Slide 1: Year-End 2017 Results & Outlook
Year-End 2017 Results & Outlook February 14, 2018 15 YEARS OF CONSISTENT PERFORMANCE
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 Business Update Patti Poppe 2017 Results President & CEO 2018 Outlook & Priorities PEOPLE PLANET PROFIT Performance -- The Consumers Energy Way Financial Results & Outlook Rejji Hayes Executive VP & CFO Federal Tax Reform Update 2
Slide 4: Financial Results & Outlook
Financial Results & Outlook . . . Vs. 2017 Results Amount Prior Year • EPS a $2.17 +7% • Operating cash flow (OCF, MM) $1,705 Up $76 2018 Updates • EPS guidance raised a $2.30 to $2.34 +6% to +8% • Annual dividend $1.43 +7% Long-Term Outlook • EPS & DPS growth a +6% to +8% _____ a Adjusted EPS (
Slide 5: CMS' Performance Exemplifies People, Planet, Profit
CMS’ Performance Exemplifies . . . PEOPLE PLANET PROFIT a • Safest year on record • #1 Company in Michigan in • 15 years of +7% EPS Newsweek’s ‘Green growth • #1 Diverse Utility in the Rankings’ Nation and #1 Employer for • Raised dividend 7% YOY, Diversity in Michigan by • Highest U.S. utilit
Slide 6: Story of the Year
Story of the Year . . . Capital-Enabled SMART METERS Translates to > $10 MM in savings Process-Enabled 2.4 MM Installed Technology-Enabled UA REDUCTIONS INVOICE REVERSALS Amount Amount (MM) Down 54%; (MM) $ 80 $34 MM in Down 3 2.9 savings 90% $63 2 40 $29 1 0.3 0 0 2013 2017 2013 2017 . . . smart me
Slide 7: 2018 Priorities
2018 Priorities . . . • Safety of our employees & the public • Support Michigan policies & MPSC priorities • Continue expansion of renewables and commitment to sustainability • Meet our financial objectives • World class operating performance . . . will enable a 16th year of strong operational and f
Slide 8: Simple, Perhaps Unique Model
Simple, Perhaps Unique Model . . . Plan EPS Growth a 6% - 8% Self Funding: - Cost reductions 2 - 3 pts - Sales growth (continued economic development) 1 - Other (Enterprises, tax planning, etc.) 2 INVESTMENT SELF-FUNDED 5 - 6 pts Customer Prices “at or below inflation” <2% _____ a Adjusted EPS (non-
Slide 9: Large and Aging System
Large and Aging System . . . Electric Gas distribution distribution system replacement system is plan: 25 years, older than peers 27,000 miles Age of coal fleet is more 1,670 miles of gas than transmission pipeline; most 50 years built in the WWII era . . . requires significant customer investment.
