Slide 1: Utility Week Meetings December 5–8, 2017
Utility Week Meetings December 5 – 8, 2017 CMS MODEL: CONSISTENT PAST WITH A SUSTAINABLE FUTURE
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: Overview
Overview
Slide 4: CMS Energy Overview
CMS Energy Overview Corporate Structure Key Information CMS Energy 2016 Financial Statistics (NYSE: CMS) Based in Jackson, MI Employees (40% unionized) Consumers Energy Enterprises EnerBank Revenue Avg. Rate Base Adjusted net income a 94% of Gas $4.0 B earnings Dividend payout ratio Electric $10.2 B
Slide 5: The Triple Bottom Line: People, Planet, Profit
The Triple Bottom Line . . . PEOPLE • PLANET • PROFIT PEOPLE PLANET PROFIT PERFORMANCE . . . world class performance delivering hometown service. 4
Slide 6: Consumers Energy
Consumers Energy . . . Overview • 4th largest combination utility (electric and gas) in the country • 2016 revenue = $6.1 billion • 2016 earnings = $614 million • Fuel mix 36% gas; 21% coal; 12% pumped storage; 10% renewables; 21% other • Fastest coal reduction in U.S. Our Service Territory • Electr
Slide 7: Michigan Offers
Michigan Offers . . . • Economic growth (taxes, skilled labor, balanced budget) • Forward-looking test year (10-month rate case) • Energy efficiency incentive (20% of spend) • Attractive renewable investment framework • Constructive ROEs . . . economic and energy policies that support our business.
Slide 8: Best-in-Class Commission
Best-in-Class Commission . . . MPSC Commissioners Tier 1 Ranking Tier Sally Talberg (I), Chairman Michigan Term Ends: July 2, 2021 2013 - Present 1 6 2 9 2012 2008 Norm Saari (R) 3 19 Term Ends: July 2, 2019 4 8 Rachael Eubanks (I) Term Ends: July 2, 2023 5 6 Barclays Research, 2017 state rankings .
Slide 9: DIG & Peakers
“DIG” (750 MW) & Peakers (200 MW) . . . Pre-Tax Income Opportunities (MM) $ 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 Available: • Energy
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 a 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% _____ aC
Slide 11: Customer Investment
Customer Investment . . . Capex $ (Bn) Gas 8 Electric 10 Electric Distribution Gas Infrastructure & Maintenance Total Plan 18 $18 billion Opportunities 7 Supply Plan With Ops $25 . . . driven by a large and aging system. 10
Slide 12: Modular Customer Investment Plan
Modular Customer Investment Plan . . . Last 10 Years Next 10 Years $13 Bn $18 Bn Gas Electric Distribution Gas 41% 29% Electric Distribution Supply Supply % of projects <$200 MM a ~75% >90% _____ a Plan assumes a modular renewable build-out with individual projects less than $200 million. . . . is r
Slide 13: Cost Reduction Strategy
Cost Reduction Strategy . . . Capital-Enabled Gas Replacements Pole-top Hardening Clean & Lean Structural/ Technology-Enabled Process Changes Smart Grid Mobility CE Way PPAs Customer Benefits • Safety Digital • Reliability Retirements • Better Service • Affordable Bills . . . largely funds customer
Slide 14: O&M Reduction Track Record
O&M Reduction Track Record . . . a Actual Cost Reduction New Annual Cost Savings (Peers 2016 over 2006) Three-Year Avg 2014 2017 - 2016 - 2019 Good Business Decisions (MM) (MM) • Attrition $ - 16 $ - 16 • Productivity (Coal Gas) - 20 - 5 • Enhanced capitalization - 10 - 4 • Smart Meters - 4 - 5 Peer
Slide 15: Our Entire Cost Structure
Our Entire Cost Structure . . . Cost Components Above Market Costs 100% 100% 90% PPA PPA 80% Down Fuel $166 MM or 7% Fuel 70% Fuel and Power Costs annually 2011 2016 60% ~70% _____ Source: FERC Form 1, 2016 & 2011 50% O&M Reductions in Rates O&M Operating Costs 40% $659 Down 30% Taxes $87 MM $572 or
Slide 16: Operating Cash Flow Funds Investments
