Q1 2021 CMS Energy Corp Earnings Call
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At this time I would like to turn the call over to Mr. Sri Multiparty, Vice President of Treasury and Investor Relations. Please go ahead Sir.
Thank you Rocco good morning, everyone and thank you for joining US today with me are care crush, our president and Chief Executive Officer, and Richie Hayes Executive Vice President and Chief Financial Officer.
This presentation contains forward looking statements, which are subject to risks and uncertainties. Please.
These 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-GAAP measures reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website now I'll turn the call over to Gary.
Thank you Sri and.
And thank you everyone for joining us today.
We appreciate your interest in and CMS energy.
Over the past five months I've been on the <unk>.
And virtual road.
And have had the opportunity to meet with many of you to share our investment thesis, which delivers for all our stakeholders.
This thesis is grounded and our commitment to the triple bottom line.
Of people planet and profit and enables the excellence you have come to expect from CMS energy.
Many of you have asked.
And what will change under my leadership and.
I want to reemphasize, we changed leadership not the simple proven investment thesis that delivers year in and year out.
Looking forward, we are committed to leading the clean energy transformation with our net zero carbon and methane emissions plans, which are supported by our clean energy investments and our current progressive integrated resource plan.
Furthermore, we are recognized as top tier for ESG performance, earning top ratings amongst our peers.
We continue to mature our industry, leading lean operating system, the CE way, eliminating waste and improving our performance.
I Love this system.
Over the past several years, we have used it across the business to drive efficiencies improve employee engagement and deliver sustainable cost performance.
And I've seen it I've worked at and we have plenty.
Of gas pedal left.
Today, we are crafting the next horizon.
And I call CE way too low.
No.
Which layers and greater use of automation and analytics and begins to position and CMS energy as a leader in digital.
Another key differentiator of CMS energy is Michigan top tier regulatory construct that has 10 month forward looking rate cases and constructive Roe.
This all leads to our adjusted EPS growth of 6% to 8% and combined with our dividend provides a premium total shareholder return of 9% to 11%.
At CMS energy, we wake up every day to get after it.
Deliver for our customers and all conditions.
Rain and snow sleet wind.
Never quit and for you our investors and.
And never quit.
This year is no different.
Now, let's get into the numbers.
And the first quarter, we delivered $1 and 21.
Adjusted earnings per share. This is up significantly 35 from last year, primarily from an incremental revenue to fund needed customer investments and sustained cost performance.
As a reminder, our full year dividend is $1 74.
Up 7% from last year.
We are reaffirming our 2021 guidance for the year of $2 83.
To $2 87 of adjusted earnings per share and our long term earnings and dividend per share growth of six 8% with a bias to the midpoint.
And at CMS energy was committed to our promises to our coworkers and the communities, we serve and our planet.
As we are to delivering our financial commitments.
During my discussions with many of you the topic of ESG often comes up.
I'm proud of our leadership in this space.
We continue to enhance our commitments and our efforts are being recognized with top tier ratings.
We remain a double a rated company by MSCI and have ranked top quartile for global utilities by sustaining lytic since 2013.
This is a deep commitment that began well before it was a trend.
And our commitment our commitments to net zero methane emissions by 2030 and net zero carbon emissions by 2040 are among the most aggressive in the industry.
As our industry approach is a cleaner energy future and we retire our legacy generating units it is critical and we.
And are the contributions and service from our co workers as well and address the economic impact on those communities.
Now.
I began my career on the generation side of our business.
And walk the halls climbed the stairs of every one of our generating plants.
Sheikh enhanced.
Drank coffee with the men and women, who work every day to provide energy for our customers and.
And I am proud of the honorable and echoed away we are cared for both our coworkers and our communities as we retire these units from service.
We've built a playbook for success.
It began with the retirement of seven coal plants in 2016.
That work will continue with the retirement of Karn, one and two in 2023.
Our leadership and track record in this space is something I'm proud of and will continue as we look to the future.
This ensure success for all stakeholders, including our investors.
Where many focus on ease of ESG, we have a strong record of delivering across all three.
And my 20 years of serve I believe our culture has never been stronger.
Every single day, our coworkers show up with a heart of service for our customers our communities and.
And ultimately you our investors.
Our culture.
Anchored by our values is thriving.
Across our company and it's why we're recognized for top quartile safety performance industry, leading employee engagement force.
Forbes best employer for women best for Vets by military times and blend best places to work for LGBTQ equality and the corporate equality index.
