Cms Energy Corporation · NYSE:CMS
Cms Energy — Investor Presentation (March 2017)
47 slides from Cms Energy's investor presentation, Mar 27, 2017
Slide 1: Investor Meetings March 27 – March 29, 2017
Investor Meetings March 27 – March 29, 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: Who We Are
Who We Are . . . . People • Highly engaged employees • Low residential bills; competitive industrial rates Planet 2005 2017 • Coal Capacity 41% 21% 2005 2021 • Renewables Capacity 3 15 Profit a • 14th year of EPS growth 7%+ a • 6% to 8% future EPS Electric service territory Headquarters Natural gas
Slide 4: What's New?
What’s New? . . . . Prior Now • Safety (annual incidents) 495 in 2006 78 in 2016 -- best ever! • Rates ~2% 2% • Cost (2016) Down 3% Down 6½% • Coal Capacity Mix 41% in 2005 21% in 2017 Fastest U.S. reduction • Renewable Portfolio Standard 10% 15% by 2021 • EPS 5% to 7% 7% a • Dividend 5% to 7% 7% •
Slide 5: People
People . . . . Safety Electric Prices Annual Cost Amount Residential (incidents) 20 % 600 Residential bills 5% Worse 10 below U.S. average National Average 500 0 495 -10 (15)% Better 400 -20 (20)% 2013 2014 2015 2016 2017 Future 300 2016 Safety Industrial Record! 30 % 200 20 Worse 10 5% 0 Midwest Av
Slide 6: Planet
Planet a . . . . Coal Renewables 2005 2017 2005 By 2021 ≥15% Largest reduction of any investor-owned utility Renewables increased 5x! 41% 3% 21% % Coal % Non-coal _____ a Capacity Mix . . . . #1 U.S. Utility in “Sustainalytics” rankings. 5
Slide 7: Profit
Profit . . . . We Work With Everyone Customer Investment (bils) 7% CAGR $3 - $7 Ops a EPS +6% to +8% Dividend $18 Weather $13 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 Col
Slide 8: Simple, Perhaps Unique Model
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 “ED” 1 - No “block” equity dilution & other 2 INVESTMENT SELF-FUNDED 5 - 6 pts Rate increase “at or below inflation” <
Slide 9: Ten-year, $18 billion Customer Investment Plan
Model: Ten-year, $18 billion 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 Opportunitie
Slide 10: O&M Cost Performance Helps to Fund Customer Investments
Model: O&M Cost Performance Helps to Fund . . . . Actual Cost Reduction New Annual Cost Savings (Peers 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
Slide 11: Economic Development Growth
Model: 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 +365% +257% +113% Royal Technologies Zeeland Farm Services Ottawa Ithaca • Manufactures plastic • Pr
Slide 12: 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. 11
Slide 13: 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
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Slide 15: Evolution of Capex Growth (Next 10 Years)
Customer Investment: Evolution of Capex Growth (Next 10 Years) . . . . More Ops Capex (bils) $21 - $25 $ 25 20 $18 $17 $15.5 15 10 50 2015 Feb. 2016 Dec. 2016 Future Ops . . . . supports high-end adjusted EPS growth. 14
Slide 16: Customer Investment
Customer Investment: Customer Investment . . . . Saginaw Trail Pipeline Gas Infrastructure Renewables +$0.6 billion +$1 billion +$1 billion • 94 miles, 24” diameter • Reduce system risk and • State RPS 15% increase capacity • Multi-year project • Build 500MW • 25 years remaining at current levels •
Slide 17: Customer-Driven Investment ($18 billion)
Customer Investment: Customer-Driven Investment ($18 billion) . . . . Clean Power Infrastructure Reliability Maintenance $1.4 Billion $3.4 Billion $2.8 Billion $10.4 Billion Clean energy Gas expansion Grid Modernization Grid Ludington Pumped Storage Gas distribution Electric distribution New gas cap
Slide 18: Future Capex Opportunities
Customer Investment: Future Capex Opportunities . . . . Replacement MCV PPA Opportunities • 1,240 MW • Renewables • Expires 2025 • Energy efficiency • Demand response Add ~$3 billion renewables . . . . Clean and Lean. 17
Slide 19: Generation Strategy: New Supply Sources
Clean and Lean: 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 Nucl
Slide 20: Reducing Carbon Impact
Clean and Lean: Reducing Carbon Impact . . . . 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
Slide 21: Projected Reduction of Air Pollutants By 2020
Clean and Lean: Projected Reduction of Air Pollutants By 2020 . . . . Amount (tons of pollutants) 120 SO2 Emissions (x000) NOx Emissions (x000) CO2 Emissions (x10^6) PM Emissions (x000) 100 80 60 40 20 0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 . . . . significant reduction. 20
Slide 22: Cleaner Energy Portfolio
Clean and Lean: Cleaner Energy Portfolio . . . . Apple Blossom Wind Farm Community Solar Gardens • Competitive price • Utility Scale Solar • 100 MW • Grand Valley State University, 3 MW • Western Michigan University, 1 MW • Commercial operation by 2018 • Capacity, energy, and renewable credits • PPA
