Cms Energy Corporation · NYSE:CMS
Cms Energy — AGA Financial Forum 2018
41 slides from Cms Energy's conference presentation, May 20, 2018
Slide 1: AGA Financial Forum 2018
AGA Financial Forum 2018 May 20-22, 2018 FOCUSED ON WORLD CLASS PERFORMANCE
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: 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 4: Utility Driven, Low Risk Growth
Utility Driven, Low Risk Growth . . . CMS Energy Long-Term Growth Plan Segments: • Needed system upgrades / robust backlog - Utility 5 - 7% • Affordable prices driven by cost controls 0-1 • Largely contracted & utility-like - Enterprises • Contracted generation & renewables • Refinancing high coupon
Slide 5: Michigan Offers
Michigan Offers . . . • Economic growth (taxes, skilled labor, balanced budget) • Forward-looking test year (10-month rate case) • Energy efficiency incentive (20% of spend) • Attractive renewable investment framework • Constructive ROEs . . . economic and energy policies that support our business.
Slide 6: Economic Development is Robust
Economic Development is . . . Our Service Territory Outperforms Examples of New Business a Electric Grand Gas ~2% Industrial Rapids Michigan U.S. Combination Growth in 2017! Building permits b +281% +218% +119% GDP 29 19 14 2010 2016 Population 6 ½ 4 Duro-Last Roofing 2010 2016 Unemployment 3.3 4.7
Slide 7: Long-Term Regulatory Planning
Long-Term Regulatory Planning . . . 2018 Regulatory / Policy 1/19: CE submitted initial tax reform estimates 2/22: Tax reform order U-18494 6/15: File long-term generation plan (IRP) U-18461 U-18494 Electric 3/1: Filed 5-Yr electric dist. plan 3/29: Final order U-18322 5/14 Filed $58 MM at 2
Slide 8: Tax Reform – Three Step Approach
Tax Reform – Three Step Approach . . . Step 1: (Credit A) • To be filed to determine forward-looking customer credit to adjust for tax reform • Gas Utility by Mar. 30th • Electric Utility by Apr. 30th • MPSC approval within 90 days of all filings Step 2: (Credit B) • To be filed to determine catch-u
Slide 9: Tax Reform Impact
Tax Reform Impact . . . Impacts Takeaway Utility • Lower customer rates create Facilitates self-funding capex headroom (up to 4%) strategy Enterprises & • Lower tax rate improves Offers modest EnerBank earnings diversification Parent interest • Largely offset by EnerBank Unique tax shield inte
Slide 10: 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 11: The Triple Bottom Line
The Triple Bottom Line . . . PEOPLE • PLANET • PROFIT PEOPLE PLANET PROFIT PERFORMANCE . . . world class performance delivering hometown service. 10
Slide 12: Clean Energy Goal
Clean Energy Goal . . . By 2040 Over the Next 5 Years . . . breakthrough thinking for our planet. 11
Slide 13: 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 14: Reducing Coal Intensity
Reducing Coal Intensity . . . a a Coal Energy Renewable Energy 49% Demand Shut down from coal customers 26% Meets RPS 15% 10% b 0% 3% 2005 2017 2040 2005 2017 2021 Future _____ _____ a_CMS Energy, includes PPA contracts a Consumers Energy, includes PPA Contracts b Based on Clean Energy Goal Plan ann
Slide 15: CMS Supply Mix
CMS Supply Mix . . . 2017 Energy by Fuel Type Net Interchange Power & Other, 8% Pumped Storage, 2% Renewables 9% Gas 38% Nuclear 17% Coal 26% . . . shifting away from coal. 14
Slide 16: Consistent Growth Through Recessions and Weather
Consistent Growth Through . . . b 7% CAGR a EPS +6% to +8% Dividend Weather Recession Recession Help _____ _____ Hurt a Adjusted EPS (non-GAAP) b Non-GAAP Cold 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Feb. Cold Mild Hot Warm Mild Cold Summer- Hot Hot Warm Mild
Slide 17: First Quarter Results
First Quarter . . . Vs. Results Amount Prior Year • EPS $0.86 +21% Reaffirm Guidance • Full-year EPS a $2.30 to $2.34 6% to 8% Long-Term Outlook • EPS & DPS growth a +6% to +8% _____ a Adjusted EPS (non-GAAP) . . . keeps us on track. 16
Slide 18: 2018 EPS
2018 EPS . . . a First Quarter Nine Months To Go 15¢ (+ 21%) (2)¢ - 2¢ $2.30 - $2.34 6% - 8% 14¢ 7¢ 1¢ 5¢ $2.17 (7)¢ (1)¢ (6)¢ - (2)¢ First First Quarter Quarter $0.71 $0.86 2017 Weather Cost Rates & Economy, Absence of Rates & Cost 2018 Savings Investment Enterprises 2017 Investment Savings & & Oth
Slide 19: Managing Work Every Year
Managing Work Every Year . . . a 2010 2011 2012 2013 2014 2015 2016 2017 EPS $2.20 Weather & Storms +7% Mild Summer +7% $2.00 Cost +7% productivity above plan Cost Cost productivity productivity $1.80 +7% above plan Reinvestment Storms Hot Mild Reinvestment Summer Winter +7% $1.60 RECORD Hot WARM Of
