CMS Business and Accounting Overview March 28, 2017

Transcription

1 CMS Business and Accounting Overview March 28, 2017 Palisades Replacements Gas Pipelines

2 Agenda 1 Business Overview Accounting Close Process Greener Generation Mix

3 Who We Are Now Electric Electric Utility 1.8 million electric customers 8,900 MW of capacity Gas Gas Utility 1.8 million gas customers 309 bcf gas storage (#1 LDC in the U.S.) Headquarters Electric service territory Natural gas service territory Combined service territory Generating facility.... fourth largest combination utility in the United States and focused on Michigan.

4 Who We Were in Areas of activity Areas of interest.... worldwide and diverse. 3

5 Non-Regulated Businesses Now Michigan Power Filer City Grayling Genesee EnerBank Michigan Power DIG Enterprises Plant DIG MI Power Filer City Craven Genesee Grayling Primary Fuel Natural Gas Natural Gas Coal & Biomass Biomass Biomass Biomass Ownership Interest (%) Gross Capacity (MW) Total MW 1,177 Craven.... a small part of overall strategy.

6 Growing Earnings and Reducing Coal.... By Business Segment Capacity Diversity Consumers Enterprises Interest & other EPS Adjusted $ (0.27) Oil 6% Renewables 3% Pumped Storage 11% Nuclear 8% 2005 Gas 31% Coal 41% Retired 950 MW CMS Energy $2.02 Purchases 3% Renewables 10% Nuclear Oil 8% 10% 2017 Coal 21% Pumped Storage 12% Gas 36%.... TBD. 5

7 Strategy.... The CE Way Safety. Quality. Cost. Delivery. Morale Consistent financial performance CUSTOMER FOCUS ENABLED EMPLOYEES Utility investment Fair and timely regulation Customer value BUSINESS RESULTS Safe, excellent operations CONTINUOUS IMPROVEMENT STANDARDIZED PROCESSES.... world class performance delivering hometown service. 6

8 2017 Priorities.... People Planet Profit Top-quartile customer satisfaction Enabled employees Thriving communities Reduce coal dependency Minimal environmental impact #1 U.S. utility in Sustainalytics ranking 6% to 8% adjusted EPS growth Customer investment Plan with more opportunities ahead Continuous cost improvement AND Performance: Industry-leading safety, operations, and culture.... CMS Energy: world class performance delivering hometown service. 7

9 Simple, Perhaps Unique Model.... Customer investment (reliability, costs, enviro mandates) Self Funding: - O&M cost reductions - Sales growth - No block equity dilution & other INVESTMENT SELF-FUNDED Rate increase at or below inflation Plan 6% - 8% 2-3 pts pts <2%.... continues to drive sustainable growth, with upside opportunities. 8

10 Catch-Up.... Amount (billions) $2.0 $1.8 per year Peers CMS _ a Based on June 2014 information percent of market cap Source: 10K; actual amounts through 2013 smoothed for illustration.... has created an opportunity for the next ten years. 9

11 History of Ten-Year Capex Plan.... Capex (bils) $ New Plan Prior Plan Actual $15.5 $17 $21+ Opps $ $ Gas Mix 27% 37% 37% 41%.... supports 6% to 8% EPS growth without big bets. 10

12 Ten-year, $18 bil Customer Investment Plan $18 billion Details Gas Infrastructure & Maintenance Capex (bils) $ 8 Electric Distribution Gas Infrastructure & Maintenance Supply (incl. renewables) Electric Distribution Total Customer Investment 4 6 $18 Supply Gas Additions Future Opportunities: Improve gas infrastructure Grid modernization More renewables PPA replacement $ 3 Renewables Plan w/ Opportunities $ with even more opportunity ahead. 11

