Slide 1: Barclays CFO Roundtable
Top of Mind • Why invest? • What’s in the Plan?; What’s not? • How do we do it? • What makes us different? Barclays CFO Roundtable March 18, 2015 Ludington Pumped Storage Cross Winds Energy Park Fourth largest in the world Unmatched Adjusted EPS Performance #2 in renewable sales in the Great Lakes
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: What's Changed Since Last Year?
What’s Changed Since Last Year? DELIVERED ON 2014 COMMITMENTS . . . . Commitment Results Delivered a a A. Exceed industry EPS and dividend growth A. +7% EPS ; +7.4% dividend! B. Exceed industry ORGANIC CAPITAL B. $1.7 bil -- 16% of market cap INVESTMENT ($1.6 bil) (peers 14%)! C. Industry leading 2%
Slide 4: Why Invest in CMS Energy?
Why Invest in CMS Energy? Our Growth Engine Supported By (2015-2024 Capex) ● UPSIDES create headroom (Investment, Sales, Cost, & DIG) ● PARTNERS in progress $15.5 Billion (Customers, Regulators, & Policy Makers) a 5% - 7% EPS growth ● PASSION to improve for customers AND owners (Value, Reliability,
Slide 5: Unmatched EPS Performance
Why Invest in CMS Energy? UNMATCHED EPS PERFORMANCE . . . . Premier, Real EPS Growth a Upsides Future = 5% to 7% / yr $20 bil (vs $15.5 bil) capex growth, CMS = 7% / yr > O&M reductions; 6% ‘14 & ‘15; 4% ‘16 – ’18 -- more to go, > ½% sales growth, 2008 Energy Law updates, AND “DIG” capacit
Slide 6: Investment "Catch-Up"
What’s in the Plan? INVESTMENT “CATCH-UP” . . . . Amount (billions) $1.8 > $1.5 per year Peers Peer Performance a Consumers Energy Peer Average CMS Capex Liquidity Cash Flow (oper) 20% 16% 15% 14% 15% 12% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Slide 7: Visible Capex
What’s in the Plan? VISIBLE CAPEX . . . . 2005-2014 2015-2024 $10.7B $15.5B Up +94% Gas Infrastructure Electric Gas Maintenance Infrastructure Electric Maintenance Electric Reliability New New & Distribution Generation Generation Smart Energy Electric Reliability & Distribution Environmental Up +151
Slide 8: Upside Investment Opportunities
What’s NOT in the Plan? UPSIDE INVESTMENT OPPORTUNITIES . . . . 2015-2024 Opportunity Level 10-Year Plan Amount (bils) Generation capacity $3 Gas conversions & expansion 1 Grid modernization 1 $20+ Billion $15.5 Billion Total Opportunities $5 Upside? Rate Base up 5% to 7% Customer base rates <2 >4
Slide 9: Upside Capacity Opportunities
What’s NOT in the Plan? UPSIDE CAPACITY OPPORTUNITIES . . . . Capacity Growth Over Next Ten Years MW 11,000 10,000 PPA’s Expire ~9,400 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 Lower customer bills Owned Shortfall 6,000 540 MW 5,000 Today Jackson P
Slide 10: Upside Capacity Price Increases
What’s NOT in the Plan? UPSIDE CAPACITY PRICE INCREASES . . . . Was Now Future Scenarios (mils) (mils) (mils) +$40 $55 +$20 $35 $15 $5 Capacity price < $0.50 ≈ $2.00 $4.50 $7.50 ($ kW per (Market) (Market) (CONE) month) . . . . could add value to the 700 MW “DIG” plant. 9
Slide 11: Sales Growth