And earlier this month, we were ranked by Forbes as the number one utility and the country and.
As best employers for diversity.
Our leadership commitment and top tier ESG performance should provide you with the confidence that our long track record will continue to deliver value for customers and.
And investors.
Turning to recent updates I want to highlight our continued growth and renewables with several exciting announcements.
We are pleased to announce the recent commission approval of our Heartland Wind project in March which will be online in December of next year.
And this project adds 201 megawatts of new capacity as a part of our renewable portfolio standard, earning at 10, 7% return.
I'm also pleased to share that we received approval for the first tranche of our current integrated resource plan, which adds nearly 300 megawatts of new solar through two projects that we expect to come online in 2022.
We are evaluating the second tranche of our current IOP. Another 300 megawatts of solar and expected to come online in 2023, and the third tranche 500 megawatts of solar and expected to come online in 2024 for a total of 11 100 megawatts.
We're on track to file our next integrated resource plan in June.
And it's been a popular topic and and our meetings with many of you.
While we're still finalizing the details the focus of our upcoming IOP will be to accelerate the de carbonization of our fleet.
Ensure reliability and affordability.
And and renewables and demand side resources, and a way that makes sense for our customers and investors, while maintaining a healthy balance sheet.
And I am excited for this next AARP. It serves as yet another proof point that we are leading the clean energy transformation.
As part of our clean energy transformation.
Part of our clean energy transformation includes the retirement of our remaining coal fleet.
On slide seven you'll see our plan to Decarbonize is both visible and data driven.
Meaningful reduction of carbon emissions and our plan will drive our ability to achieve net zero carbon emissions by 2040.
Over the past few months I've been asked quite a bit.
About the future of our gas business.
And as I've shared with many of you our gas business and system is critical to providing affordable and reliable heating here in Michigan.
But that doesn't mean, we're sitting on our tails here. In fact, we are actively working to decarbonize our gas system.
Now this aligns very well with the recent announcements from the Baidu administration.
Our first step is to reduce fugitive methane emissions, which is well underway.
As we accelerate the replacement of vintage mains and services.
Both plans approved by the commission will decrease our emissions and achieve our net zero methane goal.
Our decarbonization plans also leveraged energy efficiency to reduce carbon usage and renewable natural gas on our system, which will help decarbonize more difficult sectors such as agriculture.
By replacing vintage mains and services with plastic piping and we will be positioned to deliver hydrogen or other clean molecules to our customers and the future.
As we grow our renewable portfolio and Decarbonize, our generation fleet and GAAP delivery system will remain committed to delivering against the triple bottom line and people planet and profit.
Before I turn the call over to Reggie.
I want to and with this slide demonstrates our consistent industry, leading performance for nearly two decades.
As much as things change one thing stays consistent year in and year out we have and will continue to deliver.
2020 prove this 2021 will be no different.
Mark and 19 years of consistent predictable financial performance with that.
And I'll turn the call over Reggie.
Thank you Derek and good morning, everyone as.
As Derek highlighted we're pleased to report our first quarter results for 2021 and summary, we delivered adjusted net income of $348 million.
A $1 21 per share.
For comparative purposes, our first quarter adjusted EPS was <unk> 35.
And above our Q1, 2020 results largely driven by rate relief net of investment related expenses, better weather and sustained cost performance from our 2020 efforts at the utility or.
Our enterprises and parent and other segments were slightly down and planned due to the absence of a onetime cost reduction item in 2020 and higher funded funding related costs respectively.
This modest negative variance was more than offset by strong origination growth at interbank, which exceeded its Q1 2020 EPS contribution by <unk> and 2021 as planned and is tracking towards the high end of our guidance for the year of <unk> 22 per share.
The waterfall chart on slide 10 provides more detail on the key year to date drivers of our financial performance versus 2020.
And highlights our latest estimates for the major year ago drivers to meet our 2021 EPS guidance range.
To elaborate on our year to date performance, while weather and the first quarter of 2020 has been below normal to date, which has led to lower volumetric gas sales there has been better and the historically warm winter weather experienced in the first quarter of 2020 and the absence of that weather has led to <unk> <unk> per share of positive variance period.
And the period.
From a rates perspective, given the constructive regulatory outcomes achieved and the second half of 2020 for our electric and gas businesses, we're seeing 26 per share of positive variance.
As a reminder, our rate relief estimates our stated net of investment related costs, such as depreciation and amortization per.
