CMS Energy Corporation (CMS) Q2 2016 Earnings Report, Transcript and Summary

Good morning everyone and welcome to the CMS Energy 2016 Second-Quarter Results and Outlook call. The earnings news release issued earlier today and the presentation used in this webcast are available on the CMS Energy's website in the investor relations section. 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 1 PM Eastern time, Monday through August 4. This presentation is also being webcast and is available on CMS Energy's website in the investor relations section. At this time, I would like to turn the call over to Mr. DV Rao, Vice President and Treasurer, Financial Planning and Investor Relations.

Thanks Tiffany, good morning everyone and thank you for joining us today. With me are Patti Poppe, President and Chief Executive Officer; and Tom Webb, 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 also posted in our website. Now let me turn the call over to Patti.

Thanks DV. Good morning everyone. Thank you for joining us on our second quarter earnings call. I will begin the presentation with a review of our second quarter results, the progress made on our first half checklist and I’ll share a little bit more with you about our Consumers Energy Way. Tom will then provide the financial results and outlook and will wrap up with Q&A. Second quarter earnings were $0.45 per share, up $0.20 from a year ago, on a weather normalized basis earnings were up $0.14 or 52%. We are proud of our results and they were driven primarily by our outstanding operational performance. The cost controls and other good business decisions we put in place earlier in the year had a positive impact for this quarter. Today, we are reaffirming our full year adjusted earnings guidance range of $1.99 to $2.02 per share. For 2017 and beyond as we previously announced, we plan to grow adjusted earnings per share at 6% to 8% annually. Let’s go through our first half checklist. We’ve made good progress achieving our financial and operational objective, the last 6 months were no different than the last 13 years, focused on delivering results for our customers and our investors. Michigan’s track record of constructive regulation continues with the appointment of the new commissioner and our 8-K strategy is on track and focused on recovering capital investments through routine and regular rate cases. We’ve been a leader in the transition to clean our environment and in April we retired seven baseload coal plants that have generating power dependably and affordably for over 60 years. A change like that is not easy, but the way we care for our people and our communities during the transition makes it a very positive step towards a sustainable energy future. Recently, we launched a new initiative of continuous improvement that we call the Consumers Energy Way. I am excited about the customer focus benefits and waste elimination this program will deliver over the next several years. And then finally, the Michigan Legislature broke for the summer recess without taking action on the energy bill although the reforms would be positive for our customers as we have consistently reiterated we are not counting on any changes in our long-term financial plan as a result of the new law. We are pleased with the appointment of Commissioner Rachel Eubanks. Her education and financial experience will be nice addition to an already strong commission and we look forward to working with her. Electric and gas infrastructure investment is needed throughout the state and by working with Michingan’s agency for energy and our commission to prioritize those investments, together we can assure that the benefits for customers and the state will be realized in a well planned fashion. We plan to self implement our electric rate increase of $170 million on September 1st at the current authorized 10.3% return-on-equity. The staff has recommended a $92 million revenue increase based on a 10% ROE. Half of the difference between our self implementation amount and the staff’s position is the ROE and cost-of-capital adjustments. On August 1st, we plan to file a $90 million gas case, 93% of this case is made up of new investments to strengthen infrastructure and improve system capacity and deliverability. As the fourth largest combination utility, the strength of our gas and electric businesses together is a balanced mix that serves the people of Michigan and our investors well. We are very fortunate to be in this desirable position. Reducing coal dependency is a strategy on which we’ve been focused for several years. A recent example of this was the shutdown of the classic seven coal plants that I mentioned earlier with thoughtful planning years in advance, we were able to keep our promises to employees, vocal communities and Michigan’s beautiful natural resources. Having reduced our coal generation more than any other investor on utility, we are leaving it better than we found it. As we continue to plan and look for additional ways to reduce our coal dependency and become an even more sustainable energy company. Another critical step we’re taking to assure sustainable performance is the roll-out of our Consumers Energy Way. For the past couple of months, our executives, directors and managers have all attended intensive training that will help them to identify the most efficient operational standard and ways to eliminate waste. After talking with each and everyone of them, I am further convinced that we can continue improving our customer experience and reducing costs for years to come. The next decade of extraordinary outcomes will be achieved by a strategy of working safely, completing work right in the first time, at the lowest cost and on schedule. We will continue to improve and deliver results for our customers and our investors. One area where I see more opportunity to improve specifically is distribution cost performance and we have a plan to do that. By reducing our total electric distribution cost by $30 million, we would be in first quartile and for $70 million we can make it all the way to the top of the list. The Consumers Energy Way is the strategy that will help us realize that goal all the while improving our customers experience and satisfaction. The future performance of CMS Energy is bright and sustainable, the Consumers Energy Way will allow us to drive continuous improvement to achieve and maintain a high level of operational performance. My co-workers and I will eliminate non-value added activities and replace them with higher value offerings for customers and more certain financial results for our investors. By creating a culture of continuous improvement, every person, every job, everyday and every customer touch point can improve. With a track record like us, it’s hard to expect more but we have a plan and strategy to do just that. Our commitment to extraordinary outcomes in all areas of our business enables our previously announced move to 6% to 8% adjusted earnings growth beginning next year and that continues year after year after year. Now, let me turn the call over to Tom.

