CMS Energy Corporation

Good morning everyone and welcome to the CMS Energy 2025 first quarter results. The earnings news release issued earlier today and the presentation used in this webcast are available on CMS Energy's website in the investor relations section. This call is being recorded. After the presentation, we will conduct a question and answer session. Instructions will be provided at that time. If at any time during the conference you need to reach an operator, please press star followed by zero. Just a reminder, there will be a rebroadcast of this conference call today beginning at 12 p.m. Eastern Time running through May 1st. This presentation is also being webcast and is available on CMS Energy's website in the investor relations section. At this time, I would like to turn the call over to Mr. Jason Shaw, Treasurer and Vice President of Investor Relations.

Thank you, Harry. Good morning, everyone. and thank you for joining us today. With me are Garrick Rochelle, President and Chief Executive Officer, and Reggie Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements, which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non gap measures, reconciliations of these measures 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. CMS energy, consistent, predictable, dependable 22 years of steady hands at the wheel. It's what you expect, and it's what we deliver, and even more important in these times of broader economic uncertainty. It starts with our investment thesis, which is based on conservative planning paired with disciplined execution, a commitment to excellence across our electric and gas businesses, constructive legislation and regulation, and driving growth across the state with a robust economic development pipeline. Our customers can count on us to deliver safe, reliable, affordable, clean, and equitable energy under all conditions, and our investment thesis is what keeps us on track. It's our focus. It's what you count on us for every year. In fact, I'd like to take a moment to shine a spotlight on our recent storm response. which included company crews, dispatchers, call centers, coworkers, contractors, and volunteers who were committed to delivering excellence for our customers during the recent historic storms that impacted Michigan in late March and early April. These storms packed it all in. 14 tornadoes, nearly 100 mile-per-hour winds, and in northern locations, over 1.5 inches of ice. the team executed well. We were prepared and ready to dispatch prior to the first wave of weather with 500 crews pre-staged and 900 total crews dispatched. Fighting storms on two fronts, we restored customers safely and quickly, then continued to serve, supporting local co-op utility customers in their restoration efforts. We saw favorable customer and positive policymaker support because of our response. Yes, our investments and process changes are making a difference. I'm extremely proud and thankful for our coworkers and how they showed up in the work they do daily to improve performance for our customers. I want to start today with Michigan's constructive regulatory environment. We are pleased with the recent electric rate order in March Approximately 65% of the revised ask, nearly double the investments included in the investment recovery mechanism, and solid support for investments to improve electric reliability for our customers. We work hard to ensure our filings are transparent and high quality, and we are seeing the results, achieving constructive regulatory outcomes time and time again. We'll continue to work closely with MPSC staff, interveners, and the Commission on the importance of our investments to bolster our electric and gas systems to ensure we continue to serve customers during sunny days and extreme weather. Given our continued focus on improving electric reliability, you can expect us to file our next electric rate case in Q2. In our gas rate case, we did recently see staff testimony which we view as a constructive starting position. As we've shown in the past, we're always open to settlement, having settled our last four gas cases. The dynamics of these gas cases are different than our electric cases, and we feel good either way, a settlement or fully adjudicated order. For our longer-term filings, we expect an order in our renewable energy plan, or REP, by mid-September. our rep will help define our clean energy future and feeds into our integrated resource plan or irp that we'll file next year earlier in my prepared remarks i referenced broader economic uncertainty as you would expect we are closely monitoring the landscape potential changes shaping as needed and preparing to adjust as necessary Our conservative planning and strong fundamentals, as well as our track record of delivering through any event, gives me confidence that we are well positioned to effectively navigate any scenario. This confidence is further bolstered by our diversified service territory with minimal exposure to the auto industry or any other large sectors. We're actively monitoring the landscape and have a diverse supply chain, which limits our exposure to tariffs. Our direct and indirect spend is approximately 90% domestically sourced, and we continue to shift U.S.-based vendors to lower our exposure. Much of the exposure is related to capital equipment, which means any customer impact would be spread over the life of the asset, and our earnings are largely insulated. Nonetheless, we're actively working with all suppliers to manage fluctuations in price and sourcing to keep customer bills affordable as we execute on our plan. In the context of the Inflation Reduction Act, or IRA, we've seen good support from Republicans in our individual conversations, including the 25 who have signed on in support of continuing tax credits. Our read is that there may be a partial repeal of portions of the IRA, and although we do not expect changes to the renewable tax credits, we continue to save harbor equipment for projects within our five-year plan. And as a reminder, we have a supportive energy law in Michigan that mandates renewables and 100% clean energy resources by 2040. The law shapes our customer investments through our REP and IRP. To the degree there are changes in the IRA, Michigan's law offers us enough flexibility to achieve the intent of the law and ensure resource adequacy and affordability for our customers. As for industry exposure, I'll remind you the auto industry is about 2% of our total gross margin. The heart of our electric service territory is in the Grand Rapids metropolitan area. which is diversified with commercial businesses and manufacturing and includes significant jobs and state investment. We're also seeing expansion in other industries, including defense, aerospace, palisilicon, semiconductors, and agriculture. At CMS Energy, our core business is to serve under all conditions. Our mindset of preparedness and conservative planning ensures we are ready for multiple scenarios. Calm in the storm and steady at the wheel. I want to talk for a moment about Michigan's exciting growth renaissance and our work to help our service territory in the state thrive and prosper. First and foremost, we see strong progress in the continued construction and work to make up the 2-3% low growth within our five-year financial plan. We have seen one large data center project accelerate their load ramp up by almost a year, and another large new manufacturing project has requested to expand service by an additional 10%. All positive indicators. Both we can deliver. Since the beginning of the year, with the elimination of the sales and use taxes for data centers, our pipeline has grown to 9 gigawatts. With more of that shift, about 65% toward data centers. We're seeing the data center pipeline continue to progress and feel confident some of these projects will materialize into contractual agreements. The data center tariff, which we filed in February with the commission, is the next logical step in that process. The tariff provides a great opportunity for data centers and protects our existing customers. We'll continue to work through this proceeding with settlement being a possible outcome. As I've shared before, we are also excited about the manufacturing growth in our pipeline that brings with it secondary and tertiary benefits, including new and growing commercial business as well as residential load. We're excited about and committed to Michigan's future, and we are prepared to serve its growing energy needs. Now on to the financials for the quarter. In the first quarter, we reported adjusted earnings per share of $1.02. We remain confident in this year's guidance and long-term outlook and are reaffirming all our financial objectives. Our full year guidance remains at $3.54 to $3.60 per share with continued confidence toward the high end. Longer term, we continue to guide toward the high end of our adjusted EPS growth range of 6% to 8%. With that, I'll hand the call over to Reggie.

