CMS Energy Corporation (CMS) Q3 2017 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the CMS Energy 2017 Third Quarter Results and Outlook Call. The earnings news release issued earlier today and the presentation used in this webcast are available on 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.[Operator Instructions] Just a reminder, there will be a rebroadcast of this conference call today, beginning at 12:00 pm Eastern time, running through November 2. 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. Sri Maddipati, Vice President of Treasury and Investor Relations.

Good morning and thank you for joining us today. With me are Patti Poppe, President and Chief Executive Officer; and Rejji Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements, which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website. Now I will turn the call over to Patti.

Thank you, Sri. Good morning, everyone. We are happy to have you with us. I know that we saw many of your at our Investor Day on September 25th and we'll see many of you at EEI, so I'll be brief this morning. But we do have a few updates to share, including our results for the quarter, and not to worry, we have another exciting story of the month. Rejji will walk you through the financial results and our outlook. We're happy to announce that for the first nine months of 2017 we reported $1.66 of adjusted EPS. On a weather normalized basis, this is up 8% from last year. Despite challenging weather and storms through the year, we are well on track to meet our guidance, and we're raising our bottom end of our top -- of our full year guidance from $2.14 to $2.15 per share. Our top end remains unchanged at $2.18 per share. We're also introducing 2018 full year guidance of $2.29 to $2.33 per share, which implies another year of 6% to 8% annual growth. Now this is a good opportunity for me to remind you what we mean when we say 6% to 8%. For 14 years in a row, we have delivered 7%, so it would be easy to assume that we when moved from 5% to 7% to 6% to 8% we meant to imply 8%. What we actually signalled is our confidence in 7%, and frankly, we took 5% off the table. Our self funding model and our adaptability under a variety of changing conditions each year puts us in a unique position to deliver sustainable 6% to 8% annual growth. This is why we have confidence in the midpoint of our range. In years where we have particularly strong performance and don't have higher priorities for reinvestment, we could go to the high end. However, our bias is to reinvest in the business and to stack the deck for next year and deliver our growth trajectory for longer. We know it is both our growth rate and the consistency of it that is valued. To that end, we remain unwavering in our commitment to the triple bottom line. Our focus on people, planet and profit underpinned by our performance will deliver the consistent and sustainable results that you have come to expect. When we say people, we are referring to our customers, our co-workers, our communities, and of course, our investors. Driving economic development in Michigan is a great way to enable growth and to serve the people of Michigan. We know that when Michigan wins, our business wins. It's a competitive environment and these large site selection efforts and Michigan is winning. In part, due to the speed of our in-house economic development team which has identified 23 energy ready sites so that when a company wants to locate here we can quickly help them find a site that's available and best suited to their needs. For example, we were pleased that when Lear Corporation, a large auto supplier was looking for a place to locate a new manufacturing facility, we were ready. As a result, Lear recently announced plans to invest in a new plant in Flint, a community we are proud to serve. This is another win for Michigan creating approximately 450 new