CMS Energy Corp. ( CMS)

Credit Suisse Energy Summit

February 7, 2012 10:45 AM ET


Tom Webb – Executive Vice President and Chief Financial Officer


Unidentified Participant

Good morning. I’d like to introduce Tom Webb, CFO of CMS.

Tom Webb

And thank you for doing that. And it’s good to be here. Welcome, everybody, that’s on the webcast, everybody in the room. We appreciate it. The lights are always hard to see here. But I do want to point out Phil McAndrews back here in our Investor Relations group. He always has all the good answer, especially the ones that I can’t get done for you.

I want to flip over here, go through a few slides so that we can get to questions in a fairly quick way. But as always, a careful look at Safe Harbor here. Please read this about forward-looking statements that we’ll be making. Make sure you refer to our Ks and Qs for risk factors and the like.

And on that note, let me share a few things with you that I hope that you’ll find interesting. It’s the 125th anniversary of Consumers Energy. And it will be the 65th anniversary of the company’s listing on the New York Stock Exchange. So there will be a little celebration coming later in the month. And I’ll talk about that.

The news since we last time talked is dividend. We increased our dividend by 14% net at a 62% payout. So that’s about where our peers are. And I realize you can always select the peers you want to look at. We do a pretty a big group. And so that’s put us right at the average of those and we’re pleased to have shared that with you.

We hope that those of you that are owners have found that helpful and those that are not will find that attractive as we go forward in time. Here’s our model. This is not new. This is a model that we’ve been running for several years. You can see the pattern for 2006 to 2010 on the left side of the slide and you can see the future outlook for this year on into 2016. So all driven by investment. Not too much and not too little, but investment that’s needed. Not investment that we want to do. Investment that our customers want to see.

We keep it to a reasonable level so that our base rates don’t go up more than about the level of inflation. So, being at that or less. And then we’ve got some enablers that help us, including NOLs that put us in a position where we don’t need to issue any equity for five years. And we have no plans to issue any block equity for five years. And you won’t hear very many companies that say that.

I know I hear the words come out from a lot of people. We have no need to issue equity this year. But it’s a little different for us.

You should know that we do have a DRIP program, a continuous equity program. And they add up to about $30 million a year, but no block work [ph]. The key to this model is that it’s predictable and repeatable and in part because – this is a little more detailed look at the model where you see the investment drives everything, investing in the utility. It’s 99.5% of our investment.

And you see the enablers listed there, I’m going to choose a few, go through quite quickly and then how we handle risk mitigation, which gives us a chance to have good consistent financial results.

On this particular slide, you can see what I refer to as self-imposed limitation on capital investment. The more we investment in the utility, the more of rate base goes up, the more of the earnings go up, the more or many of you are happy. So I could stand here and say we could invest and our earnings could go up 10% a year. But we don’t – this slide tries to show that.

The big bubble that’s on this slide says that we could easily invest about $10 billion over the next five years. And these would be things that I believe our commission would want us to invest in. So we’d be encouraged to do this. And these would be things that knowledgeable customers would want us to invest in as well.

But what happens is our base rates would go up around 4% or maybe a little bit more and we don’t believe that’s sustainable. So, we spend a lot of time prioritizing the investment. We’re doing some of our work around the smart grids a little slower than others. We think it’s a good thing on that way, but it pushes the investment out over time as an example.

So we’re targeting 6.6 billion over the next five years. That number could be closer to seven or closer to six. That’s not all that critical. What’s important is what’s on the bottom of this slide that says we will try to keep base rate increases at or below 2%, which is the estimate for inflation. And I’ll show you a little bit more about what we’re actually doing here.

So the investment itself is an enabler, as you’d expect. Here I’m showing you a cash flow. What you could think about this is earnings as well. This is the track for the last several years on the amount of investment we’re making shown in green and then the gross operating cash flow shown in blue. And the only point here is, it’s that investment that’s driving that operating cash flow up by about $100 million every single year and it has an impact on earnings. That’s a very similar increase.

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