Cms Energy Corporation · NYSE:CMS
Cms Energy — EEI Financial Conference 2016
49 slides from Cms Energy's conference presentation, Nov 6, 2016
Slide 1: EEI Financial Conference November 6 - 9, 2016
EEI Financial Conference November 6 - 9, 2016 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: Why Invest in CMS Energy?
Why Invest in CMS Energy? Our Growth Engine Supported By (2016-2025 Capex) ● UPSIDES -- More growth; no big bets (Investment, Sales, Cost, & DIG) ● PARTNERS -- Facilitate growth $17 Billion (Customers, Regulators, & Policy Makers) ● PASSION to improve for customers AND owners (Value, Reliability, &
Slide 4: EPS
EPS . . . . a +8% $2.17 EPS a +8% $2.10 +7% Average growth per year $2.02 +6% +7% $2.13 $1.89 +6% $1.77 $2.00 $1.87 +6% $1.85 $1.66 $1.78 $1.73 Not in Plan $1.55 $1.66 $1.45 $1.55 $1.63 Updated Law $1.36 Capex Opportunities $1.52 $1.44 Original guidance Big Bets $1.35 0 2010 2011 2012 2013 2014 2
Slide 5: The Consumers Energy Way
The Consumers Energy Way . . . . The CE Way Safety Quality Cost Delivery . . . CUSTOMER ENABLED FOCUS EMPLOYEES Safety: Every day is a safe day Quality: We get it right the first time BUSINESS RESULTS Cost: We see and eliminate waste Delivery: We get it done on time CONTINUOUS STANDARDIZED IMPROVEME
Slide 6: Simple, Perhaps Unique Model
Simple, Perhaps Unique Model . . . . 2017+ Plan Capital 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% . . . . cont
Slide 7: Next 10 Years -- $17 Billion Investment
Next 10 Years -- $17 Billion Investment . . . . Electric Dist. Gas Supply Opportunity $6.5 bil $6.2 bil $4.3 bil $3 - $4 bil Maintenance Pipeline Deliverability Environmental Gas Infrastructure Electric Reliability Compression Clean Energy More Renewables Capacity Replacement Opportunity Grid Techno
Slide 8: O&M Cost Performance
O&M Cost Performance . . . . Actual Cost Reduction New Cost Savings (2015 over 2006) 2014 2016 & 2015 & 2017 Good Business Decisions (mils) (mils) • Attrition (VSP) $ - 35 $ - 35 • Productivity (Coal Gas) - 35 - 15 • “Pole Top” Hardening - 20 - 10 • Smart Meters - 5 - 20 “Consumers Energy Way” • Wor
Slide 9: Michigan
Michigan . . . . Michigan ranked #1 most competitive Midwest state for job creation by Site Selection Magazine Michigan ranked #7 best state to do business by CNBC (improved from #22 in 2015!) Grand Rapids named best city in the U.S. to invest in housing by Forbes Grand Rapids ranked #2 best U.S. ci
Slide 10: Consistent Growth Through Adversity
Consistent Growth Through . . . . 7% CAGR a EPS Dividend 6% to 8% 6% 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 11: 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. 10
Slide 12: Structural Capacity Solutions
Structural Capacity Solutions . . . . Proposal State Option MISO Option Prevailing State Forward Resource Competitive Retail Compensation Mechanism Allocation (FRA) Solution (CRS) (PSCM) • Filed with the FERC on November 1st ROA Providers Own or Contract Capacity • Impacts Zones 4 & 7 with competiti
Slide 13: 2016 Presidential Election
2016 Presidential Election . . . . Donald Trump Republican Hillary Clinton Democrat Clinton Issues Trump • Less supportive • Coal • More supportive • More regulation • Environmental • Less regulation • Less supportive • Domestic Energy • More supportive • More supportive • Renewables • Less supporti
Slide 14: 2016 EPS Outlook
2016 EPS Outlook . . . . Adjusted EPS (non-GAAP) Warm Summer Mild October Non- weather 6¢ Weather +6% to +7% 14¢ Weather & Recovery Storms Pension “Yield Curve” 5¢ Choices Enhanced Capitalization 3 2017 “Pull Aheads” 2¢ ‘15 Pension Contribution 2 Debt Pre-funding 5 Improved “UAs” & Other 3 Foundatio
Slide 15: Managing Work Every Year
