Q1 2025 CMS Energy Corp Earnings Call
After the presentation, we will conduct a question and answer session instructions will be provided at that time.
If at any time during the conference you need to reach an operator. Please press star followed by zero. Just a reminder, that will be a rebroadcast of this conference call today, beginning at 12 PM Eastern time running through May 1st.
<unk> is also being webcast and is available on CMS Energy's website in the Investor Relations section.
Speaker Change: At this time I would like to turn the call over to Mr. Jason Sure Treasurer, and Vice President of Investor Relations.
Harry: Thank you Harry.
Jason Sure: Good morning, everyone and thank you for joining us today with.
Derek Rochelle: With me are Derek Rochelle, President and Chief Executive Officer, and Reggie Hayes Executive Vice President and Chief Financial Officer.
Jason Sure: This presentation contains forward looking statements.
Jason Sure: Which are subject to risks and uncertainties.
Jason Sure: Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially.
Jason Sure: 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.
Gary: Now I'll turn the call over to Gary.
Gary: Thank you, Jason and thank you everyone for joining us today.
Gary: CMS energy consistent.
Gary: Predictable.
Gary: Dependable 22 years of steady hand at the wheel.
Gary: What you expect and its what we deliver an even more important in these times of broader economic uncertainty.
Gary: It starts with our investment thesis, which is based on conservative planning paired with disciplined execution.
Gary: Commitment to excellence across our electric and gas businesses.
Gary: Structure of legislation and regulation.
Gary: And driving growth across the state with a robust economic development pipeline.
Gary: Our customers can count on us.
Gary: Never say reliable affordable clean.
Gary: Energy under all conditions.
Gary: Our investment thesis is what keeps us on track.
Gary: It's our focus it's what you count on us for every year.
Gary: In fact, I'd like to take a moment to shine a spotlight on our recent storm response.
Gary: Which included company crews dispatchers call centers co workers contractors and volunteers, who are committed to delivering excellence for our customers. During the recent historic storms that impacted Michigan in late March and early April these stores pack it all in.
Gary: 14, tornados, nearly 100 mile per hour winds and in northern locations over one five inches of ice.
The team executed well, we were prepared and ready to dispatch prior to the first wave of weather with 500 crews pre staged and 900 total crews dispatched.
Gary: Fighting storms on two fronts, we restored customers safely and quickly then continued to serve supporting local co op utility customers in their restoration efforts.
Gary: We saw favorable customer and positive policymakers support because of our response.
Gary: Yes, our investments and process changes are making a difference im extremely proud and thankful for our co workers and how they showed up in the work they do daily to improve performance for our customers.
Gary: I want to start today with Michigan's constructive regulatory environment. We are pleased with the recent electric rate order in March approximately 65% of the revised ask nearly double the investments included in the investment recovery mechanism and solid support for our investments to improve.
Gary: <unk> electric reliability for our customers.
Gary: We work hard to ensure our filings are transparent and high quality and we are seeing the results.
Gary: <unk> constructive regulatory outcomes time and time again.
Gary: We'll continue to work closely with MPC staff Interveners and the commission on the importance of our investments to bolster our electric and gas systems to ensure we continue to serve customers during sunny day.
Gary: And extreme weather.
Gary: Given our continued focus on improving electric reliability, you can expect us to file our next electric rate case in Q2.
Gary: In our gas rate case, we did recently see staff testimony, which we view as a constructive starting position.
Gary: As we've shown in the past, we're always open to settlement having settled our last four gas cases.
Gary: The dynamics of these gas cases are different than our electric cases.
Gary: And we feel good either way a settlement.
Gary: For fully adjudicated order.
Gary: For our longer term filings, we expect an order in our renewable energy plan or our EP by mid September our RVP will help define our clean energy future and feeds into our integrated resource plan or ERP that we will file next year.
Gary: Earlier in my prepared remarks, I referenced broader economic uncertainty.
Gary: As you would expect we are closely monitoring the landscape potential changes shaping as needed and preparing to adjust as necessary.
Gary: Our conservative planning and strong fundamentals as well as our track record of delivering through any event.
Gary: My confidence that we are well positioned to effectively navigate.
Gary: Any scenario.
Gary: This confidence is further bolstered by our diversified service territory with minimal exposure to the auto industry or any other large sectors.
Gary: We are actively monitoring the landscape and have a diverse supply chain, which limits our exposure to tariffs our direct and indirect spend is approximately 90% domestically sourced and we continue to shift U S based vendors to lower our exposure.
Gary: Much of the exposure is related to capital equipment, which means any customer impact would be spread over the life of the asset and our earnings are largely insulated.
Gary: Nonetheless, we are actively working with all suppliers to manage fluctuations in price and sourcing to keep customer bills affordable as we execute on our plan.
Gary: In the context of the inflation reduction act or <unk>.
Gary: We've seen good support from our public units in our individual conversations, including the 25, who have signed on in support of continuing tax credits.
Gary: Our read is that there may be a partial repeal of portions of the IRA and although we do not expect changes the renewable tax credits, we continue to safe harbor equipment for projects within our five year plan.
Gary: And as a reminder, we have a supportive energy law in Michigan that mandates renewables and 100% clean energy resources by 2040, <unk> shapes, our customer and investments through our our EP and IRB.
Gary: To the degree there are changes in the IR a michigan.
Gary: Against law offers us enough flexibility to achieve the intent of the law.
Gary: Uninsured resource adequacy and affordability for our customers.
Gary: As for industry exposure I'll remind you the auto industry is about 2% of our total gross margin.
Gary: Part of our electric service territory is in the Grand Rapids Metropolitan area, which is diversified with commercial businesses and manufacturing and includes significant jobs and state investment.
Gary: We're also seeing expansion in other industries, including defense Aerospace Palo Silicon semiconductors and agriculture.
Gary: At CMS energy, our core business is to serve under all conditions, our mindset of preparedness and conservative planning ensures we are ready for multiple scenarios.
Gary: Tom in the storm.
Gary: And steady at the wheel.
Speaker Change: I want to talk for a moment about Michigan, Michigan with exciting growth Renaissance and our work to help our service territory in the state thrive and prosper.
Speaker Change: First and foremost we see strong progress in the continued construction and work the makeup of 2% to 3% load growth within our five year financial plan.
Speaker Change: We have seen one large data center project accelerate their load ramp up by almost a year.
Speaker Change: Another large new manufacturing project has requested to expand service.
Speaker Change: By an additional 10%.
Speaker Change: All positive indicators.
Speaker Change: We can deliver.