Thank you, Garrick, and good morning, everyone. On slide 8, you'll see our standard waterfall chart, which illustrates the key drivers impacting our financial performance for the quarter and our year-to-go expectations. For clarification purposes, all of the variance analyses herein are in comparison to 2024, both on a first quarter and nine months to go basis. In summary, through the first quarter of 2025, we delivered adjusted net income of $304 million, or $1.02 per share, which compares favorably to the comparable period in 2024, largely due to the absence of the mild weather experience in Q1 of 2024, coupled with higher rate relief net of investments. These sources of positive variance were partially offset by higher O&M costs at the utility, driven by the continued execution of our electric reliability roadmap and the timing of select items at North Star, like our planned outage at the Dearborn Industrial Generation Facility, or DIG, among other factors. To elaborate on the impact of weather, we experienced a relatively normal winter in Michigan in the first quarter for the first time in a couple of years. As such, we saw $0.26 per share of favorable variance, which largely reflects the absence of the mild weather experience in the first quarter of 2024. Rate relief net of investment-related expenses resulted in $0.07 per share of positive variance due to constructive outcomes achieved in last year's electric and gas rate orders, in addition to the benefits of ongoing renewable projects. Moving on to cost trends, as noted in accordance with our electric reliability roadmap, we continue to increase the size of our vegetation management program as we glide path to a seven year trim cycle across our low voltage electric distribution system. The associated financial impact was the key driver of the five cents per share of negative variance versus the comparable period in 2024. In our catch all category represented by the final bucket, In the actual section of the chart, you'll note a negative variance of 23 cents per share, largely driven by a strong 2024 comp at Northstar due to normalized operations at DIG and the timing of tax benefits from renewable projects. Other notable drivers in this category include the impact of parent financing activities in the quarter and select one-time reversals from last year. Looking ahead, we plan for normal weather as always, which equates to 12 cents per share of positive variance for the remaining nine months of the year, primarily due to the absence of the mild temperatures experienced in the fourth quarter of 2024. From a regulatory perspective, we're assuming 16 cents per share of positive variance, which is largely driven by the constructive electric rate order received from the Commission in March, ongoing benefits of renewable projects at the utility, and the assumption of a supportive outcome in our pending gas rate case. On the cost side, we anticipate higher overall O&M expense at the utility for the remainder of the year, largely driven by the expectation of increased service restoration costs attributable to the large weather system that impacted our service territory in late March, extending into early April that Garrick mentioned. It's worth noting that this storm was the costliest in our company's history at roughly $100 million of operating and maintenance, or O&M expense, per our preliminary estimates. As you would expect, we're already busy at work identifying and implementing countermeasures such as limiting hiring, reducing our use of consultants and contractors, and eliminating other discretionary spending among other potential offsets. And of course, we expect increased productivity from the CE way which our workforce has delivered every year since we instituted the lean operating system roughly a decade ago. It is also worth noting that we have sought a deferred accounting order for the financial impacts of the storm given its historic nature, which we filed earlier this week. The recalibration of our service restoration expense for the remainder of the year net of anticipated savings from the aforementioned countermeasures will drive an estimated net impact of 4 cents per share of negative variance for the remaining nine months of the year. Lastly, in the penultimate bar on the right-hand side, you'll see an estimated range of three to nine cents per share of negative variance, which incorporates further risk mitigation to the financial headwinds encountered in the first quarter and provides additional contingency should we need it, namely in the form of opportunistic financing activities. Before moving on, I'll just note that our track record of delivering on our financial objectives over the last two decades, irrespective of the circumstances, speaks for itself. That said, we'll always do the worrying so you don't have to, and we remain confident in our ability to deliver on our financial and operational objectives this year to the benefit of all stakeholders. Moving on to credit quality, it is worth noting that Fitch reaffirmed our credit ratings in March. as noted at the bottom of the table on slide nine, and we are currently working through the review process with Moody's. Longer term, we continue to target solid investment grade credit ratings and we'll manage our key credit metrics accordingly as we balance the needs of the business. Slide 10 offers an update to our funding needs in 2025 of the utility and the parent. During the quarter, we issued $1 billion of junior subordinated notes or hybrids with a 6.5% coupon as a parent which I'll note was identical to rates achieved by some of our much larger peers and had the tightest credit spread achieved for a hybrid in recent memory, which speaks to our credit quality and a strong receptivity to our paper in the market. As you'll note in the table on the left-hand side of the page, the hybrid issuance addressed a good portion of our financing needs at the parent for the year while offering significant financial flexibility on our remaining needs. We'll look to complete the balance of our financing plan at the parent and utility over the remaining months of the year with a keen focus on maintaining our consolidated credit metrics around the mid-teens area from a funds from operation to total debt perspective. As always, we'll remain opportunistic and look to capitalize on market conditions. And with that, I'll hand it back to Garrick for his final remarks before the Q&A session.

