Slide 1: 2014 Year End Results and 2015 Outlook
2014 Year End Results and 2015 Outlook January 29, 2015 Ludington Pumped Storage Ray Compressor 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 disclaimer
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 2014 Results President & CEO Operational Results Legislative Update 2015 Guidance & Priorities Results & Outlook Tom Webb 2014 & 2015 Outlook Executive VP & CFO Rate Case Update Long-term Plan Upsides Investment & Capacity 2
Slide 4: Financial Results & Outlook
Financial Results & Outlook . . . . Up From 2014 Results Amount Prior Year • EPSa $1.77 +7% • Operating cash flow $1.45B +$100M 2015 Outlook • EPSa guidance $1.86 to $1.89 +5% to +7% • Annual dividend $1.16 +7% • Payout ratio 62% _____ a Non-GAAP . . . . 12th consecutive year of consistent financial
Slide 5: 2014 Operational Results
2014 Operational Results . . . . Settled gas rate case at $45 million, 10.3% ROE Achieved 10% renewable plan, one year early Competitive customer rates Improved residential customer satisfaction, first quartile Record year of Utility investment, $1.7 billion! Smart Energy Program Gas Distr
Slide 6: Breakthrough Thinking, Next 10 Years
Breakthrough Thinking, Next 10 Years . . . . Could add 3,000 MWs of First-quartile cost owned generation performance Capacity Operational Opportunities Excellence Comprehensive Capital Energy Policy Investments Adaptable over the long- $15.5 billion visible plan term (15 to 20 years) with no “big be
Slide 7: Customer Satisfaction
Customer Satisfaction . . . . Electric Gas #2 1st Quartile #3 1st Quartile 2nd Quartile 2nd Quartile #6 #10 3rd Quartile 3rd Quartile 4th Quartile 4th Quartile Present Present 2010 2012 2014 Rank 2016 2010 2012 2014 Rank 2016 Residential Business Residential Business . . . . continues to improve rap
Slide 8: Experienced Policy Makers
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: July 2, 2015 Hous
Slide 9: Michigan Energy Law Update
Michigan Energy Law Update . . . . • Adaptability • Reliability Update • Affordability • Environmental protection • 10% renewables by 2015 • Energy efficiency 2015 Energy Timeline standards • Governor Snyder names • File-and-implement energy a top priority during • Historical test • 10% ROA cap Stat
Slide 10: 2015 EPS Guidance
2015 EPS Guidance . . . .a a EPS +7% $2 +7% Average growth per year $1.89 +7% +5% $1.77 $1.86 +5% $1.66 $1.78 $1.73 $1.89 $1.55 $1.66 $1.85 $1.63 $1.45 $1.55 $1.52 $1.36 $1.44 Original guidance $1.35 0 2010 2011 2012 2013 2014 2015 Future _____ a Adjusted EPS (non-GAAP) . . . . builds on high end of
Slide 11: 2015 Priorities
2015 Priorities . . . . Maintain leadership position in safety, Continue “best-in-class” operational and cost performance, Maintain top quartile employee engagement, Continue customer satisfaction improvements, Partner for constructive energy policy, AND . . . . deliver consistent, predict
Slide 12: 2014 EPS Results By Business Segment
2014 EPS . . . . Results By Business Segment 2014 2013 EPS Reported -- (GAAP) $1.74 $1.66 Utility $2.05 Enterprises 0.03 Excludes: Interest & other (0.31) Legacy costs & other 0.03 * CMS Energy $1.77 Adjusted (non-GAAP) $1.77 $1.66 +11¢ Above 2013 +7% _____ * Less than 0.5¢ per share . . . . stronge
Slide 13: 2014 Adjusted EPS (non-GAAP)
2014 Adjusted EPS (non-GAAP) . . . . 8¢ 30¢ 4¢ $1.77 +7% $1.66 (16)¢ (15)¢ 2014 Weather 18¢ Abs ‘13 Weather (15) Sales 1 Total 4¢ 2013 2013 Cost Savings Rate Changes O&M Weather & Sales O&M Reinvestment 2014 2014 Investment & Other . . . . growth +7% over 2013, high end of guidance. 12
Slide 14: 2014 Reinvestment Helped Customers
2014 Reinvestment Helped Customers . . . . Adjusted EPS (non-GAAP) 2014 +18¢ +15¢ Full Year+9¢ vs Budget Amount (mils) Weather $80 High End Cost savings 21 of Guidance Reinvestment & Other (86) +4¢ Total Change $15 $1.77 +7% EPS +3¢ Guidance January March 31 June 30 September 30 December . . . . A
Slide 15: 2014 Financial Targets
