DTE Energy Company (DTE) Q2 2013 Earnings Report, Transcript and Summary

Good day, and welcome to the DTE Energy Hosted Second Quarter 2013 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. David Meador. Please go ahead, sir.

Good morning, and thank you. And welcome to our second quarter 2013 earnings call. Before we get started, as always, I encourage you to read the Safe Harbor statement on Page 2, including the reference to forward-looking statements. Turning to Slide 3. With me this morning are Peter Oleksiak, our Senior Vice President of Finance; Dan Brudzynski, our Vice President and Treasurer; and Anastasia Minor, our Director of Investor Relations. I also have members of the management team with me, if needed, during the Q&A session. So let's start by turning to Slide 5. This slide describes how our business strategy has driven consistent earnings and dividend growth while maintaining a strong balance sheet. As Gerry Anderson laid out at our May analyst meeting, our business strategy focuses on our system of priorities, and they allow us to achieve a consistent 5% to 6% earnings growth. We have a highly engaged workforce with an ongoing focus on continuous improvement. And with those together, that enables us to continue to drive cost savings, which we have a strong track record of doing. Together, with a constructive regulatory environment, our utilities have consistently earned their authorized returns. These efforts allow us to achieve operational excellence and customer satisfaction that we believe are distinctive in the industry. Our growth plans at both utilities are robust, with DTE Electric's growth driven by operational investments, mandated environmental controls and renewable energy. At DTE Gas, growth is driven by infrastructure investments and meter relocations. We also have meaningful low-risk growth opportunities in our non-utility businesses, and that provides both diversity in earnings and geography. Maintaining our targeted 60% to 70% dividend payout and a strong BBB credit rating and focusing on our system priorities has lead to superior financial performance that we believe will be sustained…

Thanks, Dave, and good morning, everyone. I'd like with Slide 13 and the second quarter earning results. For the quarter, DTE Energy's operating earnings were $0.62 per share. As a reminder, there's a reconciliation to the GAAP reported earnings included in the appendix. The 2 utilities, DTE Electric contributed $0.51. DTE Gas came in at $0.05. The non-utility segments combined earned $0.14. The drivers for the non-utility second quarter results are Gas Storage & Pipelines at $0.09, Power & Industrial Projects at $0.06, and Energy Trading had a loss in the quarter of $0.01. Finally, Corporate & Other had a loss of $0.08. Let's move on to Slide 14 and a summary of the quarter-over-quarter performance by segment. For both our utilities, cooler weather in 2013 is the large driver of the year-over-year variances. DTE Electric contributed $38 million less year-over-year, and DTE Gas has an increase in earnings of $4 million. I'll cover more details on both DTE Electric and DTE Gas in a moment. Our non-utility segments operating earnings in total are down $6 million, primarily driven by lower earnings at our Energy Trading segment. In our Gas Storage & Pipelines segment for the quarter, earnings growth in our pipeline assets is offset by lower storage earnings. We expect the incremental pipeline growth to start flowing through the bottom line in the second half of the year as volumes increase on our Bluestone investment. Power & Industrial earnings are slightly higher for the quarter, driven by growth in our waste wood renewable project earnings. The year-over-year, year-to-date growth in this segment is on track to achieve guidance levels, and we're comfortable with the guidance we have for the segment. In Energy Trading, fewer market opportunities flow into the bottom line this quarter, driving lower earnings quarter-over-quarter. In the…