What’s NOT in the Plan? SALES GROWTH . . . . In the News Annual Electric Salesa Industrial Total “Kent County [Grand Rapids] leads nation’s 8.7% largest counties in post-recession employment gains” -- Grand Rapids Press 5.0% Conservative 2.8% 3.0% “Kent County [Grand Rapids] unemployment 2.0% 1.0% 1
Slide 12: O&M Cost Savings
How Do We Do It? O&M COST SAVINGS . . . . O&M Trend vs Peers O&M Cost Savings 2014 2014 0 50% & 2015 2018 (mils) (mils) ~6% per year 0 Peers • Attrition $ - 35 $ - 75 0 ~2% per year • Productivity (Coal Gas) - 35 - 50 0 • “Pole Top” Hardening - 30 - 30 Inflation 0 -25% • Smart Meters - 5 - 25 0 • El
Slide 13: O&M Cost Reductions
How Do We Do It? O&M COST REDUCTIONS . . . . -3% -3% Amount 1,080 +5% (mils) 1,060 $1060 1,040 +9% 1,020 1,000 980 -8% 960 940 920 -12% 900 880 860 840 2013 Cost Reinvestment 2014 "Benefits" Cost 2015 Reductions Reductions . . . . providing more headroom for customer benefits. 12
Slide 14: "Reinvestment" Helps Customers
How Do We Do It? “REINVESTMENT” HELPS CUSTOMERS . . . . a Annual EPS Growth Adjusted EPS 2012 2013 2014 (non-GAAP) 14% CMS EPS Growth Before “Reinvestment” CMS 2014 CMS 7% CMS 7% 7% 3% 2015 $1.45 Peers _____ a Adjusted EPS (non-GAAP) $1.77 +7% Guidance January March 31 June 30 September 30 December
Slide 15: 2015 Gas and Electric Rate Cases
How Do We Do It? 2015 GAS AND ELECTRIC RATE CASES . . . . 2014 2015 2016 Our View GAS Filed $88 M 7/01 Settled $45 M A) Settled $45 million B) 10.3% ROE A) A) Jackson Plant in Jackson Plant Classic 7 Decommissioned rate base B) Final Securitization Filed Self- implement Surcharge Ends Order B) Inv
Slide 16: Experienced Policy Makers
How Do We Do It? EXPERIENCED POLICY MAKERS . . . . Governor Rick Snyder Commission Powering Michigan’s John Quackenbush (R), Comeback Chairman Term Ends: July 2, 2017 Consistent Sally Talberg (I) Term Ends: Energy Committee Chairs Leadership! July 2, 2019 Senator Mike Nofs Greg White (I) Term Ends:
Slide 17: 2015 Michigan Energy Law
How Do We Do It? 2015 MICHIGAN ENERGY LAW . . . . • Adaptability • Reliability Upside • RPS Expansion? • Affordability • ROA Elimination? • Environmental protection • 10% renewables by 2015 • Energy efficiency 2015 Energy Timeline standards • Governor Snyder names • File-and-implement energy a top p
Slide 18: Electric Customer Prices
What Makes Us Different? ELECTRIC CUSTOMER PRICES . . . . Residential Bills Industrial Rates Worse Worse 20 % 30 % 26% 21% 20 Rates & 10 Fuel 13% Rates & 10 Design 7% 3% National Avg Midwest Avg 0 0 (5)% -10 Policy or market might -10 (12)% (13)% eliminate gap Rates (14)% -20 Rates & Rates & (19)% D
Slide 19: Customer Satisfaction
What Makes Us Different? CUSTOMER SATISFACTION . . . . Electric Gas #2 1st Quartile #3 1st Quartile 2nd Quartile 2nd Quartile #6 #9 3rd Quartile 3rd Quartile 4th Quartile 4th Quartile Present Present 2010 2012 2014 Rank 2016 2010 2012 2014 Rank 2016 Residential Business Residential Business . . . .