13 O&M Cost Performance Helps to Fund.... Peer Average ~5% Actual Cost Reduction (2015 over 2006) Consumers -2.7% Source: SNL, Form 1, Electric Non-fuel O&M New Annual Cost Savings Good Business Decisions Attrition $ - 16 $ - 16 Productivity (Coal Gas) Enhanced capitalization Smart Meters Consumers Energy Way Work Management & Eliminate Waste Increases Mortality, Disc. Rates, & Other Service Upgr./Inflation Net savings $ - 35 $ - 20 Percent savings Three-Year Avg (mils) > 3% a year! (mils) 2% a year!.... needed customer investments. 12

14 Managing Work Every Year.... a EPS $2.20 $2.00 $1.80 $1.60 $1.40 $1.20 $1.000 Cost Productivity Mild Summer +7% Summerless Summer Cost Cost productivity productivity _ a Adjusted EPS (non-gaap) +7% Reinvestment Hot Summer Cost productivity +7% Reinvestment Hot Summer Storms +7% Mild Winter % Hot Summer Cost productivity above plan +7 Reinvestment +7% % Cost productivity above plan +17 RECORD WARM Mild Summer % Offsets Customer Reinvestment = $340 million +7% Cost productivity above plan Storms.... maximizes benefits for customers AND investors. 13

15 New Energy Law.... Customer What s New? Subsidies addressed ROA reform (10% choice cap remains) Net metering Increased energy efficiency & demand response incentive RPS -- 15% by end of 2021 Improved Regulatory Process 10 month rate case (self-impl. removed) Investor What is the Impact? Price competitiveness Secure capacity Improved incentives Additional rate base opportunity Streamlined process Integrated Resources Plan (IRP) Reliability planning Pre-approval of projects.... strengthens our Plan AND benefits our customers. 14

16 Agenda 15 Business Overview Accounting Close Process Greener Generation Mix

17 Month End Close Results Department Time of Completion Monthly Close 5 D A Y S Target Day 4 7:00 PM Tax/Consoliation Property General Journal Entries 1 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb In July 2016 we moved from a 5 to a 4 day accounting close process 16

18 THE CE WAY 4 DAY CLOSE.... Quality Process: Day 1 & 2 Day 3 Day 4 Day 5 Identified standard (target condition): Industry best practice 4 day close Identified the problem (gap): Journal entries Property accounting Operations analysis Analysis Begin tax Final tax & consolidation Was at 5 day close Obstacles to reach target: Many people impact process IT processes Change management Quality Steps: Mapped out process Identified bottlenecks Met with all impacted teams New Process: Used work plans and scorecard to monitor results Communicated with impacted teams Implemented 4 day close Day 1 Day 2 Day 3 Day 4 Journal entries Eliminates waste Reduces Waiting Speed of Delivery 20% Improvement Cost Data to Operations Sooner Company Results Sooner More Time for Analysis More Nimble Fewer hours spent on the close process Property accounting Operations analysis Analysis Begin tax Final tax & consolidation A MODEL FOR QUALITY.

19 Month End Close Process Day 1 Tasks completed by 10:00 PM Utility Manual Journal Entries & Accruals Test Order Settlements Property Accounting Mock Close Journal Entry Processing SAP Job Chain Close Materials Supply Chain Sub-ledger 12:00 AM Close A/P & A/R Subledger 9:00 AM Month End Processing Jobs automated through Redwood Job Chain begins 10:00 PM 18

20 Month End Close Process Day 2 SAP Job Chain Overhead Loadings Order Settlements Cost Center Allocations SAP Job Chain PowerPlan Processing Electric & Gas Margin Accounting Complete 5:00 PM Final Distributions complete, pass to Tax & Consolidations 7:00 PM Tax & Consolidations Pass to Property Accounting for PowerPlan processing 9:00 AM PowerPlan processing complete, Begin Final Distributions 6:00 PM 19

21 Month End Close Process Day 3 & 4 Day 3 Day 4 Tax Month End Entries complete 12:00 PM CMS Enterprise and Subs Consolidations complete 12:00 PM Final Utility Consolidations complete 5:00 PM CMS Tax Month End Entries complete 4:00 PM Non-Regulated Consolidations complete 7:00 PM Final CMS Consolidations complete 7:00 PM Tax & Consolidations Day 3 Tax & Consolidations Day 4 Targeted Final CMS Consolidations Day 4 7:00 PM 20