jobs. Turning to the planet, we're thrilled with the response to our renewable tariff. This program allows us to partner with our large business customers to meet their commitment to renewable energy at a very competitive price. We're already looking for ways to expand this program to keep up with our customers demand and partner with them to protect the planet. Finally, our commitment to people and the planet can't be fulfilled without the critical capital that you have all provided. We know that pensioners, retirees and moms and pops have entrusted you with their life savings to invest in safe and reliable places. We want you to count on us to be just that sort of place. Therefore, we are equally committed to delivering consistent and predictable financial results. We continue to progress on the regulatory agenda and look for ways to support longer-term planning. The 2016 energy law creates a framework for the governor's long-term energy plan and our commission has been systematically implementing the different elements of it. For example, we'll be filing our integrated resource plan required by the new law next year. Combined with the commissions ordered 5-year electric distribution plan, we'll be providing a vivid picture of the future replacements, upgrades and enhancements to our large and aging electric supply and distribution system in partnership with the commission and its staff, yielding more transparency and regulatory certainty going forward. Our rate cases remain on track. Our gas rate case was approved at $29 million and it included and expanded $18 million capital tracking mechanism. We plan to file our upcoming gas case in the next couple of weeks. Our new electric rates were self implemented at $130 million on October 1st. We expect a final order in March of 2018. These rate cases enable the infrastructure improvement that deliver real value to our customers and reflect the cost savings that help reduce the price of that infrastructure. One way we are driving our ongoing cost savings is through the implementation of the Consumers Energy Way, our lean operating system. Most of the coverage about the Consumers Energy Way has been about the benefits of those cost savings. My story for this month however, demonstrates the power of the CE Way to not only reduce cost through waste elimination but also to enable better system performance and areas like electric reliability to the benefit of our customers. You know we've been in business for 130 years, and yet, we still find things we can improve every single day. About a year ago, we realized that our approach to improving reliability was just not working as fast as we wanted, so we stepped back and leveraging our CE Way playbook, we tackled the systemic issue in a whole new way. The result speaks for themselves. In spite of challenging weather and storm activity, we had our best system reliability ever recorded this quarter. Our talented team tackled the problem through the use of data and applied problem solving techniques, and as a result, we improved the prioritization of capital investments on our worst-performing circuits, we actually call those our Dirty Thirty. We had more targeted tree trimming and we realized that we could effectively engineer animal mitigation at our substations. Yes, the CE Way even helps us protect our local critters. This coordinated effort resulted in a 40% improvement in reliability for this quarter versus our last 10 year average. Every dollar we spend is more effective. The waste is eliminated, and our customers have a better experience. I am sure this sounds simplistic, but when we apply the CE Way every day all across our system in big and small ways, we fuel our simple but powerful business model, higher value at lower cost built on our consistent past and yields a sustainable future that you and your clients can count on. Now I'll turn the call over to Rejji.

