Cms Energy Corporation · NYSE:CMS
Cms Energy — Investor Presentation (November 2018)
54 slides from Cms Energy's investor presentation, November 2018
Slide 1: Investor Meetings November 2018
Investor Meetings November 2018 FOCUSED ON WORLD CLASS PERFORMANCE
Slide 2: Forward-looking statements
This presentation is made as of the date hereof and contains “forward-looking statements” as defined in Rule 3b-6 of the Securities Exchange Act of 1934, Rule 175 of the Securities Act of 1933, and relevant legal decisions. The forward-looking statements are subject to risks and uncertainties. All f
Slide 3: CMS Overview
CMS ENERGY CMS Overview
Slide 4: CMS Energy Overview
CMS Energy Overview Corporate Structure Key Information CMS Energy 2017 Financial Statistics (NYSE: CMS) Based in Jackson, MI Employees (40% unionized) Consumers Energy Enterprises EnerBank Revenue 2017 Adjusted net income a Avg. Rate Base 94% of Operating Dividend payout ratio a Income Gas $4.6 Bn
Slide 5: CMS' Performance Exemplifies People, Planet, Profit
CMS’ Performance Exemplifies . . . PEOPLE PLANET PROFIT a • Safest year on record • #1 Company in Michigan in • 15 years of +7% EPS Newsweek’s ‘Green growth • #1 Diverse Utility in the 2017 Rankings’ Nation and #1 Employer for • Raised dividend 7% YOY, Among Diversity in Michigan by • Highest
Slide 6: Consumers Energy
Consumers Energy . . . Overview • 4th largest combination utility (electric and gas) in the country • 2017 revenue = $6.2 billion • 2017 earnings = $630 million Our Service Territory • Electric Utility 1.8 million electric customers 8,455 MW of capacity • Gas Utility 1.8 million gas customers 309 bc
Slide 7: CMS Enterprises
CMS Enterprises . . . DIG & Peakers Renewable Platform • ~1,000 MWs of gas plants in MI • Existing: • Long-term energy tolling • 27 MWs of solar and agreements 64 MWs biomass • Just announced: • Shorter-term bilateral capacity • 105 MWs of wind in Ohio contracts • 15-year PPA with GM • Upside: tight
Slide 8: Compelling Investment Thesis
Compelling Investment Thesis . . . Aging Infrastructure Strong Cash Flow & Balance Sheet Diversified Service Territory Affordable Prices Constructive Regulation . . . adaptive to changing conditions. 8
Slide 9: Large and Aging System
Large and Aging System . . . Electric Gas distribution distribution system replacement system is plan: 25 years, older than peers 27,000 miles Age of coal fleet is more 1,670 miles of gas than transmission pipeline; most 50 years built in the WWII era . . . requires significant customer investment.
Slide 10: Gas System Investment
Gas System Investment . . . Compression and Storage Electric $½ Bn Dist. Gas $3½ Bn Infra. & Maint. $5 Bn #1 Underground Supply storage $1½ Bn Transmission #5 Transmission $2 Bn #5 Distribution miles miles Distribution $2½ Bn U.S. LDC Rank, Source: DOT . . . has increased more than 60% over the last
Slide 11: Electric System Investment
Electric System Investment . . . Electric Supply Dist. Gas $1½ Bn $3½ Bn Infra. & Maint. $5 Bn Supply $1½ Bn HVD System $½ Bn LVD System $2½ Bn Substations $½ Bn . . . consists of needed and modular projects. 11
Slide 12: Clean and Lean
