Cms Energy Corporation · NYSE:CMS
Cms Energy — Non-Deal Roadshow (October 2015)
50 slides from Cms Energy's roadshow presentation, Oct 2, 2015
Slide 1: Investor Meetings: Sydney and Tokyo
Investor Meetings: Sydney and Tokyo October 2 - 5, 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: CMS Energy Overview
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 4: Why Invest in CMS Energy?
Why Invest in CMS Energy? Our Growth Engine Supported By (2015-2024 Capex) ● UPSIDES -- More growth (Investment, Sales, Cost, & DIG) ● PARTNERS -- Facilitate growth $15.5 Billion (Customers, Regulators, & Policy Makers) ● PASSION to improve for customers AND owners (Value, Reliability, & Environment
Slide 5: Simple, Perhaps Unique CMS Growth Model
Simple, Perhaps Unique CMS Growth Model . . . . 5-Year Upside Plan Opportunity Capital investment (drives long-term growth) 5% - 7% 6% - 8% - O&M cost reductions -2 pts Short-term - Sales growth - ½ ROA return - No “block” equity dilution -1 and/or - Surcharges and other -1½ Long-term INVESTMENT SEL
Slide 6: Capex Up 45%
Capex Up 45% . . . . 2005-2014 2015-2024 Opportunity $10.7 bil $15.5 bil $20 + bil Opportunity +45% +30% Gas Infrastructure Electric Gas Electric 27% Maintenance Infrastructure Maintenance 37% Electric Environ. Reliability Smart Energy New Generation New Infra Generation Smart Electric Percent of En
Slide 7: O&M Cost Performance
O&M Cost Performance . . . . Actual Cost Reduction Future Cost Savings (2014 over 2006) 2014 2014 & 2015 2018 (mils) (mils) • Attrition $ - 35 $ - 75 • Productivity (Coal Gas) - 35 - 50 • “Pole Top” Hardening - 30 - 30 • Smart Meters - 5 - 25 Peer Average >5% • Eliminate Waste (UA’s) - 15 - 20 • Mor
Slide 8: CMS Energy consistent growth
CMS Energy . . . . Future +5% to +7% 7% CAGR a Recession EPS Recession Dividend Help Hurt 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Future We work Cold Mild Hot Warm Mild Cold Summer- Hot Hot Warm Mild Polar Cold with anyone winter summer summer winter summer winter “less” sum
Slide 9: Investor Meetings: Sydney and Tokyo
Investor Meetings: Sydney and Tokyo October 2 - 5, 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 10: CMS Energy Overview
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 11: Why Invest in CMS Energy?
Why Invest in CMS Energy? Our Growth Engine Supported By (2015-2024 Capex) ● UPSIDES -- More growth (Investment, Sales, Cost, & DIG) ● PARTNERS -- Facilitate growth $15.5 Billion (Customers, Regulators, & Policy Makers) ● PASSION to improve for customers AND owners (Value, Reliability, & Environment
Slide 12: Long-Term Growth Faster than Peers
Long-Term Growth Faster than Peers . . . . CMS Energy “Typical” Utility Consistent, Amount Predictable Amount 12 % 11 12 % 4 Can be 10 10 erratic 9 4 8 8 8 7 7 6 6 5 4 4 4 3 2 2 0 0 a EPS Dividend TSR EPS Dividend TSR _____ a Adjusted EPS (non-GAAP) . . . . with ten years worth of sustainable future
Slide 13: Total Shareowner Return
Total Shareowner Return . . . . 500 % 400 CMS +436% 300 200 S&P 500 Utilities +185% S&P 500 +122% 100 0 -100 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 September 23, 2015 ----- Source: Bloomberg . . . . CMS outperforms peers. 12
Slide 14: Simple, Perhaps Unique CMS Growth Model