Thank you, Patti, and good morning everyone. We know how busy, this time of the year is for the investment community, and as such, we greatly appreciate your interest in our company. As posted earlier this morning, we reported $0.61 earnings per share on a GAAP basis for the third quarter and $0.62 per share on an adjusted basis. Our third quarter results are down $0.08 from last year, largely due to continued mild weather, however, on a weather-normalized basis, adjusted EPS for the quarter was up 7% year-over-year. Year-to-date, we reported per-share earnings per share of $1.65 on a GAAP basis and $1.66 on an adjusted basis, which is down $0.07 from the prior year due to mild weather and significant storm activity, but up 8% year-over-year on a weather-normalized basis. We remain quite pleased with our performance to-date, which is $0.16 per share, ahead of plan, largely due to favorable sales mix and strong cost performance. We're well on track to meet our annual financial objectives, and as a result, as Patti highlighted, we decided to raise the low end of our 2017 EPS guidance range so our revised range is now $2.15 to $2.18 per share. As you can see on the waterfall chart on Slide eight, weather and storms have negatively impacted our year-to-date results by $0.24 per share. As noted, we have largely offset those impacts through strong cost performance and favorable sales mix, coupled with rate relief and our performance at enterprises which positions us well for the fourth quarter. As we look ahead to the remainder of the year, you'll note that the regulatory outcomes achieved this year, including the aforementioned electric rate case self implementation of $130 million provided $0.08 of pickup relative to last year, which gets us over a third of the way home. As we've discussed in the past, in the fourth quarter of 2016, we took on a number of discretionary reinvestment activities which equated to $0.14 per share on aggregate that we do not need to replicate this year. But some of those two factors alone put us within the implied range for required EPS outperformance versus Q4 of 2016 to meet our revised 2017 EPS guidance range. Consequently, we have a great deal of optionality in the final months of the year to manage weather uncertainty and/or to reinvestment business to support our future financial and operational objectives. Our 2017 EPS outlook curve on Slide nine embodies our efforts to date, and the goods financial flexibility that we have going into the fourth quarter. As you'll note, weather and storms have hurt us in every quarter this year. And every quarter, we've responded with sound operational and financial planning to stay on course to meet our financial objectives while delivering world-class customer experience. As mentioned, favorable sales mix has been helpful to date, and we have supplemented that with strong cost performance, including lower than planned financing cost, higher energy efficiency incentives and strong property and income tax planned. As always, every year offers varying levels of uncertainty such as weather and storm activity, but we have always managed to work and driven cost savings to position ourselves well to deliver another year of consistent financial performance. As Patti noticed -- as Patti noted, our bias is to reinvest in the business, to stack the deck for the next year, and we are cautiously optimistic about our ability to do so again this year. In order to stay on this path over the long term, we remain focused on executing on our capital planet utility going forward while self funding roughly, 70% of that rate-based growth. This approach minimizes customer rate impact and allows us to grow at 6% to 8% annually. This simple, but unique, business model has driven our historical success and offers a sustainable plan to deliver the triple bottom line in the years to come. At our Investor Day, we highlighted the current customer investment plan at $18 billion over 10 years. We also reiterated the incremental $7 billion of customer investment opportunities which is evenly split between infrastructure and supply investments. We have a relatively large and old system and our proposed investments would improve system reliability and safety to the benefit of our customers and investors. We will look to execute on these incremental opportunities overtime, assuming we can continue to identify cost savings opportunities to fund such investments. As we've said in the past, our key constraint is customer affordability and we do not intend to compromise that principal going forward. To that end, in order to fund our robust capital plan, we will continue to [Indiscernible] our cost structure for savings opportunities. We've emphasized O&M as a key component of our cost reduction strategy in the past and we'll continue to do so. But O&M only represents about $1 billion of roughly $5 billion cost structure, so we don't limit our thinking to just O&M. For example, future expirations of above market PPAs will reduce fuel and power supply cost and our clean and lean capital investment philosophy will prioritize modular investments to reduce cost and allow us to adapt to changing load patterns. Through the CE Way, we will identify process improvements and efficiencies to eliminate waste and we'll couple that with good business decisions such as attrition management to reduce future O&M cost and we'll always seek opportunistic, non operating savings on our balance sheet or through good tax planning to supplement our operational efforts as we've done for the past several years. These are just a few examples that would enable us to reduce cost well into the future for our customers and create headroom for future investments. Moving to operating cash flow, we have generated approximately $1.2 billion year-to-date and we feel good about our ability to deliver approximately $1.65 billion for the full year with steady growth thereafter. As a reminder, our cash flow generation coupled with strong tax planning will enable us to fund our capital plan cost efficiently by avoiding black equity issuances. On Slide 14, we show our historical EPS trajectory for the past few years and where we're headed. And it should come as no surprise that our guidance is consistent with the past and reflects our long-term growth aspirations. As we've done the past, we've raised the bottom end of this year's guidance and initiated next year's base in the midpoint. As you know, we grow up our actual results without adjusting for things like weather, or rebasing off a prior midpoint. Needless to say, we've been on the steady climb for more than a decade and we plan to continue to deliver well into the future. In closing, as we look ahead, we see a number of customer investments and cost reduction opportunities that will enable us to continue to deliver the triple bottom line of people, planet and profit underpinned by performance. And with that, we would like to open it up for Q&A.

