Good morning, everyone. Welcome to the CMS Energy 2017 first quarter results and outlook call. The earnings news release issued earlier today. The presentation used in the 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. Instructions will be provided at that time. If at any time during the conference you need the operator, please press the star key followed by zero. Just a reminder, there will be rebroadcast of this conference call today beginning at 1:00 P.M. Eastern Time, running through May 8th. 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 Ms. Patti Poppe, President and Chief Executive Officer.
Thank you, Keith. Well, I'm sure many of you saw the news this morning. Tom Webb has announced his retirement after 15 years here at CMS Energy. Tom's shoes are awfully big to fill, so we were very discerning in our replacement. It is my privilege to introduce Rejji Hayes, our new Executive Vice President and Chief Financial Officer, joining us with a decade of experience in our industry at both Exelon and ITC, following his time at Lazard and Bank of America. Rejji is a great addition to the CMS Energy family. You know we take succession planning very seriously here. This news is just another example of how we prepare for orderly transitions of our management team. In fact, at my very first board meeting as CEO, I discussed my own potential successors.
We require that our senior executives retire at the age of 65. Tom is nearing that time. We are right on plan. Tom has been named Vice Chairman and will work with Rejji and the rest of the management team for the next six months to assure a smooth transition. We still have lots of work for Tom to do, so don't be in too much of a hurry to say goodbye just yet. We have plenty of time for that between now and November. In fact, Tom, Rejji, and I will see many of you next week during our road show. Both Tom and I have confidence, and you should too, that the team, now including Rejji, will continue to deliver the consistent financial results that you have come to expect. I'll turn the call over to Tom.
Good morning. Thank you. Thank you for joining us today. Patti, Rejji, and I are pleased to be with you today. Rejji, let me add my warm welcome to you. More to the mundane sort of things. Please keep in mind the presentation contains forward-looking statements which are subject to risk as well as uncertainties. Please refer to our SEC filings for more information regarding the risk 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 they're posted on our website. Let me turn the call back over to Patti.
Thank you, Tom. I'll be covering our first quarter results. I'll talk about our commitment to the triple bottom line of people, planet, and profit, underpinned by world-class performance, enabled by our Consumers Energy Way. Stand by, because I will also share my story of the month as always, and Tom will cover our results and outlook. We're off to a strong start for the year in spite of a mild winter and several storms. We're up $0.12 over 2016, and when we weather normalize, that's up over 20% or $0.14. We're reaffirming our full year adjusted guidance for 2017 at 6%-8% or $2.14 to $2.18. We can sustainably and consistently deliver this performance by remaining true to our stand for people, planet, and profit, underpinned by world-class performance.
When we say people, we mean our customers, our communities, our coworkers, and other critical stakeholders. Our commitment to the planet is demonstrated by our track record of going above and beyond environmental regulation to leave the planet better than we found it. We do not compromise profitability in these pursuits because we believe in the "and" around here. Our triple bottom line is made possible because we are squarely focused on world-class performance, and it underpins everything we do. Given the passage of the energy law at the end of 2016 and its implementation in flight, it's very helpful that Governor Snyder reinforced the stability and strength of our Michigan Public Service Commission by extending Chairman Talberg's term to July 2021. This was enabled by swapping terms with Commissioner Saari. The governor also reappointed Commissioner Eubanks to July of 2023.
The new law serves our customers very well and strengthens our regulatory construct in Michigan. We're working with the commission to implement several aspects, such as the new energy efficiency and waste reduction standard, the 10-month filing calendar, the 15% Renewable Portfolio Standard, and the new state reliability mechanism. In addition, we have active gas and electric rate cases, as well as our Palisades early termination securitization filing. We've asked a lot of our commission and their staff. Their continuity and experience is a real advantage, and we're thankful to have such professionals in place. We gauge our effectiveness with our customers through their feedback to us. We're proud of the improvements for both our residential and our business customers. Our customers are noticing that we're continuously improving their experience. Despite our progress, however, we are still dissatisfied.
Our customer feedback scores put us very close to the best in our industry, but are still over 200 points on a 1,000-point scale from perfect. We are in pursuit of world-class and won't be satisfied until we demonstrate excellence in every interaction with our customers and when they believe that we are, in fact, the very best. One area where our customers and others are taking note is the transformation of our generation fleet. As you can see, we've made big progress in reducing our reliance on coal for both capacity and energy by retiring more coal plants than any other investor-owned utility, investing in renewables, as well as fully utilizing our low-cost gas plants. We call this our clean and lean approach.