Slide 10: Our Entire Cost Structure
Our Entire Cost Structure . . . Cost Components Above Market Costs 100% 100% 90% PPA PPA 80% Down Fuel and Power Costs Fuel $162 MM or 5% Fuel 70% annually 2011 2017 60% ~70% _____ Source: 2011 - FERC Form 1; 2017 - Internal 50% O&M Reductions in Rates O&M Costs 40% $659 Down 30% Taxes $87 MM $572 o
Slide 11: Economic Development is Robust
Economic Development is . . . Our Service Territory Outperforms Examples of New Business a Electric Grand Gas ~2% Industrial Rapids Michigan U.S. Combination Growth in 2017! Building permits b +330% +181% +112% GDP 29 19 14 2010 2016 Population 6 ½ 4 Duro-Last Roofing 2010 2016 Unemployment 3.8 4.7
Slide 12: Long-Term Regulatory Planning
Long-Term Regulatory Planning . . . 2018 Regulatory/Policy 1/19: Impact of 6/15: File long-term 2H: Renewable 11/6: TBD: Tax tax reform filing generation plan (IRP) Reform Order Energy Plan Gubernatorial U-18494 U-18461 U-18231 elections Electric 3/1: File By 3/30: April/May: File 5-yr electric Fina
Slide 13: Consistent Growth Through Changing Conditions
Consistent Growth Through . . . b 7% CAGR a EPS +6% to 8% Dividend +7% Weather Recession Recession Help _____ _____ Hurt a Adjusted EPS (non-GAAP) b Non-GAAP Cold 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Feb. Cold Mild Hot Warm Mild Cold Summer- Hot Hot Warm Mi
Slide 14: 2017 Results
2017 Results . . . Results By Business Segment 2016 2017 EPS -- (GAAP) $1.98 $1.64 EPS Initial Adjusted a Guidance a Voluntary separation 0.03 -- $2.30 – $2.34 Consumers $2.36 Legacy settlement 0.01 0.01 Enterprises 0.11 0.09 Federal tax reform -- 0.52 Interest & other (0.30) (0.25) Adjusted (non-GA
Slide 15: Managing Work Every Year
Managing Work Every Year . . . a 2010 2011 2012 2013 2014 2015 2016 2017 EPS $2.20 Weather & Storms +7% Mild Summer +7% $2.00 Cost +7% productivity above plan Cost Cost productivity productivity $1.80 +7% above plan Reinvestment Storms Hot Mild Reinvestment Summer Winter +7% $1.60 RECORD Hot WARM Of
Slide 16: 2017 Financial Targets Achieved
2017 Financial Targets Achieved . . . Target Actual Adjusted EPS (non-GAAP) $2.14 to $2.18 +6% to +8% $2.17 +7% Operating cash flow (MM) $1,650 $1,705 Dividend payout ratio (non-GAAP) Customer price (excl. fuel) > 62% 62% Electric ~2% 1.9% Gas ~2% 1.2% FFO/average debt (non-GAAP) ~18% ~19¾%
Slide 17: 2018 EPS Guidance Raised
2018 EPS Guidance Raised . . . a Adjusted EPS (non-GAAP) Utility Electric $1.65 - $1.67 Gas 0.75 - 0.77 Total Utility $2.40 - $2.44 Enterprises 0.13 Parent and other (0.23) Total EPS $2.30 - $2.34 +6% to +8% a _____ a Adjusted EPS (non-GAAP) . . . building on a strong 2017 performance. 16
Slide 18: 2018 EPS
2018 EPS . . . a $2.30 - 16¢ 3¢ 6¢ $2.34 $2.17 (8) - (12)¢ Managing Work Our Model (customer rates <2%) 2017 2016 Absence of 2017 Cost Savings Rates & Economy, 2018 2017 Weather Investment Enterprises, Tax & Other _____ a Adjusted EPS (non-GAAP) . . . illustrates another year of 6% to 8% growth. 1
Slide 19: Tax Reform Impact
Tax Reform Impact . . . Impacts Takeaway Utility • Lower customer rates create Facilitates self-funding capex headroom (up to 4%) strategy Enterprises & • Lower tax rate improves Offers modest EnerBank earnings diversification Parent interest • Largely offset by EnerBank Unique tax shield inte
Slide 20: Needed Customer Investment