<unk> taxes and funding costs and it's also worth noting that our 2021 financials reflect the accelerated amortization of deferred taxes as part of our 2020 gas rate order settlement.
On the cost side as noted during our fourth quarter earnings call, we budgeted substantial increases and our operating and maintenance expenses and 2021 versus the prior year to fund key initiatives around safety reliability customer experience and de carbonization and and alignment with our recent rate orders as you can.
See where <unk> per share above our spend rate and the first quarter of 2020 as planned and Im pleased to report that we are seeing sustained cost performance from 2020 as well as increased productivity and 2021 largely attributable to the CE way that said, we do expect to see the bulk of the planned O&M increases to materialize.
Later in the year.
The balance of our year to date performance is driven by the aforementioned drivers at our non utility segments, and non lennar sales, which though slightly down at about 1% below the first quarter 2020 continue to exhibit favorable mix with the higher margin residential class up 2% versus Q1 of 2020 and I'll remind you that our.
Total electric sales exclude one large low margin customer.
As we look ahead to the remaining nine months of 2021, we are cautiously optimistic about the glide path illustrated on this slide to achieve our full year EPS guidance as always we plan for normal weather, which in this case translates to <unk> 12 per share of negative variance given the above normal weather experienced in the second and third.
Orders of 2020.
The residual impact of the aforementioned rate relief, which equates to <unk> 22 per share pickup and is not subject to any further and PSC actions.
And the continued execution of our operational and customer related projects, which we estimate as an incremental 18 per share of spend versus the comparable period in 2020.
We have also assumed the usual conservatism and our utility non weather sales and our non utility segments. All and we are pleased with our strong start to the year and are well positioned for the remaining three quarters of 2021 and needless to say, we will be prepared to flex costs up or down as a fact pattern evolves over the course of the year.
Year.
As we look out.
Over the long term we are in the early stages of executing our $13 $2 billion five year customer investment plan at the utility which is highlighted on slide 11, and will provide significant benefits for our customers. The communities, we serve and our investors as a reminder, we have budgeted over $2 $5 billion of investments and 2021.
The vast majority of which is earmarked for safety reliability and clean energy projects. We are on track, thus far and recently filed an electric rate case and March that and Numerate, our customer investment priorities for 2022 test year, which are summarized on the right hand side of the page among other key details related to the filing we.
Expect and order from the commission by the end of the year.
Despite the substantial customer investments that we intend to make on our electric and gas system over the next several years as you know, we take great pride and taking out cost and a sustainable way to maintain affordable bills for our customers and we have the track record to prove it.
The left hand side of slide 12 summarizes the key components of our cost structure, which we have successfully managed over the past several years, while investing significant capital on behalf of customers and fact from 2007 to 2019, we reduced utility bills as a percentage of customer wallet by 1%.
While investing roughly $19 billion of capital and the utility over that timeframe.
As we look ahead we.
We have several highly actionable event, driven cost reduction opportunities, which will provide substantial savings in the years to come the.
And the planned exploration of our Palisades power purchase agreement and the recently approved the amendment to our Mcd PPA will collectively generate roughly $150 million of power supply cost recovery savings and as you'll note. Our initial estimates from the potential savings for the Mcd contract amendment of approximately $50 million proved.
Conservative with the revised estimate of over $60 million and savings per the commissions order and March also the planned retirements of our five remaining call units should provide another $90 million of savings and aggregate exclusive of any potential fuel cost savings, which will create meaningful headroom and bills for future customer.
Lastly, I'd be remiss, if I Didnt mentioned and our annual O&M productivity delivered through the CE way, which last year generated roughly $45 million of savings and serves as a critical tool to our long term and intra year financial planning to that and many of you've asked about proposed changes and core.
Tax policy and its potential impact to our plan, though at this point. The final details remain unclear trusts that we are evaluating the potential effects and will leverage the CE way and other cost reduction opportunities, including potential offsetting tax credits that are also being proposed as part of the legislation to minimize the impact of customers while executing.
And our capital plan.
As we've said before it is our job to do the worrying for you and we are uniquely positioned over the next several years to manage any potential headwinds with our unparalleled track record on cost management, driven by our highly engaged workforce, coupled with robust customer investment backlog and top tier regulatory construct where car.
And that we can deliver on our ambitious operational customer and financial objectives for the foreseeable future.
And with that we'll move to Q&A to Rocco. Please open the line.
Thank you we will now begin the question answer session.
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Today's first question comes from Jonathan Arnold with vertical Research partners. Please go ahead.