It seems to make sense for people that when we say clean, it reflects our commitment to the planet by replacing our coal plants with investments in renewable assets and gas plants. People do still ask us, however, what we mean when we say lean. Lean, the heart of Consumers Energy Way, reflects the commitment to waste elimination and improving our performance at the same time, not just cost reduction for cost reduction's sake. For example, we could have built a brand-new oversized gas plant to replace our coal units, but instead, we purchased a low-cost, underutilized gas plant. We are fully utilizing it now and running it really well. This saved our customers over half a billion dollars, allowed us to deploy our capital to an area of greater value, and reduced our carbon footprint simultaneously. Like all things we tackle, we serve people, the planet, and profit.
No trade-offs. Our MCV PPA expires in 2025, which may seem a ways off, but it's actually just around the corner from a generation and supply planning perspective. The replacement of that PPA will provide a great opportunity to deploy our clean and lean strategy and transition from an expensive PPA, in this case, to a single renewable capital investment, a significant renewable capital investment in the $3 billion zone at a lower cost for customers and in a modular phase-in to match demand. A great example of clean and lean. On March 8th, we experienced one of the worst wind events in Michigan's history. Approximately one in three people in Michigan were affected, and it's times like these when our team is at its best.
In fact, we had several utility executives, as well as our governor, reach out to congratulate us on our performance and ask us how we did it. We're very proud of our team for their extraordinary performance. Our customers don't hold us accountable for mother nature, but they do want to know what to expect during an outage. We are finding that they want to have frequent and accurate conversations with us during a major event. A shout-out to our customer service reps who handled over 116,000 calls during the storm, our IT team who supports our outage map, which took 355 hits per second on the first day of the storm, and our social media team who answered every single posting personally 24 hours a day on Facebook, Twitter, and Instagram. This is a new standard and capability for us, and that isn't even my story of the month.
Smart meters during storms is my story for this month. Smart meters are part of the answer to how our performance continues to improve during major events. During a separate event in April, our traditional tools told us that our Nashville-Vermontville circuit showed a full circuit lockout and 1,175 customers on that circuit were without power. Our ability to proactively ping those meters allowed for remote confirmation that only 178 of those customers were actually out of power. In the past, we would have run trucks for all those outages. Imagine the waste we eliminated by more surgically being able to determine the location of the interruptions. We would have wasted time and valuable resources needed in other areas of the restoration effort.
We were able to accurately quantify that we reduced over 3,000 hours of customer interruption and over 50 truck rolls as a result of this one circuit in one storm, thanks to our smart meters. We don't even have our meters fully deployed yet. That's scheduled to occur by year-end. The value of our investment in this cellular technology is just beginning to materialize. It's our favorite kind of capital investment, one that improves the customer experience at a lower operating cost and provides a real return to you, our investors. We have a proven track record to deliver for you in spite of the changes in the economy, storms, policymakers, and company leadership. This just confirms we in fact have a Consumers Energy Way, continuously improving everything we do. Take it away, Tom.
Hey, thanks, Patti. Thank you again for joining us today, everyone. This is our 15th year of earnings calls with consistent adjusted earnings growth averaging more than 7% a year. As usual, there are no surprises in our results. Our first quarter earnings are up $0.12 or 20%. While this includes another mild winter and record storm damage, we offset fully the challenges to deliver another strong quarter. On a weather-normalized basis, 2017 earnings are up $0.14 or 20%. You can see the favorable comparison of 2017 with 2016 first-quarter results on this waterfall chart. Operations are performing well. Our cost reductions are ahead of plan, and our enterprises and EnerBank businesses also are ahead of plan. By managing our work well, we offset the adverse weather and storm impact to $0.04 in the first quarter. The storm cost was $30 million.
Our insurance offset was $11. The O&M portion of the storm cost net of the insurance was $10 million or $0.02 a share. Cost savings of $0.08 included property tax savings of $0.03, coal plant retirement savings of $0.02, a variety of lean process improvements at $0.015, and stock-based compensation accounting benefits of another $0.015. We early adopted the new accounting standard ASU 2016-09 last year, we benefited another $6 million this quarter. This simply reflects shares added routinely as well as the higher price of our stock. Favorable rate increases, net of associated capital investment, helped another $0.02, and favorable utility sales, combined with strong business performance at enterprises, helped another $0.06. Our weather-normalized sales were up 1.2% in the quarter. Without the benefit of the leap year day in 2016, they would've been up a little more than 2%.