Thanks Patti. Second quarter results at $0.45 were up $0.20 compared with the year ago and on a weather or normalized basis up $0.14. This is substantially better than our original plan more than offsetting the adverse weather in the first quarter. For the first half overall, our earnings were $1 for a share up $0.10 or 11% from plan. Now as you can see here, while our first quarter results were down $0.14 from the same period in 2015, we more than offset that with our performance in the second quarter which is up $0.20. The weather helped a bit as did the expected impact of approved rates. In addition, we reached a settlement with the Michigan Treasury on used taxes, a nice $0.03 uplift. As you would expect, we also improved our O&M cost compared with the year ago by $0.09 in the second quarter. This reflects benefit gains, better run collectable account performance, all plant closures and a variety of other solid operating improvements. Looking ahead into the second half, if weather is just normal, we’ll accomplish a nice uptick of $0.13 compared with 2015. As you may know, we already have a headstart on the third quarter with hot and muggy weather in July. Even with that or even without that, we would have plenty of room for growing infrastructure investments and we continue to project 5% to 7% earnings per share growth with solid confidence. I know most of you are well acquainted with the concept of this slide, where we show our projected earnings per share growth for the full year as the year progresses. During the first quarter, mild winter weather and abnormal storms reduced our earnings per share outlook by $0.13 but in a short period of time we were right back on track with earnings growth in the 5% to 7% range. You can see the improvements that offset abnormal weather in the lower box on this slide. We are ahead of our guidance and as always will put that upside to work for our customers and will deliver consistent pure leading EPS growth. We’ve delivered 7% adjusted EPS growth for almost 15 years. Here is the picture of our track record for just the last 5 of those years, it shows how we consistently offset bad news and put good news to use for our customers without compromising our predictable earnings growth of 7% each and every year. Over the last 3 years, favorable weather and cost reductions in excess of our plan generated room to invest a quarter of a billion dollars for our customers, half from weather and half from cost productivity better than planned. That’s a big number, we put these savings to work in many, many beneficial ways. Turning to 2017 and the future, here is our business model which is pretty simple and maybe just a little unique. We’re fortunate to have a lot of capital investment opportunities over the next 10 years as we catch up on projects we didn’t do over the prior 10 years. This investment in reliability, cost improvements, environmental mandates and other areas grows by about 6 to 8% a year, perhaps what’s unique about our model is that we self fund the bulk of the investment increase keeping our customer base rate growth at or below the level of inflation. That discipline provides a real rate reduction for our customers as we make substantial improvements on their behalf. Over the next 10 years, we’ll invest over $17 billion in both our electric and gas businesses as shown in the circle on the left. 37% of this investment is in our growing gas business which already is the fourth largest in the nation. What’s important is that all of these investments add tremendous value for our customers, whether it’s exceeding compliance requirements for clean energy, enhancing productivity, reducing costs or improving our service. And we have opportunities to increase spending