Nov 5, 2008
Executives
Laura L. Mountcastle - VP and Treasurer of CMS Energy Corporation and Consumers Energy Company David W.
Joos - President and CEO of CMS Energy Corporation and CEO of Consumers Energy Company Thomas J. Webb - EVP and CFO of CMS Energy Corporation and Consumers Energy Company
Analysts
John Kiani - Deutsche Bank Paul Ridzon - KeyBanc Capital Jonathan Arnold - Merrill Lynch Mark Siegel - Canaccord Adams Brian Russo - Ladenburg Thalmann
Operator
Good morning, everyone and welcome to the CMS Energy 2008 Third Quarter Results and Outlook Call. This call is being recorded.
Just a reminder, there will be a rebroadcast of this conference today beginning at 11 AM Eastern Time, running through November 12. This presentation is being webcast and is available on CMS Energy's website in the Investor Relations section.
At this time, I would now like to turn the call over to Ms. Laura Mountcastle, Vice President and Treasurer.
Please go ahead.
Laura L. Mountcastle - Vice President and Treasurer of CMS Energy Corporation and Consumers Energy Company
Thank you. Good morning and thank you for joining us for our third quarter earnings presentation.
With me today are Dave Joos, President and Chief Executive Officer; and Tom Webb, Executive Vice President and Chief Financial Officer. Our earnings press release issued earlier today and the presentation used in this webcast are available on our website at cmsenergy.com.
This presentation contains forward-looking statements. These statements are subject to risks and uncertainties and should be read in conjunction with our Form 10-K and 10-Q.
The forward-looking statements and information and risk factors section discuss important factors that could cause results to differ materially from those anticipated in such statements. The presentation also includes non-GAAP measures when describing the company's results of operations and financial performance.
A reconciliation of each of these measures to the most directly comparable GAAP measure is included in the appendix and posted in the Investor section of our website. We expect 2008 reported earnings to be about the same as adjusted earnings.
Reported earnings could vary because of the effects of asset sales, unrealized losses on investment or other factors. We're not providing reported earnings guidance reconciliation because of the uncertainties associated with those factors.
Now, I turn the call over to Dave.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Thanks, Laura and good morning everyone. Thanks for joining us today for our third quarter earnings call.
As is our usual practice, I'll start the presentation with a brief update on the business and then I will turn the call over to Tom for a more detailed discussion on the financial results and the outlook and then we'll close with Q&A. It's been a tumultuous time in the financial markets until last call.
Fortunately, our team was out front of the crisis with this year's planned financings and our liquidity position is strong, and Tom will give you a little more detail on that in a minute. The economy is shaky nationally and a little shakier here in Michigan.
The autos in particular are struggling. That's not great for us, but also not as troubling as you might think.
Our margin from the automotive sector is much smaller than it once was, now only about 3%. And we're seeing expansion in other industries that are offsetting the automotive sales decline like alternate energy manufacturing.
Still we're seeing a sales decline and an uptick in uncollectibles. On a weather adjusted basis, both electric and gas deliveries are off about 2% for the first nine months of this year compared to last.
While our uncollectibles are still well below the national average, they are trending upward. We've been able to offset these negatives with a combination of rate relief and spending cuts.
So we're pleased to say that our adjusted earnings outlook remains unchanged, at $1.20 a share. One of the adjustments we've made however reflects the impact of the sharp market downturn on our pension fund.
We don't see an earnings impact associated with the qualified plan, but there is one this year associated with the non-qualified plan. We booked a $0.03 per share expense in the third quarter, which is reflected in our GAAP results, but not included in our adjusted earnings, and again Tom will give you more detail on this.
Given the weak economy and tighter credit markets, we have reviewed our capital investment plans and deferred some planned spending out of 2009. Those deferrals remain in our five-year plan however which still reflects about 6.4 billion through the end of 2012.
We've also trimmed our near term sales outlook and stress tested our models against further unanticipated sales decline. In all, we continue to be comfortable with our business plan and earnings growth projection, averaging about 6 to 8% per year over time.