These sales results bode well for our full-year forecast increase of a little less than 1%. Our total year-to-year earnings improvement for the quarter was $0.12 a share again, or 20%. You can see, our progress for the rest of the year is strong. Here's how the earnings per share forecast curve looks this year. I know many of you are familiar with this curve that projects our earnings per share growth for the full year at any point during the year. We fully offset the adverse weather in the first quarter with excellent performance and look forward to strong results for the year. We were able to accelerate some attractive financing and make use of higher energy efficiency incentives that are permitted under our new energy law. Sales mix also is stronger than expected.
Other examples include continuing reductions in uncollectible accounts, in part because customer bills will be lower after the mild winter, but in part because of the continuing strong Consumers Energy Way process improvement. Our 2017 performance is a continuation of what we've done over a long period of time. Our track record of earnings per share growth has been at 7% a year after year after year. Imagine, during the last four years, we reinvested in O&M one-third of a billion dollars for our customers. Half of this was made possible by favorable weather, half by cost reductions, cost reductions much better than we originally had planned. Here's the model that makes possible a consistent 7% earnings per share growth over the last decade and the next.
With our extensive inventory of self-funded organic capital investment projects, abundant cost reduction opportunities, and a diverse economy, you can see why this works, especially with continued focus on process improvements and cost reductions. This model can continue for many years to come. Here's the customer-driven capital investment plan that's included in our model for the next 10 years. We're investing $18 billion to improve performance with better service and better value for our customers. Here's what it looks like with additional opportunities that could increase our capital investment to $21 billion. This includes enhanced gas infrastructure, grid modernization, replacement of PPAs, like our Palisades contract, and more renewables. Here you can see that the opportunity could be as much as $7 billion, reaching $25 billion of capital investment over the next 10 years.
This reflects our clean and lean strategy with more emphasis on renewables during the course of the next decade. The model is sustainable over many years and it's made possible by lean thinking and lean performance. As you can see on the left of this slide, we've been a bit of a leader in this area, and each year we come up with new and innovative ways to deliver those savings for our customers. For investors, this creates capital investment headroom. For customers, cost reductions have been and continue to be an important part of our self-funded model. There are lots of ups and downs. We include them all and deliver net savings. We don't adjust for things that do seem out of our control. Over the last decade, we've been able to reduce our O&M costs by more than 3% a year.
We've continued that over the last three years. We're projecting to continue this pace at about 2%. With our underpromise, overdeliver mentality, I'll leave the actual results a bit to your imagination. That's O&M. We eliminate waste, whether it's O&M, capital investment, or fuel, and we self-fund a portion of the investment with tax savings. Base rate increases stay low, and we grow cash flow resources to support a healthy, necessary capital structure. Over the last dozen years, our operating cash flow has been growing by more than $100 million each year. Since 2004, it's increased from $353 million to $2.1 billion last year. Over the next five years, operating cash flow will grow about $800 million to $2.9 billion. Our NOLs, bonus depreciation, and AMT credits, among several tax planning tools, help us avoid the need for block equity.
If tax reform occurs, we expect we'll still have time to use our NOLs, although at a lower rate. We also would expect to access our AMT credits early. With or without tax reform, we believe that we're in an excellent position to avoid the need for block equity to fund our planned investments for some time. We do all of this to improve the lot of our customers. We've been reducing rates rapidly. Industrial rates were 26% above our Midwest peers just a few years ago. We've reduced that by 20 points and plan to keep going. Our business electric customer satisfaction is up 22% since 2010, and we intend to improve that much, much more. Process improvements through the Consumers Energy Way make it possible. Beyond the utility, our enterprise business continues to grow. Potential upsides are shown here on this familiar slide.
We are experiencing winning bids in the bilateral market for the 2018 planning year at around $4.25 per kilowatt month. A nice upside for our plan. It's not yet then determined how much of our capacity upside, if any, may be needed for the utility, either by contract or asset sales. This is part of the assessment being conducted with our commission over the next several months. This is our sensitivity slide for the total company. We provide this update each quarter to assist you with assessing our prospects. You can see with reasonable planning assumptions and with robust risk mitigation, the probability of large variances from our plan minimized. There are always ups and downs. Already this year, property taxes are lower than we expected, and we anticipate further opportunities at other locations. The opportunity for energy efficiencies incentives are doubled under our new energy law.
