Cms Energy Corporation · NYSE:CMS
Cms Energy — Investor Presentation (June 2017)
50 slides from Cms Energy's investor presentation, Jun 8, 2017
Slide 1: Investor Meetings June 8-9, 2017
Investor Meetings June 8 -9, 2017
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: 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 1 - No “block” equity dilution & other 2 INVESTMENT SELF-FUNDED 5 - 6 pts Rate increase “at or below inflation” < 2% .
Slide 4: Ten-year Customer Investment Plan
Model: Ten-year “Customer Investment” Plan . . . . Gas Electric Infrastructure & Distribution Maintenance $18 billion Supply . . . . with opportunities to expand to $21 - $25 billion. 3
Slide 5: O&M Cost Performance Helps to Fund Investment
Model: O&M Cost Performance Helps to Fund . . . . Actual Cost Reduction New Annual Cost Savings (Peers 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
Slide 6: Managing Work Every Year
Model: 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 Hot WARM Offsets S
Slide 7: The Triple Bottom Line: People, Planet, Profit
The Triple Bottom Line . . . . PEOPLE • PLANET • PROFIT PEOPLE PLANET PROFIT PERFORMANCE . . . . world class performance delivering hometown service. 6
Slide 8: Customer Satisfaction
Customer Satisfaction . . . . PEOPLE J.D. Power Customer Satisfaction Index Residential Customers Business Customers 757 738 22% 24% 606 613 2010 2016 2010 2016 . . . . steadily improving. 7
Slide 9: Reduce Coal Intensity
Reduce Coal Intensity . . . . PLANET Coal Capacity Coal Energy Renewables a 49% Optimize Wind for Shut down coal gas MCV PPA a 41% c 30% b b 21% 22% c c 15% 15% 15% RPS 10% 3% 2005 2016 Future 2005 2016 Future 2005 2016 Future _____ _____ _____ a Includes Classic 7, includes PPA contracts b Excludes
Slide 10: Consistent Growth Through Cycles
Consistent Growth Through . . . . PROFIT 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.
Slide 11: The Consumers Energy Way
The Consumers Energy Way . . . . The CE Way Safety . Quality . Cost . Delivery . Morale CUSTOMER ENABLED Safety: Every day is a safe day FOCUS EMPLOYEES Quality: We get it right the first time BUSINESS Cost: We see and eliminate waste RESULTS Delivery: We get it done on time Morale: We are proud to
Slide 12: Fifteen Years of Growth
Fifteen Years of Growth . . . . 7% CAGR Opportunities Wind for Gas MCV Grid Infra. Modernization PPA Replacements Future LAW +6% to +8% Plan Ops NEW ENERGY a EPS • Customer Investment (bils) $18 $25 • O&M Reductions (10)% (15)% • Coal Capacity 21 % 15 % Recession Recession People Planet Profit 2003
Slide 13: Rejji P. Hayes
Rejji P. Hayes CMS Energy 2017 EVP and CFO ITC Holdings Corp. 2012 – 2016 - CFO (2014 – 2016) - VP, Finance & Treasurer (2012 – 2014) Exelon Corporation 2009 – 2012 Asst. Treasurer & Dir. Corp. Finance & Financial Strategy Lazard Frères & Co. LLC 2007 – 2009 VP, M&A Banc of America Securities 2003 –
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Slide 15: Ten-year Customer Investment Plan
Customer Investment: Ten-year “Customer Investment” Plan . . . . Gas Electric Infrastructure & Distribution Maintenance $18 billion Supply . . . . with opportunities to expand to $21 - $25 billion. 14
Slide 16: Customer-Driven Investment ($18 billion)
Customer Investment: Customer-Driven Investment ($18 billion) . . . . Clean Power Infrastructure Reliability Maintenance $1.4 Billion $3.4 Billion $2.8 Billion $10.4 Billion Clean energy Gas expansion Grid Modernization Grid Ludington Pumped Storage Gas distribution Electric distribution New gas cap
Slide 17: Gas Expansion
Customer Investment: Gas Expansion . . . . Saginaw Trail Pipeline Gas Main Replacement Propane to Gas $0.6 billion $1 billion $0.4 billion • 94 miles, 24” diameter • Reduce system risk and • ~2,000 customers per year increase capacity • Multi-year project • 250,000 propane users in • 25 years remain
