CMS ENERGY CORP Q3 2025 earnings call

Thank you, Alex. Good morning, everyone, and thank you for joining us today. With me are Garrick Rochow, President and Chief Executive Officer, and Rejji Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements, which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website. I'll turn the call over to Garrick.

Thank you Jason, and thank you everyone for joining us today. A strong quarter at CMS Energy from an operational, regulatory, and financial perspective. I am very pleased with the results and continue to see us well positioned for the full year and in the long term. Our consistent industry-leading performance is rooted in our investment thesis that delivers for customers, co-workers, and investors. Speaking of strong performance and consistency, throughout the quarter we delivered key regulatory outcomes which highlight the positive and constructive regulatory environment in Michigan. We received a final order in our Renewable Energy Plan that approved an additional 8 GW of solar and 2.8 GW of wind through 2035 and ensures we'll meet Michigan's clean energy law. A portion of these investments will be woven into our next five-year plan. This order also provides further certainty and confidence for our long-term customer investments.

As a reminder, this Renewable Energy Plan is a key input into our Integrated Resource Plan that will file mid-2026. We also received a constructive order in our gas rate case approving approximately 75% of the final ask and 95% of infrastructure investments for work like main and service replacements which are critical to ensuring a safe, affordable, and cleaner natural gas system. Share scripts comments from that meeting continue to support thoughtful and deliberate adjustments in ROE and suggested we have reached the floor for ROEs and in his words driven out any excess. Recently on the electric side, staff filed their position in our pending rate case supporting approximately 75% of our revised and approximately 90% of our capital ask. This case includes investments supporting reliability and resiliency which benefits our customers and are well aligned with our reliability roadmap and MPSC direction.

Again, one of many proof points in our supportive regulatory environment in a strong starting position for a constructive outcome. As shared in previous quarterly calls, we continue to see strong economic growth in Michigan. As I highlighted in the Q2 call, we have an agreement with the data center and continue to see growth with manufacturing as well as a robust pipeline. Year to date we have connected approximately 450 MW of the planned 900 MW of industrial growth in our five-year plan. I'm also pleased to share that we've been successful adding another approximately 100 MW of signed contracts year to date. This growth is coming from new projects, expansion from existing customers in the areas of food processing, aerospace and defense, and advanced manufacturing.

These products bring jobs and supply chains, home starts, and commercial opportunities to the state and create further visibility to our 2%-3% forecasted annual sales growth over the next five years. On the slide, we're showing our economic growth pipeline. You'll note we continue to move projects into and along the pipeline, bolstering our confidence in additional growth from data centers and other diverse industries. As I mentioned on our Q2 call, we have an agreement with a data center with up to 1 GW of load planning to come to our service territory beginning in early 2030 and ramping up from there. You'll see that project in the final stage of our process at near final terms and conditions. I expect further progress, specifically contract signature, as the large load tariff is finalized in November when we expect an order from the MPSC.

You'll also see other large data centers in the final and advanced stages of development, which speaks to the robust nature of our pipeline.

I continue to be confident and excited about the growth coming to our service territory. The data center and manufacturing pipeline is robust and advancing, and we are well equipped to serve and meet their needs as they advance. On the left side of the next slide, you see our current five-year $20 billion customer investment plan. On the right side, you see the robust and diverse additional investment opportunities we have going forward, over $25 billion of additional customer investments supported by our Electric Reliability Roadmap, Renewable Energy Plan, and Integrated Resource Plan. As a result of more load growth, we're focused on resource adequacy and the Clean Energy Law, which means more renewables, battery storage, and natural gas generation to meet growing demand. As I shared earlier, our recently approved Renewable Energy Plan provides visibility and certainty on our plan for future investments.

Our Integrated Resource Plan that we'll file in mid-2026 will also detail additional capacity needed to replace retired plants and support existing and future growth. We are realizing as we see that full plan come together, we anticipate needing more battery storage and gas capacity. As a side note, you can expect further growth from capital-light mechanisms like our financial compensation mechanism on PPAs and our energy waste reduction program on our distribution system. We see a significant need for investment in pole replacements, undergrounding, and system hardening as we work to significantly improve customer reliability and resiliency, and again well aligned with our reliability Roadmap and MPSC direction. As I shared before, a robust and growing capital plan which will continue to provide investment opportunities to serve customers and deliver value for investors. Now, this long runway of customer investments must be balanced with affordability.

We have demonstrated our excellence in reducing cost, and we do this better than most through the CE way, digital and automation, episodic cost saving opportunities, low growth, and energy waste reduction. This is a significant advantage for us to maintain affordability as we make immediate investments in our system. Today, our customers' utility bill remains roughly 3% of their total expenses, or what is often referred to as share of wallet. This is down 150 basis points from a decade ago while investing significantly in our system to the tune of $20 billion. Our residential bills are solidly below the national average and continue to be over the five year plan period as we continue to make thoughtful customer investments across the system.

