Slide 1: Investor Meetings March 1 - 10, 2017
Investor Meetings March 1 - 10, 2017 Palisades Replacements Gas Pipelines
Slide 2: Forward-looking statements and non-GAAP measures
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: EPS
EPS . . . . a +8% EPS a $2.18 $2.10 +7% Average growth per year +8% $2.02 +6% +7% $2.14 +6% $1.89 $2.01 $1.97 $2.17 $1.77 $1.87 $2.13 $1.85 $1.66 $1.78 $1.55 $1.73 Not Yet in Plan $1.66 $1.63 Customer investment $1.45 $1.55 Opportunities $1.36 $1.52 Original guidance More cost performance $1.44 $1
Slide 4: The Consumers Energy Way
The Consumers Energy Way . . . . The CE Way Safety . Quality . Cost . Delivery . Morale CUSTOMER ENABLED FOCUS EMPLOYEES BUSINESS RESULTS CONTINUOUS STANDARDIZED IMPROVEMENT PROCESSES . . . . a culture of continuous improvement. 3
Slide 5: Simple, Perhaps Unique Model
Model: Simple, Perhaps Unique Model . . . . 2017+ Plan Customer investment (reliability, costs, enviro mandates) 6% - 8% Self Funding: - O&M cost reductions 2 - 3 pts - Sales growth “ED” 1 - No “block” equity dilution & other 2 INVESTMENT SELF-FUNDED 5 - 6 pts Rate increase “at or below inflation” <
Slide 6: Ten-year, $18 bil Customer Investment Plan
Model: Ten-year, $18 bil Customer Investment Plan . . . . 2018 - 2027 Details Capex $18 billion (bils) Gas Infrastructure & Maintenance $ 8 Supply (incl. renewables) 4 Gas Electric Infrastructure & Electric Distribution 6 Distribution Maintenance Total Customer Investment $18 Future Opportunities: I
Slide 7: O&M Cost Performance Helps to Fund Customer Investment
Model: O&M Cost Performance Helps to Fund . . . . Actual Cost Reduction New Annual Cost Savings (2015 over 2006) Three-Year Avg 2014 2017 - 2016 - 2019 Good Business Decisions (mils) (mils) • Attrition $ - 16 $ - 16 • Productivity (Coal Gas) - 20 - 5 • Enhanced capitalization - 10 - 4 • Smart Meters
Slide 8: Economic Development Growth
Model: 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 +351% +180% +98% Royal Technologies Zeeland Farm Services Ottawa Ithaca • Advanced engineering • Pro
Slide 9: Operating Cash Flow Funds Investments
Model: Operating Cash Flow Funds . . . . Amount Up $0.8 (bils) Billion Gross operating cash flowa $2.9 $ 2.9 up > $0.1 billion per year $2.7 Up $2.6 $1.8 billion $2.4 since 2004! 2.4 $2.2 Interest, working $2.1 capital and taxes $1.9 1.9 $1.63 $1.65 1.4 Operating cash flow NOLs avoid 0.9 Investment
Slide 10: 2016 EPS
Customer Reinvestment: 2016 EPS . . . . a Adjusted EPS (non-GAAP) Warm Summer Non- weather 6¢ $2.02 Weather Reinvestment +7% 14¢ Weather & Recovery Storms Pension “Yield Curve” 5¢ Mild Weather 3¢ Enhanced Capitalization 3 Debt Pre-funding 4 ‘15 Pension Contribution 2 Foundation & Low Income 5 Improv
Slide 11: Managing Work Every Year
Customer Reinvestment: Managing Work Every Year . . . . a 2008 2009 2010 2011 2012 2013 2014 2015 2016 EPS Mild $2.20 Summer +7% +18¢ +17¢ Cost +7% productivity above plan Cost $2.00 productivity +7% above plan Reinvestment +13¢ Storms Hot +7¢ -13¢ Mild $1.80 Reinvestment Summer Winter +7% RECORD Ho
Slide 12: Potential Tax Reform: Assumptions and Impact
Top of Mind: Potential Tax Reform . . . . Assumptions Impact CMS Impact • Lower federal tax rate at 15% Utility (vs 35%) – More than ample investment “Backfill” • Loss of interest deductibility on Enterprises all debt (may be less/better) – Improved earnings & cash flow Parent • Loss of state income
Slide 13: Potential Tax Reform: Scenarios
Top of Mind: Potential Tax Reform . . . . Scenarios a Non-Regulated Alternative Corporate Tax Rate 15% 20% 25% EnerBank interest income offsets Parent interest expense Series 1 Assumptions Asset Expensing Amount 100% 100% 100% $130 mil Annual Backfill (mils) $100 $200 $300 Loss of Interest Deduction
Slide 14: Another Step Towards Clean & Lean: Palisades PPA
Top of Mind: Another Step Towards Clean & Lean . . . . Palisades PPA Contract Approach Cost Contract (mils) price-to- 1• Replace above market PPA contract $450 $172 mil Consumers (customer savings) 400 2• Fully utilize existing assets 350 3• Emphasis on no carbon solutions • Energy Efficiency, 300 •