Speaker Change: Since the beginning of the year with the elimination of the sales and use taxes for data centers, our pipeline has grown to nine gigawatts.
Speaker Change: With more of that shift about 65% toward data centers.
Speaker Change: We're seeing the data center pipeline continued to progress.
Speaker Change: Youre confident some of these projects will materialize into contractual agreements.
Speaker Change: The data center tariffs, which we filed in February with the Commission is the next logical step in that process.
Speaker Change: Tariff provides a great opportunity for data centers and protects our existing customers.
Speaker Change: We will continue to work through this proceeding with settlement being a possible outcome.
Speaker Change: As I've shared before we are also excited about the manufacturing growth in our pipeline that brings with it secondary and tertiary benefits, including new and growing commercial business as well as residential load.
Speaker Change: We're excited about and committed to Michigan's future and we are prepared to serve its growing energy needs.
Speaker Change: Now on to the financials for the quarter in the first quarter, we reported adjusted earnings per share of $1 <unk>.
Speaker Change: We remain confident in this year's guidance and long term outlook and are reaffirming all our financial objectives.
Speaker Change: Our full year guidance remains at $3 54 to $3 60 per share with continued confidence towards the high end.
Speaker Change: Longer term, we continue to guide toward the high end of our adjusted EPS growth range of 6% to 8%.
Rajiv: With that I'll hand, the call over to Rajiv.
Rajiv: Thank you Derek and good morning, everyone.
Rajiv: On slide eight Youll see our standard waterfall chart, which illustrates the key drivers impacting our financial performance for the quarter.
Rajiv: And our year ago expectations.
Rajiv: For clarification purposes, all of the variance analysis here and are in comparison to 2020 for both on our first quarter and nine months ago basis. In summary, the first quarter of 2025, we delivered adjusted net income of $304 million.
Rajiv: Our $1 <unk> per share, which compares favorably to the comparable period in 2024, largely due to the absence.
Rajiv: The mild weather experienced in Q1 of 2024, coupled with higher rate relief net of investments. These sources of positive variance were partially offset by higher O&M costs at the utility driven by the continued execution of our electric reliability roadmap and the timing of select items at Northstar like our planned outage.
Rajiv: The Dearborn industrial generation facility or dig among other factors.
Rajiv: To elaborate on the impact of weather, we experienced a relatively normal winter in Michigan in the first quarter for the first time in a couple of years as such we saw 26 per share a favorable variance, which largely reflects the absence of the mild weather experienced in the first quarter of 2024.
Rajiv: Rate relief net of investment related expenses resulted in <unk> per share of positive variance due to constructive outcomes achieved in last year's electric and gas rate orders. In addition to the benefits of ongoing renewable projects.
Rajiv: Moving onto cost trends as noted in accordance with our electric reliability roadmap. We continue to increase the size of our vegetation management program as we glide path to a seven year trim cycle across our low voltage electric distribution system. The.
Rajiv: The associated financial impact was the key driver of the <unk> per share of negative variance versus the comparable period in 2024 and.
Rajiv: And our catch all category represented by the final bucket.
Rajiv: And the actual section of the chart you will note a negative variance of <unk> 23 per share largely driven by our strong 2024 comp at norstar due to normalized operations at dig in the timing of tax benefits from renewable projects. Other notable drivers in this category include the impact of current financing activities in the quarter.
Rajiv: <unk> and select one time reversals from last year.
Rajiv: Looking ahead, we plan for normal weather is always which equates to <unk> 12 per share of positive variance for the remaining nine months of the year, primarily due to the absence of the mild temperatures experienced in the fourth quarter of 2024.
Rajiv: From a regulatory perspective, we're assuming 16 per share of positive variance, which is largely driven by the constructive electric rate order received from the commission in March ongoing benefits of renewable projects at the utility and the assumption of a supportive outcome in our pending gas rate case.
Rajiv: On the cost side, we anticipate higher overall O&M expense at the utility.
Rajiv: For the remainder of the year largely driven by the expectation of.
Rajiv: Increased service restoration costs attributable to the large weather system that impacted our service territory in late March extending into early April that Eric mentioned, it's worth noting that this storm was the costliest and are in our company's history at roughly $100 million of operating and maintenance or O&M expense per our preliminary.
Rajiv: Larry estimates as you would expect we're already busy at work identifying and implementing countermeasures such as limiting limiting hiring reducing our use of consultants and contractors and eliminating other discretionary spending among other potential offsets and of course, we expect increased productivity from the CEO.
Rajiv: Way, which our Workforces delivered every year since we instituted the lean operating system roughly a decade ago.
Rajiv: It is also worth noting that we have sought a deferred accounting order for the financial impacts of the storm given its historic nature, which we filed earlier this week.
Rajiv: The Recalibration of our service restoration expense for the remainder of the year net of anticipated savings from the aforementioned countermeasures will drive an estimated net impact of <unk> <unk> per share of negative variance for the remaining nine months of the year.
Rajiv: Lastly in the penultimate bar on the right hand side, you will see an estimated range of three to nine <unk> per share of negative variance, which.
Rajiv: Which incorporates further risk mitigation to the financial headwinds encountered in the first quarter and provides additional contingency should we need it.
Rajiv: Namely in the form opportunistic financing activities.
Rajiv: Before moving on I'll, just note that our track record of delivering on our financial objectives over the last two decades irrespective of the circumstances speaks for itself that said, we'll always do the worrying. So you don't have to and we remain confident in our ability to deliver on our financial and operational objectives. This year to the benefit.
Rajiv: Of all stakeholders.
Rajiv: Moving on to credit quality. It is worth noting that Fitch reaffirmed our credit ratings in March as noted at the bottom of the table on slide nine and we are currently working through the review process with Moody's.
Rajiv: Longer term, we continue to target solid investment grade credit ratings, and we'll manage our key credit metrics accordingly, as we balance the needs of the business.
Rajiv: Slide 10 offers an update to our funding needs in 2025 at the utility.
Rajiv: And the parent.
Rajiv: During the quarter, we issued $1 billion of junior subordinated notes for hybrids with a six 5% coupon its parent which I'll note was identical to rates achieved by some of our much larger peers and had the tightest credit spread achieved for a hybrid in recent memory, which speaks to our credit quality and a strong receptivity.
Rajiv: To our paper and the market.
Rajiv: As you'll note in the table on the left hand side of the page the hybrid issuance address a good portion of our financing needs at the parent for the year, while offering significant financial flexibility on our remaining needs well.
