Cms Energy Corporation · NYSE:CMS
Cms Energy — Barclays Mini-Conference 2016
30 slides from Cms Energy's conference presentation, Dec 13, 2016
Slide 1: Barclays Mini-Conference December 13, 2016
Barclays Mini-Conference December 13, 2016 Palisades Gas Pipeline
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: Recent Updates
Recent Updates . . . . a A. Raised 2016 guidance to high-end of 6% to 7% range to 7% B. Buy out Palisades PPA C. Raised 10-year capex guidance - By $1 billion to $18 billion (2018-2027) a D. EPS guidance at 6% to 8% for 2017 and beyond E. Potential tax reform with positive impact F. Model unchanged
Slide 4: EPS Guidance
EPS Guidance . . . . a EPS $2.10 a +7% Average growth per year $2.02 +7% $1.89 $2.00 +6% $1.77 $1.87 $1.99 $1.85 $1.66 $1.78 $1.73 $1.55 $1.66 Not in Plan $1.63 $1.45 $1.55 Updated Law $1.36 $1.52 Capex Opportunities $1.44 Big Bets $1.35 Original guidance 0 2010 2011 2012 2013 2014 2015 2016 __
Slide 5: 2016 EPS Outlook
2016 EPS Outlook . . . . Adjusted EPS (non-GAAP) Warm Summer Mild October Non- weather 6¢ Weather +7% 14¢ Weather & Recovery Storms Pension “Yield Curve” 5¢ Choices Enhanced Capitalization 3 2017 “Pull Aheads” 2¢ ‘15 Pension Contribution 2 Debt Pre-funding 5 Improved “UAs” & Other 3 Foundation & Low
Slide 6: Managing Work Every Year
Managing Work Every Year . . . . a 2008 2009 2010 2011 2012 2013 2014 2015 EPS Mild $2.00 Summer +18¢ +17¢ Cost +7% productivity above plan $1.80 +7% Offsets Reinvestment +13¢ +7¢ -13¢ Reinvestment Hot +7% Summer Mild RECORD $1.60 Winter Hot WARM Summer +7% Cost -9¢ productivity Reinvestment above p
Slide 7: Early Termination of Palisades PPA
Early Termination of Palisades PPA . . . . PPA Cost (mils) Contract Customer ~$45 mil Key Points $450 price-to- Savings per year Consumers • PPA to terminate in 2018 (vs 2022) 400 • Savings shared with owner, and our 350 customers (50/50) 300 • Contingent on MPSC approval 250 Market • Securitization
Slide 8: Increasing Capital Investment by $1 billion
Increasing Capital Investment by $1 billion . . . . 2016 - 2025 2018 - 2027 $17 billion $18 billion Incremental Capex • Gas main replacement • Supply replacement Future Opportunities Electric Gas • More gas Infrastructure & Infrastructure & Electric infrastructure Gas Maintenance Maintenance Infrast
Slide 9: Potential Tax Reform
Potential Tax Reform . . . . Assumptions CMS Impact • Federal tax rate 35% to 15% Utility – Lower rates for customers – Headroom for needed, new organic investment • Net interest expense not deductible Enterprises – Improved earnings & cash flow • 100% asset (investment) expensing Parent – Interest
Slide 10: Simple, Perhaps Unique Model
Simple, Perhaps Unique Model . . . . 2017+ Plan Capital investment (reliability, costs, enviro mandates) 6% - 8% Self Funding: - O&M cost reductions 2 - 3 pts - Sales growth 1 - No “block” equity dilution & other 2 INVESTMENT SELF-FUNDED 5 - 6 pts Rate increase at or below inflation <2% . . . . cont
Slide 11: O&M Cost Performance Funds
O&M Cost Performance Funds . . . . Actual Cost Reduction New Cost Savings (2015 over 2006) 2014 2016 & 2015 & 2017 Good Business Decisions (mils) (mils) • Attrition (VSP) $ - 35 $ - 35 • Productivity (Coal Gas) - 35 - 15 • “Pole Top” Hardening - 20 - 10 • Smart Meters - 5 - 20 “Consumers Energy Way”
Slide 12: Operating Cash Flow Funds
Operating Cash Flow Funds . . . . Amount Up $0.7 (bils) Billion Gross operating cash flowa $2.8 $ 2.9 up > $0.1 billion per year $2.7 Up $2.5 $0.8 billion $2.4 since 2009! 2.4 $2.2 Interest, working $2.1 capital and taxes $1.9 1.9 $1.55 1.4 Operating cash flow NOLs avoid 0.9 Investment need for bloc
Slide 13: Consistent Growth Through
Consistent Growth Through . . . . 7% CAGR a EPS +6% to +8% Dividend +7% Weather Recession Recession Help _____ Hurt a Adjusted EPS (non-GAAP) Cold 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Feb. Cold Mild Hot Warm Mild Cold Summer- Hot Hot Warm Mild Polar Cold Feb. Wa
Slide 14: Appendix
Appendix
Slide 15: Michigan Energy Law
Michigan Energy Law . . . . 2008 Law Propose Legislation Customer Benefits • 10% renewables by 2015 • 15% by 2021; 12½% by 2019 • Ensures electric reliability • Energy efficiency standards • EE & DM incentives • Promotes clean energy and waste reduction • File-and-implement cases • Shortened to 10 m
Slide 16: Economic Development Growth
Economic Development Growth . . . . Our Service Territory Outperforms Examples of New Business a Grand Electric Gas Combination Rapids Michigan U.S Announcement Announcement Building Permits b +286% +208% +102% C3 Ventures Inteva Products Flint Adrian • Eco-friendly injection • Auto-supply maker to
Slide 17: O&M Cost Performance
O&M Cost Performance . . . . Room to Improve Here’s How (Electric Distribution Cost Per Customer) 2014 2015 $30 mil Build the job as to go until 1st Quartile 1st Quartile designed 2nd Quartile Consumers Accurately schedule ($97) the job Consumers ($100) 3rd Quartile “Field services” project 4th Quar
Slide 18: Routine and Regular Rate Cases
Routine and Regular Rate Cases . . . . Gas Rate Cases Electric Rate Cases Year Step Amount Capex ROE Step Amount Capex (mils) (mils) 2012 Settled $16 188% Order $118 110% 2013 Stay-out 10.3% Settled 89 127 2014 Stay-out Stay-out 2015 Settled 45 200 Order 126 137 2016 Settled 40 158 Self-impl.