Thanks, Reggie. As the landscape continues to evolve, I want to remind everyone about our long history of delivering under all scenarios for all our stakeholders. Remember, our business is preparedness and response. Through uncertainty, recession, bad weather, doesn't matter. We've seen it before and we've navigated the waters. Bottom line, we deliver. Our track record speaks for itself. We focus on what is necessary to deliver for our customers and investors and we remain confident in our outlook for 2025 and beyond. With that, Harry, please open the lines for Q&A.

Thank you very much, Garrick. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touch-tone telephone. If you're using a speaker function, please make sure you pick up your headset. We'll proceed in the order you signal us, and we'll take as many questions as time permits. If you do find that your question has been answered, you may remove yourself by pressing the star key, followed by the digit two on your touchtone telephone. We'll pause for just a second. Our first question will be from the line of Dergash Chakrap with Evercore ISI. Please go ahead. Your line is open.

Morning, Dergash.

Hey. Hey. Hey. Good morning, Garak. Thank you for taking my question. Um, Hey, uh, appreciate all the commentary around tariffs and IRA. I just, um, one question was. Focusing on a North star, maybe just, can you remind us what percentage of capital I appreciate small, uh, where's the rest of the company, what percentage of capital is going to wear solar storage? And then just given the IRA discussion and repeal risk, do you kind of reprioritize that capital? potentially maybe switch that with higher regulated capital. And then your comments around safe harboring, do those apply to North Star as well as you try to kind of secure those tax credits into the future?

Thank you.

Thanks for your question, Durgesh. Great question. Again, context is really important here in the context of North Star. So we're talking about 5% of the EPS mix here, so small. And remember, the big The big driver here is DIG, or Dearborn Industrial Generation. That's the big story in the energy and capacity markets. And so when it comes down to the amount of capital that we're spending on renewables, it's small. Reggie will have the numbers here in a bit. But there's nothing on storage, zero on storage. And so it's all really renewables. And those are, again, projects that are well laid out for the future. Now, how do we de-risk those projects? One, we have contracts in place that allow for escalators. That's an important piece. But we've done a lot of great work in terms of securing panels. I've got panels secured through 2030 through a variety of vendors, through contracts, some already on site to be able to navigate any implications from a tariff perspective. And then I'm out in 2028 from a safe harbor provision in the main power transformers. And so we feel good about the runway there of projects, renewable projects, and what we've done to de-risk that. But as you know, and your question alluded to, there's tons of flexibility. We have plenty of opportunities to invest in the utility itself. And so those are decisions we make on a time by a year by year basis and where the needs are for the company and are best suited. But again, feel good about Northstar's ability to deliver, not just in the year, but also from a long-term perspective.

Yeah, Durgesh, I'll just build on Derek's comments there. We certainly feel good about Northstar's prospects going forward and have done a lot to de-risk renewable projects on both the utility side and the North Star side and have done some things in supply chain that further fortify our position going forward. From a capital perspective, we're planning, and this is in our 10-K that we filed last quarter, about gross investments a little over $2.5 billion. I say gross because we have planned to recycle capital, largely at North Star, through the sell-down of common equity stakes. And so that is providing a lot of liquidity to fund their projects. The equity infusions from the parent are relatively light, probably about 20% of that or so, or half a billion. So gross capital investments of about $2.5 billion to support commercial renewable projects over the next five years. And the reality is, if we do see some repeal of the IRA, we will just increase the bar or raise the expected hurdle rate for those renewable projects at Northstar. And so if we saw... The economics of those projects being less attractive, we would certainly allocate more capital to utility. As you know, capital is not an issue at the utility. There's plenty of opportunity. Our current five-year plan at $20 billion of capital investments at the utility has another $20 billion or so on the outside looking in, and I think that that's the low end of capital investment opportunities outside of the plan. a lot of flexibility to allocate capital to the utility versus North Star. Again, if we see the economics of those projects start to soften over time. So really good flexibility going forward and no concerns with the economic outlook there. Is that helpful?

Very helpful. A lot of flexibility there, it sounds like. Thanks for that, Collar. And then just quickly, Reggie, the deferred accounting order on the storm costs, have you guys done that before? Sorry, I should know, but I don't. Maybe just remind us if you have done that before, and if not, like, what are sort of the procedural steps here? Is there a timeline that the commission is going to sort of rule this on by, or is this just a one-off type event and, you know, there's no procedural schedule here? Thank you.

And maybe I'll just take your question and do a little bigger picture on it, and then we can go down in this process from a storm perspective. As As Reggie talked about in his prepared remarks, there is a number of levers and opportunities, everything from the CE way to technology to what Reggie shared in his prepared remarks on how to deliver the year. And for both the customers and really investors and really all stakeholders, that's the tools in the toolbox. And what we're doing with this particular storm, this, what I would say is historic storm and really extreme weather, as I characterize in my remarks, is leveraging the Liberty audit. If you go in the Liberty audit, that's the distribution audit. It specifically calls out best practices with jurisdictions and utilities is to have a mechanism for extreme weather. And that's what we filed, and that's the first time we filed that with the commission in this kind of framework. We've had constructive conversations both with staff and the commissioners on this. And so, again, it's an ex parte filing. The timeline has not been established at this point, but, you know, I'm going to go a little off the record here. I'm an old farmer. I grew up on a farm, and so I don't count my chickens before they hatch. And so that's a true thing from a farmer perspective. But understand this, we're not counting on that. It's important. We think it's needed in Michigan. Again, constructive conversations, but we have a lot of tools in our tool belt to be able to deliver the year.