Rajiv: We will look to complete the balance of our financing plan at the parent and utility over the remaining months of the year with a keen focus on maintaining our consolidated credit metrics around the mid teens area from a funds from operation to total debt perspective, as always we'll remain opportunistic and look to capitalize on market conditions and.
Rajiv: With that I'll hand, it back to Gary for his final remarks before the Q&A session.
Gary: Thanks Reggie.
Gary: As the landscape continues to evolve I want to remind everyone about our long history of delivering under all scenarios for all our stakeholders.
Gary: Remember our business is preparedness and response.
Gary: Through uncertainty recession bad weather doesn't matter, we've seen it before and we've navigated the waters.
Gary: Online we.
Gary: The lever our track record speaks for itself.
Gary: We focus on what is necessary to deliver for our customers and investors and we remain confident in our outlook for 2025 and.
Gary: And beyond.
Harry: With that Harry please open the lines for Q&A.
Speaker Change: Thanks, very much Eric a question answer session will be conducted electronically. If you would like to ask a question. Please do so by pressing the stock he followed by the digit one.
Harry: Touchtone telephone.
Speaker Change: If you are using a speaker function. Please make sure you pick up your handset.
Speaker Change: We'll proceed in the order you seamless and we will take as many questions as time permits. If you do find that your question has been answered you may remove yourself by pressing the star key followed by the digit too on your Touchtone telephone.
Speaker Change: We'll pause for just a second.
Speaker Change: Our first question will be from the line of Doug as truck up with Evercore ISI. Please go ahead. Your line is open.
Speaker Change: Good morning.
Speaker Change: Hey.
unknown: Hey, good morning, Gary Thank you for taking my question.
Speaker Change: Hey, I appreciate all the commentary around tariffs and I I just.
unknown: One question was.
unknown: Focusing on our Northstar, maybe just can you remind us what percentage of capital I. Appreciate it's small versus the rest of the company what percentage of capital is going towards solar storage.
unknown: And then just given the highway discussion repeal risks do you kind of re prioritize that capital.
unknown: Potentially maybe.
unknown: Switch that with higher regulated capital.
unknown: And then your comments around safe harboring those apply to north star as well as you try to kind of secure those tax credits into the future. Thank you.
unknown: Thanks for the question Doug Great question again context context is really important here in the context of Northstar. So we're talking about five.
unknown: 5% of the EPS mix here, so small and remember the big the Big driver here is dig our Dearborn industrial generation, that's the big story in the energy and capacity markets and so when it comes down to the amount of capital that we're spending on renewables. It's small red youll have the numbers here in a bit but theres nothing on storage zero storage and so it's all really renewable.
unknown: And those are again projects that are well laid out for the future now how are we derisk those projects when we have contracts in place that allow for escalators. That's an important piece, but we've done a lot of great work in terms of securing panels Ive got panel secured through 2030, there are a variety of vendors through contract some already on site to be able to to navigate.
unknown: Any implications from a tariff perspective, and then 2028 from our safe Harbor provision in the main power Transformers and so we feel good about the runway there are projects renewable projects.
unknown: And what we've done to de risk that but as you know on your question alluded to there's tons of flexibility, we have plenty of opportunities to invest in the utility itself and so those are decisions. We make at the time by a year by year basis on where the needs are.
unknown: For the for the company and our best suited but again feel good about northstar's ability to deliver.
Just in the year, but also from a long term perspective.
Speaker Change: Yes, so I'll just build on derek's comments there yeah, we certainly feel good about north star's prospects going forward and have done a lot to derisk.
Speaker Change: Notable projects on both the utility side and the Northstar side and have done some things in supply chain that further fortify our position going forward from a capital perspective, we are planning and this is in our 10-K that we filed last quarter.
Speaker Change: About gross investments a little over $2 5 billion I say growth because we have plan to recycle capital largely at north down Northstar through the sell down of common equity Stakes and so that is providing a lot of liquidity to fund their projects and so the equity infusions from the parent are relatively light probably about about 20% of that.
Speaker Change: So we're half a billion so gross capital investments of about $2 5 billion to support commercial renewable projects over the next five years and the reality is if we do see.
Speaker Change: Some repeal of the IRA.
Speaker Change: We'll just increase the bar or raise the expected hurdle rate for those renewable projects at North Star and so if we saw the.
Speaker Change: The economics of those projects being less attractive we would certainly allocate more capital to utility as you know capital is not an issue at the utility there's plenty of opportunity. Our current five year plan at $20 billion $20 billion of capital investments at the utility.
Speaker Change: <unk> has another 20 billion or so on the outside looking in and I think that that's the low end of capital investment opportunities outside of the plan. So a lot of flexibility to allocate capital to the utility.
Speaker Change: Versus North Star again, if we see the economics of those projects start to soften overtime. So really good flexibility going forward and no concerns with the economic outlook. There is that helpful.
Speaker Change: Very helpful. A lot of flexibility there it sounds like thanks for that color and then just quickly rajeev deferred accounting order on the storm costs have you guys done that before sorry, I should know, but I don't maybe just remind us if you have done that before and if not like what are sort of the procedural steps here is there timeline the commission.
Speaker Change: It's going to ruin this on bio or is this just a.
Speaker Change: A one off type of event and there's no set procedural schedule here. Thank you.
Speaker Change: And maybe I'll just take your question and do a little bigger picture on it and then we can go down in this.
Speaker Change: This process from a storm perspective.
Speaker Change: As.
Speaker Change: You talked about in his prepared remarks, there is a number of.
Speaker Change: Levers and opportunities everything from the CE way to technology to what what registered.
Speaker Change: Third remarks on how to deliver the year and for both the customers and really investors and really all stakeholders, that's the tools and the dual box and what we're doing with this particular storm. This what I would say is historic storm.
Speaker Change: Really extreme weather as I characterized in my remarks is leveraging the Liberty audit. If you go on the Liberty audit that's the distribution on it specifically calls out best practices with jurisdictions and utilities is to have a mechanism for extreme weather and thats, what we filed and that will be the first time, we filed that.
Speaker Change: With the commission in this kind of framework.
Speaker Change: We've had constructive conversations both with staff and the commissioners on this and so.
Speaker Change: Again, its an ex parte filing the timeline has not been established at this point.
Speaker Change: Ill start.
Speaker Change: I'm going to go up little up little off the record here like I'm, an old farmer I grew up on a farm and so I don't have at my chickens before they hatch and so that's a true thing from a farmer perspective.
Speaker Change: But understand this like we're not counting on that it's important we think it's needed in Michigan again constructive conversations, but we have a lot of tools in our tool belt to be able to deliver the year.
