Q3 2024 CMS Energy Corp Earnings Call

Good morning everyone and welcome to the CMS Energy 2024 third quarter results.

The earnings news release issued earlier today and the presentation used in this webcast are available on CMS energies 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 it's any time during the conference you need to reach an operator, please press the Star key, followed by zero. Just a reminder, there will be a re-broadcast of this conference called today, beginning at 12pm East and Time, running through November 7th.

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 Shore, Trejra and Vice President of Investor Relations.

Thank you, Harry. Good morning, everyone. And thank you for joining us today. With me, our Garrick Rochow, 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 can cause our actual results to defer materially.

This presentation also includes non-gap measures. Reconciliation 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 Garrick.

Garrick: and thank you everyone for joining us today.

At CMS Energy, we deliver year over year for all stakeholders.

We do that through our investment thesis. This is simple but powerful model coupled with our disciplined execution sets us apart in the industry and it delivered more than two decades of industry leading financial performance.

Typically, I walk through that investment thesis, but today I want to offer three differentiators at CMS Energy, providing confidence and visibility as we continue to strengthen and lengthen our 68% EPS growth.

Garrick: First, Michigan's Clean Energy Law, as well as great for our customers, the planet and our investors.

and sure we have the right legislation in place to move from coal to clean, providing certainty for the investments we need to make in renewable energy. It gives us a flexibility to either on the assets or utilize a power purchase agreement doing what is best for our customers.

Now, here's what's unique.

Earning a financial compensation mechanism approximately 9% on a power purchase agreement. No other state that I'm aware of has this provision. And then I had to do it requirements for battery storage and an increased incentive on energy efficiency.

There is a lot in this law. Very little of which is in our five year investment plan. Providing a strong tailwind.

We believe we can do this important work, affordably for our customers.

The flexibility and the law that allows for ownership or power purchase agreements both within Michigan and outside of Michigan provides more options for customers and ensures we can utilize lower cost energy.

Furthermore, it provides us the ability to replace existing outdated in above market power purchases agreements with new renewable assets which keeps cost affordable for customers.

Our 20-year renewable energy plan or REP that will follow next month will detail our clean energy investments and plans to achieve the target set by Michigan's Clean Energy Law.

This filing will show the renewable assets needed above and beyond our 2021 Integrated Resource Plan. As well as the additional renewable assets needed to meet increasing sales demand and growth in the state.

As I've shared before, Michigan's clean energy law is great for all stakeholders. It provides the flexibility we need to find the most cost effective clean energy for our customers.

The second item I want to highlight is our commitment to customer reliability. I'm very proud of the comprehensive plan we have laid out in our five year, $7 billion, electric reliability roadmap.

This plan details our actions to move to second quartile reliability performance or safety by the end of the decade through targeted investments in our electric grid.

Needed Investments for our customers.

Because we have recorded some of Michigan's highest wind speeds over the last five years. We are seeing more frequent storm activity.

This plan is deliberate and comprehensive and improves reliability in the short term, in built and long-term resiliency, and it does it proactively versus reactively.

This plan means we will begin serious efforts to underground more of our distribution wires.

Better line with Midwest peers and replace more than 20,000 polls with those designed for more extreme weather. It also means investing in grid technology for more automation and machine learning to speed up restoration in weather events.

We're also one of the first utilities east of the Mississippi to file a comprehensive, wildfire mitigation plan, which lays out the investments needed to prepare for climate change.

Garrick: These customer investments are based on electric power research institute, every best practices, and will bolster our distribution system to a level of performance our customers expect, particularly as the economy continues to electrify.

In our plans have been supported, I am pleased with the recent outcomes from the Michigan Public Service Commission and the Liberty Storm audit, which highlights the vastness of our system, the billions of dollars, and decades needed to improve it in the importance of these strategic investments.

and our customer's benefit when we approve the system proactively versus reactively. Making these investments in the system now means we can do it at a 40 to 70% lower cost compared to when we do this work, following an outage.

Garrick: Better Service, Lower Customer Clothed.

Garrick: This is a great story.

But third point I want to make today is the nice tailwind of economic development we are seeing in our service area. I'm excited and encouraged about the true runathon underway in Michigan.

The big story across the industry is sales growth brought by data centers. We're seeing the same and we're happy to talk more about data centers.

For our story is different.

and in my opinion better.

In Michigan, we are seeing a many of Patron Reddissons, both through by Onshoreing, unique state attributes.

and the inflated reduction in the Chips and Science Act. And we love manufacturing growth because it brings jobs, supply chains, commercial activity, housing starts and residents of the growth. Where there is greater benefit for the state.

We recently updated this slide to highlight several new and diversified examples.

Corning, expanding and investing up to $900 million and bringing nearly 1,100 jobs to the state. This is the sort of growth you'd like to see, significant investment in job growth.

Sob has expansion plans for integration in assembly facility. Sob is new to the state, but adding to the nearly 4,000 businesses engaged in defense in aerospace work in Michigan.

2 new examples. Among many that speak to the diversified manufacturing grow we are realizing. Over 700 megawatts of sign contracts in 24 months, in growing.

Garrick: Our economic development pipeline continues to look promising with over six gigawatts of low looking to either move to or expand in our state, 60% of which is manufacturing.

As I mentioned earlier, our renewable energy plan will conservatively reflect our updated load-growth forecast based on the strong economic development tailwind we are experiencing.

We work hard every day to win our customers' business and we are honored when business see the value investing in our state and our service territory.

So let's take a look at the regulatory calendar for the year.

As I shared last quarter, our financial related regulatory outcomes are known for the year, given the constructive March, elect-great order in the approved gas-rate case settlement.

This position saw us well as we navigate the last quarter of 2024.

Gas rates were effective October 1st and we plan to follow our next gas rate case in December of this year.

Garrick: and our current electric great case, we saw constructive starting position by staff. We saw support for further underground, wildfire mitigation, and the continuation of the investment recovery mechanism.

I do want to point out that the mechanism for storm recovery and the investments outlined in the electric-grade case and in the liberty storm audit are important for our customers.

Garrick: That probably goes without saying, however it may require that we go to a fully adjudicated order to get the best outcome for our customers.

