Slide 1: AGA Financial Forum May 15 - 17, 2016
AGA Financial Forum May 15 - 17, 2016 Jackson Generating Station 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: Tab: Presentation
Tab: Presentation
Slide 4: Recent News
Recent News . . . . • Retired 950 MW of coal plants in April • Coal mix now below 25% • Rate Cases • Settled gas rate case -- $40 million • Track record demonstrates constructive regulation • Filed electric rate case at $225 million • Energy Law • Proceeding through Senate and House • Business plan
Slide 5: Reducing Coal Dependence
Reducing Coal Dependence . . . . A “Green” Strategy Coal Mix • Largest coal reduction of any investor-owned utility! 2005 2016 • Purchased Jackson Generating Station; lowest Largest reduction of any acquisition cost investor-owned utility (540 MW, $155 mil) • Added new wind farms 41% • Energy effici
Slide 6: Regulatory Track Record
Regulatory Track Record . . . . Gas Rate Cases Electric Rate Cases Year Step Amount Capex ROE Step Amount Capex (mils) (mils) 2012 Settled $16 188% Order $118 110% 2013 Stay-out 10.3% Settled 89 127 2014 Stay-out Stay-out 2015 Settled 45 200 Order 126 137 2016 Settled 40 158 Filed 225 72 . . .
Slide 7: Michigan Energy Law
Michigan Energy Law . . . . Present Law Updates Plan • 10% renewables by 2015 • Energy efficiency standards 6% - 8% • File-and-implement Nothing happens growth in 2017 and beyond • 10% ROA cap • Reliability • Fair process Customer • Security Upside • IRP Process . . . . process continues. 6
Slide 8: 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% . . . . drives sustainable
Slide 9: Capex $17 Billion Over 10 Years
Capex $17 Billion Over 10 Years . . . . 2016-2025 Customer Benefit Drivers Customer Electric reliability; digital customer experience Cleaner Energy Smart meters; proactive gas Enhancing infrastructure replacement Productivity Improving Service Gas compression upgrades; field Reducing Service Techno
Slide 10: 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 (UAs) - 15 - 10 & Work
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: 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 13: Consistent Growth Through Recessions and Weather
Consistent Growth Through . . . . 7% CAGR a EPS Dividend 6% to 8% 5% to 7% 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 14: Tab: Capital Investment
Tab: Capital Investment
Slide 15: Capex $17 Billion: Investor AND Customer
Capex $17 Billion Over 10 Years . . . . 2016-2025 2016-2025 Investor AND Customer How this adds value! Cleaner Energy Electric Infrastructure & Gas Enhancing Maintenance Infrastructure & Improving Productivity Maintenance Service New Reducing Generation Electric Cost Distribution & Reliability Envir
Slide 16: 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 17: 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 18: 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 19: 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 20: Tab: Green Environment
Tab: Green Environment
Slide 21: 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 22: 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 23: 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 24: 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. 23
Slide 25: 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 26: Tab: Michigan
Tab: Michigan
Slide 27: 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 28: 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 29: 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 30: 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 31: 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 32: Tab: Financial
Tab: Financial
Slide 33: O&M Cost Performance
O&M Cost Performance . . . . Where We Can Improve More How We Will Do It (Electric Distribution Cost Per Customer) 2006 2014 Build the job as designed 1st Quartile 2nd Quartile Accurately schedule the job 3rd Quartile Consumers Consumers “Field Services” Project 4th Quartile ----- Source: SNL, Form
Slide 34: EPS Outlook
EPS Outlook . . . . Adjusted EPS (non-GAAP) 17¢ 2015 13¢ Up 11¢ 7% Guidance December (11)¢ Cold winter Mild Spring Normal Summer Warm winter January March 31 June 30 September 30 December . . . . at 7% for 2015.
Slide 35: EPS Outlook
EPS Outlook . . . . Adjusted EPS (non-GAAP) 17¢ 2015 13¢ 11¢ Up Guidance 5% -7% Weather Offsets Weather & Storms Pension “Yield Curve” 5¢ Enhanced Capitalization 3 ‘15 Pension Contribution 2 Improved “UAs” & Other 3 Offsets 13¢ 2016 December (11)¢ (13)¢ January March 31 June 30 September 30 December
Slide 36: 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¢ $1.50 +1¢ Cold Reinv
Slide 37: Pension Benefit Weighted Full Yield Curve Adopted
Pension Benefit Weighted Full Yield Curve Adopted . . . . The Curve Implications PBO Disc. (mils) • Applies each spot rate in the Spot Rate full yield curve to the present $ 180 New Yield Curve 6% value of the cash flow 160 corresponding to that rate 5% 140 Higher Cost • Consistent with how “interes
Slide 38: 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 39: 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 40: 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 +188% +198% +104% • Switch 7 • Knauf Fiberglass 7 Total,
Slide 41: Financial Targets
Financial Targets . . . . 2016 Adjusted EPS (non-GAAP) $1.99 - $2.02 +5% to +7% Operating cash flow (mils) $1,550 Dividend payout ratio Customer price incr./(decr.) > 62% ~1% Electric (excl. fuel) Gas ~(10)% FFO/Average debt 18% Capital investment (bils) $1.7 . . . . fourteenth year of t
Slide 42: 2016 Sensitivities
2016 Sensitivities . . . . 2016 Impact Sensitivity EPS OCF (mils) Sales a • Electric (37,600 GWh) + 1% + $0.05 + $ 20 • Gas (289 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 bps +
Slide 43: Credit Ratings
Credit Ratings . . . . Scale Reflects S&P / S&P Moody’s Fitch Fitch Moody’s (Dec. ‘15) (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 44: GAAP Reconciliation
GAAP Reconciliation
Slide 45: 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 46: 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 $ 2,030 $ 2,161 $ 2,336 $ 2,481 $ 2,613 Enterprises Project Cash Flows 20 20 35 58 58 63
Slide 47: Customers and Investors: Our Model; Our Plan
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 48: Actual Plan Model
Actual Plan Model 7% /year 2017+ Plan $1.89 $2.02 6% – 8% $1.55 $1.66 $1.77 Capital investment 6% - 8% $1.99 a Adjusted EPS $0.81 $1.26 $1.36 $1.45 $1.08 $1.21 $1.02 $1.08 $1.16 $1.24 - 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