, we don't need to add to it there are some there's some runway there and we'd look to construct these.
Renewable assets in the 24 to 27 timeline.
So it's oversubscribed from what we have right now and this will make up a good portion of that 1000 megawatts, but theres more room to grow there. Okay. Thank you.
Thank you. Our next question today comes from Michael Sullivan at Wolfe Research. Please go ahead.
Yeah, Hey, Hey, good morning, everyone.
Sorry to put you.
On the spot a little bit here, but just saying some of these filings start to come in on the ERP looks like.
Some of the environmental parties pushing back on the gas plant additions I guess some sort.
Sort of agreement.
With them path forward any thoughts there.
I would I would offer this when I say, there's a wind in there forever one it's clear that the environment.
Rental community loves the fact that we're eliminating coal and wood like natural gas not to be the substitute, but here's what we know that the only way that you can deliver the resiliency in the supply side of the business and make sure. We don't have an interruption in service like was evident in Texas.
As to have natural gas as part of the solution and so.
Like I said that staff.
And the other Interveners are certainly <unk>.
Sinful.
The resiliency and the importance of natural gas within the state. So theres a lot of give and take within these and I would just offer this in 202018.
In 2019, we had a lot of different points of view from an intervenor perspective, and we settled that case and so differences are expected and we worked through those just like we have done and we have a track record of doing that.
Makes sense and just.
Sticking with TRP. The other key focus area I think you touched on a little was the regulatory asset treatment any parties in particular, you would expect.
Any pushback on that initially as we start to see testimony.
Again, I would offer this and I've said this in the Q2 call and in other settings. This as an integrated resource plan and its not above Faye, we've put together a great plan for Michigan.
As a win in it for every one and so we've been really clear about the need for.
The recovery of and on the asset.
So.
Going forward I mean, that's part of the plan and we've got testimony to support that and as I stated earlier when Theres a win in there for everyone. There is a path to a good order and a good outcome.
Here.
Next and next year in 2022.
Great. Thanks, a lot Eric.
And our next question today comes from Julien Dumoulin Smith.
With Bank of America. Please go ahead.
Hey, good morning team. Thanks for the time I appreciate the opportunity to connect.
Probably.
Hey, good morning.
So just in brief here if we can talk about the supportive commentary you brought up a moment ago around the testimony here can you elaborate a little bit.
Specifically, what your expectations are this afternoon, and perhaps more specifically as you said it's supportive.
I imagine that you would see perhaps a little attitude towards the settlement here I wanted to make sure Im equating one towards the other right.
What this translates to next.
In terms of order.
Well I would offer this.
I mean, I don't have visibility into the into the testimony until its published and so I mean, obviously, we had a great discussion with number of the intervenors, we know some of their points of view.
Where there might be good support and where there might be small differences and so again.
I would reflect on it this way again, we've done this in the past many times.
Our rate cases and alike, and we certainly done this with an ERP, where there's differences we find a way to work through those.
And again I think I think this afternoon, we're going to see and I look forward to reading. It I think we're going to see supportive comments in general and so when again when there is a win there for everyone. There is a path to a successful outcome now I don't know if its going to go down the path of settlement or will take it to the full order.
But again when there is a win there there is an opportunity for success and that's that's what I am and what I am confident about.
Excellent Alright, and then just coming back to the rate case, a little bit here.
Given the discrepancy between the ALJ and the staff.
Does that inform your strategy heading into your next filing here in Q1 at all I mean, obviously there are some specific delta is there that you alluded to a moment ago Rajeev, but can you can you elaborate a little bit more and maybe how you move forward, especially in the next cases.
If theres anything yet.
This is a constructive.
Lori environment, Julien you know that I know that.
And I really see this PFD as a book and as I stated earlier and so the.
The conversations that we have with staff.
<unk>.
And outside of cases is really how do we continue to ensure a safe and reliable natural gas system, how do we ensure to bring clean energy to Michigan, how do we ensure the reliability and resiliency electric grid and so those are in line with our goals and what we want to do as well and so we will continue to be thoughtful about that process.
Make sure we balanced customers' affordability with that but.
I don't see any real change in plans as a result of a specific ALJ PFD at all.
Julian Yes, no I appreciate you go for it.
Yes, Julien. This originally thing I would add is you know at the end of the day. It also speaks to just the benefit of the Michigan regulatory construct in the legislation and that in the event. There is miss alignment because ultimately at the end of the day. The Commission's order will dictate where we end up but in the event. There is misalignment. There is a forward looking test year and so obviously, we have not incurred the.
On the capital or the O&M side, and so if we see miss alignment in terms of where we'd like to go versus where the commission ends up where we can toggle the capital spend program. Accordingly, So again it just speaks to the constructive nature not just of decisions we've seen in the past, but also the right construct and the legislation itself.
