CMS Energy Corporation

Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements which are subject to risks and uncertainties. Please refer to our FCC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures are to the most directly comparable gap measures are included in the appendix and posted on our website. And now I'll turn the call over to Garrett.

Thank you, Jason. And thank you everyone for joining us today. In the words of James Brown, I feel good. CMS energy, 22 years of consistent industry leading financial performance every year for over two decades. you can count on us to deliver. We do that through our simple but powerful investment thesis, coupled with disciplined execution across our electric and gas businesses. We take our legacy of service and excellence seriously at CMS Energy. We play to win every day. We have a lot to celebrate about 2024. And today I will highlight a few key successes among many to demonstrate how we deliver for all of our stakeholders year in and year out. First, our work to improve customer reliability. Our five-year reliability roadmap, which we filed in 2023, set bold commitments to improve service to our customers, to never have more than 100,000 customers disrupted per event, and have service restored within 24 hours. and we are making progress. In 2024, we restored power to over 93% of customers within 24 hours, compared with 87% in 2023. And the average customer experienced 21 fewer power outage minutes. And although there is still more work to do, it is clear the investments are making a meaningful difference. I'm also pleased with the work on the electric supply side. In November, we filed our 20-year renewable energy plan. This critical long-term filing highlights the thoughtful changes we will make to our generation portfolio as we transform our system for more renewables in a diversified mix that includes nine gigawatts of solar and four gigawatts of wind over the next two decades. This filing details to the Commission our commitment to leading the clean energy transformation and achieving the targets established in Michigan's 2023 energy law. Most importantly, it demonstrates our commitment to diversify the energy portfolio and invest in supply infrastructure to serve our customers with reliable and clean energy in the most affordable manner. And of course, our gas business continues to grow. I'm extremely proud of our coworkers' efforts to build and replace infrastructure that ensures a safe, reliable, and clean natural gas system. The system has proven invaluable to customers throughout the year and even more recently in the extreme cold experienced in January. I could give many more examples, and some are listed on this slide, which speak to the winning program at CMS Energy and our further proof points of our investment thesis in action, ensuring you can count on us to deliver value for all stakeholders every year. On slide five, we've highlighted our five-year $20 billion utility customer investment plan, up $3 billion from our prior plan, a significant and needed increase. designed to deliver better customer service through improved reliability, both in distribution and supply. Driven largely by our reliability roadmap as we bolster our electric distribution system and by investments in our supply portfolio as we expand our renewable pipeline to meet the energy law. This plan supports 8.5% rate-based growth through 2029. In addition to the robust customer investment plan, we have growth drivers outside traditional rate base. These are important and sometimes overlooked, so let me spend a moment here. The financial compensation mechanism, which allows us to earn on PPAs, grows during the five-year period, offering approximately $20 million of incentives by the end of the decade. and continues to grow thereafter as we secure additional PPAs. There's more than $60 million per year of incentives through our energy efficiency programs, enhanced by the energy law. We also expect incremental earnings from our non-utility business, Northstar Clean Energy, as we continue to see attractive pricing from capacity and energy sold at Dearborn Industrial Generation, or DIG. I want to take a moment to highlight the long runway of customer investments, which are incremental to our five-year plan and give us confidence in our financial performance and continued growth of our company. Slide six shows the detailed filings we expect over the next 10 years and beyond, which will be incorporated into future five-year updates. On the slide, you can see key investments in the electric distribution system to improve reliability for our customers through rebuilds, undergrounding, hardening, and technology. $10 billion of opportunity not in the five-year plan. In the middle of the slide, the renewable energy plan, an ambitious and thoughtful plan to achieve 60% renewables by 2035 as required by the energy law. And in response to significant low growth in our service area, providing for additional wind and solar resources, $10 billion of opportunity not in the five-year plan. And finally, the 2026 integrated resource plan filing, which will shore up the intermittency of renewables, build out battery storage, and deploy clean energy required under the energy law. The modeling for this filing is underway and will provide additional customer investment opportunities. Altogether, well over $20 billion that is not in the five-year plan. Now, let's talk about our formula to keep rates affordable for our customers, to accommodate these needed investments. You know our track record. You've heard me share in the past about our deliberate and sharp focus on taking cost out, whether it is episodic cost savings through