Operating Cash Flow Funds . . . Amount Up $0.8 (Bn) billion Gross operating cash flowa $2.9 $ 2.9 up > $0.1 billion per year $2.7 Up $2.6 $1.8 billion since 2004! 2.4 $2.3 Interest, working $2.2 capital and taxes $2.1 $1.9 1.9 $1.63 $1.65 1.4 Operating cash flow NOLs avoid 0.9 Investment need for bl
Slide 17: Economic Development is Robust
Economic Development is . . . a Our Service Territory Outperforms Electric New Load Gas Grand Combination 6% of Sales Rapids MI. U.S. Building b +355% +197% +110% Permits ~2,000 Gwh Near-Term GDP 29 19 14 Pipeline 20102016 2017 Population 6 ½ 4 20102016 2016 Unemployment 4.0 4.3 4.2 2015 (9/17) __
Slide 18: Consistent Growth Through Recessions and Weather
Consistent Growth Through . . . PROFIT 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. W
Slide 19: Compelling Investment Thesis
Compelling Investment Thesis Aging Infrastructure Strong Cash Flow & Healthy Balance Sheet Diversified Service Territory 2016 over 2006 Cost Controls a _____ aConsumers non-GAAP Constructive Regulation 18
Slide 20: Slide 20
Slide 21: Top of Mind
CMS ENERGY Top of Mind
Slide 22: Top of Mind
Top of Mind . . . • 2018 Guidance & Long-Term Growth • Energy Law Implementation (IRP & SRM) • Regulatory Update • Renewables & Capacity • Economic Development . . . for Utility Week. 21
Slide 23: EPS Guidance Reflects 6% to 8% Growth
EPS Guidance Reflects . . . a a EPS $2.60 +8% $2.33 +6% $2.18 $2.29 +7% $2.02 $2.15 +7% Actual $1.89 $2.14 Guidance 0 2015 2016 2017 2018 Future _____ a Adjusted EPS (non-GAAP) . . . 6% to 8% annual growth. 22
Slide 24: Long-Term Regulatory Planning
Long-Term Regulatory Planning . . . Second Half 2017 2018 Customer Benefits Energy Law Transparency 11/21: Capacity Q2: File long-term charge set at generation plan 115% of CONE (IRP) Gas Safety 7/31: Final order; 10/31: Filed 1/1: Gas By 8/31: $29 MM; ROE 10.1% new case, investment Final order +$18
Slide 25: Gas Rate Case
Gas Rate Case . . . Primarily for Investment $(MM) Within the Request $20 $178 • 12-month test year ending June 2019 $158 • Rate base of $5.5 billion; 10.5% ROE ~90% for • Investment Recovery Mechanism investment effective July 1, 2019 • Non-fuel revenue decoupling mechanism Order by August 31st, 20
Slide 26: Reducing Coal Intensity
Reducing Coal Intensity . . . a PLANET a Coal Energy Renewable Energy b 49% Demand from Shut down customers coal c Meets 22% RPS d 15% 15% b 10% 3% 2005 2016 Future 2005 2016 2021 Future _____ _____ a_ _ _ _ _Energy CMS a Consumers Energy b_ Includes _ _ _ _ Classic 7, includes PPA contracts b Inclu
Slide 27: Customer Investment
CMS ENERGY Customer Investment ll
Slide 28: Customer Investment
Customer Investment . . . Gas Meter Gas Distribution: Installations 25 years of Detail (2019): replacements 1.1 MM Capex $ (Bn) Electric 10 Gas 8 Gas Transmission: Total Plan 18 75% of miles pre-1970 Electric HVD System: Opportunities 7 1/3 past useful life Plan With Ops $25 Electric LVD System: O
Slide 29: Electric System Investment
Electric System Investment . . . Electric Supply Dist. Gas $4 Bn $6 Bn Infra. & Maint. Supply $4 Bn HVD System $1 Bn LVD System $4 Bn Substations $1 Bn . . . consists of needed and modular projects. 28
Slide 30: Age of Electric Distribution
Age of Electric Distribution . . . Electric Dist. Gas $6 Bn Infra. & Replacements needed to renew our system Maint. Supply 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile Consumers Energy Source: FERC Form 1, remaining book value divided by original cost . . . requires substantial investment to
Slide 31: Electric Distribution Investment Opportunities
