Julien Dumoulin-Smith — Managing Director and the Head of US Utilities, Power, and Clean Energy Research, Jefferies
Hey, good morning, team. Thank you guys very much. As always, appreciate your infectious energy you convey on these calls. If I can kick it off here as it pertains to the data center opportunity you guys alluded to here.
Obviously, you're in advanced talks, as you characterize it here. Can you give us a little bit more of a sense as to where we stand on data centers in Michigan? Obviously, there's been a lot of discussion in the state more broadly, maybe not necessarily specifically as to the second site here. But how are you thinking about that opportunity, and how would you set expectations on the timeline? Obviously, you can't give too many details, but at least from a financial update and frankly, in terms of a roll forward of your overall plan, you've put a lot of progress in here with the 10.5% rate-based CAGR. Just want to see how you would marry up any kind of timing on a second data center here against your wider financial plan here ultimately. At least as best you can tell by now.
Garrick Rochow — CEO, CMS Energy
Julian, can you hear from me?
Yeah, Julian, good morning. I'm very pleased with the progress from a data center perspective. And you look at that entire funnel, and that funnel has actually grown. We've had, just in the last month, another two data centers join the grouping there. Again, they're kind of at the top of the funnel, so they haven't worked their way through. Even in broader economic development, there's two large manufacturing customers that are also in that funnel too that are relatively new in the thing. And so Michigan's economic development story looks very, very strong from my perspective. And then they're continuing to move through that funnel. And we've blown a couple of them out in my prepared remarks. And so again, referencing the one we announced in Q2 with a tentative agreement, that's continued to move forward. The first piece was getting that data center tariff in place.
That really paves the way for these. They know the terms. They know the conditions. And so getting the extraordinary facilities agreement in place was a big win. And again, that's comparable to a service agreement or electric service agreement in other utilities. And then this rate construct or rate contract is at near final. And that's necessary to go through the regulatory process of approving the contract. And so I feel good about that. That should be a short process because we've done all these pre-approvals. And so again, that's a good glide path. And we continue to work with these customers on finalizing zoning. And so everything is headed in the right direction here, which gives me a lot of confidence about our ability to secure, well, a couple of data centers, potentially.
But certainly, what I'm focused on is the one where we're closest with the contract terms and conditions. Is that helpful, Julian?
Julien Dumoulin-Smith — Managing Director and the Head of US Utilities, Power, and Clean Energy Research, Jefferies
Yeah, absolutely. Then maybe secondly, I mean, you guys just gave this big update on the plan here. I just love to nitpick a little bit around it in as much as it really puts a lot of latitude within the 6%-8% here. So would love to think about or walk through a little bit what's in and what's out of the plan and how you would think about the pieces here. Because you got a 10.5% against the 6%-8%. Obviously, you guys are talking about a certain degree of dilution against that. But separately, you talked about a $50 million pre-tax FCM. You talked about some $65 million of energy incentives or energy efficiency incentives. You talk about Northstar DIG recontracting.
If you take the rate base plus some of these other items, how are you feeling about the 6-8 and what's in and what's not encompassed in the formal plan today? I'm cognizant much of the data center discussion we just had is not explicitly.
Garrick Rochow — CEO, CMS Energy
Yeah, just to confirm that, the data center piece is not in. That would be incremental investments. And again, we know what that timeline looks like and those resources and how to accommodate those to deliver for the customers. But Rejji, you'll walk through a little bit of the math here in the 6%-8%.
Rejji Hayes — CFO and Executive Vice President, CMS Energy
Yeah, Julian, we thought we'd get that question within the first three or so questions. So you did meet the over/under on that. So well done. Yeah, and so I think you've got the components right where you've got 10.5% rate-based CAGR over this 5-year window.
And then if you add Northstar opportunities as well as the FCM, both of which have grown versus the prior vintage, that adds about another point on top of that 10.5%. And then there's some other puts and takes that we can certainly spend some time on offline. And so that gives you, I would say, a low double-digit CAGR with Northstar FCM plus rate-based growth. What bridges it down to the guide of 6%-8% with that confidence toward the high end, which is, as I said in my prepared remarks, let's call it 7%-8%, and let's realistically call it 7.5%-8%. What bridges you down to that is just the funding cost because we are issuing more equity in this plan versus the prior vintage.