Clean and Lean . . . Old Utility Model Clean And Lean Big Build Supply Supply Fully utilize Modular Retirement assets Excess supply Big Excess Build supply Modular Actual Modular Demand Demand EE & DR Excess O&M O&M supply Expected Demand Fuel Fuel Big Bets Lower Risk Results in excess capacity, hig
Slide 13: Michigan Offers Premium Regulatory Environment
Michigan Offers . . . Premium Regulatory Supportive Policy Tier Michigan • Economic growth (tax policies, 1 6 2013 - Present skilled labor, balanced budgets) 2 10 2012 • Forward-looking test year (10-month rate case) 2008 3 19 • Energy efficiency incentive (20% of spend) 4 10 • Attractive renewable
Slide 14: Simple, Perhaps Unique Model
Simple, Perhaps Unique Model . . . Plan a EPS Growth 6% - 8% Self Funding: - Cost reductions 2 - 3 pts - Sales (continued economic development & EE) 1 - Other (Enterprises, tax planning, etc.) 2 INVESTMENT SELF-FUNDED 5 - 6 pts Customer Prices “at or below inflation” < 2% _____ a Adjusted EPS (non-G
Slide 15: Customer Investment Plan Skewed
Customer Investment Plan Skewed . . . Large and Aging System Rate Base Growth Electric Gas 7% $21 Bn CAGR $15 Bn 60% 70% 40% 30% 2017 2022 . . . towards gas investments. 15
Slide 16: Cost Reduction Strategy
Cost Reduction Strategy . . . Capital-Enabled Gas Replacements Pole-top Hardening Clean & Lean Structural/ Technology-Enabled Process Changes Smart Grid Mobility CE Way PPAs Customer Benefits • Safety Digital • Reliability Retirements • Better Service • Affordable Bills . . . largely funds customer
Slide 17: Our Entire Cost Structure
Our Entire Cost Structure . . . Cost Components Residential Electric Bills a (current dollars) 100% 100% $106 $100 90% Coal to 80% Gas / PPA Down 6% Fuel and Power Costs 70% ~70% 60% ~70% 2013 2018E $10½ Bn Customer Residential Gas Bills a 50% O&M Costs Investment 40% (2013-2018E) (current dollars)
Slide 18: Economic Development Efforts
Economic Development Efforts . . . Our Service Territory Outperforms a New Load Grand 6% of Sales Rapids Michigan U.S. ~2,000 Gwh Building permits b +208% +161% +123% Near-Term GDP Growth 32 21 17 Pipeline 2010 2017 2018 (est) Population Growth 7 1 5 2010 2017 2017 Unemployment 2.7 4.1 3.9 (August 2
Slide 19: Credit Metrics Maintained
Credit Metrics Maintained . . . S&P / S&P Moody’s Fitch FFO / Average Debt a Fitch Moody’s (Dec. ‘16) (Jun. ‘18) (Jul. ‘18) AA- Aa3 A+ A1 19% Consumers A A2 Secured ~18% A- A3 BBB+ Baa1 BBB Baa2 17% BBB- Baa3 < 30% HoldCo Debt BB+ Ba1 BBB+ Baa1 BBB Baa2 CMS Unsecured BBB- Baa3 BB+ Ba1 BB Ba2 Present
Slide 20: Managing Work Every Year
Managing Work Every Year . . . a 2010 2011 2012 2013 2014 2015 2016 2017 EPS $2.20 Weather & Storms +7% Mild $2.00 Summer +7% Cost +7% productivity above plan Cost Cost $1.80 +7% productivity productivity above plan Reinvestment Storms Hot Mild Reinvestment Summer Winter +7% $1.60 RECORD Hot WARM Of
Slide 21: CMS' Trading Performance
CMS’ Trading Performance . . . Stock Performance Total Shareowner Return a b CMS CMS UTY UTY S&P 500 S&P 500 200% 150% 172% 289% 100% 82% 129% 50% 19% 0% -50% 49% 17% -100% '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 ‘17 1 Year 3 Year _____ 5 Year 10 Year _____ a 10-year stock performance as of December
Slide 22: Top of Mind
CMS ENERGY Top of Mind
Slide 23: Top of Mind
Top of Mind . . . • Regulatory Update • Michigan Elections • Integrated Resource Plan • Renewables Expansion • Tax Reform • Q3 Earnings and 2018 . . . People, Planet, Profit. 23
