Slide 1: Second Quarter 2015 Results & Outlook
Second Quarter 2015 Results & Outlook July 23, 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
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 First Half Results Regulatory/Legislative Update Gas Utility Growth Results & Outlook First Half Performance Sustainable Growth Model 2
Slide 4: First Half Results
First Half Results . . . . First half EPS at 98¢ a Down 7¢ from 2014; up 3¢ weather-normalized Up 13¢ from Plan a Reaffirm full year EPS guidance of $1.86 to $1.89 _____ a Adjusted EPS (non-GAAP) . . . . ahead of plan, with great options. 3
Slide 5: 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. 4
Slide 6: Electric Prices & Act 169
Electric Prices & Act 169 . . . . Industrial Rates Impact Worse 30 % 26% Rates now 21% competitive 20 Rates & Fuel 11% Rates & ROA policy could 10 Act 169 create an advantage 4% Midwest Avg Flat Good for our 0 customers AND our state -10 (8)% Policy could create an Residential bills -20 adva
Slide 7: Growing Business in Michigan
Growing Business in Michigan . . . . Pure Michigan Business Connect Our Service Territory a Helps drive economic growth Has outperformed Michigan and U.S. Investment (bils) Grand $5 $5 Rapids Michigan U.S b Building Permits +30% +10% +9% In state goods 4 and services GDP 2010 2013 15 11 8 • Engineer
Slide 8: Michigan Energy Law
Michigan Energy Law . . . . Sen. Nofs Gov. Snyder Rep. Nesbitt Keep “cap” Keep “cap” End “ROA” “Retail Open 3-year capacity 5-year capacity Access” requirement, requirement Fully regulated “one way door” “Fair choice” No subsidy No subsidy 1%/yr waste reduction Eliminate 15% Repeal present Efficienc
Slide 9: Capex Up 45%
Capex Up 45% . . . . Electric Capex Criteria Gas Opportunity +30% Add customer value $20 + Organic growth +45% $15.5 Reduce O&M Balance fuel $10.7 Mandated by regulations No “big bets” 2005 - 2014 2015 - 2024 Opportunity . . . . with more opportunity and no “big bets” over ten years! 8
Slide 10: Growing the Gas Business
Growing the Gas Business . . . . a U.S. Rank • Storage #1 Storage Field • 309 bcf • Compression #1 Compression Station • 168,721 horsepower • Sales #2 Transmission Pipeline • 373 bcf • Transmission #4 Distribution Mains • 2,497 miles • Distribution #6 _____ • 50,850 miles Gas Infrastructure a Source
Slide 11: 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! 10
Slide 12: 2015 First Half EPS
2015 First Half EPS . . . . Results By Business Segment 2015 2014 EPS Better EPS $0.98 $1.05 Actual than Plan Utility $1.08 $0.09 -7¢ Enterprises 0.03 0.02 Interest & other (0.13) 0.02 Weather-normalized $0.86 $0.83 Company $0.98 $0.13 +3¢ Above Plan +15% Second Quarter EPS 25¢ 30¢ -5¢ Weather-norma
Slide 13: 2015 EPS
2015 EPS . . . . a First Half Second Half (7)¢ 16¢ - 19¢ $1.86 - $1.89 _+5% - +7% $1.77 3¢ 12¢ 9¢ - 12¢ (5)¢ (10)¢ First Half First Half $1.05 $0.98 2014 Rate Change, Weather Lower O&M Mortality Tables Rate Relief & 2015 Cost & Other & Discount Other Rates _____ a Adjusted EPS (non-GAAP) . . . . gui
Slide 14: 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 • O&M choices Total 13¢ • Alt. f
Slide 15: One of a Kind, CMS Growth Model
One of a Kind, CMS Growth Model . . . . Plan Capital investment (drives EPS 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 % . . . . drives sustainable fut
Slide 16: Rate Base Growth
Rate Base Growii.... OMS EVERGY 10 Years of Growth Investment Rate Base 2015 - 2024 (bils) Amount $20 (bils) O Gas Infrastructure $ 5.8 8 | & Maintenance 16 | _ 2 Electric Reliability 2.3 : | B Smart Energy 0.4 10 - B Environmental 0.9 *] B New Generation 1.1 | B® Electric Maintenance 5.0 0 ee Plan
Slide 17: Capex Up 45%
Capex Up 45% . . . . 2005-2014 2015-2024 Opportunity $10.7 bil $15.5 bil $20 + bil Opportunity +30% +45% Gas Electric Gas Infrastructure Maintenance Infrastructure Electric Maintenance Electric Environ. Reliability Smart Energy New Generation New Infra Generation Smart Electric Percent of Energy Rel
Slide 18: 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 19: O&M Cost Performance
O&M Cost Performance . . . . Electric Annual Growth O&M 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 • Morta
Slide 20: Sales Growth
Sales Growth . . . . Examples of New Business Annual Electric Sales a Electric Gas Combination Industrial Total Announcement Bayer CropScience 6% • One of the world’s leading crop science companies • Secures 70 jobs • $50 million investment Conservative Dicastal Durolast Roofing 2% Continental Dairy
Slide 21: 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. 20
Slide 22: One of a Kind, CMS Growth Model
One of a Kind, CMS Growth Model . . . . Plan Opportunity Capital investment (drives EPS 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 self-funded -5 pts Replace PPAs
Slide 23: PPAs (2,000 MW) 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 10% Annual Cust. Impact zero 5% Peers CMS Today CMS Future . . . . more capacity investment, without increasing bills. 22
Slide 24: ROA (800 MW) 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 25: 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 26: CMS Energy Consistent Growth
CMS Energy . . . . +5% to +7% /year 7% CAGR Recession Recession Help Hurt 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Future Cold Mild Hot Warm Mild Cold Summer- Hot Hot Warm Mild Polar Cold winter summer summer winter summer winter “less” summer summer winter summer vortex Feb.
