The operator welcomes listeners to the CMS Energy 2023 Year-End Results call and provides instructions for the question-and-answer session. Sri Maddipati, Treasurer and Vice President of Finance and Investor Relations, introduces himself and the other presenters. He notes that the presentation contains forward-looking statements and non-GAAP measures. He also announces that this will be his last earnings call as he has transitioned to a new role in the company, and introduces his successor, Jason Shore.

Garrick Rochow thanks Sri for his leadership and introduces the new finance team. He praises the team's performance in the face of challenging weather conditions and record storm activity. Despite these challenges, the team delivered and offset financial headwinds, demonstrating their commitment to customers and investors. The team has a track record of consistently delivering results without excuses.

In the third paragraph, the speaker expresses pride in the accomplishments of CMS Energy in the past year, including receiving the Freedom Award for supporting employees who serve in the Guard and Reserve. They also mention the retirement of coal plants and the acquisition of a natural gas generating station and wind farm, as well as the success of the NorthStar Clean Energy team. The speaker also highlights the passing of new energy legislation in Michigan and the company's commitment to a sustainable financial plan.

The new Michigan legislation encourages clean energy growth and provides flexibility for utilities to determine the best approach for meeting the state's renewable portfolio standard. The company plans to file a Renewable Energy Plan and an Integrated Resource Plan in the near future, which will align supply resources and support the transition to net zero. The regulatory environment in Michigan remains strong and supports necessary customer investments. The company is also optimistic about the outcome of their electric rate case, with key stakeholders showing support for recovery of customer investments and important investment mechanisms. An order from the Commission is expected by March 1.

The company has filed for a gas rate increase of $136 million and expects an order by the end of the year. They have also outlined a 5-year, $17 billion investment plan, with 40% of the opportunities focused on renewable energy and grid modernization. They also have additional growth drivers, including incentives for energy efficiency programs and earnings from their non-utility business. The company has a long list of potential investments, including those related to their electric reliability roadmap and the new energy law. Overall, the plan is customer-focused and aims to benefit all stakeholders.

In 2023, the company delivered strong financial results, with adjusted earnings per share of $3.11, which was at the high end of their guidance range. They are also raising their 2024 EPS guidance and dividend payout ratio, and remain confident in their plan for future growth. This was achieved through strong cost performance, non-operational countermeasures, and a solid beat at NorthStar, despite significant weather-related challenges.

The workforce at CMS delivered impressive cost performance in the fourth quarter of 2023, with O&M expenses 25% below the previous year and 20% below the five year average. Despite $300 million in weather-related financial challenges, the company was able to maintain operational commitments to customers and communities. Overall, CMS met or exceeded most of its key financial objectives for the year, with the only miss being related to the customer investment plan. The company plans to build all approved solar projects and expects better progress with siting and permitting thanks to a recent Michigan Renewable Energy siting reform bill. The company's 2024 EPS guidance is discussed on slide 11.

The company is increasing their 2024 adjusted earnings guidance range to $3.29 to $3.35 per share, with confidence towards the high end of the range. This growth will primarily be driven by the utility segment, with a contribution of $3.74 to $3.80 per share. The company also expects contributions from their NorthStar and renewables businesses. Their financing assumptions remain conservative and they will remain opportunistic in taking advantage of market conditions. The company provides a waterfall chart to show their glide path to achieve their 2024 adjusted EPS guidance range, with positive year-over-year variances from normal weather and rate relief from constructive gas rate case settlements and expected outcomes on pending electric and gas rate cases.

In 2024, our cost structure will benefit from productivity improvements, cost reduction measures, and ongoing initiatives. However, this is offset by the negative impact of one-time cost reduction measures and conservative assumptions. We will continue to adapt to changing conditions to achieve our financial objectives, including maintaining solid investment grade credit ratings and managing our credit metrics. We have settled our remaining equity forwards and have no additional equity needs in 2024, but plan to resume our at the market equity issuance program in 2025.