Slide 24: Long-Term Regulatory Planning
Long-Term Regulatory Planning . . . 2018 Today 2019 Regulatory / Policy order 2/22: Tax reform 6/15: Filed long-term generation plan (IRP) U-20165 6/28: Credit A order for 7/24: Credit A order for Electric Q2: Expected IRP order U-18494 Gas Utility Utility $113 MM U-20165 $49 MM Electric
Slide 25: Gas Investment Needs
Gas Investment Needs . . . Upcoming Gas Projects Benefits ~ 140 ~ 950 Miles Safety Miles Main Replacements Pipeline Integrity Customer Experience ~ 60 Leak Reduction Miles 25,000 Saginaw Trail Vintage Service Lines Increased Capacity . . . prioritize safety, reliability and affordability. 25
Slide 26: Best-in-Class Commission
Best-in-Class Commission . . . MPSC Commissioners Backdrop • Appointed by the Governor Sally Talberg (I), Chair (not elected) Term Ends: July 2, 2021 • Chair selected by the Governor Norm Saari (R) Term Ends: July 2, 2019 • Staggered six year terms, spaced two years apart Rachael Eubanks (I) Term En
Slide 27: Michigan Political Environment
Michigan Political Environment Gubernatorial Election Senate Democrats: 10 Vacant Seat: 1 Republicans: 27 Democrat Republican 38 4-year terms, concurrent with Governor’s term, 2-term limit Gretchen Whitmer Bill Schuette House of Representatives Democrats: 47 Republicans: 63 Key Issues: Energy policy
Slide 28: Filed Integrated Resource Plan
Filed Integrated Resource Plan “IRP”. . . Clean and Lean Overview No Certificate of File Date: June 15, 2018 Necessity Required Supply Expected Order Date: Q2 2019 < 225 MW Modular Case No.: U-20165 Fully utilize assets Capital Investment Opportunities: • No Change to 5-year, $10 Bn Plan (IRP includ
Slide 29: Modeling Scenarios
Modeling Scenarios . . . Business as Environmental Emerging Usual Policy Technologies • Sustained low natural • Stringent carbon • Technological gas prices and regulations advancements and Model electric demand economies of scale Selection • No carbon regulation Always Energy Efficiency Solar an
Slide 30: Industry-Leading Climate Goals
Industry-Leading Climate Goals . . . . . . breakthrough thinking for our planet. 30
Slide 31: Protecting Michigan's Environment
Protecting Michigan’s Environment . . . Reducing Carbon Emissions Adding Renewable Energy (Since 2005) 43% Today 2024 2032 2040 50% 0 Renewables Karn Campbell Campbell 1&2 1&2 3 Retirement Retirement Retirement (2023) (2031) (2039) 38% cv 25% -50 ~45% 15% RPS By 2022 ~70% > 90% 0% -100 % '21 '24 '27
Slide 32: Future Capacity Resources
Future Capacity Resources . . . Near-Term Plan Long-Term Plan 1,500 5,000 (ZRC) Customer Savings (ZRC) a ~$30 MM Other Small Battery Existing PPAs and Surplus Load Growth Karn 1 & 2 Solar REP (2023) Plan Campbell 3 Wind (2039) Energy Solar 6,000 MWs Efficiency Karn 3 & 4 (2031) Filer City Backfill C
Slide 33: Expanding Our Renewable Portfolio
Expanding Our Renewable Portfolio . . . New Utility Wind Renewable Tariff Enterprises Gratiot Farms Wind Cross Winds® II Northwest Ohio Wind • 150 MW • 35 MW • 105 MW • In Service: 2020 • Fully subscribed by • 15-yr PPA with GM • Helps achieve 15% Switch & GM with • Largely contracted RPS by 2022 co
Slide 34: Tax Reform – Three Step Approach
