The operator introduces the CMS Energy 2023 Third Quarter Results call, reminding listeners that it is being recorded and will be available for replay. Sri Maddipati, Treasurer and Vice President of Finance and Investor Relations, then introduces Garrick Rochow, President and Chief Executive Officer, and Rejji Hayes, Executive Vice President and Chief Financial Officer. The presentation contains forward-looking statements and non-GAAP measures, which can be found in the appendix and on the company's website. Garrick discusses the company's investment thesis and its ability to reduce costs while making necessary investments to keep customer bills affordable.

The company has a positive regulatory environment and a five-year capital plan to support customer investments. They are focused on delivering safe, reliable, and affordable energy while also transitioning to clean energy. They are committed to achieving net zero carbon emissions by 2040 and have a plan to reduce methane emissions and improve the reliability and resiliency of their electric distribution system. This is necessary due to the impact of climate change and the increasing demand for electricity.

The company has worked with industry leaders and utilized advanced technology to create a five-year electric reliability plan that includes a $7 billion investment in system hardening, undergrounding, and automation. This plan will improve reliability and reduce the frequency and duration of outages, with a long-term goal of having no outages affecting more than 100,000 customers and no customer without power for more than 24 hours. The plan will be implemented upon commission approval and the company has already made progress in doubling their investment in vegetation management.

In the past two years, we have focused on increasing customer investments and upgrades by installing 15,000 used devices and increasing maintenance inspection frequency. We were recently awarded a $100 million grant from the Department of Energy to improve circuitry in disadvantaged communities. This will help us accelerate our $7 billion electric reliability road map and balance reliability and affordability for our customers. We are committed to serving our customers and have revised our electric rate case and requested approval for a 10-mile undergrounding pilot and a recovery mechanism for investments in our electric distribution system.

The company has implemented a successful mechanism in their gas business to improve customer benefit and recovery, and has received approval for their gas rate case settlement. They plan to continue focusing on a safe and reliable gas system and have a positive outlook on their regulatory jurisdiction. Despite a significant storm in the third quarter, the company remains on track to meet their full year guidance and has initiated guidance for 2024. They reaffirm their long-term growth and dividend goals.

The company will provide an update on their 2024 guidance and 5-year capital plan during their Q4 call. Despite facing challenges such as severe storms and below-average heating and cooling degree days, the company remains confident in their ability to deliver on their financial objectives and provide value for stakeholders. They have implemented cost reduction initiatives to mitigate these risks and are on track to meet their adjusted EPS guidance for the year. The waterfall chart on Slide 7 shows a comparison of actuals and prospective periods, with all variances measured relative to 2022. The company will elaborate on their progress in countermeasures during the call.

The company has experienced negative go and positive variance due to unfavorable weather and rate relief, respectively. Higher O&M expenses have also impacted their financial performance, but they have implemented cost reduction initiatives and a voluntary separation program to mitigate these costs. The catch-all bucket in the middle of the chart has seen an increase in positive variance, thanks to cost savings and favorable sales. Looking ahead, the company expects normal weather to have a neutral impact on their financial performance in the fourth quarter.

The company expects a similar financial impact for rate relief net of investment-related costs, with lower overall O&M expenses at the utility. The fourth quarter of 2022 is expected to have higher O&M expenses, but the remainder of the year is expected to have a positive variance. The company remains confident in meeting its EPS guidance and will maintain cost discipline to deliver consistent financial results. The company's credit ratings were reaffirmed by S&P in August.

The company is focused on maintaining a solid investment-grade credit rating and has a strong financing strategy and balance sheet to weather market volatility. The utility is able to incorporate higher interest rates into rate cases and the parent company has limited refinancing risk in the near term. The company is also planning conservatively and has already completed most of its planned funding needs for 2023. The average coupon for first mortgage bond issuances is below the planned estimate.

The company has been able to delay the settlement of the equity forwards at price last year, resulting in $440 million of forward equity contracts to be settled in the fourth quarter. The company's approach to their financing plan is conservative and they take advantage of opportunities as they arise. This has been a successful strategy for the company for many years, allowing them to consistently deliver industry-leading results for all stakeholders. The company's CEO, Garrick Rochow, emphasizes their track record of delivering results and assures that this year will be no different. The call then opens up for a Q&A session. The first question is regarding the electric rate case and the company provides more details on recent conversations and key differences between their proposal and the DAS recommendation. They also discuss the possibility of fully litigating the case to avoid any gray areas.

Garrick Rochow discusses the progress of the electric rate case, stating that the gap between their ask and staff's proposal is small and the conversation is constructive. The main difference is in the cost of capital, ROE, and equity ratio. Settlement is a possibility, but undergrounding and investment recovery are important and harder to achieve in settlement. It is likely they will go the full distance for a constructive outcome.

Garrick Rochow discusses the longer-term expectations for DIG and non-regulated renewables growth. He mentions that the primary business continues to be utility space, with a mix of 95.5%. The company expects to be within its guidance range and has fully contracted out energy and capacity until 2025. They plan conservatively but have seen better-than-expected contracts. There is no sugar high, and they anticipate 6-8% growth, leaning towards the higher end. Reinvestment will continue as needed. Julien Dumoulin-Smith then joins the call.

Garrick Rochow is excited about the $7 billion distribution plan announced by Julien Dumoulin-Smith's team. The plan is incremental and will add $3 billion to the current five-year plan. However, the exact amount of growth in capital is uncertain and will depend on commission support.

The speaker discusses the strength of the company's five-year capital plan and how it extends into the future. They also mention the conservative approach they take with Dearborn Industrial generation and how they have contracts in place to avoid market volatility. Despite some upward pressure on energy and capacity prices, the company is exceeding their expectations and feel good about future growth opportunities.

