Slide 1: Second Quarter 2018 Results & Outlook
Second Quarter 2018 Results & Outlook July 26, 2018 FOCUSED ON WORLD CLASS PERFORMANCE
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 Business Update Patti Poppe President & CEO PEOPLE PLANET PROFIT Financial Results & Outlook Rejji Hayes Executive VP & CFO 3
Slide 4: First Half Results and Guidance
First Half . . . Vs. Results Amount Prior Year • First Half 2018 EPS a $1.34 +29% Reaffirm Guidance • Full-year EPS a $2.30 to $2.34 6% to 8% Long-Term Outlook • EPS & DPS growth a +6% to +8% _____ a Adjusted EPS (non-GAAP) a . . . on track for 6% to 8% EPS growth. 4
Slide 5: The Triple Bottom Line: People, Planet, Profit
The Triple Bottom Line . . . PEOPLE • PLANET • PROFIT PEOPLE PLANET PROFIT PERFORMANCE . . . world class performance delivering hometown service. 5
Slide 6: Filed Integrated Resource Plan (IRP)
Filed Integrated Resource Plan “ IRP”. . . Clean and Lean Overview No Certificate of File Date: June 15, 2018 Necessity Required Supply Expected Order Date: Q2 2019 < 225 MW Modular Case No.: U-20165 Fully utilize assets Capital Investment Opportunities: • No Change to 5-year, $10 Bn Plan (IRP inclu
Slide 7: Customer Investment Plan Evolves
Customer Investment Plan Evolves . . . Large and Aging System Rate Base Growth Electric Gas 7% $21 Bn CAGR $15 Bn 60% 70% 40% 30% 2017 2022 . . . with incremental renewables. 7
Slide 8: Protecting Michigan's Environment
Protecting Michigan’s Environment . . . Reducing Carbon Emissions Adding Renewable Energy (Since 2005) 43% Today 2024 2032 2040 50% 0 Renewables Karn Campbell Campbell 1&2 1&2 3 Retirement Retirement Retirement (2023) (2031) (2039) 38% cv 25% -50 ~45% 15% RPS By 2022 ~70% > 90% 0% -100 % '21 '24 '27
Slide 9: Expanding Our Renewable Portfolio
Expanding Our Renewable Portfolio . . . New Utility Wind Renewable Tariff Enterprises Gratiot Farms Wind Cross Winds® II Northwest Ohio Wind • 150 MW • 35 MW • 105 MW • In Service: 2020 • Fully subscribed by • 15-yr PPA with GM • Helps achieve 15% Switch & GM with • Largely contracted RPS by 2022 co
Slide 10: Utility Driven, Low Risk Growth
Utility Driven, Low Risk Growth . . . CMS Energy Long-Term Growth Plan Segments: • Needed system upgrades / robust backlog - Utility 5 - 7% • Affordable prices driven by cost controls 0-1 • Largely contracted & utility-like - Enterprises • Contracted generation & renewables • Refinancing high coupon
Slide 11: First Half 2018 EPS Results By Business Segment
First Half 2018 EPS . . . Results By Business Segment Year-to-Date 2017 b 2018 EPS – (GAAP) $1.04 $1.35 a EPS Adjustment -- (0.01) Utility $1.39 Adjusted (non-GAAP) a $1.04 $1.34 Enterprises 0.10 +29% Parent & Other (0.15) a Weather-normalized $1.20 $1.26 +5% CMS Energy $1.34 Second Quarter EPS –
Slide 12: 2018 EPS
2018 EPS . . . a First Half Six Months To Go +30¢ (17)¢ - (13)¢ 4¢ $2.30 - $2.34 10¢ 6% - 8% 28¢ 2¢ (12)¢ (4)¢ $2.17 (15)¢-(11)¢ First First Half Half $1.04 $1.34 2017 Weather Cost Rates & Usage, Absence of Rates & Cost 2018 Savings Investment Enterprises 2017 Investment Savings/ & Other Weather (Re
Slide 13: Managing Work Every Year
Managing Work Every Year . . . a 2010 2011 2012 2013 2014 2015 2016 2017 EPS $2.20 Weather & Storms +7% Mild Summer +7% $2.00 Cost +7% productivity above plan Cost Cost $1.80 productivity productivity +7% above plan Reinvestment Storms Hot Mild Reinvestment Summer Winter +7% $1.60 RECORD Hot WARM Of
Slide 14: Simple, Perhaps Unique Model
Simple, Perhaps Unique Model . . . Plan a EPS Growth 6% - 8% Self Funding: - Cost reductions 2 - 3 pts - Sales (continued economic development & EE) 1 - Other (Enterprises, tax planning, etc.) 2 INVESTMENT SELF-FUNDED 5 - 6 pts Customer Prices “at or below inflation” < 2% _____ a Adjusted EPS (non-G
Slide 15: Our Entire Cost Structure
Our Entire Cost Structure . . . Cost Components Residential Electric Bills a (current dollars) 100% 100% $106 $100 90% Coal to 80% Down 6% Gas / PPA Fuel and Power Costs 70% 60% ~70% 2013 2018E Residential Gas Bills 50% a O&M Costs 40% (current dollars) $85 Tax 30% Reform Taxes $62 20% Capital Inves
Slide 16: Economic Development Efforts
Economic Development Efforts . . . Our Service Territory Outperforms Examples of New Business a Electric Michigan ranked #11 top pro-business state Grand Gas by CNBC’s Top States for Business 2018 Rapids Michigan U.S. Combination Building permits b +236% +202% +120% GDP Growth 29 19 14 2010 2016 Pop
