Slide 1: Year-End 2016 Results & Outlook
Year-End 2016 Results & Outlook February 2, 2017 Palisades Replacements Gas Pipelines
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: Agenda
Agenda 2016 Results and 2017 Priorities Patti Poppe President & CEO Future Outlook Customer AND Investor Model Customer Investment Plan Financial Results and Outlook Tom Webb Updated Sensitivities Executive VP & CFO Potential Tax Reform 2
Slide 4: Financial Results & Outlook
Financial Results & Outlook . . . . Vs 2016 Results Amount Prior Year • EPS (at high end) a $2.02 +7% • Operating cash flow (mils) $1,629 $(11) 2017 Guidance • EPS guidance (raised) $2.14 to $2.18 a +6% to +8% • Annual dividend $1.33 +7% • Payout ratio 62% _____ a Adjusted EPS (non-GAAP) . . . .
Slide 5: Customer-Focused Results
Customer-Focused Results . . . . Breakthrough Year! And more Underway Best safety record ever • New Energy Law implementation Best generation reliability • Clean & Lean approach performance • Launched “Consumers Energy Way” Record cumulative O&M cost reductions since 2006 Increased customer
Slide 6: New Energy Law
New Energy Law . . . . Customer Investor What’s New? What is the Impact? • Subsidies addressed • Price competitiveness • ROA reform • Secure capacity • Net metering • Increased energy efficiency & demand • Improved incentives response incentive • RPS -- 15% by end of 2021 • Additional rate base oppo
Slide 7: Another Step Towards Clean & Lean
Another Step Towards Clean & Lean . . . . Palisades PPA Contract Approach Cost Contract (mils) price-to- 1• Replace above market PPA contract $450 $172 mil Consumers (customer savings) 400 2• Fully utilize existing assets 350 3• Emphasis on no carbon solutions • Energy Efficiency, 300 • Demand Respo
Slide 8: The Consumers Energy Way
The Consumers Energy Way . . . . The CE Way Safety . Quality . Cost . Delivery . Morale CUSTOMER ENABLED FOCUS EMPLOYEES BUSINESS RESULTS CONTINUOUS STANDARDIZED IMPROVEMENT PROCESSES . . . . a culture of continuous improvement. 7
Slide 9: 2017 Priorities
2017 Priorities . . . . People Planet Profit • Top-quartile customer • Reduce coal dependency • 6% to 8% adjusted EPS satisfaction growth • Minimal environmental • Enabled employees impact • Customer investment Plan with more • Thriving communities • #1 U.S. utility in opportunities ahead Sustainaly
Slide 10: Simple, Perhaps Unique Model
Simple, Perhaps Unique Model . . . . 2017+ Plan Customer investment (reliability, costs, enviro mandates) 6% - 8% Self Funding: - 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% . . . . c
Slide 11: Ten-year, $18 bil Customer Investment Plan
Ten-year, $18 bil Customer Investment Plan . . . . 2018 - 2027 Details Capex $18 billion (bils) Gas Infrastructure & Maintenance $ 8 Supply (incl. renewables) 4 Gas Electric Infrastructure & Electric Distribution 6 Distribution Maintenance Total Customer Investment $18 Future Opportunities: Improve
Slide 12: Consistent Growth Through Cycles
Consistent Growth Through . . . . 7% CAGR a EPS +6% to +8% Dividend 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. Warm w
Slide 13: 2016 Results
2016 Results . . . . Results By Business Segment 2015 2016 EPS -- (GAAP) $1.89 $1.98 EPS Adjusted Voluntary Separation -- 0.03 Consumers $2.22 Legacy Settlement -- 0.01 Enterprises 0.07 Adjusted (non-GAAP) $1.89 +13¢ $2.02 Interest & other (0.27) Weather-normalized $1.90 $2.03 CMS Energy $2.02 +
Slide 14: 2016 EPS
2016 EPS . . . . a Adjusted EPS (non-GAAP) Warm Summer Non- weather 6¢ $2.02 Weather Reinvestment +7% 14¢ $1.99 Weather & Recovery Storms Pension “Yield Curve” 5¢ Mild Weather 3¢ Enhanced Capitalization 3 Debt Pre-funding 4 ‘15 Pension Contribution 2 Foundation & Low Income 5 Improved “UAs” & Other
Slide 15: Managing Work Every Year
Managing Work Every Year . . . . a 2008 2009 2010 2011 2012 2013 2014 2015 2016 EPS Mild $2.20 Summer +7% +18¢ +17¢ Cost +7% productivity above plan Cost $2.00 productivity +7% above plan Reinvestment +13¢ Storms Hot +7¢ -13¢ Mild $1.80 Reinvestment Summer Winter +7% RECORD Hot WARM Offsets Summer +