further on infrastructure as well as replacing large PPAs. We can build new capacity cheaper than existing PPA contracts, opportunities around these items could be in the $3 to $4 billion range. Part of the secret sauce as Patti mentioned is being able to reduce our O&M cost to help funding investment. We prefer annual rate cases because they are simple and manageable and they provide us with the opportunity to share our cost reductions with our customers as we gain recovery for capital investment programs, you can see our plans on the right. We are constantly refining including sizing ourselves to demand, for example we’re in the middle of a voluntary separation program to enhance the phase of savings in a manner that treats our colleagues in a fair and respectful way. Net of cost increases, our cost reduction will be $60 million or about 3% a year over 2016 and 2017. That’s consistent with our prior performance as shown on the left where we reduced our O&M cost by almost 3% on average each year since 2016. It’s a program we’re proud off and one that we can continue for many years as we take advantage of solid business decisions and better processes that we describe as the Consumers Energy Way. In addition to our cost performance, our conservative yield sales growth and our ability to avoid new dilutive equity, we still have attractive upsides outside of the utility. As you can see in this slide, continued layering in of the energy and capacity sales could enable us to increase our profitability by $20 to $40 million at our Dearborn industrial generation operations, you call that DIG. This is a nice insurance policy for our utility and a catalyst for new growth and by the way today we’re celebrating 10 years without a safety incident at DIG, Safe and excellent operations are the foundation of our success. Now, here is our standard profit and cash flow sensitivity slide to help you with your assessment of our future performance. I know there is a lot of concerns around the sector about the impact of low interest rates on pension and benefit obligations. A 50 basis points drop could be worth about a $12 million hit to earnings for us, lower debt cost however would offset much of that and should we make a pension contribution of say a $100 million that would offset the rest and then so we do not see a major interest rate concern for us. The world changes every day and our model is built on being prepared to mitigate or take advantage of changes as they occur. Brexit from the European Union which I think surprised a lot of us last month has sure surprised me is a good example. It created opportunities to issue more debt at even lower interest rates, it also added to uncertainty, one of the reasons that we keep a little thicker liquidity levels than most of our peers. For example in May, before Brexit we extended our five year revolvers another year. Our liquidity including these revolves is over 15% of our market cap and that’s a bit thicker than the average of our peers. And here is our report card, we are right on course to achieve our plans for capital investment, high quality balance sheet, competitive customer prices, a robust dividend payout, strong operating cash flow and adjusted earnings per share growth in the 5% to 7% range. We are pleased to have been able to deliver consistent strong earnings growth for 14 years and we intend to continue this for a long time. Our earnings and dividend growth continue at a consistent type pace every year no matter what’s happening in the economy, the weather, politics or succession planning. So thank you for your interest and your support, we’re deeply grateful for it and we’d be delighted to take your questions. So Tiffany would you be kind enough to open the lines.