We've quantified that as about 3.5%, just given our market cap today and, again, the quantum of equity. So you're going from a low double-digit CAGR of growth netted down by that equity that, again, is around 3.5%. The other driver of sort of downward pressure on that growth is just the fact that we've got about $1.7 billion of parent refinancings over the course of this 5-year plan. It's important to remember that unlike the prior sort of 15 years or the first 15 years of this century, money is no longer free. Unfortunately, we'll be refinancing those parent bonds at issuance levels higher than initially they were funded at. So there's a little bit of a negative arbitrage. We are not alone in this. The entire sector will be impacted by that.
But needless to say, it's important to remember that as the parent company, those financing costs are non-recoverable. And so it's a combination of the equity needs and just parent refinancings that will drive us back down to that 7.5%-8%. And the last thing I'll note is just even if you do that math out and you say, "Okay, well, there's a little bit of cushion," that kind of gets me to about 8.5%. Remember, we compound off of actuals every year. As Garrick noted in his prepared remarks, we think that's a higher quality of earnings. And you do have to build in some contingency to be able to do that year in and year out like we've done for the past 23 years.
And then, of course, as we've talked about before, we do not have full decoupling yet on gas and certainly not on electric. And we have storm activity. And so you have to build in some cushion as well for weather risk. And so for all those reasons, we feel good about the guide today. And that's how you bridge from that high teens or sorry, not high teens, but low double-digit CAGR down to the 6%-8% and really call it 7.5%-8%. Is that helpful?
Garrick Rochow — CEO, CMS Energy
May I just. Julian, maybe I just add some yeah, I want to add a little more clarity even onto Reggie's good remarks. And let's reflect here on 2025. Constructive regulatory outcomes, outperformance at Northstar, that allowed us to reinvest back in the business. Reggie talked about from a pull-ahead perspective, better customer service.
We were able to do that this year, additional tree trimming, work on the gas system. We also de-risked future years. And then there was upside that we were able to pass on to our investors. And then we had the confidence to, again, compound off that and add $0.03 to our guide. And so this should speak to the strength of our plan and our confidence in the plan. And so again, don't underestimate this compounding piece, 6%-8% to the high end in this compounding of growth.
Julien Dumoulin-Smith — Managing Director and the Head of US Utilities, Power, and Clean Energy Research, Jefferies
That's awesome. Thank you so much. Appreciate the comprehensive nature of that response. And also appreciate I'm on the bingo card today. All right, guys, all the best.
Nicholas Campanella — Managing Director and Head of North American Power and Utilities Research, Barclays
Hey, good morning, everyone. Thanks for the answers on the rate base to earnings walk. That was very helpful. Maybe just a large component of the plan is also just the authorized returns. And I hear the comments about expecting something closer to a 9.9%. But just the PFD, I would say, is just quite concerning from seeing an 8% and change ROE significantly below the national average, not really representative of the cost of capital environment that you guys kind of spoke to in the prepared. So just maybe kind of talk a little bit about what the feedback from stakeholders has been since this has come out and how you're kind of viewing the decision tree into March here and just overall confidence for a constructive outcome.
Garrick Rochow — CEO, CMS Energy
Look, I'm not concerned about the ALJ PFD at all. Just to be super clear, this team, the CMS Energy team, has delivered.
We've got a track record of performance and credit goes to the team and a very constructive regulatory environment. As I shared, just to be clear, we expect a constructive outcome. I expect an ROE of 9.9 or better, not close to 9.9. 9.9 or better in the context of this case. Let's just take that 8.2. It's an outlier. It's not well supported. It doesn't match the environment. It's going to be discounted in this case. But I will point to this. Take the revenue deficiency that the ALJ offer, $168 million, apply a prevailing ROE of 9.9. It's like the number goes to 314, right? That's actually in the ballpark where staff is at. It's actually a lot closer. So that speaks to the merits of the case. There's good justification for the capital investment.