Speaker Change: Yes, all I would add and I wish I had a I wish I had a farming an analogy as well, but I do know is just a couple of things.
Speaker Change: Gary Good comments and so you asked specifically about the timing of approval because it's in our ex parte filing I think that will be at the commission's discretion.
Speaker Change: Obviously.
Speaker Change: Our expectations are tempered, but we would love to see just a fairly quick resolution to the matter. So we just at least know what the outcome is in a timely fashion and in terms of our history around this we have sought mechanisms like this in the context of rate cases, I can't recall the last time, we sought an accounting order like this outside of.
Speaker Change: Our rate case, maybe once in the past in my eight years as CFO. So this is a fairly atypical, but we think given the historic nature of the storm, it's justified and I believe we've made a strong case and a filing as to why we should get support here. So I just wanted to do.
Yes, those two direct questions you had.
Speaker Change: Okay.
Speaker Change: Awesome. Thank you appreciate the after record on the record commentary. Thanks. Thanks, so much.
The next question today will be from the line of Shah <unk> with Guggenheim Partners. Please go ahead. Your line is now open.
Shah: Hi, good morning, turning sharply causing theme here.
Speaker Change: Yeah.
Speaker Change: Great It's actually got something.
Speaker Change: Hey, good morning.
Speaker Change: How are you thinking about the execution on the financing plan given that optically the balance of the equity need resolved through the hybrid.
Speaker Change: Is there kind of more execution at the call. It 25 or is there some efficient financing that unlocks like a capex pull forward or any other opportunity in the near term.
Speaker Change: Yes, Constantine is Reggie I appreciate the question yes.
Speaker Change: Yes part of my prepared remarks, we still have a bit of financing left in the plan for the year and so at the parent just going back to our original guidance. We said, we had about $1 billion to do so a $1 three of.
Speaker Change: Well I will just say non equity financing and our working assumption with senior debt assumption senior debt financings, and then up to $500 million of equity.
Speaker Change: Obviously, the hybrid transaction that you noted.
Speaker Change: Really took care of a good portion of those needs and so with the equity credit ascribed to hybrids that creates a lot of financial flexibility and so we still have about $700 million or so left for the remaining remainder of the year. We're keeping all options on the table, we've seen really attractive execution across a variety of securities offered in the first quarter from some of our.
Speaker Change: And so we're keeping all options on the table, but have quite a bit of flexibility.
Speaker Change: And at the Opco just to round it out we've got $1 billion, one left and I think the working assumption for those financings will be first mortgage bonds and so as always we will look at which securities are the price most attractive attractively at both the parent.
Speaker Change: And the Opco and we'll be opportunistic as we always are with respect to pull ahead for capital. We've got $3 7 billion in the utility per our plan this year and so we're focused on executing on that.
Speaker Change: So we'll see what the rest of the year Hasnt store presence. So we are acutely focused on the current plan for this year and really haven't thought about pull ahead in any respect if that was the spirit of the second part of your question.
Speaker Change: Yep understood understood.
Speaker Change: And maybe a higher level question.
Speaker Change: Energy supply needs.
Speaker Change: Those are evolving, especially as we get feedback to the R&D process is there more dispatch of generation that you're seeing kind of it.
Speaker Change: Going into the next buyer IRB cycle, and do you think that Theres, a better case for kind of like a big buy in.
Speaker Change: Enter the Opco.
Speaker Change: A portion of our energy supply needs are spelled out in the renewable energy plan.
Speaker Change: Some of the energy needs in the compliance with the 2023 energy law and so as we've seen the need to get to the 50%, 60% renewable targets as well as because of the 2% to 3% low growth that is in our five year plan you can see and have insight into those into those both.
Speaker Change: Renewable needs as well as storage needs in the future.
Speaker Change: The broader need for capacity and to be able to continue to deliver to the the low growth in the pipeline within the state.
Speaker Change: Come together in the integrated resource plan, we will file that in 2026, it will evaluate and look at NAV.
Speaker Change: Natural gas plant the existing natural gas plants, we have in the state the longevity of those plants considerations for carbon capture and sequestration technology and so that modeling work is still underway as you might imagine for 2026 filing and will be also based on the renewable energy plan. So that's really all I can share at this point, but as you imagine as you're growing the state.
Speaker Change: You have this pipeline there will be additional needs in the future for supply assets.
Speaker Change: Okay, I understand I mean, maybe youre heading quickly on a question around the stores again.
Speaker Change: You're kind of noting the impact of the offset in the quarter do you anticipate both of the recurring or potentially unwind would that potential deferral filing.
Speaker Change: Yes, so I would say Constantine.
Speaker Change: Similar to prior years.
Speaker Change: When we saw a significant financial headwinds, we will look at all opportunities in cost of cross structure I'd say, it's premature to think about what's recurring and what isn't but what I have been encouraged to see really.
Speaker Change: My prepared remarks over the last 10 years is every year, we establish a target for how much productivity and cost savings, whether that's a hard cost savings or avoided costs associated with the CE way and every year, we exceed that target pretty significantly and by definition the savings generated by the CE way are recurring.
Speaker Change: Savings and so I'll give you. An example last year, we had in our target we had a target for the CE way of around 50, or so million, we delivered $110 million of savings.
Speaker Change: And those are obviously recurring and so I would say we've exceeded expectations year in and year out on our on what we expect to achieve from a productivity perspective, but we'll also look at one timers I mentioned, we'll look at sort of our financing activities. So we may start to take a look at liability management as we have in the past and we'll also look at other potential cost recovery cost deferral.
Speaker Change: Which would not be recurring and so it'll be a good mix of all of the above like we've done in prior years.
Speaker Change: Let's take a moment to just elaborate on this toolbox of opportunities in Red you characterized it well, let's start with Uh huh.
Speaker Change: Conservative planning right, that's part of our mindset, that's part of our approach.
Speaker Change: The Red line and the engineer. This is just when we think about different scenarios. So that's 0.1.
Speaker Change: Reggie.
Speaker Change: Emphasizes the way theres so much opportunity in this the way that our coworkers to deliver on and you take an approval process you take waste out co workers feel better customers feel better any costs, while the other one that we've been really highlighting to us in the space of technology.
Speaker Change: Team calls that App realizations.
Speaker Change: One of them when they talk about it because I like what the Hell is that but the reality is it's looking about all our software or hardware and how are we leveraging additional benefit out of it where there is real savings there as well and then you apply AI in some places and we get better predictions in that takes cost out as well and then there was all the things that Rajiv mentioned in his prepared remarks, and so again I feel confident just.