Thank you very much Mr. Webb. [Operator Instructions]. Our first question comes from the line of Julien Dumoulin with UBS. Your line is open.

Good morning Julien.

Hi, good morning. So perhaps first quick question, congrats on the results but could you elaborate a little bit on the continuous improvement efforts you guys have emphasized voluntary separations, et cetera? Where do you stand relative to plan on a multi-year basis? Clearly, given how well you're doing this year, what are the thoughts in the back half of the year on O&M tracks?

Well Julien, thanks for the question because it obviously is an area of real focus for us. We feel great about the relative performance to plan, obviously and that’s reflected in our results but as we look forward to the year for the balance of this year, we really are continuing to everyday improve our processes and our operations so that we eliminate the waste of rework, the waste of return visits et cetera and every time we do that, it’s a cost saving. So we have those cost savings built into this year’s plan and we continue to execute on that plan. I would also say on the VSP, the VSP is a culmination of many years of working on productivity improvements and I would say that our recent launch of the Consumers Energy Way is probably too early in its life to attribute to the VSP, but it’s always important to write size and match our workload with our workforce and through a voluntary program like this, we’ve enabled employees to optionally decide to retire early which then set us up for great performance next year where we have our workforce and the workload lined up.

So dealing in one of the thoughts.

So bottom line, it's a rate reflective.

It is, but Julien also keep in mind the part you don’t want to hear as we do more and more this year, we’ll put that surplus cost improvement to work but more reliability and all that good stuff but what it does for us is gives us headrooms, so it allows us to fit in more investment.

Right. Absolutely. Second question, on the legislative angle, can you comment more broadly? If you are unable to get comprehensive legislation, have you guys thought to doing something a little bit more specific or tactical? Would be curious if there is potentially a new avenue for something more specific.

I would say that first-of-all again the changes to the energy policy are not embedded in our plan but what we do think is important for the state to address is the idea that alternative energy suppliers don’t have to demonstrate that they have firm capacity. And through Micel’s recent 3 year forward looking capacity auction proposals will be curious and observing and we have filed comments that when they make their filing with the FERC in mid-August, we’ll have a better indicator of some of the changes that they are recommending will in fact be a way to help address that loophole where people can sell power that they don’t actually have. We want to make sure that gets fixed or show reliability and resource adequacy in Michigan.

Got it. All right, thank you.

Thanks Julien.

Your next comes from the line of Ali Agha with SunTrust. You line is open.

Thank you, good morning.

Hi Ali, good morning.

First, Tom, can you just elaborate a little bit on this tax settlement you referred to? Was that just a Q2 event? Will that have lingering impacts over the course of the year? How should we be thinking about that?

So the tax settlement was around used taxes and is something we’ve been working on for gosh it’s almost a decade and a half and the way I would ask you to think about that, that’s a nice benefit that we’re glad to have this year because it was worth $0.03 in this quarter, but it’s a onetime thing. There is a little bit of a benefit going forward but it’s not big enough that you should get excited about it, right. So what we do is we’re looking at that, that’s a nice offset to the onetime bad weather that we had in the first quarter. So it kind of lines up and gives you a good quality of earnings. So we’re glad to have it, it’s been a long time coming and we’re delighted that the Michigan Treasury is happy and so are we.

Okay. The second question you referred to the low interest rates and the implications of that. Just thinking of that from another vantage point, one of the positives in Michigan from a regulatory perspective is that your authorized ROEs are above industry average and have been very consistent. Just wondering, in this persistent low interest rate environment, are you getting any sense that there may be pressure on authorized ROEs or is your sense that the regulators still remain very comfortable with where they are at?

I don’t want to speak for the regulators but I would say this is that when you look at the authorized ROEs including riders and things that people have, we’re really not that far out of line with the better performing utilities around the country. So I don’t think it’s that special of the thing and then I’d also agree, there is interest rates come down and puts pressure on where those numbers should be. You can see by our request in both of our rate cases, that we think that there is something between where we’re asking and where the staff often would be that there is kind of a middle point in there that’s around that 10.3%. So we’re hopeful that they see the usefulness and importance of that and the competitiveness of that level and that could sustain.

Okay. And then thirdly, the goal to get to the top quartile you said another $30 million gets you there. How long do you think it takes you to get to that level? And then related to that, Tom the cost savings you laid out for 2016, 2017 over a long period of time, how much more can you say you can take out of the system to continue that very impressive cost reduction program?

Ali, I’ll answer the first part of the question. As we build our plan for run rate, our distribution cost and distribution cost per customer, I would, we see in past to mid to late 2018 gets us to the top quartile and then additional savings come from a sustained commitment to continuous improvement in waste elimination and so that’s the time horizon we’d be looking for the first quartile competitiveness.

Let me just then add to that because I know it’s a good question that people do ask us and we ask ourselves. So if you look at that slide that talks about the O&M cost performance, you’ll see a line and that is called the attrition for an example. And that line is nothing but we lose about 400 or so people each year through retirements in the like and when we bring somebody in to replace that with our new programs for defining contributions to the divine benefit and different healthcare for new employees. We save a good chunk of money, about 40,000 dollars with each turnover, till that time the 400 gets you into $16 million a year and that’s 1.6% of our O&M right there all by itself. That sustains for good many years because we still have a large population of older guys like me, so there will be more people that take advantage of that over time and then I would say beyond smart meters and productivity and VSP programs and all that, what Patti has described that we’re proud to talk about as the Consumers Energy Way, it provides a lot of opportunity that she has shown some specifics on it but it provides some opportunities in everything we do. It cuts into the finance organization and cuts into the back office, it isn’t just the operating piece up front. We can be a lot better what we do smartly not paying for it.