Being conservative, we've included half the increase in our forecast, with, as shown here, another $0.02 opportunity yet to be reflected. The rating agencies appreciate our approach. As you can see here, both S&P and Fitch, who upgraded us last year, have stable outlooks on our credit rating. Moody's just upgraded our ratings another notch at CMS Energy and the utility. What makes this consistent improvement possible? We just stay focused on our business model. It is simple, and perhaps it's a little unique, but we believe it provides a good opportunity to continue making improvements for our investors and our customers for the decade ahead. Our organic capital investment has grown, driving our adjusted earnings per share growth to a bit better than 7% every year. Because we don't make any adjustments, our operating cash flow grows at the same pace.
Another part of our model that might be a little unique is that we work hard to reduce our O&M cost every year, not to improve profits, but rather to self-fund a good portion of our capital investment for our customers. With base rate increases at or below the level of inflation, this is a model that provides customers with improvements from investments without asking to raise their rates unreasonably. This makes the model sustainable for the decade ahead. As you can see here, this model has been recognized by many of you, our investors, and it is our intention to continue our strong business performance in a manner that improves the lot of our customers every day. We believe this can result in adjusted earnings per share growth of 6%-8% a year, a commensurate increase in our dividend, and continued healthy performance of our stock.
Here's our latest report card for 2017 and beyond. We anticipate another great year this year and for many years to come. With no big bets and robust risk mitigation, we believe our model serves our customers and you well. Few companies have been able to deliver top-end earnings growth while improving value and service for customers every year after year after year. We're pleased to have another fast start to another outstanding performance in 2017 and expect the same for years to come. Our focus on world-class performance delivering hometown service permits us to improve each and every year. We can and will continue this improvement. It's our passion for you and our customers. Thank you again for your support for the last 15 years. Thank you for your confidence in our future. Patti, Rejji, and I will leave it better than we found it.
Operator, would you please open the line?
Thank you very much, Mr. Webb. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by digit one on your touchtone telephone. If you're using the speaker function, please make sure you pick up your handset. We'll proceed in the order you signal us, and we'll take as many questions as time permits. If you do find that your question has been answered, you may remove yourself by pressing the star key followed by two. We'll pause for just a second. Our first question comes from Julien Dumoulin-Smith with UBS.
Hey, good morning, everyone, and congratulations, Tom, and welcome, Rejji.
Thank you.
Morning.
At the risk of stating the obvious, Tom, I would say your tenure has earned a smiley face.
Very-
Well-
Lots of smiley faces. We agree.
We'll toss the Starburst later.
just on the DIG side, particularly with the recent MISO capacity auction, can we just talk through kind of what your thought process is there and, you know, how this impacts DIG economics, whether it's in rate base or outside of it?
That's a good question because we actually don't have the specific answer today, but I can frame it for you. We are in the process right now that the Public Service Commission's conducting, which could have DIG providing for some of the short-term sales, and it could have DIG actually being purchased into the utility. That will depend on all the competitive bids that are out there, and it's a third-party process since it's an affiliate, it's one that's being conducted by somebody else, not by us, and we'll be watching that with great interest.
What I would tell you is we're very prepared to have DIG outside the utility because we see these opportunities that show in the yellow bar on slide 23- Where you can kind of figure out from what I said, we're approaching that $20 million upside as it is in the near couple of years. We're also happy if it ends up inside the utility through this process, because if it does, it'll go in at a fair price that's, one, good for our customers, it meets the needs of replacing the Palisades plant, saving them a lot of money, as we've projected. It'll also be attractive to investors because it would be at a profitable level, and that's the level, of course, that would be bid into that process. That gives you the framework.
If it's in the utility or if it's outside the utility, it's really a nice opportunity for us.
Yeah, that makes sense. Then just one other one. On the $25 billion upside that you guys are discussing here, would that be more focused on any particular region, distribution, gas infrastructure or supply, or kind of similar to how it's laid out in the 2018 to 2021?
Yeah, the big addition in that from our current plan to the future plan are those additional renewables that I talked about that would be as a result of the MCV PPA replacement. That's a big opportunity for us to grow our plan. That would obviously be generation resources. We still have additional substantial gas infrastructure investments to make, however, as well. What we are always working to optimize is making sure that we pick our highest value CapEx and minimize rate impacts to customers. Lower costs, really focused on affordability, and then picking our CapEx that does the balancing.
Okay, great. Thanks, and congratulations again.
Thank you.