Speaker Change: Ability to leverage these and a portion of them a good portion will be sustaining and as already indicated and some will be one time.
Speaker Change: Yeah.
Speaker Change: Excellent I appreciate you taking the questions.
Speaker Change: Okay.
Speaker Change: Thanks, Scott. The next question today will be apologies.
Speaker Change: I apologize. The next question today will be from the line of Jeremy Tonet with J P. Morgan. Please go ahead. Your line is open.
Speaker Change: Hi, good morning, Jeremy.
Jeremy Tonet: I just wanted to pick out where you're at with the with the gas case.
Speaker Change: Good how are you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Wanted to pick up with the gas case in.
Speaker Change: Given.
Speaker Change: What's come out so far the appetite for settlement or just.
Speaker Change: Any other thoughts at this point I know you said that you'd be happy going either way, but just wondered any incremental color you could provide.
Speaker Change: I'm going to even pull it back a little bit and just with these words I am very pleased with our track record of delivering constructive outcomes in Michigan.
Speaker Change: There's all kinds of data points electric or gas settlements.
Speaker Change: As a matter of electric or gas, we just continue to deliver time and time again.
Speaker Change: And in the Q4 call what I shared with full throated a constructive would give us we'd see a constructive electric order.
Speaker Change: How did I know that.
Speaker Change: One of the quality and the visibility we put in this case the constructive legislation, we have and it's not perfect as I shared but we continue to work on improving that.
Speaker Change: Then if you look at the stat, the MPC staff, our professionals and when you have a good staff position or constructive staffs position you get good outcomes and that's what we did and that's another data point with its electric rate case.
Speaker Change: I'm excited about this gas.
Speaker Change: The case as well it is down the fairway.
Speaker Change: Straightforward, we're replacing gas pipe, we're making the system safer that's important from a gas business perspective, we're ensuring capacity to deliver to customers and growth in the gas business and we do all of that right. You also reduce carbon emissions, it's a trifecta alright.
Speaker Change: Alright.
Speaker Change: Great. It's a great case the team has built straightforward and so I'm excited about staffs position it as a constructive starting position.
Speaker Change: Within the gas case, and we will go through the process. We'll go through rebuttal as we always do.
Speaker Change: Roe's, we're going to push on those this is like if I look at the external environment risk has not declined right and so we'll push on the Aro isn't rebuttal that'll be important piece for us to lean into but as I said always I'm open to settlement.
Speaker Change: And there's a variety of different points of view and different intervenors on that we'll work through that process.
Speaker Change: If we see that I would imagine it would be before the <unk>.
Speaker Change: PFD that's expected in August timeframe.
Speaker Change: But here my confidence in our ability to go the full distance to and just continue the track record of constructive outcomes in Michigan.
Speaker Change: Got it.
Speaker Change: That makes sense.
Speaker Change: Just wanted to pivot to a smaller point, if I could the deferral.
Speaker Change: That's baked into the guide right now just wanted to be clear on the treatment there.
Rajiv: Jeremy This is rajiv we Uh huh.
Speaker Change: Not presuppose approval of the deferred accounting order like I said I think we've made a very compelling case, given the historic nature of the storm and our efforts to restore customers as quickly as possible both inside our service territory and out and so we think we've made a compelling case, but as you know given our conservative nature, we've not presuppose.
Rajiv: Approval of that.
Speaker Change: Okay got it that's very helpful. Thanks, and just a last one if I could.
Speaker Change: As it relates to Itc's unregulated part of the business whats the magnitude of earnings.
Speaker Change: Exposure in your plan here and really if you could just outline a bit more.
Speaker Change: How tax equity impacts this and any other relevant considerations and how potential tariff risk at the project level could influence growth here I know you touched on a bit before but just wondering if you can flush out those points a bit.
Speaker Change: Yes, Jeremy I will take this as well as <unk>. So I would say in the context of 2025 guide as you know in our original guidance, we guided in order to start 18 to 22 sense given the planned large outage dig which historically and really going forward is a flagship earnings contributor to North Star we are anticipating more contribution.
Speaker Change: From commercial renewables projects and we have two solar projects that are well on their way of delivering constructive outcomes. Later this year and so I would say the exposure from our renewables perspective. This year is a little bigger than other years or prior years, and so of that 18 to 22.
Speaker Change: Assume about three quarters of that is delivered by residual benefits from ongoing assets, a little bit of Northstar, but primarily from two solar projects. We have underway as we look at the outer years of the plan still anticipation of solid renewable project development over the course of the plan, but again you should always just.
Speaker Change: And that day will be the primary contributor contributor of earnings to Northstar over the course of the next five years, let me pause there and see if there are any questions on that.
Speaker Change: Nope.
Speaker Change: That's helpful.
Speaker Change: I'll leave it there thank you.
Speaker Change: The next question today will be from the line of Nicholas Campanella with Barclays. Please go ahead. Your line is now open.
Speaker Change: Okay.
Nicholas Campanella: Hi, Nick.
Speaker Change: Sure.
Speaker Change: Nicholas Campanella from Barclays. Your line is now open if you'd like to proceed with your question.
Speaker Change: Yeah.
Speaker Change: I apologize, but not receiving an order from Nicolas his line. That's we're moving onto the next question being from the line of Julien Smith with Jefferies. Please go ahead. Your line is now.
Julien Smith: Hey team good morning, and pleasure here I hope they get US Canada response from Garik because as earlier here.
Julien Smith: Just with I think we are developing a new pattern.
Julien Smith: Just on economic development I'd, just love to understand how you guys are thinking about that.
Julien Smith: I heard the comments on the call with respect to data center activity and ongoing development year to date subsequent to the legislation, but in parallel also note. The Goshen developments from the County Board here. How are you thinking about what's included in the 900 megawatts of demand in the current plan are there puts and takes in that or is it still kind of.
Julien Smith: Static pending some more formal updates here just to understand how you think about both the positive and then exited the accumulated year to date.
Julien Smith: And so that 2% to 3% that makes up about 900 megawatts.
Julien Smith: <unk>, that's a conservative approach and you know that about how we plan and so there is an economic develop theres always that even in the best of times. There are some slowdowns in some projects and some speed up in some projects.
Julien Smith: And.
Julien Smith: What's great about that 2% to 3% as we have line of sight into that work. We're constructing the lines were constructing the substation and in many cases, we can see them building their facilities in the in the long term plans they have for that and so that's exciting that gives us confidence in that 2% to 3% low growth and theres always a little puts and takes.