Slide 27: Operating Cash Flow
Operating Cash Flow a . . . . Resources Percent of Market Cap for the Future 18% Reinvest back into + $0.3B the business 15% - - - - AND/OR - - - - + $0.6B 13% Grow rate-base 12% - - - - AND/OR- - - - 9% CMS Peers CMS Peers CMS Improve capital structure 5 Years Ago 2014 5 Years Ahead ----- a Source:
Slide 28: 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 29: 2015 Financial Targets
2015 Financial Targets . . . . Target Focus Adjusted EPS (non-GAAP) $1.86 - $1.89 +5% to +7% Consistent, high- end performance Operating cash flow (mils) $1,550 No “big bets” Dividend payout ratio Customer price decreases > 62% Competitive Electric ≈(3)% Good value Gas ≈(3)% FFO/Average de
Slide 30: CMS Energy Consistent Growth
CMS Energy Consistent Growth . . . . Future Shines Bright Sustainable Future Growth a $2.50 +5% to +7% / Past Next 5 year 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 31: Appendix
Appendix
Slide 32: Capacity Diversity
Capacity Diversity . . . . Nuclear Oil 8% 6% Renewables 9% Coal 34% Pumped Storage 2014 11% Nuclear Gas Nuclear Oil 6% 32% 8% 8% Oil 6% Renewables Purchases 3% 3% Coal 24% Pumped Coal Renewables Storage 41% 10% 11% 2005 2017 Pumped Gas Storage Gas 31% 12% 37% . . . . evolving to cleaner generation w
Slide 33: Liquidity (as of June 2015)
Liquidity (as of June 2015) . . . . Renewal Capacity Availability $2.1 Billion CMS Energy $1.9 Billion Stronger liquidity 5-year revolver May 2020 $550 mils than peers $547 mils Consumers Energy 5-year revolver May 2020 650 640 Letter of Credit Apr 2018 68 Letter of Credit Aug 2018 36 30 Letter of C
Slide 34: 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 35: Credit Ratings
Credit Ratings . . . . Scale Reflects S&P Moody’s S&P Moody’s (Dec. ‘14) (Mar. ‘15) A+ A1 • Consistent A A2 Consumers Performance Secured A- A3 BBB+ Baa1 • Less Risk BBB Baa2 BBB- Baa3 • Customer Focus BB+ Ba1 CMS • Constructive BBB BBB- Baa2 Baa3 Unsecured Regulation BB+ BB Ba1 Ba2 Present • Good E
Slide 36: 2015 Cash Flow Forecast (non-GAAP)
2015 Cash Flow Forecast (non-GAAP) CMS Energy Parent Consumers Energy Cash at year end 2014 $ 95 Amount (mils) Sources Consumers Energy dividend and tax sharing $ 365 Cash at year end 2014 $ 71 Enterprises 20 Sources Sources $ 385 Operating (depreciation & amortization $735) $ 1,920 Other working ca
Slide 37: GAAP Reconciliation
GAAP Reconciliation
Slide 38: Earnings Per Share By Year GAAP Reconciliation
CMS ENERGY CORPORATION Earnings Per Share By Year GAAP Reconciliation (Unaudited) 2008 2009 2010 2011 2012 2013 2014 Reported earnings per share - GAAP $1.20 $0.91 $1.28 $1.58 $1.42 $1.66 $1.74 After-tax items: Electric and gas utility 0.05 0.33 0.03 - 0.17 - - Enterprises (0.02) 0.09 (0.03) (0.11)
Slide 39: Earnings By Quarter and Year GAAP Reconciliation
CMS ENERGY CORPORATION Earnings By Quarter and Year GAAP Reconciliation (Unaudited) (In Millions, Except Per Share Amounts) 2014 1Q 2Q 3Q 4Q YTD Dec Reported net income - GAAP $204 $83 $94 $96 $477 After-tax items: Electric and gas utility - - - - - Enterprises - * 9 * 9 Corporate interest and other
Slide 40: Earnings Segment Results GAAP Reconciliation
CMS ENERGY CORPORATION Earnings Segment Results GAAP Reconciliation (Unaudited) Three Months Ended Six Months Ended June 30 2015 2014 2015 2014 Electric Utility Reported $ 0.30 $ 0.36 $ 0.64 $ 0.72 Restructuring Costs and Other - - - - Adjusted $ 0.30 $ 0.36 $ 0.64 $ 0.72 Gas Utility Reported $ - $
Slide 41: 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 42: 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 43: Consolidated CMS Energy 2015 Forecasted Cash Flows
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
Slide 44: 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 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