Know that we are confident with where we are in the process, the quality of our filing, in the proactive nature of the investments we are making to improve reliability for our customers.

If we go to full distance, we expect the order in March of 2025.

Now let's spend a moment on the results.

Garrick: For the first nine months, we reported adjusted earnings per share of $2.47 up 41 cents versus the same period in 2023 largely driven by the constructive outcome in our electric and gas rate cases.

Given our confidence in the year, we are reaffirming all our financial objectives, including this year's guidance range of $3.29 to $3.35 per share with continued confidence toward the high end.

We are initiating our four-year guidance for 2025 at $3.52 to $3.58 per share, reflecting 68% growth off the midpoint of this year's range.

Garrick: and we are well positioned.

Just like 2024, to be toward the high end of that range.

is important to remember that we always rebased guidance, offer actuals on the Q4 call, compounding our growth. This brings you a higher quality of earnings and differentiates us from others in the sector.

Garrick: and like we've done in previous years, we'll provide a refresh of our five-year capital and financial plans on the Q4 call.

with that. I'll hand the call over to Reggie.

Reggie: Thank you, Garrick and good morning, everyone.

On Sly 9, you'll see our standard waterfall chart, which illustrates the key drivers impacting our financial performance for the first nine months of 2024. And our year to go expectations.

For clarification purposes, all of the variants and analyses herein are in comparison to 2023, both on a year to date, any year to go basis.

Garrick: and Summary.

Through the third quarter, we delivered a just-in-at-income of $736 million.

Garrick: 2,000 $4.47 per share.

which compares favorably to the first nine months.

of 2023, largely due to higher rate relief, net of investment costs and solid performance at North Star.

Garrick: from a weather perspective.

The third quarter offered favorable weather versus the prior year to the tune 10 cents per share largely due to a warm September.

The strong third quarter weather for the electric business more than offset the mild weather experience in the first half of the year. Thus equating to five cents per share of positive variants year to date.

As mentioned, rate relief, net-of-investment costs, one of the key drivers of our Unidate Performance resulted in an 18-centre per share of positive variants due to constructive outcomes achieved in our electric radar order for seed in March, and the residual benefits of last year's gas-rate case settlement.

from a cost perspective.

Our year-to-date financial performance was largely driven by lower service restoration expense despite a sizable weather system that impacted our service territory in early August.

Our favorable variants in this regard has been fueled in large part by cost efficiencies in our storm response efforts. In fact, even though our volume of outages has increased by approximately 10% in 2024 versus the comparable period last year.

Our restoration cost per interruption has decreased by over 10% all while restoring customers at a faster rate than the prior year.

These achievements in our storm response efforts are just another example of our lean operating system, the CE way, driving daily productivity in the business. Quite simply, our workforce uses the tools of the lean operating system to deliver more value to customers with less resources every day.

Garrick: That is the essence of the CEY.

and this favorability in service restoration expense coupled with cost performance throughout the business, provided two cents per share of positive variants versus the comparable period in 2023.

Rounding out the first nine months of the year, you'll note the 16th sense per share of positive variants highlighted in the catch-all bucket in the middle of the chart.

The primary sources of upside here will relate to the solid operational performance at Norstar and a tax related benefit among other factors.

Garrick: Looking ahead, as always, we plan for normal weather which equates to 14-cent per share of positive variants for the remaining three months of the year. Given the mild temperatures, experience in the last three months of 2020, three years.

for regulatory perspective.

will realize nine cents per share of positive variants largely driven by the aforementioned electric radar to receive from the commission earlier this year and the constructive outcome achieved and are recently approved gas-ray case settlement which went into effect on October 1st as Garrick noted.

On the Crossside we anticipate 15 cents per share.

of negative variants for the remaining three months of 2024 in large part due to additional funding support for select cost categories that have trended above budgeted levels for the majority of the year, such as insurance, premium and IT related expenses.

closing out the glide pass for remainder of the year

and the Pnulzmet Bar.

On the right-hand side, you'll note a significant negative variance, which largely consists of the absence of select one-time countermeasures from last year and conservative assumptions around non-utile performance among other items.

and aggregate these assumptions equate to 25 cents to 31 cents per share of negative variants.

In summary, we remain well positioned to deliver on our 2024 financial objectives to the benefit of customers and investors.

Garrick: As such, we are reaffirming our full year guidance range of $3.99 per year to $3.35 per year with a continued bias toward the high end.

Moving on to the balance sheet on slide 10, we highlight our recently reaffirmed credit ratings from SMP in August.

We continue to target mid-teens, effort-photoddeth on a consolidated basis over a planning period to preserve our solid investment grade credit ratings as prolonged stand-in guidance from the rating agencies.

As always we remain focused on maintaining a strong financial position, which coupled with a supportive regulatory construct and predictable operating cash for generation supports our solid investment grade ratings to the benefit of customers and investors.

Garrick: Moving on to our Financing Plan on slide 11, I'm pleased to report that we've completed all of our plans for the year at Levels favorable to plan and ahead of schedule, which leaves us with ample liquidity for the remainder of the year and beyond.

On a brilliant year, tension, a relatively modest increase to our 2024 plants and ancings at the utility. Given the need to rebalance the rate-making capital structure in accordance with the recent regulatory outcomes.

and Attractive Pressing at Issuants.

is also worth noting that we remain opportunistic should we see a cost-efficient opportunity to pull ahead some of our 2025 financing needs.

And I've said before, our approach to our financing plan is similar to how we run the business. We plan conservatively and capitalize on opportunities as they arise.

Garrick: that approached and been tried and through year-end and year-out and has enabled us to deliver on operational and financial objectives irrespective of the circumstances.

to the benefit of our customers and investors. And this year is no different. And with that, I'll hand it back to Garrick for his final remarks before the Q&A session.

Garrick: Thank you, Reggie.

Garrick: CMS Energy, over two decades of consistent industry leading financial performance.

Garrick: Rumin Confident, our strong outlook this year and beyond as we continue to execute our simple investment thesis and make the necessary and important investments in our system while maintaining customer affordability.

with that hairy, 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 one on your touch tone to the phone. If you are 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 touchstone telephone. We'll pause for just a second.