The company is able to maintain its equity needs despite an increase in utility capital plan, thanks to strong operating cash flow and the ability to monetize tax credits. The recent decision by Moody's to increase equity credit for junior subordinated notes provides further cushion. The company has limited funding needs in 2024 and no planned long-term financings at the parent company. The sensitivity analysis shows minimal variances from the plan. The company's model benefits all stakeholders, and the speaker praises Sri for his contributions to the finance team and the company.

The speaker expresses gratitude for the hard work and dedication of Sri and Jason in their roles. They mention the investment thesis that has guided their business and express confidence in the company's outlook for 2024 and beyond. The speaker then hands over to Garrick for his final remarks and opens the floor for questions. The first question asks about the expected growth from Dearborn Industrial Generation and the speaker explains that they have available capacity and are currently securing contracts to ensure growth in the out-years of the plan. The speaker also mentions the regulatory process for the REP plan, which is expected to be filed in the second half of 2024.

In this paragraph, Garrick Rochow discusses the upcoming decision on the company's Renewable Energy Plan, which will play a crucial role in achieving their clean energy goals. He explains that the plan is currently being worked on and will be filed in the second half of the year, with a final order expected within 10 months. The plan will impact the company's capital plan and will also simplify their Integrated Resource Plan. Rochow also mentions the flexibility provided by the energy law and the importance of considering customer impact, resource capacity constraints, and the balance sheet in the decision-making process.

The speaker discusses how the company's plan for the next few years does not include any capital investment opportunities associated with new legislation. They also mention that it will take a few years before they can incorporate these opportunities into their plans. The next question from a caller is about a recent change from Moody's, which increased the equity credit for junior subordinated notes from 25% to 50%. This change is significant for the company as these notes make up 40% of their debt portfolio.

The speaker discusses the positive impact of increasing equity credit on FFO to debt metrics and expresses confidence in a constructive outcome for the electric rate case. They mention alignment with staff and commissioners on improving reliability and positive indicators for mechanisms such as infrastructure recovery and undergrounding pilot. The final order is expected by March 1. A question is asked about CapEx and rate base.

The increase in the rate base CAGR and CapEx run rate for the firm is due to a combination of factors, including incremental CapEx, increased renewable investments, and IRP execution. The majority of the increase is driven by electrical liability investments, with a portion attributed to clean energy investments. The clean energy investments are based on the 2022 IRP and there is potential for further upside due to the new energy law.

The speaker explains that the renewable energy plan will have a slight impact on the company's finances, but there is potential for 10 years of investment opportunities. The $350 million in equity after 2025 only includes the current five year plan of $17 billion in utility CapEx. The company is not considering increases beyond the current plan at this time. The Palisades revival is not a factor for the company as they are not involved in the project and the power is already spoken for.

Garrick Rochow and Rejji Hayes discuss the lack of change in resource planning at Dearborn Industrial Generation and the potential for growth in energy and capacity. They mention the economic development and manufacturing growth in Michigan, as well as the potential for data center growth. They emphasize their conservative approach to planning and not counting on potential growth until it is confirmed.

The speaker is adding numbers to Garrick's comments about load growth in the last several planning cycles. They have had flat to slightly declining load growth, but their energy efficiency actions have reduced load by 2%. The current plan shows a 1% swing from the last five-year plan, with projected growth of 0.5%. Despite a robust pipeline of opportunities, only two large projects have been incorporated in the current plan. The speaker believes there will be more opportunities in the next few years. On the topic of rate cases, the speaker mentions their historic practice of settling cases and their focus on reaching the right conclusion for customers and investors.

The speaker discusses their approach to settlement opportunities and their confidence in reaching a constructive outcome in Michigan. They also mention the potential for equity needs to increase as capital expenditures go up, but note that there are sources of offsetting pressure and potential for internal equity and monetizing tax credits.

The good news from Moody's this morning provides more headroom for equity needs. It is not yet determined if new equity needs will be given, but they will be recalibrated every year. The main sources of downward pressure on equity needs are operating cash flow generation and the ability to monetize credits, and Moody's decision is helpful. The company also plans conservatively and has a solid level of retained earnings due to a disciplined dividend policy. The process for performance based rate making in Michigan is improving, with comments due by February 2. The company is working towards a better connection between outcomes and reliability, and there is a possibility of a good landing spot for PBR in Michigan. The timing for a conclusion is not yet determined.