Managing Work Every Year . . . . a 2008 2009 2010 2011 2012 2013 2014 2015 EPS Mild $2.00 Summer +18¢ +17¢ Cost +7% productivity above plan $1.80 +7% Offsets Reinvestment +13¢ +7¢ -13¢ Reinvestment Hot +7% Summer Mild RECORD $1.60 Winter Hot WARM Summer +7% Cost -9¢ productivity Reinvestment above p
Slide 16: 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 17: Capital Investment Grows
Capital Investment Grows . . . . Ten-Year Capital Investment Growth (bils) Details Ops Capex Prior New a (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 Op
Slide 18: New Incremental Capex
New “Incremental” Capex . . . . Electric Gas Renewables +$400 mil +$400 mil +$700 mil • 2,900 poles (+60%) • 75 transmission miles • Add 300 MW of new wind • 2.4 HVD miles (+120%) (+35%) to support future • Install more remote compliance • 30 substations (+50%) valves • Improve SAIDI performance • R
Slide 19: Gas Investment
Gas Investment . . . . Capex Large Gas Business Last 10 Next 10 1.7 million customers Years Years (bils) (bils) (adding 10,000 new customers) Gas Infrastructure & $ 3.3 $ 6.2 Maintenance Electric Distribution 4.3 6.5 29,000 mile natural gas system Supply 4.4 4.3 Total $12.0 $17.0 309 bcf gas s
Slide 20: 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) Supply Traditional Generation $ 302 $ 293 $ 346 $ 408 $ 294 $ 1,643 $ 1,336 $ 2,979 Clean Power 87 72 59 43 31 292 979 1,271 Total Supply $
Slide 21: Reducing Coal Dependence
Reducing Coal Dependence . . . . A Sustainable Strategy Coal Mix • Shut down 950 MW of coal 2005 2016 • Found positions for affected employees Largest reduction of any investor-owned utility • Worked with local communities early on • Reduced our environmental 41% impact <24% Positioned well for carb
Slide 22: Cleaner Generation
Cleaner Generation . . . . Diverse Capacity Clean Additions Renewables Clean Coal Solar Gardens • Apple Blossom Wind Farm, 100 MW • Competitive price • Commercial operation by 2018 Karn Generating Lake Winds GVSU & WMU Plant, 508 MW a • Capacity, energy, renewable credits Energy Park 100 MW 4 MW •
Slide 23: 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 Positioned well for compliance 11 100 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 . . . . rec
Slide 24: Air Quality Improvement
Air Quality Improvement . . . . Historical Actual Emissions 30% 20% CO2 10% Hg 0 0% -10% -20% PM -30% -40% BY Y.E. 2016 SO2 -50% SO2 -87% -60% NOx -87% NOx -70% Hg -83% -80% CO2 -28% -90% PM -96% -100 -100% 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 . . . . significant reduction. 23
Slide 25: 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 26: 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¢ 10¢ 10 9¢ Back 6¢ -up 7¢ 6¢ 6¢ 5.5¢ 5¢ 5¢ 5 4¢ 4¢ Back -up Cross Winds 7¢ Big 5 Palisades Zeeland 4¢ 0 Combined Cycle Gas Plant Wind Coal Nuclear Residential
Slide 27: Strong Commission
Strong Commission . . . . Commission Tier 1 State Ranking Sally Talberg (I) Chairman 1 6 Michigan Term Ends: July 2, 2019 2 9 Norm Saari (R) Term Ends: July 2, 2021 3 18 4 9 Rachael Eubanks (I) Term Ends: July 2, 2017 5 6 Newly appointed! Barclays Research, 2016 state rankings . . . . constructive r
Slide 28: Economic Development Growth
Economic Development Growth . . . . Our Service Territory Outperforms Examples of New Business a Grand Electric Gas Combination Rapids Michigan U.S Announcement Announcement Building Permits b +248% +210% +101% C3 Ventures Inteva Products Flint Adrian • Eco-friendly injection • Auto-supply maker to
Slide 29: Routine and Regular Rate Cases
Routine and Regular Rate Cases . . . . 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 Self-impl.
Slide 30: Rate Cases
Rate Cases . . . . Electric U-17990 Gas (mils) Amount (mils) $6 $90 Self-implementation (ROE @ 10.3%) $170 $84 ROE & Cost of Capital (38) O&M (22) Other (18) Staff filing $ 92 Self-implementation September 1, 2016 Final order by February 28, 2017 New Investment Cost of Capital Filed 8/1 and Other .