Julien Smith: As I shared one of the data centers that were constructing right now is actually.
Julien Smith: Accelerating their load growth and the ramp up which is a positive sign and the same with a large manufacturing and so the degree Theres a pause with go Jim Theres also some acceleration with some as well and so that's all kind of in that mix to the 2% to 3% now.
Julien Smith: Now if we go to the nine Gigawatts as I shared in my prepared remarks, but let me offer a little more clarity.
Julien Smith: There's a lineup of data centers there of 65% some of them are moving faster and jump in the line and move into the front of the line and the progress and so that gives us a lot of confidence that those will materialize.
Julien Smith: But the next logical step in that processes is get this tariff complete with the commission.
Julien Smith:
Julien Smith: I'm optimistic that settlement is an option there.
Julien Smith: To be able to move those forward and for those data centers state. The next logical step does that help.
Julien Smith: Yeah, no absolutely. Thank you for that actually just to clarify that last piece because you bring it up.
Julien Smith: Just with the tariff here you alluded to a potential settlement certainly a possibility in other states as well.
Julien Smith: Could that be paired up with the more formal commercial arrangement is that it.
Julien Smith: Because when you get the clarity on the tariff would that be sort of the catalyst.
Julien Smith: Ounce any larger commitments here.
Julien Smith: Certainly they certainly the data center.
Julien Smith: Projects and possibilities wont have clarity on that in the context of that.
Julien Smith: Just from a special arrangement perspective special contract, we don't do those.
Julien Smith: That creates a lot of long term risk.
Julien Smith: Particularly for the company and for shareholders and so this tariff if it really is the best option and as you might imagine when they have clarity on what that looks like that'll be the next logical step in moving those some of those projects forward.
Speaker Change: Awesome guys do you guys take care all the best.
Speaker Change: Thank you so much yes, thank you Julian.
Speaker Change: The next question today will be from the line of Michael Sullivan with Wolfe Research. Please go ahead. Your line is open.
Speaker Change: Hey, good morning.
Speaker Change: Good morning, Michael just hey.
Speaker Change: Hey, Hey, guys just wanted to ask quick on how youre thinking about the risk of transferability.
Speaker Change: <unk> potentially going going away I think you've given us some numbers on what you embedded there in your plan, but just.
Speaker Change: That scenario would look like if you were to lose the ability to transfer tax credits.
Speaker Change: Let me, let me offer some high level comments on the rest you'll give to get into some specific numbers.
Speaker Change: Again, many of the Republican jurisdictions areas have benefited from the IRA right.
Speaker Change: What I think is even more important is the conversation that I'm, having part of the teams have an EI is having with a number of Republican.
Speaker Change: Congress men and women and that is one support for these PTC and ITC as well as the tax monetization or transferability component of it because they see in these times the importance of affordability and how that transfers directly to savings for our customers and that's been an important part of the conversation. So that's what gives us we'll see.
Speaker Change: How legislation takes place and how at all.
Speaker Change: Evolves, but that gives us some certainty.
Speaker Change: I guess optimistic optimism about the ability to maintain PTC and ITC and the transferability going forward, but rather.
Speaker Change: Strategy to offer some additional comments on the dollars, yes. So Michael I. Appreciate the question and just to talk about a potential offsets our countermeasures.
Speaker Change: I still see it in the unlikely event, we saw transferability go away, we would look at a variety of financing sources and I think the good news.
Speaker Change: This environment and in prior environments is that the capital markets remain broad and deep and so we would certainly look at more junior subordinated notes as a potential option clearly.
Speaker Change: There's quite a bit of capacity in the market there and based on our even our recent issuance of $1 billion that I noted in my prepared remarks, we saw in this year alone $2 billion to $3 billion of additional junior supported no capacity in that amount of capacity increase over time as you book capitalization grows through retained earnings and so a lot of opportunities to potentially look at more junior some.
Speaker Change: Coordinate it notes, obviously, we could look at doing additional equity as well and we feel very comfortable with the equity levels that were issuing over the course of this five year plan and still think we have capacity to do additional equity to fund this attractive growth opportunity we have at the utility and so incremental equity would also be a potential offset and then it's also important to note just the cigna.
Speaker Change: Flexibility afforded to us through the energy law and the ability to.
Speaker Change: To earn on Ppas as we look to comply with the energy law and the significant renewable opportunities associated there with that creates a lot of balance sheet flexibility as well and so as we look at subsequent five year plans, we may transfer or a shift to transfer is probably not the right word there so upon not intended.
Speaker Change: But we could look to potentially shift our spend mix from instead of investing and owning some of those renewable opportunities, we could potentially contract and earn about a 9% SCM on those which obviously again Chris.
Speaker Change: Creates a lot of balance sheet capacity and so those are all potential countermeasures in the event transferability went away.
Speaker Change: Very helpful and just to clear up.
Speaker Change: Double checked the 700 million plus number from the year end call in terms of what's in the plan is still good.
Speaker Change: That's still the current plan yes.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of David Colorado with Morgan Stanley. Please go ahead. Your line is now open.
Speaker Change: Hey, does this add Evan I'm on for Dave Good morning.
Speaker Change: I'll start and if the storm tracker could you talk about the strategy going forward to get it approved is there any specific changes if they make to address the push backs.
Speaker Change: In reference to just for clarity for those who might be listening in the call in the.
Speaker Change: There are a number of the previous electric rate cases, we've we've proposed a.
Speaker Change: Storm tracker storm recovery mechanism in those.
Speaker Change: We've heard some of the comments from both staff as well as the commissioners on sharing in greater sharing of that of those mechanisms.
Speaker Change: Unfortunately, we have not had success in that mechanism.
Speaker Change: But we continue to look at options to be able to offset some of the costs again I'd go back to the Liberty audit, which again recommends a best practices or jurisdictions in utility and ultimately for the customer is to have a mechanism in place for extreme extreme weather.
Speaker Change: Norm recovery mechanism or tracker is one way to go about it another way that we're obviously filing for here and filed for this week is just.
Speaker Change: To this deferred accounting mechanism for again regulatory treatment.
Speaker Change: Historic or extreme weather.
Speaker Change: Got it thank you.
Speaker Change: And back to the data center demand in Michigan did you see a big change in the interest after the state approved the tax exemption status last year.
Speaker Change: Yeah.
Speaker Change: That is correct.
Speaker Change: Of our of our pipeline it was primarily about 65% manufacturing prior.
Speaker Change: Prior to the signing of the sales and use tax and that flipped.
Speaker Change: The actual pipeline grew to nine Gigawatts and.
