Cms Energy Corporation · NYSE:CMS
Cms Energy — EEI Financial Conference 2014
44 slides from Cms Energy's conference presentation, Nov 11, 2014
Slide 1: EEI Financial Conference
Content • How it Works • Investment • Upsides • Partners • Passion to improve EEI Financial Conference November 11 - 13, 2014 Ludington Pumped Storage Ray Compressor Jackson Gas PlantStation Cross Winds Energy Park Fourth largest in the world #1 LDC in gas storage #2 in renewable sales in the Great
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: How It Works -- Why Invest?
HOW IT WORKS -- Why Invest? . . . . Our Growth Engine Supported By (2015-2024 Capex) ● UPSIDES create headroom (Investment, Sales, Cost, & DIG) ● PARTNERS support good regulation $15.5 Billion (Customers, Regulators, & Policy Makers) 5% - 7% EPS growth ● PASSION to improve for customers and owners (
Slide 4: How It Works -- Breakthrough Thinking
HOW IT WORKS -- Breakthrough Thinking . . . . Customer Value Cost Control Most improved gas utility About 400 employees leave in customer satisfaction! and 300 are hired each year. Engaged Employees Productivity Enhancements First quartile in utilities Up 46% since 2006 with and rank among most anot
Slide 5: Investment -- "Catch-Up"
INVESTMENT -- “Catch-Up” . . . . Amount (billions) $1.8 > $1.5 per year Peers Peer Performance a Consumers Energy Peer Average CMS Capex Liquidity Cash Flow (oper) 21% 19% 18% 16% 16% 14% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 __
Slide 6: Investment -- Ten-Year Capex Plan Expanded
INVESTMENT -- Ten-Year Capex Plan Expanded . . . . 2015-2024 Opportunity Level 10-Year Plan Amount (bils) Generation capacity • PPA replacement $3.0 • ROA return • More RPS $20+ Billion $15.5 Billion Gas conversions & expansion 1.0 Grid modernization 1.0 Total Opportunities $5.0 Upside? Rate Base up
Slide 7: Investment -- Customer-Driven
INVESTMENT -- Customer-Driven . . . . Clean Power Capacity Reliability Infrastructure Opportunity $1.5 Billion $1.1 Billion $5.0 Billion $6.1 Billion $5.0 Billion Environmental Jackson gas plant Consumers Smart Energy Gas distribution Gas combined cycle Renewable energy Gas transmission Gas storage
Slide 8: Investment -- Ten-Year Plan
INVESTMENT -- Ten-Year Plan . . . . Amount (bils) $ 2.0 $7.5 $8.0 1.8 More New Capacity More RPS? PPA’s Expire New Capacity Upside 1.6 ROA Eliminated? Renewables 10% RPS 1.4 Jackson Plant Environmental 1.2 Gas 1.0 Grid Modernization Depreciation Smart Energy 0.8 Electric Reliability Depreciation 0.6
Slide 9: Investment -- Capacity Opportunities
INVESTMENT -- Capacity Opportunities . . . . Further Capacity Growth Over Next Ten Years Upside MW 11,000 Not in plan 10,000 1,200 MW PPA’s Expire PPA ~8,600 MW 1,240 MW 580 PPA 2,600 780 MW 7,500 capacity Owned ~30% 8,820 ~800 MW 410 MW Lower customer bills Owned Shortfall 6,000 540 MW 5,000 Today
Slide 10: Upsides -- Capacity Price Increases
UPSIDES -- Capacity Price Increases . . . . Today Future Scenarios Recent Contracts (mils) (mils) +$50 $55 • Nine-year 250 MW “energy” contract at $4.06 • Capacity to Consumers $35 • 25 MW/2015 at $2.32 +$30 • 50 MW/2016 at $4.36 Upside: Capacity and energy $5 contracts layered in over time Capacity
Slide 11: Upsides -- Michigan's Economic Growth
UPSIDES -- Michigan’s Economic Growth . . . . Grand Rapids Gross Domestic Product – 2010 through 2013 15.3% Top 10% of All “Cities” WA ND MT 8.8 54.9 11.6 MN 11.5 Michigan ME SD OR ID 11.3 WI Top 10 VT 1.7 17.3 5.5 WY 7.4 MI state NY 9.8 NH 6.2 4.3 IA NE 11.4 6.5 MA 10.3 13.1 9.8 IL PA NV RI 5.4 IN