Slide 18: Growing the Gas Business
Customer Investment: Growing the Gas Business . . . . Capital Investment Gas Service Territory Amount a - 1.8 million customers Gas Prices (bils) 2015 $3.74/mcf $8 - 29,590 miles of distribution and transmission $8 2016 $2.95/mcf - 309 Bcf gas storage capacity Gas service area 21% Transmission line
Slide 19: Evolution of Capex Growth
Customer Investment: Evolution of Capex Growth (Next 10 Years) . . . . More Ops Capex (bils) $21 - $25 $ 25 20 $18 $17 $15.5 15 10 50 2015 Feb. 2016 Dec. 2016 Future Ops . . . . supports high-end adjusted EPS growth. 18
Slide 20: Future Capex Opportunities
Customer Investment: Future Capex Opportunities . . . . Replacement MCV PPA Opportunities • 1,240 MW • Renewables • Storage • Expires 2025 • Energy efficiency • Demand response Add ~$3 billion renewables . . . . Clean and Lean. 19
Slide 21: Matching Supply with Demand
Clean and Lean: Matching Supply with Demand . . . . Old Utility Model Clean And Lean Big Build O&M Fuel Supply Supply Modular Fully utilize Modular Retirement Investments assets Excess supply Big Excess Build supply Modular Actual Modular Demand Demand EE & DR Excess O&M supply Expected Demand Fuel
Slide 22: Reduce Coal Intensity
Clean and Lean: Reduce Coal Intensity . . . . Coal Capacity Coal Energy Renewables a 49% Optimize Wind for Shut down coal gas MCV PPA a 41% c 30% b b 21% 22% c c 15% 15% 15% RPS 10% 3% 2005 2016 Future 2005 2016 Future 2005 2016 Future _____ _____ _____ a Includes Classic 7, includes PPA contracts b
Slide 23: Generation Strategy: New Supply Sources
Clean and Lean: 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 Nucl
Slide 24: 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 25: Cleaner Energy Portfolio
Clean and Lean: Cleaner Energy Portfolio . . . . Apple Blossom Wind Farm Community Solar Gardens • Competitive price • Utility Scale Solar • 100 MW • Grand Valley State University, 3 MW • Western Michigan University, 1 MW • Commercial operation by 2018 • Capacity, energy, and renewable credits • PPA
Slide 26: Capacity Diversity
Clean and Lean: Capacity Diversity . . . . Nuclear 8% Oil 10% Coal Purchases 21% 3% Renewables 10% 2017 Pumped Potential Future Capacity Mix Storage Gas Nuclear 12% 36% Oil 9% Oil 6% 8% Purchases 2% Renewables 3% Coal 15% Coal Pumped 41% Renewables Renewables Storage 11% 2005 30%30% Future Gas 31% G
Slide 27: Energy Diversity
Clean and Lean: Energy Diversity . . . . Total Company Supply 2015 2016 Future • Coal 41% 24% a 22% • Gas 18 28 • Renewables 4 4 • Pumped Storage (1) (1) FLAT b • PPA (Nuclear and Gas) 38 47 b _____ a Excludes Classic 7 coal plants (shutdown April 2016) b Includes market purchases . . . . significan
Slide 28: Sustainability
Clean and Lean: Sustainability . . . . A Sustainable Strategy Coal Capacity Mix • Retired 950 MW of coal 2005 2017 • Found positions for affected employees Largest reduction of any investor-owned utility • Worked with local communities early on • Reduced our environmental 41% impact 21% Positioned w
Slide 29: 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 30: Another Step Towards Clean & Lean
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• Match capacity with demand • Energy Efficiency, 300 • Dema
Slide 31: 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 32: Tax Reform Possible
Top of Mind: Tax Reform Possible . . . . Developments One Possibility CMS Impact • Affordable Care Act (“ACA”) Utility • “Capex” “backfill” for bonus reform legislation failed to depreciation (asset expensing) garner enough Republican support Enterprises -- rate reduction • Confirmation hearings for
Slide 33: Regulatory Update