Thanks, Peter, and good morning. Beginning on Slide 20 and our year-to-date cash flows. Cash from operations was slightly up for the year, supported by the positive early-year winter weather within the gas business and the timing of some of our corporate tax payments. These were slightly offset by declines in DTE Electric due to a return to relative normal weather for the quarter, as Peter mentioned earlier. Capital spending is comparable to last year, and I'll cover those details on the next slide. Overall, net cash was slightly up halfway into the year, as Dave mentioned already. At this point in the year, we are maintaining our cash flow guidance with continued benefit plan contributions planned for the second half of the year and to gauge where the summer demand plays out over the next couple of months. But we'll give an update later this year on cash flow guidance. Moving on to Slide 21 and a look at the our first half capital spending. Electric utility spending was similar in 2013 to 2012 with lower nuclear fuel -- refuel spending in 2013, partially offset by increased renewable investments in our Echo Wind project. Gas was similar year to date, while our non-utility investments are up due to the completion of the Bluestone Pipeline and the buildout of the gathering system in the Marcellus region surrounding Bluestone, as Dave also mentioned earlier. Finishing up on Slide 22. Our balance sheet remains strong with leverage and FFO metrics in line with our targets. $175 million of our $300 million equity target has been issued year to date into our benefit and thrift plans. And we continue to have sufficient liquidity midway into the year. And with that, I'll turn it back over to Dave for some concluding comments.

Thanks, Dan. Let me wrap up on Slide 24. As we've laid out, we have a very strong start to the year, and we're confident that we're going to reach our 2013 guidance. Now Peter laid out some of the nuances here as we experienced the structural cost change in our reinvestment plan, and certainly if you have more questions about that in the Q&A session, we'll help you through that. Going forward, as we've laid out in the past, laid out again this morning, if you look at our mandated investments and the low-risk non-utility growth opportunities in front of us, we are also confident about our 5% to 6% annual earnings growth and then the dividend growth over time. And the balance sheet, as Dan laid out, also remained strong, and we're happy with where we are there. So all in all, my mid-year report, we're very much on track and confident that we'll hit our year-end objectives. And with that, we'll open it up for questions.

[Operator Instructions] We'll take our first question from Kevin Cole from Credit Suisse. Kevin Cole - Crédit Suisse AG, Research Division: I guess the first question on the Detroit bankruptcy. What is the timeline and path to resolution? And are there any key issues or headlines, real or not, that can weigh on the DTE story?

First of all, in terms of timeline, what the emergency financial manager had laid out was a general timeline of filing -- initial filing as they did this last week. There's already a series of hearings that have started. The federal judge has already been appointed, and they started hearings already this week on a variety of technical issues. Their goal is to have the restructuring plan presented to the judge this fall, I believe in October, and then to have this wrapped up in the spring. And that's the overall timeframe. In terms to -- of issues and impact on DTE there, we anticipate no impact on us. So there's no milestones or anything to look for in terms of that. On the positive side, as we mentioned the one thing that we have already started working on, because of the city exiting the electric business, is we are already starting to work on the process to take on the customers that the city previously had laid out. We have some regulatory filings we've made with the Public Service Commission because this is going to be about a $300 million investment program for us over a 5- to 7-year period. But again, that's all on track and underway already, and I don't anticipate any issues there either. Kevin Cole - Crédit Suisse AG, Research Division: And there are no IOUs from the city to DTE?

We have normal receivables that we have. And they have been paying timely, and we expect that to continue to be paid on a timely basis. The Chapter 9 is different than an 11. So in 11, you have to go to the judge for first-day orders to decide what bills are going to be paid. In a Chapter 9, the emergency manager makes that decision. He does not go to the judge. And we have every indication that we believe that we're going to continue to be paid. Kevin Cole - Crédit Suisse AG, Research Division: And then lastly, Dave, in your scripted remarks, did you make a comment about increasing the Bluestone CapEx by $150 million? Did I catch that right?

Yes, yes, I did. As we've laid out for that segment, we -- when we talked in May, we have $1 billion to $1.3 billion of the total investment that we'll be making over many years in that segment of midstream. On Bluestone specifically, this started out a much smaller project. At one time, we were talking $200 million to $300 million. By the time we got to the analyst meeting in May, it was $500 million. Right now, with additional work that we're taking on in the gathering system for Southwestern, it's $650 million. And hopefully, by the next time I talk publicly about this, which would be in September, it's going to be a higher number than that also. Kevin Cole - Crédit Suisse AG, Research Division: What will be the timeline of that CapEx being deployed? Would it be towards like the '16, '17 timeframe?