There's good justification for what we need to do in O&M and tree trimming and storm restoration and the like. And then turn to staff's position, right? Like I said in my prepared remarks, professionals, amazing public servants who are dedicated to understanding this industry. And there's a lot of stuff that goes on outside of the cases, IRPs and REPs and reliability roadmaps. We're building a case. We're building outside the case for the next case. And then you go into the case. And this team, the CMS Energy team, does an amazing job of having improved our testimony and justification and business cases for these investments. And the revenue deficiency from staff is very constructive as well, right? It's $317 against an ask of $423. And so there is a clear path to a constructive outcome.
In terms of ROEs, we've heard it from the bench, from the chair, that excess has been driven out. I believe, supported by testimony, again, clear testimony supports these ROEs, that this commission sees the importance of attracting and tracking capital to Michigan. And that's important for all stakeholders, including our customers. So that gives me a great confidence that we'll be able to achieve a successful outcome in this rate case as well as an ROE of 9.9% or better.
Nicholas Campanella — Managing Director and Head of North American Power and Utilities Research, Barclays
All right. Thanks for those thoughts. Really appreciate that. And then just on the IRP, can you maybe kind of talk about how the 1-2 GW in final stages kind of impacts the capacity need and just or maybe just level set without this, what is kind of the outlook for the capacity need out to the early 2030s?
Then a follow-on is just when you would wrap in the 1-2 gigs, do you see it as truly incremental to the 10.5 GW that you outlined today, just given the Large Load Tariff should protect customers from a rate standpoint, and this should purely translate to additional rate-based growth? Thanks.
Garrick Rochow — CEO, CMS Energy
Just to be clear on this, the data centers are not in the plan. So any growth from the data centers that are in that funnel are not included in the customer investment plan, just to be clear about that. So when I think about this Integrated Resource Plan, and I've shared this in some of the calls, we got a renewable energy law or clean energy law. And much of that's already been approved in the Renewable Energy Plan. So you're going to see that within this IRP. But there's a gap in capacity.
You can put all this clean energy in, but you need to fill the gaps when the sun's not shining and the wind's not blowing. You just have to do that. And you're going to do that with batteries, and you're going to do that with natural gas. That's going to have to be part of the mix. And so then when we look forward, we also know this, right? We've got load growth in this state. Again, separate from that funnel, 450 MW of connected load last year that was on our slide last quarter, right? Those have already been connected. It's 3% load growth just next year alone. And we forecast 2%-3% over the five-year plan. And so we've got to be able to deliver on that, right? And then you look forward, and you've got some retirements.
We've got Karn 3 and 4, that's oil-fired peakers that are going to retire in 2031, right? That's roughly a gigawatt of capacity. And so those capacity needs that we're foreshadowing here have to play out in this next IRP and are built into this $24 billion customer investme
Rejji Hayes — CFO and Executive Vice President, CMS Energy
nt plan. Yeah, Nick, this is Rejji. All I would add to Garrick's good comments is that, and I think we've shared this sensitivity in the past. But generally, every gigawatt of additional load we bring under the system, we'll need anywhere from, call it, $2.5 billion to about $5+ billion. And that is a combination of the distribution-related resources needed to interconnect the load opportunity as well as additional supply. And I think this point that Garrick has raised is critical in our differentiation versus perhaps some of our peers.
This CapEx backlog that we're laying out for you today, this five-year plan, the $24 billion, not predicated on us landing these large load opportunities. So that creates incremental CapEx. And to directly answer one of the parts of your question, the rate base growth would, in fact, go up if we landed one of these opportunities and had to build out more capacity to accommodate its needs. So obviously, a lot of opportunity on the outside looking in. And look forward to giving you updates later in the year.
Nicholas Campanella — Managing Director and Head of North American Power and Utilities Research, Barclays
Hey, thanks a lot. That's really clear. And appreciate the time. Thank you.
Marcella Putterman — Analyst, Wells Fargo Securities
Good morning. This is Marcella Putterman on for Shah. Thanks for taking our question. Yeah, good morning. Thanks.