2014 Financial Targets . . . . Target Actual Adjusted EPS (non-GAAP) $1.73 - $1.78 +5% to +7% $1.77 +7% Operating cash flow (bils) $1.45 $1.45 Dividend payout ratio ≈ 62% 61% Customer base rate increases < 1% < 1% FFO/Average debt 18% 18% Capital investment (bils) $1.6 $1.7 . . . . compl
Slide 16: 2015 Adjusted EPS (non-GAAP)
2015 Adjusted EPS (non-GAAP) . . . . 23¢ $1.86 -$1.89 Ahead +5% to +7% 20¢ Complete (15)¢ – (18)¢ $1.77 (16)¢ 2014 2014 Weather & Sales Absence of 2014 Reinvestments Rate Changes Investment & Other 2015 2015 . . . . growth up 5% to 7% over 2014. 15
Slide 17: 2015 Gas and Electric Rate Cases
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) Investment recovery
Slide 18: Electric Customer Prices
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)% Design Fuel -20 -30 Better
Slide 19: 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 20: 2015 Financial Targets
2015 Financial Targets . . . . Target Focus Adjusted EPS (non-GAAP) $1.86 - $1.89 Consistent, high- +5% to +7% end performance Operating cash flow (mils) $1,550 No “big bets” Dividend payout ratio > 62% Competitive Customer price decreases Electric ~(3)% Good value Gas ~(3)% FFO/Average debt 18% Sel
Slide 21: Plan: Future Shines Bright
Plan . . . . 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) +7% O&M Reductions (10)% (7)% ~ +4% yield (2006-2014) 25% Sales Growth +1% +½ % Avg. (2010-2014) +9% to +11% Annual Return Energy Policy 2
Slide 22: Plan Visible Capex
Plan Visible Capex . . . . 2005-2014 2015-2024 $10.7B $15.5B Up +83% Gas Gas Electric Infrastructure Infrastructure Maintenance Electric Maintenance Electric Reliability New Smart Energy New Generation Generation Up +168% Environmental Environmental Electric Reliability Smart Energy . . . . with no
Slide 23: O&M Cost Control
O&M Cost Control . . . . Average Annual O&M Change +6% Peers PeersActual/Plan Actual/Plan +2% +2% Peers Peers Peers CMS +1% CMS CMS CMS Excluding CMS CMS Catastrophic December -1% Storm -2% -3% -3% -3% 2006-2013 2012 2013 2014 2015 . . . . at peer leading pace. 22
Slide 24: 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 • Lower Headcount & Less - 75 0 Inflation -25% Expensive New Hires 00 • Smart Meters - 25 0 -7% -7% • New work +100 0 CMS -10% 0 2018
Slide 25: Plan Sales Growth
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% 1.0% rate at 3.5%” 0
Slide 26: 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 27: Plan: EPS and Dividend Growth
Plan . . . . 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 Future
Slide 28: Upsides Not in Plan
Upsides Not in Plan . . . . • Greater capital investment, PPA’s, other • 2015 Energy Law improvements • Higher sales, improving economy • Further cost reductions, “way of life” • Increasing capacity prices . . . . add financial and operational flexibility. 27
Slide 29: Upside Ten-Year Capex Plan
Upside Ten-Year Capex Plan . . . . 2015-2024 Opportunity Level 10-Year Plan Amount (bils) Generation capacity $3.0 Gas conversions & expansion 1.0 Grid modernization 1.0 $20+ Billion $15.5 Billion Total Opportunities $5.0 Upside? Rate Base up 5% to 7% Customer base rates <2 >4 X . . . . excludes $
Slide 30: Upside Capacity Opportunities
Upside Capacity Opportunities . . . . Capacity Growth Over Next Ten Years Upside MW 11,000 Not in plan 10,000 1,200 MW PPA’s Expire 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 Plant R
Slide 31: Upside Capacity Price Increases
Upside Capacity Price Increases . . . . Was Now Future Scenarios (mils) (mils) (mils) Recent Contracts +$40 $55 • Nine-year 250 MW “energy” contract at $4.06 • Capacity to Consumers +$20 $35 • 25 MW/2015 at $2.32 • 50 MW/2016 at $4.36 $15 Upside: Capacity and energy $5 contracts layered in over time
Slide 32: Upside
Upside . . . . • More capital investment -- 30% opportunity • 2015 Energy Law improvements • Higher sales • Better cost reduction • Increasing capacity prices . . . . future is brighter than past. 31
Slide 33: CMS Energy: Future Shines Bright
CMS Energy . . . . 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 (10)% (7)% ~ +4% yield (2006-2014) Conservative 25% Sales Growth +1% +½ % Avg. (2010-2014) Conservat