22 Financial Planning Calendar Continuous and consistent planning cycle 21

23 Advantages of a Faster Close Quick to Market 10K Filing More Analysis Time Business Planning / Forecasting Less Waiting Over 2 Weeks Faster to Market! Utilization of Resources More Time to React CMS Filed: 2/7 Peer Avg: 2/24 Feb. 1 Feb. 28 first Utility to File our K and issue long-term debt this year 22

24 Days After 2/7/2017 Filing Schedule.... Days After 2/15/ K Filing Dates Post K Issuance Dates CECo First to File! CECo First to Issue! Consumers Energy first to file and > 2 weeks faster than peer average. 23

25 Agenda 24 Business Overview Accounting Close Process Greener Generation Mix

26 Closure of 7 Small Coal Units in April 2016 B C Cobb Plant J C Weadock Plant JR Whiting Plant

27 Classic 7 Coal Plant Closure With Securitization Surcharge Recovery MATs compliance too costly for these 7 Small Coal Plants Remaining book value of $378M at closure date Securitization was lowest cost option to recover remaining book value NPV of securitization revenue < NPV of conventional financing revenue Demonstrated that the costs to be securitized are either regulatory assets or costs that are unlikely to be collectable in a competitive market Proceeds were used solely to retire existing debt/equity (50:50 mix) Securitization must provide tangible and quantifiable benefits to customers, and Bond pricing/structure has to result in lowest securitization charges Structure: Refinancing Highly rated, low cost bonds at 3% replace conventional financing at authorized overall pretax rate of return 9%; Legislative protection, credit enhancements, and rating agency treatment result in significant financing cost savings Securitization will be treated as a sale of the plant assets at net book value to a bankruptcyremote Special Purpose Entity (SPE) SPE issues bonds backed by securitization property (right to cash flow, not plant property) Significant cost savings via financing (3% vs 9%) 26

28 Securitization.... Background Customer Savings Law: This Use: Expected Bond Rating: Issuance Date The Customer Choice Act 2000 $378 million for recovery of Classic 7 investment AAA (based on nonbypassable irrevocable surcharge) July Amount (mils) Status Quo (cost of capital = 9%) $60 Securitization (AAA= 3%) 40 Savings $ provides substantial customer savings. 27

29 Securitization - Transaction Structure MPSC 1 Issues Financing Order creating the right to collect surcharge ( Securitization Property ) Consumers Energy 3 Use cash to retire debt & equity (Electric Rate Base ) 2 Trasnfer the right to collect surcharge Receive cash $378 mil Consumers Funding LLC Issue Bonds Receive cash $378 mil Securitization Bond Holders 28

30 Securitization - Lifetime View of Customer Savings.... Classic 7 Customer Cost (mils) $ $20 Million Savings Status Quo Securitization a a substantial customer savings while maintaining full cost recovery. 29

31 Greener Generation Mix a.... Coal Renewables 2005 By 2021 Largest reduction of any investor-owned utility Renewables increased 5x! 15% 41% 21% 3% _ a Capacity Mix % Coal % Non-coal.... #1 U.S. Utility in Sustainalytics rankings. 30

32 Energy Mix.... Supply Coal 41% 24% a Gas Renewables 4 4 Pumped Storage (1) (1) b PPA (Nuclear and Gas) _ a Includes 3% from Classic 7 coal plants (shutdown April 2016) b Includes market purchases.... significant shift away from coal. 31

33 Capacity Diversity.... Purchases 3% Renewables 10% Oil 10% Nuclear 8% 2017 Coal 21% Renewables 3% Pumped Storage 11% Oil 6% Nuclear 8% 2005 Gas 31% Pumped Storage 12% Coal 41% Gas 36% Future Capacity Mix More Renewables; at least 15% by 2021 Expanded Pumped Storage Clean Energy Resources Terminate nuclear PPA evolving to cleaner generation and becoming more cost competitive. 32