No. I think this is playing out generally the way we thought. So again, in May, what we laid out for you for this segment was -- so we said by 2017, we want to be $120 million of earnings. We had $20 million of white space. And so what we feel right now, based on what we have underway, that gives us confidence in the $100 million, and now the team is working on incremental investments to start filling in the white space that will get you to $120 million.

I think, Kevin, this is Peter, one way to think about it, we're actually -- as they're drilling the wells, we're putting the gathering in. So that will be pretty good pace over the next few years for that spend. Kevin Cole - Crédit Suisse AG, Research Division: Okay. So this $150 million CapEx is upside to the Marcellus, to the blue or purple bar in your guidance, and so this is help filling up the white space?

That actually helps firm up that $100 million. If you remember on the Analyst Day, we were talking about how we're confident on the $85 million. We had this $100 million level with good line of sight on. It really helps firm the $100 million.

And the team now is working on the remaining white space. So hopefully, when we see you in this fall, we'll report back to you that there's incremental investments over the $650 million, which will then give us certainly more confidence as we march towards our goal of $120 million by 2017.

And we'll take our next question from Andrew Weisel from Macquarie Capital.

First question is on Slide 16, when you showed the walk for DTE Electric. It looks like this return to normal weather is -- for the second half does not embed the upside from a hot July. Should we think of that as leading to maybe upside to the guidance or would any benefit from that heat be reinvested maybe after the summer is over?

That is something, Andrew, that we'll -- and I gave a range on the second half reinvestment. We're going to be monitoring the weather and storm activity. Now July, now today, it's in the 60s and maybe 70s. So we're seeing how much we kind of give back in July here in the state of Michigan given the back half of the month. And we did have a catastrophic storm in the month as well. Probably the main point there is we're going to be monitoring and adjusting that reinvestment plan based on weather and storm activity.

Okay, fair enough. And then along those lines, there was a lot of reinvestment in the second quarter, obviously, ahead of this summer, which was usually most important. Can you maybe just walk through the strategy of the timing as to why you did that more earlier in the year as opposed to waiting to see when most of the 3Q is in the books?

That's actually a great question. So as you know, weather variability in the electric business plays out predominantly in July and August. If you look at the number of cooling degree days normally in those months, our normal pattern would be to wait until the summer played out before -- even if I thought I saw some favorability before I would trigger reinvestment program. And the reason we did it is because of the remeasurement on the benefit programs. So that remeasurement there was -- Peter mentioned the salary plan we measured at the end of last year, the represented plan at the end of March. And those numbers are hardwired now. So we saw this favorability coming through our forecast relative to retiree medical. And based on that, and a good start with the gas business and other factors, we started to early on start the reinvestment program even though we had not been through the summer. So we staged our reinvestment program in multiple stages because my #1 goal is to always hit my authorized return. Now I didn't want to reinvest too early and then find ourselves short at the end of the year. But a lot of it had to do with the confidence of the way the accounting works for this retiree medical, which is not only going to come in this year, but it's going to play out over the next several years.

Great. Next question is you mentioned, I think, that in the second quarter, industrial was up 5%, weather normalized load growth in 1.5% total. Can you maybe talk about residential and commercial, how those looked? And then also, you said 2% for the year. Any thoughts on the weather-adjusted load growth in '14 and longer term?

Yes. For the quarter the residential, actually, was up 2%. And the commercial was 1%. Industrial, as I mentioned, was 5%. So all in, around 2% for the quarter. On a year-to-date basis, we are at about 1%, and we -- actually, the industrial growth will continue on. We had some larger projects here in the service territory that will play out. So we're comfortable still with the 2% for this year. In the longer term, I think we've indicated approximately 1% growth that we're anticipating.