Slide 19: DIG (750 MW) & Peakers (200 MW)
“DIG” (750 MW) & Peakers (200 MW) . . . . Pre-Tax Income Opportunities (mils) $ 80 $75 70 Contracts (layering in over time) 60 $55 +$40 50 +$20 40 $35 30 New contracts $20 20 $12 10 Outage pull-ahead 0 2015 2016 2017 Future Capacity ($/kw-mth) ≈ $1.00 ≈ $2.00 ≈ $3.00 $4.50 $7.50 Available: • Energy
Slide 20: Structural Capacity Solutions
Structural Capacity Solutions . . . . Proposed Agreement State Option MISO Option Prevailing State Forward Resource Competitive Retail Compensation Mechanism Allocation (FRA) Solution (CRS) (PSCM) • MISO to file with the FERC in November 2016 ROA Providers Own or Contract Capacity • Impacts Zones 4
Slide 21: Clean Power Plan
Clean Power Plan . . . . Tons CO2 (mils) 20 Consumers Energy 2012 Emissions 19 18 Retire State of Michigan Target 17 950 MW (Consumers Energy’s share) coal 16 15 14 13 12 Positioned well for compliance 11 100 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 . . . . rec
Slide 22: Capacity Diversity
Capacity Diversity . . . . Nuclear 8% Oil 10% Coal reduced Coal by over 40%! Purchases <24% 2nd best in U.S. 3% Renewables 10% 2016 Pumped Nuclear Storage Gas Oil 6% 8% 11% 34% Future Capacity Mix Renewables 3% • More Renewables Pumped Coal Storage 41% • Expanded Pumped 11% 2005 Storage Gas • Clean
Slide 23: Liquidity (as of September 2016)
Liquidity (as of September 2016) . . . . Renewal Capacity Availability $1.9 Billion CMS Energy $1.7 Billion Stronger liquidity 5-year revolver May 2021 $550 mils than peers $549 mils Consumers Energy 5-year revolver May 2021 650 Letter of Credit Apr 2018 568 Letter of Credit Aug 2018 68 Letter of Cr
Slide 24: Credit Ratings
Credit Ratings . . . . Scale Strategy S&P / S&P Moody’s Fitch Fitch Moody’s (Dec. ‘15) (Mar. ‘16) (Mar. ‘16) • Strong financial position A+ A1 Consumers A A2 Secured A- A3 • Growing operating BBB+ Baa1 cash flow BBB Baa2 BBB- Baa3 BB+ Ba1 • Return on regulated BBB Baa2 CMS Unsecured investment BBB-
Slide 25: GAAP Reconciliation
GAAP Reconciliation
Slide 26: 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 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 Pretax items: Electric an
Slide 27: Earnings Segment Results GAAP Reconciliation
CMS ENERGY CORPORATION Earnings Segment Results GAAP Reconciliation (Unaudited) Three Months Ended Nine Months Ended September 30 2016 2015 2016 2015 Electric Utility Reported $ 0.69 $ 0.60 $ 1.42 $ 1.24 Downsizing Program 0.03 - 0.03 - Tax Impact (0.01) - (0.01) - Restructuring Costs and Other - -
Slide 28: Reconciliation of Gross Operating Cash Flow to GAAP Operating Activities
CMS Energy Reconciliation of Gross Operating Cash Flow to GAAP Operating Activities (unaudited) (mils) 2014 2015 2016 2017 2018 2019 2020 2021 Consumers Operating Income + Depreciation & Amortization $ 1,813 $ 1,866 $ 2,064 $ 2,150 $ 2,356 $ 2,520 $ 2,637 $ 2,783 Enterprises Project Cash Flows 20 20
Slide 29: Clean and Lean Energy Portfolio
CLean AND “Lean” Energy Portfolio . . . . Sustainable Strategy Creates Headroom = CUSTOMERS A) Energy waste elimination/reduction Incentives – Energy efficiency For: Palisades – Demand response replacement (saves $45 mil per year), and gas B) Fully utilize assets -- upgrades: – Ludington Pumped Stor
Slide 30: Actual Plan Model
Actual Plan Model 2017+ Plan +7%/ year $1.89 $2.02 6% – 8% Capital investment 6% - 8% $1.77 a $1.55 $1.66 - O&M cost reductions 2 - 3 pts Adjusted EPS $0.81 $1.21 $1.26 $1.36 $1.45 $1.24 $1.08 $1.02 $1.08 $1.16 - Sales growth 1 $0.90 $0.96 84¢ 96¢ Int’l Sale 50¢ 66¢ - No “block” equity 2 $0.84 Divid