We're in the process of finalizing our budget for 2009 and plan to share that with you during our year-end earnings call in the first quarter. Let me turn to some great news that unfortunately was a bit lost in the October market turmoil.
On October 6th, the Governor signed a package of bills that define Michigan's new energy policy and implement important changes to utility regulation that enable our growing forward strategy. I won't go into great detail because I know many of you follow this closely.
But, I do want to highlight a few of the more important provisions. First, regulatory lag has historically been problematic in Michigan and was of concern as we enter a strong capital investment cycle.
I'm very pleased that the new law addresses that issue in a very effective way. It dictates the rate making use of forward test year.
It allows utilities to self implement proposed rate adjustments subject to refund, six months after filing and it requires the PSC to issue a final order within 12 months of a complete filing or the rates become final as filed. Of course, now this assures that we'll get everything we ask for, but it does put a focus on future needs and speeds the process dramatically.
Best of all, the sitting commissioners have been supportive of the changes. The new law puts a cap of 10% on the amount of electric load that can be served by third parties.
You might recall that we're about 4% per day, I'm sorry 4% today, but have been over 10% in the past. The cap provides sufficient certainty that we can move ahead with our balanced energy initiative.
The law also requires that we be allowed to collect over no more than five years our Public Act 141 related regulatory assets, that's a 2000 law. This includes the $77 million outstanding balance of stranded and implementation cost previously determined by the commission and provides more certainty.
The law also requires the rates be deskewed over five years or less. In other words, it requires that all customer rates be set in accordance with the prescribed cost of service methodology.
This will improve our business rate competitiveness and should reduce our load loss under customer choice program. Michigan has not historically had an upfront process to review and approve plans to develop new power plants.
The result was the potential for second guessing decision making at the time the completed plan was to be added to the rate base. The new law establishes a process by which the plans can be endorsed by the commission, reducing our risk.
Borrowing costs associated with the approved project may be incorporated in rates during the construction period, improving cash flow and reducing cost. And very importantly, the bill establishes a standard for renewable energy of 10% by 2015 and sets energy efficiency targets for electric and gas customers.
Both create opportunities for the company for investment and performance incentives. Overall, we are very pleased with the energy bills and believe they balance the need for regulatory certainty with the interest of our customers.
Our regulatory counters fairly light right now, except for the gas case we filed back in February. As a reminder, we filed a request for a $91 million increase with 11% return on equity.
We also requested a revenue decoupling mechanism for residential customers that would eliminate the sales impact of planned energy efficiency and conversation programs. It's notable there is a specific provision in the new law that enables gas rate decoupling.
The Staff recommended a $36 million rate increase with a 10.45% return on equity. The key differences are shown on this slide.
First of all, we have based our sales assumption on a 15-year average. The Staff use 30 years.
Regardless of whether it's due to energy efficiency or weather, we have experienced a decline in sales over the past 15 years and believe that the 30-year average predict sales that are unrealistically high. The use of 30 years versus 15 years accounts for $10 million of the variance.
As on a side, this is exactly the kind of historic rate making practice that the new law is intended to fix. The Staff has removed the $9 million we included in our request for energy efficiency.
This has really a little impact on the company other than deferring our energy efficiency program implementation. We'll be making a new and separate energy efficiency program filing under the provisions of the new law.
The Staff's recommendation for a lower ROE accounts for another 8 million. The Staff's recommendation regarding working capital is not problematic.
It simply reflects the real reduction in working capital requirements due to the retreating gas prices. Several other smaller differences are noted on the slide.
All things considered, we're not as far apart from the Staff recommendation as it might first appear. Later this month, we plan to file a new electric rate case, reflecting increased investment and other operating cost increases.
This will be our first case under the provisions of the new law. That's a quick run down of recent developments, I will be here to answer your questions.
And now, let me turn it over to Tom for more detail on the financials.