Good morning, Greg and John.
And then.
Mike.
So garik.
And I appreciate the color and Thunder.
And.
You mentioned the focus will be on accelerating decarbonization.
Are you willing to sort of.
Talk about how.
And significant and acceleration.
And so they'll have in mind.
And could we be low talking about bringing.
Net sales.
And throughout 2075 time Friday and on electric for example.
Thanks for your question, Jonathan we'd laid out those objectives and all of those objectives I would just from all is equally important.
And so decarbonization is one, but so is reliability and affordability and the rest of them that are listed there with them within the deck youll.
You'll recall from the settlement we had on our current integrated resource plan in 2019 that we were going to take a look at the potential for accelerating Campbell, one and two which is currently scheduled to.
Retire and 2031.
And so we're doing that as part of this evaluation.
And I'll just put it this way we are.
And the final throes of completing and exhibits and testimony will be sharing the outcome with our board of directors like we do and and some of our large filings and early may here.
And I don't want to get too far ahead of our board of directors here. So our objectives are true that's what we're that's what we're targeting and we look forward to share anymore and the <unk>.
Q to.
Q2 reports.
Okay fair enough.
And for that and then just on the math.
On the antibody and kept out of the fee.
You mentioned, you and now tracking to the high end and the range, but it seemed unusually that a big number and the first quarter with anything other than just.
Strong origination going on there.
Okay.
And as you know.
Sure.
Reggie chairs that so Richard why don't you go ahead.
Jonathan and thanks for the question.
You hit one of the bigger drivers and so its really a couple of things you've got strong origination growth and we really saw and and we've talked about this I would say in quarters two through four last year, a nice staycation bid with very good loan origination volumes are swimming pools, HVAC systems and that has carried on reef.
So you've got strong origination growth and you also I would say have a weak comp in Q1 of last year, just because as you recall the pandemic really started to impact the global economy and.
I'll answer the latter part of March and so Q1 of last year picked some of that up. We also do have a loan sale as part of that earnings growth. Now. This is all on plant we had anticipated this and our 2021 plan, but that also offers a favorability relative relative to Q1 of 2020, and we've always talked about the fact that we don't allocate.
And capital to the bank and so they have to they have to fund their own growth until loan sales and certainly part of that strategy. So it's really a combination of strong origination growth coupled with low loan sales.
Okay.
And you.
And maybe quantify how much that piece was impactful to talk about where that leaves the book.
In terms of size, maybe relative to where it was.
So there they gave about <unk> <unk> of upside from my prepared remarks relative to Q1 of 2020 roughly half of that was due to the loan sales and about the other half for the low for the origination growth so call. It about <unk> two to three for each.
And I would say the book still looks quite good.
For competitive reasons, we don't talk about annual origination volume, but there is still around $3 billion of assets all in.
Okay. Thanks.
Thank you for that and.
Thanks.
And our next question today comes from and there was no with Scotia.
Hi, Andrew things.
Hi, good morning, everyone.
Maybe I'll start continuing on the <unk> conversation there.
I think where do you just say that the strong origination growth from last year as continued what's your latest thinking on when that might return to sort of a more normal level in other words. The COVID-19 trade will eventually moderate there are only so many swimming pools to be installed.
Yes, it's a good question and we.
We may not see.
Net of the feverish volumes, we saw in 2020, but we continue to see high applications and again very good origination volume going into the second quarter. So I'm not convinced that that trend will abate anytime soon and and it's not just swimming pools and they also do HVAC installations and Thats a fairly non cyclical product.
And they also do resi solar and there is still good organic growth there as well so there's decent diversification, Andrew and the loan portfolio and supplemental certainly are quite strong, but again, we haven't seen any signs that that will abate anytime soon and if that does happen, let's say in 2022 or beyond and we will then at that point again, there's good HVAC.
And there's good revenue solar and I also do kitchen, and windows and doors, So home improvement.
From our perspective is not going to be the sort of thing that's going to die out anytime soon and we've been at this now for over a decade and they've delivered and a very non cyclical way for some time now.
Okay, Great and you mentioned and it's trending toward the high and for the full year I mean that kind of it sounds like an understatement given that they earned 11 and the quarter alone so what what might be the limiting factor there as far as.
And when you put it this way is the balance sheet of CMS, the limiting factor or are there other ways that you might.
Slow down the growth rate elongate the trajectory.
