Slide 1: Third Quarter 2014 Results and Outlook
Third Quarter 2014 Results and Outlook October 23, 2014 Ludington Pumped Storage Ray Compressor Jackson Gas Plant Station Cross Winds Energy Park Fourth largest in the world #1 LDC in gas storage #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: Agenda
Agenda Overview John Russell Third Quarter Review President & CEO 2014 & 2015 Guidance Political Update Around the Corner Results & Outlook Tom Webb 2014 & 2015 Outlook Executive VP & CFO Long-term Plan Upsides Investment & Capacity Rate Case Update 2
Slide 4: First Nine Months
First Nine Months . . . . Financial: • First nine months adjusted EPS (non-GAAP) at $1.42, up 10% • 2014 full year adjusted EPS (non-GAAP) guidance continues at high end of original range $1.76 to $1.78, up 6% to 7%. Operational: • J.D. Power 2014 Gas Utility Residential Study ranks Consumers Energy
Slide 5: 2014 EPS Guidance
2014 EPS Guidance . . . . a a EPS $2 +7% Average growth per year +7% +7% $1.78 +5% $1.66 $1.76 $1.55 $1.66 +6% $1.63 $1.45 $1.55 $1.78 $1.52 $1.73 $1.36 $1.44 $1.35 Original guidance 0 2010 2011 2012 2013 2014 Future Future _____ a Adjusted EPS (non-GAAP) . . . . reaffirmed with confidence in remain
Slide 6: 2015 EPS Guidance
2015 EPS Guidance . . . .a a EPS $2 $1.89 +7% +7% +7% Average growth per year +7% +5% $1.78 $1.85 +5% $1.66 $1.76 $1.55 $1.66 +6% $1.63 $1.45 $1.55 $1.78 $1.52 $1.73 $1.36 $1.44 $1.35 Original guidance 0 2010 2011 2012 2013 2014 2015 Future _____ a Adjusted EPS (non-GAAP) . . . . issued with strong
Slide 7: Michigan Governor's Race
Michigan Governor’s Race . . . . Rick Snyder Republican, Incumbent Mark Schauer Democrat, Challenger On Energy... Campaign Issues On ROA … • Education As Senate Democratic Leader, • Jobs “Choice creates a lot of Mark played a key role in the challenges and problems, successful passage of the 2008 •
Slide 8: Michigan Energy Law Update
Michigan Energy Law Update . . . . • Adaptability • Reliability Update • Affordability • Environmental protection • 10% renewables by 2015 • Senate Workgroup • Energy efficiency drafting energy standards efficiency legislation • File-and-implement • Senate Workgroup • Historical test • 10% ROA cap c
Slide 9: Around the Corner
Around the Corner . . . . November election 2015 Energy Law improvements (Improving on an already constructive environment & Law) Price competitiveness (Reducing industrial rates & maintaining competitive residential bills) Capacity shortfall (Investment opportunities ahead) . . . . addition
Slide 10: New Electric Rate Design
New Electric Rate Design . . . . Residential Commercial Industrial Energy Intensive 2.5% -0.7% -1.3% -3.2% -3.4% -4.7% -5.0% -4.8% -4.8% -9.8% -15.0% -20.0% Base Rate Fuel Recovery Net Reduction . . . . and lower fuel cost have positive impact on average electric rates. 9
Slide 11: Breakthrough Thinking
Breakthrough Thinking . . . . Customer Value Cost Control Most improved gas utility About 400 employees leave in the U.S.! and 300 are hired per year. Engaged Employees Productivity Enhancements First quartile in utilities Up 46% since 2006 with and rank among most another 5% improvement admired com