And that's after energy.

After energy efficiency.

Sounds great. And then my last question is for PIP. You talked a little bit about the near-term earnings pickup from REF and Renewables, and the first half results are a little below half for the full year guidance. Can you maybe just talk about some of the drivers that will lead to that acceleration in the second half?

We described that we have multiple business lines there. So one of the business lines is Renewable business line, which are the plants that were coal plants being converted to wood. And one of those plants was already online, but it's capacity factor actually raises during the year. And then we have another plant that's coming online. And that's why the earnings profile for that business line is back-end loaded. And then as we've talked about with REF, we're trying to optimize the 9 machines. And we have some relocations that are going to actually trigger in, and that gives us higher tons produced. And again, that's back end loaded for 2013, and that's going to drive the earnings there.

Our next question comes from Jonathan Arnold from Deutsche Bank.

First question. I was just curious on just revisiting the pipeline segment. You said that the extra $150 million of spend you disclosed today would help to firm up the $100 million '17 earnings target. Do you need more of the other -- the incremental stuff to further firm that up or are we -- are you kind of already now into filling the white space?

We are in negotiation right now with a handful of producers in the area that I believe will lead to more gathering work in that region. We also are -- because of what we're seeing play out there, I think the pipe itself -- so we have the Bluestone pipe and then the gathering system, that pipe is going to fill up quicker than I think we thought too. So as this all plays out, I think what you're going to see is as we periodically update you, the Bluestone Pipeline and Gathering system is going to generate more earnings power. And that will basically fill up that white space. And so what we're going to do will be out publicly in September. And then we'll see you at EEI. We'll just give you updates on where we think we are on the remaining $20 million for 2017. The good news for this segment is that's a long time away and we already have line of sight here in terms of our investment profile that's going to get us to that target.

Okay. But to be more specific, next time you say announce another $100 million of spend, will that start to narrow the gap or will that still be firming up?

That will narrow the gap. That will narrow the gap to $120 million.

Okay. And then just maybe a silly one, but on Slide 18, we have a guidance which didn't change the ranges but you have these kind of green arrows on the 2 utilities segments. I know you've used those in the past to imply guidance change, but is that -- should we take from that you feel high end or there's an output bias? Or what are those arrows implying?

Yes. Those arrows -- and I did mention in the prepared remarks that we believe right now that both of them are on track to achieve above the midpoint. And actually, with this benefit increase, they would be above and probably above the guidance. We are in the process of reinvesting really to kind of bring them back to the guidance level. And I think the one in particular I did call out was the DTE Gas. And you can see the strong year to date. There is, between weather, actually some increased usage in consumption that's non-weather related. We're in a period now where we have a suspension of our decoupling mechanism. It's kind of methodology of rate making process that will flow to the bottom line. So that one, that segment in particular, I'm feeling there's a potential that we're going to be increasing, at least hitting more of the upper end of that guidance range.

And you're at above the midpoint on electric is the implication then, I guess?

Yes, yes. And basically what you're seeing play out here, as we've mentioned, this benefit amortization is fixed. And the bias is that you're seeing upward pressure there, and that's going to be offset with our reinvestment program, which is going to be phased in over the remainder of the year. And then the other variable is weather and how weather plays out for the remainder.

So it's something, Jonathan, we'll get through the summer here. My sense, in the third quarter call, we'll give you an update where we feel the year is coming in at.

Okay, great. And then finally on the -- are you still feeling -- I just couldn't remember what you said about timing for sighting of these 2 remaining REF, reduced emission fuel units. Is that a year-end-type of -- by year-end objective?

For there, as you know, it involves the timing as well as the volume, and right now, it does look like it could be year end. It could go into next year, first half of next year as well. We did put in the appendix kind of the earnings profile for that, for the REF. We're still very comfortable with that earnings profile.