Garrick Rochow explains that they are still in the process of finalizing their plans and that the next electric rate case will be in May. Julien Dumoulin-Smith asks about the balance sheet, cash flow projections, and dividend growth. Rejji Hayes responds that the five year plan includes rate base growth, energy efficiency, and non-utility opportunities such as DIG recontracting, which is expected to generate over $13 billion in cash flow. However, the open margin on slide 21 in the appendix and potential opportunities from a higher capacity price are not included in the projections.

The speaker notes that there is potential for upside in earnings and cash flow, with additional opportunities available. They also mention the decision to increase equity credit for junior subordinated notes, which will result in FFO to debt accretion. The company has a consistent dividend policy and plans to continue with a low 60s percent payout ratio to efficiently fund growth. The FFO metrics are expected to be intact and possibly see a slight uptick due to various factors.

Rejji Hayes, a representative from a company, discusses their credit metrics and their plans to maintain a solid investment grade credit rating. They will generate cash flow, secure equity, and have a disciplined dividend policy in order to stay in the mid-teens credit metric range. They clarify that they do not intend to deviate from their current credit ratings. When asked about the impact of new energy legislation on customers, they emphasize their commitment to affordability, balance sheet, and completing necessary work. The legislation presents opportunities for capital investment and financial compensation.

The speaker acknowledges that there were delays in their planned CapEx for 2023, which was $400 million short of their target. This was due to various factors, such as project shifts and local permitting issues for solar projects. However, they are confident that they can still achieve their goals without increasing customer bills.

The five-year plan for spending on capital projects may shift slightly due to changes in the context of the year, but the key goal of delivering 50% renewables by 2030 remains unchanged. Some spending from the previous year will be carried over to the new plan, but the main driver for the increase in spending is reliability-related investments. The spending in 2028 is expected to be the lowest due to a spike in reliability-related investments in 2024 and 2025. The plan is subject to regulatory outcomes and may change over time.

The composition of the company's $17 billion cash flow may change over the next five years, but the overall amount is expected to remain strong. Tax credit monetization accounts for about $0.5 billion of the $13 billion in operating cash flow. There is no linear pattern to the monetization, and it is expected to grow over time. The company is currently focused on improving reliability and is undergoing a process audit, with results expected in September.

Rejji Hayes explains that the $0.16 cost savings projected for 2024 is a combination of cost reversals from a previous storm and cost savings from the CE Way initiative. However, there is also inflation and other costs that need to be offset. When asked about the clean energy standard buckets, Garrick Rochow mentions the flexibility of the energy law and how it has served them well in the past.

The company's focus is currently on their Renewable Energy Plan, which includes wind, solar, and hydropower, with a goal of reaching 50% renewable energy by 2030 and 60% by 2035. They are also looking towards 2040, when they plan to have 100% clean energy, which may include nuclear and natural gas with carbon capture. They are open to considering all options and will prioritize what is best for their customers and investors. Some jurisdictions may push back on renewable energy investments due to cost, but the company is committed to finding the right plan for their stakeholders.

Garrick Rochow, a representative from a company that is implementing a new energy plan, explains that they have taken steps to socialize the plan and minimize any negative impact on regulators, intervenors, and consumers. They have focused on building strong relationships with local communities and are also considering opportunities outside of Michigan. The plan includes a mix of ownership and power purchase agreements, providing flexibility in sourcing clean energy resources. Overall, the company is confident in their ability to achieve the clean energy standard outlined in the law.

The speaker discusses the possibility of getting an exception for not meeting the clean energy goals in 2030 or 2035 through the Public Service Commission. They also mention the potential for a credit rating upgrade, but it would require significant cash flow or monetization of tax credits, which is not currently planned. They feel comfortable with their current credit rating and do not plan to make any changes. The speaker thanks everyone for joining the call.

The speaker is saying goodbye and hopes to see the listeners on the road soon. They thank everyone for participating and end the conference.

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