Our first question is for the line of Shah Porraza with Guvian Hype partners. Please go ahead, your line is no more than that.

Shah Porraza: Hey guys, good morning.

Hey, good morning, star. I heard you didn't like our old music. I heard that was the thing today. Oh, God. Hey, I like on the road. I like your choices, but it's okay.

Yeah, I'm a talica, but you have a D.C. If you were all a little A.C.D.C. out of there.

What's your question today? There you go, there you go.

Sugicare on the data center demand, obviously everyone is mentioning it.

to kind of a degree. Michigan is obviously started to emerge as a favorable data center environment with some of the hypiscalors doing some land acquisitions that are ground rapids to do.

You know, to be exact, do you have sort of existing great capacity to onboard kind of the new customers without kind of an interconnection lag? What are you seeing on the ground and do you need sort of a new tariff structure to move ahead? We've seen some interesting proposals coming out of Ohio, a lot of back-and-forth there.

Speaker Change: So, big question but how do you think about this?

Speaker Change: Michigan and our service territories, specifically reference grain or habits in that service territory.

is a great place for data centers and investment in Michigan. The temperate climate, the fiber infrastructure, and to your point, and really the point of your question here is we have the electric infrastructure available to serve.

and so we work closely with data centers and other manufacturing customers to meet their timelines for their ramp up and load. And so that makes us advantageous to locate a data center as I highlighted in my prepare remarks. Really manufacturing has been a lot of manufacturing growth.

Let's show it up here.

Speaker Change: and so that's what's exciting about this. You can, I guess, the other thing is too when they look to our clean energy law, they can see a path.

to that growing clean energy, the renewable and the clean energy standard by 2040, which is also attractive to the Tata Center.

Components. But I would highlight too just what I don't want to lose in this conversation is manufacturing Go. That's really where it's in the true Renaissance. We've seen a lot of opportunities show up there. They will show up in our renewable energy plan as well.

to serve our customers and it just go into the question on a tear off.

Rochow, we've already found X-partate type filing.

To move the data centers to what the college, GPD rate. That's a better reflection of the cost of serve and we're working collaborative with the commission to see if another rate structure is needed for data centers that would ensure our residential customers and our left subsidizing data centers.

Got it, about any timing on that, I'm care.

We would expect we can do you make progress. I mean like I said, the X-partiet violence already been approved and so we're a good position there from a cost service perspective. We'll continue to work with the commission. I would expect that to take place over the next six months to a year.

Shah Porraza: Okay.

Perfect and then just lastly in terms of your takeaways from the storm and resiliency audits this year is your commitment to cutting outages.

supported by the current distribution plan, which you look to update the DSP to incorporate some recommendations from the audits. Or does it just inform you better to move the one and a half billion incremental cap extra identified into base plan? Thanks.

This audit was completed. We caught the liver yodax, that was the company that was performing the work is

is really balanced and supportive. I mean, you can see that within the contact of the support of the work that we need to do, the capital investments, aim-free trimming to be able to continue to enhance reliability and provide better service. And as my prepared remarks here, we can do that at a lower cost.

So, better service, lower cost when we do things proactively versus reactively.

and so we have our five-year capital plan that's a $7 billion plan that's comprehensive and very deliberate and focused and we'll take the liberty audit result and we'll incorporate that in that plan.

Shah Porraza: and I'll remind you that's a 7 billion dollar plan, 5.5 of it is incorporated into the capital plan. And so there's opportunity there that to work more of that capital end, of course with the support of the public service mission staff and commission.

Our next question today is from the line of Jeremy Tanak with JP Morgan. Please go ahead. Your line is now open.

I can morning.

Hey, good morning to everybody.

Jeremy Tanak: Thanks for taking my questions here. Just wanted to start off.

You know, if you could walk us through a bit more, I guess on dig, you know, given everything that we're seeing on the generation side needs, their capacity needs, it's just, you know, with contracts rolling off in, how you think about, I guess, the trajectory there going forward.

North Star and the North Star business and we'll get to the dig piece continues to perform well, but frankly I'd expect that. It's a small piece of the earnings mix but

Speaker Change: They need to perform and we expect them to perform and that's exactly what they're doing both from operational and a financial perspective. And the course dig is an important part of that mix or airborne industrial generation. And we continue to see strength both in the capacity markets and the energy markets.

Shah Porraza: and we are securing those bilateral contracts throughout time and they continue to be above our plan and our expectations. And so it's a great story and we continue to be a tailwind and our overall expectations around.

6th day for Sunday BS Growth.

You're a mean this is Reggie, all I would add is that now we've been...

Speaker Change: You're just to provide a bit more of a financial lens to Garrick's good comments. As you know, we've had...

Speaker Change: A good 25 to 30% open margin in the outer years of our plan and so we'll provide an update on our Q4 call as we always do around that.

the levels at which we're pricing capacity contracts in that bilateral market. And as you know, we'll bring in a new year. In our next five year plan, and that will have even more open margin. And we continue to see reverse inquiry at levels well in excess of what we've exploredly.

Realized from a capacity price perspective and so we were usually around 3 to 3 to 5, 50 cents per kilowatt month. We're now seeing 5 and 6 handles.

and Rejji, in reverse increase, still a really robust opportunity and unsurprisingly, it's just because of the real nice technical overseeing, with just supply being reduced in zone 7 through retirements and upper pressure on the demand curve. So we don't see any reason why that should bait any time soon.

and one thing I'll remind you, Jeremy, too, it's not linear as well. We do have outages to maintain the system out there, so that's an important piece to remember. As we go through the long term plan.

Speaker Change: Right, that makes sense, don't want to get too far ahead of myself there. But maybe just...

Speaker Change: You know, thinking about growth in general, we're seeing some of your peers talk about higher sales forecasts and...

Even some kind of lifting the expected long-term EPS Kager expectation. And just wondering how you guys think about this given, you know, the incremental opportunities you see in front of you, I'm expecting strengthening and lengthening, but just wanted to double check there.

and let me offer some comments that I'm sure Reggie's going to want to jump into this as well.

We provided those differentiated or those tailwinds to give visibility and to instill confidence. That's what we have confidence about the ability to strengthen the length of that 60% EPS growth. But I want to be clear, what are investors expect?