Thank you very much Mr. Hayes.[Operator Instructions] Today's first question comes from Julien Dumoulin-Smith of Bank of America Merrill Lynch. Please go ahead.

Hey good morning. Congrats on a impressive results given the weather and everything.

Good morning, Julien.

Good morning.

Excellent. So a quick question, perhaps starting a little bit bigger picture here. You talked about the IRP coming up here, you also have in your slides talk of a kind of a gradual coal evolution in the plan and ops of 21% to 15%. Can you talk about how the IRP might reconcile against the Slide 15 here and what you talked about in terms of future coal capacity in the portfolio?

Yes, it actually will provide a lot of visibility to that, Julien. We're really excited about having the IRP available to us. It provides a framework and the certainly so as we make those long-term transitions, we are able to have alignment with our commissions and make good decisions together about balancing a variety of factors; fuel diversity, cost for customers, how we want to fulfill the RPS standards, how much energy efficiency and demand response we want, in fact, our IRP, looks like it's going to have 47 different model runs that we're undertaking right now, as we speak. And so it's a complex set of variables and we're excited about what the opportunities will be provided and the transparency and frankly regulatory certainty that will be a result of it.

Got it. If I can delve...oh sorry, please go for it Rejji.

Julien, this is Rejji. The only thing I would add is, as you look at Slide 15 and that coal capacity from 21% to 15%, one of the underlying assumption is the conversion of the Filer City plant at enterprises. And so we're planning to convert that from coal to natural gas, so basically going from 60 megawatts of coal to about 225 megawatts of natural gas. That is in the regulatory process and it's trending well. So that is one component of the road to get from 21% to 15%.

Got it. Can you elaborate a little bit just on what the timing of that transition is as well, and how you think about that. And maybe perhaps, So you can tell what may not necessarily be finalized, what the key variable you all are thinking about in that transition there?

Yes, I would say, the timing is over this 10 year time horizon that we're looking at, making these transitions. We have -- at 22% coal we're already one of the lowest in the country. We feel good about that. The fuel diversity of having our sites remaining is an important part of the mix. And so, we'll build that into the plan. And frankly, we look forward to the results of the model because they'll be informing to us about when the best time is to utilize those -- or to transition those plants. The reality is, we've done some environmental upgrades at those facilities, so they're best-in-class environmental controls currently. And so to rush any -- any additional retirements probably isn't necessary but they do have a natural end-of-life within that cycle. So we'll be thinking through that the -- through the IRP, and frankly, with all of our critical stakeholders, internal and outside the company.

And just a quick one on the numbers here, obviously, you've done very well on cost management and some of the recovery factors on slide 9 there again this year. Since you've launched 2018 guidance, you might you be able to elaborate a little bit on some of the key factors we should we thinking about in the year-over-year comparison in that range? What are perhaps some of the known variables that you might be thinking about or leveraged as we say, in cost management next year? Is there anything that you can kind of say today that we should we paying attention to as we think about that plan?

Yes, so we offer a couple of thoughts. And so when we talk about, particularly, O&M cost-reduction opportunities, we've talked in the past about the very nice annuity that we’ve gotten through attrition management over the years. And so that has been something that we've said has been a benefit in the past, and should be an ongoing benefit in the years to come. So specifically on average, we've got about 350 to 400 employees who turn over, who are on defined benefit plans, which obviously are not as cost-effective as defined contribution plans and we froze those plans in their early thoughts. And so now when we have new employees come in, by definition they are on defined contribution plans. We generally save about $40,000 per FTE when we have turnover between defined benefit plan employees and then defined contribution plans employees coming in. And so if you have $40,000 of savings per FTE and you turnover about $400 per year, that generates about $16 million of savings per year. And you think about our cost structure and the O&M side of about $1 billion, that's got about 1.5% savings. And so that gets us a good portion of the way there. Obviously, we always look to do opportunistic refinancings and so we do have some high coupon bonds in our portfolio that we may look to be opportunistic around. And so that introduces opportunities for savings. And clearly, as mentioned before, we are always looking at tax planning opportunities on the property tax or income tax side. So there's a variety of opportunities we look for. And then also as I mentioned, because we're in reinvestment mode for the fourth quarter, this is the time of the year where we look for pull-aheads and if there are operational-related expenses that we have currently forecasted in 2018 that we can pull forward because we're trending well this year, we'll look to do that as well. So that's a small list of the opportunities that we have before us, Julian.