Slide 12: Major Construction Projects
Major Construction Projects . . . . Cross Winds® Energy Park Southwest Michigan Pipeline • 111 MW, $255 Million • 24 Miles, 36” pipe, $88 Million • Commercial operation November 2014 • Completed two months ahead of schedule • Meets 10% renewable standard • No safety incidents! • Completes 90 mile co
Slide 13: 2014 First Nine Months EPS
2014 First Nine Months EPS . . . . Results By Business Segment 2014 2013 EPS Reported -- (GAAP) $1.39 $1.29 Utility $1.63 Enterprises 0.02 Excludes: Interest & other (0.23) Legacy costs & other 0.03 * CMS Energy $1.42 Adjusted (non-GAAP) $1.42 $1.29 +13¢ Above 2013 +10% Third Quarter - Actual 37¢ 46
Slide 14: 2014 Adjusted EPS (non-GAAP)
2014 Adjusted EPS (non-GAAP) . . . . Year-to-date Three Months To Go 13¢ (1)¢ – (3)¢ $1.78 to 20¢ $1.76 8¢ 5¢ $1.66 (2)¢ - (4)¢ (4)¢ (15)¢ $1.29 $1.42 YTD YTD 2013 Rate Change, Customer O&M Weather Customer O&M Cost Savings "Captial" 2014 Cost Savings & "Reinvest" & "Reinvestment" Cost Inv Costs Oth
Slide 15: 2014 Reinvestment Helps Customers
2014 Reinvestment Helps Customers . . . . Adjusted EPS (non-GAAP) 2014 +18¢ Third Quarter EPS Weather (Electric) (6)¢ +15¢ Reinvestment (5) Total Change (11)¢ +9¢ Good First Nine Months EPS Choices Weather (Gas) 16¢ +4¢ Cost savings 4 Reinvest & other (16) $1.78 +7%- Total Change + 4¢ $1.76 +6% Guid
Slide 16: Ten-Year Capex Plan Expanding
Ten-Year Capex Plan Expanding . . . . 2015-2024 Opportunity Level 10-Year Plan Amount (bils) Generation capacity • PPA replacement $3.0 • ROA return • Higher renewables $20+ Billion $15.5 Billion Gas conversions & expansion 1.0 Grid modernization 1.0 Total Opportunities $5.0 Upside? Rate Base up 5%
Slide 17: Capacity Opportunities
Capacity Opportunities . . . . Capacity Growth Over Next Ten Years Further MW 11,000 Not in plan Upside 10,000 900 PPA’s Expire 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 Owned Shortfall 6,000 540 MW 5,000 Today Jackson Plant ROA Palisades PPA MCV P
Slide 18: Trend of O&M Cost Savings
Trend of O&M Cost Savings . . . . O&M Trend vs Peers Future Savings 2018 vs 2013 0 50% (mils) ~6% per year 0 Peers • Fuel mix $ - 25 0 ~2% per year • Benefits - 75 0 • Less Expensive New - 75 0 Inflation -25% Hires & Lower Headcount 00 • Smart Meters - 25 0 -7% -7% • Inflation +100 0 CMS -10% 0 2018
Slide 19: Michigan's Economic Growth
Michigan’s Economic Growth . . . . Grand Rapids Gross Domestic Product – 2010 through 2013 15.3% Top 10% of All “Cities” WA ND MT 8.8 54.9 11.6 MN 11.5 Michigan ME SD OR ID 11.3 WI Top 10 VT 1.7 17.3 5.5 WY 7.4 MI state NY 9.8 NH 6.2 4.3 IA NE 11.4 6.5 MA 10.3 13.1 9.8 IL PA NV RI 5.4 IN OH CT UT CO
Slide 20: Sales Growth
Sales Growth . . . . Economic Indicators Annual Electric Salesa Industrial Grand Total Rapids Michigan U.S Total excluding Energy Optimization 8.0% Building Permits* +48% +15% +8% 5.0% GDP 2010 2013 15.3 11.4 8.4 3.5% 2.5% 2.0% 2.0% 1.5% 1.0% Population 2010 2013 3 0 2 0.5% -2.5% Unemployment (9/14)
Slide 21: Economic Growth
Economic Growth . . . . Examples of New Business Industries Electric Gas Combination MW Recent Announcement Recent 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 • 300 new job
