Good morning, everyone, and welcome to the CMS Energy 2015 Second Quarter Results and Outlook Call. This call is being recorded. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. [Operator Instructions] Just a reminder, there will be a rebroadcast of this conference call today beginning at 12 P.M. Eastern Time running through July 30. Presentation is also being webcast and is available on CMS Energy’s website in the Investor Relations section. At this time, I would like to turn the call over to Mr. D.V. Rao, Vice President and Treasurer, Financial Planning and Investor Relations. Please go ahead.

Good morning and thank you for joining us today. Our earnings news release issued earlier today and the presentation used in this webcast are available on our website. This presentation contains forward-looking statements which are subject to risks and uncertainties. These statements should be considered in the context of the risks and other factors detailed in our SEC filings. These factors could cause CMS Energy's and Consumers' results to differ materially. This presentation also includes non-GAAP measures. A reconciliation of each of these measures to the most directly comparable GAAP measures is included in the appendix, and posted in the Investor section of our website. Now, let me turn the call over to Tom Webb, Executive Vice President and Chief Financial Officer.

Thank you, D.V., and good morning everyone. Thanks for joining our call. As always, we deeply appreciate your interest in our company and for spending time with us today. And John sends his regrets that he can't join us today. He is recovering from a medical procedure and we look forward to his return in a few weeks. I know he'll miss fielding your questions today. So we'll begin the call with an overview of the quarter and provide an update on the legislative process, before turning to more detail on the gas business, the fast half and our growth model, and then we'll close with Q&A. For the first half of the year, adjusted earnings per share were $0.98, down $0.07 from last year but up $0.03 on a weather-adjusted basis, were $0.13 ahead of plan. Today, we’re reaffirming our full-year adjusted earnings per share guidance of $1.86 to $1.89, and as you know, this reflects real growth of 5% to 7% of last year’s actual results. We filed our gas rate case last week for $85 million. Like our previous cases, it's small and primarily driven by capital investment. Even with this rate case, we expect total customer bills to decrease in 2016 due to lower gas commodity prices. Last month, we self-implemented our electric rate case at $110 million, and we expect an order for this case in December, which would mark 2.5 years since the last order. Our predictable growth has continued over that time and we have self-initiated many cost reductions to keep prices low for our customers. Here you can see the impact of our actions along with constructive regulatory environment. Our industrial rates are at a competitive level that's attracting new business to the state. Rates could be improved further with changes to…

Certainly, and thank you very much Mr. Webb. The question-and-answer session will be conducted electronically. [Operator Instructions] We’ll pause for just a second. Our first question comes from Michael Weinstein with UBS. Your line is open.

Good morning, it's Julien here.

Good morning. Nice to hear your voice.

Likewise. So I suppose first quick question if you don't mind, just with regards to legislative developments. Just to be very clear about expectations. As far as the latest proposals from Nof moving through this summer, is that still in line with what you're expecting in terms of return to ROA and return to customers?

The bottom line is yes it is, and I would just comment, keep in mind that we’re not planning on any return in our financial plans that you see. That's kind of all of an upside. We suspect as the policymakers work through this during the summer months and do something before the end of this year that from an ROA standpoint, there may be an economic opportunity that comes out of the law where customers will decide it's probably better to be with bundled service, because they are likely to have to secure not only energy but capacity as they go forward. And to do that, they may find bundled service a better place to do, and that's exactly what we like. We like seeing them make the right economic decisions. So the answer again to your question is yes.

Great, excellent. Perhaps coming back to the cost-cutting efforts. Just to be clear, how are you setting up in the next or I suppose the pull forward isn't quite happening to the same extent. What are you thinking year-over-year? Just I know you have a broader confidence in your 5% to 7% growth rate, but how do you think year-over-year in terms of cost-cutting effectiveness? I know it's a little early but just kind of curious.

Well, we feel very good about what we're doing. As you recall, I mentioned that we’re ahead of plan already. You can see that on the reinvestment slide when you have a chance to peek at that. You'll see our cost savings are better than what we anticipated to the extent of about four or five pennies. So that's pretty good. That's a big number. So the plans for this year are good. The reinvestment will continue. Now if I told you how much we’d reinvest at the end of the first quarter call, it would be a lot more. And what I tell you at this call because of the cool weather that we had in June. But when you look at that reinvestment slide, you still see we’ve got lots of room to move and lots of decisions to head, to tailor into what are the right places to put our money and still deliver for you on the profits.