Shah Porraza: as we continue to deliver a year after the US. 21 years we've now been in this building, but consistent industry-leading financial performance.

Time and Time again and then compounding off axles which gives you a better quality of earnings.

and what our investors inspect as we expect and that's what we deliver. And so by providing some insights to those tailwinds,

Shah Porraza: You get some idea of the momentum and how we can strengthen our confidence and delivering this and just do it a year after year exactly what our investors expect.

Speaker Change: But certainly Reggie, I'm sure we'll want to walk into an option commentary in this as well. Jeremy, all I would add to Garrick's comments is that when you think about the components of what will drive long-term growth, that Garrick walks through and great detail in his prepared remarks.

Speaker Change: The Opportunities on the Capital Side, whether it's through the Capital Investments Endore, earning on PPAs and the context of the energy law, and that's going to be decades of...

Speaker Change: Financial Opportunity and Investment and PPAs again. The Opportunities to improve the reliability and resiliency of our electric distribution.

Speaker Change: Infrastructure, that's decades of spend and investment opportunity to the benefit of customers and investors. And then in the gas business which we didn't talk about as much of this call, but they're still significant.

Level of investment to be made to continue to harden that system, reduce food to methane emissions and continue to keep it safe and reliable, particularly with on our pending rags coming out from fems and so a lot of investment opportunity.

and with the upper pressure that you alluded to.

on the demand side that will create the headroom among other benefits.

Shah Porraza: to facilitate and enable that investment to come to fruition. And so we see a really nice glide path to deliver on that differentiated 6% growth for many years compounding off of actuals. And so we're not going to get ahead.

Shah Porraza: of our Q4 disclosure and that's when we update our five-year plan but we still feel very good about our ability to strengthen the length of that growth to Garrick's comments.

Got it, that makes sense, that's helpful, thank you.

Our next question today will be from the line of Rosfala with Bank of America. Please go ahead, your line is no.

Speaker Change: and I'm going to get a little closer to congratulations on the quarter. Another solid one is we all come to a specific CMS.

So just a couple questions, but you've talked about the 2.5 giga lots of storage target in the state.

How do you think about could that change your sort of battery tax credit shift or does the cost of that change or is there a just a lot of support for this at the state level versus what's going on at the federal level potentially after next week? How do you contextualize that investment colorful?

Let me offer the two mechanisms that we have to consider what I call supply type assets.

Shah Porraza: One is the Renewable Energy Plan, which will file here November 15.

and that range around that date.

and that'll lay out some of renewable energy assets we need both. It'll build off the foundation of our 2021 Integrated Resource Plan but then there's two torrentures as I see it of additional renewable energy build.

That will show up in the terms of...

Meeting the 50% standard.

for Null Blathets for 2030, as well as 60% for 2035, that's really a trunch1. And then there was additional renewal blasts that was used.

Resolve of economic development in growth, that demand growth that we've seen. So that's a nice piece of work, a nice tailwind. There will be some reference to storage in there as part of that.

But we're more of the storage of playout as in our 2026 Integrated Resource Plan. That's where we look at the capacity mix, that's where we look at the reliability of supply. That's where we'll look at those important components. And to agree, there's additional tax incentive or benefit that'll play out in that process and that selection process.

I do anticipate that there's going to need to be quite a bit of storage on the system, maybe even more than what is referenced in the law. But that's certainly a nice pathway to get things.

started with the certainty of the legislation. So hopefully that's helpful.

and the next one is Garrick's.

Yeah, Ross, sorry. I've been a little slow to draw on a couple of my comments so pardon me.

The only thing I would just add and it sounded like you were looting to when you talked about next week, you know, potential repeal of the IRA and the implications of that on tax credits. Was that the thrust of the second party or question or did I miss it?

Shah Porraza: Yeah, just as that, we know where can we contextualize that versus the state and set-ups that are pushing this.

So I dare not wager or speculate as to the outcome on next week. I think that's a fool's errand and I think it's too difficult to call, but I do think it's still a low probability.

Shah Porraza: that you see a repeal of the IRA because the reality is one you need a pretty sizable red wave to just repeal the legislation. But even if you did want to hypothesize that that could take place.

I think there's also a reality that the number of red states have benefited significantly from the legislation getting passed. I've heard a step the other day.

Shah Porraza: from one of the CEOs in our state who should be asked about 75% of the benefits of the IRA have accrued to red states and so I think again even if you saw red-wared significant enough.

to which I still think is a fairly remote probability to repeal the legislation. I still think there'd probably be a real significant discussion offline that whether it would make sense from an economic perspective to go and undo all those benefits occurring really nationally but again more concentrated towards the Red State. So I still think it's a low probability.

Event. And that said, if it did happen again, even if you wanted to take sort of that really remote probability coming to fruition, we should have to comply with the law to Garrick's comments. I'll be, it might be a higher cost, but again, we should have to comply with the law.

Shah Porraza: in Mexican.

Perfect, make sense. Ready to do some more coffee this morning. So, go grab a cup of coffee. So, that's what I'm talking about. We'll do.

Speaker Change: The next question I had, just to kind of back to Jeremy's question a little bit on North Star and in capacity, which is, I mean, you know, my so has sort of adopted a lot of the PGM changes around the VR curve. So, you know.

Certainly it seems like that will also go higher in next year's capacity, and at least that would, would mirror what happened at PAM. So, do you sort of hold off on some closing down some of these open positions for their out on capacity? And so you see what that option clears at you in a better idea, like I've just tried to figure out the timing of how you work that's really.

No, I'm process.

Speaker Change: has been with Dig to just layer these in over time. That's really a derisking mechanism for us and certainly.

or sometimes where we might strike at a at a price point that's a little lower than the future.

Speaker Change: But there are times when we're going to strike at a price point that's a little higher than the future.

We had that approach and really de-risk.

and becomes a predictable source of.

Ernings, my take in at least my ladder or contract so it's just kind of later in men over time.

Based on the stats and the C-E-Y, thanks guys for not solving cooler.

Speaker Change: The next question today is from the line of Julian Dimugian Smith. With Jeffries, please go ahead. Your line is now open.

