Slide 1: American Gas Association May 19 & 20, 2014
American Gas Association May 19 & 20, 2014
Slide 2: Forward-looking statements and non-GAAP disclaimer
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: Mindset drives consistent real growth
Mindset . . . . . . . . drives consistent “real” growth. $0.81 _ _ _ _ _ Adjusted EPS (non-GAAP) excluding MTM in 2004-2006 b $1.25 excluding discontinued Exeter operations and accounting changes related to convertible debt and restricted stock Int’l Sale b 10-Year Actual 7% CAGR $1.78 $1.74 $1.08 D
Slide 4: CMS Energy Model
CMS Energy MODEL . . . . 3 Investment Ten year - $15 billion Small, bite size projects None “Bet The Company” “Upside” Catalysts A. Capex >$15 billion B. PPA’s expire = 2,000 MW C. Sales growth D. Capacity price increases E. Michigan Energy Law F. Continuous cost reductions Self-Imposed Limits Susta
Slide 5: A. Visible Investment: Ten-Year Plan
A. Visible Investment: Ten-Year Plan . . . . 4 . . . . reflects needed catch-up to further reduce cost and improve reliability. 2013-2022 10-Year Plan Opportunity Level $15 Billion $15 Billion $20+ Billion Opportunity Amount (bils) Generation capacity PPA replacement $1.7 ROA return Higher renewable
Slide 6: Visible Investment: Catch-Up
Visible Investment: Catch-Up . . . . 5 2013 Pct of Market Cap Cap Inv OCF Liquidity CMS 21% 20% 24% Peers 18 16 20 21% 20% 24% . . . . creates unique opportunity; with OCF already stronger than peers. Amount (billions) $1.8 CMS Peers _ _ _ _ _ Source: 10K; actual amounts through 2012 smoothed for il
Slide 7: Gas Investment Growing as a mix of total
Gas Investment Growing. . . . 6 . . . . as a mix of total. Base Rate Increases <2% <2% Capital Investment “Checklist” Add Customer Value Reduce O&M Costs Reduce Fuel Costs Mandated by State or Federal Regulators $8 $11 $13 Upside: Creates headroom for more investments Rate Base 25% 32%
Slide 8: Gas Distribution investing $2 billion over the next 5 years
Visible Investment: Gas Distribution . . . . 7 . . . . investing $2 billion over the next 5 years. New Customers Inspection Storage Compression Transmission 50,000 New customers $200 Million 1,700 Miles $100 Million 23 Wells $100 Million 800 Miles $450 Million 19,000 + Horsepower $400 Million 32 Mil
Slide 9: Propane to Gas Switching adds to organic growth
Propane to Gas Switching . . . . 8 . . . . adds to organic growth. Opportunity Gas Customer Growth 32% 20% 36% 1.7 Million gas customers 250,0000 propane users
Slide 10: B. PPAs Expire, replacement not yet in plan
B. PPA’s Expire . . . . 9 . . . . replacement not yet in plan! Ten-year Capacity Growth ~780 MW 1,240 MW ~Potential for 3,000 MW of owned capacity MW PPA 2,600 capacity ~30% ~8,600 MW 540 MW 410 MW Shortfall Owned (6,000) 780 MW 8,600 MW Owned (8,020) PPA 580
Slide 11: New Capacity Opportunities Replace PPA With New Build
New Capacity Opportunities . . . . Replace PPA With New Build Full Year Impact Customer Bill Investor (EPS) (mils) 1,000 MW of PPA’s expire - $325 0 ¢ Add 1,000 MW owned capacity + 325 + 5 Impact Flat Incremental Step-up Not in Plan 2 points Build - Thetford Expand - Zeeland Buy - ? LT PPA 10 . . .