Great. And a last little detail. As you're assuming we get some developments on the legislation in forthcoming periods, how swiftly thereafter would you anticipate making a filing or talking about new generation construction just in terms of a timeline since we’re coming up against here potentially seeing this legislation going forward?

Yes, a little premature to say exactly what we do because we need to see what the final shape of the plan is, but think of it in two fashions. There will be - likely be this new IRP process. So that will have work done by the state to start planning where we need to be to meet PPA requirements, to do our own state requirements on environmental, all of that. That will be followed by the official IRP process. So that will take a little while. So I suspect what you'll see in the law are some bridging actions. Now I'm just speculating, but take something like energy efficiency to ensure that we continue to do the good work we're doing today, there may be a little bridge that says you continue on the program you have today for a period of time before you go into new things. Is that sort of thinking that wants me to hesitate a little bit on how soon we say we'll announce new capacity, part of it will depend on how the ROA plan goes, returns to customers, part of it will depend on the needs of what may come out of the EPA in August and September, maybe more renewables. So we'll put all that together, be talking to the regulators and policymakers and then probably have something if you made me guess early next year to give you a sense of where we think we're going and what our proposals are.

Thank you very much. Good luck.

Julien, thank you.

The next question is from Dan Eggers of Credit Suisse. Your line is open.

Hi. Good morning, guys. Just extending on Julien’s question about the IRP process. Can you maybe walk through how you see it working as best you can tell right now, working with the commission to kind of layout the parameters for renewables, for efficiency, for conventional generation? And then with the shortfall in ‘16 in Michigan, even with the MISO updates, how you go about trying to resolve that in the context of a bigger policy goal?

I'd be glad to do that. First of all, think about what we'll do. We'll make sure our bundled customers are covered. So from a capacity standpoint, we've got a lot of optionality, even though the state is going to be sure probably at the least the Lower Peninsula [ph] and the spring of next year, we will have tools to take care of our folks. What we’re uncertain about and part of what the law is about is who is going to take care of the ROA customers. Is that something that the AESs are willing to do economically with those ROA customers or it's something where we really do need to step in for long-term planning basis. So here are the steps. First, the public service commission will put some parameters together for the IRP filings. So it will take a little time to do that. Second, within a couple of years of the enactment, there has to be IRPs filed. So you see there is a little flexibility in there, but that's the next step, and that will include a long-term outlook. And then before we file an IRP, if you follow the bills the way they are structured today, we would do bid an RFP to make sure we understand what's out there in the market that we would factor into our plans. Now you might think of that as, what does that mean? You're not going to able to build thing. I wouldn't think of that at all. I'd think of that as the common sense that we use. Remember, we were about to build a new gas generation plant in [indiscernible], and instead we twice went out on our own to check the market. And in the second check, which was last December, we…

It does. Now let me ask the simple question which is when we sit from the outside looking at next year, what should we look from you guys as far as how you address the shortfall in Michigan for ‘16 and ‘17?

Well, two points. First point, remember, we are inside of those numbers you see. We’re covered. We have adequate plans in place to take care of all of our bundled customers. If for some reason there was an emergency and I'll do a theoretical thing, all ROA customers chose to come back to bundled service right away, we would find short-term measures to cover that and think purchases on the market, think use of short-term PPAs, think DIG, think all the list of options like that, there are many. So short-term, we could be in very good shape. Longer term, we want to plan for more certainties. So what we would work on is how to put more permanent capacity in place in Zone 7, so our customers will essentially own their generation as opposed to renting it.

Okay, got it. I guess one last question, Tom. If you could just - what do you see as the kind of the big bridge drivers if we look at the second half of ‘15 versus ‘14? I think you probably need to make $0.15, $0.17 more in this second half than you did last year. Just what are kind of the chunky pieces you see helping to get to that number?