So you highlight bill growth compared to the national average and to share of wallet, as well as potential savings with a 1-gigawatt data center addition. And we've seen rates be a really big topic in gubernatorial elections. So last year, with Mikie Sherrill in New Jersey, and just this week with Josh Shapiro in Pennsylvania, how are you thinking about affordability going into the election year in Michigan?
Garrick Rochow — CEO, CMS Energy
Marcella, it is a great question. And the good thing is, this isn't our first rodeo. We've been doing the affordability and the cost savings for a long, long time. But this issue, as you pointed out, is not a Michigan issue. It's a broader national issue. And frankly, when you got a K-shaped economy like this, the president is going to have some challenges in this midterm election.
When you look at across the nation, and particularly look at energy costs, it's most pronounced in PJM. Reminder, we are not PJM. We're MISO. In PJM, all those costs are flowing through the customer. All those supply and energy and capacity dynamics are flowing right to the customer, 50% of the bill. And it's happening with deregulated utilities, right? All that flows through and impacts the residential customer. The good thing about us, again, we're not PJM. We're MISO. Also, we're a regulated utility. And we own generation. So we're able to hedge that cost. I showed on my first slide, just this year alone, in 2025, we saved our customers $250 million by self-generating with our own units that are at a good heat rate versus buying from the market and exposure to the volatility of the market, 250.
And if you go back a year ago, it was over $200 million. If you go back three years ago, it was approaching $200 million. If you go direct to Q4 calls in the slide deck, you'll see all that information. So that's why I say it's not our first rodeo. We do the same thing in our gas business. We buy gas in the summer. We have the largest natural gas storage fields in the world. And we deliver that low-cost gas in the winter, keep our gas supply cost low. This affordability is not new to us. I talked about in my prepared remarks, $100 million of savings through the CE Way, $450 million over the last five years, $1.2 billion of customer measures from an energy efficiency perspective, right? I can go on and on about the things we do. And here's some data.
You can look to The Detroit News on this. Richard Czuba polled Michigan residents, Michigan voters, and they asked about this question on cost of living. 80%, that's a huge number in a poll, 80% of Michigan residents said the issue with cost of living was groceries, groceries. It wasn't energy. It's a different fact pattern here in Michigan. We continue to focus on it. That's why we're able to talk about being below the Midwest average and the national average, because we deliver. Now, you brought up the important piece of this affordability in the election. Just to be clear, we've got 10 people running for governor. It's a crowded field, right? Everyone's trying to find their little lane. They talk about different extremes, extreme politics, dead catting. There's all kinds of ways to describe all this stuff.
Again, you got to look at the polling numbers here. The other important piece is, so who's polling? So we know that. We work with them. That's an important piece. Also remember another piece in this, there's plenty of information that shows that rate freezes in Michigan are illegal. Go back to Act 3 of 1939. Go to Public Act 191 of 1982. Go back to case law in Michigan and the Michigan Supreme Court. So again, we've got a good fact pattern affordability. We've got good case law and good precedent. That's not all we do. We go meet with these candidates, these gubernatorial candidates, and I pull out two pieces of paper, double-sided two pieces of paper, and I present them with 10 policy things, policy and legislative things that they can do to improve affordability.
And I will tell you, ours like some of them and these like some of them. But you know what? That changes the conversation. Now I'm with them. Now I'm a partner. Now we're able to provide solutions to continue to take this great affordability equation we have and make it even better here in our capital in Lansing, Michigan. And so here's part of our success, 23 years of consistent financial performance. That doesn't happen by luck or accident, right? It's because we've got good energy law. That's a big piece of it. But also, our job is to be solution providers, to work with everybody on either side of the aisle. And when you can come and be a solution provider, man, that's how you get good outcomes. And that's why this investment thesis works and why we're able to do what we do. Great question, Marcella.
Marcella Putterman — Analyst, Wells Fargo Securities
Thanks.
That's super helpful. I'll leave it there. Appreciate it.