Slide 34: Appendix
Appendix
Slide 35: Credit Ratings
Credit Ratings . . . . Scale Reflects S&P / S&P Moody’s Fitch Fitch Moody’s (Dec. ‘14) (Jan. ‘14) (Feb. ‘14) 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 36: 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 2013 performa
Slide 37: 2014 Cash Flow (non-GAAP)
2014 Cash Flow (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 $ 687 Operating (depreciation & amortization $678) $ 1,813 Enterprises 20 Other working capital (3
Slide 38: 2015 Cash Flow Forecast (non-GAAP)
2015 Cash Flow Forecast (non-GAAP) CMS Energy Parent Consumers Energy Amount Amount (mils) (mils) Cash at year end 2014 $ 95 Cash at year end 2014 $ 71 Sources Sources Consumers Energy dividend and tax sharing $ 315 Operating (depreciation & amortization $675) $ 1,885 Enterprises 25 Other working ca
Slide 39: GAAP Reconciliation
GAAP Reconciliation
Slide 40: 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 41: Earnings By Quarter and Year GAAP Reconciliation
CMS ENERGY CORPORATION Earnings By Quarter and Year GAAP Reconciliation (Unaudited) (In Millions, Except Per Share Amounts) 2013 1Q 2Q 3Q 4Q YTD Dec Reported net income - GAAP $144 $80 $126 $102 $452 After-tax items: Electric and gas utility - - - - - Enterprises * * - (*) * Corporate interest and o
Slide 42: Earnings Segment Results GAAP Reconciliation
CMS ENERGY CORPORATION Earnings Segment Results GAAP Reconciliation (Unaudited) Three Months Ended Twelve Months Ended December 31 2014 2013 2014 2013 Electric Utility Reported $ 0.21 $ 0.18 $ 1.40 $ 1.33 Restructuring Costs and Other - - - - Adjusted $ 0.21 $ 0.18 $ 1.40 $ 1.33 Gas Utility Reported
Slide 43: Consumers Energy 2014 Cash Flow GAAP Reconciliation
Consumers Energy 2014 Cash Flow GAAP Reconciliation (in millions) (unaudited) Reclassifications From Sources and Uses to Statement of Cash Flows Interest/ Capital Common Presentation Sources and Uses Tax Other Financing Other Working Lease Pymts Securitization and Preferred Consolidated Statements o
Slide 44: CMS Energy Parent 2014 Cash Flow GAAP Reconciliation
CMS Energy Parent 2014 Cash Flow GAAP Reconciliation (in millions) (unaudited) Reclassifications From Sources and Uses to Statement of Cash Flows Presentation Sources and Uses Non Equity Consolidated Statements of Cash Flows non-GAAP Uses GAAP Description Amount as Operating Other Amount Description
Slide 45: Consolidated CMS Energy 2014 Statements of Cash Flow
Consolidated CMS Energy 2014 Consolidation of Consumers Energy and CMS Energy Parent Statements of Cash Flow (in millions) (unaudited) Eliminations/Reclassifications/Consolidation to Arrive at the Consolidated Statement of Cash Statements of Cash Flows Other Consumers Equity Consumers CMS Parent Con
Slide 46: Reconciliation of Gross Operating Cash Flow to GAAP
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
Slide 47: Consumers Energy 2015 Forecasted Cash Flow GAAP Reconciliation
Consumers Energy 2015 Forecasted Cash Flow GAAP Reconciliation (in millions) (unaudited) Reclassifications From Sources and Uses to Statement of Cash Flows Interest/ Capital Presentation Sources and Uses Tax Other Financing Other Working Lease Pymts Securitization Common Consolidated Statements of C
Slide 48: CMS Energy Parent 2015 Forecasted Cash Flow GAAP Reconciliation
CMS Energy Parent 2015 Forecasted Cash Flow GAAP Reconciliation (in millions) (unaudited) Reclassifications From Sources and Uses to Statement of Cash Flows Presentation Sources and Uses Non Equity Consolidated Statements of Cash Flows non-GAAP Uses GAAP Description Amount as Operating Other Amount
Slide 49: Consolidated CMS Energy 2015 Forecasted Statements of Cash Flow
Consolidated CMS Energy 2015 Forecasted Consolidation of Consumers Energy and CMS Energy Parent Statements of Cash Flow (in millions) (unaudited) Eliminations/Reclassifications/Consolidation to Arrive at the Consolidated Statement of Cash Statements of Cash Flows Other Consumers Equity Consumers CMS