Needed Customer Investment . . . Large and Aging System Rate Base Growth >$50 Bn Electric Gas 10-Yr 7% $21 Bn CAGR $15 Bn 60% $10 Bn 5-Yr Plan 70% 40% 30% >$18 Bn System Need 2017 2022 . . . potentially pulled forward by tax reform. 19
Slide 21: Operating Cash Flow Generation
Operating Cash Flow Generation . . . Amount (Bn) a Gross operating cash flow $ 2.9 2.7 2.6 2.5 2.4 2.2 2.3 Interest, working capital 2.0 and taxes 1.9 1.7 1.65 1.65 1.4 Operating cash flow 0.9 ~$9 billion in aggregate Investment 0.4 (0.1) (0.6) _____ a Non-GAAP Cash flow before dividend (1.1) 2017 2
Slide 22: Credit Metrics Maintained
Credit Metrics Maintained . . . S&P / S&P Moody’s Fitch a Fitch Moody’s (Dec. ‘16) (Apr. ‘17) (Jul. ‘17) FFO / Average Debt AA- Aa3 A+ A1 19% Consumers A A2 Secured ~18% A- A3 BBB+ Baa1 BBB Baa2 17% BBB- Baa3 < 30% BB+ Ba1 HoldCo Debt BBB+ Baa1 BBB Baa2 CMS Unsecured BBB- Baa3 BB+ Ba1 BB Ba2 Present
Slide 23: 2018 Financial Targets
2018 Financial Targets . . . 2018 Long-Term Plan Adjusted EPS (non-GAAP) $2.30 to $2.34 +6% to +8% +6% to +8% Operating cash flow (MM) a $1,650 Up $100/yr Dividend payout ratio (non-GAAP) ~ 62% ~ 62% Customer price Electric (1)% ~ 2% Gas (3)% ~ 2% FFO/average debt (non-GAAP) ~18% ~17% - 19% Customer
Slide 24: 2018 Sensitivities
2018 Sensitivities . . . Full Year Impact Sensitivity EPS OCF (MM) Sales a • Electric (37,477 GWh) + 1% + 6¢ + $ 20 • Gas (303 Bcf) + 5 + 9 + 40 – – 55 Gas prices (NYMEX) + 50¢ + 0 + ROE (planned) • Electric (10.1%) + 10 bps + 1½ + 6 • Gas (10.1%) + 10 + ½ + 3 Interest rates +100 bps – < 1 – 7 + + _
Slide 25: Compelling Investment Thesis
Compelling Investment Thesis Aging Infrastructure Strong Cash Flow & Healthy Balance Sheet Diversified Service Territory _____ Cost Controls Constructive Regulation a Case U-16191 _____ b Case U-17990, 2016 Order 24
Slide 26: Q&A Thank You!
Q&A Thank You! 25
Slide 27: Appendix
Appendix
Slide 28: 2017 EPS
2017 EPS . . . a $2.17 10¢ $2.02 8¢ 12¢ (15)¢ Managing Work Our Model (customer rates < 2%) 2016 2016 Weather & Cost Savings Rates & Economy, 2017 2017 Storms Investment Enterprises, & Other _____ a Adjusted EPS (non-GAAP) . . . delivered a strong 7%. 27
Slide 29: DIG (750 MW) & Peakers (200 MW)
“DIG” (750 MW) & Peakers (200 MW) . . . Pre-Tax Income Opportunities (MM) $ 80 $75 70 Contracts (layering in over time) 60 $55 +$40 50 $45 Better +$20 40 Performance $35 $30 30 Better Performance 20 $12 10 Outage pull-ahead 0 2015 2016 2017 2018 Future Capacity ($/kw-mth) ≈ $1.00 ≈ $2.00 ≈ $3.00 ≈ $
Slide 30: 2017 Cash Flow (non-GAAP)
2017 Cash Flow (non-GAAP) CMS Energy Parent Consumers Energy Amount Amount (MM) (MM) Cash at year end 2016 $ 43 b Cash at year end 2016 $ 152 Sources Sources Consumers Energy dividend and tax sharing $ 523 Operating (depreciation & amortization $872) $ 2,122 Enterprises & other 85 Other working capi
Slide 31: 2018 Cash Flow Forecast (non-GAAP)
2018 Cash Flow Forecast (non-GAAP) CMS Energy Parent Consumers Energy Amount Amount (MM) (MM) b Cash at year end 2017 $ 75 Cash at year end 2017 $ 65 Sources Sources Consumers Energy dividend and tax sharing $ 821 Operating (depreciation & amortization $922) $ 1,982 Enterprises 76 Other working capi
Slide 32: GAAP Reconciliation
GAAP Reconciliation
Slide 33: 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 2017 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 $1.64 Pre