David Arcaro — Analyst, Morgan Stanley
Hey, thank you. Good morning. A bit of a follow-on to that thread and really appreciate the comments, Garrick. I was wondering if you could touch on the data center piece of things on the Large Load Tariff side. And I guess one effort that we've seen maybe getting more common, data centers paying their full share of all costs. We saw Microsoft present that initiative on their side. But I was wondering, maybe talk about the Large Load Tariff. And are there ways I mean, there are some costs that are more challenging to allocate, whether it's the full generation cost, whether it's the full transmission cost.
How can you, how do you plan to attract customers from large loads? Are there strategies that you take beyond the Large Load Tariff that you've got there?
Garrick Rochow — CEO, CMS Energy
It's a great tariff to protect customers. We're out in the public talking about this and clearing up some of the misinformation that's out there, that this is not going to raise residential rates at all. And in fact, there's a benefit associated with these data centers. And so as I talked about, we're at near final terms with the rate construct. It has to be very clear about how they're going to pay for those costs, how they're going to pay for the capacity and the energy. And it's transmission and distribution, how it's all on their nickel.
So it's great when companies like Microsoft come out and say, "Hey, we're going to protect the residential customer." It aligns exactly with what this tariff is aligns greatly with the tariff. We're going to have to get approval from the Michigan Public Service Commission on these contracts, right? So it's very clear what the rules of the road are. I'm pleased to say we're making great progress on that. I won't get into the specifics of how much supply and when. But no, like I said, it can be online as soon as 2028. Again, as that contract gets finalized, as the zoning's finalized, we'll be sure to share that with the investment community and others.
David Arcaro — Analyst, Morgan Stanley
Okay, great. Thanks. That's helpful.
I'm not sure if you specifically mentioned, but has there been support from data centers on the Large Load Tariff just in terms of continued interest in coming to Michigan, able to work under the new provisions, under that tariff?
Garrick Rochow — CEO, CMS Energy
Yes. Yes. In fact, like I shared in some of my earlier responses, that data center pipeline has advanced, and it's even grown in size. And so again, both positive indicators and support for this data center tariff and Michigan's growth.
David Arcaro — Analyst, Morgan Stanley
Great. Okay, thanks so much.
Michael Sullivan — Managing Director, Wolfe Research
Hey, good morning.
Garrick Rochow — CEO, CMS Energy
Hi, Michael.
Michael Sullivan — Managing Director, Wolfe Research
Hey, Garrick. Wanted to pick up on the last couple of questions just around data centers coming to your territory, particularly on the zoning front. There's a lot of articles out there locally and even nationally, too.
Just how much of an impediment has that been, if at all? And how much should we think about that as just a gating factor to get these things over the finish line?
Garrick Rochow — CEO, CMS Energy
I don't see it as an impediment at all. And just to be clear, I know the Wall Street Journal had an article on this, and it referenced Howell, Michigan. Howell is not in our service territory. But your question is still very important and very valid. Look, we've been doing business in the state for 140 years. It goes back to the Foote Brothers. And we know those communities that are more pro-investment, and we know the ones that are harder. And we know this because we're building out solar. We're building out wind. We do pipeline work.
And so in part, we help steer these data centers into those areas where it's more accommodating to growth. But also, The Wall Street Journal, I think where they had it wrong was the moratorium does not mean stop. In fact, it's a short process. These are 30, 60, 90, some are 180-day moratoriums, but there's still progress being made. And I would suggest it's good due process because these township officials, these community officials, are collecting information from their constituents. They're doing research. And we just saw this in Mason, Michigan, right, in our service territory. They had a moratorium in place. It was a 90-day. They actually came out sooner than the 90-day period and came out with a new zoning ordinance that allowed for data centers.
And so again, when I say finalizing zoning, we work through those things alongside with the hyperscalers, with the developers to achieve success. And again, I don't see that as a holdup or an impediment in Michigan.
Michael Sullivan — Managing Director, Wolfe Research
Okay, that's really helpful. Appreciate the color. And then just shifting back to kind of the pending rate case and regulatory strategy, what are your thoughts on just being able to get back to more frequent settlements, to maybe just take volatility out of the process associated with ALJs like the one we just got?
And then also potential to space out cases a little bit more, just given I think there's been commentary from the commission in the past and now whether or not rate freeze is legal, illegal, materializes, but anything that can alleviate pressure on frequency and then also, yeah, just parties putting things forth and being able to settle more preemptively.