Slide 17: Operating Cash Flow Generation
Operating Cash Flow Generation . . . Amount (Bn) ~$9 Bn in aggregate $ 2.2 1.95 1.85 1.7 1.75 1.7 1.65 1.65 1.2 0.7 Investment 0.2 (0.3) Cash flow before dividend (0.8) 2017 2018 2019 2020 2021 2022 NOLs & credits $0.6 $0.4 $0.3 $0.3 $0.3 $0.2 . . . remains strong and supports our capital plan. 17
Slide 18: Credit Metrics Maintained
Credit Metrics Maintained . . . S&P / S&P Moody’s Fitch FFO / Average Debt a Fitch Moody’s (Dec. ‘16) (Jun. ‘18) (Jul. ‘18) AA- Aa3 A+ A1 19% Consumers A A2 Secured ~18% A- A3 BBB+ Baa1 BBB Baa2 17% BBB- Baa3 < 30% HoldCo Debt BB+ Ba1 BBB+ Baa1 BBB Baa2 CMS Unsecured BBB- Baa3 BB+ Ba1 BB Ba2 Present
Slide 19: Compelling Investment Thesis
Compelling Investment Thesis Aging Infrastructure Strong Cash Flow & Balance Sheet Diversified Service Territory Affordable Prices Constructive Regulation 19
Slide 20: Appendix
Appendix
Slide 21: Long-Term Regulatory Planning
Long-Term Regulatory Planning . . . 2018 2019 Regulatory / Policy 2/22: Tax reform order U-18494 6/15: Filed long-term generation plan (IRP) U-20165 6/28: Credit A order for 7/24: Credit A order for Electric Utility $113 MM Q2: Expected IRP order Gas Utility U-20165 $49 MM Electric 3/1: Fi
Slide 22: Modeling Scenarios
Modeling Scenarios . . . Business as Environmental Emerging Usual Policy Technologies • Sustained low natural • Stringent carbon • Technological gas prices and regulations advancements and Model electric demand economies of scale Selection • No carbon regulation Always Energy Efficiency Solar an
Slide 23: Tax Reform – Three Step Approach
Tax Reform – Three Step Approach . . . Step 1: (Credit A) • Filed to determine forward-looking customer credit to adjust for tax reform • Gas Utility filed Mar. 30th • Electric Utility filed Apr. 30th • MPSC approval within 90 days of all filings Step 2: (Credit B) • To be filed to determine catch-u
Slide 24: DIG (750 MW) & Peakers (200 MW)
“DIG” (750 MW) & Peakers (200 MW) . . . Pre-Tax Income Opportunities (MM) $ 80 $75 70 Contracts (layering in over time) 60 $55 +$40 50 $45 Better +$20 40 Performance $35 $30 30 Better Performance 20 $12 10 Outage Pull-ahead 0 2015 2016 2017 2018 Future Capacity ($/kW-mth) ≈ $1.00 ≈ $2.00 ≈ $3.00 < $
Slide 25: 2018 Financial Targets
2018 Financial Targets . . . 2018 Long-Term Plan Adjusted EPS (non-GAAP) $2.30 to $2.34 +6% to +8% +6% to +8% Operating cash flow (MM) $1,650 Up $100/yr a Dividend payout ratio (non-GAAP) ~ 62% ~ 62% Customer price Electric (1)% ~ 2% Gas (3)% ~ 2% FFO/average debt (non-GAAP) ~18% ~17% - 19% Customer
Slide 26: 2018 Sensitivities
2018 Sensitivities . . . Full Year Impact Sensitivity EPS OCF (MM) Sales a • Electric (37,477 GWh) + 1% + 6¢ + $ 20 • Gas (303 Bcf) + 5 + 9 + 40 Gas prices (NYMEX) + 50¢ – 0 – 55 + + Utility ROE (planned) Order • Electric (10.1%) + 10 bps + 1½ + 6 Received • Gas (10.1%) + 10 + ½ + 3 3/29 Interest ra
Slide 27: GAAP Reconciliation
GAAP Reconciliation
Slide 28: Earnings Per Share By Year GAAP Reconciliation
CMS ENERGY CORPORATION Earnings Per Share By Year GAAP Reconciliation (Unaudited) 2009 2010 2011 2012 2013 2014 2015 2016 2017 Reported earnings (loss) per share - GAAP $0.91 $1.28 $1.58 $1.42 $1.66 $1.74 $1.89 $1.98 $1.64 Pretax items: Electric and gas utility 0.55 0.05 - 0.27 - - - 0.04 - Tax impa
Slide 29: Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income by Quarter
CMS ENERGY CORPORATION Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income by Quarter (Unaudited) In Millions, Except Per Share Amounts 2018 1Q 2Q Net Income Available to Common Stockholders $ 241 $ 139 Reconciling items: Electric utility and gas utility - - T ax impact - - Enterprises
Slide 30: Reconciliation of GAAP EPS to Non-GAAP Adjusted EPS by Segment
CMS ENERGY CORPORATION Reconciliation of GAAP EPS to Non-GAAP Adjusted EPS by Segment (Unaudited) In Millions, Except Per Share Amounts Three Months Ended Six Months Ended 6/30/18 6/30/17 6/30/18 6/30/17 Electric Utility Reported net income per share $ 0.46 $ 0.34 $ 0.95 $ 0.78 Reconciling items: Re
Slide 31: Weather Impacts on Year Over Year Earnings
CMS ENERGY CORPORATION Weather Impacts on Year Over Year Earnings (Unaudited) In Millions, Except Per Share Amounts Six Months Ende d 6/30/2018 6/30/2017 Change Net Income Available to Common Stockholders $ 380 $ 291 $ 89 Reconciling items: Restructuring costs and other 1 2 (1) T ax impact (*) (1) 1