Simple, Perhaps Unique CMS Growth Model . . . . 5-Year Plan Capital investment (drives long-term growth) 5% - 7% - O&M cost reductions -2 pts - Sales growth - ½ - No “block” equity dilution -1 - Surcharges and other -1½ INVESTMENT SELF-FUNDED -5 pts Rate increase at or below inflation <2 % . . . . d
Slide 15: Investment Catch-up
Investment “Catch-up” . . . . Capex (bils) $1.8 One of first with a ten year plan > $1.5 per year “Catch-up” Capex as a Percent of Market Cap a 2005 - 2014 2015 - 2024 CMS Energy CMS 10% 16% Peers Peers 11 15 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Slide 16: Capex Up 45%
Capex Up 45% . . . . 2005-2014 2015-2024 Opportunity $10.7 bil $15.5 bil $20 + bil Opportunity +45% +30% Gas Infrastructure Electric Gas Electric 27% Maintenance Infrastructure Maintenance 37% Electric Environ. Reliability Smart Energy New Generation New Infra Generation Smart Electric Percent of En
Slide 17: Rate Base Growth
Rate Base Growth . . . . 10 Years of Growth Investment Rate Base 2015 - 2024 (bils) Amount $ 20 +6% /year (bils) Gas Infrastructure $ 5.8 18 & Maintenance 16 Electric Reliability 2.3 14 Smart Energy 0.4 12 10 Environmental 0.9 8 New Generation 1.1 6 Depreciation 4 Electric Maintenance 5.0 02 Plan In
Slide 18: Cleaner Generation
Cleaner Generation . . . . Diverse Capacity Balanced Portfolio Renewables Clean Coal 2005 Capacity % Gas 8% Renewables 6% 31% Karn Generating Coal Lake Winds Gas Energy Park Plant, 508 MW a 11% Pumped Storage 100 MW Oil New Wind 3% Pumped Storage 41% Nuclear Coal Purchases Apple Blossom 2017 Luding
Slide 19: New Contract: Apple Blossom Wind Farm
New Contract: Apple Blossom Wind Farm . . . . At A Glance Expanding Wind Contracts • Competitive price • 100 MW • 15 year contract • Commercial operation late 2016 • Capacity, energy, and renewable credits • Option to purchase . . . . demonstrates ability to build “carbon cushion”. 18
Slide 20: Growing the Gas Business
Growing the Gas Business . . . . Capex (bils) $6 $5.8 +100% New Customers Infrastructure 4 $2.9 Pipeline Integrity Capacity & Deliverability 2 Civic Improvement Compression & Storage Smart Energy & Other 0 Last 10 Next 10 Pct Total 27% 37% . . . . at ~$2 per day -- same as in 2004! 19
Slide 21: O&M Cost Performance
O&M Cost Performance . . . . Actual Cost Reduction Future Cost Savings (2014 over 2006) 2014 2014 & 2015 2018 (mils) (mils) • Attrition $ - 35 $ - 75 • Productivity (Coal Gas) - 35 - 50 • “Pole Top” Hardening - 30 - 30 • Smart Meters - 5 - 25 Peer Average >5% • Eliminate Waste (UA’s) - 15 - 20 • Mor
Slide 22: O&M Cost Reductions
O&M Cost Reductions . . . . 2006 2014 2018 Down 7% Down 10% or 2%/yr $1.1 bil $1.0 bil $0.9 bil Inflation Inflation ≈2% ≈2% • Coal to Gas Switching (Zeeland) • Coal to Gas Switching (Jackson) • Smarter benefit plans • “Pole Top” Hardening • Productivity/Attrition • Productivity/Smart Energy . . . .
Slide 23: Managing the Work Every Year
Managing the Work Every Year . . . . 2011 2012 2013 2014 Adjusted EPS +14% +18¢ $1.90 $1.80 +7% $1.70 +13¢ +7¢ Reinvestment +7% Polar Vortex $1.60 Cost Savings Reinvestment Mild +7% Hot Winter Cold Peers +3½% Summer Winter $1.50 +1¢ Reinvestment +7% Hot Summer $1.40 Taxes Refinancing Storms -13¢ $1.