Yes, I hear you book It and then there is the keyword here excellent guys best of luck, we'll speak soon.
Thanks, Julian Thank you.
And our next question today comes from Travis Miller Morningstar. Please go ahead.
Good morning, Thank you.
Morning Travis.
Two questions going back to the storm's first one is in your discussions that you referenced with regulators the governor.
Either within or outside of the rate cases, there been any talk.
<unk> to some of the public comments about fines or penalties or other kinds of pushback on the storm response.
That's my first question and then the second question was the 16th.
Can you kind of break that down in terms of how you offset that to stay on track with the guidance.
For this year.
Well two part this one between.
Rob ready to take the second question I'll take the first piece.
<unk>.
I would offer this one.
Again conversation with the Governor's office and with share scripts have been constructive.
And again I don't want to speak for the chair, but I would offer. This the commission has been supportive of both our electric reliability spend.
As of recent capital investments as well as increased forestry spend.
We increased our forestry spend.
This year by <unk>.
Little over 60%.
And that was supported through a rate case process by the commission.
And.
The commissioners understand that were in the first year that the number one cause for outages is tree trimming and we have a very aggressive program now in place, which will benefit our customers and so.
Our commissioners I believe understand that we're in the early years of these larger investments and operational maintenance expense, which will help our customers and so I think theres full recognition of that I have not heard any talk at all zero from the Governor's office or from the commission on any sort of penalties.
Associated with.
With the storms in August.
Okay great.
<unk> is the only thing I would add is with respect to the 16 cents of negative variance that I noted in my prepared remarks for Q3 of this year versus Q3 of last year. It was in large part offset as.
As a result of just good weather, we saw throughout the quarter. It was quite warm in the month of August and that offset a lot of the incremental service restoration costs that we incurred and I also want to give credit where credit is due I think the fact that we've already exceeded our expectations on cost savings across the organization was also quite helpful.
And offsetting some of the service restoration and then lastly, again as I mentioned residential down 2% year to date roughly versus year to date last year, but it's ahead of plan too and so you've got a little favorable mix as well versus plan. So all of those factors have largely offset the service restoration expense that we saw in Q3.
Great.
Thanks, and then just a quick clarification on the 16 tons that was.
Incremental to plan or did that include tip.
Typical storm related expenses I assume you included.
Yes, the <unk>.
Incremental to Q3 of 2020, so it's just that's a historical comp and Thats, what that estimate is predicated on versus plant a.
A little higher than planned, but remember in addition to.
Having a decent amount of service restoration in our budget. We also utilize some regulatory mechanisms.
Both what we call a voluntary refund mechanism that we put in place at the end of 2020 that provided additional.
Budgetary support.
And then we also shared a gain on the sale of some assets related to our transmission and details.
Thank you.
And our next question comes from Ryan Levine of Citi.
Good morning.
One.
On financing proposal Barry in your plan it looks like you reduced your equity needs for this year by about 40.
The $3 million can you walk us through what's the driver of that and how much is really contributed to the purchase price adjustment for the recent asset sale and if there's any other factors that are driving that number if there is some conservatism baked in there.
Hey, Ryan Thanks for the question so the interbank sale.
Gross proceeds and the upside associated therewith was the key driver that enabled us to reduce our equity financing and M&A for almost 20 years.
For Finn COSE or financial service companies you have your traditional adjustments from sign to close on the working capital side by financial service companies. You'll also get credit if the book equity of the business increases from sign to close and we saw that with interbank outperformance.
Over those handful of months and so that led to about $60 million of upside from the gross proceeds we announced at signing which was $960 million.
The amount that we ultimately saw at closing which was over 1 billion call. It just under $1 20.
So that's what gave us the.
The upside and financial flexibility to reduce the equity needs and so it's really a function of just at really strong performance and set the bank that accreted their book equity that gave us more proceeds of close.
I mean, thats, a bigger number than the amount of equity.
Is there some conservatism baked into your reduction in equity needs or is this.
A.
A few million dollars, whereas the pre funding of future equity needs for future capital needs.
Yes, so remember we have about $57 million of equity forwards that we've already put in place and we have been putting those in place even before.
We announced the sale of the bank and so that gives you effectively a four for how low you're going to go because at some point, we will settle that and so thats why we stopped that that sort of $57 million because of the existing equity forwards we already have in place.
Okay, great. So I guess that helps you for future years for capital needs.
Alright I appreciate it appreciate it that's all I had.
Thanks.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Gary Michel for closing remarks.
Thanks, Rocco and I'd like to thank you all again for joining us today.
Looking forward to seeing you at <unk> in the near future here and take care and stay safe.
Thank you Sir This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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