Thank you. The next question comes from Ali Agha with SunTrust.
Thank you. Good morning.
Morning.
Morning, Ali.
Tom, also adding my congratulations on a very successful tenure and wishing you all the best for the future as well.
Thank you. You were one of the first early buys.
Thank you. First question. Patti on this or Tom as well, the $18 billion-$21 billion-$25 billion opportunity, as you look at that, in the past, as you've said many times, two of the constraints that you look at in terms of planning your CapEx are, one, customer rate impact, and two, not issuing any block equity. Keeping those constraints in mind, how much headroom do you have that you could move that $18 billion up and still keep yourself within those constraints?
Ali, I would say it like this. First of all, as we look at what grows the plan from $18 billion to $25 billion, we see these PPAs coming off that enable the CapEx without putting pressure on the affordability. In fact, it saves customers money. For example, our PPA with Palisades, we're going to save customers about $45 million a year even after we replace that PPA with new generating assets. When we look at building out the plan, we see that as the headroom creation that's required to be able to bump up the CapEx.
Okay, what about the constraint on the block equity side?
Same thing. Here's the wonderful twofer that we get out of this. When we do things that make this self-funding for our customer, it generally makes it self-funding in the cash flow as well. We get the twofer out of that because we get savings that flow through, so it protects us the need for block equity, right? It also protects us on the need for having our rates go up very fast for our customers. That's part of the and on what we're doing. I would say where we are is in great shape. Now, if we were to add $7 billion and it didn't have offsets, that'd be a different story.
That can always happen where I assume we'd have a really good project to show you, it would make good sense, you'd want to make the incremental investment, so the block equity would make sense. Today, we're pretty comfortable right where we are.
Okay. Second question, this investment recovery mechanism, IRM, that you've tried those last couple of rate cycles as well. What's the appetite that you're seeing in the state right now for that as we're going through the gas case and the electric to follow?
One of the things that came out of the energy law, Ali, that passed at the end of 2016 is a study on the part of the commission for performance-based rate making and new rate designs. A couple multi-year CapEx strategy reviews. For example, we're doing a five-year distribution modernization collaborative with the commission. I would suggest that there's interest in looking at longer term CapEx planning as it rewards customers. I would think that as we work with the commission further on having better visibility to multi-year plans, it makes it a lot easier for a commission to agree to a multi-year investment recovery mechanism. We do have one in our gas case or our gas structure today in our Enhanced Infrastructure Replacement Program. It's about $75 million annual program to replace mains and distributions. That has a true-up annually.
We've been achieving it, we're getting a good track record. I would just suggest that I think there's going to be opportunities for us to work through the commission and with the commission to modernize our rate making and give more visibility to long-term investments that reward customers.
Yeah. Last question. Tom, you alluded to this, the 1.2% growth in electric weather normalized. Not sure. It may be too early to predict a trend, anything that stood out that may be showing strength, or stronger sales than you may be expecting in any of your customer classes?
I would just say too soon. I'll give you the facts, you know us, we're pretty conservative. We saw for this quarter a nice uptick on residential. You can see it in the data that's just below 1%. We saw commercial up almost 3%, industrial was kind of flat. We know the industrial side. We know who the extra people are that are hooking up or who was down, we're still comfortable with our guidance for the year on the industrial side, that's around 4% growth. We are not putting into our full-year forecast this uptick that we're seeing on residential and commercial. We're still going to show those as down. We may be wrong, it's my theory in life, one quarter does not make a year, especially when you're looking at sales.
I'd like to get another quarter under our belt, see what's really happening before we make any upside adjustments to that. Our full-year forecast is still in that zone of something between half a percent and 1%. I would make a note that I was surprised. Somebody called us and asked us about the leap year day last year. We don't really pay a lot of attention to those sort of things, we checked it out and we said, "Oh, yeah." The uptick that we saw in the first quarter, 1.2%, if you adjust out the leap year from last year, the day, it's 2.3%. I would caution everybody, please don't get too excited about the sales. We're pleased. It's helpful. Let's see how it goes.
Understood. Thank you.
You bet.
Thank you. The next question comes from Michael Weinstein with Credit Suisse.
Hey, Mike.
Hi. Hey.
Good morning.
Congratulations, Tom, Rejji. I expect to see Tom's face on the next world-class bottle of wine coming out of Napa.
Maybe on one of those coins that we give out. We'll put his face on that.
Or your bottle covered with stars and smiley faces, as Julien said.