Slide 34: Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income by Quarter
CMS ENERGY CORPORATION Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income by Quarter (Unaudited) In Millions, Except Per Share Amounts 2017 1Q 2Q 3Q 4Q YTD Dec (1) Net Income Available to Common Stockholders $ 199 $ 92 $ 172 $ (3) $ 460 Reconciling items: Electric utility and gas util
Slide 35: Reconciliation of GAAP EPS to Non-GAAP Adjusted EPS by Segment
CMS ENERGY CORPORATION Reconciliation of GAAP EPS to Non-GAAP Adjusted EPS by Segment (Unaudited) In Millions, Except Per Share Amounts Three Months Ended Twelve Months Ended 12/31/17 12/31/16 12/31/17 12/31/16 Electric Utility Reported net income per share $ 0.22 $ 0.23 $ 1.62 $ 1.64 Reconciling it
Slide 36: Reconciliation of Gross Operating Cash Flow to GAAP Operating Activities
Consolidated CMS Energy Corporation Reconciliation of Gross Operating Cash Flow to GAAP Operating Activities (unaudited) (mils) 2017 2018 2019 2020 2021 2022 Net cash provided by operating activities $ 1,705 $ 1,650 $ 1,650 $ 1,750 $ 1,850 $ 1,950 Other operating activities including taxes, interest
Slide 37: Consumers Energy 2017 Cash Flow GAAP Reconciliation
Consumers Energy Company 2017 Cash Flow GAAP Reconciliation (in millions) (unaudited) Reclassifications From Sources and Uses to Statement of Cash Flows to Sources and Uses Interest/ Capital Consolidated Statements of Cash Flows Tax Other Financing Lease Pymts Securitization Common Presentation Sour
Slide 38: CMS Energy Parent 2017 Cash Flow GAAP Reconciliation
CMS Energy - Parent Company 2017 Cash Flow GAAP Reconciliation (in millions) (unaudited) Reclassifications From Statement of Cash Flows to Sources and Uses Consolidated Statements of Cash Flows Non Equity Presentation Sources and Uses GAAP Uses non-GAAP Description Amount as Operating Other Amount D
Slide 39: Consolidation of Consumers Energy and CMS Energy Parent Cash Flow 2017
Consolidated CMS Energy 2017 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 40: Consumers Energy 2018 Cash Flow Forecast GAAP Reconciliation
Consumers Energy Company 2018 Cash Flow Forecast GAAP Reconciliation (in millions) (unaudited) Reclassifications From Sources and Uses to Statement of Cash Flows to Sources and Uses Interest/ Capital Consolidated Statements of Cash Flows Tax Other Financing Lease Pymts Securitization Common Presenta
Slide 41: CMS Energy Parent 2018 Cash Flow Forecast GAAP Reconciliation
CMS Energy - Parent Company 2018 Cash Flow Forecast GAAP Reconciliation (in millions) (unaudited) Reclassifications From Statement of Cash Flows to Sources and Uses Consolidated Statements of Cash Flows Non Equity Presentation Sources and Uses GAAP Uses non-GAAP Description Amount as Operating Other
Slide 42: 2018 Forecasted Consolidation of Consumers and Parent Cash Flows
Consolidated CMS Energy 2018 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 43: Reconciliation of Non-GAAP FFO to Average Debt Ratio
CMS ENERGY CORPORATION Reconciliation of Non-GAAP FFO to Average Debt Ratio (Unaudited) FUNDS FROM OPERATIONS In Millions Year Ended 12/31/17 Net Cash Provided by Operating Activities $ 1,705 Reconciling item: Securitization amortization and other 10 Funds From Operations (FFO) – Non-GAAP $ 1,715 AV