Slide 12: Upsides -- Economic Growth
UPSIDES -- Economic Growth . . . . Examples of New Business Industries Electric Gas Combination MW Recent Announcement Recent Announcement Auto 50 Plasan Carbon Composites Dicastal North America, Inc. Food 7 • High performance auto • World’s largest maker of body parts alloy wheels • 620 new jobs •
Slide 13: Upsides -- Sales Growth
UPSIDES -- Sales Growth . . . . Economic Indicators Annual Electric Salesa Industrial Grand Total Rapids Michigan U.S Total excluding Energy Optimization 8.0% Building Permits* +73% +9% +8% 5.0% GDP 2010 2013 15.3 11.4 8.4 3.5% 2.5% 2.0% 2.0% 1.5% 1.0% Population 2010 2013 3 0 2 0.5% -2.5% Unemploym
Slide 14: Upsides -- Trend of O&M Cost Savings
UPSIDES -- Trend of O&M Cost Savings . . . . O&M Trend vs Peers Future Savings 2018 vs 2013 0 50% (mils) ~6% per year 0 Peers • Fuel mix $ - 25 0 ~2% per year • Benefits - 75 0 • Less Expensive New - 75 0 Inflation -25% Hires & Lower Headcount 00 • Smart Meters - 25 0 -7% -7% • Service & Reliability
Slide 15: Upsides -- 2014 Reinvestment Helps Customers
UPSIDES -- 2014 Reinvestment Helps Customers . . . . Adjusted EPS (non-GAAP) 2014 +18¢ Third Quarter EPS Weather (Electric) (6)¢ +15¢ Reinvestment (5) Total Change (11)¢ +9¢ Good First Nine Months EPS Choices Weather (Gas) 16¢ +4¢ Cost savings 4 Reinvest & other (16) $1.78 +7%- Total Change + 4¢ $1.
Slide 16: Partners -- Electric Rate Case Investment
PARTNERS -- Electric Rate Case Investment . . . . “Win-Win” Rate Case Key Features A) New rate design New Offset Investment Reductions (Big users competitive!) 2001 Request Securitization B) Jackson Plant in rate base Net (Lowest price in many years!) Customer Rate Change C) Investment recovery & co
Slide 17: Partners -- New Electric Rate Design
PARTNERS -- New Electric Rate Design . . . . Residential Commercial Industrial Energy Intensive 2.5% -0.7% -1.3% -3.2% -3.4% -4.7% -5.0% -4.8% -4.8% -9.8% -15.0% -20.0% Base Rate Fuel Recovery Net Reduction . . . . and lower fuel cost have positive impact on average electric rates. 16
Slide 18: Partners -- Election Results
PARTNERS -- Election Results . . . . Governor’s Race State Senate Democrats Republicans Michigan’s Comeback Continues 38 Governor Rick Snyder (R) 11/-1 27/+1 State House • Eliminated state deficit; balanced four budgets a Democrats Republicans • More than 250,000 jobs since 2010; best b 110 recovery
Slide 19: Partners -- Constructive Regulation
PARTNERS -- Constructive Regulation . . . . Commission Tier 1 State Ranking John Quackenbush (R), 1 5 Michigan Chairman Term Ends: July 2, 2017 2 10 Sally Talberg (I) 3 18 Term Ends: July 2, 2019 4 10 Greg White (I) Term Ends: July 2, 2015 5 6 Barclays Research . . . . is supported by a quality Comm
Slide 20: Partners -- Michigan Energy Law Update
PARTNERS -- Michigan Energy Law Update . . . . • Adaptability • Reliability Update • Affordability • Environmental protection • 10% renewables by 2015 • Energy efficiency standards • File-and-implement • Historical test • 10% ROA cap year • 12-18 months regulatory lag • No cap on ROA Before 2008 TOD
Slide 21: Passion to Improve -- CMS Energy
PASSION TO IMPROVE -- CMS Energy . . . . Total Shareowner Return Substantial Future Growth (5-Year Cumulative) Past Next 5 Performance Years 170% 170% CMS Energy: Capex (bils) $6.3 $7.5 Winner of EEI Award (2009-2014) Capacity Op! 107% O&M Reductions (7)% (10)% 102% (2006-2013) Conservative Sales Gr