Thank you, Julien.
How much cheaper does wind turbine technology need to get to make the plan to replace MCV economically viable without tax credits? Then what are the next steps you have to take with regulators to roll this into the formal capital plan?
With the tax credits, we're very comfortable that this is a profitable enterprise for us, and it's cheaper for our customers. Without the tax credits, it's a closer call. What we don't have factored into our thinking is, will the turbines get better? Will they be more efficient? Remember, a lot of these that we're talking about are something for years five, six, seven, eight, nine, and ten. We're further out. We're a long ways out. For some of those opportunities, we may see some technology improvements that eventually make that tax credit not needed. I cannot tell you that is in hand today at the capacity factors that we look at. There are some people with capacity factors down in the Oklahoma Panhandle and maybe up in Montana, which are making that pretty close.
I'd say in our neck of the woods, we have some more work to do. I think maybe for the commission and the process that we would follow, I'll pass that over to Patti for a couple of comments.
Yeah. We think that working with the commission and looking at the Renewable Portfolio Standard, as well as some renewable rate packages for industrial customers. We will be launching on May 12th, a proposal with the commission for a renewable tariff for our large business customers. One of the interesting things with renewables right now that we're observing is that our large industrial customers, particularly those that are brand-facing, are very interested in us working with them to provide renewables. For example, General Motors, our Switch data centers, they've made public commitments to 100% renewables, and they want those renewables to be additive. Our Cross Winds 2 expansion that we're underway right now is going to be fulfilling the needs of Switch for the data center that they built in Grand Rapids to provide the additive renewable generation to serve their load.
We do think that there will be rate-making that goes into the formula as well. It's an exciting time, and I do think our clean-and-lean strategy is well-placed with the demands of customers, their desires, as well as the ability to replace our high-cost PPAs right now.
Great. Thanks. Also, safe to say with DIG contracting at about $4.25 a kilowatt month, is it fair to say that you're relatively unaffected by the recent low MISO capacity auction results?
Yeah. Here's what I would say about the MISO auction. I'm sure there are others who have questions about the MISO auction, this is what we observe, that the low cost or the low price in that MISO auction tells us a couple things. One, it says that MISO is predominantly regulated, there was definitely a low-price bidding strategy. However, I think it also is fair to say that a one-year forward auction is not a good telltale for generation planning and resource adequacy. Last year's Zone 7, as you all know, was at $72 a megawatt day. When we compare that obviously to this year's $150, we saw more energy efficiency and demand response. We'll be studying Zone 7 more in detail specifically. What it tells us is that it's not a good planning tool. It can be a red flag.
It can be a warning bell, but it's a warning bell that's too late. We're very grateful that we passed the energy law at the end of 2016. We really thought the FERC was going to approve the MISO three-year auction, when they didn't, it was great that the energy law had gone into place, because it provides the three-year visibility. In fact, four years of visibility for both the utilities and the alternative energy suppliers for who's providing the load. The transparency, the forward-looking nature of the process that's been put in place by the Commission is going to serve a much better forward-looking telltale than the MISO auction currently does.
That's great. Thank you very much, I look forward to working with you again, Rejji.
Thank you. Me too.
Bye.
Thank you. The next question comes from Greg Gordon with Evercore ISI.
Thanks. Good morning all. Hey, Reggie.
Hi, Greg. How are you?
Congratulations. Really, seriously well-deserved move on to your next big Bordeaux winery. A question again on the RFP for a new gas plant. Are the potential bidders, do they all have to be Michigan-based facilities, or can someone choose to bid by wheeling power into the state? If so, does that mean essentially that DIG is theoretically competing against new builds since there's basically no other plants in the state that are open capacity?
Obviously the results aren't complete yet. We will see. If someone were to build something out of state, they'd have to have proven transmission that they could import. So there are certainly limits to that currently, and constraints on how much can be imported into Zone 7, which is Michigan's Lower Peninsula. DIG is obviously a viable candidate. We'll see how it stacks up against the other offers. Like in the past, if there's a more economic solution for customers, we'll take it. We'll use the data to make a good decision.
Okay. Then at what point do we get sort of a definitive regulatory timeline for the next phase of looking at MCV? I know you've chosen now as the time to sort of articulate that transition and that opportunity. Why are you articulating that to us now? In other words, how close are we to starting down the path of trying to find that solution?