So let me be clear so even though they delivered 11 cents of EPS contribution for the quarter and that was a strong day versus Q1 and 2020 that was on plan and we're about a penny ahead of plans and we assumed about 10 and a pretty front end loaded.
Earnings trajectory and 2021 and so we do still see them kind of being within the range of 20 to 22 I wouldn't say, it's due to us actively potentially slowing them down and it's just part of the plan there is a little bit of seasonality and the business will see our trends over time, but.
But like the rest of the business.
Manage it where we try to avoid should rise and if there are opportunities to de risk 2022 and beyond.
And some levers we pull at the bank as well as the other business, we will look to do that.
Okay, Great and then just more broadly when you think about the CE way. Obviously, you had a really strong year last year with cost savings strong start to the quarter. This year are you already in a reinvestment mode to benefit customers and positioning ourselves well for next year and beyond or is it just too early given your typical uncertainty around some.
Weather.
Well I'll tell you that the EUA is alive and well and we continue to work that that system and as I shared in my comments I do truly loved that system and what it means for not only.
Cost management.
And for improved customer service and coworker engagement and employment.
And <unk> empowerment.
So we work and all the time because it value.
<unk> provides a nice value for our customers. In addition to cost management, so that's well underway, but to get to the heart of your question.
We're early in the first the first part of the year here, we feel good about the quarter and will continue as you know Andrew when theres opportunities should be.
Should they show themselves will reinvest for the benefit of our customers and for our shareholders here to really derisk the future years.
Alright sounds good looking forward to the IRB.
Thank you.
And our next question today comes from Jeremy Tonet JP.
J P. Morgan. Please go ahead.
Good morning, Hi, good morning.
Thanks.
I was wondering if you could comment a bit more on how energy transition could impact the upcoming IOP.
Especially with a focus on hydrogen and expanded tax credits such as 45, Qs enhancing Ccs economics.
But what what type of timeframe do you think this could make sense for CMS.
Could it find its way into your plans or do you think they can find their way and to your point.
Well, we can even talk about it and a bigger weight and just energy transition we call it the energy transformation and.
And certainly what we are leading here.
And it shows up on our first and our current and I would say a progressive integrated resource plan and one that we're building out right now.
Just a ton of top solar and 100 megawatts of solar and the retirement of.
Karn, one and two and and energy efficiency and demand response programs.
And our outstanding offerings for our customers but.
And with any integrated resource plan, and particularly when you get to the and years of that plan is about a 10% 20% GAAP.
GAAP that you got to close and Thats not unique.
And to CMS.
You'll hear our peers talk about that as well, but I will remind you are willing and most aggressive plans out there and de carbonization and by 2040. So there does need to be technology advancements and that comes and carbon capture that comes and hydrogen that comes in terms of lithium ion both from a reliability as well as affordability perspective, and so all of the above as needed and so.
In fact were just even tomorrow I'm going to be with on a call with the department of energy and office of management and budget budget Tomorrow to again, we're advocating for R&D type funding to continue to close that gap, particularly in the out years and so we will participate as it makes sense within the regulated utility.
Some of those gaps, but again that out and the 2035 and 2040 time timeframe and then revenue you might have something more to add on that as well.
And the only part I would add to Eric's comments is just around the tax incentives I mean, it's obviously early days, but we've been encouraged with some of the proposals, we've seen offered particularly and not and the wyden Bill.
Tech potential.
Incentives applied on a technical basis for zero carbon emitting resources as well as potential flexibility on choosing ptc's vs Itc's.
And then more refund ability, which is really one of the biggest constraint for utilities to execute on some of these renewable projects and so if we see good advancements there that obviously allows us to do more front of the media solutions and a cost effective basis for customers. So that's encouraging but obviously early days there.
Got it that's very helpful. And then just wondering if you could kind of frame your thoughts for us when it comes to the proven versus maybe the less proven technologies targets as far as how much could be directly owned by CMS versus PPA is just kind of any framework you could share with us there.
Well, let me offer this from a proven perspective, one of the things that we are considering within this next IOP is reliability and so we look at loss of load expectations.
And again, particularly in the backdrop of the unfortunate events and Texas, we're going to make sure that our system is reliable and.
February weather condition, and we've got a history of that and we'll continue to do that and so.
Clearly, we're going to go with items that are proven.
And that doesn't mean, we're not looking out forward and looking at R&D, but when it comes to putting.
Equipment on the grid and we want to ensure reliability.
But reggiano you may want to add more to that to the question there and then just.
Give you a little bit.
Context.
Be happy too.
