Cms Energy Corporation · NYSE:CMS
Cms Energy — Investor Presentation (April 2016)
39 slides from Cms Energy's investor presentation, Apr 13, 2016
Slide 1: Investor Meeting April 13, 2016
Investor Meeting April 13, 2016 Jackson Gas Plant Ludington Pumped Storage Cross Winds Energy Park Among lowest acquisition cost ever Fourth largest in the world #2 in renewable sales in the Great Lakes area
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: Recent News
Recent News . . . . • 13 years of consistent, 7% EPS growth • Planned CEO succession • Raised 10-year capex from $15.5 billion to $17 billion • Closing 950 MW of coal plants April 15, 2016 • Lowest natural gas prices in 18 years • Fitch/Moody’s raised CMS and Consumers Energy ratings/outlook • Filed
Slide 4: Simple, Perhaps Unique Model
Simple, Perhaps Unique Model . . . . 2017+ Plan Capital investment (reliability, costs, enviro mandates) 6% - 8% - 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 % Possible with base rates
Slide 5: Capex Expanded to $17 billion
Capex Expanded to $17 billion . . . . 2005-2014 2015-2024 2016-2025 $10.7 bil $15.5 bil $17 bil PRIOR NEW +45% +10% Gas Gas Gas Infrastructure & Electric Infrastructure & Electric Infrastructure & Maintenance Electric 27% Maintenance Maintenance Maintenance Maintenance Maintenance 37% 37% Electric E
Slide 6: Capex Opportunities Remain
Capex Opportunities Remain . . . . 2005-2014 2016-2025 Opportunities $10.7 bil $17 bil $3+ bil NEW +20% • PPA Replacements +59% (2,000 MW) Gas Infrastructure & Maintenance Gas Infrastructure & • Clean Power Electric 27% Maintenance Electric Maintenance Maintenance • Gas Infrastructure 37% Environ. •
Slide 7: O&M Cost Performance
O&M Cost Performance . . . . Actual Cost Reduction New Cost Savings (2014 over 2006) 2014 2016 & 2015 & 2017 (mils) (mils) • Attrition $ - 35 $ - 35 • Productivity (Coal Gas) - 35 - 15 • “Pole Top” Hardening - 20 - 10 • Smart Meters - 5 - 20 Peer Average >5% • Eliminate Waste (UA’s) - 15 - 20 & Work
Slide 8: O&M Cost Performance
O&M Cost Performance . . . . Actual Cost Reduction per Customer Distribution Cost Per Customer (2014 over 2006) 2006 2014 1st Quartile 2nd Quartile Peer Average 3 ½% 3rd Quartile Consumers Consumers Consumers -2.7% 4th Quartile ----- Source: SNL, Form 1, Electric Non-fuel O&M . . . . opportunities t
Slide 9: Sustainability
Sustainability . . . . A “Green” Strategy Reduced Coal Dependence • 2nd most coal reduction in 2005 2016 the U.S. (>40% reduction) Coal reduced • Among Michigan’s best & by over 40%! 2nd best in U.S. brightest sustainable companies in 2015 • #2 ranked in U.S. by 41% Sustainalytics (out of 50) <24% P
Slide 10: Sales Growth
Sales Growth . . . . Annual Electric Sales c Our Service Territory Outperforms a Industrial Economic Development Examples Load Total (MW) Grand • General Motors 31 Rapids Michigan U.S • Brembo 24 • Arauco (particle board) 15 Building Permits b +209% +204% +110% • Switch 7 • Knauf Fiberglass 7 Total,
Slide 11: Operating Cash Flow Growth
Operating Cash Flow Growth . . . . Amount Up $0.8 Billion (bils) Gross operating cash flowa $2.7 $ 2.7 up $0.1 billion per year $2.5 $2.4 $2.2 2.2 $2.0 Interest, working $1.9 capital and taxes $1.8 1.7 $1.6 1.2 0.7 Investment 0.2 (0.3) _____ Cash flow before dividend a Non-GAAP (0.8) 2014 2015 2016
Slide 12: Consistent Growth Through Recessions, Weather, Policy
Consistent Growth Through . . . . 7% CAGR a EPS Dividend Weather Recession Recession Help _____ Hurt a Adjusted EPS (non-GAAP) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Cold Mild Hot Warm Mild Cold Summer- Hot Hot Warm Mild Polar Cold winter summer summer winter summ
Slide 13: Capital Investment Grows