Tax Reform – Three Step Approach . . . Step 1: (Credit A) • Filed to determine forward-looking customer credit to adjust for tax reform • Gas Utility filed Mar. 30th • Electric Utility filed Apr. 30th • MPSC approval within 90 days of all filings Step 2: (Credit B) • Filed to determine catch-up cust
Slide 35: Financial Information (Q3 Earnings Call)
Financial Information (Q3 Earnings Call)
Slide 36: EPS Results and Guidance
EPS Results and Guidance . . . a First nine months 2018: at $1.93 up 16% from 2017 2018 Full-year guidance raised: • to $2.31 - $2.34, up 6% to 8% 2019 Full-year guidance introduced: • at $2.46 - $2.50, up 6% to 8% Future long-term annual growth: • at 6% to 8% _____ a Adjusted EPS (non-GAAP) . . . u
Slide 37: 2018 YTD Performance
2018 YTD Performance . . . Results By Business Segment 2017 2018 b Year-to-Date EPS – (GAAP) $1.65 $1.94 EPS a Adjustment 0.01 (0.01) Utility $2.02 Adjusted (non-GAAP) $1.66 $1.93 Enterprises 0.11 16% Interest & other (0.20) a Weather-normalized $1.84 $1.73 CMS Energy $1.93 Third Quarter EPS – (GAAP
Slide 38: 2018 EPS
2018 EPS . . . a First Nine Months Three Months To Go +27¢ (13)¢ - (10)¢ 6¢ $2.31 - $2.34 3¢ 6% - 8% $2.17 42¢ Absent (24)¢ (6)¢ 1¢ 2017 (8)¢-(5)¢ Reinvestments: Safety 3¢ Reliability 7 Employee/ customer 4 Debt pre-funding 4 Other 6 Total 24¢ YTD YTD $1.93 $1.66 2017 Weather Cost Savings Rates and
Slide 39: Operating Cash Flow Generation
Operating Cash Flow Generation . . . Amount (Bn) ~$9 Bn in aggregate $ 2.2 1.95 1.85 1.7 1.75 1.7 1.65 1.65 $3.3 Bn Aggregate 1.2 despite timing of tax benefits 0.7 Investment 0.2 (0.3) Cash flow before dividend (0.8) 2017 2018 2019 2020 2021 2022 NOLs & credits $0.6 $0.4 $0.3 $0.3 $0.3 $0.2 . . . r
Slide 40: 2018 Financial Targets
2018 Financial Targets . . . 2018 Long-Term Plan Adjusted EPS (non-GAAP) $2.31 to $2.34 +6% to +8% +6% to +8% Operating cash flow (MM) $1,650 Up $100/yr a Dividend payout ratio (non-GAAP) ~ 62% ~ 62% Customer price Electric (1)% ~ 2% Gas (3)% ~ 2% FFO/average debt (non-GAAP) ~18% ~17% - 19% Customer
Slide 41: 2018 Sensitivities
2018 Sensitivities . . . Full Year Impact Sensitivity EPS OCF (MM) Sales a • Electric (37,477 GWh) + 1% + 6¢ + $ 20 • Gas (303 Bcf) + 5 + 9 + 40 Gas prices (NYMEX) + 50¢ – 0 – 55 + + Order Utility ROE (planned) received • Electric (10.1%) + 10 bps + 1½ + 6 3/29 • Gas (10.1%) + 10 + ½ + 3 Order on se
Slide 42: DIG (750 MW) & Peakers (200 MW)
“DIG” (750 MW) & Peakers (200 MW) . . . Pre-Tax Income Opportunities (MM) $ 80 $75 70 Contracts (layering in over time) 60 $55 +$40 50 $45 Better +$20 40 Performance $35 $30 30 Better Performance 20 $12 10 Outage Pull-ahead 0 2015 2016 2017 2018 Future Capacity ($/kW-mth) ≈ $1.00 ≈ $2.00 ≈ $3.00 < $
Slide 43: GAAP Reconciliation
GAAP Reconciliation
Slide 44: Reconciliation of Non-GAAP FFO to Average Debt Ratio
CMS ENERGY CORPORATION Reconciliation of Non-GAAP FFO to Average Debt Ratio (Unaudited) FUNDS FROM OPERATIONS In Millions Year Ended 12/31/17 Net Cash Provided by Operating Activities $ 1,705 Reconciling item: Securitization amortization and other 10 Funds From Operations (FFO) – Non-GAAP $ 1,715 AV
Slide 45: Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income by Quarter