Yeah. 2025 does feel like a long time away. That's when the contract expires. However, we have to plan for that. We're always doing forward-looking planning, as we build out that generation strategy, and we're really trying to explore what are the limits to clean and lean. We see this as a key. It will be the big next step change for us in generation replacement. So as we looked at does clean and lean hold when you're looking at 1,200 megawatts of a gas PPA, we can see there's real potential that it could. We're just trying to reinforce that we really are serious about this generation replacement strategy. We're obviously deploying it currently on the PPA from Palisades. If we have any other short-term plant closings of our own fleet, we would also deploy it there as well.
So, we're always looking, but we want to make clear that there are future opportunities that just continue to strengthen this business model for the next decade. I think a lot of people might struggle to have a 10-year CapEx plan, so we like to be sure that you all are clear that it's legit. We have a legitimate plan for the 10-year time horizon that we can see that meets both the CapEx demand and the affordability commitment that we have for customers.
Okay. That's very clear. Thank you.
Thanks, Greg.
Thanks, Greg.
Thank you. The next question comes from Jonathan Arnold with Deutsche Bank.
Good morning, guys, and congratulations, Tom, and welcome back, Reggie.
Thank you, Jonathan.
Morning, Jonathan.
Morning, Patty. Quick question on MCV and the replacement. Looking back at some of the 10-K disclosures, it looks like you're probably paying between energy and capacity somewhere around over $60 a megawatt hour. Today, is that number roughly right?
The best way to think about it is look at what we're paying on Palisades, they're pretty similar. It's a capacity issue in terms of pricing more than it is an energy sort of issue. It's why, to the prior call, we've started talking about it, because it's just in that 10-year horizon. We think that we need to at least do a heads-up. It's early. This is way early in the game, I think, to see any transactions around that.
Okay. I was curious, Patti, you mentioned that one of the appeals of doing wind here is that it could be modular to sort of feather in with demand. Given that you'd be replacing a PPA, why would that be a feature of how you'd want to see this?
What will be interesting in 10 years is what's our load and what's our demand, will it match up exactly where we are today? Will it be more than where we are today, or will it be less as efficiency of motors and equipment and lighting? Does it change our mix? This whole lean idea that we would build to match more closely to demand, I think is different, I feel a need to continue to just kind of explain it and reinforce that the idea here, in the past, the traditional utility model, you build a big generating plant, you grow into it. Your CapEx is tied up. Your operation has a big project that they're tied up in, you're waiting to grow into the full utilization of that asset.
In a mature industry like ours, the idea of having underutilized major capital investments feels counterintuitive to what we've seen in other industries. The idea that we would right size our assets to match the actual demand so that our capital is available to be deployed to other areas, since we have ample need for CapEx in other parts of our system, it really is the leanest way to both deploy capital and provide the generation match to demand.
Great. That's helpful. Thank you. Could I just ask, what's your best guess as to how this would look? Do you have sites that you'd be looking to develop? Obviously, you'll look to do the best deal for customers, but is this something you'd kind of hope to have under rate base with sites you already have in hand as at least one of the options?
Yeah. We saw when we did our RFP for our Cross Winds expansion, that we were our lowest bidder. That helped us really realize that we are competitive in the building of generation. We can stay true to our commitment to customers to be the low-cost provider. Given that, we would want to build our own because we've proven ourselves competitive. Obviously, citing this volume of wind turbines, if we assume current technology, we're talking about 900 wind turbines. It would take new sites beyond what we have today. Here's the good news. First of all, in Michigan, we have I don't know if you've been in Northern Michigan, but there's a lot of land, and there's a lot of areas. We need to complete wind studies, and confirm the best places.
We would not rule out doing outside state generation with transmission if that was more viable for customers. It is really early, Jonathan. We've got a lot of time, and technology can really evolve. There's a lot of things that could happen between here and there. As a placeholder, we think that it passes the sniff test of possibilities.
Great. Thanks. Then if I just could on, you mentioned, I think, that you'd been selling at $425 a kilowatt month for 2018 off of DIG. Has that been since the recent 2017 auction print, or was that kind of prior to that?
Both. Both prior and after.
Great. Okay.
Yeah. We see the bilateral markets as a much better indicator of how tight the market is. That's why we say the MISO auction is interesting, and it can be a warning bell, but it's not a very good indicator of where the market really is. The bilateral market is a much better indicator.
Great. Well, thank you very much. Congratulations to all.
Thanks, Jonathan.
Thanks, Jonathan.
Thank you. The next question comes from Travis Miller with Morningstar.
Good morning. Thank you.