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Thanks, Dave and thank you everyone for dialing in today. First for the quarter, despite software sales and rising uncollectible accounts, GAAP EPS at $0.34 was equal to last year.
Adjusted non-GAAP EPS at $0.33 was up sharply from last year and stronger than First Call estimates. This excludes $0.03 associated with an unrealized loss on our non-qualified retirement plan investment that Dave referred to.
Higher earnings reflect rate cases, benefits from the MCV regulatory out, lower interest expense and lower overhead cost. This more than offset unfavorable weather, sales, cost for launching our new SAP-based system, higher capital investment and lower interest income.
Now, over the last several years, we've restructured the company and rebuilt our balance sheet, reducing our risk exposure substantially. More recently, as you can see on this slide, we exited our exposure to monoline insurance companies, added a 364-day revolver for $150 million at the utility and accelerated and increased the size of our planned first mortgage bonds at the utility.
This bolstered our liquidity and further reduced our risk exposure. As with many companies, we were concerned that subprime loan problems would lead to rocky financial markets this fall.
We did not expect the crisis and we were fortunate to complete our debt refinancing programs in advance of it. Events since 9/15 will be challenging, but we're in a much better position to deal with it.
The financial, credit and economic dislocation will lead to lower sales, higher pension funding, higher uncollectible accounts, pressure on liquidity and a need to reshape our capital spending plans. Ignoring these changes wouldn't make any sense.
Accordingly, early in October, we lowered our sales outlook and related assumptions for 2009 to reflect the recession and raised our estimate for pension obligations to reflect the sharp downturn in equity markets. These conditions may not be as severe as we've assumed, but we have put plans in place to offset the cash flow and earnings implications.
We have also prepared a contingency plan, should conditions actually turn worse. I'll take you through each of these earlier comments now.
First, the economy. The most severe electric sales decline that we've experienced in 60 years occurred during the 1979 to 1982 recession, when sales dropped by a total of 7% over a three-year period.
You may recall this was the last time the auto secured federal loans and support. Back then, the autos and their suppliers represented 15% of our sales and 14% of our margin.
Today, that's down to 5% of our sales and only 3% of our margins. Despite our reduced exposure to the auto sector, we're planning on a weather adjusted sales to be flat to down a bit for 2009.
Excluding sales growth associated with our largest and fasted growing customer, HSC, our underlying sales growth would be down 3%. Now that's on top of a drop of about 2% this year and more than double the annual decline we experienced in the 1979 to 1982 period.
We've prepared a contingency plan for twice that or about 7% in one year, and that's the equivalent of the full three year impact of the recession in the early 80s. Net of rate release, this 3% decline would reduce earnings by about $20 million.
We've added to that the prospect of a substantially higher pension contribution next September, higher uncollectibles and other challenges. To offset these risks, we've delayed $180 million of CapEx, in that $55 million at enterprises and $125 million at consumers.
We also reduced working capital in O&M. We're reflecting responsible level of sale, capital spending and cost to ensure that our customers and shareowners are served well.
The new file and implement rate case approach that Dave just described permits us to address responsible request in a more timely manner. It's too soon to share specific earnings projections for next year, but we do not expect our long-term growth plans at 6 to 8% to change.
Our capital spending projects are still needed. We're simply reshaping the implementation timing to reflect near-term economic conditions and to enhance our execution.
Now regarding liquidity, we have about $500 million of cash on hand and about $800 million of bank facilities in place to address short-term needs. Although at this point, we usually don't provide a forecast for next year, we thought you'd appreciate this view of our liquidity and our underlying cash flow through 2010.
As you can see, we're well prepared for additional challenges should they occur. Both our $500 million revolver for the utility and our $550 million revolver for the parent are in place through 2012.
We'll need to review our accounts receivable financing program next year. Importantly, we do not have any parent debt maturing until 2010.
We do however have convertibles worth $319 million that could be tendered. We have the cash on hand if needed, but no tenders have occurred since last July.
This is good low cost financing for us. We do have plans to enter the capital markets for consumers with first mortgage bonds by the middle of next year.