And Garik mentioned, Jeremy and his prepared remarks.
Recently get approval from the commission on our first tranche of new solar attributable to the integrated resource plan.
The current integrated resource plan and we were.
And I would say pleased with the average cost we saw over the life of the projects when we looked at the owned opportunity versus the contracted and so on a <unk> cost of energy basis, we saw kind of high $50 per megawatt hour. After the on solution and kind of low $50 per megawatt hour for the contracted solution and so.
And then that excludes kind of residual value and others of operational benefits and savings and the owned portion could offer over time and so we do think that our longer term there could be good.
Good opportunities as we think through the.
And the new solar build out to potentially on more but again, it's early days and the context of the IRB and we're thinking about six gigawatts over the next several couple of decades and more to come on that but the first tranche look pretty encouraging.
Got it so is it fair to say there could be capex upside in and the IOP here based on what Youre talking about there.
Jeremy we've got $25 billion, and the 10 years and $3 to $4 billion of opportunity out there and a long long long track record of organic needed customer investments and the state renewable of electric and gas to Decarbonize and so.
Again, you know our history here Theres, just lots of opportunities here at CMS energy.
Got it.
And one last one if I could with.
COVID-19 and reopening and just wondering if you could comment a bit on low trends and service territory and degree of residential and stickiness that you have seen and could expect to see over the balance there.
I'm going to turn it over to Roger first and then I'll come back from some larger.
And state type topics. So roz you want to start there.
And Jeremy.
Pretty good trend over the course, and first quarter and I'm sure you saw and some materials.
Not quite at a pre pandemic levels, but I think that has a bit to deal with the resurgence that we've seen in terms of case counts and Michigan and we do expect over the course of the year.
And both commercial and industrial which was down about 2% will be at pre pandemic levels around mid year.
Also encourage with what we've seen for most of April and our smart meter data, particularly for the residential segment, which is about 4% ahead of plan.
And so again the trends look quite good and we're also seeing just good.
<unk>.
Versus the same period and 2020, we've seen commercial excuse me a little less than half a percent.
We're seeing good count volumes and all have Derek talked about the interconnection volume as we've seen but it has been robust to say the Liza Garik I'll give it back to you.
Yeah.
And broadly from a Michigan perspective, and those with the Governor of this weekend and as we've seen the COVID-19 and the B. One 107 variant the number of hospital hospitalizations decline and number of positive cases decline vaccinations continue and increase.
And I'd be surprised if there wasn't an announcement here and the next couple of days that opens up more of Michigan.
As we move forward, which will help from a commercial perspective, but just look at unemployment we are better than the U S. Right now across Michigan and if you go into the heart of our electric service territory Grand Rapids, and even better and we're seeing it too and not just and unemployment numbers, but new service connects.
The number of requested will first of all 2020 was a record year for new service connects in the midst of a pandemic and the first.
Q1 is up 27% over last year over the same time period, that's not just an initiation and thats actually initiations and and constructed so initiated and built up 27% and so again, we see a number of positive indicators like Glenn and on about this life Sciences are up food.
Processing and is up there is a.
Great opportunity of growth, we're seeing and and I believe and continue to pick up as we open up.
More and more of the state.
That's super helpful. That's it from me thanks.
And our next question today comes from Michael Weinstein with Credit Suisse. Please go ahead.
Good morning, Michael.
Hey, good morning, guys.
Hey.
In terms of a potential for a higher corporate tax rate could you talk about the potential impact that would have on you and euro and the Nols that you have through 2024 I think on slide five and then also on the same and the same line. If you have a higher tax rate.
Is there any color and and let's say a tax credit extension for renewables. So that was one offset the other.
And does this encourage you and regulators to build to accelerate the build out of renewables and order to Keith.
Taxes.
Down.
Let me let me offer a few comments on this and then I'll turn it over to Roger as well.
And so youre getting really to the affordability and the headroom question and as Rajiv mentioned earlier with the widened proposal. There is a few others out there that we're following closely and we are advocating frankly with epi and Washington. This can be a real tailwind here I mean, we already have a very aggressive solar build out.
And our current IOP and these renewable credits and and you went through some of the benefits and specifics of the wind proposal that they can provide a nice tailwind of nice savings opportunity for our customers and so I get excited about that and I think any of the glass is half full for me, but I think there's some real opportunities there and to the degree I'm just.
Keep this in mind to the degree there are any headwinds or tax implications for our customers remember this.
And one company that I am going to bet on it is going to be CMS energy.