Yeah, Durgash, all I would add, and I wish I had a I wish I had a farming and analogy as well, but I do not is just a couple of things to Derek's good comments. And so you asked, I think specifically about the timing of approval because it's an ex parte filing. Uh, I think that will be at the commission's discretion. Uh, you know, uh, obviously we're, um, you know, our expectations are tempered, but, uh, we would love to see just a, a fairly quick resolution to the matter. Um, so we just at least know. what the outcome is in a timely fashion. And in terms of our history around this, we have sought mechanisms like this in the context of rate cases. I can't recall the last time we sought an accounting order like this outside of a rate case, maybe once in the past in my eight years as CFO. So this is fairly atypical, but we think given the historic nature of the storm, it's justified. And I believe we've made a strong case in the filing as to why we should get support here. So I just wanted to address those two direct questions you had.

Awesome. Thank you. Appreciate the off-the-record and on-the-record commentary. Thanks. Thanks so much.

The next question today will be from the line of Char Pereza with Guggenheim Partners. Please go ahead. Your line is now open.

Hi, good morning. Good morning, Char. It's actually Constantine here for Char. Oh, great. It's actually Constantine. Hey, good morning. How are you thinking about the execution on the financing plan, just given that the balance of the equity needs is resolved through the hybrid. Is that, is there kind of more execution to come in 25 or is there some efficient financing that unlocks like a CapEx pull forward or any other opportunity in the near term?

Yeah, Konstantin, this is Reggie. Appreciate the question. Yeah, per my prepared remarks, we still have a bit of financing left in the plan for the year. And so, at the parent just going back to our original guidance we said we had about a billion eight to do so a billion three of uh well i'll just say non-equity financing and our working assumption with senior debt assumption senior debt financings and then up to 500 million of equity obviously the hybrid transaction that you noted really took care of a good portion of those needs and so with the equity credit ascribed to hybrids that creates a lot of financial flexibility and so We still have about 700 million or so left for the remainder of the year. We're keeping all options on the table. We've seen really attractive execution across a variety of securities offered in the first quarter from some of our peers. And so we're keeping all options on the table, but have quite a bit of flexibility. And at the Opco, just to round it out, we've got a billion one left. And I think the working assumption for those financings will be first mortgage bonds. And so, as always, we'll look at which securities are priced most attractively at both the parent and the opco and uh we'll be opportunistic as we always are with respect to pull aheads for capital we've got 3.7 billion in the utility uh per our plan this year and so uh we're focused on executing on that and so we'll see uh what the rest of the year has in store for us and so we're acutely focused on the current plan for this year and really haven't thought about pull aheads in any respect if that was the spirit of the second part of your question yep understood understood

And maybe a higher level question in terms of your energy supply needs. How are those evolving, especially as you get feedback through the R&D process? Is there more dispatchable generation needs that you see kind of going into the next IRP cycle? And do you think that there's a better case for kind of like a big buy-in into the OPCO?

A portion of our energy supply needs are spelled out in the renewable energy plan, and that addresses some of the energy needs and the compliance with the 2023 energy law. And so as we've seen the need to get to the 50% and 60% renewable targets, as well as because of the 2% to 3% low growth that is in our five-year plan, you can see and have insight into those both renewable needs as well as storage needs in the future. The broader need for capacity and to be able to continue to deliver to the low growth and the pipeline within the state will come together in the integrated resource plan. We'll file that in 2026. It will evaluate and look at natural gas plants, the existing natural gas plants we have in the state, the longevity of those plants, considerations for carbon capture and sequestration technology. And so that modeling work is still underway, as you might imagine, for a 2026 filing. and will be also based on the renewable energy plan. So that's really all I can share at this point. But as you imagine, as you're growing the state and you have this pipeline, there will be additional needs in the future for supply assets.

Okay, I understand. Maybe you're hitting quickly on the guest's question around storms again. As you're kind of noting the impact on the offset in the quarter, do you anticipate those to be recurring, or will those potentially unwind with that potential deferral filings?

Yeah, so I would say, Constantine, similar to prior years, when we saw significant financial headwinds, we'll look at all opportunities at cost across structure. I'd say it's premature to think about what's recurring and what isn't. But what I have been encouraged to see, really, per my prepared remarks over the last 10 years, is every year we establish a target for how much productivity and cost savings, whether that's hard cost savings or avoided costs associated with the CE way. And every year we exceed that target pretty significantly. And by definition, the savings generated by the CE way are recurring savings. And so I'll give an example. Last year we had in our target, we had a target for the CE way of around 50 or so million. We delivered $110 million of savings And those are obviously recurring. And so I would say we've exceeded expectations year in and year out on what we expect to achieve from a productivity perspective. But we'll also look at one-timers. I mentioned we'll look at sort of financing activities. So we may start to take a look at liability management as we have in the past. And we'll also look at other potential cost deferrals, which would not be recurring. And so it'll be a good mix of all of the above, like we've done in prior years.