Electric Distribution Investment Opportunities . . . LVD System $200,000 to rebuild one mile Electric Dist. Gas $4 Bn $6 Bn Infra. & Maint. ~5,000 per year in plan $3,500 per pole replacement Supply Substations $1 MM avg per upgrade $1 Bn ($7 - $8 MM to replace) HVD System ~33% are past 60 year life
Slide 32: Electric Supply Investments
Electric Supply Investments . . . Current Clean & Lean Renewables in Plan Supply Opportunities Electric Gas Infra. & Palisades Dist. expires 2022 Maint. PPAs MCV expires Supply 2025 $4 Bn In the Plan Average age of coal plants >50 Owned years; potential Renewables (15% RPS) $1 Bn future shutdowns
Slide 33: Clean and Lean
Clean and Lean . . . PLANET Old Utility Model Clean And Lean Big Build Supply Supply Fully utilize Modular Retirement assets Excess supply Big Excess Build supply Modular Actual Modular Demand Demand EE & DR Excess O&M O&M supply Expected Demand Fuel Fuel Big Bets Lower Risk Results in excess capaci
Slide 34: Electric Customer Prices
Electric Customer Prices . . . Residential Bills Industrial Rates 20 20% 30 % 26% Industrial rates improving rapidly Worse 20Worse Rates & 10 Fuel Rates & Act 169 10 8% National Avg Midwest Avg 0 0 Residential bills below U.S. average Better -10 Better -10 (12)% Rates (13)% -20 Rates & Rates & Fuel
Slide 35: Gas System Investment
Gas System Investment . . . Compression and Storage Gas $1 Bn Electric Infra. & Dist. Maint. $8 Bn #1 Underground Supply storage Transmission #5 Transmission $4 Bn #5 Distribution miles miles Distribution $3 Bn U.S. LDC Rank, Source: DOT . . . up 40% from the last 10 years. 34
Slide 36: Gas Transmission
Gas Transmission . . . Projects in Plan Gas Electric Infra. & Saginaw Trail (2800) Dist. Maint. 94 miles, 24” $8 Bn $636 MM Supply Mid-Michigan (100A) 54 miles, 36” $385 MM South Oakland (3100) 22 miles PIC TURE 1,670 miles of transmission pipelines . . . significant investment over time. 35
Slide 37: Gas Distribution
Gas Distribution . . . Main Replacement Gas Electric Dist. Infra. & • Started in 2012 Maint. $8 Bn • 25-year program Supply • $75 MM capex per year Benefits Service Line Replacement Customer safety Reduced leaks • 185,000 replacements needed Lower future O&M • Only 2% complete • 20,000 per year a
Slide 38: Affordable Gas Bills
Affordable Gas Bills . . . Capex Provides Avg. Res. Bill ($/ month) -36% Safety 100 $89 Reliability Economic Growth $57 0 2010 2017E Source: Internal July Forecast NYMEX Henry Hub $/ MCF ~$4.40 <$3.00 Flat Source: EIA.gov (Historical Annual Average & Current); Bloomberg (Future) . . . have ena
Slide 39: Financial Update
CMS ENERGY Financial Update _
Slide 40: First Nine Months of 2017
First Nine Months of 2017 . . . Results By Business Segment Year-to-Date 2016 2017 a EPS EPS – (GAAP) $1.70 $1.65 Better Adjustment 0.03 0.01 Actual than Plan Utility $1.76 $0.12 Adjusted (non-GAAP) $1.73 $1.66 Enterprises 0.10 0.03 Interest & other (0.20) 0.01 a Weather-normalized $1.71 $1.84 +8% C
Slide 41: 2017 EPS
2017 EPS . . . a First Nine Months Three Months To Go $2.15 - $2.18 6% - 8% 9¢ - 12¢ $2.02 8¢ 4¢ 5¢ 8¢ 3¢ (24)¢ Managing Work Our Model Q4 2016 Discretionary Activities: customer rates <2% Debt Pre-funding 4¢ Foundation & Low Income 5 Other 5 Total 14¢ YTD YTD $1.66 $1.73 2016 Weather & Cost Rates
Slide 42: 2017 Outlook
2017 Outlook . . . Adjusted EPS (non-GAAP) 2016 Benefits 4¢ Property taxes 4 Total 8¢ Weather & Storms Mild October Reinvestment Guidance +6% to +8% Recovery Recovery Recovery Income taxes 5¢ Accelerated financing 3¢ Enhanced capitalization 2 Enterprises 1 EE incentives 1 EE incentives 2 Sales mix &
Slide 43: 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 +7%
Slide 44: Credit Quality Highlights