Speaker Change: A majority of it specifically about 65% of it is.
Speaker Change: As data centers as a result, and so we attribute to that too in part due to the sales and use tax exemption. But also there are other <unk> that are have had some challenges and so MISO continues to be.
Speaker Change: And RTL that and frankly, we have a nice energy law that supports the bill to the ability to put on the supply that's needed and necessary for these important projects.
Speaker Change: Got it very clear thank you.
Speaker Change: Yeah.
Speaker Change: The next question will be from the line of Travis Miller with Morningstar. Please go ahead your line is nobody.
Speaker Change: Thank you and good morning, everyone.
Speaker Change: Good morning Travis.
Speaker Change: On the electric rate case wondering if there are any lessons learned or aside from the headline numbers anything in the case decision.
Speaker Change: That you'd like to go back four or you hoped to get anything like that you mentioned the storm tracker, but anything.
Speaker Change: Aside from that.
Speaker Change: There's always room for improvement in our cases I want to be real clear we've had a successful track record, but we're not perfect. There are a lot of opportunities for us to improve we get the feedback from the for the staff and get the feedback from the commissioners and there is important work to do on one of the important pieces that are.
Speaker Change: Comments that was made by the commissioners when they provide the order was the mix of capital and O&M and recall that in that case, the liberty audit or the distribution on it kind of came midway through.
Speaker Change: And so we had a capital in there and the recommendations on tree trimming and vegetation management work, we're not in there and so you can imagine that in this next case that will have a greater degree and a greater amount of vegetation management and will also match that with the important capital investments because it's both you have to deliver the reliability and long term.
Speaker Change: Resiliency and so I would expect to see filing our reliability roadmap more capital investments, but also a much larger investment too in vegetation management to improve our reliability for our customers and so that's an area of improvement.
Speaker Change: There was also from the batch a small thing in just following where the dollars went we got more granular in some of our bucket and so we could see the benefits of that work and there were some feedback that you know you couldn't tick and tie as easily so we're going to improve that as well and just make a key that's just kind of let me know I'm in the weeds now, but just the key to be able to make that clear.
Speaker Change: For intervenors as well as the staff and commissioners to file. So those are ways, we're always looking to improve the process.
Speaker Change: Yeah, Travis all I would add this is rajiv aside from a 10.25% ROA, which was on my personal with wishlist.
Speaker Change: The other subtlety or a smaller element of the filing that we did seek and unfortunately didn't get support for but over time I do think it would be helpful. As we did propose a wildfire risk mitigation plan and they'll Michigan is not as susceptible to a lot of states to the western to the west of us to wildfire. We do thank you cannot plan sooner.
Speaker Change: Uh huh.
Speaker Change: For wildfire risk mitigation, so we had $12 million of capital ascribed to it are 4 million of which was for strategic underground thing covered conductor was another a bit of a stand and then.
Speaker Change: What I would call strategic vegetation management, and so we do think over time, we'd like to start to put in place a program because again I don't think you can plan not too soon for that and so that was the other item on the wishlist that we'd like to get support for going forward.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Great I think we all have 10.25 on the wishlist.
Speaker Change: Yeah.
Speaker Change: The RFP.
Speaker Change: When you get that September ruling, what's kind of the next step is would there be any immediate.
Speaker Change: I guess disclosures re or changes potentially in the capital plan or is that something that's going to evolve as you do perhaps rfps or some other.
Speaker Change: Type of solicitations.
Speaker Change: Along the way of anything that's going to happen say in September or October after their system.
Speaker Change: Well it gives it certainly gives us more clarity on the clean energy in the a.
Speaker Change: A portion of the investments that are in the five year plan there could be additional investments in that and that again flows into the integrated resource plan and so youll see that that approval is important too to build out the integrated resource plan.
Speaker Change: And so those are a couple of components that you you will see and of course, we'll have greater clarity and certainty around what those renewable energy supply assets are.
Speaker Change: Okay.
Speaker Change: Right.
Speaker Change: That's all I had thanks a lot.
Speaker Change: Thanks Travis.
Speaker Change: The next question will be from the line of Gregg <unk> with UBS. Please go ahead. Your line is open.
Gregg: Yes, Thanks for taking my question good morning.
Speaker Change: Just hey, good morning, just the.
Gregg: I wasn't quite sure I understood what the.
Gregg: <unk> impact in the balance of the year related to the storm.
Gregg: Accounting order was.
Speaker Change: Sorry, if I missed that.
Speaker Change: Yeah, I'm not sure.
Greg: Greg This is Reggie where you got the <unk> impact, but just to walk through the.
Greg: The details of the estimated and I say estimate because we're still doing all of the closing out of contracts and invoices.
Greg: From third parties, you helped us, but as Youll see in the.
Greg: Regulatory filing we submitted yesterday the estimates for the storm was about $100 million in so call that 25 per share of impact.
Greg: And as you think about the waterfall I walk through the bridge of financial performance.
Greg: Over the course of the year.
Greg: We are assuming a good portion of that storm impact will flow through that cost bucket or what we're calling specifically reliability storms, including productivity and so.
Greg: The <unk> of negative variance that you're seeing year to go when you add that to the five cents of negative variance. We saw in our year to date actuals. What you see is basically a <unk> 12 per share swing versus our original guidance and that basically adds up to about $50 million pre tax and so we've baked into there.
Greg: The assumption of additional service restoration expense productivity in the form of CE way, the CE way and all the other cost items I numerate. It in my prepared remarks, and so we're assuming that we're going to have an increase for sure and service restoration expense, but we will also.
Greg: Net those down with cost reductions, we've also assumed cost performance as well and that parent financing tax and other bucket and so if you look at the comparison of what we have in our current waterfall versus our original guide you'll see about <unk> 11 per share or $45 million roughly pretax of improvement versus the original guide and that's where you see the balance.
Greg: A cost takeout or support.
Greg: To fund the impact of that service restoration.
Greg: <unk> increase and that's what gets us to our full year guidance. So it is flowing through the cost associated with the service restoration expense is flowing through that reliability storms, including productivity line item and again the countermeasures are flowing through both of those sort of latter two buckets in the waterfall, let me pause there and see if you have any further questions Greg.
Greg: No that's great I appreciate that thank you.
Greg: Our next question will be from the line of Andrew was out with Scotiabank. Please go ahead. Your line is now open.
Andrew: Hi, Andrew Hey.
Andrew: Hey, good morning, everyone.
Speaker Change: Good luck settling the gas rate case that if you make it five timers club like Saturday Night live I think you can get one of those cool black Velvet Jack.