Slide 15: DIG (750 MW) & Peakers (200 MW)
Top of Mind: “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 30 Better Performance 20 $12 10 Outage pull-ahead 0 2015 2016 2017 Future Capacity ($/kw-mth) ≈ $1.00 ≈ $2.00 ≈ $3.00 $4.50 $7.50 Av
Slide 16: Generation Strategy: New Supply Sources
Top of Mind: Generation Strategy: New Supply Sources . . . . Levelized cost of new build (¢/kWh) New Build 25 Consumers Energy Sources 22¢ 20 15¢ 15 12¢ 10¢ 10 9¢ Back 6¢ -up 7¢ 6¢ 6¢ 5.5¢ 5¢ 5¢ 5 4¢ 4¢ Back -up Cross Winds 7¢ Big 5 Palisades Zeeland 4¢ 0 Combined Cycle Gas Plant Wind Coal Nuclear
Slide 17: New Energy Law
Top of Mind: New Energy Law . . . . Customer Investor What’s New? What is the Impact? • Subsidies addressed • Price competitiveness • ROA reform • Secure capacity • Net metering • Increased energy efficiency & demand • Improved incentives response incentive • RPS -- 15% by end of 2021 • Additional r
Slide 18: Capacity Diversity
Clean and Lean: Capacity Diversity . . . . Nuclear 8% Oil 10% Coal Purchases 21% 3% Renewables 10% 2017 Pumped Storage Gas Nuclear Oil 6% 8% 12% 36% Future Capacity Mix Renewables 3% Pumped Storage Coal • More Renewables; 15% by 2021 41% • Expanded Pumped Storage 11% 2005 • Clean Energy Resources Ga
Slide 19: Energy Diversity
Clean and Lean: Energy Diversity . . . . Supply 2015 2016 • Coal 41% 24% a • Gas 18 27 • Renewables 4 4 • Pumped Storage (1) (1) b • PPA (Nuclear and Gas) 38 46 b _____ a Includes 3% from Classic 7 coal plants (shutdown April 2016) b Includes market purchases . . . . significant shift away from coal
Slide 20: Reducing Carbon Impact
Clean and Lean: Reducing Carbon Impact . . . . 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
Slide 21: 2017 Sensitivities
Financial: 2017 Sensitivities . . . . 2017 Impact Sensitivity EPS OCF (mils) Sales a • Electric (37,704 GWh) + 1% + 5¢ + $ 20 • Gas (302 Bcf) + 5 + 7 + 30 – – 55 Gas prices (NYMEX) + 50¢ + 0 + ROE (planned) • Electric (10.3%) • Gas (10.1%) + 20 bps + 20 + + 3 1 + 15 + 6 Interest Rates +100 bps + <
Slide 22: Consistent Growth Through Varied Conditions
Consistent Growth Through . . . . 7% CAGR a EPS +6% to +8% Dividend 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. Warm w
Slide 23: Appendix
Appendix
Slide 24: CMS Customer Investment
CMS Customer Investment 2017-2021 2022-2026 2017-2026 2017 2018 2019 2020 2021 Subtotal Subtotal Total (mils) (mils) (mils) (mils) (mils) (mils) (mils) (mils) Supply Traditional Generation $ 263 $ 312 $ 374 $ 263 $ 236 $ 1,448 $ 1,463 $ 2,911 Clean Power 147 64 70 54 33 368 1,073 1,441 Total Supply
Slide 25: 2017 Financial Targets Updated
2017 Financial Targets Updated . . . . 2017 Next 5 Years Adjusted EPS (non-GAAP) $2.14 - $2.18 +6% to +8% +6% to +8% Operating cash flow (mils) $1,650 Up $100/year Dividend payout ratio ~ 62% ~ 62% Customer price (excl. fuel) Electric ~2% ~2% Gas ~2% ~3% FFO/Average debt 18½% ~18% Customer investmen
Slide 26: GAAP Reconciliation
GAAP Reconciliation
Slide 27: 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 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 Pretax items:
Slide 28: Reconciliation of Gross Operating Cash Flow to GAAP
CMS Energy Reconciliation of Gross Operating Cash Flow to GAAP Operating Activities (unaudited) (mils) 2015 2016 2017 2018 2019 2020 2021 Consumers Operating Income + Depreciation & Amortization $ 1,866 $ 2,037 $ 2,138 $ 2,315 $ 2,547 $ 2,678 $ 2,816 Enterprises Project Cash Flows 20 46 53 54 53 53
Slide 29: Clean and Lean Energy Portfolio
CLean AND “Lean” Energy Portfolio . . . . Sustainable Strategy Creates Headroom = OUR MODEL; OUR PLAN 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: – L
Slide 30: Actual Plan Model
Actual Plan Model +7%/ year $2.18 2017+ Plan $1.89 $2.02 6% - 8% $1.77 2.08 Capital investment a $1.55 $1.66 $2.14 6% - 8% Adjusted EPS $1.21 $1.26 $1.36 $1.45 $0.81 $1.08 $1.02 $1.08 $1.16 $1.33 - O&M cost reductions 2 - 3 pts $0.90 $0.96 84¢ 96¢ 66¢ - Sales growth 1 Int’l Sale $0.84 50¢ Dividend 2