plant closures or renegotiating PPAs, operating our plants better than the markets, leveraging the CE way for process improvement, the use of digital technologies to improve efficiency or strong economic development. I'm confident in our ability to keep those affordable while delivering on the needed customer investments. ensuring every dollar is maximized and adds value. Speaking of economic development, I've said it before, Michigan is in a renaissance of growth. Our five-year plan now incorporates the significant economic development we are seeing with upwards of 2% to 3% annual load growth. We feel really good about the quality of growth we see materializing across our service area and the state, both data centers and manufacturing load. While we see a nice mix coming to the state, the manufacturing growth brings with it jobs, supply chains, commercial activity, housing starts, and residential growth, which allows us to couple customer investments with affordability as we spread fixed costs over a larger customer base. We are committed to growing Michigan, and we are pleased with what we've contracted and the now nine gigawatt pipeline of opportunities not yet in the plan. We work hard every day to win our customers' business, and we are honored when businesses see the value in investing in our state and our service area. Jumping to Michigan's regulatory environment, we continue to see a strong and supportive energy policy that ensures timely recovery of investments and incentives above and beyond stated ROEs, as well as constructive regulatory planning mechanisms like renewable energy plans, integrated resource plans, and investment recovery mechanisms that streamline the rate case process. In 2024, we delivered successful outcomes in our electric rate case, settled our fourth consecutive gas rate case, and saw support for our distribution investments through the Liberty audit. For 2025, we expect a constructive outcome in our electric rate case with an order by the end of March. Our gas rate case is in the early innings, but we expect good support for the needed investments to keep our system safe. And as I shared earlier, our renewable energy plan with an expected outcome in late Q3 of 2025 is something to look forward to given the large amount of renewables needed to meet the energy law and the growing demand we're seeing across our service area. Now, on to the financials. We delivered adjusted earnings per share of $3.34 toward the high end of our guidance range. For 2025, as you might expect, we are raising our 2025 guidance off 2024 actuals from $3.52 to $3.58 to $3.54 to $3.60, which represents 6% to 8% growth. And we continue to guide toward the high end. We also continue our longstanding tradition of compounding off actuals, providing our investors with a higher quality of earnings. Longer term, we continue to guide toward the high end of our adjusted EPS growth range of 6% to 8%, which implies and includes 7% up to 8%. Our dividend policy remains unchanged. We continue to target a dividend payout ratio of about 60% over time. With that, I'll hand the call over to Reggie.

Thank you, Garrick, and good morning, everyone. As Garrick highlighted, we delivered strong financial performance in 2024 with adjusted net income of $998 million, which translates to $3.34 per share and toward the high end of our guidance range. The key drivers of our 2024 financial performance included constructive regulatory outcomes, a solid beat at Northstar, cost performance fueled by the CEUA, and a variety of non-operational countermeasures, which more than offset the many challenges we saw throughout the year. For the second year in a row, we experienced significant weather-related financial headwinds, primarily in the form of mild winter temperatures in the first and fourth quarters. In fact, per our records in 2024, we had the warmest winter in the last 25 years based on heating degree days. Yet, despite these challenges, we managed to offset the weather-driven headwinds without compromising our commitments to our customers, communities, or coworkers. To elaborate on the strength of our financial performance in 2024, on slide 11, you'll note that we met or exceeded all of our key financial objectives for the year. To avoid being repetitive, I'll just note that we successfully invested $3.3 billion as per our original guidance to make our electric and gas systems safer, more reliable, and cleaner on behalf of our 3 million customers at the utility. We managed to do this while funding the business in a cost efficient manner, largely through operating cash flow, well-priced bonds at the utility, and tax credit transfers in the inaugural year of this new financing vehicle. This funding strategy enabled us to maintain are solid investment grade credit metrics and associated ratings as affirmed by each of the rating agencies over the course of the year, most recently by S&P in December. Moving to our 2025 EPS guidance, on slide 12, you'll note the rebasing of our 2025 adjusted EPS guidance off of actuals. For additional clarity, our 2025 adjusted EPS guidance increased by two cents per share on the low and high ends of the range, commensurate with the amount by which our 2024 adjusted EPS of $3.34 exceeded the midpoint of last year's EPS guidance range. Our increased 2025 EPS guidance implies 6% to 8% growth with continued confidence toward the high end of the range, as Garrick noted. As you can see in the segment details, our EPS growth will primarily be driven by the utility providing $4.01 to $4.05 of adjusted earnings as we plan for normal weather, constructive rate case outcomes, and earned returns at or near authorized levels. At Northstar, we're