Let me just take a moment to just elaborate on this toolbox of opportunities, and Reggie characterized it well. It starts with conservative planning. That's part of our mindset. That's part of our approach. We're not redlining the engine here. We think about different scenarios. That's like point one. Reggie emphasizes the e-way. There's so much opportunity in the e-way that our coworkers deliver on. You take and improve a process. You take waste out. coworkers feel better, customers feel better, and you cost follow. The other one that we've been really highlighting too is in the space of technology. The IT team calls it app realization. And I make fun of them when they talk about it because I'm like, what the hell is that? But the reality is it's looking about all our software, all our hardware, and how are we leveraging to get additional benefit out of it where there's real savings there as well. And then you apply AI in some places and we get better predictions and that takes cost out as well. And then there was all the things that Reggie mentioned as prepared remarks. And so, again, I feel confident in just the ability to leverage these. And a portion of them, a good portion, will be sustaining. And as Reggie indicated, some will be one time.

Excellent. Appreciate you taking the questions.

Thanks, Constantine. The next question today will be from the line of Jeremy Tenet with J.P. Morgan. Please go ahead. Your line is open.

Good morning, Jeremy. I just wanted to pick up with the gas case. Good, how are you? Just wanted to pick up with the gas case. Given what's come out so far, the appetite for settlement or just any other thoughts at this point? I know you said you'd be happy going either way, but just wondered any incremental color you could provide?

I'm going to even pull it back a little bit and just with these words, I am very pleased with our track record of delivering constructive outcomes in Michigan. There's all kinds of data points, electric for gas elements. It doesn't matter electric or gas. We just continue to deliver time and time again. And in the Q4 call, what I shared was full throated, a constructive, we'd get us, we'd see a constructive electric order. And how did I know that? One, There's the quality and the visibility we put in this case, the constructive legislation we have. And it's not perfect, as I shared, but we continue to work on improving that. And then if you look at the staff, the MPSC staff are professionals. And when you have a good staff position or constructive staff position, you get good outcomes. And that's what we did. And that's another data point with this electric rate case. And I'm excited about this gas case as well. It is down the fairway. Or it's straightforward. We're replacing gas pipe. We're making the system safer. Like that's important from a gas business perspective. We're ensuring capacity to deliver to customers and growth in the gas business. And when you do all that right, you also reduce carbon emissions. It's a trifecta, right? It's a great case the team has built. Straightforward. And so I'm excited about staff's position. It is a constructive starting position within the gas case. And we'll go through the process. We'll go through rebuttal as we always do. You know, ROEs, we're going to push on those. This is like if I look at the external environment, risk has not declined. Right. And so we'll push on the ROEs and rebuttal. That'll be important piece for us to lean into. But as I said, always, I'm open to settlement. And there's a variety of different points of view and different interveners on that. We'll work through that process. If we see that, I would imagine it would be before the PFD. That's expected in August timeframe. But here my confidence in our ability to go the full distance, too, and just continue the track record of constructive outcomes in Michigan.

Got it. Nope, that makes sense. I just want to pivot to a smaller point, if I could, the deferral. That's baked into the guide right now. Just want to be clear on the treatment there.

Jeremy, this is Reggie. We have not presupposed approval of the deferred accounting order. Like I said, I think we've made a very compelling case given the historic nature of the storm and our efforts to restore customers as quickly as possible, both inside our service territory and out. And so we think we've made a compelling case. But as you know, given our conservative nature, we have not presupposed approval of that.

Okay, got it. That's very helpful. Thanks. And just a last one, if I could, as it relates to ITCs, the unregulated part of the business, what's the magnitude of earnings exposure in your plan here? And really, if you could just outline a bit more how tax equity impacts this and any other relevant considerations and how potential tariff risk at the project level could influence growth here. I know you touched on it a bit before, but just wonder if you can flush out those points a bit.

Yeah, Jeremy, I'll take this as well. This is Reggie. So I would say in the context of 2025, guys, you know, in our original guidance, we guided North Star at 18 to 22 cents, given the planned large outage dig, which historically, really going forward, is the flagship earnings contributor to North Star. We are anticipating more contribution from commercial renewables projects, and we have two solar projects that are well on their way of delivering constructive outcomes later this year. And so I would say the exposure from a renewables perspective this year is a little bigger than other years or prior years. And so of that 18 to 22 cents, I assume about three quarters of that is delivered by residual benefits from ongoing assets, a little bit of north sub, but primarily from two solar projects we have underway. As we look at the outer years of the plan, still anticipation of a solid renewable project development over the course of the plan. But again, you should always assume that DIG will be the primary contributor of earnings to Northstar over the course of the next five years. Let me pause there and see if there are any questions on that.

Nope, that's helpful. I'll leave it there. Thank you.

The next question today will be from the line of Nicholas Campanella with Barclays. Please go ahead. Your line is now open.

Hi, Nick.

Nicholas Campanella from Barclays. Your line is now open if you'd like to proceed with your question. Apologies, we're not receiving audio from Nicholas's line there. So we're moving on to the next question being from the line of Julian Smith with Jefferies. Please go ahead. Your line is now open.

Hey, team. Good morning and pleasure here. I hope I get as candid a response from Garrick as earlier here. I think we're developing a new pattern. Just on economic development, I'd just love to understand how you guys are thinking about them. I heard the comments on the call with respect to data center activity and ongoing development year-to-date subsequent to the legislation. But in parallel, I'll also note the Goshen developments from the county board here. How are you thinking about what's included in the 900 megawatts of demand in the current plan are there puts and takes in that, or is it still kind of static pending some more formal updates here? Just to understand how you think about both the positives and the negatives that have accumulated year to date.