Yes, that's a good question. If you can, if you’ll refer to slide 12, you will happen to see sort of the best roadmap, but I think it's in the slides first half, second half. When you look at the second half, we already have programmed in actions that give us lower O&M, and that's in the $0.12 that you see, that's largely what that is. And those are all underway, so there is no like new cost reductions that desperately need to be found. And then you've got the mortality tables that are the full-year effect. You remember it was $45 million, so just the portion that impacts in the second half is about a nickel of bad news. Then you got rate release and everything else. Remember, just about all of our rate release that we’re talking about is really second half. So think of the electric rate case as an example. On the electric rate case, we just self-implemented. So we’re actually collecting that. We get all that upside as we go through the second half of the year, something we didn't have in the first half of the year. So I would tell you there is a lot of natural things like that, that don't require a lot of wishing and praying or worrying of any kind. And then have you think about slide 13 that shows the reinvestment plan. We're actually still in the mode of looking where we deploy our resources in steps throughout the course of the year to go from $0.13 better than planned to what would leave you with a good 5% to 7% earnings growth. So we are in, I'd say great shape. This is actually a fun place to be. It's little tougher when it's the other way like it was about three years ago when we had a really mild winter and we had a fine $0.13, which we did, and as you know, the actuals speak for themselves we're in great shape. So not a lot of pressure for us, but you can see our normal cost reductions coming in place. We’re now getting rate release in the second half. We didn't have in the first half. And so the comps, I guess, are a little busy easier if you look at it that way.

Great. Thanks for time and best recovery wishes for John, please.

Thank you for that. Thanks Dan.

The next question is from Jon Arnold with Deutsche Bank. Your line is open.

Hi, good morning.

Good morning, Jonathan.

Just quick question on the slide where you show the 6% to 8% opportunity versus 5% to 7% in the plan. Tom you mentioned - you have sort of short-term and long-term labels there. Can you just - it seems like you're going a step further towards raising the growth rate without actually doing that. How do you think about short-term, and are you meaning to imply that in the next year or so we could be there?

I think that's fair enough. There is a mix of things, some of which are short-term and some of which are a little bit longer term. So when you think about the generation side of things, those are a little bit longer term adds into our plan, but there is plenty of short-term things to do as well. And I'm actually going to take you to slide that you prefer not to be taken to I think, instead of the one you're talking to, and that’s slide 13 which shows the reinvestment curve again. Here is the best way I can encourage everybody to think about this. There are some very important things we don't have to do but we sure would like to do for our customers. Tree trimming is one of the simplest explanations I have. Our tree trimming cycle is closer to 10 years and it should be closer to five or six years. So the commission is kind enough to give us a little bit more with each rate case and then they know every time we can find an opportunity to do a little bit more when we have good news from cost reductions or weather or whatever it is, we also do a little bit more. What I would caution everybody is, yes, underneath we could probably be growing a lot faster than 5% to 7%, but inside as long as we have that opportunity to do these important things for our customers, we’re going to do those, and I think there will be things like that to do certainly this year, and I think certainly next year, and then we'll talk about the future after that and that's not a hint up or down, we'll just talk about that a little bit later. The other thing it does for us is by doing this work like the DIG pull ahead and like more tree trimming and whatever, it actually makes it easier for us to deliver the next year because our customers are better off, we pull cost ahead that would have happened in the next year or the year after, but it makes it easier for us to deliver the good results that you need to see. So no move from the 5% to 7%, certainly not today.

So the - you do at some point run out of things that you can accelerate like will you catch up on tree trimming and is that part of the motivation for putting this opportunity number out there?

Well, we get asked the question enough that we wanted to show with the investment profile how easy the model works. So if we had more investment, we can do that without putting stress on our customers and still give them average rate increases that are less than inflation. That's the point. The point is less so to say, look for 6% to 8% earnings growth in the near-term, just know that the capacity is there, but our desire to use that capacity this year, next year and who knows beyond that is important and it's paying off. It's paying off for our customers, and then indirectly it's paying off big time for all of our investors by allowing us to have that happy customer group as well as to be able to deliver that 5% to 7% every year.

Okay. So can I just - one follow-up on that, Tom, the NOLs. Can you remind us how much runway you still have on NOLs and how - when those end out of that sort of - how does that fold into the longer term growth outlook?

Yes, we're good on NOLs for several years to go. The gross NOLs are near $1 billion still, and remember, then you got to net that for the tax effect. And I believe in your appendix you do have our operating cash flow slide, and it will show you in the bottom bright yellow bar when anybody gets a chance to look at that, that NOLs and credits are still positive and available all the way through 2020, and the NOLs are used up a little earlier than that depending on bonus depreciation and depending on other tax things. But at this point, we’re still pretty comfortable telling you, we can go five years without any block equity because of that tax opportunity. I’m a little embarrassed because every time I - once a year I have to explain to you it has to go out another year. Probably five years ago, I think we were telling you that we had five years to go and today our time is up, but fortunately we have another five years to go.