Garrick Rochow — CEO, CMS Energy
As I've shared before, I continue to be open towards settlement and settlement discussions, and we'll continue to explore those. But again, the merits of the case and just the fact pattern in Michigan, we can go the full distance as we did last year in 2025 with our cases and get very constructive outcomes. And so I'm happy to go that route.
I don't think it's reflective at all about the environment in Michigan, again, because at the end of the day, we're getting successful and constructive outcomes from this commission. In terms of spacing out, I think a really important data point that I referenced on the call, and we have this information, and I think actually Wolf's presenting this in a different format, too, is that Michigan, and particularly CMS and the other large utility, our rate increases are some of the lowest in the country, right? And so can we space them out? Sure. But let's do the math. And what's going on in these other states, frankly? And so we've got a really good story. And when we go in an annual rate cases, we're able to pass savings back to our customers.
We're able to make sure that those increases are more in line with inflation or better than inflation. And so the smaller little bites at the apple is really a great approach. Now, I'm always open with the right construct if there's a way to expand those out and go longer, but we have to have the right construct in Michigan to be able to do that. There's some talks, early talks in that direction, but nothing that's serious at this point, Michael.
Michael Sullivan — Managing Director, Wolfe Research
Appreciate it. Thank you, Garrick.
Jeremy Tonet — Analyst, J.P. Morgan
Hi, good morning.
Garrick Rochow — CEO, CMS Energy
Good morning, Jeremy.
Rejji Hayes — CFO and Executive Vice President, CMS Energy
Morning.
Jeremy Tonet — Analyst, J.P. Morgan
Thanks for all the good color today.
Just was curious, with the upcoming state of the state here, we've seen in other states utilities kind of featured in some of the commentary here, and wondering if you had any expectations or any thoughts to share here given what we've seen in other states.
Garrick Rochow — CEO, CMS Energy
Let me offer this. Again, I'll start with a big headline, 23 years of consistent financial performance. We have that one slide in there. Regardless of the weather, regardless of the CEO, regardless of the governor, again, ours are these, regardless of the legislature, regardless of the commission, we deliver. I've overused this term probably, but not by luck or accident, right? It's energy law, right? A lot of that is already set. It's typically bipartisan when it's done, but that sets a lot of the parameters. Again, when it comes to the commissioners, they're on staggered terms.
They're six-year terms. You can only have two from one party. And so that sets a lot of the parameters in Michigan. That's the great thing about Michigan. But remember, as one of the largest investors in the state, the gubernatorial candidates know that. As one of the largest property taxpayers in the state, the gubernatorial candidates know that. As one of the largest job providers and union job providers, the gubernatorial candidates know that, right? And so we have a way of working with these candidates to find solutions. And it goes back to my earlier comment. When I come in and I can bring a gubernatorial candidate, two pages, front and back, of good policy solutions, what happens in that discussion, right? All of a sudden, I'm in their boat, right? All month, I'm in there helping them be successful.
And now when they're out with constituents, they can point to say, "Here's the three things. Here's the six things. Here's the 10 things we can do in Michigan to help make bills even more affordable." And remember, we're starting from a really good starting spot. And so I mean, that's a dynamic that plays out, and that's how it allows us to be successful time and time again. So hopefully, that scratches the itch of your question there, Jeremy.
Jeremy Tonet — Analyst, J.P. Morgan
Got it. That's helpful. I'll leave it there. Thanks.
Garrick Rochow — CEO, CMS Energy
Yeah.
Andrew Weisel — Analyst, Scotiabank
Hey, good morning, everybody.
Garrick Rochow — CEO, CMS Energy
Morning.
Rejji Hayes — CFO and Executive Vice President, CMS Energy
Morning, Andrew.
Andrew Weisel — Analyst, Scotiabank
You covered a lot of the main topics, so I've just got two sort of more nuanced ones.
First, on equity, obviously, as you kind of previewed, a tick-up from $500 million last year to $700 million this year to an average of $750 million in the long-term plan. How should we think about that going forward? Should it be consistent? Should it be ramping up to match the CapEx profile, or would it be more front-end loaded, given the lag of cash recovery per generation relative to distribution? And does that assume additional use of hybrids or JSNs, or would hybrids potentially reduce the equity needs?