Capital Investment Grows . . . . Ten-Year Capital Investment Growth (bils) Details Ops Capex Prior New (w/o Law) (bils) New vs Prior $20+ Electric reliability $0.4 + $1.5 Gas infrastructure 0.4 $17 Clean power 0.7 $15.5 New $1.5 Ops Replace expiring $2.0 PPAs; generation Reliability & pipes 1.0 Ops
Slide 14: New "Incremental" Capex
New “Incremental” Capex . . . . Electric Gas Renewables +$400 mil +$400 mil +$700 mil • 2,900 poles (+60%) • 75 transmission miles • Add 300 MW of new wind • 2.4 HVD miles (+120%) (+35%) to support future • Install more remote compliance • 30 substations (+50%) valves • Improve SAIDI performance • R
Slide 15: Customer Driven Investment
Customer Driven Investment . . . . Clean Power Capacity Reliability Infrastructure Maintenance $1.9 Billion $2.8 Billion $3.0 Billion $3.6 Billion $5.7 Billion Environmental New business development Grid Modernization Gas distribution Technology Clean energy Gas expansion Gas storage New customers &
Slide 16: CMS Capital Expenditures
CMS Capital Expenditures 2016-2020 2021-2025 2016-2025 2016 2017 2018 2019 2020 Subtotal Subtotal Total (mils) (mils) (mils) (mils) (mils) (mils) (mils) (mils) New Generation (includes Renewables) $ 87 $ 72 $ 59 $ 43 $ 31 $ 292 $ 1,378 $ 1,670 Environmental 122 143 121 178 133 697 2 699 Electric Rel
Slide 17: Generation Strategy: New Supply Sources
Generation Strategy: New Supply Sources . . . . Levelized cost of new build (¢/kWh) New Build 25 Consumers Energy Sources 22¢ 20 15¢ 15 12¢ 11¢ Back 10¢ 10 -up 8¢ 7¢ 6¢ Back 7¢ 6¢ -up 6¢ 9¢ 5.5¢ 5¢ 5¢ 5 Cross Winds 6¢ Big 5 Palisades Zeeland 0 Combined Cycle Gas Plant Wind Coal Nuclear Residential
Slide 18: Clean Power Plan
Clean Power Plan . . . . 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 2029 2030 . . . . rec
Slide 19: Air Quality Improvement
Air Quality Improvement . . . . Historical Actual Emissions 30% 20% CO2 10% Hg 0 0% -10% -20% PM -30% -40% BY Y.E. 2016 SO2 -50% SO2 -87% -60% NOx -87% NOx -70% Hg -83% -80% CO2 -28% -90% PM -96% 100 -100% 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 . . . . significant reduction. 18
Slide 20: Cleaner Energy Portfolio
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 with option to
Slide 21: Capacity Diversity
Capacity Diversity . . . . Nuclear 8% Oil 10% Coal reduced Coal by over 40%! Purchases <24% 2nd best in U.S. 3% Renewables 10% 2016 Pumped Nuclear Storage Gas Oil 6% 8% 11% 34% Future Capacity Mix Renewables 3% • More Renewables Pumped Coal Storage 41% • Expanded Pumped 11% 2005 Storage Gas • Clean
Slide 22: Michigan Energy Law
Michigan Energy Law . . . . 2008 Law Key Players Updates • 10% renewables by 2015 House • ROA -- Fair choice; no (Currently at 10%) subsidy • Energy efficiency standards Committee Vote • Efficiency -- Eliminate waste (1% per year) Rep. Nesbitt Full vote • Renewables -- Integrated • File-and-implem
Slide 23: Electric Customer Prices
Electric Customer Prices . . . . Residential Bills Industrial Rates 20% 30 % 26% 15 20 Rates & Worse Worse Fuel 5 10 Rates & 5% National Avg Act 169 Midwest Avg 0 -5 Flat Residential bills well below U.S. average -10 Policy could (7)% Better Better -15 (13)% Rates (18)% eliminate gap Rates & Fuel Ra
Slide 24: CMS Energy
CMS Energy . . . . Electric service territory Overview Natural gas service territory Combined service territory #4 Combination utility (electric and Generating facility gas) in the country #383 Fortune 500 company #2 Investor in Michigan Our Service Territory • Electric Utility 1.8 million electric
Slide 25: Economic Development Growth
Economic Development Growth . . . . Examples of New Business Industries Electric Gas Combination MW Announcement Announcement Auto 71 Switch General Motors Flint & Grand Rapids • Largest data center in Food 20 eastern U.S. • Assembly and • 1,000 jobs created Components Plants • $5 billion investment
Slide 26: Michigan's Recovery