Slide 16: 2016 Financial Targets Achieved
2016 Financial Targets Achieved . . . . Target Actual Adjusted EPS (non-GAAP) $1.99 - $2.02 +5% to +7% $2.02 +7% Operating cash flow (mils) $1,550 $1,629 Dividend payout ratio Customer price incr./(decr.) > 62% 62% Electric (excl. fuel) ~1% 2% Gas ~(10)% (11)% FFO/Average debt 18% 19% Cust
Slide 17: 2017 EPS Guidance Raised
2017 EPS Guidance RAISED . . . . a Adjusted EPS (non-GAAP) • Utility • Electric $1.63 - $1.65 • Gas 0.67 - 0.69 Total Utility $2.30 - $2.34 • Enterprises 0.09 Prior • Parent and other (0.25) Guidance Total EPS $2.14 - $2.18 $2.13 - $2.17 +6% to +8% • Operating cash flow (GAAP) (mils) $1,650 _____ a
Slide 18: 2017 EPS
2017 EPS . . . . a $2.14 - $2.18 Customer base rates < 2% +6% to +8% 3¢ – 7¢ Cost down 29¢ $2.02 2%! 4¢ (24)¢ _____ 2016 2016 Customer Investment O&M Cost Savings Sales and Rates Parent & Other 2017 2017 a Adjusted EPS (non-GAAP) . . . . growth up 6% to 8% over 2016. 17
Slide 19: O&M Cost Performance Helps to Fund Consumers Investment
O&M Cost Performance Helps to Fund . . . . Actual Cost Reduction New Annual Cost Savings (2015 over 2006) Three-Year Avg 2014 2017 - 2016 - 2019 Good Business Decisions (mils) (mils) • Attrition $ - 16 $ - 16 • Productivity (Coal Gas) - 20 - 5 • Enhanced capitalization - 10 - 4 • Smart Meters - 4 -
Slide 20: Operating Cash Flow Funds Investments
Operating Cash Flow Funds . . . . Amount Up $0.8 (bils) Billion Gross operating cash flowa $2.9 $ 2.9 up > $0.1 billion per year $2.7 Up $2.6 $1.8 billion $2.4 since 2004! 2.4 $2.2 Interest, working $2.1 capital and taxes $1.9 1.9 $1.63 $1.65 1.4 Operating cash flow NOLs avoid 0.9 Investment need fo
Slide 21: 2017 Sensitivities
2017 Sensitivities . . . . 2017 Impact Sensitivity EPS OCF (mils) Sales a • Electric (37,704 GWh) + 1% + 5¢ + $ 20 • Gas (302 Bcf) + 5 + 7 + 30 – – 55 Gas prices (NYMEX) + 50¢ + 0 + ROE (planned) • Electric (10.3%) • Gas (10.1%) + 20 bps + 20 + + 3 1 + 15 + 6 Interest Rates +100 bps + < 1 – 7 + Cu
Slide 22: Potential Tax Reform
Potential Tax Reform . . . . Assumptions Impact CMS Impact • Lower federal tax rate at 15% Utility (vs 35%) – More than ample investment “Backfill” • Loss of interest deductibility on Enterprises all debt (may be less/better) – Improved earnings & cash flow Parent • Loss of state income tax – Intere
Slide 23: Tax Policy Reform
Tax Policy Reform . . . . Scenarios a Non-Regulated Alternative Corporate Tax Rate 15% 20% 25% EnerBank interest income offsets Parent interest expense Series 1 Assumptions Asset Expensing Amount 100% 100% 100% $130 mil Annual Backfill (mils) $100 $200 $300 Loss of Interest Deductions 100% 100% 100%
Slide 24: 2017 Financial Targets Updated
2017 Financial Targets Updated . . . . 2017 Next 5 Years Adjusted EPS (non-GAAP) $2.14 - $2.18 +6% to +8% +6% to +8% Operating cash flow (mils) $1,650 Up $100/year Dividend payout ratio ~ 62% ~ 62% Customer price (excl. fuel) Electric ~2% ~2% Gas ~2% ~3% FFO/Average debt 18½% ~18% Customer investmen
Slide 25: EPS
EPS . . . . a +8% EPS a $2.18 $2.10 +7% Average growth per year +8% $2.02 +6% +7% $2.14 +6% $1.89 $2.01 $1.97 $2.17 $1.77 $1.87 $2.13 $1.85 $1.66 $1.78 $1.55 $1.73 Not Yet in Plan $1.66 $1.63 Customer investment $1.45 $1.55 Opportunities $1.36 $1.52 Original guidance More cost performance $1.44 $1
Slide 26: Q&A
Q&A
Slide 27: Appendix
Appendix
Slide 28: CMS Customer Investment
CMS Customer Investment 2017-2021 2022-2026 2017-2026 2017 2018 2019 2020 2021 Subtotal Subtotal Total (mils) (mils) (mils) (mils) (mils) (mils) (mils) (mils) Supply Traditional Generation $ 263 $ 312 $ 374 $ 263 $ 236 $ 1,448 $ 1,463 $ 2,911 Clean Power 147 64 70 54 33 368 1,073 1,441 Total Supply
Slide 29: 2016 EPS
