Slide 1: Morgan Stanley Utilities Conference
Morgan Stanley Utilities Conference March 3, 2016 Jackson Gas Plant Ray Compressor Compressor station Station Cross Winds Energy Park Among lowest acquisition cost ever #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: Consistent Growth Through . . . .
Consistent Growth Through . . . . 7% CAGR a EPS Dividend 6% to 8% 5% to 7% 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
Slide 4: EPS Growth
EPS Growth . . . . a Amount 9% 6% - 8% 8 7 7% 5% - 7% 6 5 4 3 20 Ten Year History 2016 2017 + _____ Actual Guidance Guidance a Adjusted EPS (non-GAAP) . . . . the future shines bright. 3
Slide 5: 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 without base ra
Slide 6: Capex Expanded to $17 bil
Capex Expanded to $17 bil . . . . 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 Envir
Slide 7: 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 8: 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 9: Bonus Depreciation
Bonus Depreciation . . . . Summary Improved Plan 2017+ Bonus Depreciation 10-Year EPS • 6 years already No “Block” Equity Capex Growth • New 5 years! – $600 mil shelter NEW 7 Years $17 bil 6% - 8% Capital Investment • Add $1.5 billion – Electric reliability – Gas infrastructure PRIOR – Clean energy
Slide 10: 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 11: 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 +173% +131% +97% • Switch 7 • Knauf Fiberglass 7 Total,
Slide 12: 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 13: 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 14: 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 15: 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 16: 2016 EPS Guidance Raised
2016 EPS Guidance Raised . . . . Adjusted EPS (non-GAAP) • Utility • Electric $1.52 - $1.54 • Gas 0.65 - 0.66 Total Utility $2.17 - $2.20 • Enterprises 0.06 Prior • Parent and other (0.24) Guidance Total EPS $1.99 - $2.02 $1.97 - $2.01 +5% to +7% • Operating cash flow (GAAP) (mils) $1,550 . . . . bu
Slide 17: Financial Targets
Financial Targets . . . . 2016 2017 Adjusted EPS (non-GAAP) $1.99 - $2.02 +5% to +7% +6% to +8% 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
Slide 18: CMS EPS Growth
CMS EPS Growth . . . . a EPS Index 2016 2017+ $1.99 - $2.02 6% - 8% 5% - 7% b CMS Average = 7% 0 b Base Rates = 1.7% Guidance 2009 2010 2011 2012 2013 2014 2015 2016 2017 + _____ _____ a Adjusted EPS (non-GAAP) b Compounded Annual Growth Rate . . . . substantially better than peers. 17
Slide 19: Our Investor AND Customer Model
Our Investor AND Customer Model . . . . Five-Year Average Growth How Future 7% (points) • O&M Cost Reductions 2-3 “Self-Fund” 5 Pts • Conservative sales 1 growth • Other incl. taxes, avoid 2 dilution Inflation 2% Self Funding 5-6 EPS Growth Base Rates . . . . makes our growth sustainable. 18
Slide 20: Appendix
Appendix
Slide 21: 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 22: 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 23: 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 24: 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 25: 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 Potential Outlook -- 11 More Renewables Needed 100 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 203
Slide 26: 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 27: 2016 Cash Flow Forecast (non-GAAP)
2016 Cash Flow Forecast (non-GAAP) CMS Energy Parent Consumers Energy Cash at year end 2015 $ 159 Amount (mils) Sources Consumers Energy dividend and tax sharing $ 485 Cash at year end 2015 $ 50 Enterprises 35 Sources Sources $ 520 Operating (depreciation & amortization $805) $ 2,015 Other working c
Slide 28: GAAP Reconciliation
GAAP Reconciliation
Slide 29: 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 30: 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 31: Consumers Energy 2016 Forecasted Cash Flow GAAP Reconciliation
Consumers Energy 2016 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 32: CMS Energy Parent 2016 Forecasted Cash Flow GAAP Reconciliation
CMS Energy Parent 2016 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 33: Consolidated CMS Energy 2016 Forecasted Cash Flow
Consolidated CMS Energy 2016 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 Flows Statements of Cash Flows Other Consumers Equity Consume
Slide 34: 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 35: 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