Earnings call: CMS Energy outlines ambitious clean energy transformation and financial performance

In the CMS Energy (NYSE:) 2023 Third Quarter Results earnings call, CEO Garrick Rochow unveiled the company’s plan to invest $15.5 billion over five years to renew infrastructure and prepare for a clean energy transition. Despite facing higher operational costs due to storm damage, the company reported adjusted earnings per share of $0.61 for the third quarter and reaffirmed its full-year guidance. They also announced their commitment to net-zero carbon emissions by 2040.

Key takeaways from the call:

• CMS Energy plans to invest $15.5 billion over five years to improve reliability and prepare for a clean energy transition. This includes undergrounding 1,000 miles of the system in the near term.
• The company reported adjusted earnings per share of $0.61 for the third quarter and reaffirmed its full-year guidance of $3.06 to $3.12 per share.
• Despite higher operational costs due to storm damage, operational expenses excluding service restoration costs were down 10%.
• The company expects 6-8% growth in its non-utility business, primarily driven by contracted renewables and the Dearborn Industrial Generation.
• The company’s long-term capital plan for the distribution system is $4 billion, with opportunities for growth and commission support.

During the call, Rochow emphasized the importance of improving reliability and preparing for an aging system. He also mentioned that the company takes a conservative approach to capacity markets and sees upward pressure on energy and capacity prices. The company is filling in the gaps for energy and capacity contracts through 2026 and 2027. Rochow provided updates on the company’s renewable build, stating that wind projects are underway and construction for solar projects is being refined.

Regarding equity needs, CFO Rejji Hayes stated that the current estimate of $350 million per year of equity starting in 2025 is not expected to materially change. The company remains focused on the supply chain and has diversified vendor sources to ensure sufficient supply.

Hayes also discussed the company’s efforts to address supply chain challenges and secure sufficient supply. They have diversified vendor sources and implemented value engineering and alternative solutions for transformers. They have also refurbished damaged transformers and worked with third parties. While there are still supply chain issues, they feel confident about the supply of highly used transformers.

In terms of legislative environment in Michigan, there is ongoing discussion and progress on clean energy support. In terms of cost savings, the company has implemented various measures, including reducing the workforce, rationalizing contractors, and accelerating IT projects. Some of these savings are expected to be sustained, but it is difficult to quantify the exact percentage.

Looking ahead to 2024, the company expects to have flexibility in their cost structure and expense management, with savings from ongoing initiatives and potential rate relief. They also discussed their voluntary green pricing program, which has seen significant demand from customers, with over 400 megawatts contracted so far.

In terms of storm risk for 2024, the company has been actively deploying technology, such as vegetation management, fusing, and automation, to improve resiliency and reduce operational risk. The company is seeking higher return on equity (ROE) rates, as the cost of capital has increased.

During the call, the company also discussed their trial runs for underground directional drilling, which they found to be cost-effective due to their expertise and equipment. Their plan involves staying out of congested areas and focusing on single-phase construction. They believe that achieving a cost of $350,000 per mile is feasible. The company also addressed an issue with estimated bills meter installation, which they stated was behind them and that they do not expect it to impact their electric rate case or other filings. The call concluded with final remarks from the company’s representative.

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