The speaker discusses the status of the company's renewable energy projects and mentions that some of them were pulled out of the electric rate case. They feel good about their current projects, which include wind farms and solar projects, and anticipate construction to begin soon. The projects will be part of the company's Integrated Resource Plan and will receive AFUDC, so there will be no earnings impact.

The company is still in the early stages of developing their five-year plan and are recalibrating their financing needs. The estimated equity needed starting in 2025 is still around $350 million. The MPSC is conducting an audit into storm response and conversations with staff and commissioners have been constructive. Both parties are aligned in wanting to improve reliability and resiliency.

Liberty Consulting Group is currently conducting a data collection phase for an interim report expected by the end of the year and a full report in September. The CEO is open to their findings and believes it will only add to their reliability roadmap. The company is also participating in a work group for performance-based rates and is focused on investment recovery and certainty for capital and storm expenses. The CEO is confident that this will lead to positive outcomes for customers.

The speaker, Andrew Weisel, asks a question about the availability of grid level equipment for solar projects and if there are any potential risks to the company's planned spending. Garrick Rochow, the other speaker, acknowledges Weisel's previous analysis on the industry and reassures him that the company is highly focused on the supply chain. He hands it over to Rejji Hayes, who explains that the team has been working to diversify their vendor sources and find alternative options for equipment. They have also been implementing value engineering to ensure compatibility with the electric grid. Overall, they have been successful in securing the necessary equipment for their projects.

The company has implemented several measures to address supply chain issues, such as using amorphous core and refurbishing damaged transformers. They feel confident in their supply of highly used materials, but there are still challenges in the overall supply chain. The CFO also mentions potential updates to the legislative environment in Michigan, with the Governor pushing for a portion of her healthy climate plan to become law. The company is actively engaged in discussions about this.

The speaker reflects on the current state of the legislative body and the Public Service Commission, stating that they continue to take a constructive approach to the future. Despite potential challenges with certain bills, the speaker sees a path of constructive regulation and policy going forward. The speaker also mentions that the organization has been successful in offsetting weather and storm impacts through O&M savings, which have been achieved through a broad approach to cost-cutting. The speaker does not discriminate between operational and non-operational costs.

Rejji discusses the sustainability of savings for the company, stating that a decent portion will be sustained due to reduction in workforce, disciplined contractor base and accelerated IT projects. However, he cannot give a specific percentage and mentions some one-time savings from tender financing. He also mentions sustained savings from financing efficiencies.

Rejji Hayes, the CFO of the company, responded to a question about the company's financing plans for next year. He clarified that there will be no equity financing in 2024, as previously stated. The next question was from David Arcaro of Morgan Stanley, who asked about the company's cost structure and flexibility for 2024. Rejji explained that they are on track to meet their guidance of $3.06 to $3.12 in 2023 and $3.27 to $3.33 in 2024, with a $0.20 pickup year-over-year. He also mentioned that they do not anticipate the $0.30 impact from mild weather this year to recur next year, and they are factoring in the pending rate case and one-time financing costs. Overall, the company is confident in their ability to meet their guidance for 2024.

The company had a successful gas rate case settlement and is expecting a constructive outcome for the pending electric rate case. They will file another gas rate case in December, which is expected to bring in a net pickup of $0.10 to $0.15 per share. The company also expects sustained cost savings and a decent portion of those to contribute to a glide path of $0.20 per share year-over-year growth. However, there are some factors that may affect this, such as the weather and one-time expenses. The company remains confident in their ability to deliver on the 2024 guidance. The voluntary green pricing program is also showing positive results, with a tranche of 1,000 megawatts being contracted out.

The company is experiencing strong demand for renewable energy products and has announced plans to build a solar facility. They have also implemented measures to improve operational resilience, such as increased vegetation management and fusing, in response to lessons learned from last year's storm cycle. This has resulted in a 60% improvement in affected areas and the company plans to continue these efforts in the future.

The speaker discusses the implementation of fuses and automation technology to improve reliability performance in the electric distribution system. They also mention the use of drones to identify and replace faulty equipment, with the goal of continuously improving reliability. The speaker expresses confidence in the progress made so far and the future outlook, and mentions that the distribution plan will undergo a regulatory review.

Garrick Rochow, in response to a question about the company's plan for future rate cases, explains that the plan will be incorporated into rate case filings and will serve as a roadmap for the company's vision. He also mentions a recent Department of Energy grant that will help jumpstart their work. Rochow confirms that the company will continue with annual rate cases, and that the investment recovery mechanism will not change the timing of these filings. The IRM is currently not large enough, but will be implemented in the current electric rate case.

The operator introduces a question from Sophie Karp of KeyBanc regarding the cost of capital and return on equity (ROE) in Michigan. Rejji Hayes responds, stating that they have been making the case for higher ROEs due to the changing cost of capital environment. They are seeking a 10.25% ROE in their pending electric case and argue that they compete for capital against other utilities in different jurisdictions.

The speaker discusses the importance of being competitive in order to attract investors and mentions the current pilot project for undergrounding. They state that the company has the expertise and equipment to do undergrounding cost-effectively and mentions a potential cost of $350,000 per mile.

Ross Fowler from UBS asks for an update on the estimated bills meter installation issue and its potential impact on the rate case proceeding. Garrick Rochow explains that it was a result of 3G meters no longer being supported and causing billing issues for customers. The issue has been resolved and this is just the next step in the process, with no expected impact on other filings.

In the paragraph, Garrick Rochow thanks the operator and announces that there are no more questions. He then hands back to the operator for any final remarks. Garrick also thanks everyone for joining and reminds them to stay safe. The operator concludes the conference.

This summary was generated with AI and may contain some inaccuracies.