Slide 12: C. Sales Growth even after Energy Efficiency
C. Sales Growth . . . . . . . even after Energy Efficiency. Annual Electric Salesa Economic Indicators Annual Industrial Sales Grand Rapids Michigan U.S Building Permits* + 39% +25% +16% GDP (real) 2010 thru 2012 14 11 7 Population 2010 Census thru July 2013 3 0 2 Unemployment February 2014 6.2% 7.7
Slide 13: D. Capacity Price Market Increases
D. Capacity Price Market Increases . . . . 12 . . . . could add value to the 700 MW “DIG” plant. Capacity price < ($ kW per month) Today (mils) Future Scenarios (mils) $5 +$30 $55 $35 +$50 Opportunity Upside: Conditions improving
Slide 14: E. Michigan Energy Law Revisit
E. Michigan Energy Law Revisit . . . . Historical test year 12-18 months regulatory lag No cap on ROA 13 10% renewables by 2015 Energy efficiency standards File-and-implement 10% ROA cap Adaptability Reliability Affordability Environmental protection Before 2008 TODAY 2015 Improvements . . . . build
Slide 15: Michigan Governor's Race
Michigan Governor’s Race . . . . 14 . . . . focus on non-energy issues. Mark Schauer Democrat, Challenger Rick Snyder Republican, Incumbent Campaign Issues Education Jobs Roads Detroit On Energy On ROA 37% 48% As Senate Democratic Leader, Mark played a key role in the successful passage of the 2008
Slide 16: F. Continuous O&M Cost Reductions
F. Continuous O&M Cost Reductions . . . . 15 . . . . holds down rates and allows better system reliability. _ _ _ _ _ a O&M Change excluding major storms Amount (mils) $
Slide 17: Self-Initiated Cost Control creates more headroom
Self-Initiated Cost Control . . . . 16 . . . . creates more headroom for capital investment. Average Annual O&M Change +6% Peers -2% CMS Flat -2% Average -3% Plan Conservatively Upside? _ _ _ _ _ a -8% Before reinvestment
Slide 18: Gas Customer Bills down 10%
$? $49M Gas Customer Bills . . . . . . . . down 10% over the last three years! 17 Settled $16M 2012 2013 2014 2015 $0 Investment $0 Stay-out O&M bills down 10%! --
Slide 19: Electric Residential Bills
Electric Residential Bills Competitive . . . . 18 O&M Tax Cross Winds Self-initiated Rate design, regulatory ROA Policy, Legislator Consumers higher than Midwest peer avg Below Midwest peers . . . . industrial rates improving through cooperative steps. Electric Rate Case Avoided Industrial Electric
Slide 20: Key Takeaways
Key Takeaways . . . . 19 . . . . distinguish CMS favorably with customers and owners. _ _ _ _ _ a Adjusted EPS (non-GAAP) excluding MTM in 2004-2006 EPS a “Real” Growth (No “Resets”) $2.00 Core Fundamentals 10-Year Visible Investment Among Best In Cost Control Conservative Planning Supportive Regula
Slide 21: Appendix
Appendix
Slide 22: Continuous Cost Reduction a way of life
Continuous Cost Reduction . . . . 21 . . . . a way of life at CMS. Past Progress $100k Each $60k Each Future Examples Fuel Mix Benefits MW Employees 2016 Retire Coal - 900 - 300 2016 Add GCC + 540 + 20 Total -360 - 280 Future Savings (mils) $25 Future Annual Savings (mils) 2002-2012 Actions complete
Slide 23: Capacity Diversity evolving to cleaner generation
Capacity Diversity . . . . 22 . . . . evolving to cleaner generation while becoming more cost competitive. 2006 Sold Palisades -800 -650 2009 Purchased Zeeland GCC +930 +22 2013-2014 Build Wind Farms +205 +4 2016 Suspend Operation of Coal Units -900 -300 2016 Add Gas Combined Cycle +542 +23 Total -2
Slide 24: Liquidity (as of 3/31/14) strong and conservative