And Julian, I'll add just a couple more, just to reinforce at there's plenty. We've got -- the CE Way is just taking shape and so we're finding operational savings across the board, around the organization. Our technology adoption, so going from our traditional phone calls to our digital channels is a fundamental cost savings and cost reduction, and so part of what you're hearing from Rejji and I here and for everyone on the phone is that we have the luxury of focus. Our business model is not complex. We don't have big bets, we're not betting on big outcomes. We've got a series of small, focused efforts that allow us to deliver consistently. And the consistency is what we know you've come to expect and we're pretty excited about the breadth and depth of opportunities that are in front of us.

Julien, the only other thing I would note and this is not related to the cost savings but it is worth noting that for the first 9 months of the year, storms have hurt us to the tune of -- sorry, weather and storms have hurt us to the tune of about $0.24. And so we don't plan for that type of extreme or mild weather and that type of extreme storm activity. And so in a normalized year, we'd like to think that, that offers a tailwind going into 2018.

Excellent. Just a quick clarification, since you mentioned the tax item just not for 2018. Anything about describing the $0.05 benefit here in the -- I suppose it would've been the third quarter here on this Slide 2?

Yes, happy to provide some color on that. So the $0.05 benefit realized in Q3, that's largely attributable to a reduction in deferred income taxes associated with electric sales into MISO.

Got it. Okay. Fair enough. Thank you very much for the detail.

Thank you.

And our next question comes from Michael Weinstein of Credit Suisse. Please go ahead.

Hi, guys.

Hey, Michael, how are you?

Hey, just a follow-up on some of Julian's questions. When you think about the $7 billion of opportunity for CapEx, how do you say -- I know that half you said is from distribution transmission that were have been supply. Understood the supply is probably going to be dealt within the IRP. But on the T&D side, how do you think about pacing of when you can possibly move that into the official $18 billion side of the forecast, the one that's not an opportunity, but actually part of the plan going forward?

I'll start and then as Rejji wants to add some additional comments. We have this -- the commission has requested a five-year distribution plan and we will -- we filed an initial version in August, we're receiving comments and having working sessions with the staff at the commission right now. We'll be submitting a final plan in January. And as through that plan -- and this is what I think is really a great part of what the commission is leading right now, these longer-term viewpoints of where the right investments in infrastructure exist. And so what will -- filling in our IRP in the spring of next year in conjunction with this T&D distribution, in particular, five-year modernization plan, we'll have a really good picture about where the investment opportunities are and have some real alignment with the commission and agreement about what those investments will be. And frankly, because of the age and the size and scope of our system, we have internal competition with trying to decide where best to put the dollars because there's so many parts of the distribution system and the supply system that require investment. And then when you layer in our gas, our large gas system, we've got -- our constraint is not ‘Do we have capital we can do?’ The constraint is customer's ability to pay, which is why we put so much emphasis on reducing the cost of that infrastructure in any way possible, so that we can provide more value for every dollar that we invest. And so that's where been working on. And so with the five-year distribution plan and the IRP combined, we'll be able to build out that five-year investment strategy in much more detail and with a lot more certainty.

Do you think there is a possibility that the $7 billion on opportunities can also be expanded as you work your way through, both this plan and the IRP?

Yes, we do. And again, it's only constrained by customers' ability to pay, so that in the 10-year time horizon, in particular, when we have these PPAs that do peel off and are at the end of their contractual life, that creates some real headroom to make additional investments without raising customers' prices beyond what they can afford. And so that definitely is a key ingredient in our 10-year plan.

