Slide 1: First Quarter 2016 Results & Outlook
First Quarter 2016 Results & Outlook April 28, 2016 Jackson Generating Station Ludington Pumped Storage Cross Winds Energy Park Among lowest acquisition cost ever Fourth largest in the world #2 in renewable sales in the Great Lakes area
Slide 2: Forward-looking statements and non-GAAP 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 First Quarter Results President & CEO Operational Performance Our Model Patti Poppe Capital Investment Senior Vice President & Quality Improvements & Incoming CEO Cost Reductions Financial Results & Outlook Tom Webb First Quarter; Full Year Executive VP & CFO Weather Mit
Slide 4: First Quarter Results
First Quarter Results . . . . First Quarter EPS at 59¢ a Down (14)¢ from 2015; up 12¢ (20%) weather-normalized Mild weather fully mitigated a Reaffirm Full Year EPS guidance: $1.99 to $2.02 +5% to +7% _____ a Adjusted EPS (non-GAAP) . . . . impacted by second-warmest winter on record. 3
Slide 5: Operational Performance
Operational Performance . . . . • Retired 950 MW of coal plants in April • Coal mix now below 25% • Rate Cases • Settled gas rate case -- $40 million • Track record demonstrates constructive regulation • Filed electric rate case at $225 million • Energy Law • Proceeding through Senate and House • Bu
Slide 6: Reducing Coal Dependence
Reducing Coal Dependence . . . . A “Green” Strategy Coal Mix • Largest coal reduction of any investor-owned utility! 2005 2016 • Purchased Jackson Generating Station; lowest Largest reduction of any acquisition cost investor-owned utility (540 MW, $155 mil) • Added new wind farms 41% • Energy effici
Slide 7: Regulatory Track Record
Regulatory Track Record . . . . Gas Rate Cases Electric Rate Cases Year Step Amount Capex ROE Step Amount Capex (mils) (mils) 2012 Settled $16 188% Order $118 110% 2013 Stay-out 10.3% Settled 89 127 2014 Stay-out Stay-out 2015 Settled 45 200 Order 126 137 2016 Settled 40 158 Filed 225 72 . . .
Slide 8: Michigan Energy Law
Michigan Energy Law . . . . Present Law Updates Plan • 10% renewables by 2015 • Energy efficiency standards 6% - 8% • File-and-implement Nothing happens growth in 2017 and beyond • 10% ROA cap • Reliability • Fair process Customer • Security Upside • IRP Process . . . . process continues. 7
Slide 9: Consistent Growth Through Recessions, Weather and Policy
Consistent Growth Through . . . . 7% CAGR a EPS Dividend 6% to 8% 5% to 7% Weather Recession Recession Help _____ Hurt a Adjusted EPS (non-GAAP) Cold 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Feb. Cold Mild Hot Warm Mild Cold Summer- Hot Hot Warm Mild Polar Cold Feb.
Slide 10: Capex $17 Billion Over 10 Years
Capex $17 Billion Over 10 Years . . . . 2016-2025 2016-2025 Investor AND Customer How this adds value! Cleaner Energy Electric Infrastructure & Gas Enhancing Maintenance Infrastructure & Improving Productivity Maintenance Service New Reducing Generation Electric Cost Distribution & Reliability Envir
Slide 11: Capex $17 Billion Over 10 Years: Customer Benefit Drivers
Capex $17 Billion Over 10 Years . . . . 2016-2025 Customer Benefit Drivers Customer Electric reliability; digital customer experience Cleaner Energy Smart meters; proactive gas Enhancing infrastructure replacement Productivity Improving Service Gas compression upgrades; field Reducing Service Techno
Slide 12: 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% . . . . drives sustainable
Slide 13: 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 (UAs) - 15 - 10 & Work
Slide 14: O&M Cost Performance: Where We Can Improve
O&M Cost Performance . . . . Where We Can Improve More How We Will Do It (Electric Distribution Cost Per Customer) 2006 2014 Build the job as designed 1st Quartile 2nd Quartile Accurately schedule the job 3rd Quartile Consumers Consumers “Field Services” Project 4th Quartile ----- Source: SNL, Form
Slide 15: 2016 First Quarter EPS
2016 First Quarter EPS . . . . a Results By Business Segment 2015 2016 EPS $0.73 $0.59 EPS -14¢ Utility $0.62 Enterprises 0.02 Weather-normalized $0.59 $0.71 Interest & other (0.05) +12¢ +20% CMS Energy $0.59 _____ a Adjusted EPS (non-GAAP) . . . . impacted by weather. 14
Slide 16: 2016 EPS
2016 EPS . . . . a First Quarter Nine Months To Go (14)¢ 24¢ - 27¢ $1.99 - $2.02 5% - 7% 12¢ 8¢ - 11¢ $1.89 16¢ (12)¢ (14)¢ 0¢ +2¢ First Quarter $0.73 First Quarter $0.59 2015 Operations 2016 Weather 2015 Weather 2015 Weather; Lower Cost & 2016 2016 Normal Other _____ a Adjusted EPS (non-GAAP) . . .
