CMS Energy Corporation

Thank you, Sri, and thank you, everyone, for joining us today. Our commitment to industry-leading financial performance spans two decades, and it's this investment thesis that is foundational to our performance. Over that time, we've experienced changes in commissions, legislatures, and governors, unplanned weather and storms, recessions, and a pandemic. And each and every year, we have delivered for our customers and for you, our investors. It's the performance you have come to expect from a premium name like CMS Energy. And this year is no different. We remain squarely focused on our mission at CMS Energy, making the needed investments in safety, reliability, and decarbonization of our system, balanced by customer affordability, and our $15.5 billion five-year customer investment plan. These investments in our expansive and aging electric and gas systems are critical to enhance reliability and resiliency and are supported by Michigan's constructive legislation and regulatory framework. Our investments are coupled with our lean operating system, the CE Way, which helps us manage and lower costs. This ongoing drive to see and eliminate waste is evident from the field to the office and helps improve our efficiency, ensuring we deliver customer value while keeping bills affordable. We are committed to this, and I believe we do it better than most any company in the industry. As we round out the first quarter of 2023, I want to share a few highlights. First, Ford's announcement of the Blue Oval Battery Park. This is another important win, which brings $3.5 billion, 2,500 jobs, and adds to the growing list of economic development projects in our service territory. We saw additional enrollments in our voluntary green pricing program, supporting the build-out of our first large tranche of owned solar, representing 309 megawatts, of the total 1,000 megawatt approved. Preparations continue for the acquisition and transition of the covert generating facility, scheduled for June, as approved by our IRP. And in our gas business, began construction of our mid-Michigan pipeline, a $550 million 56-mile pipeline to enhance deliverability and safety of our natural gas system. I want to be clear. At CMS Energy, year after year, regardless of conditions, we are positioned to deliver. Now, let me address the extreme weather we faced in the first quarter. In late February and early March, we experienced the second largest storm event in our service territory. Our line crews are some of the most skilled and experienced in the business, And they showed up with able hands and parts of service. And our customers were well served by their dedication. In addition to our crews in the field, there are hundreds of people behind the scenes who support our crews and our communities, including many of our coworkers who volunteer to serve customers throughout the restoration. I know many of my coworkers join our earnings call. And from my heart, I want to say thank you to each and every one of you for showing up for our customers and for each other. Because of our team, working together to serve, 97% of our customers were with power within three days. In our 135-year history, eight of the most destructive storms have occurred in the last 20 years. That's a significant data point. The severity and frequency of storms we're seeing highlights the need to enhance critical investment and amplify our efforts on the reliability and resiliency of our electric distribution system. We need more undergrounding. This is an area where we are significantly behind some of our Midwest peers. We also need to do more sectionalizing, automated transfer reclosures and looping, and overall system hardening. These important investments are critical to improve reliability and resiliency for our customers and will be outlined in our pending electric rate case and in our updated five-year electric distribution infrastructure investment plan. We also plan to include an investment recovery mechanism in our upcoming rate case to add certainty to our investments. I'm pleased that our commission has been supportive of reliability improvements doubling our efforts around tree trimming since 2020. This, as well as other customer investments, has contributed to the 20 percent improvement in our reliability in 2022. But there is more work to be done and more needed investment. We will continue to work productively with the Commission on the reliability and resiliency of our electric distribution system. So we prepare for increasingly severe weather. We expect further alignment and collaboration and the needed investments in the upcoming storm audit as we work on a common goal of improving our distribution system for all customers. I'm confident in our ability to work with all stakeholders because Michigan has the legislative and regulatory framework in place to enable these investments and to attract the capital needed to drive the changes we all want to see. We have a productive energy law that provides forward-looking test years, constructive ROEs, and supportive incentives. It is this environment which has earned Michigan the rank as a top-tier regulatory jurisdiction for the past decade. Now, I know many of you will want to dive into the details of the back and forth in both the regulatory and legislative arenas, which we are happy to do in Q&A. But remember, it's all part of the process. Let me remind you, we have a track record of working with all stakeholders to drive successful outcomes. It's why we settled three cases in 2022. Now, I want to be clear where we stand today. We saw both unseasonably warm weather in January and February, as well as significant cost with the ice storm. As you would expect, we've taken actions early to counteract that impact. Therefore, we are reaffirming all our financial objectives. Most importantly, our full-year guidance of $3.06 to $3.12 per share with continued confidence toward the high end. In the first quarter, we reported adjusted earnings per share of $0.70. We're also reaffirming our long-term adjusted earnings growth of 6% to 8% per year with continued confidence for the high end and remain committed to annual dividend per share growth of 6% to 8%. This isn't our first rodeo. Whether it was the pandemic or weather related, we've managed the work to deliver for both customers and investors. Through the CE way and other countermeasures already underway, we will offset the unplanned headwinds early in the year. I have confidence in our team and in our plan for 2023 and beyond, given our long-standing commitment and performance. At CMS Energy, we deliver for customers while consistently delivering industry-leading growth. Now, I'll hand it over to Reggie to provide some additional details and insights.