Slide 24: Sales Growth
Sales Growth . . . . Our Service Territory Outperforms Annual Electric Sales c a Industrial Total Grand Rapids Michigan U.S 6% Building Permits b +23% +11% +12% GDP 15 11 8 2010 2013 Conservative Population 3 0 2 2011 2014 2% 1% Unemployment 3.3 5.3 5.3 ½% (7/15) 2010-2014 2015 - 2019 Post-Recession
Slide 25: Economic Development Growth
Economic Development Growth . . . . Examples of New Business Industries Electric Gas Combination MW Announcement Auto 80 Announcement General Motors Arauco Flint & Grand Rapids • Largest particleboard Food 15 • Assembly and Components press in North America Plants • 250 jobs created Manufacturing 25
Slide 26: No Block Equity Dilution
No “Block Equity” Dilution . . . . Typical utility Model w/o NOLs CMS Model w/ NOLs 6% 6% < 6% < 5% -1% 0 Rate Base Dilution EPS Growth Rate Base Dilution EPS Growth Growth Growth . . . . under CMS growth model. 25
Slide 27: Simple, Perhaps Unique CMS Growth Model
Simple, Perhaps Unique CMS Growth Model . . . . 5-Year Upside Plan Opportunity Capital investment (drives long-term growth) 5% - 7% 6% - 8% - O&M cost reductions -2 pts Short-term - Sales growth - ½ ROA return - No “block” equity dilution -1 and/or - Surcharges and other -1½ Long-term INVESTMENT SEL
Slide 28: PPAs Create Unique Opportunity
PPAs (2,000 MW) Create Unique Opportunity for . . . . PPA vs Owned Capacity Opportunity 2,000 MW 30% $2 Bil Investment Amount (mils) PPAs $(650) New Gas Build 650 Annual Customer Impact zero 10% 5% Peers CMS Today CMS Future . . . . more capacity investment, without increasing bills. 27
Slide 29: ROA Creates Unique Opportunity
ROA (800 MW) Creates Unique Opportunity for . . . . Potential Return Opportunity 800 MW • $150 million subsidy “One-Way Door” Decision • 0.02% of customers on ROA (~300 customers) Build • Could lower rates 4% for Decision everyone if all returned • Build new generation capacity, funded by return Tod
Slide 30: MISO Zone 7 Capacity
MISO Zone 7 Capacity . . . . 2016 Forecasted Shortfall (MW) Impact Annual MISO Survey June June • New capacity to meet 2014 2015 shortfall not assumed • More upside to $15.5 billion capex plan CMS & DTE Purchase IPPs -1,300 New Build • Creates upside pressure Lower in capacity prices -- Demand DIG o
Slide 31: Capacity & Energy Price Increases
Capacity & Energy Price Increases . . . . Was Now Future Scenarios (mils) (mils) (mils) New Business + $25 – $50 $65 •Long-term Energy Energy more • 250 MW at $4.00 per kWm (6/14) $55 • 250 MW ≈ $6.00 per kWm (4/15) Capacity $40 •Recent Capacity • Long-term > $3.30 $35 • Near-term ≈ $4.50 $15 Upside
Slide 32: Electric Customer Prices
Electric Customer Prices . . . . Residential Bills Industrial Rates 20 % 30 % 26% 20 Rates & Worse 10 Worse Fuel 10 Rates & 4% Act 169 National Avg Midwest Avg 0 0 Flat Residential bills well below U.S. average -10 Policy could (8)% Better -10 (13)% (13)% Better eliminate gap Rates Rates & -20 Rates
Slide 33: Customer Satisfaction
Customer Satisfaction . . . . Electric Gas #3 1st Quartile #4 1st Quartile 2nd Quartile 2nd Quartile #9 #6 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 rapi
Slide 34: CMS Energy consistent growth
CMS Energy . . . . Future +5% to +7% 7% CAGR a Recession EPS Recession Dividend Help Hurt 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Future We work Cold Mild Hot Warm Mild Cold Summer- Hot Hot Warm Mild Polar Cold with anyone winter summer summer winter summer winter “less” sum
Slide 35: Michigan Energy Law
Michigan Energy Law . . . . Update: House and Senate bills align Sen. Nofs Gov. Snyder Rep. Nesbitt Keep “cap” Keep “cap” Keep “cap” “Retail Open 3-year capacity 5-year capacity Stricter 5-year Access” requirement requirement capacity “one way door” “Fair choice” requirement No subsidy No subsidy No
Slide 36: Constructive Regulation
Constructive Regulation . . . . Commission Tier 1 State Ranking John Quackenbush (R), Chairman 1 6 Michigan Term Ends: July 2, 2017 ranked #1 2 8 Sally Talberg (I) Term Ends: July 2, 2019 3 20 4 9 Norm Saari (R) Term Ends: July 2, 2021 5 6 Newly appointed! Barclays Research, 2015 state rankings . .