Yeah. And so that two to 3%, that makes up that 900 megawatts. That's a conservative, that's a conservative approach. And you know that about how we plan. And so there is an economic development. There's always that, even in the best of times, there's some slowdowns in some projects and some speed up in some projects. And, uh, What's great about that two to 3% is we have like line of sight into that work. We're constructing the lines, we're constructing the substation. And in many cases we can see them building their facilities and the, and the long-term plans they have for that. And so that's exciting. That gives us confidence in that two to 3% low growth. And there's always a little puts and takes. And as we, as I shared, one of the data centers that we're constructing right now is actually, you know, accelerating their low growth and their ramp up, which is a positive sign. And the same with the large manufacturing. And so to the degree there's a pause with Goshen, there's also some acceleration with some as well. And so that's all kind of in that mix to the 2% to 3%. Now, if we go to the 9 gigawatts, as I shared in my prepared remarks, but let me offer a little more clarity, there's a lineup of data centers there of 65%. Some of them are moving faster and jumping the line and moving to the front of the line in the progress. And so that gives us a lot of confidence that those will materialize. But the next logical step in that process is get this tariff complete with the commission. Again, I'm optimistic that settlement's an option there to be able to move those forward and for those data centers to take the next logical step.

Does that help? Yeah. No, absolutely. Thank you for that. Actually, just to clarify that last piece, since you bring it up. You know, just with the tariff here, you alluded to potential settlement, certainly a possibility in other states as well. Could that be paired up with a more formal commercial arrangement? Is that... Because would you get the clarity on the tariff? Would that be sort of the catalyst to announce any larger commitments here?

Certainly the data center projects and possibilities want to have clarity on that in the context of that. It's just from a special arrangement perspective, special contract, we don't do those. That creates a lot of long-term risk, particularly for the company and for shareholders. And so this tariff, it really is the best option. And as you might imagine, when they have clarity on what that looks like, that'll be the next logical step in moving some of those projects forward.

Awesome, guys. You guys take care. All the best. Thank you so much. Yeah. Thank you, Julian.

The next question today will be from the line of Michael Sullivan with Wolf Research. Please go ahead. Your line is open. Hey, good morning.

Good morning, Michael. Hey. Hey, guys. Just wanted to ask quick on how you're thinking about the risk of transferability potentially going away. I think you've given us some numbers on what you embed there in your plan, but just what that scenario would look like if you were to lose the ability to transfer tax credits.

Let me offer some high-level comments, and Reg, you'll get into some specific numbers. Again, many of the Republican jurisdictions, areas have benefited from the IRA. But what I think is even more important is the conversation that I'm having, part of the team's having, EEI is having with a number of Republican congressmen and women. And that is one support for these PTCs and ITCs, as well as the tax monetization or transferability component of it. Because you see in these times the importance of affordability and how that transfers directly to savings for our customers. And that's been an important part of the conversation. So that's what gives us – we'll see how legislation takes place and how it all evolves, but that gives us some certainty there. I guess, optimism about the ability to maintain PTCs and ITCs in this transferability going forward. But, Reggie, to offer some additional comments on the dollars.

Yeah. So, Michael, appreciate the question. And just to talk about potential offsets or countermeasures in the, as I still see it, in the unlikely event. We saw transferability go away. We would look at a variety of financing sources. And I think the good news in this environment and in prior environments is that the capital markets remain broad and deep. And so we would certainly look at more junior subordinated notes as a potential option. Clearly, there's quite a bit of capacity in the market there. And based on our even our recent issuance of a billion dollars that I noted in my prepared remarks, we saw in this year alone two to three billion dollars of additional capital junior subordinated note capacity. And that amount of capacity accretes over time as your book capitalization grows through retained earnings. And so a lot of opportunities to potentially look at more junior subordinated notes. Obviously, we could look at doing additional equity as well. We feel very comfortable with the equity levels that we're issuing over the course of this five-year plan and still think we have capacity to do additional equity to fund this attractive growth opportunity we have at the utility. And so incremental equity would also be a potential offset. Then it's also important to note just the significant flexibility afforded to us through the energy law and the ability to earn on PPAs as we look to comply with the energy law and the significant renewable opportunities associated therewith. That creates a lot of balance sheet flexibility as well. And so as we look at subsequent five-year plans, we may transfer or shift – transfer is probably not the right word there. It's a pun not intended – But we could look to potentially shift our spend mix from instead of investing and owning some of those renewable opportunities, we could potentially contract and earn about a 9% FCM on those, which obviously, again, creates a lot of balance sheet capacity. And so those are all potential countermeasures in the event transferability went away.

Very helpful. And just to double check, the $700 million plus number from the year-end call in terms of what's in the plan is still good?

That's still the current plan, yes.

Okay, great. Thank you very much.

Thank you. The next question is from the line of David Okaro with Morgan Stanley. Please go ahead. Your line is now open.

Hey, this is for Dave. Good morning. Starting with the storm tracker, could you talk about the strategy going forward to get it approved? Is there any specific changes you plan to make to address the pushbacks?

In reference, just for clarity for those who might be listening to the call, in a number of the previous electric rate cases, we've proposed a storm tracker or storm recovery mechanism in those. We've heeded some of the comments from both staff as well as the commissioners on sharing and greater sharing of those mechanisms. Unfortunately, we have not had success in that mechanism, but We continue to look at options to be able to offset some of the costs. Again, I'd go back to the Liberty Audit, which, again, recommends best practices for jurisdictions and utilities and ultimately for the customer is to have a mechanism in place for extreme weather. The storm recovery mechanism or tracker is one way to go about it. Another way that we're obviously filing for here and filed for this week is just through this deferred accounting mechanism for utilities. again, regulatory treatment of historic or extreme weather.

Got it. Thank you. And back to the data center's demand in Michigan, did you see a big change in interest after the state approved the tax exemptions late last year?