Great. Thank you, Tom.

Thank you, Jonathan.

The next question is from Paul Patterson with Glenrock Associates. Your line is open.

Good morning.

Good morning.

Just wanted to touch base a little bit on the sales growth. Could you give us a little bit more of a flavor as to when we look at the 0.5% growth, how much of that’s focused on industrial versus the other rate losses?

Yes, happy to do that. So we - our first half sales growth weather-adjusted weather-normalized for electric was flat. You'll see that in our addendum, you'll see that data.

Yes, I did see that.

Yes. And you'll see residential down and commercial up a little bit. That's nothing to really get too nervous about because we've seen that flat to down to up a touch. It’s oscillating. Those two are not making the big recovery. Now typically you would see after recession. So that's still ahead of us. That hasn't started happening yet. The point for today is probably more around the industrial side. When you look at the data, our growth was over 1% in the first half and we know that its underlying growth is better than 2%. So you may say what's happening. Now I have to be careful because I can't talk about a specific company, but there is an individual company that's a big customer, a very low margin customer of ours and they have an interruption on the supply side, and it was a stubborn one. And I'm not even sure and it's not my business to say when they'll be coming out of that, but obviously they’ve worked their way through that. And when that comes back through, you'll see the industrial numbers back up to what we think is a more reasonable level. So keep in mind, we expect that to happen for the future and we really haven't factored in all the 3% of new growth from new businesses locating which will be largely late this year, mostly ‘16 and some ‘17. But the answer to your question was, in the analysis think industrial as of today.

Okay, but when we look at that 0.5% increase, how much, I guess, what I'm really saying is going forward? How much do you guys associate that coming from industrial versus higher margin residential and commercial?

Yes, I can help you on that. So when you look at that, think of the long-term growth as flat to positive on residential and commercial. And that may be where we are under calling things a bit, because typically there is a point after recession where the jobs and the employment bring in more residential, which brings in more commercial. The industrial side in our assumptions going forward is the main driver because we have great visibility into that. We know the folks that are expanding. We know the folks that are shrinking, if they were, but mostly net expanding. And we know the folks that are coming into the state that have announced, who’ve shared of that and those that are looking that we can announce because they haven't yet. So we feel pretty good on that side. Does that help?

That's very helpful. Just in terms of the sensitivity since you guys always provide, is that - when we look at that 1%, is that basically across the customer groups or is that pretty much with the same trends that you're seeing in terms of industrial leading that? Do you follow what I’m saying?

I do. That sensitivity we do on an average basis.

Okay.

So, if you will, think about the sensitivity that would be oriented more to industrial than to residential, that would make the sensitivity a little less so, because residential is key in here. So we do an average.

Okay. And then IRP versus the mandate, which is one of the differences we see inside the legislation I think. Does that make a significant difference in terms of what you think the sales growth outlook would be, or is it just a question of what’s selected in terms of making the - does it have an impact I guess on decision [ph].

Yes, I don't think that's going to have a big deal on sales growth and competition where you were going. So when we talk about having or not having a mandate and using the IRP, that mandate would have been around renewables is a simple example. If you don't have a mandate because the policymakers would rather make sure that the IRP process is more thoughtful around what the important things are doing, and in an IRP process you might come up with 4% renewables as opposed to a mandate might say something else. The policymakers think the IRP process will be more thoughtful. And when we get into all the needs for capacity, for environmental compliance and those sorts of things, I think you’re naturally going to see a mix of renewables, a continuing mix of energy efficiency and we’ll probably need to put some capacity in place. So when you were relating it to sales growth, I know you were thinking more choice. I would tell you, we've assumed 10% continues forever in our plans. So if you were to conclude that ROA customers might be coming back in this process that will actually help sales.

Okay.

Okay?

That's great. Really appreciate it. Thanks so much.

Pleasure. Thank you for calling in.

I’m showing no further questions at this time, I'll turn the call back over to Mr. Webb.

Thank you very much. We appreciate everybody joining us today. We had a strong first half. We look forward to the second half of the year and we expect to see an improved energy law as we've been talking about today, and we expect to see an order on our electrical rate case in December, and we expect to deliver predictable financial results. So thanks for your interest and spending time with us today. We'll see in the near future.

This concludes today's conference. We thank you everyone for your participation.