Slide 37: CMS Energy Consistent Growth
CMS Energy Consistent Growth . . . . Future Shines Bright Sustainable Future Growth a EPS a +5% to +7% Past Next 5 $2.50 Performance Years Investment (bils) $6.4 $7.6 (2010-2014) Capacity Op! +7% /year O&M Reductions (10)% (7)% (2006-2014) Conservative Sales Growth +1% +½ % (2010-2014) Conservative
Slide 38: Appendix
Appendix
Slide 39: Clean Power Plan
Clean Power Plan . . . . Lbs CO2 (per MWh) (Preliminary -- Emission Rate) 2500 2300 Consumers Energy 2005 Baseline 2100 1900 1700 Retire 950 MW 1500 coal State of Michigan Target 1300 1100 900 Projected outlook with 20% renewables -- 700 investment not yet in Plan 5000 2014 2015 2016 2017 2018 2019
Slide 40: Our Mindset
Our Mindset . . . . 10-Year Actual 7% CAGR a $1.77 EPS $1.66 Dividend Peers 4% $1.55 $1.45 $1.36 b $1.26 $1.21 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 Future 2015 Future Dividen
Slide 41: O&M Reinvestment Helps Customers
O&M “Reinvestment” Helps CUSTOMERS . . . . Adjusted EPS (non-GAAP) 2015 O&M 2016 Reinvestment Savings (mils) (mils) DIG outage $ (8) $10 2014 Forestry (5) 5 17¢ Donations & other (5) 5 Total $(18) $20 13¢ Weather 12¢ Natural Offsets (4) 2015 Cost & Other 5 Flex Items Total 13¢ • O&M choices • Alt. f
Slide 42: Rate Cases
Rate Cases . . . . Gas (mils) Electric Track Record $21 $85 Date Step Amount (mils) May 2013 Settlement $ 89 $64 2014 Stay out -- June 2015 Self-implement 110 Dec. 2015 Order expected 2½ years Investment Cost of Capital, Filed 7/17 since last order! Upgrades, & Other . . . . fair and timely. 41
Slide 43: Capacity Diversity
Capacity Diversity . . . . Nuclear Oil 8% 6% Coal reduced Renewables by over 40%! 9% Coal 34% Pumped Storage 2014 11% Nuclear Gas Nuclear Oil 6% 32% 8% 8% Oil Renewables 9% 3% Purchases Coal 1% 24% Pumped Coal Storage 41% Renewables 11% 2005 11% 2017 Pumped Gas Storage Gas 31% 12% 35% . . . . evolvi
Slide 44: Electric Customer Base Diversified
Electric Customer Base Diversified . . . . Top Ten Customers 2014 Electric Gross Margin (2014 Ranked by Deliveries) • Hemlock Semiconductor • General Motors • Nexteer Automotive Corporation Commercial • Gerdau MacSteel 33% • Denso International Residential 50% • Packaging Corporation of America • Me
Slide 45: 2015 Sensitivities
2015 Sensitivities . . . . 2015 Impact Status Sensitivity EPS OCF (mils) Sales a • Electric (37,550 GWh) + 1% + $0.05 + $ 20 • Gas (302.4 Bcf) + 5 + 0.07 + 30 Gas prices (NYMEX) + 50¢ – 0 – 55 + + ROE (authorized) • Electric (10.3%) + 10 bps + 0.01 + 5 • Gas (10.3%) + 20 + 0.01 + 4 Interest Rates +1
Slide 46: Operating Cash Flow Growth
Operating Cash Flow Growth . . . . Amount Up $0.6 Billion (bils) Gross operating cash flowa up $0.1 billion per year $2.6 $ 2.6 $2.5 $2.3 $2.2 $2.1 Interest, working 2.1 $1.9 $1.8 capital and taxes 1.6 $1.55 1.1 0.6 Investment 0.1 (0.4) Cash flow before dividend _____ a Non-GAAP (0.9) 2014 2015 2016
Slide 47: 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 48: GAAP Reconciliation
GAAP Reconciliation
Slide 49: 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 50: 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 $ 1,920 $ 2,027 $ 2,145 $ 2,266 $ 2,401 $ 2,515 Enterprises Project Cash Flows 20 20 40 58 62 67