Speaker Change: Thank you for the team guys, thank you so very much for the time. Appreciate it, good to chat with you guys.

Let's get that copy of it. So, it's too easy to get it. The second one is, you guys have this pretty big swing in the cost number and that waterfall slide. You talked about that minus 15 cents.

Last quarter that was a plus nine. You mentioned in the Repairer Marks.

Insurance and IT. Can you speak a little bit exactly what's going on? Is there a pull forward going in there as well? That's timing in for a year. Is there a wildfire impact that's impacting insurance? It's trying to understand what are the big pieces.

I'd really appreciate the question and let me provide a little bit more color on that. So we have a number of cost related line items that we track throughout the year.

Speaker Change: Expectations going into the year and budget at levels across every cost category. Through the course of the year, some of those line items track a head of budget and not in a good way. So higher than budget. And so we countermeasure that largely through the CE way and other cost reduction initiatives. And in some cases as we put the Q4 and we don't think we'll have sufficient countermeasures to offset that.

You know, there are times we'll just sort of fund those cost categories at levels that we anticipate at the end of the year. And so, sorry, said differently we have...

A level of countermeasures as well as Q3 Weather Health that have given us enough contingency to fund those cost categories to levels that we anticipate than being at the end of the year. And so we're just funding those costs. Insurance was one example. We had IT related costs that were trending a little ahead of budget. Another one is we also have some regulatory assets that are amateurs, or liabilities that are amortizing that are at higher levels in the prior year, associated with our EV programs and others. And so it's a it's a hard podge of cats and dogs that we're just trending and how to budget in levels. And so that's really what we're funding there.

and that's why you see that big increase in the Q4 year to go expectations versus where we were on our Q2 call. Is that helpful?

So basically said, you would have been holding off on funding summer.

in the 2025, you realize that you have the ability to do so, so you pull them back forward.

Speaker Change: I wouldn't call the pull head to be clear, these are not expectations of costs that will have in 2025 that we're trying to do risk.

These are costs that we are incurring right now and the actual we have seen in the first nine months of the year in the excess of what we've budgeted. And so we're applying some of the contingency that we've accumulated.

Speaker Change: Through.

Countermeters, North Star out performance and just plain old fashion, good weather and September and applying that contingency to just fund those cost estimates for the end of the year. So these are just 2024 funding and just basically updating our forecast to reflect the economic reality we're seeing across those cost categories.

Speaker Change: Wonderful. Thank you guys very much. See you next time.

Speaker Change: Thank you.

Speaker Change: Our next question is from the line of Travis Miller with Morningstar. Please go ahead, your line is open.

Speaker Change: and everyone. Thank you.

Speaker Change: Thank you more in Travis.

Travis Miller: Hi, so on the REP, you've touched on this a couple of times but the anticipating that sales growth number going up.

Travis Miller: As you were going through that process, not to front run this too much for the next couple of weeks, but as you were going to that process, did you have enough visibility in terms of sales growth from data centers and what you mentioned on manufacturing some of those kind of 24-7 type loads?

to be able to incorporate, again, some of those stuff you touched on in terms of storage and perhaps other renal binergy technologies.

Can we see that in this REP or that something to look more for in the IRP?

This short answer is yes, but let me explain more. In the renewable energy plan, we'll start out with the base or the foundation is really the 2021 integrated resource plan, which you'll remember calls for a gigawatts of solar and we built some renewables as part of that as well. So that's the foundation.

The first piece, well, the 21-IRP did not get us to 50% renewables by 2030 or the 60% number by 2035. So there's some renewables that will have to be constructed or...

through a PPA with an FCM that will have to happen. That's Toronto One.

The second tranche is specifically because there's additional sales expected as a result of economic development. And so we forecast that out over 20 years and so we do have visibility to it. But we have to have certainty around it as well. So these are items that we are.

Travis Miller: We have high confidence around and we have sign contracts around.

This is not the pipeline or some hypothetical numbers.

Travis Miller: Again, a reflection of what's coming to the state in terms of it. So we have the answer question directly, yes, visibility of that. That will also drive additional renewable assets or purchase power agreements to meet that need as well.

So if you continue to follow that down, I expect it to be a mix of solar and wind that'll make that up and then of course we'll talk about more details of that at EI as we file that. So that's part one.

The second part that I would also is the IRP. And remember, there are new energy planes just deals with energy. You have to do a capacity, you have to do with a reliability supply.

You also have the opportunity to accommodate additional sales growth that will show up in the integrated resource plan as well. So I see him as two mechanisms, two opportunities where we'll see.

Travis Miller: Those tailwinds have again ownership of assets investments to deliver clean energy on behalf of our customers or through a PPA with the financial compensation mechanism.

It's Travis, this is Reggie. All I would add is that if you look at slide six in our presentation today, you can see in the left hand side of the page and Garrick spoke to that some of this in his prepared remarks.

There's a raft of opportunities we've seen from an economic development perspective and I think we've got

Aitor so listed on the pay. Only two of those are in our current five-year plan. Goshenin forward. The rest of these are additive to our plan. And so that offers some breadcrumbs.

as to the additional opportunities we're seeing. And I will tell you that some of those opportunities that are pretty high in probability that we're still not quite in the plan yet are likely going to be coming to fruition in the coming months. And so there's a lot of opportunity.

that we've already seen since we rolled out last year's five-year plan. And so at this point that's well-stale. And so again, you'll see that update in our RAP. You also see it.

and the five-year plan that we roll out in Q4 next year in addition to the IRP as Garrick noted. So you get some visibility on slide six today and again we're looking forward to talking about more opportunities in the coming months.

Okay, that's great. Appreciate all that detail.

and then one more for me on different subject of liberty on it. Would you anticipate on the regulatory side the potential for...

Putting in regular, putting in some kind of performance mechanism or something, some kind of metrics to me before you get approval for the additional CapEx or operating costs.

I anticipate that we'll take the liberty on it, findings, and we've them into our five-year reliability plan, which we'll...

of course enhanced that plan.

provide opportunities for additional capital investments, again, address reliability for our customers proactively offering better service and a lower cost.

Travis Miller: So that will be part of it. I anticipate there will be additional tree trimming or operation of maintenance expect that we will open into the plan as well.

as part of this liberty audit. And as the commission,

One of the actions of the commission is...

are he taking is a performance based right making that's focused on.