Liquidity (as of 3/31/14) . . . . . . . . strong and conservative. Availability CMS Energy 5-year revolver - 2018 Consumers Energy Cash AR Facility – Nov 2015 5-year revolver - 2018 $548 mils 650 250 758 $2.2 Billion Financing Timing Parent Debt February Continuous Equity March 2016 Term Loan Spring
Slide 25: Operating Cash Flow Growth
Operating Cash Flow Growth . . . . Amount (bils) $ Investment Cash flow before dividend _ _ _ _ _ a Non-GAAP NOLs & Credits $0.7 $0.6 $0.5 $0.4 $0.4 $0.2 $0.1 Gross operating cash flowa up $0.1 billion per year . . . . self-funds investment and strategy. Up $0.5 Billion $2.1 Interest Working capital
Slide 26: Credit Ratings just upgraded
Credit Ratings . . . . . . . . just upgraded, more ahead? Consistent Performance Less Risk Customer Focus Constructive Regulation Good Energy Policy Reflects Present Prior 2002 Scale S&P / Fitch Moody’s S&P (March) Moody’s (January) Fitch (February) A+ A1 A A2 Consumers Secured A- A3 BBB+ Baa1 BBB B
Slide 27: Capital Expenditures 2014-2018 Plan
Capital Expenditures 26 New Gas Plant Capacity 2014-2018 Plan 2013 2014 2015 2016 2017 2018 Total (mils) (mils) (mils) (mils) (mils) (mils) (mils) Electric Distribution $199 $190 $197 $202 $211 $208 $1,008 Generation 89 96 93 88 60 155 492 New Customers 48 47 38 39 38 34 196 Other 96 102 81 82 84 61
Slide 28: Opportunity to Reinvest Helps Customers
Opportunity to Reinvest Helps Customers . . . . 27 . . . . reinvestment already underway. 2014 2013 +14¢ +9¢ Adjusted EPS (non-GAAP) +18¢ Guidance 7% - 5% (2)¢ (1) (7) (3) } } (3)¢ (10)¢ “Natural” offsets: Gas O&M Higher UAs Reinvestment: O&M choices Parent debt prefunding January March 31 December
Slide 29: Electric Utility Financial & Operating Statistics
28 Electric Utility Financial & Operating Statistics Count on Us Years Ended December 31 2013 2012 2011 2010 2009 2008 ELECTRIC REVENUE AND POWER COSTS ($ Millions ) Residential $1,819 $1,785 $1,678 $1,614 $1,387 $1,414 Commercial 1,301 1,228 1,197 1,166 1,099 1,129 Industrial 772 781 754 749 677 81
Slide 30: Electric Utility Financial & Operating Statistics
29 Electric Utility Financial & Operating Statistics Count on Us Years Ended December 31 2013 2012 2011 2010 2009 2008 FUEL COST ($ per MMBtu) Coal 2.90 2.98 2.94 2.51 2.37 2.01 Oil 19.47 19.08 18.55 10.98 9.59 11.54 Gas 4.68 3.16 4.95 5.57 6.57 10.94 Weighted average for all fuels 3.07 3.05 3.18 2.
Slide 31: Gas Utility Financial & Operating Statistics
30 Gas Utility Financial & Operating Statistics Count on Us Years Ended December 31 2013 2012 2011 2010 2009 2048 GAS REVENUE AND COST OF GAS ($ Millions) Residential $1,515 51,415 51,655 51,677 51,808 $1,971 Commercial 399 351 438 449 511 598 Industrial 69 65 89 88 101 124 Other 2 2 3 3 3 5 Total s
Slide 32: Independent Power Production Capacity
31 As of December 31, 2013 Independent Power Production Capacity Primary Ownership Gross In-Service Under LT Plant Fuel Interest Capacity Year Contract State Craven Wood 50% 50 1990 100% NC DIG Natural Gas 100 710 2001 61 MI Filer City Coal 50 73 1990 100 MI Genesee Wood 50 40 1996 100 MI Grayling W
Slide 33: GAAP Reconciliation
CT GAAP Reconciliation
Slide 34: Reported to adjusted earnings per share reconciliation
33 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 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 After-tax items: Electric and gas utility 0.21 (0.39) - - (0.07) 0.05 0.33 0.03 - 0.17 - Enterprises 0.74 0.62 0.04 (0.02) 1.2