Top of Mind: Regulatory Update . . . . Jan. 1 2017 2018 Energy Law 4/20: Energy Law 12/1: SRM Spring: AES effective capacity charge finalized Capacity charge effective Gas Rate Case 1/29: Self-implement $20 mil 7/31: Final Order Electric Rate Case 2/28: Final order; 3/31: File; $173 10/1: Self- 3/30
Slide 34: Strong Commission
Top of Mind: Strong Commission . . . . Commission: Updated Terms Tier 1 State Ranking Tier Sally Talberg (I), Chairman Term Ends: July 2, 2021 Michigan 1 6 Prior: July 2, 2019 Switched 2 9 term-end dates Norm Saari (R) 3 18 Term Ends: July 2, 2019 Prior: July 2, 2021 4 9 Rachael Eubanks (I) Term End
Slide 35: Economic Development Growth
Top of Mind: 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 +320% +243% +106% Royal Technologies Zeeland Farm Services Ottawa Ithaca • Manufactures plast
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Slide 37: First Quarter Results
Financial: First Quarter Results . . . . First Quarter EPS at 71¢ a Up 12¢ from 2016; up 14¢ or 20% weather-normalized Mild weather and storm fully mitigated a Reaffirm Full Year EPS guidance: $2.14 to $2.18 +6% to +8% a Long-term Growth: 6% to 8% _____ a Adjusted EPS (non-GAAP) . . . . on track for
Slide 38: 2016 EPS
Financial: 2016 EPS . . . . 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 Improved “UAs” & Oth
Slide 39: 2017 EPS
Financial: 2017 EPS . . . . Adjusted EPS (non-GAAP) Benefits 4¢ Property taxes 4 Total 8¢ Guidance +6% to +8% Recovery Recovery Accelerated Financing 3¢ Weather Enterprises 1 & Storms EE incentives 2 Sales Mix & Other 2 Total 8¢ January March 31 June 30 September 30 December 31 . . . . includes 6% t
Slide 40: Managing Work Every Year
Financial: 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 Hot WARM Offse
Slide 41: EPS
Financial: EPS . . . . a +8% EPS a $2.18 +7% Average growth per year +8% $2.10 +6% $2.02 $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 $
Slide 42: Credit Ratings
Financial: Credit Ratings . . . . Scale Ratings Drivers S&P / S&P Moody’s Fitch Fitch AA- Moody’s Aa3 (Dec. ‘15) (Apr. ‘17) (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 BBB+ Baa1 • Return on regulated BBB
Slide 43: Operating Cash Flow Funds Investment
Financial: Operating Cash Flow Funds . . . . Amount Gross operating cash flowa Up $0.8 (bils) up > $0.1 billion per year billion $2.9 $ 2.9 $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 Investm
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Slide 45: GAAP Reconciliation
GAAP Reconciliation
Slide 46: 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 47: Earnings By Quarter and Year GAAP Reconciliation
CMS ENERGY CORPORATION Earnings By Quarter and Year GAAP Reconciliation (Unaudited) (In Millions, Except Per Share Amounts) 2016 1Q 2Q 3Q 4Q YTD Dec Reported net income - GAAP $164 $124 $186 $77 $551 Pretax items: Electric and gas utility - - 11 * 11 Tax impact - - (4) (*) (4) Enterprises * * * 1 1
Slide 48: Reconciliation of Gross Operating Cash Flow to GAAP Operating Activities
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 $ 2,135 $ 2,292 $ 2,547 $ 2,678 $ 2,816 Enterprises Project Cash Flows 20 46 56 54 53 53
Slide 49: Our Model; Our Plan: Clean and Lean
Reduced Coal Dependency Retired Nuclear 950 MW of Nuclear Oil 8% Oil 6% 8% coal capacity 10% Renewables 3% Coal 41% Purchases 3% Coal 21% OUR MODEL; OUR PLAN Renewables Pumped 2005 10% 2017 Storage Gas Gas OUTPERFORMED FOR A DECADE: Pumped Lean 11% 31% Storage 36% NEXT DECADE EVEN BRIGHTER 12% • 1
Slide 50: Actual Plan Adjusted EPS
Actual Plan Simple, Perhaps Unique Model +7%/ year $2.18 2017+ Plan $1.77 $1.89 $2.02 $2.14 a $1.55 $1.66 6% - 8% Customer investment 6% - 8% Adjusted EPS $1.21 $1.26 $1.36 $1.45 $0.81 $1.08 $1.02 $1.08 $1.16 $1.24 $1.33 - O&M cost reductions 2 - 3 pts $0.90 $0.96 84¢ 96¢ 66¢ - Sales growth 1 Int’l