2016 EPS . . . . a 33¢ $2.02 Gas 10¢ +7% 6¢ Electric 24¢ $1.89 Flat (26)¢ Abs of ’15 1¢ 2016 (1) --¢ _____ 2015 2015 Weather Rate Changes Investment Cost Savings and Other 2016 2016 a Adjusted EPS (non-GAAP) . . . . growth +7% over 2015, high end of guidance. 28
Slide 30: Capacity Diversity
Capacity Diversity . . . . Nuclear 8% Oil 10% Coal Purchases 21% 3% Renewables 10% 2017 Pumped Storage Gas Nuclear Oil 6% 8% 12% 36% Future Capacity Mix Renewables 3% Pumped Storage Coal • More Renewables; 15% by 2021 41% • Expanded Pumped Storage 11% 2005 • Clean Energy Resources Gas • Terminate nu
Slide 31: Energy Mix
Energy Mix . . . . Supply 2015 2016 • Coal 41% 24% a • Gas 18 27 • Renewables 4 4 • Pumped Storage (1) (1) b • PPA (Nuclear and Gas) 38 46 b _____ a Includes 3% from Classic 7 coal plants (shutdown April 2016) b Includes market purchases . . . . significant shift away from coal. 30
Slide 32: 2016 Cash Flow (non-GAAP)
2016 Cash Flow (non-GAAP) CMS Energy Parent Consumers Energy Cash at year end 2015 $ 159 Amount (mils) Sources Consumers Energy dividend and tax sharing $ 551 Cash at year end 2015 $ 71 Enterprises 46 Sources Sources $ 597 Operating (depreciation & amortization $803) $ 2,037 Uses Other working capit
Slide 33: 2017 Cash Flow Forecast (non-GAAP)
2017 Cash Flow Forecast (non-GAAP) CMS Energy Parent Consumers Energy Cash at year end 2016 $ 43 Amount (mils) Sources Consumers Energy dividend and tax sharing $ 546 Cash at year end 2016 $ 152 Enterprises 53 Sources Sources $ 599 Operating (depreciation & amortization $871) $ 2,138 Other working c
Slide 34: GAAP Reconciliation
GAAP Reconciliation
Slide 35: 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 2016 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 $1.98 Pretax items:
Slide 36: 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 Pretax items: Electric and gas utility - - - - - Enterprises * * * * * Corporate interest and other
Slide 37: CMS Energy EBITDA GAAP Reconciliation
CMS ENERGY CORPORATION EBITDA GAAP Reconciliation Twelve Months Ended (Unaudited) In Millions 12/31/16 12/31/15 12/31/14 Reported earnings - GAAP $ 551 $ 523 $ 477 Interest on long-term debt 411 386 393 Other interest expense 29 14 17 Allowance for borrowed funds used during construction (5) (4) (3)
Slide 38: Consumers Energy EBITDA GAAP Reconciliation
CONSUMERS ENERGY COMPANY EBITDA GAAP Reconciliation Twelve Months Ended (Unaudited) In Millions 12/31/16 12/31/15 12/31/14 Reported earnings - GAAP $ 614 $ 592 $ 565 Interest on long-term debt 261 252 243 Other interest expense 12 2 10 Allowance for borrowed funds used during construction (5) (4) (3
Slide 39: Consumers Energy 2016 Cash Flow GAAP Reconciliation
Consumers Energy 2016 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 Accts/Rec Lease Pymts Securitization Common Consolidated Statements of Ca
Slide 40: CMS Energy Parent 2016 Cash Flow GAAP Reconciliation
CMS Energy Parent 2016 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 41: Consolidated CMS Energy 2016 Statements of Cash Flow
Consolidated CMS Energy 2016 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 Consumers CMS Pare
Slide 42: Gross Operating Cash Flow to GAAP Operating Activities
CMS Energy Reconciliation of Gross Operating Cash Flow to GAAP Operating Activities (unaudited) (mils) 2015 2016 2017 2018 2019 2020 2021 Consumers Operating Income + Depreciation & Amortization $ 1,866 $ 2,037 $ 2,138 $ 2,315 $ 2,547 $ 2,678 $ 2,816 Enterprises Project Cash Flows 20 46 53 54 53 53
Slide 43: Consumers Energy 2017 Cash Flow Forecast GAAP Reconciliation
Consumers Energy 2017 Cash Flow Forecast 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 Accts/Rec Lease Pymts Securitization Common Consolidated Stateme
Slide 44: CMS Energy Parent 2017 Cash Flow Forecast GAAP Reconciliation
CMS Energy Parent 2017 Cash Flow Forecast 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 De
Slide 45: Consolidated CMS Energy 2017 Forecasted Statements of Cash Flow
Consolidated CMS Energy 2017 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