That is correct. Of our pipeline, it was primarily about 65% manufacturing. prior to the signing of the sales and use tax, and that flipped. The actual pipeline grew to 9 gigawatts, and a majority of it, specifically about 65% of it, is data centers as a result. And so we attribute to that to, in part, do the sales and use tax exemption, but also there are other RTOs that have had some challenges. And so MISO continues to be an RTO, and frankly, we have a nice energy law that supports the ability to put on the supply that's needed and necessary for these important projects.

Got it. Very clear. Thank you.

The next question will be from the line of Travis Miller with Morningstar. Please go ahead. Your line is now open.

Thank you. Good morning, everyone. Good morning, Travis. On the electric rate case, I wonder if there were any lessons learned or aside from the headline numbers, anything in the case decision that you'd like to go back for or you hoped to get anything like that? You mentioned the storm tracker, but anything aside from that?

There's always room for improvement in our cases. I want to be real clear. We've had a successful track record, but we're not perfect. There are a lot of opportunities for us to improve. We get the feedback from the staff. We get the feedback from the commissioners. And there's important work to do. One of the important pieces or comments that was made by the commissioners when they provide the order was the mix of capital and O&M. And recall that in that case, the Liberty audit or the distribution audit kind of came midway through. And so we had a capital order. in there, and the recommendations on tree trimming and vegetation management were not in there. And so you can imagine that in this next case that we'll have a greater degree and a greater amount of vegetation management, and we'll also match that with the important capital investments because it's both. You have to deliver the reliability and long-term resiliency. And so I would expect to see, following our reliability roadmap, more capital investments but also a much larger investment, too, in vegetation management to improve our reliability for our customers. And so that's an area of improvement. There was also, from the bench, a small thing, and just following where the dollars went, we got more granular in some of our bucketing so we could see the benefits of that work. And there was some feedback that you couldn't tick and tie as easily. So we're going to improve that as well and just make a key. I'm in the weeds now, but just a key to be able to make that clearer for interveners as well as the staff and commissioners to file. So those are ways we're always looking to improve the process.

Yeah, Travis, all I would add, this is Reggie, aside from a 10 and a quarter percent ROE, which was on my personal wish list, the other subtlety or a smaller element of the filing that we did seek and unfortunately didn't get support for, but over time, I do think it would be helpful as we did propose a wildfire risk mitigation plan. And though Michigan is not as susceptible to a lot of states to the west of us to wildfire, we do think you cannot plan soon enough for wildfire risk mitigation. So we had $12 million of capital ascribed to it, $4 million of which was for strategic undergrounding, covered conductors was another bit of a spend, and then what I would call strategic vegetation management. And so we do think over time we'd like to start to put in place a program because, again, I don't think you can plan too soon for that. And so that was the other item on the wish list that we'd like to get support for going forward.

Okay. That's great. I think we all have 10.25 on the wish list. The REP, when you get that September ruling, What's kind of the next step? Would there be any immediate, I guess, disclosures or changes potentially in the capital plan, or is that something that's going to evolve as you do perhaps RFPs or some other type of solicitations along the way? Anything that's going to happen, say, in September or October after the decision?

Well, it certainly gives us more clarity on the clean energy and a portion of the investments that are in the five-year plan. They're It could be additional investments in that. And that, again, flows into the integrated resource plan. And so you'll see that approval is important to build out the integrated resource plan. And so those are the couple of components that you will see. And, of course, we'll have greater clarity and certainty around what those renewable energy supply assets are.

Okay. Great. That's all I have. Thanks a lot.

Thanks, Travis. The next question will be from the line of Greg Orrell with UBS. Please go ahead. Your line is open.

Yeah, thanks for taking my question. Good morning. Hey, good morning. I wasn't quite sure I understood what the 4 cent impact in the balance of the year related to the storm accounting order was. Sorry if I missed that.

Yeah, I'm not sure, Greg, this is Reggie, where you got the 4 cent impact, but just to walk through the details of the estimated, and I say estimated because we're still doing all of the closing out of contracts and invoices from third parties who helped us. But as you'll see in the regulatory filing we submitted yesterday, the estimates for the storm was about $100 million, and so call that 25 cents per share of impact. And as you think about the waterfall I walked through for the bridge of financial performance over the course of the year, we are assuming a good portion of that storm impact will flow through that cost bucket, what we're calling specifically reliability storms, including productivity. And so the four cents of negative variance that you see a year to go, when you add that to the $0.05 of negative variance we saw in our year-to-date actuals, what you see is basically a $0.12 per share swing versus our original guidance, and that basically adds up to about $50 million pre-tax. And so we've baked into the assumption of additional service restoration expense, productivity in the form of CE way, the CE way, and all the other cost-out items I enumerated in my prepared remarks, And so we're assuming that we're going to have an increase for sure in service restoration expense, but we will also net those down with cost reductions. We've also assumed cost performance as well in that parent financing tax and other bucket. And so if you look at the comparison of what we have in our current waterfall versus our original guide, you'll see about 11 cents per share or 45 million roughly pre-tax of improvement versus the original guide. And that's where you see the balance of cost takeout or support to fund the impact of that service restoration expense increase. And that's what gets us to our full year guidance. So it's flowing through the cost associated with the service restoration expense. It's flowing through that reliability storms, including productivity line item. And again, the countermeasures are flowing through both of those sort of latter two buckets in the waterfall. Let me pause there and see if you have any further questions, Greg.

No, that's great. I appreciate that. Thank you.

Our next question will be from the line of Andrew Wiesel with Scotiabank. Please go ahead. Your line is now open.