Slide 17: EPS Outlook
EPS Outlook . . . . Adjusted EPS (non-GAAP) 17¢ 2015 13¢ Up 11¢ 7% Guidance December (11)¢ Cold winter Mild Spring Normal Summer Warm winter January March 31 June 30 September 30 December . . . . at 7% for 2015.
Slide 18: EPS Outlook
EPS Outlook . . . . Adjusted EPS (non-GAAP) 17¢ 2015 13¢ 11¢ Up 5% -7% Guidance Weather Offsets Weather & Storms Pension “Yield Curve” 5¢ Enhanced Capitalization 3 ‘15 Pension Contribution 2 Improved “UAs” & Other 3 Offsets 13¢ 2016 December (11)¢ (13)¢ January March 31 June 30 September 30 December
Slide 19: Pension Benefit Weighted Full Yield Curve Adopted
Pension Benefit Weighted Full Yield Curve Adopted . . . . The Curve Implications PBO Disc. (mils) • Applies each spot rate in the Spot Rate full yield curve to the present $ 180 New Yield Curve 6% value of the cash flow 160 corresponding to that rate 5% 140 Higher Cost • Consistent with how “interes
Slide 20: Managing Work Every Year
Managing Work Every Year . . . . Adjusted 2011 2012 2013 2014 2015 EPS $2.10 Mild $2.00 +17¢ Summer +7% +18¢ $1.90 Offsets $1.80 Ice Storm Reinvestment -13¢ +7% Cold RECORD Cost $1.70 Winter WARM Savings +13¢ +7¢ Reinvestment +7% Polar Vortex $1.60 Hot Mild Winter Summer +7% -9¢ $1.50 +1¢ Cold Reinv
Slide 21: 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 22: 2016 Sensitivities
2016 Sensitivities . . . . 2016 Impact Sensitivity EPS OCF (mils) Sales a • Electric (37,600 GWh) + 1% + $0.05 + $ 20 • Gas (289 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 bps +
Slide 23: Credit Ratings
Credit Ratings . . . . Scale Reflects S&P / S&P Moody’s Fitch Fitch Moody’s (Dec. ‘15) (Mar. ‘16) (Mar. ‘16) 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 24: Financial Targets
Financial Targets . . . . 2016 Adjusted EPS (non-GAAP) $1.99 - $2.02 +5% to +7% Operating cash flow (mils) $1,550 Dividend payout ratio Customer price incr./(decr.) > 62% ~1% Electric (excl. fuel) Gas ~(10)% FFO/Average debt 18% Capital investment (bils) $1.7 . . . . fourteenth year of t
Slide 25: 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. 24
Slide 26: Q&A
Q&A
Slide 27: Appendix
Appendix
Slide 28: Operating Cash Flow Growth
Operating Cash Flow Growth . . . . Amount Up $0.8 Billion (bils) Gross operating cash flowa $2.7 $ 2.7 up $0.1 billion per year $2.5 $2.4 $2.2 2.2 $2.0 Interest, working $1.9 capital and taxes $1.8 1.7 $1.6 1.2 0.7 Investment 0.2 (0.3) _____ Cash flow before dividend a Non-GAAP (0.8) 2014 2015 2016
Slide 29: 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 30: Liquidity (as of March 2016)
Liquidity (as of March 2016) . . . . Renewal Capacity Availability $1.8 Billion $1.6 Billion CMS Energy Stronger liquidity 5-year revolver May 2020 $550 mils than peers $549 mils Consumers Energy 5-year revolver May 2020 650 Letter of Credit Apr 2018 643 Letter of Credit Aug 2018 Letter of Credit Ma
Slide 31: 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 $ 495 Cash at year end 2015 $ 50 Enterprises 35 Sources Sources $ 530 Operating (depreciation & amortization $805) $ 2,030 Other working c
Slide 32: GAAP Reconciliation
GAAP Reconciliation
Slide 33: 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 34: Earnings By Quarter and Year GAAP Reconciliation
CMS ENERGY CORPORATION Earnings By Quarter and Year GAAP Reconciliation (Unaudited) (In Millions, Except Per Share Amounts) 2015 1Q 2Q 3Q 4Q YTD Dec Reported net income - GAAP $202 $67 $148 $106 $523 After-tax items: Electric and gas utility - - - - - Enterprises * * * * * Corporate interest and oth
Slide 35: Earnings Segment Results GAAP Reconciliation
CMS ENERGY CORPORATION Earnings Segment Results GAAP Reconciliation (Unaudited) Three Months Ended March 31 2016 2015 Electric Utility Reported $ 0.33 $ 0.34 Restructuring Costs and Other - - Adjusted $ 0.33 $ 0.34 Gas Utility Reported $ 0.29 $ 0.44 Restructuring Costs and Other - - Adjusted $ 0.29
Slide 36: 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 Lease Pymts Securitization Common Consolidated Statements of Cash Flows non-
Slide 37: 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 38: Consolidated CMS Energy 2016 Forecasted Cash Flow Consolidation
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 39: 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 $ 2,030 $ 2,161 $ 2,336 $ 2,481 $ 2,613 Enterprises Project Cash Flows 20 20 35 58 58 63