Morning, Travis.
When you think out to that 10-year type period, what kind of regulatory changes might you either imagine or hope for?
Well, I think the idea that we would have longer-term capital planning with our Commission, that there might be opportunities for performance-based riders, that with given our Consumers Energy Way, we'd have total confidence in being able to stack up our performance, our operational performance to anybody, and any standards that would be set. We think that potentially that would be some transitions from our current regulatory model. I could imagine pricing changes in rate design versus a per unit based pricing. Maybe there's a different way to do pricing in this business. When you're asking me long-term, 10 years out, that's what I'm looking at. Short-term, we've got a strong regulatory construct in Michigan. We've got a great law that was passed in December. We're in the process of implementing it. As I mentioned in the call, there's a lot of work on the Commission's plate.
Frankly, just implementing the current law is going to keep us busy for a good several years. We are looking long-term, and I think that's one of the strengths of this Commission, that they are long-term thinkers. The extension of their terms enables them to think long-term, and that's exciting, and I think it is a big strength for us here in Michigan.
Okay. Yeah. Now when you think about the relationship between O&M and CapEx, what does that generally look like going forward? As you build things, you need workers to some extent, but what does that kind of link look like?
Well, I think I'd encourage you to look at the total picture of what makes up a customer's price, which includes, obviously, CapEx and O&M, but also fuel. When we look at the total cost for customers, we think there's big opportunity to further reduce O&M as we have a great track record to do, and we see lots of runway there, particularly with the implementation of our Consumers Energy Way and technology advancements like smart meters, and any grid modernization we might do. We see O&M reducing enabled by CapEx, but we also see some fuel cost reductions and PSCR and GCR reductions that enable affordability for customers. I think there's a total mix there that's important to take a look at.
When we compare CapEx projects, my favorite kind of CapEx is when we can improve safety, reliability, and reduce cost at the same time. That's a winner for us on our lists.
I think Patti's being a little humble about the third measure on CapEx itself. We're finding productivity measures every day where we can reduce that. Now, for a normal utility, that sounds awful. For us, that sounds wonderful because we have so much organic CapEx catch up to do. We're going across all three, O&M, fuel, and capital investment productivity is a great goal for us.
Great. Makes sense. Thank you very much.
Thanks, Travis.
Thank you. The next question comes from Paul Ridzon with KeyBanc.
Good morning and congratulations, Tom and Reggie.
Thank you.
Hey, good morning, Paul.
Morning, Patty. Any early reads into recent Trump administration tax language with regards to interest deductibility?
Early worthwhile leads? No. What I would say is he's come out with this broad look a week ago, which is still at the 15%. That's seemingly to be this idea of reaching a little further and compromising. There's a lot more detail with people talking, but I don't think people are close enough yet to have something in Washington that's viable enough yet for us to give you any more than we already have in the last call. At EEI, we're trying to protect ourselves from the loss of the interest deduction, and we're trying to avoid the asset expensing, all for good reasons. I would just tell you, if we're successful at that's great for our company.
If we're not successful at that, this is still great for our company because we have the backfill of the CapEx, and we have the little EnerBank to offset the interest expense hurt that would come on the parent side. Tax reform to us is something that it'll be tricky because it'll be a lot of movement, but we feel good about everything we've seen so far. Pick your direction. I'm really not able to say we really think this is the way it's going to go, because I don't think anybody in Washington has got it figured out either.
I'm not sure what your maturity schedule looks like, but would you consider refinancing some debt early in case the way the law is written that it's prospective debt, and you can kind of get that refinanced prophylactically?
Well, we already do sort of pre-fund on the parent side for two and three years out. We sort of do that, and that's where your question's going, is on the parent side more so, I think, than the utility. We have looked at a program where we could take three or four years' worth of maturities, refinance them, because economically, it would be attractive before any tax reform measures. That may cause us to think about that. It's kind of on our opportunity list, but it's not high enough yet for us to have raised it and chatted about it. It's always a possibility, though.
Okay. Thank you.
You're welcome.
Thanks, Paul.
Thank you. As there are no more questions at the present time, I would like to return the call to Ms. Poppe for any closing comments.
Great. Thank you. Thanks everybody for joining us on the call. As I mentioned earlier, Tom, Reggie, and I look forward to seeing many of you when we hit the road next week following our board of directors meetings this week here in Jackson. Thanks so much for joining, everybody.
Thank you. This concludes today's conference. We thank everyone for your participation.