Credit Quality Highlights . . . Scale Ratings Drivers S&P / S&P Moody’s Fitch Fitch AA- Moody’s Aa3 (Dec. ‘16) (Apr. ‘17) (Jul. ‘17) • Strong financial position A+ A1 Consumers A A2 Secured A- A3 • Growing operating BBB+ Baa1 cash flow BBB Baa2 BBB- Baa3 BB+ Ba1 BBB+ Baa1 • Return on regulated BBB B
Slide 45: Debt Maturities are Manageable
Debt Maturities are Manageable . . . Amount Today vs. Five Years Ago (MM) Weighted Weighted Avg Interest Avg Life $ 3,000 (bps) (yrs) Consumers a (66) +7 b 2,500 CMS (114) +8 Existing coupons 2,000 1,500 $500 8.75% 1,000 500 6.70% $300 6.25% $850 5.65% 6.13% $400 5.65% $320 $0 0 _____ 2017 2018 2019
Slide 46: Sustainable Future
Sustainable Future . . . 7% CAGR Opportunities More Gas Renewables Grid Infra. Modernization PPA c Replacements Future TSR LAW +6% to +8% Plan Ops • Customer Investment (Bn) $18 $25 NEW ENERGY a EPS • O&M Reductions (10)% (15)% b • Coal Capacity 21 % 15 % Recession Recession People Planet Profit Div
Slide 47: Appendix
CMS ENERGY Appendix
Slide 48: CMS Energy Coal Reduction
CMS Energy Coal Reduction Future Opportunities Wind, Filer City, & Pre - Classic 7 Post - Classic 7 Potential Coal Shutdown Gwh % Coal Gwh % Coal Gwh % Coal Coal 10,245 8,851 6,181 Other 12,417 12,417 15,207 Total 22,662 45% 21,268 42% 21,388 29% PPAs* 19,495 (21) 19,495 (20) 19,495 (14) Total 42,15
Slide 49: 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 So
Slide 50: Slide 50
Slide 51: GAAP Reconciliation
GAAP Reconciliation
Slide 52: 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 diluted 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
Slide 53: Earnings By Quarter and Year GAAP Reconciliation
CMS ENERGY CORPORATION Earnings By Quarter and Year GAAP Reconciliation (Unaudited) (In Millions, Except Per Share Amounts) 2016 1Q 2Q 3Q 4Q YTD Dec Net Income Available to Common Stockholders Reported - GAAP $164 $124 $186 $77 $551 Pretax items: Electric and gas utility - - 11 * 11 Tax impact - - (
Slide 54: Reconciliation of Gross Operating Cash Flow to GAAP
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 $ 2,134 $ 2,246 $ 2,547 $ 2,678 $ 2,816 Enterprises Project Cash Flows 20 46 58 58 53 53
Slide 55: Summary of Consolidated Earnings Reconciliations
CMS ENERGY CORPORATION Summary of Consolidated Earnings Reconciliations of GAAP Net Income to Non-GAAP Adjusted Net Income (In Millions, Except Per Share Amounts) Third Quarter Nine Months (Unaudited) (Unaudited) 2017 2016 2017 2016 Net Income Available to Common Stockholders $ 172 $ 186 $ 463 $ 474
Slide 56: Segment Earnings Per Share GAAP Reconciliation
CMS ENERGY CORPORATION Segment Earnings Per Share GAAP Reconciliation CUS ENERGY (Unaudited) ‘Three Months Ended Nine Months Ended ‘September 30 2017 2016 017 2016 ‘Electric Utility, ‘Reported S$ 06 $ 069 § 1400S 142 ‘Voluntary Separation Program 0.03 0.03 ‘Tax Impact - (0.01) - (0.01) Adjusted S08
Slide 57: Consumers Energy Reconciliation of Cost Reductions
CONSUMERS ENERGY Reconciliation of Cost Reductions 2006 2016 (mils) (mils) CAGR 2006-2016 Maintenance & Other Operating Expenses (GAAP) $ (1,179) $ (1,090) -0.8% Less: Gas & Energy Efficiency -2.7% Other 0.5% Total Adjustments -2.2% Cost Reductions (3% a year) -3.0% CONSUMERS ENERGY Reconciliation o
Slide 58: Reconciliation of Distribution Cost per Customer
CONSUMERS ENERGY Reconciliation of Distribution Cost per Customer 2016 Cost Per Customer Maintenance & Other Operating Expenses (GAAP)- mils $ (1,090) Electric Customers (mils) 1.80 Maintenance & Other Operating Expenses per Customer $ (604) Less: Gas & maintenance & other operating expenses not ass
Slide 59: Reconciliation of Annual O&M Spend
CONSUMERS ENERGY Reconciliation of Annual O&M Spend 2016 (mils) Maintenance & Other Operating Expenses (GAAP) $ (1,090) Less: Energy Efficiency & Other $ 142 O&M Spend $ (948) Rounded $ (950) 58