Reliability Work. And so I anticipate that's woven into this work as well. I don't think it holds us up from making these important investments. And we're making them now and seeing good performance improvement in terms of reliability and we just need to keep to need to do that important work.

Okay, great, that's very helpful, thanks so much.

Our next question is from the line of Michael Sullivan with more free search. Please go ahead, your line is open.

Michael Sullivan: Hey, hey, we're on good morning. I think it's been asked a couple of times now, but just to level set us for...

Michael Sullivan: Low Growth and what's coming in the REP. My recollection is you have historically talked about 2% less 2% energy efficiency and your kind of flat is kind of your base case today and then it sounds like

You're excited about all this kind of new load growth, but what's actually going to be reflected in the RET is...

are going to be pretty conservative and not some big shift change. Is that a fair characterization?

Reggie: Michael, good morning, it's Reggie, thanks to the question. So just to level set our current five-year plan that we rolled out in the fourth quarter of this year.

and how about half a percent of electric load growth on a five-year compound annual growth rate basis. In your right, that number is always inclusive of energy waste reduction and so if you want to grow set up you could think about that as about 2.5 percent growth.

and again, net of energy efficiency, half a percent. We expect a pretty significant upward pressure.

Reggie: on that growth rate and the IRP, sorry, from the REP renewable energy plan filing.

that will publicize in the coming weeks. And then we'll get another kick at the can, obviously, in the IRP filing about a year later.

Travis Miller: and again, between that you'll get more color in the load, growth assumptions embedded.

and the five year plan that we roll out in the fourth quarter of next year. And so again, you should see pretty material upper pressure. We do plan conservatively guilty as charged, but we do also want to reflect the reality of what we're seeing. Because remember, this is a component in our rape proceedings. And so you will see again upper pressure on that those load growth assumptions. And to Garrick's comments, we do really try to...

Incorporate whether it's data centers and industrial companies. We try to incorporate those in the plan when they're close to being signed or effectively signed and moving forward. We really try not to speculate if we...

Travis Miller: and the next cut.

Okay, so significant over pressure of conservative. I got it. And then just shifting over to the lecture case, I also just kind of wanted to level set there. So it sounds like you...

Speaker Change: are going to probably adjudicate this mainly because of the storm mechanism because this is kind of a first go around for that and what?

Specifically, are you asking for and where is staff on that with respect to the storm specifically?

and the moment that let me just start out by saying staff position is a constructive starting point.

and I share my prepared marks as a number of things that have been supported in staff's position.

But there's some distribution investments.

for our customers that I would say have been left on the table. And we're focused on improving reliability. We know we can do that offer better service. We're improving that out, my R5 year plan, and we can do that at a law cost, doing a proactive labor system reactively. And so in addition to the storm of covering mechanism, which we referenced.

which is also referenced in the liberty audit as well. But we're also focused on those distribution investments to offer better service for our customers. So, it's a bit of advocacy. We are doing on behalf of our customers.

So we can make those investments to improve service. That is also a component of which may push us into a duty-cate or... But I'll remind everybody, I'm open to settlement. It's just going to have to... It's just going to have to continue to be more than where the staff is currently at.

and I'm ready to share with you.

with Mike Worse, for things are after month. Yeah, and dare we're back to...

Speaker Change: Michael, the mechanics of the storm restoration track that we're posing in our pending rate case. If memory serves me, DTE is proposing a similar structure, we're essentially trying to take the five year average.

Speaker Change: of Service Restoration Expense and put in the equivalent of a true up mechanism where there's a 50% share for investors with customers.

In the event, our level of service restoration expense is above or below what's embedded in our rate case. So to give you a specific numerical example, if we had $130 million of service restoration expense in rates and a year in which we incurred $150 million of actuals.

Travis Miller: 10 million of that.

Travis Miller: would be absorbed by Shareholder, so we'd have 10 million of hurt flowing through our PNL, and 10 million would be established in a regulatory asset that we would recover at a later date. And so customers would fund that portion of it.

and if we saw the numbers go the other way, you would assume a commensurate level of regulatory liability and so on and so. As we see it, that provides good alignment of incentives between investors and customers with a mechanism like that and we will limit a lot of the volatility we've seen in our PNL over the last several years because levels of service restoration expense embedded in rates have been well below actuals now for the last several years in counting and so that's it.

The spirit of it and have to spend more time offline on that if need be.

and just the offer some numbers are staffed at 170 million at 9.85% ROI, 49.9 equity ratio and our rebuttal position were at 277 million at 10 and a quarter ROI, 50.75 equity ratio. So, little bit of cost to capital difference there as well, but I wanted to just...

Make sure you make likely you either revised position of the company.

Okay, that's great color. Just real quick, staff on the storm specifically though, are they outright against it? Or are they just looking for a different structure? And then what you just know? They're not supportive of it, but again, not supportive, but we've expected that.

Just like the investment recovery mechanism, it had to go to the commission. We anticipate some mechanism like this will require the commission to weigh in on. And so it's not a surprise where to staff that. And again, if we're going to go after that, it's going to go like the default folder.

Okay, thanks for sending me through all that. Appreciate it.

Speaker Change: You're welcome. Have a great day. Mike Michael Pike.

Our next question is from the line of Andrew Wazel with Scotion Bank. Please go ahead. Your line is open.

Good morning, I'm here. I was also going to ask about the settlement. I appreciate the detail there. I guess if there work to be a deal to be made, what will be the window for that?

or is it irrelevant to this? We're in there, happy.

and the other one is the same as the other one.

Travis Miller: Every, you know.

Really up to a final order is the window of opportunity for us and so.

and we'll look, again, we'll look, I'm always open settlement, I've said that in calls before, if we can make things work for our customers.

and all stakeholders. I mean, that's a good place to be. There's just a couple things in this case that may force us into a full order, and we just want to make sure everyone on the call is aware of that.

Yes, understood new tools are often a policy question, so understand that completely.

The other question I wanted to ask about the CAPX update, I understand a lot to be patient on the numbers, but the two things I wanted to ask about number one, Chris Qualitatively, it sounds like there's going to be a lot of things going into that. There's always the business as usual updates, but you've got...