Slide 23: Capacity Diversity
Clean and Lean: 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 • More Renewables; Coal Storage 41% at least 15% by 2021 11% 2005 • Expanded Pumped Storage • Clean Energy Res
Slide 24: Energy Diversity
Clean and Lean: Energy Diversity . . . . Total Company Supply 2015 2016 Future • Coal 41% 24% a 24% • Gas 18 27 • Renewables 4 4 • Pumped Storage (1) (1) FLAT b • PPA (Nuclear and Gas) 38 46 b _____ a Includes 3% from Classic 7 coal plants (shutdown April 2016) b Includes market purchases . . . . si
Slide 25: Sustainability
Clean and Lean: Sustainability . . . . A Sustainable Strategy Coal Capacity Mix • Retired 950 MW of coal 2005 2017 • Found positions for affected employees Largest reduction of any investor-owned utility • Worked with local communities early on • Reduced our environmental 41% impact 21% Positioned w
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Slide 27: New Energy Law
Top of Mind: 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 r
Slide 28: Potential Tax Reform
Top of Mind: Potential Tax Reform . . . . Assumptions Impact CMS Better Than Today • Lower federal tax rate at 15% Utility (vs 35%) – More than ample investment “Backfill” • Loss of interest deductibility on all debt (may be less/better) Enterprises – Improved earnings & cash flow • Loss of state in
Slide 29: Potential Tax Reform Scenarios
Top of Mind: Potential Tax 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 Deduction
Slide 30: Another Step Towards Clean & Lean: Palisades PPA
Top of Mind: 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 •
Slide 31: DIG (750 MW) & Peakers (200 MW)
Top of Mind: “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 30 Better Performance 20 $12 10 Outage pull-ahead 0 2015 2016 2017 Future Capacity ($/kw-mth) ≈ $1.00 ≈ $2.00 ≈ $3.00 $4.50 $7.50 Av
Slide 32: Michigan's Recovery
Top of Mind: Michigan’s Recovery . . . . Gross Domestic Product – 2010 through 2015 Grand Rapids Top 10% of All Cities! WA ND MT 13.1 55.6 15.5 MN 15.2 Michigan ME SD OR ID 11.6 WI Top 10 0.5 VT NH 10.0 8.6 WY 11.3 MI state! NY 8.1 8.0 -5.1 IA NE 14.4 10.6 MA 13.2 15.9 11.7 IL PA NV RI 7.8 IN OH CT
Slide 33: Diverse Customer Base
Diverse Customer Base . . . . Top Ten Customers 2016 Gross Margin (2016 Ranked by Revenue) 1. Hemlock Semiconductor Corporation 2. General Motors Company 3. State of Michigan 4. Meijer Inc. Commercial 5. Nexteer Automotive Corporation Residential 25% 63% 6. AT&T Inc. 7. Enbridge Energy Partners L.P.
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Slide 35: EPS
Financial: 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 performan
Slide 36: 2016 EPS
Financial: 2016 EPS . . . . a Adjusted EPS (non-GAAP) Warm Summer Non- weather 6¢ $2.02 Weather Reinvestment +7% 14¢ 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” & O
Slide 37: Managing Work Every Year
Financial: 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 Offse
Slide 38: Operating Cash Flow Funds Investment
Financial: 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 Investm
Slide 39: 2017 EPS Guidance Raised
Financial: 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) $1,6
Slide 40: 2017 Sensitivities
Financial: 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 (10.1%) • Gas (10.1%) + 20 bps + 20 + + 3 1 + 15 + 6 Interest Rates +100 bps + <
Slide 41: Credit Ratings
Financial: Credit Ratings . . . . Scale Strategy S&P / S&P Moody’s Fitch Fitch Moody’s (Dec. ‘15) (Mar. ‘16) (Mar. ‘16) • Strong financial position A+ A1 Consumers A A2 Secured A- A3 • Growing operating BBB+ Baa1 cash flow BBB Baa2 BBB- Baa3 BB+ Ba1 • Return on regulated BBB Baa2 CMS Unsecured inves
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Slide 43: GAAP Reconciliation
GAAP Reconciliation
Slide 44: 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 45: Reconciliation of 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 46: Our Model; Our Plan: People, Planet, and Profit
Reduced Coal Dependency Retired Nuclear Nuclear Oil 6% 8% 950 MW Oil 8% 10% Renewables 3% Coal 41% Purchases 3% Coal 21% OUR MODEL; OUR PLAN Renewables Pumped 2005 10% 2017 People, Planet, and Profit Storage Gas Pumped OUTPERFORMED FOR A DECADE: Lean 11% 31% Gas Storage 36% 12% NEXT DECADE EVEN BR
Slide 47: Actual Plan Model
Actual Plan Model +7%/ year $2.18 2017+ Plan $1.89 $2.02 $2.14 6% - 8% $1.77 2.08 Capital investment a $1.55 $1.66 6% - 8% Adjusted EPS $1.21 $1.26 $1.36 $1.45 $0.81 $1.08 $1.02 $1.08 $1.16 $1.24 $1.33 - O&M cost reductions 2 - 3 pts $0.90 $0.96 84¢ 96¢ 66¢ - Sales growth 1 Int’l Sale $0.84 50¢ Divi