Thank you.

Thanks Ali.

Your next question comes from the line of Paul Ridzon with KeyBanc. Your line is open.

Good morning Paul.

Good morning Paul.

Are you aware of anything going on behind the scenes in Lansing, so that we can hit the ground running in the lame-duck session?

Well, we know of it, there will be conversations in the short window before the election when the senate comes back into session. We don’t expect the house would take it up before that, but if the senate can come to some conclusions before the elections, then in that lame-duck its possible but I would say that we don’t think it’s likely.

Okay. And then what about into 2017?

So then there are elections, you know implications of the elections this fall particularly in the house, there are a lot of seats up for grabs, there are some people who are predicting that the house could shift from public into democrat that would be a big change. Terms limits are real challenge in Michigan because it requires then all new legislators have to be briefed on a variety of subjects including this complicated one. So I doubt that they would hit the ground running, but certainly I would expect that we will be back at it come the start of the year.

Can I just add to that, as Patti said earlier, remember nothing of this new law whatever it might be is in our plan and we are pretty happy with the 2008 energy law, it gives us so many wonderful things that we can do. So its got to be good meaningful change when it occurs.

Got it, okay, thank you.

Thanks Paul.

Your next question comes from the line of Michael Weinstein with Credit Suisse. Your line is open.

Hello, guys.

Hi Michael.

Hello, Patti. When you were talking about competitive suppliers and the requirement to buy capacity for their customers, in the absence of those requirements though, I'm wondering, what does the energy and the capacity shortage or availability situation in the state look like over time? At what point in the future do you see the critical shortage of capacity in Michigan and in Zone 7, Zone 4?

Well, so Zone 7 we see and it was recently published, a 300 megawatt shortfall in 2017 is the forecast that eats into the reserve margin pretty significantly and by 2021 up to doubling of that 600 megawatts was just the publicly announced plant closures as you know, DTE announced several closures recently. So that definitely is in the forecast, what’s not in that forecast is any other early retirements of other units. So again we do think that it’s a critical issue that needs to be addressed and we need to assure that the people who are selling power in Michigan have that power that they can actually provide the power they sold and so it does highlight the issue that exists in Zone 7 with this hybrid market.

I guess in the interim, if there is a shortage, how do you meet that shortage?

While we are certainly able to cover the load of our customers where we have adequate supply and reserve margin to serve the 90% of the load in our service territory and so where we are covered. The question will be how the alternative providers cover. Now on a hot day when we have to deploy, there is a whole emergency set of procedures that MISO invokes across the entire region. If there are constraints on any given day and so there is a whole procedure to manage that obviously all the peakers come on and everyone is required to ramp up everything they‘ve got and then we dial download purposely that as the programs with those customers allow demand response et cetera. So that’s obviously important part of the mix as well.

There is only a couple of IPPs left and we’re one of them called DIG. So it puts us in a good spot to back up the utility so that we do what’s needed there and it also puts a statement in the spot having that bit of an insurance policy, but we all agree, it’s something that needs to be addressed and we have more certainty going forward.

Would it be accurate to say that on slide 18 when you talk about the $4.50 to $7.50 possibilities going-forward capacity, is that the high-end of that range, would be a shortage condition where there is no other solution; DIG just is the solution to serving the region?

Yeah, I’d say what we see in the market as we do bilateral market sales, the upside opportunities between 450 and 750, you might sell a little bit at 750, but I wouldn’t think of selling what’s left there, that would be probably a more aggressive assumption that is realistic. So somewhere in between there is what could happen in the market, that will be opportunity for us. You’ll note that we’ve sold a lot of our energy, that just makes sense to do was long-term contracts out of DIG, but we’ve held a lot of our capacity available one for the situation and two for insurance for our utility to make sure that we’ve got backup.