Slide 20: A Passion for Customers AND Investors
What Makes Us Different? A Passion for Customers AND Investors . . . . Future Shines Bright Sustainable Future Growth $3.50 EPS a Past Next 5 Dividend +5% to +7% Performance Years Investment (bils) $6.4 $7.6 (2010-2014) Capacity Op! +7% O&M Reductions (7)% (10)% ~ +4% yield (2006-2013) Conservative
Slide 21: Appendix
Appendix
Slide 22: Mindset
Mindset . . . . 10-Year Actual $1.77 $1.89 7% CAGR a EPS $1.66 $1.86 Dividend Peers 4% $1.55 $1.45 $1.36 b $1.26 7% $1.21 $1.16 6% $1.08 6% $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 2015 Futu
Slide 23: 2015 Guidance
2015 Guidance . . . . Adjusted EPS (non-GAAP) • Utility • Electric $1.50 - $1.52 • Gas 0.59 - 0.60 Total Utility $2.09 - $2.12 • Enterprises 0.04 • Parent and other (0.27) Total EPS $1.86 - $1.89 +5% to +7% • Operating cash flow (GAAP) (mils) $1,550 . . . . building on high end, actual 2014 performa
Slide 24: 2015 Sensitivities
2015 Sensitivities . . . . 2015 Impact Status Sensitivity EPS OCF (mils) Sales a • Electric (37,847 GWh) + 1% + $0.05 + $ 20 • Gas (294.1 Bcf) + 5 + 0.07 + 30 Gas prices (NYMEX) + 50¢ – 0 – 55 + + ROE (authorized) • Electric (10.3%) + 10 bps + 0.01 + 5 • Gas (10.3%) + 10 + < 0.01 + 2 Interest Rates
Slide 25: Operating Cash Flow Growth
OPERATING CASH FLOW GROWTH . . . . Amount Up $0.5 Billion (bils) Gross operating cash flowa $ 2.5 up $0.1 billion per year $2.4 $2.2 $2.1 $2.0 2.0 $1.9 Interest, working $1.8 capital and taxes $1.55 1.5 Pct of Market Cap (as of Dec. 2014) 1.0 Cap Inv OCF Investment 16% CMS 13% 15% 0.5 Peers 14 12 0.
Slide 26: Credit Ratings
Credit Ratings . . . . Scale Reflects S&P / S&P Moody’s Fitch Fitch Moody’s (Dec. ‘14) (Jan. ‘14) (Feb. ‘15) A+ A1 • Consistent A A2 Consumers Performance Secured A- BBB+ A3 Baa1 • Less Risk BBB Baa2 BBB- Baa3 • Customer Focus BB+ Ba1 • Constructive BBB Baa2 CMS Unsecured Regulation BBB- Baa3 BB+ Ba
Slide 27: Economic Growth
What’s NOT in the Plan? ECONOMIC GROWTH . . . . Examples of New Business Industries Electric Gas Combination MW Announcement Announcement Auto 50 Plasan Carbon Composites Dicastal North America, Inc. Food 7 • High performance auto • World’s largest maker of body parts alloy wheels • 620 new jobs • 3
Slide 28: Consumers Appears to be in a good carbon position
What Makes Us Different? 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. 27
Slide 29: Capacity Diversity
Capacity Diversity . . . . Nuclear Oil 8% 6% Renewables 9% Coal 34% Pumped Storage 2014 11% Nuclear Gas Nuclear Oil 6% 32% 8% 8% Oil 6% Renewables Purchases 3% 3% Coal 24% Pumped Coal Renewables Storage 41% 10% 11% 2005 2017 Pumped Gas Storage Gas 31% 12% 37% . . . . evolving to cleaner generation w
Slide 30: Capital Expenditures
Capital Expenditures 2015-2019 2020-2024 2015-2024 2015 2016 2017 2018 2019 Subtotal Subtotal Total (mils) (mils) (mils) (mils) (mils) (mils) (mils) (mils) New Generation (includes Renewables) $ 70 $ 224 $ 52 $ 64 $ 134 $ 544 $ 612 $ 1,156 Environmental 254 98 136 153 212 853 139 992 Gas Infrastruct
Slide 31: GAAP Reconciliation
GAAP Reconciliation
Slide 32: 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 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 After-tax items: Electric and gas ut
Slide 33: Reconciliation of Gross Operating Cash Flow to GAAP Operating Activities
CMS Energy Reconciliation of Gross Operating Cash Flow to GAAP Operating Activities (unaudited) (mils) 2014 2015 2016 2017 2018 2019 Consumers Operating Income + Depreciation & Amortization $ 1,813 $ 1,885 $ 1,955 $ 2,081 $ 2,194 $ 2,358 Enterprises Project Cash Flows 20 25 29 50 52 55 Gross Operati