And also comfortable for that segment on what we've already given you for '13 and '14.

So just the '13, $50 million sort of implying not much benefit from the second to the last 2 units, because they would be either very late in the year or early next?

Yes. For this year, there'll be minimal contribution this year.

We'll take our next question from Julien Dumoulin-Smith from UBS.

So perhaps following up on Kevin's question on incremental CapEx here, I'd be curious, just from the perspective of the power and lighting opportunity you alluded to earlier, just the timing of that, how that meshes with your CapEx budget, if you could kind of walk through that a little bit more?

You're asking about the city of Detroit public lighting of $300 million?

Indeed.

One way to put this in perspective, our total CapEx is $2 billion a year. It's what we've laid out for the next 5 years. The electric utility is $1.5 billion per year every year. And this is $300 million over a 5- to 7-year period. So it's not that significant in the big scheme of things, not only in terms of our total CapEx over that period, which is for the electric utility is $6 billion. And it also is a minimal impact when you think about it from a customer standpoint in terms of rates. So as light goes, it sounds like a big number. But when you stand back and look at a 5- to 7-year period, it's pretty small.

Great. And then perhaps just going back to the midstream side of the equation, I mean, I know you alluded to providing updates later this year. But as it goes to Utica, I'd be curious how developments are shaping up and particularly on the dry gas. I suppose that has been more of a longer-dated development opportunity, but curious how it's been shaping up for you guys. Is it quite as strong as Marcellus?

I don't think there's any significant new news right now. As you know, on the NEXUS pipeline that's been proposed. The in-service date, as we saw it, was 2016. And in the meantime, for all of us, everyone is monitoring what's happening in the Utica development. I would just say right now for us, the focus is really shifted to Susquehanna County within Pennsylvania because there's so much going on there and so much prolific drilling going on that the opportunity set is right now there in the next 3 to 5 years. That said, the project, the NEXUS project continues on its path. But the one thing that everyone continues to watch, which is the big variable, is what you mentioned, which is how does the dry gas production play out over time? And there's really not any new information on that right now.

Our next question comes from Greg Gordon from the ISI Group.

A follow-up question on the REF conversation. I'm just curious, as you look at the 2 machines that you're looking to place and as you think about optimization opportunities for the existing machines, are those potential counterparties more merchant power generators, whole merchant power generators or regulated utilities that own whole assets? And are you seeing the appetite for the types of cost savings that you generate through the REF business increase, decrease or stay about the same given how much distress some of these merchant power generators are under, and how they might be more intrigued by the opportunity to save a little money in their overheads?

It's actually -- when we talk to counterparties, it's all of the above. So the people that we've talked to are pure merchants. There are utilities that -- they have deregulated, coal plants, but there's as much interest with utilities that are fully regulated with a pass-through. And the reason that they're interested is people are really trying to hit their environmental objectives. And the key thing that REF does, it takes out 40% of the mercury upfront and it gives people a much better shot at consistently hitting a 90% mercury reduction and it comes at a negative cost. I mean, in some ways, it doesn't get any better. So even if you're a regulated utility, and we have this at some of our plants, to be able to take out 40% of the mercury and then have basically a cost reduction that flows through to your customers is good. And the conversations that we're having is more about trying to get these at the largest plants possible, but also the plants that have the right boiler configuration because this has to work in line with everything else that's working and we want -- ideally, we want these at very large plants that will run for 9 years because that's how long this tax credit goes out. I could relocate them if we have to, but that's not desirable. So much of the conversations tend to be with the engineers doing their test burns to make sure this is really going to work, not only today, but it's going to work over many, many years and not impact their boiler in any way.

Got you. Last question for me on the Power & Industrial business. You guys have indicated you're extremely pleased with the financial and operating performance of the recent transaction where you acquired assets from Duke. Are there more portfolios like that out there that you could attempt to replicate that outcome given the economic environment for power generators? Is that a more robust opportunity set now than it was 6 months ago, less, the same? And if you were able to achieve something of that sort of size and scale, would it allow you to sort of exceed your current aspirations for growth in the business?