Andrew: I look forward to where in that Jack.
Andrew: Yeah.
Speaker Change: Just just wanted to clarify I think you kind of just answered. This on the last question, but to clarify are you already in cost cutting mode. After that storm or you just reminding us of your proven an ability to do that.
Speaker Change: No Andrew we've been we got in the foxhole very early in.
Speaker Change: In the first quarter I would say once we start to get visibility that a significant storm is underway and also.
Speaker Change: Even earlier in the month, we started to see pretty mild temperatures in the month of March and so we already started to get into Fox hole and start identifying and implementing counter measure is really in the early part of March that are already well underway and so this is beyond hypothetical and academic we're in implementation mode and so still more work to be done, but we are already in <unk>.
Speaker Change: <unk> based on the visibility we got earlier in the month and then as the storm started to materialized, let me pause there.
Speaker Change: Yeah.
Speaker Change: So I guess my question is should this deferral will be approved which of course would be a good situation.
Speaker Change: What what would you do then.
Speaker Change: We're already cutting costs and then you get the good news is getting this approved what happens.
Speaker Change: Yeah. So it certainly creates additional flexibility in the plan, which we like.
Speaker Change: And I'll remind you that the CE way will be one of sort of the anchor countermeasures that we'll lean into and we see no downside in over achieving on our CE way targets year in year out because it just creates additional headroom going forward and.
Speaker Change: And rate reduction opportunities for customers going forward and so there is no reason to dial back those efforts, we may take a harder look at some of the planned cost deferrals and some of the other measures like I said, where we would limit hiring in some of those other sort of flex related items that are more one timers and so it just gives us more flexibility to potentially turn back on those speak.
Speaker Change: It's in the event, we get a success there, but if we see opportunity to execute on recurring savings opportunities. We would obviously carry on with those does that make sense Andrew.
Speaker Change: Yes, it does given the weather challenges and it's been a while since you were in invest mode as opposed to lean mode, but yes that would be a good situation.
Speaker Change: Okay, and then one can only dream is I think I had yeah.
Speaker Change: Yeah.
Speaker Change: Kind of like the $10 two five.
Speaker Change:
Speaker Change: My other question I think I asked you. This after a storm a few years ago, what grade would you give yourselves in terms of reliability from this storm I know obviously, it's been a focus in the Liberty audit came out last year, but how would you evaluate the performance after the storm.
Speaker Change: Much much much better and I would I would point to customers and policymakers are real positive sentiment with both both we're not seeing.
Well, we fall into 2023 was.
Speaker Change: Just a lot of aftermath after the storm and we've improved greatly through process through investments and.
Speaker Change: And we've got a lot of positive feedback and so.
Speaker Change: Don't want to be too boastful.
Speaker Change: And so I'm still kind of grade myself hard.
Speaker Change: So, let's say like a b plus.
Speaker Change: I still think there's room for improvement.
Speaker Change: It's a lot different.
Speaker Change: Fact.
Speaker Change: Pattern than we had back in 2003.
Speaker Change: Very good thank you so much.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: Our next question is from the line of Sophie Karp with Keybanc. Please go ahead. Your line is open.
Speaker Change: Hi, Good morning, guys most of my questions.
Speaker Change: Yeah. Most of my questions have been answered, but maybe I can just ask you a high level question on the economy in Michigan.
Speaker Change: The unemployment or again, which was a little elevated for the state.
Speaker Change: What are you seeing from your customers.
Speaker Change: Customers if anything in terms of what are they saying about the activity.
Speaker Change: They are adjusting to the new reality, where the parents tend them now any color would be helpful.
Speaker Change: I still see a lot of positive indicators in Michigan and part of it.
Speaker Change: <unk> talked about in response to question and my prepared remarks, particularly in the 2% to 3% load growth.
Speaker Change: The fact that data centers are accelerating the fact that manufacturing customers are still moving forward with projects and we can see that construction and then in some cases asking to expand or at least in one case as asking him to expand our promising indicators, but if I go right down to today right and remember like when we follow the margin and it's the residential commercial space we still.
Speaker Change: We see solid performance there.
Speaker Change: And if you look into like.
We do this if you look into like permits and housing starts and if you look at that Grand Rapids Metropolitan area.
Speaker Change: Permits housing starts for single family continue to increase for multifamily commercial continue to increase and so those are positive indicators. The other one I look at it.
Speaker Change: Yeah.
Speaker Change: Relocations as what we call it or alterations those are customer requested work for changes at their home or their business and so maybe they need a larger meter to be able to serve their load and maybe they need the meters move because theyre, putting in addition on their home or their business that of course went up in the pandemic as people went home and invest in their homes.
Speaker Change: It is still elevated that's still above.
Speaker Change: Pre pandemic levels, which is another good indicator about people investing in businesses and in their homes, particularly in the residential and commercial space. So that gives us a lot of.
Speaker Change: Competence.
Speaker Change: The sales piece of resi and commercial continues to be and where the margin is continue to be solid.
Speaker Change: The other thing I'll point out is there's always pluses and minuses when you get in the industrial space and I've talked about that a little bit with Julian and the Negotiant piece, but then when I look at our mix and how diversified Michigan is.
Speaker Change: Are you surprised people would this number sometime there are 4000 businesses in Michigan in the aerospace and defense industry 4000, including now Saab in our service territory and so in this federal administration you can make a strong bet that defense spending is going to increase and so that's a real positive.
Speaker Change: For Michigan, the other one I'd like to point to is that where the second most diverse state from an agricultural perspective, and what we've seen over the last 10 to 15 years as more of that processing of foods move closer to the fields move closer to the farm and as a result, there is a lot more process in the manufacturing of food and that's growing in this environment.
Speaker Change: Even in the worst scenarios, even the worst scenario, if a recession people still need food bread bread milk dairy products and so a long winded way of saying, we still see a lot of.
Speaker Change: Positive indicators in our service territory, which gives us a lot of confidence of our Michigan and a forward look.
Speaker Change: Okay.
Speaker Change: Thank you that's all for me. Thank you hit the color.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you and that concludes our Q&A. So I'd now like to hand back to Mr. Zhao for closing remarks.
Mr. Zhao: Thanks Harry.
Mr. Zhao: I'd like to thank you for joining us today and look forward to seeing you at the upcoming <unk> financial Forum take.
Mr. Zhao: Take care and stay safe.
Mr. Zhao: Yeah.
Mr. Zhao: That concludes today's conference we thank everyone for your participation.
Mr. Zhao: Yeah.
Mr. Zhao: [music].