Slide 20: 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 21: 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 22: Needed Customer Investment
Needed Customer Investment . . . Large and Aging System Rate Base Growth > $50 Bn Electric Gas 10-Yr 7% $21 Bn CAGR $15 Bn 60% $10 Bn 5-Yr Plan 70% 40% 30% > $18 Bn System Need 2017 2022 . . . potentially pulled forward by tax reform. 21
Slide 23: 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. 22
Slide 24: Age of Electric Distribution
Age of Electric Distribution . . . Electric Dist. Gas $3½ Bn Infra. & Replacements needed to renew our system Maint. $5 Bn Supply $1½ Bn 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile Consumers Energy Source: 2016 FERC Form 1, remaining book value divided by original cost . . . requires substan
Slide 25: Electric Distribution Investment Opportunities
Electric Distribution Investment Opportunities . . . LVD System Electric $200,000 to rebuild one mile Dist. Gas $2½ Bn $3½ Bn Infra. & Maint. ~5,000 per year in plan $5 Bn Supply $3,500 per pole replacement $1½ Bn Substations $1 MM avg per upgrade $½ Bn ($7 - $8 MM to replace) HVD System ~33% are pa
Slide 26: Electric Supply Investments
Electric Supply Investments . . . Current Clean & Lean Renewables in Plan Supply Opportunities Electric Dist. Gas Palisades $3½ Bn Infra. & expires 2022 Maint. PPAs $5 Bn MCV expires Supply 2025 $1½ Bn In the Plan Average age of coal plants >50 Owned years; potential Clean Energy ~$1 Bn future shut
Slide 27: 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 . . . >60% over the last 5 years. 26
Slide 28: Gas Transmission
Gas Transmission . . . Projects in Plan Electric Dist. Gas Saginaw Trail (2800) $3½ Bn Infra. & Maint. 94 miles, 24” $5 Bn $636 MM Supply $1½ Bn Mid-Michigan (100A) 54 miles, 36” $385 MM South Oakland (3100) 22 miles PIC TURE 1,670 miles of transmission pipelines . . . significant investment over ti
Slide 29: Gas Distribution
Gas Distribution . . . Main Replacement Electric Dist. Gas $3½ Bn Infra. & • Started in 2012 Maint. $5 Bn • 25-year program Supply $1½ Bn • $75 MM capex per year Benefits Service Line Replacement Customer safety Reduced leaks • 185,000 replacements needed Lower future O&M • Only 2% complete • 20,
Slide 30: 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 31: Our Entire Cost Structure
Our Entire Cost Structure . . . Cost Components Residential Electric Bills a (current dollars) 100% 100% $106 $100 90% Coal to 80% Down 6% Gas / PPA Fuel and Power Costs 70% 2013 2018E 60% ~70% Residential Gas Bills 50% a O&M Costs 40% (current dollars) $85 Tax 30% Reform Taxes $62 20% Capital Inves
Slide 32: 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 1.2 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 . . . remains strong and supports our capital plan. 31
Slide 33: Credit Metrics Maintained
Credit Metrics Maintained . . . S&P / S&P Moody’s Fitch a Fitch Moody’s (Dec. ‘16) (Apr. ‘17) (Jul. ‘17) FFO / Average Debt AA- Aa3 A+ A1 19% Consumers A A2 Secured ~18% A- A3 BBB+ Baa1 BBB Baa2 17% BBB- Baa3 < 30% BB+ Ba1 HoldCo Debt BBB+ Baa1 BBB Baa2 CMS Unsecured BBB- Baa3 BB+ Ba1 BB Ba2 Present
Slide 34: DIG & Peakers Pre-Tax Income Opportunities
“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 35: 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 – – 55 Gas prices (NYMEX) + 50¢ + 0 + ROE (planned) Order • Electric (10.1%) + 10 bps + 1½ + 6 Received • Gas (10.1%) + 10 + ½ + 3 3/29 Interest rates +100
Slide 36: Sustainable Future
Sustainable Future . . . 7% CAGR Opportunities More Gas Renewables Grid Infra. Modernization PPA b Replacements TSR LAW Plan Ops • Customer Investment (Bn) $10 >$50 NEW ENERGY a EPS • Cost Reductions (10)% (15)% • Coal Energy 26% 0% Recession Recession People Planet Profit Dividend 2003 2004 2005 20
Slide 37: Compelling Investment Thesis
Compelling Investment Thesis Aging Infrastructure Strong Cash Flow & Balance Sheet Diversified Service Territory Affordable Prices Constructive Regulation 36
Slide 38: GAAP Reconciliation
GAAP Reconciliation
Slide 39: 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 40: 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 Net Income Available to Common Stockholders $ 241 Reconciling items: Electric utility and gas utility - Tax impact - Enterprises * Tax impact
Slide 41: 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