Spinning around the REP, you've got Spinning around the Liberty Reliability audit, you've got the electric reliability roadmap with stuff going in there, plus you've got sort of a step change in demand growth from data centers and manufacturing.

What I'm getting at is to this be a meaningfully bigger increase in what we've seen in recent years.

Travis Miller: and if so, how should we think about financing that? You previously talked about up to a 350 million per year of equity in twenty-five and beyond.

and I'm guessing there might be an upside bias to that given all the pieces that I just mentioned. How should we think about a rule of thumb about incremental equity needs per incremental dollar of cap X? Thank you.

Speaker Change: Rejji Nalateg team this one, but I want to remind you that many of that tailwind that we described in this call, come as a result of approval of the renewable energy plant or approval of the IRP. And so although we'll file it in November of this year.

Fast forward 10 months, so it's...

Speaker Change: It's going to be in late 23 of 2025, before we see where the commission is at with that. And so I wouldn't expect some of that good work to show up until our Q4 call at the end of 2025, early for 26.

and then you have the same cycle for the IRP, which would start in 2026 and then play out in 207.

Speaker Change: A tronches that go over time over the five years.

Speaker Change: Clear Liz and Tailwinds here, but they show up at different points in time. But I'll turn over a Regido offer some additional color.

Speaker Change: Yeah, I think that's exactly right.

and Juremm. In the governors we've talked about and when we prepare our capital plan, our fortability.

Balanced Sheet and an operational feasibility, you know, can we get the work done in those remaining governors, but the fourth governor at this point is the pacing to Garrick's comment. And so just the time for the commission to review the REP, the time for the load opportunities to materialize. Yes, we signed contracts, we interconnect these opportunities, but it takes a while for the build out of the manufacturing facility or data center. So the pacing is going to certainly dictate.

and the other two are the same.

and the other four governor at this point. You will see upward pressure for sure on the 17-dollar five-year capex number we've provided at this point. So without a doubt, but it'll be pacing before you see the material bump, but I feel very good about the underlying earnings growth and rate-based growth that will come from the next vintage.

Speaker Change: Um...

With respect to equity as you know and as you stated, we have said no equity obviously in 2024 and then

Speaker Change: Up to 350 million starting next year, and we've sent that to pretty good run rate for the current 17 billion dollar capital plan. In the sensitivity, I'll share with you, you think about incremental capital going into the plan, and what that might drive in terms of incremental equity needs is a general rule thumb as for every dollar of cat backs we invest.

Speaker Change: at the Utility. We usually fund it with around 35 to 40 cents of common equity. And that has been tried and true for some time. Now it's interesting over the last. I'll say two to three years is that we've seen downward pressure.

Speaker Change: On that tentativity in terms of the equity need, and it's really been driven by a few things. One, obviously, we just continue to generate substantial cash flow in the business.

because of the forward-looking test here in the Rej construct of Michigan. So given example, our prior five-year plan of 50-and-a-half a billion a capital generated about 12-and-a-half billion.

of operating cash flow over five year period in aggregate. This current vintage is 17 billion. We expect 13.2 billion of cumulative.

Operating Cash for Generation Vintage, Evidentage, Showness of Billion, Dollars of Increase Vintage, Evidentate, and so I just good cash for Generation. That's one. Number two, the ability to monetize tax credits.

Speaker Change: A four to two is food diaray that's another big driver of liquidity and effectively a new source of equity that's helping our metrics and just offering another layer.

of liquidity to fund our capital plan. So that's also helpful. And we did our first trance, a share, about 90 million of dispositions. And we did that at levels better than plan, meaning the discount to par was better than we thought it would be.

and so I anticipate us doing more of that over time. And then the last one is just...

Speaker Change: I feel like a broken record I said, this is we do plan conservatively and so.

For the debt we're going to issue at the holding company, we're assuming it's straight debt with no equity credit, but we've been known to issues subordinated notes or hybrids in the past. Those get now a greater level of equity credit for moody as you know. And so we're 50% now. So if we start to see pricing for those types of securities and prove over time, that creates an opportunity also to put downward pressure on that sensitivity because...

Obviously, we see pricing comparable to what our data assumptions are in our plan, and we can do high bridge at a level that's credit-acredive, any PSA-creative to plan. And so those all create opportunities for us to really minimize the equity needs as we increase the capital in our five-year plan.

Okay, that's extremely helpful details there. Thank you very much.

to just be clear on the KPEX numbers though so we should not expect numbers related to the RET or IRB but we should expect upside the KPEX related to reliability and the demand and economic development. Does that maybe a pair of wear to put it?

You certainly won't see the full magnitude of opportunities associated with the REP. The other reason I'm qualifying the comment a little bit, Andrew, is that you start to run on PPA's Effective Mid this year. And so we'll assume additional PPA's going forward. So we'll start to see that opportunity associated with renewable energy plan scale every year, because we're doing PPA's for renewables every year. We'll probably start to layer in some of the capital investment opportunities, how to use the plan. And so you'll see some of that we've done and you'll definitely see your comment reliability and resiliency. But again, the lumpy or opportunities associated with the energy you won't see until the really starting in the 2026 vintage of our five year plan.

Okay, appreciate you clarifying, I guess maybe I needed some coffee this morning as well or some early Halloween candy perhaps. Thank you guys.

As a quick reminder, if you would like to ask any further questions, please dial, star, full of 1 on your telephone keypad now. And as for our next question, we'll move to the line of Angie Straussinski with C-port. Please go ahead, your line is open.

Speaker Change: Thank you, thanks for listening in. So I just have one question. So when I look at your current supply stack on the system, I mean how much of it is imports from

Speaker Change: and like self-generation versus the inputs from the grid and I understand that the myself, the process is etc.

Speaker Change: I'm just debating how much of spare capacity that you have of your own right now. I mean if I were to be an industrial customer or a high-prescaler, how much could you offer me in my go-out right now?

Let me offer you this and we'll talk a little bit about the mix from my toe and the leg.

Speaker Change: After our 2021 Integrated Resource Plan, we were along from a capacity perspective and there were a couple of things. One, we kept additional assets available to us as part of the settlement. We acquired the COVID-19 generating facility with 1.2 gigawatts.