Rejji Hayes — CFO and Executive Vice President, CMS Energy
Andrew, it's Rejji. Appreciate the question. I'm getting to a point age-wise where when I get multi-part questions, I may have to circle back. So if I miss something, just let me know. But with respect to equity, I think the premise of your question is right. I mean, they tend to increase with CapEx needs.
So this plan is $4 billion higher with $24 billion of CapEx to the utility than the prior vintage of $20 billion. So we've said with that historical sort of ratio of 40 cents of equity for every $1 of incremental CapEx, this plan has about $1.5 billion or so of greater equity needs than the prior vintage. Specifically, prior vintage was $2.2 billion in aggregate. This one's about $3.75 billion. So again, that historical relationship still ties in. That allows us to maintain that kind of mid-teens credit metric levels on a consolidated basis, which is where we like to be. With respect to junior subordinated notes, we do have a little bit of those in the plan over a 5-year period, I'd say just over $1.5 billion.
It's a market that we've just seen, quite pleasantly, an increase in breadth and depth of liquidity in that market. And we've seen really strong execution, most notably over the last 36 months or so. So we have baked in a little bit of that in the plan, not in this year, but later on, say, more 2027, 2028. So we do have, again, a little over $1.5 billion of junior subs in the plan, just given the strong execution we've seen historically. And then with respect to the shaping of the equity needs, I would say it's, again, fairly commensurate with the capital needs. And the capital needs are somewhat front-end loaded if you look at the details on the CapEx plan we have in the appendix in the deck for today.
And so we anticipate issuing a good portion of that in the first three years of the plan, and then it levels out, really kind of really drops off in the latter two years. Now, we will be opportunistic, as always. And if we see our stock trading at levels that are not offensive, and I would submit they are offensive where they are today, we'll be opportunistic. But the plan for this year is to dribble out that $700 million. And over time, again, if we see the stock trading at levels that we think are more reasonable, we may be a little bit more aggressive than that. So let me pause there and see if that's helpful.
Andrew Weisel — Analyst, Scotiabank
It is. Thank you. And your memory is still intact. You got all of those.
Next one, you previously talked about a $20 billion CapEx plan with $25 billion of incremental opportunities. Now you're guiding to $24 billion. Should we think of that as pulling $4 billion from the opportunities bucket into the formal plan, or is this more like an incremental $4 billion that you've identified and you still have a similar opportunities bucket beyond the new outlook?
Rejji Hayes — CFO and Executive Vice President, CMS Energy
Yeah, so great question. And I would say in terms of that $25 billion of backlog we've been talking about, that's outside of the prior plan looking in. Yes, we certainly dipped into that with the $4 billion incremental. But I would say it's not a perfectly symmetric equation because the reality is we have additional CapEx needs as we're preparing this new Integrated Resource Plan that will likely drive additional CapEx needs.
As Garrick and I noted earlier, our plan does not presuppose us realizing some of these large data center opportunities from a customer investment perspective. And so that would add to that backlog as well. And then I would also just note in this plan, obviously, with the growth of financial compensation mechanism-related earnings, we are taking some of that CapEx opportunity and converting it into PPAs. And so we have dipped into that well, but I would say from where we sit, the well is quite infinite when it comes to CapEx backlog at the utility, and it just grows every year because there's a lot to do on both the distribution side and the supply side. And electric and gas has quite a bit to do as well. Infinite.
Andrew Weisel — Analyst, Scotiabank
Wow, that's a good word to use. Okay, thank you so much. Appreciate it.
Anthony Crowdell — Analyst, Mizuho Securities
Hey, good morning, team. Rejji, really happy that CMS is still serving caffeinated coffee in the employee kitchen. Just one loose end. You're currently asking for a decoupling in your gas case. Just curious if you plan on I know I'm thinking forward. You're currently in an electric case now. Thinking in your next electric case, do you ask for decoupling or given the load that you're showing a big increase in industrial load in 2025 if you're less inclined to ask that given the strong load growth?