And if Michael does a 3 year forward-looking auction, it does give more visibility and these bilateral agreements then become more attractive depending on what that auction foretells. So I think a 3 year forward-looking capacity auction would be a good enabler to what Tom’s describing.

Got you, thank you very much.

Thank you.

Thank you.

Your next question comes from the line of Jonathan Arnold with Deutsche Bank. Your line is open.

Good morning, guys.

Good morning Jonathan

Good morning.

Two questions, you're $0.13 ahead, weather, so far. You alluded to the hot and muggy July. Can you give us a sense of what the through-July number might look like? And then, as well, what are you reinvesting in currently. What's the best way of deploying those extra dollars in the system. Is there a possibility you run out of stuff to do?

I’d answer the last part and then ask everyone that they look at the slide towards the 2016 EPS outlook which is a little curvy chart. To your point Jonathan, there is a little box there that shows how we did the recovery. A lot of that’s ongoing stuff and some of that’s onetime things, you know like they used tax. And then you’ll see that we saw our cells running up because we are doing better on our cost reductions then we anticipated so we are on the upside sort of with opportunities to reinvest more. The weather side that you’re asking about which is in addition to that, if you just took July for what we know for the months so far, there is $0.03, $0.04 of earnings upside associated with that. I am always cautious with those kind of numbers because what’s August going to be like, $0.03 or $0.04 up again or down, we don’t know, we just plan on normal weather and our projections. So where can we put that money to work over so many opportunities, we can pull some outage work ahead from next year into this year. That helps next year’s results and helps our reliability, so we’re looking at that. We can do more on the tree-trimming side, that’s probably the single biggest thing we can do to improve our reliability and so there is a place that we can do more work on and above and beyond what we’ve been authorized to do by the Commission. There is also more esoteric things like low cost financing, if these rates continue to stay low, we can take a hard look and we can make these decisions sooner or later we can go pretty far back into the year and decide that let’s just take on some more low interest debt and prefund some of our future debt and all that does is it might cost us a little bit for settling this year, there is the investment part, but it will save more money to create more profits, 17 and sometime forward years. So I could go on because there is an awful long list, but those are some of the areas that are very practical and they are on our radar screen and we’re looking at them and we’re timing them in way that we think allows us to do the max performance for our customers and then not miss the earnings growth.

Great, thank you Tom. And then, could you just remind us when, how far out your no-equity look currently is?

Yeah, I think we go out to 2021 and 2022 and there is in the appendix of your material, a slide that I will refer folks so that you wouldn’t miss that, it’s our operating cash flow slide, it’s got a big got arrow flying over shown that we take out about or improve our operating cash flow about a 100 million a year and on the bottom box you can see our NOLs and credits in the yellow side and you can see they go out to 2021. So it will be 2021, 2022 before we’re looking at meeting any block equity but I caution you again, 10 years running predicting that incorrectly, it could go out further.

Fair enough. Alright. Thank you, Tom. Thank you, Patti.

Thanks Jonathan.

Your next question comes from the line of Leslie Rich with JP Morgan. Your line is open.

Good morning.

Good morning Leslie.

Question on slide 13. You have $0.13 there attributable in part to pension yield curve and enhanced capitalization. Could you just walk through what that is? What the yield curve moving down why that's a benefit?

Yes, this is that new process that we put in place towards the beginning of this year, where it is looking at how you do your expenses when you’re discounting the pension cost and what we’re now doing is actually discounting if you will at the point of each year as opposed to an average of all the years. And by doing that, that actually gives us a better look at how to reflect on our programs. So it’s like our designed benefit pension program where its closed, new employees aren’t coming into that. So the bulk of our liability is more upfront than it is in the back. So by taking low interest rates in the curve early on, it’s cheaper for us and of course as you go out in time and the curve rises above the average, it’s a little more expensive. But that’s a big savings to us and it should as well as we go into the future years minimize the amount of volatility we have when we’re looking at discount rates and the pension curve interest rates. And that’s maybe why when I said earlier, the impact of 50 basis points on our pension plan on OPEB is only about $12 million, I know I heard that’s a bigger number for some companies but it could be because the program has closed, new employees come into a DC program. And then on the enhanced capitalization, all that is, that is just where we really should be capitalizing work we’re doing instead of putting it in O&M. That allows our customers to get a better deal they pay for it later but its also a benefit for us as we do that because that’s less O&M expenses and so that our profits are higher if you will. So we’re just doing a little more of that and one of the examples that you may recall, we’ve used a few times in our slides called pole top maintenance and that’s just where we do a little more complete work, complete when there is a storm, replacing a whole pole-top cross arms and the like instead of just doing bits and pieces. By doing the whole work, we get to capitalize it instead of count it as O&M and those are couple of good examples for us.

