CMS Energy Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 25, 2024

There are 10 speakers on the call.

Operator

Good morning, everyone, and welcome to the CMS Energy 20 24 First Quarter Results. The earnings news release issued earlier today and the presentation used in this webcast are available on CMS Energy's 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.

Operator

Just a reminder, there will be a rebroadcast of this conference call today beginning at 12 pm Eastern Time running through May 2. 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 Shaw, Treasurer and Vice President of Investor Relations.

Speaker 1

Thank you, Drew. Good morning, everyone, and thank you for joining us today. With me are Gerrick 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 could cause our actual results to differ materially.

Speaker 1

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. And now, I'll turn the call over to Garrett.

Speaker 2

Thank you, Jason, and thank you, everyone, for joining us today. CMS Energy, 21 years of consistent industry leading results. And what sets us apart is our performance, and it starts with our investment thesis. It is how we prioritize and focus our work to deliver the service our customers deserve and the financial outcomes you expect. As we look ahead, we see ample investment opportunity over the long term as we lead the clean energy transformation and deliver the critical work needed to improve the reliability and resiliency of our electric and gas systems.

Speaker 2

This important work is supported by legislation and a constructive regulatory environment, which provides confidence in making required investments to strengthen our system and prepare for a clean energy future. We plan ahead through our electric reliability roadmap, natural gas delivery plan and our upcoming renewable energy plan, which all provide visibility and transparency on the work we'll deliver to keep our systems safe, sound and clean. At CMS Energy, we work both sides of the equation. We make important investments in our systems and we work to keep bills affordable. Our CEWAY lean operating system helps us improve our performance, increase productivity and take cost out of the business.

Speaker 2

And we are hard at work to grow Michigan through economic development, ensuring Michigan thrives well into the future. These efforts are important and help us keep customers' bills affordable. At CMS Energy, we make our investment thesis work year after year, and it continues to set us apart in the industry, delivering results for all our stakeholders. Today, I'm going to share 3 focus areas that had me excited about our future and give us confidence in our outlook. 1st, our electric distribution system.

Speaker 2

As our world becomes more dependent on electricity for business growth, technology advancements, devices and vehicles, our system needs to be stronger, smarter and more resilient for our customers. But our vast electric distribution system is aging. It needs to be modernized and strengthened for increasingly severe weather. Over the past 5 years, we have seen some of the highest wind speeds on record in more frequent storm activity. We have responded to this need through our electric reliability road map.

Speaker 2

Currently, a 5 year, dollars 7,000,000,000 plan to improve performance and harden our system for the future. The plan utilizes best practices from across the industry, including designing the system with stronger poles, undergrounding, sectionalizing and further automation. And given the size of our distribution system, 90,000 miles of line, nearly 1200 substations and a historically lower investment per mile compared to peers, we see a long runway of needed investment. We've incorporated roughly half of the incremental $3,000,000,000 you see on Slide 4 into our current capital plan. And you'll start to see this investment show up in our next electric rate case, which we'll file in the second quarter.

Speaker 2

These important investments will mean fewer and shorter outages for our customers, and we are already seeing meaningful improvements in the investments made over the last few years. The second focus area I want to share is our continued leadership of the transformation to clean energy in the industry. In the past, I have shared our approved plans to eliminate coal in 2025, reduce carbon, grow energy efficiency and build out renewables in pursuit of our net zero target and cleaner air for our customers and our planet. In late 2023, much of our clean energy targets were bolstered by Michigan's new clean energy law. This law is unique in the industry and is good for all stakeholders.

Speaker 2

It provides us with the opportunity to further reduce our carbon footprint, while maintaining resource adequacy, affordable customer bills and delivering for our investors. On the right side of the slide, you'll see the opportunities ahead as we prepare to meet Michigan's new clean energy law. It supports an accelerated plan with a decarbonization of our system with an enhanced financial compensation mechanism, which provides a roughly 9% return on clean purchased power agreements. In addition, there's an increased incentive on energy efficiency as we target 60% renewables by 2,035 and 100% clean energy by 2,040. And it gives us important flexibility as we think through how to best meet our customers' needs with renewables across the broad MISO footprint.