Michigan’s Recovery . . . . Gross Domestic Product – 2010 through 2014 Grand Rapids 21.5% Top 10% of All Cities! WA ND MT 11.3 50.8 11.6 MN 11.3 Michigan ME SD OR ID 8.0 WI Top 3 1.0 VT NH 12.8 6.6 WY 9.2 MI state! NY 7.4 9.3 -0.9 IA NE 13.9 12.0 MA 10.8 13.8 11.4 IL PA NV RI 6.0 IN OH CT UT CO 7.5
Slide 27: Electric Customer Base Diversified
Electric Customer Base Diversified . . . . Top Ten Customers 2015 Electric Gross Margin (2015 Ranked by Deliveries) 1. Hemlock Semiconductor 2. General Motors 3. Nexteer Automotive Corporation Commercial 4. Gerdau 32% 5. Denso International Residential 50% 6. Meijer 7. State of Michigan 8. Spectrum
Slide 28: "DIG" (750 MW) & Peakers (200 MW)
“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 New contracts $20 20 $12 10 Outage pull-ahead 0 2015 2016 2017 Future Capacity ($/kw-mth) ≈ $1.00 ≈ $2.00 ≈ $3.00 $4.50 $7.50 Available: • Energy
Slide 29: Managing Work Every Year
Managing Work Every Year . . . . Adjusted 2011 2012 2013 2014 2015 EPS $2.10 Mild $2.00 +17¢ Summer +7% +18¢ $1.90 Offsets $1.80 Ice Storm Reinvestment -13¢ +7% Cold RECORD Cost $1.70 Winter WARM Savings +13¢ +7¢ Reinvestment +7% Polar Vortex $1.60 Hot Mild Winter Summer +7% -9¢ +1¢ Cold Reinvestmen
Slide 30: New Bonus Depreciation
New Bonus Depreciation . . . . 2016 – 2020 2021 – 2025 (bils) (bils) Rate Base Growth • Add $1.5 billion $0.8 $0.7 $1.5 • Jackson Plant Backfill 0.2 (gas and electric infrastructure) • Pension 0.2 Increase (gross) $1.2 $0.7 • New Bonus Depreciation 0.6 Increase (net) $0.6 $0.7 • Annual EPS Lift 2¢ 2
Slide 31: Bonus Depreciation
Bonus Depreciation . . . . Summary Improved Plan Bonus Depreciation 10-Year • 6 years already No “Block” Equity Capex • New 5 years! – $600 mil shelter NEW 7 Years $17 bil Capital Investment • Add $1.5 billion – Electric reliability – Gas infrastructure PRIOR – Clean energy 5 Years $15.5 bil NOLs •
Slide 32: Financial Targets
Financial Targets . . . . 2016 2017 Operating cash flow (mils) $1,550 $1,650 Dividend payout ratio > 62% > 62% Customer price incr./(decr.) Electric (excl. fuel) ~1% ~2% Gas ~(10)% ~(2)% FFO/Average debt 18% 19% Capital investment (bils) $1.7 $1.7 . . . . transparent, consistent, strong performance.
Slide 33: 2016 Sensitivities
2016 Sensitivities . . . . 2016 Impact Sensitivity EPS OCF Status (mils) Sales a • Electric (38,043 GWh) + 1% + $0.05 + $ 20 • Gas (303 Bcf) + 5 + 0.07 + 30 – – 55 Gas prices (NYMEX) + 50¢ + 0 + ROE (authorized) • Electric (10.3%) + 10 bps + 0.01 + 5 • Gas (10.3%) + 20 + 0.01 + 4 Interest Rates +100
Slide 34: Credit Ratings
Credit Ratings . . . . Scale Reflects S&P / S&P Moody’s Fitch Fitch Moody’s (Dec. ‘14) (Mar. ‘16) (Mar. ‘16) 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 35: GAAP Reconciliation
GAAP Reconciliation
Slide 36: 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 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 After-tax items: Electric
Slide 37: 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 2020 Consumers Operating Income + Depreciation & Amortization $ 1,813 $ 1,866 $ 2,012 $ 2,161 $ 2,336 $ 2,481 $ 2,613 Enterprises Project Cash Flows 20 20 37 58 58 63
Slide 38: Our Model; Our Plan: Customers and Investors
Electric Customer Prices . . . . Residential Bills Industrial Rates CUSTOMERS 20% 30 % 26% 15 20 Rates & Worse Worse Fuel 5 10 Rates & 5% National Avg Act 169 Midwest Avg 0 -5 Flat Residential bills well below U.S. average OUR MODEL; OUR PLAN -10 Policy could (7)% Better Rates (18)% Better -15 (13)%
Slide 39: Actual Plan Model
Actual Plan Model 7% /year 2017+ Plan $1.89 Capital investment a $1.55 $1.66 $1.77 6% - 8% Adjusted EPS $0.81 $1.26 $1.36 $1.45 $1.08 $1.21 $1.02 $1.08 $1.16 - O&M cost reductions 2 - 3 pts $0.90 $0.96 84¢ 96¢ 66¢ - Sales growth 1 Int’l Sale $0.84 50¢ Dividend 20¢ 36¢ - No “block” equity 2 dilution