Slide 31: Diverse Customer Base
Diverse Customer Base . . . . Top Ten Customers 2015 Gross Margin (2015 Ranked by Revenue) 1. Hemlock Semiconductor 2. General Motors 3. State of Michigan Commercial 4. Meijer 27% 5. Nexteer Automotive Corporation Residential 55% 6. AT&T 7. Gerdau 8. Spectrum Health 9. Packaging Corp. of America Ind
Slide 32: 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 33: EPS Adjusted Results and Guidance
EPS Adjusted Results and Guidance. . . . a First Nine Months: • at $1.73, up 22¢ from 2015 2016 Full-Year guidance raised: • to $2.00 - $2.02, up 6% to 7% 2017 Full-Year guidance introduced: • at $2.13 to $2.17, up 6% to 8% Future long-term annual growth: • at 6% to 8% _____ a Adjusted EPS (non-GAAP
Slide 34: 2016 EPS
2016 EPS . . . . a Year-to-Date Three Months To Go +22¢ (11)¢ to (9)¢ $2.00 - $2.02 +6% to +7% 32¢ 13¢ $1.89 (10)¢ (24)¢ - (22)¢ YTD YTD $1.51 $1.73 2015 Cost & Other Weather Normal Weather Reinvestment 2016 Costs & Other _____ a Adjusted EPS (non-GAAP) . . . . now guiding to the high end. 33
Slide 35: Operating Cash Flow
Operating Cash Flow . . . . Amount Up $0.7 (bils) Billion Gross operating cash flowa $2.8 $ 2.9 up > $0.1 billion per year $2.7 Up $2.5 $0.8 billion $2.4 since 2009! 2.4 $2.2 Interest, working $2.1 capital and taxes $1.9 1.9 $1.55 1.4 Operating cash flow NOLs avoid 0.9 Investment need for block 0.4
Slide 36: Liquidity (as of September 2016)
Liquidity (as of September 2016) . . . . Renewal Capacity Availability $1.9 Billion CMS Energy $1.7 Billion Stronger liquidity 5-year revolver May 2021 $550 mils than peers $549 mils Consumers Energy 5-year revolver May 2021 650 Letter of Credit Apr 2018 568 Letter of Credit Aug 2018 68 Letter of Cr
Slide 37: 2016 Sensitivities
2016 Sensitivities . . . . 2016 Impact Sensitivity EPS OCF (mils) • Sales a • Electric (37,500 GWh) + 1% + $0.05 + $ 20 • Gas (309 Bcf) + 2 + 0.03 + 15 – • Gas prices (NYMEX) + 50¢ + 0 – 55 + • ROE • Electric (10.3%) + 10 bps + 0.01 + 5 • Gas (10.3%) + 20 + 0.01 + 4 • Interest Rates +100 bps + < 0.0
Slide 38: Interest Rates Increases
Interest Rates Increases . . . . Pre-Tax Amount Sensitivities Earnings Impact (bils) (bps) • Interest Expense $1.0 +100 (3)¢ • Benefit Liability (discounted) 3.0 +100 4 Total 1¢ Note: ROE ? . . . . mitigated. 37
Slide 39: Financial Targets
Financial Targets . . . . 2016 2017 Adjusted EPS (non-GAAP) $2.00 - $2.02 +6% to +7% $2.13 - $2.17 +6% to +8% Operating cash flow (mils) $1,550 $1,650 Dividend payout ratio Customer price incr./(decr.) > 62% > 62% ~1% ~2% Electric (excl. fuel) Gas ~(10)% ~2% FFO/Average debt 18% 18½% Capit
Slide 40: 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 $ 503 Cash at year end 2015 $ 50 Enterprises 38 Sources Sources $ 541 Operating (depreciation & amortization $800) $ 2,064 Other working c
Slide 41: GAAP Reconciliation
GAAP Reconciliation
Slide 42: 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 Pretax items: Electric an
Slide 43: Earnings Segment Results GAAP Reconciliation
CMS ENERGY CORPORATION Earnings Segment Results GAAP Reconciliation (Unaudited) Three Months Ended Nine Months Ended September 30 2016 2015 2016 2015 Electric Utility Reported $ 0.69 $ 0.60 $ 1.42 $ 1.24 Downsizing Program 0.03 - 0.03 - Tax Impact (0.01) - (0.01) - Restructuring Costs and Other - -
Slide 44: 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 2021 Consumers Operating Income + Depreciation & Amortization $ 1,813 $ 1,866 $ 2,064 $ 2,150 $ 2,356 $ 2,520 $ 2,637 $ 2,783 Enterprises Project Cash Flows 20 20
Slide 45: 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 46: 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 47: 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 48: 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% OUR MODEL; OUR PLAN National Avg Act 169 Midwest Avg 0 -5 Flat Residential bills well below U.S. average -10 Policy could (7)% Better (18)% Better -15 (13)% Rates
Slide 49: Actual Plan Model
Actual Plan Model 2017+ Plan 7% /year $1.89 $2.02 6% – 8% Capital investment 6% - 8% $1.77 a $1.55 $1.66 $2.00 - O&M cost reductions 2 - 3 pts Adjusted EPS $0.81 $1.21 $1.26 $1.36 $1.45 $1.08 $1.02 $1.08 $1.16 $1.24 - Sales growth 1 $0.90 $0.96 84¢ 96¢ Int’l Sale 50¢ 66¢ - No “block” equity 2 $0.84