In the meantime since 2022 when that was approved we've also built out renewable assets both when and solar and both there's some PPAs as well as some home assets So that's actually put up with the position we've been long and we've been able to accommodate a lot of sales growth

and then as a reminder we have the mechanisms for the renewable energy plan and the integrator resource plan. With some flexibility in those because we look at them.

2 years on Renewable Energy Plan Base of 73-5 on an integrated resource plan, but we can pull up and adjust those as needed to be able to accommodate the additional growth. The third piece with these hyper-skillers is working with them.

Speaker Change: Because they're not going to all come on immediately and they have plans and when they want to ramp up, that's also true with manufacturing and so they may need a...

Speaker Change: Starting Load in 2026, but their full ramp up doesn't get out to 2028, 2930. And so there's a lot of work we do with the customers to make sure we get that right.

and so there's a lot of flexibility we have to make sure that's applying the man stacked match up nicely and we can grow Chromission in the state. Now we do leverage my soul.

To be able to do that. If you look at our total mix, it's about 46% 40-ish, 5% that we either have through PPAs.

or through a personal market. And remember those PBAs act as both a capacity and energy as well in that mix and then the rest of itself generated.

Speaker Change: But again, I'm just, again, I'm debating it myself is that if I were to site like a big industrial facility or a data center, I would publicly care about the speed to power, right? So, so this initial availability of megoats would probably matter to me.

So you're saying you are long-power even right now, so even say, you know, the next 24 months, there is a spare capacity that you could allocate to such a user.

The short answer is yes and we call the work closely with customers to be able to do that. I'll give you a real example and just hit the press today. We talked about a Q1 but we couldn't name the company switch which is an existing data center in Michigan. They're expanding by 230 megawatts.

They want to be up by full load in 2026. We're able to do that. We're able to deliver that. That is the electric infrastructure, both with our transmission partner and the distribution infrastructure, as well as ensuring we have the supply.

and so that gives you a little nature of our ability to deliver on that. And as we entertain other hyperscalers and other manufacturing, again we work with them closely to match up the ramp up schedule. I gave the example of corning as well in my prepared remarks.

Courtney wants to out load on by a first quarter of 2025.

We're constructing this sub station right now, we will deliver that. But again, if we're ramp up, they go from a small amount of mega watts up to 1995, that of course over a year.

and so we pace that along with that company. So those are two real examples, real work going on in the state and just give you an idea how we work with customers to grow Michigan and grow in our service territory.

And what is there's like a very big site that's a gig of eventual capacity? I mean, is this something that...

You feel comfortable accommodating. I mean, it is obviously the word property required a large, well, two large combined tackle gas funds to be built. How do you think about, you know, those sort of very big projects?

Speaker Change: Would you prefer to have smaller sites or is there a risk perspective you think comfortable accommodating the big lows like that?

We welcome growth in Michigan. I mean there's nothing better than great jobs.

and we've got a constructive...

to create opportunity for all stakeholders in the state. And so we don't back away from a gigawatt load. Some of those are on one site. Some of those are across multiple sites.

Speaker Change: and it's really again working with that company on their ramp up schedule and when do we need to provide that and match that supply demand mix? You know, we've been doing this for 135 years.

I used to be, I started out my business in the business, I just say, on the supply side, so I get this and that's what we do as a load survey. And indeed, we have the mechanisms within the construct to be able to do that with success.

and just to make sure, and how do you, for example, ensure that this load actually have a dear life, it's like, when we look at power companies, like they have those take-up take-on tracks, how do you ensure that if you make the investment, actually the load will happen?

One of it's contractually, but it's also as I shared in my early remarks.

Speaker Change: Making sure we've got a good, from our right design perspective, the cost of service model. That's how we operate.

Speaker Change: and the state of Michigan. And so that makes sure that the other customers aren't subsidizing that work. And as I shared, we're working closely with Commission and Commission staff with data centers to see if there's additional right compact or construct to be able to further ensure.

that the residential customers aren't subsidizing or putting the bill for it for it had a center.

Very good, thank you.

Our next question will be from the line of Anthony Crowdelt with Missio. Please go ahead. Your line is open.

Hey, the morning came thanks to the screws in the internet, know what to talk from when we're with Shaw telling you what music you're listening to and we're all telling you what to do and stuff. Keep it quick.

Just an apology, I think it's up to my problem, my self-inquestion, the load rules update. When we get that on the fourth quarter call, when you file the IRP, just when is the most of the day of the load growth?

Anthony, this is Reggie. Yes.

So you will get a load forecast update in the renewable energy plan that will file in the coming weeks. And you will also have a load growth update a few months later that's supporting the five-year plan that will roll out on our fourth quarter call in the first quarter of...

225 as we always do. So you'll get a couple of bites to Cherry.

on from a load growth perspective. And as Garrick noted in his earlier comments, you'll also see a load growth update about a year from then, maybe a year and a half in the context of our IRP filing. So we'll have an iterative process for load disclosure. And again, as I said earlier, I expect upper pressure, certainly on the current estimate of a half or percent that would certainly go up and it will likely accrete beyond that. So looking forward to sharing those with you in the coming weeks and months.

Great, and then just lastly, I wanted to earlier questions to talk about how the finance and needs.

Speaker Change: of the company, also I think the amount of equity now may be 30 to 40 percent for every dollar spent. You also mentioned tax credits, we're going to be instrumental. At the company, quantify what we get assumed for transferability over the next five years.

So the latest number I'll guide you to is what we have embedded in our five-year plan, Anthony, and that's a little over half a billion. But again, I expect that number to increase over time just based on the quality of the execution and also the anticipation of more renewable.

and the other four quarter calls. In Q1 of next year, I'll provide a revised number and I'd be surprised if that number doesn't continue to increase.

Speaker Change: Is that helpful?

Perfect, thanks for taking my questions and seeing Hollywood.

Speaker Change: We have my further questions in the queue at this time, so I would now like to hand the callback over to Mr. Garrick Rochow for any closing remarks.

Speaker Change: [inaudible]

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

This concludes today's conference, we thank everyone for your participation.