Well, right now, what we laid out at the analyst meeting is our aspiration is to grow that business to $140 million. That business also had white space. So over the next several years, that group has growth embedded in what they're already doing. So as Renewable Energy plants come online, as REF gets relocated, some of their growth will play out. And then there was remaining white space. And the remaining white space, their primary area of focus is exactly what you bring up. We were already in the energy services business. And we, for example, own and operate the energy center at the Detroit Metro Airport. We own and operate the energy center at GM's headquarters. With the Duke acquisition and those projects that came online, we're one of the larger players in that space nationally. And we believe that we not only have the skills and confidence and track record, but there is some scale benefit here. So we -- it's an area of focus that we're spending a lot of time on right now as they work to fill in that white space.

Are there more eager sellers now than there were 6 months ago, given that some of them might own portfolios of merchant power assets that -- and need -- they need capital?

I would just say that we have more discussions. I don't know how eager they are, but they are -- we are in more discussions with more potential parties around assets that we could acquire than we were 6 months ago, certainly more than a year ago.

We'll take our next question from Shar Pourreza from Citi.

In your operating earnings aspiration of $1 billion, can you just remind us after energy efficiency what kind of load that you are assuming for that time period, on the electric side?

We are assuming a 1% load increase.

After energy efficiency?

After energy efficiency.

And for the electric utility, can you just remind us what the lag, if any, there is and how long you anticipate staying out of a rate case?

We are targeting right now to kind of coincide, we have a securitization with our nuclear plant kind of dropping off in '15, new rates coming in there, which would mean a mid-2014 filing, with a rate increase in early '15.

Got it. And then just lastly would the -- with Bluestone ramping up, is there -- is an MLP drop-down still not in the near-term strategic focus?

I would describe it as not in the near term. Certainly, as we said, it's something that we will continue to evaluate. But we have so much time and energy right now focused on the investment opportunities. And not having an MLP, as we said, is not inhibiting us in any way from finding and executing on a lot of this growth. So we're more focused on finding the investment opportunities and executing on them right now.

And we'll take our next question from Paul Ridzon from KeyBanc.

Thank you for your commentary on the O&M timing. That was very useful. I just had an unrelated question on -- if there's any update on the discussion in Michigan about reopening the energy legislation?

In terms of the energy policy area right now, as you know, there was a series of hearings and fact-finding that the commission conducted, and we expect them to submit their report to the governor later on this fall. And beyond that, there's not much else that's happened or going on right now as in Michigan. I think there's just other areas of focus that the administration is working on. Longer term, we do expect that what we eventually are going to hear, there's going to be some interest in expanded Renewable Energy program beyond the 10%, but that's not until after 2015. There seems to be a lot of energy and focus around continuing the energy efficiency program in Michigan. And in terms of dealing with the issue around choice, I think there is actually growing sentiment that having this bifurcated market, where you have 10% of the market at choice, which really represents about 1% of the customers. It probably doesn't make sense. And if this thing doesn't stay where it is, there seems to be more energy around taking that down, not up. But again, I would just say it's not an area of key focus and discussion right now. There's not a lot of noise about it.

We'll take our next question from Kit Konolige from BGC Financial.

On Peter's discussion of the benefit savings, can you just go through again it's -- I have that it's $60 million after tax in '13 and half of that goes to O&M and then the full amount in '14. Do I have that correct?

That is correct. And there is a bit of a bump around $10 million for '14. As mentioned, that the union plan, we've got a remeasurement at the end of the first quarter. So we'll take up another quarter of that next year.

Right. And so your discussion was that the full amount of -- none of that would be used for reinvestment in '14, but would all go to the bottom line to support the projected earnings growth?

Yes, to support the earnings growth and the rate base growth for both utilities.

