Slide 1: Second Quarter 2014 Results & Outlook
Second Quarter 2014 Results & Outlook July 24, 2014 Cross Winds Energy Park Consumers Smart Energy Program Jackson Gas Plant
Slide 2: Forward-looking statements 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: Agenda
Agenda Overview John Russell Good First Half; Raised guidance President & CEO Michigan Energy Law Elections Economy EPA Results & Outlook Tom Webb 2014 Outlook Executive VP & CFO 2015 Progress Long-term Plan Capacity Investment Wrap up 2
Slide 4: First Half 2014 Results
First Half 2014 Results . . . . • First Half adjusted EPS (non-GAAP) $1.05 • Raised low-end, full year adjusted EPS (non-GAAP) guidance to $1.76 to $1.78 . . . . on plan to achieve full year guidance. 3
Slide 5: 2014 EPS Guidance Increased
2014 EPS a Guidance Increased . . . . EPS $2 7% $1.78 $1.66 $1.76 6% $1.55 $1.66 $1.78 $1.73 $1.45 $1.55 $1.63 $1.52 $1.36 $1.44 Original guidance $1.35 0 2010 2011 2012 2013 2014 _____ a Adjusted EPS (non-GAAP) . . . . due to strong First Half performance. 4
Slide 6: Michigan Energy Law
Michigan Energy Law . . . . • Adaptability • Reliability Update • Affordability • Environmental protection • Gov. signed new • 10% renewables rate design bill by 2015 • Senate workgroup • Energy efficiency formed to study standards 2015 Energy Law • File-and-implement improvements • Historical test
Slide 7: Michigan Governor's Race
Michigan Governor’s Race . . . . Rick Snyder Republican, Incumbent Mark Schauer Democrat, Challenger On Energy... Campaign Issues On ROA … • Education As Senate Democratic Leader, • Jobs “Choice creates a lot of Mark played a key role in the challenges and problems, successful passage of the 2008 •
Slide 8: Michigan Economic Results
Michigan Economic Results . . . . Strong Economic More than 250,000 jobs added since December 2010 Results Unemployment down from 14.2% in 2009 to 7.5% in 2014 Dramatic Business Reduced state business tax by more than 80% in 2011 Climate Improvements 6 best entrepreneurial climate, up from 41 in
Slide 9: Grand Rapids
Grand Rapids . . . . Economy Performance Manpower Employment Survey Best labor (Third Quarter Outlook) market in nation % Increase staffing 32% 29% 3rd best state! 22% #1 City to raise a family #2 Metro job growth since 2010 #3 Best midsize city for jobs in 2014 #4 Best city in U.S. to find a job Gr
Slide 10: Consumers Appears to Be in a Good Carbon Position
Consumers Appears . . . . Carbon Tonnage Reduction Million Tons of CO2 (Preliminary) 25 2005 Baseline 23 21 Clean Power Plan 19 “Implied” EPA Target 17 Consumers Energy Projected 15 emission level 13 2014 2020 2025 2029 2030 . . . . to be in a good carbon position. 9
Slide 11: 2014 First Half EPS
2014 First Half EPS . . . . Results By Business Segment 2014 2013 EPS Reported -- (GAAP) $1.05 83¢ Utility $1.19 Enterprises 0.02 Adjustment: Interest & other (0.16) Restructuring costs & other * * Company $1.05 Adjusted (non-GAAP) $1.05 83¢ +22¢ Above 2013 27% Second Quarter - Actual 30¢ 29¢ - Firs
Slide 12: 2014 Adjusted EPS (non-GAAP)
2014 Adjusted EPS (non-GAAP) . . . . First Half Second Half 22¢ (12)¢ - (10)¢ $1.76-$1.78 15¢ 11¢ +6%-7% $1.66 7¢ 2014 – 22¢ (12)¢ (9)¢ - (11)¢ 2013 – (7)¢ Cost savings 19¢ Rate change 8 Inv costs (10) Reinvestments & other (10) First Half First Half Total 7¢ $1.05 $0.83 2013 Rate Change, Cost Weath
Slide 13: 2014 Reinvestment Helps Customers
2014 Reinvestment Helps Customers . . . . • Sales & other 2¢ Adjusted EPS O&M Reinvestment: (non-GAAP) (3)¢ • Reliability (3) • Parent debt prefunding (2) 2014 +18¢ +15¢ +14¢ +9¢ +9¢ Good choices ahead Weather 22¢ Cost savings 4 Reinvest & other (11) Total 15¢ 7%- 2013 6% Guidance January March 31 J
Slide 14: 2015 Gas Rate Case
2015 Gas Rate Case . . . . Overview Residential Gas Customer Cost Amount Amount (per day) (Mils) $3.00 Projected 9% Capital Investment $ 144 decrease! Cost & Other (56) $2.44 Request $ 88 $2.24 2016-2017 Investment 2.00 Recovery Mechanism $ 92 GCR 1.40 1.12 Existing Request (2012) (2015) 1.00 Rate