A number of utilities already have issued new bonds since 9/15 although the spreads have been wide. We believe our liquidity is strong and intend to work hard to keep it just that way.
Let's talk about pension impacts. First, the qualified pension plans are receiving lots of attention.
We expect to be funded at 75% of liabilities at year end. We do not expect an earnings impact.
Higher expenses associated with falling asset values will be offset by higher discount rates. If lower asset value sustain at year-end, we plan for a cash contribution of about $210 million, now that's $50 million in our base plan plus $160 million to reflect the market downturn.
This could be higher, if asset values fall further. Our required contribution would be about $70 million and we'll decide about the additional funding next fall when the contribution is due.
As covered earlier, we've built the higher contribution into our cash flow plan and we plan to offset it with capital spending delays and other improvements. Second, our non-qualified pension.
For the third quarter, we reflected in earnings the non-cash mark-to-market impact of the drop in equity value because we judge that drop to be other than temporary. This unrealized loss was worth $0.03 a share.
We do not plan to revise our funding for this non-qualified plan, so we do not expect the cash flow impact this year or next year. Now back to 2008 guidance.
We faced a lot of profit issues so far this year, including lower sales, higher uncollectibles, storm cost and SAP launch cost in excess of plan. We've offset all of this with a variety of actions to maintain our adjusted earnings guidance at $1.20.
This does not however reflect the other than temporary unrealized loss of $0.03 in our non-qualified retirement plan values resulting from the stock market decline. Although, we only have a couple of months to go, earnings and cash flow could be different from guidance, up or down depending on weather and economic impacts on sales.
Uncollectibles are forecast for the full year at $38 million or about 0.5% of sales. This is still below many of our peers, but it's been climbing.
We're enhancing our capability to monitor and address these on uncollectibles. If they climb another 10%; that would impact earnings unfavorably by about a penny a share.
Also, as we put strong new cash conservation actions in place, we may improve our cash flow a bit yet this year. And here is our report card that we show you in each reports and this shows you where we are so far this year.
Now Dave and I'd be happy to take your questions. Question And Answer
Operator
Thank you very much, Mr. Webb.
[Operator Instructions]. Our first question comes from the line of John Kiani with Deutsche Bank.
Please proceed.
John Kiani - Deutsche Bank
Good morning, Dave, Tom.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Good morning, John.
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Good morning.
John Kiani - Deutsche Bank
Laura. Couple of questions.
Dave, I know you briefly touched on the energy legislation in your comments and you also made some comments about sales volume. But can you articulate a little bit more on how file and implement affects your ability to readjust rates or file to readjust rates based on potential further degradation of sales volume and how that could protect the margins that the company realizes?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Sure. Well, on both the electric and gas side, the law allows us to make a filing and then self implement up to the amount of that filing, six months after we make the filing.
Now, it does have to be within the test year associated with the filing. Of course, we have a gas case in process right now.
And that case is far enough along with that feature of the loss, not likely to file although it could, because frankly any pending case also falls under that six-month limit. We're going to be filing an electric rate case shortly.
So assuming the commission deems the filing to be complete and there is a 30-day period for the commission to determine whether it's complete or not. That six-month period would start when we file the case.
So it does allow us to self implement rates early in... sometime in the second quarter of next year, assuming when we make the filing, the commission deems it to be complete.
John Kiani - Deutsche Bank
That's helpful, thank you. And then on another subject, can you remind us Tom, what the most recent NOL balance is at the parent company, ballpark?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Happy to. We'll just take them out right now.
Keep in mind as I give you those, we have AMT credits that are worth about $0.25 billion and NOLs, and our most recent status we'll give you here in just a second. John, I think those after-taxes are going to also be about $0.5 billion, so add those back in to with AMT credits and in just a minute we will give the exact number.
John Kiani - Deutsche Bank
Great.
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Did you have... do you have another question?