Slide 22: Passion to Improve -- Mindset
PASSION TO IMPROVE -- Mindset . . . . 10-Year Actual $1.76-$1.78 7% CAGR $1.89 a EPS $1.66 $1.85 Dividend $1.55 $1.45 $1.36 b $1.26 $1.21 6% $1.08 $1.08 6% 14% $1.02 $0.96 96¢ $0.90 27% 84¢ $0.84 32% $0.81 Int’l Sale 66¢ 39% 50¢ 80% 36¢ 20¢ 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Slide 23: Appendix
CUS ENERGY Appendix
Slide 24: Growing the Gas Business
Growing the Gas Business . . . . Gas System Gas Investment (Cumulative 5-Year Plan) • #4 largest gas utility in U.S. Amount (bils) $ 3.0 Continuous • 50,000 miles of distribution pipes Growth $2.5 2.5 $2.4 • 1,700 miles of transmission lines $2.0 2.0 • 300 bcf gas storage 1.5 • 3.5% of all gas stora
Slide 25: Gas Infrastructure
Gas Infrastructure . . . . New Customers Inspection Storage Includes conversions 50,000 New customers 1,700 Miles 23 Wells $200 Million $100 Million $100 Million Transmission Compression Main Replacement Commission approved 32 Miles 19,000 + Horsepower 800 Miles $200 Million $400 Million $450 Millio
Slide 26: Electric Distribution
Electric Distribution . . . . Demand $ 1.0 Billion Circuits In service 2,253 Upgrade 603 Reliability $ 0.7 Billion Transformers In service 663,044 Capacity Replace 16,175 $ 0.3 Billion Total Poles $ 2.0 Billion Meters In service 1,554,309 In service 2,039,283 40 years old 761,711 Replace 1,732,393 R
Slide 27: MISO Zone 7 Capacity
MISO Zone 7 Capacity . . . . As of October 2014 MISO Zones (in GW) 25 3 22 Reserves 3 7 Demand 22 2016 Resources 2016 Resource Expected Shortfall _____ Requirement Source: MISO . . . . shortfall expected to be 3,000 MW in 2016. 26
Slide 28: Cleaner Generation
Cleaner Generation . . . . Diverse Capacity Balanced Portfolio Renewables Clean Coal 2005 Capacity % Gas 8% Renewables 6% 31% Karn Generating Coal Lake Winds Energy Park Plant, 515 MW 11% Pumped Storage 100 MW Oil Renewables 3% Pumped Storage Nuclear 41% Purchases Cross Winds Energy Park 2017 Ludi
Slide 29: Capital Expenditures
Capital Expenditures 2015-2019 2020-2024 Total 2015 2016 2017 2018 2019 Subtotal Subtotal 2015-2024 (mils) (mils) (mils) (mils) (mils) (mils) (mils) (mils) New Generation (includes Renewables) $ 56 $ 222 $ 52 $ 64 $ 134 $ 528 $ 610 $ 1,138 Environmental 217 121 136 153 212 839 120 959 Gas 214 223 19
Slide 30: O&M Cost Control
O&M Cost Control . . . . Average Annual O&M Change Future Examples +6% Peers Fuel Mix MW Employees Actual/Plan (exc 2013 major storms) 2016 Retire Coal - 950 - 300 2016 Add GCC + 540 + 20 +2% +2% Total -410 - 280 Peers Peers Peers Future Savings (mils) $25 2014 - 2018 CMS CMS CMS CMS CMS Benefits CM
Slide 31: Customer-Focused Reinvestment
Customer-Focused Reinvestment . . . . Icy Late December Adjusted EPS (non-GAAP) O&M B/(W) Than Forecast (mils) 2013 +13¢ • Storm(total $50 M) • Insurance $(37) 16 • Lower contributions 9 2012 Hot • Sales-weather 12 Summer Total $ 0 2013 Cold $1.66 Winter & +7% Cost Savings Reinvested earlier 2012 20
Slide 32: Gas and Electric Rate Cases
Gas and Electric Rate Cases . . . . 2013 2014 2015 Main Features GAS A) Investment recovery Avoided Filed File annual $88 M Self- Final & cost reductions rate case implement Order 7/01 B) Simple, small case Securitization A) Rate design Surcharge Ends $80 M B) Jackson plant File annual Avoided Plan
Slide 33: Sustainability