Michael, this is Rejji. The only thing I would add to that's all 100% for right. And just to give you some specifics, as you may recall from Investor Day, Garrick went into great detail on the volume of capital investment opportunities that we have, just given the age of our system. And so on the electric side, we talked about the average age of the system, I think 75% to our assets were constructed before 1970 and the industry average about 65%, we also just have a very old gas distribution mains, most of which -- a good portion of which were constructed around World War II. And so there's a lot of opportunities there, if you extrapolate on that math, there well in excess of the $25 billion that we've highlighted in our $18 billion 10-year plan plus $7 billion of upside opportunity. So there's a lot of capital investment opportunities. And as Patti noted, the key constraint is, obviously, affordability, so if we can accelerate the cost reduction or savings and that will allow us to execute on the upside opportunities as well.

Right. Make sense. Thank you very much.

Thanks Mike.

And our next question today comes from Jonathan Arnold of Deutsche Bank. Please go ahead.

Good morning, guys.

Good morning, Jonathan.

Good morning, Jonathan.

I was just curious, so again this tax item in the quarter sounds like it was largely to do with cross period, so probably a one-timer, is that fair?

Yes, largely one-timer, there could be a little bit of upside to the tune of about $0.01 in 2018, but largely one-timer.

Rejji, my question is, is there something that you sort of anticipated going into this year or was it the timing or fortuitous or had it not -- had you not got this, how would you be feeling around the range? What are the other things you could've done, et cetera?

I'll answer the last question first and then I'll get to your initial part of your question. But we would feel good about our ability to hit our fourth quarter full year, and then going forward, feel good about hitting our financial objectives, irrespective of whether this tax opportunity came about. The reality is, we're $0.16 ahead of plan and the tax savings that we realized in this quarter would have -- absent that, would have still be about $0.10 ahead of plan. And so it was helpful but it's not what we’re hanging our hat on. And as always, we managed to work accordingly in the event we have unexpected variances like weather, like storms and this is just yet another example of us identifying cost savings opportunities. So that's sort of quick answer to the last part of the questions. As for the initial part, we've actually been evaluating this deferred income tax reduction opportunity for some time and what allowed us to take advantage of it this quarter was that there were couple legal precedents that emerged that allowed us -- and there will be more disclosure around this in the queue but allowed us to revisit our methodology for portioning electric sales into MISO and that's really the gist of why we took advantage of this opportunity now.

Thank you.

Thank you.

And our next question comes from Ali Agha of SunTrust. Please go ahead.

Thank you. Good morning.

Good morning, Ali.

Good morning, Ali.

Good morning. Looking at the data, year-to-date weather normalized electric sales were running behind your full year target, any insight into that? And does that change your long-term planning for weather normalized sales going forward?

The quick answer, Ali, and we've -- this has been kind of recurring theme for the first couple of quarters of the year and now the third quarter. We actually feel like we're trending quite well on a weather normalized basis. And so as you may recall on our fourth quarter earnings call, we forecasted about 0.5% growth on the weather normalized electric sales. And that's net of energy efficiency programs. And if you look at the data on Page 13 of our pack, we're about, call it, 40 basis points. And what has been really in excess of our expectations has been the performance on the commercial side. And so you can see from a commercial perspective, we are about 1.5% up year-over-year. Industrial, which was down 1% in the first half of the year is now, basically, flat and so that's starting to turn around, so we're seeing good industrial activity. And residential was strong for the first half of the year, up about 50 basis points or 0.5% and it's now about flat. But I think what the residential trends do not pick up in the third quarter is that, like most of the country, we had very nice weather and the latter part of September, which effectively is not picked up in our performance but will be picked up in October. So effectively, those sales are still on the meter. And so we're trending not only on target to get to about 0.5% to 1% of growth year-over-year by the end of the year, but also the sales mix has been quite favorable over the first half of the year and it continues on to this Q3. So we're very pleased, actually, with the performance to-date. Is that helpful?

Yes, yes. It is, thank you. And secondly, the last 12 months earned ROEs weather normalized both electric and gas are above your authorized, any concerns with that as you're going through the rate cases or do you think that gets reduced by the future CapEx opportunities?