Yes. That's great, thank you.

Thank you.

Your next question comes from Andrew Weisel with Macquarie. Your line is open.

Hello, good morning everyone.

Good morning.

First question is a follow up on DIG. It looks like you sold some more capacity in energy for 2017 and yet the outlook for expected income hasn't changed. So that basically just means that the prices were in line with your expectations or is there any other moving parts there?

No, no other moving parts whatsoever, good observation. It showed 25% last time and is at 0 now. That’s around the energy side and we pretty much, it’s a lot of that light blue bar that you see up there in ’17. We had factored that in at the prices that we expected. So there was no big uptick in our numbers from that.

Okay. And then moving forward, you said you want to keep some, I forget if there was energy or capacity or both. Do you have a targeted amount of how much you’d want to retain for those future years?

Well we’re at a bit of a sweet spot right now. On energy, we have about 25% available as we go out in the future. Now, we’ll be happy to actually market and sell a little bit of that as the right opportunities come up with long-term contracts. On the 50% to 90% available, that’s already you could tell at a ramp as you go through the years. We wanted to keep that 50% level, one as an insurance policy for our utility in case it was needed and two because we really do think economically those prices will be a little bit better and that’s what we used to call the layering in capacity contracts. So we’re not trying to be greedy and we are trying to be patient. So we are layering them in if they are little bit better each time we get a chance, and so if some more come up, if there was another good deal, we might layer in some more we don’t have one right now.

Great, very helpful. My next question is on the weather-adjusted load growth. Residential's been a little bit volatile recently. I believe it was down about 2% in the first quarter, then up about 4% this quarter. Any comments on the trends there, you're not really a story based on load growth; just curious what's driving those movements and what you're expecting for this year and beyond?

In part, it’s our highly skilled ability to the weather adjustments, maybe we’re not the best in the business. So you’re right and to be a little more precise in the first quarter, our residential sales were down 2.1%. We scratched our heads and we said can’t be right, it’s got to be weather adjustments when we get more than 1 or 2 standard deviations away from normal. So here we are in the second quarter, now we’re up 3.8% for residential. Now, often people would cheer and say isn’t that great and build stories around it. I actually scratch our heads and say isn’t that a little bit of the weather adjustments again. So what I like to do and I hope you bear with us is sort of average those two together and what we will tell you is that we think is that if we’re in a small growth this year, that would be nice. But what we’re planning on is a small decline for residential. We may be for the full year, we maybe a little conservative on that and on commercial we say it’s going to be flat and I think we’re realistic on that and then on industrial, we’ll tell you we’ll be up 2.5 plus percent and I think that’s pretty realistic to because we did see, you didn’t ask about it but a tick down on the industrial side and what we saw there was still good strength on food, manufacturing, automotive, chemicals, a whole variety of construction, a whole variety of areas we’re ticking up nicely as we expected but metals did not do well. I think that has to do with the competitive pressure coming out of China and in addition we had a couple of our bigger businesses. So one on the construction side with insulation, that just did an acquisition and they are actually relaying out a lot of their production facilities and I wouldn’t even mention it except that it was a 1% decline all by itself. So we may have some oddities on the industrial side in our report for this quarter, and we’ll see how that plays out. Does that help you?

Yes, very helpful commentary. Thank you.

Operator, any other questions?

There are no further questions in queue.

Okay, well thank you everyone for listening into our call today. We appreciate your interest and ownership. Tom and I look forward to seeing many of you over the next few months.

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