Right. And are there other benefit reduction opportunities out there?

Not as large as this one. I mean, we're continuing to work on this. And we also are teeing up other, what I would describe as, structural cost opportunities that we want to work on because when we stand back and do our planning, our goal is to hit our authorized return, grow 5% to 6%. But we're also looking at the amount of capital that we're going to have to continue to spend, and then modeling rates, to say how do I keep rate increases over time as low as possible? And the way for us to make that all work over time is to continue to work on costs on 2 fronts: One is the continuous improvement work that we continue to do, but also to look for structural cost changes. And we have several of those that we're working on that we hope to be able to act on over the next several years that will allow us, even when we have to file rate cases, and we'll eventually have to start filing rate cases to make sure they are as small as possible.

We'll take our next question from Paul Patterson from Glenrock Associates.

Most of my questions have been answered, but I just wanted to touch basically briefly, I'm sorry if I missed this, the industrial -- the Power & Industrial. There was a write-off, I think, and I'm sorry, I missed, what caused that?

We had a plant that was in Michigan. It was a plant that had been converted from a coal plant to a gas plant to service General Motors' complex basically, that through the restructuring, one of the things that happened when they went bankrupt, they closed that complex and they -- the plant basically had a dedicated customer. And we worked for a couple of years to try to retool the plant. We just -- including moving it to a biomass. And then we just couldn't make it work in terms of the economics. So that plant will now close, and it was written off.

Okay. And I think there was a gain last year. I don't know if it was in Power & Industrial, but do you know what that was? I mean, I just noticed in the income statement that there was -- that you guys did have some sort of asset improvement, I think. I can follow up afterwards if you...

Yes, we'll have to follow up afterwards to make sure we have that at our fingertips.

Okay. I just want to -- then the tax rate, it seems like it's been declining. And is that -- could you just elaborate as to what's causing that and sort of what the outlook again is for 2013?

Probably the one thing that's flowing through there is just tax credits, including the wind tax credits that are coming through there at the income statement. But Peter, do you want to...

I think the wind and there are some -- for the REF, the tax credits that basically flow to us.

Flow to us, that we're not -- in some cases, we're selling partnership interest to, because I, we're not going to take all the credits. But there's some REF credits that we're taking and then the wind credits from the electric business.

Okay, and -- that makes sense. And then just following up on the question that Kit was asking, the O&M benefit that's associated with benefit reductions, that's -- again, is that associated with retirement benefits and the sort of NPV of the reduction of that? Is that what that is?

What happened is we changed our delivery method on retiree benefits for retirees over a certain age. And they basically are getting their benefits through a Medicare exchange now. And when you have a significant change like that, the accounting rules trigger remeasurement. So we had a remeasurement, and you remeasure your liability. So we remeasured our salary liability at the end of the year and the represented liability at the end of March. And then the way the accounting works is you take that NPV benefit and you amortize it back in to your income statement over a 4-year period.

We'll take our next question from Andy Levi from Avon Capital.

Basically all said. The only thing is in 2017, you said $1 billion in net income, right, if I heard correctly?

Right.

Okay. So wouldn't that imply more of a 7-plus percent CAGR off of your '13 number, not the 5% to 6%?

Yes. And there is -- actually, there is a slide we actually included in our Analyst Day that describes this. Our philosophy here, we do our planning process. If you kind of have all your bottoms-up equal to your aspiration, it doesn't really give you a lot of cushion. So actually, we do put into our overall forward projections a contingency. And a lot of that is just to give more certainty to our investors around that 5% to 6% earnings growth.

We have no further questions in queue. I would now like to turn it back over to our speakers for any final or closing remarks.

I just want to thank everyone for joining us again this morning, and hope you all have a great summer, and we look forward to seeing you in the fall. I think our next public event is early in September at the Barclays Conference. So take care, and we'll talk to you later.

And this does conclude today's conference call. Thank you all for your participation.