This was proven track record of delivering.
Year after year from a cost management perspective.
And so through the CE way and the like and then as Rajeev indicated these event.
Driven cost reductions MTV palisades.
Coal plant retirements I remain optimistic on our ability to manage it and so early and still proposals on the table and.
And <unk>.
And our ability to manage it on behalf of our customers and thank you.
And keep bills affordable.
And might have more net yes, Michael what I would just add to all of <unk> comments as I too am encouraged as I mentioned before and what we're seeing and incentives that to get directly to your question on Nols. So like we saw when tax reform is enacted in 2017, there was a re measurement of Nols and that led to a non cash loss and a pretty.
Significant one just with the tax rate going from 35% down to 21%. So if you see it come back, let's say to 28% you'd have a favorable re measurement clearly we would carve that out like we did but that could be beneficial because it creates a greater tax shield. We would also see some benefit.
And our parent and other segment, which as you likely know is primarily interest expense and so you would see just a greater value and that tax shield as well now to your question about weather.
There is a push from our renewable build given the incentives to offset the rate increases will hold off on our speculation around that three dimensional chess, but certainly from other comments. We offered earlier, we do think there will be certainly potential attractive incentives and that should offset some of the rate increase implications.
Tax rate increase above 21%.
Right right, Okay, and you can see and I'm getting Adam and see at the higher and federal government is giving away tax credits at the same time, they are raising taxes. It would seem that state regulators would want you to build more.
Standard reason I guess and.
Anyway, that's all I have.
Thank you.
Thanks, Mike. Our next question today comes from Julien Dumoulin Smith with Bank of America.
Good morning, John Hey, Good morning team. Thanks for the time and the opportunity. So if I can keep drifting off from perhaps a couple of the other questions here and brief.
With respect to the.
Widen planned or what have you in terms of infrastructure. How do you think one about the different scenarios that you've come out with on the RFP and two probably more critically is there any risk of delay and timeline based on the timeline of credits and I'm, just curious as to how youre thinking about the different scenarios and the impacts here.
Given well I'll leave it up and and for you guys.
There's a lot of proposal tax proposal on the table and we don't see them getting being settled here and the next several months, we're on track to file our ERP.
In June.
And it will meet those objectives are really were aimed at those objectives.
And Ah laid out there and the presentation and so yes.
There'll be a plan that's there'll be a plan. That's that's good for Michigan and good for good for our planet and and matches our triple bottom line.
Alright fair enough, but it doesn't seem as if youre going to necessarily Taylor or any of the specifics around.
And <unk>.
And any of the proposed infrastructure assets that could shift the planning through the RFP cycle where process right.
It's just too early and we're going to I.
I mean, we've done all the modeling.
We're finalizing the details we've got a good plan, we will take it to the board of directors as we normally do.
But these proposals are going to move that probably don't move a lot. This summer as well and so there are a bit unpredictable and theres a lot of positives, we see but they are a bit and unpredictable on where they land and Rajiv and I have some other thoughts too.
Julien the only thing I would add to Eric's comments, it's important to remember that the legislation and how it's structured and the nature of the IRB process is pretty multifaceted and takes into account the dynamism of the world and so we look at the business usual business as usual case, we look at a descent and the emerging technologies and we'll look at environmental <unk>.
And I'll see changes and then we have various.
Variables that.
And low price low growth gas prices et cetera, and so there are hundreds of permutations and restructure the ERP and we do take into account and number of different scenarios and we do try to choose what's best from a triple bottom line perspective, when you put it all through that <unk> and so I'd say theres a lot of dynamism, what's taking place now I do think as to some extent accounted for but we know that.
We will file and the other one and a few years, if the world changes and so thats. The other benefit of this process that is very internet as well.
And if just boil this down Julien I think to the degree of theirs is a renewable tax and again, we like the technology neutral what it does is it makes it cheaper right and so that is the tailwind that's the opportunity and so we'll file a great ERP I know this and it's just going to make it cheaper and less expensive.
For our customers, which is which is a good thing.
Great well best of luck and speech asset Alright sure.
Thanks Julien.
And our next question today comes from Travis Miller Morningstar. Please go ahead.
Good morning, good morning, everyone. Thank you.
And I was wondering we've seen a couple of states here, just recently suggest potentially securitization options for coal plant retirements and accelerating whats your thought around that and discussion.
Discussion with.
Michigan politicians and regulators around that one of your thoughts.
This is David.