John Kiani - Deutsche Bank
I do actually. And so I guess, in conjunction with this NOL figure, and I think earlier in your comments, you reiterated and said you're still comfortable with your 6 to 8% long-term earnings growth rate.
Can we confirm that you don't need equity capital to fund that growth rate outside of obviously the special situation with the potential to build a new coal plant at Michigan, outside of that project I guess in combination with this NOL and reasonable debt financing, is it safe to continue to assume that you achieve that growth rate without the need for an external equity capital funding?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Yeah, that's been our plan all along. And it didn't make sense for us to invest in a multibillion dollar coal plant without shoring up our balance sheet with an equity assurance.
But our plan all long has been that that would be the only situation in which we feel we're going to need new equity.
John Kiani - Deutsche Bank
Right. So looking at the rate base growth outside of that, you're covered with the NOL?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Right.
John Kiani - Deutsche Bank
And so it looks like we're about 250 for the AMT and you said $500 million after-tax for the NOL, Tom?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Yeah, I'll give you that exact number in just a minute.
John Kiani - Deutsche Bank
Okay. Thank you.
John Kiani - Deutsche Bank
Don't worry we'll sneak it there, John.
John Kiani - Deutsche Bank
Great.
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Thanks.
Operator
Your next question comes from the line of Paul Ridzon with KeyBanc. Please proceed.
Paul Ridzon - KeyBanc Capital
What Tom, just regarding the SAP implementation costs, are these recurring costs or was this just kind of limited to this quarter to kind of get the system up and running?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
This is really just the expense after we launched and therefore we stopped capitalizing the work, so as we were bringing things up to run, not everything runs as perfectly as you'd like to and all the changes and improvements that we made, we need to do expense. Those are just a little bit bigger than what we had planned for.
And I don't think any thing extraordinary from what you see and a good SAP launch because so far we are very proud of what we've done.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
I mean Paul, to be clear, long-term of course we expect the SAP to reduce our cost. But in the near-term, some of these implementation charges that we're no longer able to capitalize affected our earnings.
Paul Ridzon - KeyBanc Capital
Do we see some fourth quarter trickle through of the higher costs?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
It's too early to tell, I think but... they're certainly aren't an ongoing cost, but this I couldn't say that they aren't going to show a little bit in the fourth quarter as well.
Paul Ridzon - KeyBanc Capital
Tom, what do you envision being as the delta in the discount rate to alleviate any earnings impact?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
In terms of where we were last year, you can see that our discount rate was 6.4%. And conservatively speaking, we expect the year to end up at around 7% and that's what's in the numbers that I'm factoring in.
But as you know, we look not only at the asset value, but on what's really happening in the market on discount rates at the end of the year. I think we've been a little conservative.
Discount rates really are running a little bit higher than that for the portfolio mix that we have.
Paul Ridzon - KeyBanc Capital
And it's great to hear you reiterated the growth rate. Should we expect maybe it's not as straight as we may have thought it was earlier, but more kind of...
got some coverage into it?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Well, we've never tried to imply that it would be a straight line all the way out, obviously it gets a little bit lumpy on occasion depending on when your rate cases occur and when your investments take place. We're still comfortable with that range.
As we said, we moved some capital spending out of 2009 of simply be conservative on liquidity. And...
but we're still comfortable with that long-term range in fact over the five-year period.
Paul Ridzon - KeyBanc Capital
And your electric case that you are planning on filing, will ask for decoupling?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
I don't think we have decoupling in our electric rate case. The law actually specifically provides for gas decoupling.
That doesn't preclude electric decoupling, but right now we don't have plans to file that in the current electric rate case.
Paul Ridzon - KeyBanc Capital
And what do the... what uncollectibles protections are built into your current regulatory construct?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Well on the uncollectible side, we already have built in $25 million. So what we'll need to do is look at where we're running today and we're running at $38 million.
We'll pickup the electric part of that in this rate case and then the gas part of that in the next gas rate case.