Yes. That should normalize over time. I think we're, maybe 10 to 20 basis points on the electric side above the authorized ROE, and so that's probably has to do a little bit of lag attributable to some of the cost savings, and just not having the opportunity to pass this on as soon as we'd like. But we obviously, as we always do, we pass this on as quickly as we can through the annual rate filings. And on the gas side, I'm sure you noted that we are well below the authorized ROE and that's because of the loss of self implementation attributable to the new energy law that was implemented in April of this year. And so again, we expect those to normalize over time and 10 to 20 basis points above the authorized level, we think, again, that will get back to authorized levels fairly very soon.

Thank you.

Thank you.

And our next question comes from Travis Miller of Morningstar. Please go ahead.

Good morning. Thank you.

Good morning, Travis.

I was thinking about the regulatory activities. One short-term question, one long-term question, just wondering if you could point out one of the key 2018 regulatory decisions or filings or other activities that might change that guidance range or put you at the top-end or the low end?

Well, okay, so we do have some significant regulatory outcomes in 2018 planned. But as it relates to our guidance, our 6% to 8%, that's -- as I mentioned, we work every year under a variety of changing conditions, whether regulatory outcomes, politics et cetera, we always work to make sure that we can adapt to those changing conditions, and that's the strength of this business model. So I think, as you're thinking about our 2018 guidance, I would stay anchored in that point that our strength comes from our simple but powerful business model. It has strong CapEx underpinned by cost savings, ongoing throughout the year. And then a real core competence and adaptability. A lot of people do point to our business model and I love it and it's straightforward and I can see why we would. But one of the core strengths of this company, and Rejji highlighted it in his remarks, is the fact that no matter what comes we managed to work it out because we don't have big bets, because we're not waiting on one big regulatory outcome because we're not waiting on one big project to get approved, we can adapt to make those changes throughout the year and manage to deliver for all of you. And for 14 years in a row, delivering 7% EPS growth. We feel pretty good about our track record and what we're trying to share is that we have plenty of visibility and to being able to deliver it to again going forward.

Okay, and then the long term question was how sensitive is that long-term growth number to that IRP filing and whatever outcome plus or minus that might come about?

I think, if anything, the IRP provides more certainty to the performance because we'll have more visibility into longer-term planning and be able to do more cost effective investments and cost effective generation, which is how our model works. The heart of our model is that our system is large and aging and we have significant infrastructure replacement upgrades enhancements required. And so any certainty we can have going forward allows us to most cost effectively do those upgrades and make the changes necessary. We have a large and aging system between the gas and electric. And so really we look forward to certainty that the IRP can provide so that we can do really even better planning than we've been able to do in the past.

The only other point I would add is, obviously, the utility drives a good portion, the lion share of our earnings on an annual basis. But we still have the unregulated businesses as both enterprises and other banks that provide additional levers to risk mitigate our annual plan, and then obviously, we will seek out cost reduction opportunities, either operating our non-operating to make sure that we can again risk mitigate any unfavorable regulatory outcomes.

Great. Thanks. I appreciate it.

Thank you.

Thanks, Travis.

And our next question comes from Andrew Levi of Avon Capital. Please go ahead.

Hi. Good morning.

Hey, Andrew.

Just real quick, because I've been off and on. Just on this deferred tax item, I don't know if I heard it correctly, but is it what potential that there could be upside to this year's number if you deem to book more of that? Is that...

No, no. We would say the $0.05 of realized benefit in this quarter, that respectively it for 2017 and there may be $0.01 of upside next year as I highlight. But I wouldn't expect anything further beyond that in this fiscal year. Is that helpful?

Okay, okay, because I thought -- first I heard there would be higher 2017, obviously this rate can change your 2017 a little bit. And then you'd have a higher base to grow off of, and that would change 2018, 2019, whatever. But that's not the case so I missed -- I misheard. Thank you.

Thank you.

Thanks, Andy.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Ms. Poppe for any closing remarks.

Well, thanks everyone for joining us and we do look forward to seeing you at EEI, right around the corner.