Hey, Andrew. Hey, good morning, everyone. Good luck settling the gas rate case. If you make a five-timers club like Saturday Night Live, I think you get one of those cool black velvet jackets.

Yeah, I look forward to wearing that jacket.

Just want to clarify, I think you kind of just answered this on the last question, but to clarify, are you already in cost-cutting mode after that storm, or are you just reminding us of your proven ability to do that?

No, Andrew. We got in the foxhole very early in the first quarter. I'd say once we started to get visibility that a significant storm was underway, and also we Even earlier in the month, we started to see pretty mild temperatures in the month of March. And so we already started to get in the foxhole and start identifying and implementing countermeasures really in the early part of March that are already well underway. And so this is beyond hypothetical and academic. We're in implementation mode. And so it's still more work to be done, but we are already in implementation mode based on the visibility we got earlier in the month and then as the storm started to materialize. Let me pause there.

TAB, Mark McIntyre, I guess, my question is, should this deferral be approved, which of course would be a good situation, what what would you do, then you know if you're if you're already cutting costs and then you get the good news of getting this approved what happens.

TAB, Mark McIntyre, yeah so it certainly creates additional flexibility in the plan which we like and. I'll remind you that the CE way will be one of sort of the anchor countermeasures that we'll lean into. And we see no downside in overachieving on our CE way targets year in and year out because it just creates additional headroom going forward and rate reduction opportunities for customers going forward. And so there's no reason to dial back those efforts. We may take a harder look at some of the planned cost deferrals and some of the other measures, like I said, where We would limit hiring and some of those other sort of flex related items that are more one timers. And so it just gives us more flexibility to potentially turn back on those spigots in the event we get success there. But if we see opportunity to execute on recurring savings opportunities, we would obviously carry on with those. Does that make sense, Andrew?

Yeah, it does. Given the weather challenges, it's been a while since you were in invest mode as opposed to lean mode. But yeah, that would be a good situation.

Okay.

Yeah, one can only dream. Yeah. Kind of like the 10.25. My other question, I think I asked you this after a storm a few years ago. What grade would you give yourselves in terms of reliability from this storm? I know obviously it's been a focus and the Liberty audit came out last year, but how would you evaluate the performance after the storm?

Much, much, much better. And I would, uh, I would point to customers and policy makers, a real positive sentiment with both, both. We're not seeing, uh, what we saw in 2023 was, uh, um, just a lot of aftermath after the storm and we've improved greatly through process through investments. Uh, and we've got a lot of positive feedback. And so I, you know, I don't want to be too boastful. Um, and so I was still kind of gonna grade myself hard. So let's say like a B plus. I still think there's room for improvement, but it's a lot different fact pattern than we had back in 23.

Very good. Thank you so much.

Thanks. Our next question is from the line of Sophie Karp with KeyBank. Please go ahead. Your line is open.

Hi. Good morning, guys. Most of my questions Yeah, most of my questions have been answered, but maybe I can just ask you a high-level question on the economy in Michigan. I guess we saw the unemployment rate, which was a little elevated for the state. What are you seeing from your customers, if anything, in terms of, you know, what are they saying about the activity? Are they adjusting to the new reality with the tariffs and everything else? Any color would be helpful.

I still see a lot of positive indicators in Michigan, and part of it I talked about in a response to a question and my prepared remarks, particularly in the 2% to 3% low growth. The fact that data centers are accelerating, the fact that manufacturing customers are still moving forward with projects, and we can see that construction, and then in some cases asking to expand, or at least in one case asking to expand, are promising indicators. But if I go right down to today, right, and remember, like when we follow the margin and it's in the residential commercial space, we still see solid performance there. And if you look into like, and we do this, we look into like permits and housing starts. And if you look at that Grand Rapids metropolitan area, permits, housing starts for single family continue to increase. For multifamily commercial continue to increase. And so those are positive indicators. The other one I look at is relocations, is what we call it, or alterations. Those are customer-requested work for changes at their home or their business. And so maybe they need a larger meter to be able to serve their load. Maybe they need the meters moved because they're putting an addition on their home or their business. That, of course, went up in the pandemic as people went home and invested in their homes. And that is still elevated. That's still above... pre-pandemic levels, which is another good indicator about people investing in businesses, in their homes, particularly in the residential and commercial space. So that gives us a lot of confidence that the sales piece of resi and commercial continue to be, and where the margin is, continue to be solid. The other thing that I'll point out is there's always pluses and minuses when you get in the industrial space. And I talked about that a little bit with Julian in the Goshen piece. But when I look at our mix and how diversified Michigan is, And we surprise people with this number sometime. There are 4,000 businesses in Michigan in the aerospace and defense industry, 4,000, including now Saab in our service territory. And so in this federal administration, you can make a strong bet that defense spending is going to increase. And so that's a real positive for Michigan. The other one I'd like to point to is that we're the second most diverse state from an agriculture perspective. And what we've seen over the last 10 to 15 years is more of that processing of foods move closer to the fields, move closer to the farm. And as a result, there's a lot more processing and manufacturing of food, and that's growing in this environment. Even in the worst scenarios, even in the worst scenario of a recession, people still need food, bread, milk, and those dairy products. And so a long-winded way of saying we still see a lot of positive indicators in our service territory, which gives us a lot of confidence of, of Michigan in a forward look.

Thank you. That's all from me. Appreciate the call.

Thank you. Thank you. And that concludes our Q&A. So I'd now like to hand back to Mr. Garrett Rochelle for closing remarks.

Thanks, Harry. I'd like to thank you for joining us today. I look forward to seeing you at the upcoming AGA Financial Forum. Take care and stay safe.

That concludes today's conference. We thank everyone for your participation.