Slide 15: Capacity Price Market Increases
Capacity Price Market Increases . . . . Today Future Scenarios Recent Contracts (mils) (mils) $55 • DIG “energy” contract +$50 • 9 years • 250 MW @ $4.06 kW per month $35 +$30 Upside: Capacity and energy contracts layered $5 in over time Capacity price < $0.50 $4.50 $7.50 ($ kW per month) . . . . co
Slide 16: Sales Growth
Sales Growth . . . . Economic Indicators Annual Electric Salesa Grand Rapids Michigan U.S Growth 2.5% Upside? Building Permits* +23% +18% +9% 1.7% GDP (real) 2010 thru 2012 14 11 7 1.3% Population 2010 Census 3 0 2 thru July 2013 0.7% <1/2% 0.3%b Unemployment May 2014 5.4% 7.5% 6.3% *Annualized numb
Slide 17: O&M Cost Control
O&M Cost Control . . . . Average Annual O&M Change Continuous Cost Reductions +6% Peers -3%a Actual/Plan (exc Amount 2013 major storms) (mils) -2%a $1,050 +2% +2% +5% Peers Peers Peers +6% +5% CMS CMS CMS CMS CMS -8% -1% -2% -2%a -2% -8% -3%a Upside? _____ Plan a -8% Before reinvestment 2012 Cost Re
Slide 18: O&M Cost Control
O&M Cost Control . . . . Average Annual O&M Change Future Examples +6% Peers Fuel Mix MW Employees Actual/Plan (exc 2013 major storms) 2016 Retire Coal - 950 - 300 2016 Add GCC + 540 + 20 +2% +2% Total -410 - 280 Peers Peers Peers Future Savings (mils) $25 2014 - 2018 Savings CMS CMS CMS CMS CMS Ben
Slide 19: Consumers Energy Securitization
Consumers Energy Securitization . . . . Transaction Benefits • $378 Million – July 22, 2014 AAA rated bonds • Immediate recovery of plant balance 3% weighted average • Recover plant balances • Lowers electric customer base rates NPV benefit $125 million First Year savings 22 million • Proceeds u
Slide 20: Electric Residential Bills Competitive
Electric Residential Bills Competitive . . . . Industrial Electric Rate House Bill 5476 (vs Midwest Average) Consumers higher than • Signed into law on June 17th, 2014 Midwest peer avg 30% • Directs MPSC to develop cost of service allocation and rate design methods 20% Self-initiated Rate desi
Slide 21: Visible Investment: Ten-Year Plan
Visible Investment: Ten-Year Plan . . . . 2013-2022 Opportunity Level 10-Year Plan Amount (bils) Generation capacity • PPA replacement $1.7 $20+ Billion • ROA return $15Billion $15 Billion Higher renewables Gas conversions & expansion .3 1.0 Electric reliability 2.0 Total Opportunities $5.0 Upside?
Slide 22: MISO Zone 7 Forecast
MISO Zone 7 Forecast . . . . As of June 2, 2014 MISO Zones (in GW) 24.8 2.0 22.8 Reserves 3.2 7 Demand 21.6 2016 Resources 2016 Resource Expected Shortfall _____ Requirement Source: MISO . . . . expected shortfall of 2.0 GW in 2016. 21
Slide 23: Consumers Needs Beyond MISO Shortage
Consumers Needs Beyond MISO Shortage . . . . Ten-year Capacity Growth Further MW 11,000 Upside 10,000 900 PPA’s Expire MW PPA ~8,600 MW 1,240 MW 580 PPA 2,600 780 MW 7,500 capacity Owned ~30% (8,820) ~800 MW 410 MW Owned Shortfall (6,000) 540 MW 5,000 Today Jackson Plant ROA Palisades PPA MCV PPA Fu
Slide 24: 2014 Sensitivities
2014 Sensitivities . . . . Annual Impact Status Sensitivity EPS OCF (mils) Sales a • Electric (37,416 GWh) + 1% + $0.05 + $20 • Gas (296.9 Bcf) + 5 + 0.07 + 30 Gas prices (NYMEX) + $1.00 – 0.01 – 100 + + ROE (authorized) • Electric (10.3%) + 25 bps + 0.03 + 12 • Gas (10.3%) + 25 + 0.01 + 5 Interest
Slide 25: 2014 Financial Targets
2014 Financial Targets . . . . 2014 Target Adjusted EPS (non-GAAP) $1.76 - $1.78 +6% - 7% Operating cash flow (bils) $1.45 Dividend payout ratio ≈ 62% Customer base rate increases < 1% FFO/Average debt 18% . . . . 12th year of consistent, strong performance. 24
Slide 26: Mindset
Mindset . . . . 10-Year Actual Dividend EPS 7% CAGR $1.78 $1.66 Peers 4% $1.55 $1.76 $1.45 $1.36 b $1.26 6% $1.21 $1.08 6% 5% - 7% $1.08 14% $1.02 $0.96 96¢ $0.90 27% 84¢ $0.84 32% $0.81 Int’l Sale 66¢ 39% 50¢ 80% 36¢ 20¢ 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Future Dividend Pa