Sustainability . . . . Sustainalytics Overall Score Recent Performance Points • Ranked 14th out of 226 energy 80 80.0 providers worldwide 78 78.0 76.0 20% Improvement • Improvement in all categories: 74.0 72.0 Social +12 70 70.0 68.0 Environment +10 66.0 65 2013 64.0 Average 61 62.0 Governance
Slide 34: Reintroduction through Smart Energy
Reintroduction through Smart Energy . . . . Smart Meter Technology Snapshot Deliberate pace of program Cellular solution (point-to-point network) 300,000 smart meters installed 99.5% meter read rate Realization of operational benefits Net Promoter Score 41 58% 26 increase Pre-Install Post-
Slide 35: Emphasis on Corporate Citizenship
Emphasis on Corporate Citizenship . . . . Customer Satisfaction In the Community (Residential Electric) CEO John Russell welcomes Billing & Governor Payment Rick Snyder 19% to launch the Price 22% “Anchor Corporate Initiative” in Citizenship Jackson, 13% Michigan. Power Quality & Communications MIS
Slide 36: Electric Customer Base Diversified
Electric Customer Base Diversified . . . . Top Ten Customers 2013 Electric Gross Margin • Hemlock Semiconductor (zero margin) Residential, 50% Commercial, 32% • General Motors • Nexteer Automotive Corporation • Gerdau Macsteel • Denso International America • Meijer • Packaging Corp of America • Stat
Slide 37: Carbon Tonnage Reduction
Consumers Appears . . . . Carbon Tonnage Reduction Million Tons of CO2 (Preliminary) 25 2005 Baseline 23 21 Clean Power Plan 19 “Implied” EPA Target 17 Consumers Energy Projected 15 emission level 13 2014 2020 2025 2029 2030 . . . . to be in a good carbon position. 36
Slide 38: 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¢ 11¢ Back 10¢ 10 -up 8¢ 7¢ 6¢ Back 7¢ 6¢ -up 6¢ 9¢ 5.5¢ 5¢ 5¢ 5 Cross Winds 6¢ Big 5 Palisades Zeeland 0 Combined Cycle Gas Plant Wind Coal Nuclear Residential
Slide 39: Capacity Diversity
Capacity Diversity . . . . Nuclear Oil 8% 6% Renewables 9% Coal 34% Pumped Storage 2014 11% Nuclear Gas Nuclear Oil 6% 32% 8% 8% Oil 6% Renewables Purchases 3% 3% Coal 24% Pumped Coal Renewables Storage 41% 10% 11% 2005 2017 Pumped Gas Storage Gas 31% 12% 37% . . . . evolving to cleaner generation w
Slide 40: New Capacity Ops
New Capacity Ops . . . . Full Year Impact Replace PPA With New Build Customer Bill Investor (mils) (EPS) Upside: 1,000 MW of Capacity Options PPA’s expire - $325 0¢ Add 1,000 MW + 325 +5 • Build - Thetford owned capacity • Expand - Zeeland Impact Incremental Step-up ≈ Flat + 5¢ • • Buy - ? LT PPA
Slide 41: Operating Cash Flow Growth
Operating Cash Flow Growth . . . . Amount Up $0.5 Billion (bils) Gross operating cash flowa $ 2.5 up $0.1 billion per year $2.3 $2.2 $2.1 $2.0 2.0 $1.9 Interest, working $1.8 $1.7 capital and taxes $1.55 1.5 $1.45 Pct of Market Cap (as of June 2014) 1.0 Cap Inv OCF Investment 19% 18% CMS 13% 15% 0.5
Slide 42: GAAP Reconciliation
CMS ENERGY GAAP Reconciliation
Slide 43: Earnings Per Share By Year GAAP Reconciliation
Earnings Per Share By Year GAAP Reconciliation (Unaudited) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 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 After-tax items: Electric and gas utility 0.21 (0.39) - - (0.07) 0.05
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) 2013 2014 2015 2016 2017 2018 2019 Consumers Operating Income + Depreciation & Amortization $ 1,740 $ 1,810 $ 1,877 $ 1,959 $ 2,065 $ 2,186 $ 2,308 Enterprises Project Cash Flows 16 20 28 34 52 55