Thank you, Garrick, and good morning, everyone. For the first quarter of 2023, we delivered adjusted net income of $204 million, or 70 cents per share, largely driven by unfavorable weather and costs related to service restoration as a result of the significant storm activity that Derek noted earlier. To elaborate on the impact of weather on sales, given the well-publicized warm winter experience in the Midwest, the number of heating degree days in our service territory during the quarter were approximately 18%. below normal weather patterns. The atypically warm weather coupled with the strong comp in the first quarter of 2022 resulted in 27 cents per share of negative variance versus the comparable period in 2022 as noted on slide 7. Rate relief net of investment related expenses resulted in 3 cents per share of negative variance as last year's constructive electric and gas rate case settlements were offset primarily by the roll-off of tax benefits realized in the first quarter of 2022 associated with a prior gas rate case settlement as expected. From a cost perspective, as mentioned, our financial performance in the first quarter was significantly impacted by higher operating and maintenance, or O&M, expenses attributable to storm restoration costs, which resulted in 20 cents per share of negative variance versus the first quarter of 2022. It is worth noting, however, that given the elevated storm costs we've seen over the last few years, we have incorporated fairly conservative assumptions for this cost category in our full year forecast. Looking ahead, as always, we plan for normal weather, which equates to 14 cents per share of negative variance versus a comparable period in 2022 due to the absence of strong sales at the electric utility driven by last year's warm summer. We anticipate that the estimated negative variance attributable to weather will be more than offset by rate relief, net of investment related costs, which we have quantified at 17 cents per share versus the comparable period in 2022. Our underlying assumptions for rate relief are largely driven by last year's successful gas and electric rate case settlements, and we have assumed a constructive outcome in our pending gas rate case. Closing out the glide path for the remainder of the year, as noted during our Q4 call, we anticipate lower overall O&M expense of the utility driven by the usual cost performance fueled by the CE way. And in light of the weather-related headwinds in the first quarter, we have supplemented our planned productivity for the year by limiting hiring, reducing our use of consultants and contractors, accelerating longer-term IT cost reduction initiatives, and eliminating other discretionary spending among other activities. These cost performance measures will support the 28 cents per share of positive variance versus the comparable period in 2022, And I'd be remiss if I didn't mention that none of these actions will impact the safety and reliability of our electric and gas systems. Lastly, as we discussed during our fourth quarter call, we're assuming modest growth at Northstar and the benefits associated with the roughly 12 cents per share of pull-aheads achieved in the fourth quarter of 2022, as per our original guidance. And to offer further risk mitigation of the financial headwinds encountered in the first quarter and provide additional contingency should we need it, We have supplemented these opportunities with anticipated cost savings at the parent, largely in the form of opportunistic financings and tax planning, which in aggregate we estimate will drive 36 to 42 cents per share of positive variance versus the comparable period in 2022. Before moving on, I'll just note that though our track record of delivering on our financial objectives over the last two decades speaks for itself, we remain perpetually paranoid in our financial planning process. More bluntly, we always do the worryings where you don't have to. And to that end, I'm pleased to report that we've already begun to see the benefits of the numerous countermeasures implemented in the first quarter. As such, I'm highly confident that we'll realize the balance of expected savings over the course of the year. Moving on to the financing plan, slide eight offers more specificity on the balance of our planned funding needs in 2023, which are largely limited to debt issuances at the utility a good portion of which has already been priced and or funded over the past several months. As we have noted in the past, the parent's contribution to the funding needs of the covert acquisition is in place with the roughly $440 million of forward equity contracts. This equity will be issued in connection with the acquisition of the facility, and we have assumed the associated EPS dilution in our four-year guidance. While we don't have any further required financing needs at the parent this year, we will continue to evaluate opportunistic financings to de-risk our future funding needs if market conditions are accommodative. Our approach to our financing plan is similar to how we run the rest of the business. We plan conservatively and capitalize on opportunities as they arise. This approach has been tried and true year in and year out and has enabled us to deliver on our operational and financial objectives irrespective of the circumstances, to the benefit of our customers and investors. And this year is no different. And with that, I'll hand it back to Garrick for his final remarks before the Q&A session.

Thank you, Reggie. As you look at slide nine, I'll remind you again, our track record spans two decades of consistent industry-leading results, despite changing commissioners, legislatures, and governors, recessions, severe weather and storm activity, or a pandemic. We're here for the long haul. We have powered Michigan's progress for nearly a century and a half. And as we look ahead, we see great opportunities to support the state's growth through critical infrastructure as we help power Michigan through the next century. With that, Bailey, please open the lines for Q&A.