Paul Ridzon - KeyBanc Capital
And then lastly, there's been some talk about steering some federal funds towards the auto industry. What are you hearing on that front?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
We're not hearing anything more than you are. Lot of discussion about that as you know, Michigan delegation is certainly been pushing hard for that.
But it's not clear what's going to actually happen.
Paul Ridzon - KeyBanc Capital
Okay. Thank you very much, and congratulations on a strong quarter.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Thank you.
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Thanks and thank you. And for John and everyone else, the specific AMT credit number was $267 million and the net number from NOL, the tax impact side of that is $350 million.
There you can see, there is well over $600 million of tax benefit available to us. And thanks for the question John, sorry to be slow with the answer.
Operator
Your next question comes from the line of Jonathan Arnold with Merrill Lynch. Please proceed.
Jonathan Arnold - Merrill Lynch
Good morning.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Good morning, Jonathan
Jonathan Arnold - Merrill Lynch
Just one detailed question; on page three of the earnings release, we noticed the number of dividends and other distributions to parent of 1.3 billion, which we suspected may be to the one that shouldn't be there, just wanted to verify that.
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
No, these are all just... those are all just the normal payments in dividends that were paid including tax sharing benefits, which were pretty substantial.
And remember, this was all during the course of last year.
Jonathan Arnold - Merrill Lynch
Okay. But there you have 250 million at the end of December and then 1.3 billion as of now, so?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
So, don't think of that as just the utility, which is what you may have in mind. Remember all the assets we sold, which make up the bulk of that.
Jonathan Arnold - Merrill Lynch
Right, okay.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Dividended from enterprises.
Jonathan Arnold - Merrill Lynch
Okay. So that includes things that come out of...
the money that came out of enterprises?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Well, absolutely right.
Jonathan Arnold - Merrill Lynch
Okay. I understand.
And then Tom, you mentioned I think a number of 75% as your way you projected to be in terms of funding on the pension. Is that on the PBO basis or the ABO basis?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
It's all was the new pension act calculations, so you need to be careful it's not pure as to one or the other and which you can see on chart on page 11. We are trying to get to the 75% level because that's threshold that you need to reach within those calculations so that you don't have either enact risk program or any benefit considerations.
Jonathan Arnold - Merrill Lynch
Just to be... so the discount rate you are using there, or is that the sort of smooth discount rate that is used for funding or is it more the higher discount rate that you can use on the expense side?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
It is smooth, but remember not as much any more as you may have remembered in the past under the new pension act. And it's just...
the best thing to think of it, it's close to the ABO as you can be without being the ABO.
Jonathan Arnold - Merrill Lynch
Okay. And then just one follow-up on...
you talked about having your plan to address the cash flow implications of sales. Should we think about this kind of new lower sales forecast as being also addressing the earnings implications of the kind of forecast you are talking about.
Then if we get to this contingency level of even lower sales that you also mentioned that that's what would throw you off may be in this short-term your earnings target?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Well. It certainly creates more challenge for us recall though as I said earlier will be filing an electric rate case reflecting lower sales and should be able to self implement those in the second quarter per plan and what we may have to make some other spending adjustments, and we were reviewing our budgets to reflect the impacts earlier in the year.
Jonathan Arnold - Merrill Lynch
Right.
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
So even though on slide nine, we have shown you under the sales trend information, the cash flow implications because I know that's very important to everybody. There is a set of earnings implications that go right down the page with that two and we're focused on trying to address both of those in a balanced way.
Jonathan Arnold - Merrill Lynch
Okay. And finally, when would you...
when do you anticipate giving your 2009 earnings outlook?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
We've had practice of giving that in our year end call, typically around the 1st of February, so that's...
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
End of February.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Yeah, towards the end of February.
Jonathan Arnold - Merrill Lynch
And that would be the plan for '09. Okay, thank you very much.
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Thank you.
Operator
Your next question comes from the line of Mark Siegel with Canaccord Adams.
Mark Siegel - Canaccord Adams
Good morning. In the past, you guys have spoken about plans to pursue advance metering in your service territory.