assuming an EPS contribution of 18 cents to 22 cents, which incorporates a planned maintenance outage at DIG, offset by ongoing contributions from Northstar's clean energy business. Lastly, our financing assumptions remain conservative at the parent segment with the expectation of approximately $1.3 billion of new holdco long-term debt and up to $500 million of equity to support the increased capital plan at the utility. Our 2025 guidance also assumes the absence of liability management transactions. To elaborate on the glide path to achieve our 2025 adjusted EPS guidance range, You'll see the usual waterfall chart on slide 13. For clarification purposes, all of the variance analyses herein are measured on a full year basis and are relative to 2024. From left to right, we'll plan for normal weather, which in this case amounts to 39 cents per share of positive variance given the expected absence of the atypically mild winter temperatures experienced in 2024. Additionally, we anticipate 21 cents of EPS pickup attributable to rate relief by the residual benefits of last year's successful gas rate case settlement and the expectation of constructive outcomes in our pending electric and gas rate cases. Outside of the general rate cases, we also expect to see earnings contributions from our renewable investments as construction of these projects progress. As always, our rate relief figures are stated net of investment-related costs, such as depreciation property taxes, and utility interest expense. As we turn to the cost structure in 2025, you'll note 3 cents per share of positive variance due to the anticipation of continued productivity driven by the CE way. We also expect a healthy reduction in operating expenses attributable to the closure of our remaining coal units mid-year, which will be largely offset by increases to vegetation management and other electric reliability-related cost categories, all of which align with our pending electric rate case. Lastly, in the penultimate bar on the right-hand side, you'll note a significant negative variance, which largely consists of the reversal of select countermeasures in 2024 and expected capital costs associated with the aforementioned parent financings. We're also including the usual conservative assumptions around weather normalized sales and taxes among other items. In aggregate, these assumptions equate to 37 cents to 43 cents per share of negative variance. As always, we'll adapt to changing conditions throughout the year to mitigate risks and deliver our operational and financial objectives to the benefit of customers and investors. On slide 14, we have a summary of our near and long-term financial objectives. As Garrick noted, from a dividend policy perspective, we're targeting a payout ratio of about 60% and anticipate remaining in that area over the course of our five-year plan. Given the elevated cost of capital environment and the breadth and depth of customer investment opportunities before us, we continue to believe that it is prudent to retain more earnings to fund growth. From a balance sheet perspective, we continue to target solid investment grade credit ratings, and we'll continue to manage our key credit metrics accordingly as we balance the needs of the business. As such, we intend to resume our at the money, at the market, or ATM equity issuance program in the amount of up to $500 million in 2025, as mentioned earlier. We expect this level of equity issuance to trend down in the outer years of our plan as we increase the size of our tax credit transfer program, given the substantial renewable build out underway in accordance with Michigan's energy law. Lastly, we also expect select large multi-year economic development projects to begin coming online in 2025, yielding approximately 1% weather normalized load growth for the year with run rate assumptions of two to 3% in the outer years of our plan as other large projects come online. Tom Connelly, slide 15 provides a look into the historical performance and estimated growth of North stars big facility with upside potential beyond 2026 as capacity prices in zone seven continue to increase. Tom Connelly, Given the rising cost of new entry we've updated the potential range of outcomes accordingly, as you can see in the bars on the far right hand side of the chart. We remain bullish on the opportunities in the bilateral market for DIG and we'll continue our strategy of layering in contracts over time. Slide 16 offers more specificity on the funding needs in 2025 at the utility and the parent. The only additional financings I've mentioned for the year are the planned debt issuances at the utility, which we anticipate being a little over $1.1 billion. It is also worth noting that we have not assumed the issuance of any junior subordinated notes, also known as hybrids, in our 2025 financing plan or in our five-year plan, which offers a potential opportunity if we see attractive price points in the market. Needless to say, we'll remain opportunistic throughout the year. On slide 17, we have refreshed our sensitivity analysis on key variables for your modeling assumptions. As you'll note, with reasonable planning assumptions, and our track record of risk mitigation, the probability of large variances from our plan is minimized. Our model has served and will continue to serve all stakeholders well. Our customers receive safe, reliable, and clean energy at affordable prices. Our diverse and battle-tested workforce remains committed to our purpose-driven organization, and our investors benefit from consistent, industry-leading financial performance. And with that, I'll hand it back to Garrick for his final remarks before the Q&A session.