Rejji Hayes — CFO and Executive Vice President, CMS Energy
Anthony, appreciate the question. As always, we show up for these calls well caffeinated, so glad you noticed. Yeah, our intent is to just focus on revenue decoupling in the gas business.
We have looked historically at the trends in terms of sales for electric business and just don't see the need to look to do that for the electric business. So the intent right now is just for the gas business. That's what's embedded in this pending case that we filed in mid-December. And really, no appetite at the moment to look at that from an electric perspective.
Anthony Crowdell — Analyst, Mizuho Securities
Great. That's all I had. Thanks so much.
Garrick Rochow — CEO, CMS Energy
Oh, go ahead, Rejji.
Rejji Hayes — CFO and Executive Vice President, CMS Energy
Anthony, the only other thing I would note is that it is actually not permitted to utilize decoupling in an electric business. That is actually a part of the legislation that's been passed.
Anthony Crowdell — Analyst, Mizuho Securities
Okay. Thank you.
William Appicelli — Analyst, UBS
Hey, good morning.
Garrick Rochow — CEO, CMS Energy
Morning, Bill.
William Appicelli — Analyst, UBS
Just had a question around the 3% residential bill inflation.
Maybe you just unpack a bit when we think about 10.5% rate base growth. So how much are you managing with the CE Way? And then do you have anything else on the affordability side that can help, right? So I think in the past, you've talked about some higher-priced PURPA contracts that roll off. Maybe you could just speak to other tools that are there to manage the affordability.
Rejji Hayes — CFO and Executive Vice President, CMS Energy
Yeah, Bill, thanks for the question. And I think you've hit some of the key items that drive that downward pressure on bills and rates every year. And so we've been at this, as Garrick noted earlier, for multiple decades now where we really try to self-fund a lot of that rate base growth. And for, I'd say, two decades, it's been episodic cost reductions, good decisions.
We certainly are assuming that we do have high-priced PPAs that will be rolling off over time. At some point, we'll be out of coal, and so that will drive cost savings as well. Those are a bit more episodic. But the CE Way just continues to offer more and more savings each year. I'll remind everyone that we instituted it only about a decade ago, so we think we're just scratching the surface. I remember going back to 2018, 2019, we delivered probably just under $10 million of operating expense reduction from the CE Way. We were high-fiving because we were in year two, one or two, of instituting the CE Way. As Garrick noted, just this past year, we did another year of $100 million of savings. So a lot of opportunity there.
But what we're really excited about, again, in terms of levers or opportunities to just self-fund our growth, is just converting on this attractive economic development backlog. That, to me, is really the third leg of the affordability stool. We know that we're very strong in delivering on the cost performance side. But if we can also convert not even all, but just a portion of this economic development backlog, you can see that it just drives great downward pressure on bills and rates and funds a lot of these needed customer investments that we have across our electric business. And that's where we provided that sensitivity. In one of the slides Garrick spoke to, we basically have shown that with a gigawatt of conversion on this economic development backlog associated with the Large Load Tariff, that drives about 2 points of reduction in that bill CAGR.
So again, a lot of arrows in our quiver, and we look forward to continuing to executing on all of those to create that downward pressure to fund the CapEx plan.
William Appicelli — Analyst, UBS
Great. No, that's very helpful. Thank you. And I guess one housekeeping item, it looks like the D&A in 2028, 2029 is about $100 million lower than the prior guide you had given. Is there anything driving that, or despite the fact that the CapEx is higher?
Rejji Hayes — CFO and Executive Vice President, CMS Energy
So any color there? Yeah. Yeah, my sense is it's mixed. That's usually what it is because you do have different depreciation rates depending on the assets. The distribution assets tend to be longer lived than the generation assets. And so it's got to be mixed. But the IR team will certainly follow up with you after the call to unpack that some more, Bill.
William Appicelli — Analyst, UBS
Great. Thank you very much. Thank you.
Garrick Rochow — CEO, CMS Energy
Thanks, Adam. I'd like to thank you for joining us today. I look forward to seeing you on the conference circuit. Take care and stay safe.