Just wondering if you could provide an update on where things stand and what you think the timing of your plans might be going forward? Thanks.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Yeah. We were still very interested in that, we think it's a great project and it's part of what enables the energy efficiency targets in the new legislation to be met.
We've been working closely with the commission staff and getting aligned with them on the requirements. Frankly right now, we're on the front end of that project, working on software, building our plans for pilots and we'll be running pilots in 2009-2010.
The real deployment of the metering would then happen 2011 and beyond. And right now, we expect that's going to be about a three to four-year period to deploy those meters, but all of that's pretty much on track.
Mark Siegel - Canaccord Adams
Okay, thanks so much.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
You're welcome.
Operator
[Operator Instructions]. Your next question comes from the line of Robert Gephardt [ph] with Neuberger Investment Management.
Please proceed.
Unidentified Analyst
Good morning, everyone.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Good morning.
Unidentified Analyst
Just regards to your comments that you are planning to come to market to term out your mortgage bonds in kind of the middle 2009. Is there an interest rate that what you would just use your available liquidity to just pick on your balance sheet and then determine when kind of the markets improve?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
The best way to answer that is we're going to watch the markets very carefully. Again remember, we were fortunate to be out in front and accelerated $350 million of our consumers' first mortgage bonds before September 15 when things fell apart and also our revolver.
So we'll watch what happens. We don't have to do anything now.
We probably get in to the first quarter or so and read the market. We will finance ourselves appropriately, but it's hard to believe our consumers were not going to be able to get something that's reasonable and we wouldn't want to dip into our revolver.
On the other hand, let's take it to another side, is that for the parent, we don't have anything that's due until deep into 2010. But we have told you that we have adequate revolver capacity there and for some reason that market stayed difficult for that long, we could back that up.
So when we say that that's just to provide you with some comfort on what we can do, but our desire will be to get into the proper financing markets.
Unidentified Analyst
Okay. Great, thanks guys.
Operator
Your next question comes from the lines of Brian Russo with Ladenburg Thalmann. Please proceed.
Brian Russo - Ladenburg Thalmann
Hi, good morning.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Good morning.
Brian Russo - Ladenburg Thalmann
Most of my questions have been asked and answered. But I am just curious on that 77 million of the PA 141 balance that remains?
How is that to be collected?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
It's not dictated in the law exactly how it's to be done, but maybe to put up little history to it, the 2000 law provided for stranded cost recovery, there are number of stranded cost cases, and the majority of that 77 million is stranded cost. And when the commission, the prior commission established the surcharge to allow us to collect that, they established that at a low enough level, but the balance is actually going up and not down.
And so we were concerned to make sure that under this new law, we could actually collect that cash. The law says it has to be done over no more than five years, it's not much more clear than that.
So we'll be making a filing with the commission and working out a process to collect that cash, but it does provide certainty that we'll get that cash.
Brian Russo - Ladenburg Thalmann
And it's positive to cash flow?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Yes.
Brian Russo - Ladenburg Thalmann
Great. And just from the dividend policy, does the weighing of the 180 million of CapEx, does it at all change your dividend payout strategy?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Are you talking about common dividend of CMS?
Brian Russo - Ladenburg Thalmann
Yeah.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Yeah, I don't see that that would have an impact on that. Of course we haven't been real clear on what our strategy is in that regard, but what we said before and I think still holds true is we would intend to move the dividend up but at a slower pace than we have in the past and as long as we're in a strong capital investment cycle we certainly wouldn't expect to get it as high as the industry norm for while.
Brian Russo - Ladenburg Thalmann
Okay. Thank you.
Operator
Your next question comes from the line of Hart Horsky with State Street Global [ph]. Please proceed.
Unidentified Analyst
Hi, thanks. Tom, could you just circle back on the 160 million incremental plan related to pension and just reiterate what exactly that figure represents?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Yep. The total contribution that we would expect to make in September of next year would be $210 million.