And we have we've worked securitization here for a long time in Michigan and in fact as part of the law here in Michigan and requires a 90 day the 90 day process.
Just completed one and December four Karn, one and two.
And many states many jurisdictions do not have this we've got a good process underway.
And that exist.
Now it does just and in full transparency.
One of the challenges with coal plants out there as they have and remaining book value and so if you continue to securitize those that can have an impact on credit metrics and so as I shared and IOP objectives Thats one of the things that we are.
Watching and needs and.
We need to be thoughtful about as we as we pursue de carbonization and our clean energy goals.
Fair enough and I appreciate that.
That's all I had to answer my other questions I appreciate the time.
Yes, Thank you Travis.
And our next question comes from Anthony <unk> with Mizuho. Please go ahead.
Hey, good morning, Gary Good morning, Rajiv just Laura.
Free.
I have a quick question most of and been answered and follow up of an earlier questioner and de Carbonization and you kind of touched briefly on maybe the events and taxes, but having noticed any pause and the policyholders or any of the parties that you're involved with during and IRB process.
Maybe slowing down and de carbonization and due to reliability and I know you touched on a liability earlier, but have you noticed any change following the Texas storms and maybe there's more ink.
Interest and keeping fossil generation around a little longer.
As I shared earlier, our integrated resource plan and I'm getting away and in the engineering weeds with you here and the loss of load expectation and.
So thats one of the criteria that we're going to make sure that we deliver on.
And so.
And I can bet reliability can come in a variety of different ways and so but we saw for reliability and so again.
We want to make sure what we present to.
The commission to the staff up there to our intervenors that.
And have to.
And what I talked about with our co workers, where I talked about and the community and when I talk about it and Lansing and has to be affordable and it has to be reliable and has to be clean and so we have to do all three that's the challenge and so and again, we've got a great plan and you'll hear more about and Q2.
Great. Thanks for taking my question.
Yes. Thank you.
And our next question today comes from Stephen Byrd with Morgan Stanley. Please go ahead.
Good morning, Steven and good morning.
This is Laura <unk> from.
And Steven.
On the energy transformation and fund and I'm, sorry, and this is repetitive, but I think the question with a little bit different.
And potentially accelerating the retirement from the current point units from much more and can you.
Without compromising the reliability of the grid I'm wondering is there a gas plant and you could retire early without compromising and.
And we bought and fueling technology.
Technology and pick up.
Basically how much of affordability vessels and reliability.
Hello, Hi, Laura how are you good to have you on the call.
Thanks, and Thats, what that that's what that loss of lowered expectations study looks at and again when a model out energy and energy supply for 20 years, we're going to make sure and we look at what the reliability looks like across the system to make sure at the most affordable plan for our customers to make sure. It's clean and then from an investor standpoint, we're going to make sure that one there is and.
The opportunity for growth one growth within the within the state of.
And the needed customer investment as well as want to make sure and a healthy balance sheet. So that's the entire balance and so and Thats what the model sales force. So the question Youre asking is what.
And is exactly what the model and solving for what is that right balance point, where everything comes together and so we'll share more of what that looks like and all of that mix.
And here in Q2.
Understood and lastly from me could you comment a little bit on your current efforts I and game and if there are annual.
Voluntary program offered or and that will be I'll start and your GAAP reporting.
So there is a small amount of R&D on our system as we speak.
To obtain net zero methane by 2030, we will have to put a bit more R&D on our system and I say a bit let me quantify that we move about 300 billion cubic feet of natural gas on our system and on annual basis, we'll have to put about three yes, I said <unk> 3 billion cubic feet. So that'll help us.
Get to net zero, along with some thoughtful and deliberate investments and replacing old mains and services.
And so there'll be more added as we move forward now as we again continue to think about our carbon footprint. There is the potential to add more renewable natural gas across our system, we will do that and a thoughtful and deliberate way that's affordable for our customers and is considered the planet now to your specific question on a program we do.
Not have a specific renewable natural gas program for our customers, we intend to add one over the course of this year and so we will be making a filing.
In 2021.
<unk> offers a program for our customers and this space.
Thank you so much.
And ladies and gentlemen, this concludes today's question and answer session.
I'll turn the conference back over to Gary and I was very thorough.
And then final remarks.
Thank you Rocco and I'd like to thank you all again for joining us today I'm looking forward to when we can meet face to face hopefully soon and we can do that safely before the year's owners take care and be safe.
Thank you Sir This concludes today's conference we thank everyone for your participation and have a wonderful day.