Affordability is an area where we will continue to focus and deliver cost savings for customers, keeping customer rates at or below inflation and bills below the national average. I am proud of the work we have done to develop excellence in this area. We have built strong cost management muscle across the company and it continues to benefit customers today and well into the future. As I shared in my opening, a strong quarter for the first nine months, we reported adjusted earnings per share of $2.66, up $0.19 versus the same period in 2024, largely driven by the constructive outcomes in our electric and gas rate cases and a return to more normal weather. Given our confidence in the year, we're raising the bottom end of this year's guidance range to $3.56 to $3.60 per share from $3.54 to $3.60 per share.

With continued confidence toward the high end, we are initiating our full year guidance for 2026 at $3.80-$3.87 per share, reflecting 6%-8% growth off the midpoint of this year's revised range and we are well positioned to be toward the high end of that range. It is important to remember we always rebase guidance off our actuals on the Q4 call, compounding our growth 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 Rejji.

Thank you, Garrick, and good morning, everyone. On slide nine, you'll see our standard waterfall chart, which illustrates the key drivers impacting our financial performance for the first nine months of 2025 and our year-to-go expectations. For clarification purposes, all of the variance analyses herein are in comparison to 2024, both on a year-to-date and a year-to-go basis. In summary, through the third quarter, we delivered adjusted net income of $797 million, or $2.66 per share, which compares favorably to the first nine months of 2024, largely due to higher rate relief net of investment costs and favorable weather-related sales. With respect to the latter, we experienced a warm summer in Michigan, which in part drove the $0.37 per share positive variance on a year-to-date basis.

Rate relief net of investment costs resulted in $0.28 per share of positive variance due to constructive outcomes achieved in our electric rate order received in March and the residual benefits of last year's gas rate case settlement. From a cost perspective, you'll notice in the third bar on the left-hand side of the chart, $0.04 per share of negative variance versus a comparable period in 2024. Our year-to-date cost performance was largely driven by increased vegetation management expense due to higher spending levels approved in our March electric rate order and in accordance with our electric reliability roadmap. Before we leave the cost bucket, I'd be remiss if I didn't mention that given our strong financial performance to date, we put several operational pull-aheads in motion across the business over the course of the quarter.

These discretionary measures provided additional funding for gas system projects, electric reliability, and programs catered to our most vulnerable customers. A portion of these costs were incurred during the quarter, while the balance will flow through our forecasted year-to-go operating expenses, delivering incremental value for customers while de-risking our financial plan and the product year to the benefit of investors. Rounding out the first nine months of the year, you'll note that $0.42 per share of negative variance highlighted in the catch-all bucket in the middle of the chart. The primary drivers of the negative variance were related to the planned outage of our Dearborn Industrial Generation or DIG facility earlier in the year and the timing of select renewable projects at NorthStar, which I'll note remain on track, coupled with higher parent financing costs.

Looking ahead, as always, we plan for normal weather which equates to $0.15 per share of positive variance for the remaining three months of the year. Given the roll off of mild temperatures experienced in the last three months of 2024, from a regulatory perspective we'll realize $0.03 per share of positive variance drop, driven in large part by the constructive outcome achieved in our gas rate order in September which will go into effect on November 1st. On the cost side, we anticipate $0.06 per share of negative variance for the remaining three months of 2025 due to our ongoing vegetation management efforts as well as the aforementioned supplemental spending on operational and customer initiatives at the utility, closing out the glide path for the remainder of the year.

In the penultimate bar on the right-hand side, you'll note an estimated range of $0.05-$0.09 per share of negative variance which largely consists of the absence of select one-time countermeasures from last year, partially offset by non-utility performance fueled by achievement of key economic milestones on select renewable projects among other items. As Garrick highlighted, we are well positioned to deliver on our financial objectives for the year and are establishing a solid foundation for 2026 through prudent contingency deployment as we head into the final two months of the year. Moving on to the balance sheet on slide 10, I'll note our recently reaffirmed credit ratings at the utility from S&P in September and we anticipate a reaffirmation of the parent's credit ratings in the coming weeks.

From a financial planning perspective, we continue to target mid-teens FFO to debt on a consolidated basis to preserve our solid investment grade credit ratings as per long-standing guidance from the rating agencies. As always, we remain focused on maintaining a strong financial position, which coupled with a supportive rate construct and predictable cash flow generation, minimizes our funding costs to the benefit of our customers and investors. Slide 11 offers an update to our funding needs in 2025 at the utility and at the Parent. I am pleased to report that we have completed virtually all of our planned financings for 2025, the latest tranche of which was our settlement of approximately $500 million of forward equity contracts at share price levels favorable to our plan. Given the attractive market conditions, we'll continue to evaluate potential pull ahead opportunities for some of our 2026 financing needs.

The Parent, as 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. This approach has been tried and true year in and year out and has enabled us to deliver on our operational and financial objectives, irrespective of the circumstances, to the benefit of our customers and investors. This year is no different. With that, I'll hand it back to Garrick for his final remarks before the Q&A session.

Thanks, Rejji. At CMS Energy, we delivered a strong first nine months of the year and are well positioned for the full year. Our strong pipeline of new and expanding load bolsters our confidence in our growth and provides us with opportunity to invest in infrastructure across both our gas and electric businesses to serve customers with safe, affordable, reliable, and clean energy. It is an exciting time in this industry, and CMS Energy is well positioned with that. Alex, please open the lines for Q&A.