We had 50 already baked into our plans, so it was in our cash flows that we talked to you about. But we've to add $160 million to address the drop in asset values and make sure we could be at our 75% funding target.
So if some market drops further and our assets drop further, we'll need to increase that contribution and of course if it goes the other way, it would be smaller.
Unidentified Analyst
Okay. So that takes you to the 70% or 75%?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
75.
Unidentified Analyst
Okay. Thanks.
And what did you projected or what balance of assets you are using?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
We're using the balance as of September 30. So at this point, if you looked at October 31, of course it would be worst than that.
Unidentified Analyst
Okay. Okay, thank you.
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
You bet.
Operator
Your next question comes from the line of Edward Heine [ph] with Catapult Capital Management. Please proceed.
Unidentified Analyst
Good morning.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Good morning.
Unidentified Analyst
Just had a quick question on one of the slides that didn't show up in the presentation this time was the rainbow rate base slide. I know that the punch line of that slide is that you think that the 6 to 8% EPS growth rate is okay and you've obviously reaffirmed that this morning.
But just is there any color on why you guys chose not to give that, is that potentially going to be changing a little bit, as you work through some of these economic impacts?
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Yeah. We'll probably present that at the EEI conference coming up here next week.
There really wasn't any reason that we took that out other than to shorten the presentation. That hasn't changed substantially at all.
As I indicated, we have slipped some capital out of 2009. But we've incorporated it later in the five-year period, so we will update it for at the EEI conference if you are going to be there.
Unidentified Analyst
Okay.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
But it's not a material change
Unidentified Analyst
Fair enough. Great, thanks a lot.
Congratulations on the good quarter.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
Thank you.
Operator
Your next question comes from the line of Raymond Leung [ph] with Goldman Sachs. Please proceed.
Unidentified Analyst
Thank you. Hey guys.
Just a quick question, can you address Tom, what strategy is on the accounts receivable facility. I think you indicated there is something you may need to do on that next year.
And also a follow on question about CapEx. I think more guidance you can provide on what kind of flexibility you may have on the future CapEx budget, if you do comment and if we do continue with the more challenging economic/last financing environment?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Yeah. Our accounts receivable program is an annual program.
So we renew that once in a year and will be doing that again in February. Candidly, we don't see any signs why we're not going to be able to successfully renew that prospects, although it might be a little smaller than what we've done in the past, but candidly our needs haven't been as big.
So, it's just an annual event. And then on capital spending, we told you that we've taken 180 million and again reshaped it, and deferred it.
And I want to emphasize something that part of that was to help us on cash flow. But part of that made some sense to us anyhow to execute our programs in a more orderly basis.
So, it really isn't deleting anything, it's deferring. We've already put together another plan if we needed it, to do a like amount, another additional amount of capital spending deferrals.
And again not deletion so we'll look at that if we need it. We feel pretty good about where we are now and keep in mind some of the deferrals that we talk about are things like new business.
When new business is down, we don't have to spend as much and our outrages can be adjusted. There is just a variety of things that we're able to time differently and that's all that we're doing at this point.
Unidentified Analyst
Okay. Great, thanks.
Oh, and just quickly, what's the current rate on the AR facility?
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
Little over 3%.
Unidentified Analyst
Great.
Thomas J. Webb - Executive Vice President and Chief Financial Officer of CMS Energy Corporation and Consumers Energy Company
It's probably... it's a little inside of where our revolvers are, so it's attractive to us but keep in mind, when we renew at in this market, we'll have to do little negotiating.
Unidentified Analyst
Okay, fair enough. Thank you.
Operator
At this time, there are no further questions.
David W. Joos - President and Chief Executive Officer of CMS Energy Corporation and Chief Executive Officer of Consumers Energy Company
All right. Well, thank you for joining us this morning.
We've continued to I think perform well in a challenging time. We've made some prudent adjustments we think to our plan, but are comfortable with our long-term outlook and we look forward to seeing you all at the EEI Conference.
Thank you.
Operator
This concludes today's conference. We thank everyone for your participation.
.