Slide 27: Appendix
Appendix
Slide 28: Operating Cash Flow Growth
Operating Cash Flow Growth . . . . Amount (bils) Up $0.5 Gross operating cash flowa Billion $ 2.5 up $0.1 billion per year $2.2 $2.1 2.0 $1.9 $2.0 $1.7 $1.8 $1.6 $1.5 1.5 Interest $1.4 $1.45 Working capital and taxes Investment 1.0 2013 Pct of Market Cap Cap Inv OCF 0.5 CMS 21% 13% 20% 15% Peers 18
Slide 29: Liquidity (as of 6/30/14)
Liquidity (as of 6/30/14) . . . . Availability 2014 Plan Financing Timing CMS Energy $1.8 Billion • Parent Debt February 5-year revolver - 2018 • Continuous Equity March $548 mils • Term Loan Refinancing April Consumers Energy • Consumers Letter May 5-year revolver - 2018 650 of Credit Renew
Slide 30: 2014 Guidance
2014 Guidance . . . . Adjusted EPS (non-GAAP) • Utility • Electric $1.41 - $1.42 • Gas 0.64 - 0.65 Total Utility $2.05 - $2.07 • Enterprises & EnerBank 0.11 • Interest and other (0.40) Total EPS $1.76 - $1.78 +6% - 7% • Operating cash flow (GAAP) (bils) $1.45 . . . . building on high end, actual 201
Slide 31: 2014 Cash Flow Forecast (non-GAAP)
2014 Cash Flow Forecast (non-GAAP) CMS Energy Parent Consumers Energy Amount Amount (mils) (mils) Cash at year end 2013 $ 116 Cash at year end 2013 $ 18 Sources Sources Consumers Energy dividend and tax sharing $ 675 Operating (depreciation & amortization $675) $ 1,825 Enterprises 25 Other working c
Slide 32: GAAP Reconciliation
GAAP Reconciliation
Slide 33: Earnings Per Share By Year GAAP Reconciliation
Earnings Per Share By Year GAAP Reconciliation (Unaudited) 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
Slide 34: Earnings By Quarter and Year GAAP Reconciliation
CMS ENERGY CORPORATION Earnings By Quarter and Year GAAP Reconciliation (Unaudited) (In Millions, Except Per Share Amounts) 2013 1Q 2Q 3Q 4Q YTD Dec Reported net income - GAAP $144 $80 $126 $102 $452 After-tax items: Electric and gas utility - - - - - Enterprises * * - (*) * Corporate interest and o
Slide 35: Earnings Segment Results GAAP Reconciliation
CMS ENERGY CORPORATION Earnings Segment Results GAAP Reconciliation (Unaudited) Three Months Ended Six Months Ended June 30 2014 2013 2014 2013 Electric Utility Reported $ 0.36 $ 0.34 $ 0.72 $ 0.59 Restructuring Costs and Other - - - - Adjusted $ 0.36 $ 0.34 $ 0.72 $ 0.59 Gas Utility Reported $ 0.03
Slide 36: Reconciliation of Gross Operating Cash Flow to GAAP
CMS Energy Reconciliation of Gross Operating Cash Flow to GAAP Operating Activities (unaudited) (mils) 2012 2013 2014 2015 2016 2017 2018 Consumers Operating Income + Depreciation & Amortization $ 1,635 (a) $ 1,740 $ 1,825 $ 1,876 $ 1,952 $ 2,054 $ 2,162 Enterprises Project Cash Flows 17 16 25 30 28
Slide 37: Consumers Energy 2014 Forecasted Cash Flow GAAP Reconciliation
Consumers Energy 2014 Forecasted Cash Flow GAAP Reconciliation (in millions) (unaudited) Reclassifications From Sources and Uses to Statement of Cash Flows Interest/ Presentation Sources and Uses Tax Other Financing Other Working Capital Securitization Common Consolidated Statements of Cash Flows no
Slide 38: CMS Energy Parent 2014 Forecasted Cash Flow GAAP Reconciliation
CMS Energy Parent 2014 Forecasted Cash Flow GAAP Reconciliation (in millions) (unaudited) Reclassifications From Sources and Uses to Statement of Cash Flows Presentation Sources and Uses Non Equity Consolidated Statements of Cash Flows non-GAAP Uses GAAP Description Amount as Operating Other Amount
Slide 39: Consolidated CMS Energy 2014 Forecasted Cash Flow Statements
Consolidated CMS Energy 2014 Forecasted Consolidation of Consumers Energy and CMS Energy Parent Statements of Cash Flow (in millions) (unaudited) Eliminations/Reclassifications/Consolidation to Arrive at the Consolidated Statement of Cash Statements of Cash Flows Other Consumers Equity Consumers CMS