CMS Energy Corporation (CMS)

JPM SMid Cap Conference

December 1, 2011 08:45 pm ET


Andy Smith - Analyst JPMorgan Securities LLC

Tom Webb - EVP and CFO


Andy Smith

Good morning everybody. My name is Andy Smith. I’m the equity research analyst here at JPMorgan that covers the electric utilities. Thank you guys for joining us today. I’m joined by Tom Webb who’s the CFO of CMS Energy to talk about the company today. So I’ll just hand it over to Tom and let him get started.

Tom Webb

Andy, thanks very much. First of all thank all of you for coming. We appreciate your interest in our company. Your kind. And I want to introduce Laura Mountcastle who’s over in the side here. She’s the Treasurer of the company and runs our Investor Relations side of the business. So if you’ve got any really good questions after the meeting there’s a really good source right over there. But Andy, once again you’re generous having us here at your conference. We appreciate being here.

So if I can make this go forward, there we go; one click. I do want to remind everybody to be careful when looking at this disclosure statement. You know that there are risks and opportunities. Make sure to check our K and the follow-on Qs so you know all about those and understand the business and the risks that we have associated with our business.

So let me get right into it. What you’re probably most interested in and I’m delighted to tell you is that there’s really a pretty good investment consideration when you look at CMS Energy.

You can see it here on this slide, we have a dividend yield of about 4% and an earnings per share growth that we have consistently talked about for a long time and delivered on for a long time at 5% to 7%, an attractive total share on a return when you put those together.

Here’s what may be a little bit different from other utilities and other companies that you look at but particularly in our sector. We all talk about having good investment portfolios but ours is one that we constrain because we want to constrain it. And I’ll show you with the slide in a moment why.

But just to hit it right at the head we don’t want to be charging our customers too much. So we work hard to keep our base rate increases to about the level of inflation or less. So in real terms people are actually not paying much more for their power.

That advantage to us gives us a very transparent look at a lot of investment that’s needed that we’re catching up on candidly and in a manner that’s attractive to our customers which is vital if you want to be sustainable in your approach.

So the investment thesis here is not the one of today but it’s one that’s sustainable as we go into the future. We have a good regulatory environment and we’ll talk more about that too. I’ll, if you haven’t followed introduce you a little bit to our new chair at the Public Service Commission with the slide that’s coming up.

Stepping back a little bit, remember who we are. We’re in the magic hand, when I put it up like this. We’re in the Lower Peninsula of Michigan. We’re the fourth largest combined utility in the United States of America and you can see where some of our generation sites are and the color code there is the territories that we cover.

When you see the blue area that’s where we have gas; the yellow area, that’s where we have electric and then the green area is where we have electric and gas service territory together.

Now let’s take a look at this map because this particular map is a little different from the geography. This is what has made things work pretty well for us over the last almost decade and works well for us today and going into the future. Two little circles that come around that say it’s a pretty simple model for us.

We make investments. We’re able to turn those into approved investments. We’ve never had anything turned away in any serious fashion by our Public Service Commission. That leads to the rate increases which we try to keep low which leads to the operating cash flow and earnings growth as you see here in the 5% to 7% range or if you look at the last five years you can see that in the 7% range.

And then we have this nice little benefit. I don’t know if you want to call it earned or not but we have a lot of NOLs from our history that permit us to put a tax cap if you will on our business. So we’re not going to be paying taxes for several years. And it means that we don’t need to issue any new equity.

In fact we don’t plan to issue any new big blocks of equity. We do some small routine things through a continuous equity program and a drip program but nothing serious or substantial in nature. So what does that mean? All those earnings that I talked about go right to the bottom line.

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