Slide 22: Capacity Price Increases
Capacity Price Increases . . . . Today Future Scenarios Recent Contracts (mils) (mils) +$50 $55 • Nine-year 250 MW “energy” contract at $4.06 • Capacity to Consumers $35 • 25 MW/2015 at $2.32 +$30 • 50 MW/2016 at $4.36 Upside: Capacity and energy $5 contracts layered in over time Capacity price < $0
Slide 23: Gas and Electric Rate Cases
Gas and Electric Rate Cases . . . . 2013 2014 2015 Main Features GAS A) Investment recovery Avoided Filed File annual $88 M Self- Final & cost reductions rate case implement Order 7/01 B) Simple, small case Securitization A) Rate design Surcharge Ends $80 M B) Jackson plant File annual Avoided Plan
Slide 24: Consumers Energy Recent Financing
Consumers Energy Recent Financing . . . . Recent Financing Peer Performance b Issued: Capex Liquidity Cash Flow • $378 million, 3% securitization bonds (oper) 25 % • $250 million, 3.125%, 2024 21% 20 19% • $250 million, 4.35%, 2064 a 18% 16% 16% 15 14% In Place: • $500 million commercial paper progr
Slide 25: 2014 Sensitivities
2014 Sensitivities . . . . 2014 Impact Status Sensitivity EPS OCF (mils) Sales a • Electric (37,523 GWh) + 1% + $0.05 + $20 • Gas (298.6 Bcf) + 5 + 0.07 + 30 Gas prices (NYMEX) + $1.00 – 0.01 – 25 + + ROE (authorized) • Electric (10.3%) + 25 bps + 0.03 + 12 • Gas (10.3%) + 25 + 0.01 + 5 Interest Rat
Slide 26: 2014 & 2015 Financial Targets
2014 & 2015 Financial Targets . . . . 2014 Target 2015 Target Adjusted EPS (non-GAAP) +6% to +7% $1.76 - $1.78 $1.85 - $1.89 +5% to +7% Operating cash flow (bils) $1.45 $1.55 Dividend payout ratio ≈ 62% ≈ 62% Customer base rate increases < 1% < 2% FFO/Average debt 18% 18% Capex (bils) $1.6
Slide 27: Mindset
Mindset . . . . 10-Year Actual $1.76-$1.78 7% CAGR $1.89 a EPS $1.66 $1.85 Dividend Peers 4% $1.55 $1.45 $1.36 b $1.26 $1.21 6% $1.08 $1.08 6% 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 Future
Slide 28: Appendix
Appendix
Slide 29: Consumers Energy Securitization
Consumers Energy Securitization . . . . Transaction Benefits • $378 Million – July 22, 2014 AAA rated bonds • Immediate recovery of plant balance 3% weighted average • Recover plant balances • Lowers electric customer base rates NPV benefit $125 million First Year savings 22 million • Proceeds u
Slide 30: 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 $2.3 $2.2 $2.1 $2.0 2.0 $1.9 Interest, working $1.8 $1.7 capital and taxes $1.55 1.5 $1.45 Pct of Market Cap (as of June 2014) 1.0 Cap Inv OCF Investment 19% 18% CMS 13% 15% 0.5
Slide 31: 2014 Guidance
2014 Guidance . . . . Adjusted EPS (non-GAAP) • Utility • Electric $1.41 - $1.42 • Gas 0.63 - 0.64 Total Utility $2.04 - $2.06 • Enterprises & EnerBank 0.11 • Interest and other (0.39) Total EPS $1.76 - $1.78 +6% - 7% • Operating cash flow (GAAP) (bils) $1.45 . . . . building on high end, actual 201
Slide 32: 2014 Cash Flow Forecast (non-GAAP)
2014 Cash Flow Forecast (non-GAAP) CMS Energy Parent Consumers Energy Amount Amount (mils) (mils) Cash at year end 2013 $ 116 Cash at year end 2013 $ 18 Sources Sources Consumers Energy dividend and tax sharing $ 680 Operating (depreciation & amortization $675) $ 1,810 Enterprises 20 Other working c