CMS ENERGY CORPORATION Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income by Quarter (Unaudited) In Millions, Except Per Share Amounts 2017 1Q 2Q 3Q 4Q YTD Dec (1) Net Income Available to Common Stockholders $ 199 $ 92 $ 172 $ (3) $ 460 Reconciling items: Electric utility and gas util
Slide 46: Reconciliation of GAAP EPS to Non-GAAP Adjusted EPS by Segment
CMS ENERGY CORPORATION Reconciliation of GAAP EPS to Non-GAAP Adjusted EPS by Segment (Unaudited) In Millions, Except Per Share Amounts Three Months Ended Nine Months Ended 9/30/18 9/30/17 9/30/18 9/30/17 Electric Utility Reported net income per share $ 0.70 $ 0.63 $ 1.65 $ 1.40 Reconciling items: R
Slide 47: Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income
CMS ENERGY CORPORATION Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income (Unaudited) In Millions, Except Per Share Amounts Three Months Ended Nine Months Ended 9/30/18 9/30/17 9/30/18 9/30/17 Net Income Available to Common Stockholders $ 169 $ 172 $ 549 $ 463 Reconciling items: Disco
Slide 48: Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income by Quarter
CMS ENERGY CORPORATION Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income by Quarter (Unaudited) In Millions, Except Per Share Amounts 2018 1Q 2Q 3Q Net Income Available to Common Stockholders $ 241 $ 139 $ 169 Reconciling items: Electric utility and gas utility - - - Tax impact - - -
Slide 49: Earnings Per Share By Year GAAP Reconciliation
CMS ENERGY CORPORATION Earnings Per Share By Year GAAP Reconciliation (Unaudited) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Reported earnings (loss) per share - GAAP ($0.30) $0.64 ($0.44) ($0.41) ($1.02) $1.20 $0.91 $1.28 $1.58 $1.42 $1.66 $1.74 $1.89 $1.98 $1.64 Pre
Slide 50: Weather Impact on Year Over Year Earnings
CMS ENERGY CORPORATION Weather Impact on Year Over Year Earnings (Unaudited) In Millions, Except Per Share Amounts Nine Months Ended 9/30/2018 9/30/2017 Change Net Income Available to Common Stockholders $ 549 $ 463 $ 86 Reconciling items: Restructuring costs and other 1 3 (2) Tax impact (*) (1) 1 G
Slide 51: Weather Impact on Year Over Year Earnings
CMS ENERGY CORPORATION Weather Impact on Year Over Year Earnings (Unaudited) In Millions, Except Per Share Amounts Three Months Ended 9/30/2018 9/30/2017 Change Net Income Available to Common Stockholders $ 169 $ 172 $ (3) Reconciling items: Restructuring costs and other * 1 (1) Tax impact (*) (*) (
Slide 52: Consumers Energy Reconciliation of Cost Reductions
CONSUMERS ENERGY Reconciliation of Cost Reductions 2006 2016 (mils) (mils) CAGR 2006-2016 Maintenance & Other Operating Expenses (GAAP) $ (1,179) $ (1,090) -0.8% Less: Gas & Energy Efficiency -2.7% Other 0.5% Total Adjustments -2.2% Cost Reductions (3% a year) -3.0% CONSUMERS ENERGY Reconciliation o
Slide 53: Reconciliation of GAAP O&M to Non-GAAP O&M
CONSUMERS ENERGY COMPANY Reconciliation of GAAP Operations & Maintenance to Non-GAAP Operations & Maintenance (Unaudited) In Millions Twelve Months Ended 2017 over 12/31/2013 12/31/2017 2013 GAAP O&M $ (1,174) $ (1,113) -5% Less: 152 202 Restructuring Costs & Other -6% Adjusted Non-GAAP O&M $ (1,022
Slide 54: Reconciliation of Annual O&M Spend
CONSUMERS ENERGY Reconciliation of Annual O&M Spend 2016 (mils) Maintenance & Other Operating Expenses (GAAP) $ (1,090) Less: Energy Efficiency & Other $ 142 O&M Spend $ (948) Rounded $ (950) 54