Speaker 2

This mechanism and the flexibility in the law helps us balance customer affordability as we work through this transition. For our customers, all this means stronger, more resilient and cleaner energy. For our investors, an exciting and robust investment runway well into the future. Now let's work the other side of this investment equation. The 3rd focus area that I want to share today, how we are helping Michigan grow and thrive, which is good for our company and our customers.

Speaker 2

Growth across our service territory is good for Michigan, helps keep bills affordable for our customers and provides headroom to the investments I just referenced. And I couldn't be more excited about the growth we are seeing in our state. Michigan has a strong fiber network, access to fresh water, temperate climate, energy ready site and attractive energy rate. In February, we secured a contract with a large data center in the heart of our service territory. The majority of the 2 30 megawatts of new load is expected to be online by 2026.

Speaker 2

This is nice load growth. And I'm even more excited about the manufacturing load growth we are seeing in Michigan, which is a differentiator for us. Our statewide leadership of projects such as Goshen, SunLock Semiconductor, Ford and many others continues to drive new and expanding load in our service territory. These projects bring significant jobs, supply chains, commercial growth, housing starts and broad Michigan investment. The ancillary benefit of manufacturing growth are good for all customers and bolster our confidence in our plan for 2024 and beyond.

Speaker 2

Our customers thrive when Michigan thrives, and I'm proud of the diversity and quality of new load our leadership is working to bring to the state. Now let's get into the numbers. In the Q1, we reported adjusted earnings per share of $0.97 Although we experienced a warmer than normal winter, the healthy set of countermeasures we deployed in 2023 as well as our active use of the CE Way continue to benefit us in 2024. We remain confident in this year's guidance and long term outlook and are reaffirming all our financial objectives. Our full year guidance remains at $3.29 to $3.35 per share with continued confidence toward the high end.

Speaker 2

Longer term, we continue to guide toward the high end of our adjusted EPS growth range of 6% to 8%, which implies and includes 7 percent up to 8%. With that, I'll hand the call over to Regi.

Speaker 3

Thank you, Garik, and good morning, everyone. On Slide 7, you'll see our standard waterfall chart, which illustrates the key drivers impacting our financial performance for the quarter and our year to go expectations. For clarification purposes, all of the variance analyses herein are in comparison to 2023 both on a Q1 9 months to go basis. In summary, through the Q1 of 2024, we delivered adjusted net income of $288,000,000 or $0.97 per share, which compares favorably to the comparable period in 2023, largely due to higher weather normalized sales and lower service restoration costs at the utility, partially offset by mild weather. To elaborate on the impact of weather, we experienced another warm winter in Michigan during the Q1, which had the 2nd lowest number of heating degree days in the past 25 years.

Speaker 3

The warm winter weather resulted in $0.06 per share of negative variance, which appears modest on the surface given the historically low number of heating degree days. However, it's important to note that last year's winter was also quite warm. Rate relief net of investment related expenses resulted in $0.05 per share of positive variance due to constructive outcomes achieved in our most recent electric rate case and last year's gas rate case settlement coupled with residual benefits from our 2023 electric rate case settlement approved last January. From a cost performance perspective, our financials in the Q1 of 2024 were positively impacted by lower operating and maintenance or O and M expenses, primarily attributable to lower service restoration costs than we experienced last year. Also as Garrick noted, we continue to see benefits from select cost reduction initiatives implemented in 2023, which have offset modest inflationary trends we've experienced in various cost categories such as wages as planned.

Speaker 3

And we anticipate this trend to continue over the remainder of the year. In our catchall category represented by the final bucket in the actual section of the chart, you'll notice a healthy pickup of $0.19 per share, largely driven by weather normalized sales, which contributed almost half of said positive variance, particularly in our residential and commercial customer classes. It's worth noting that the leap year impacts comparability with 2023 weather normalized sales, but even absent the effects of the leap year, our residential weather normalized sales were up about 0.5% and our commercial customer class was up almost 2.5% versus the prior year, which highlights the continued solid performance of our higher margin customer classes. Looking ahead, we plan for normal weather as always, which equates to $0.22 per share of positive variance for the remaining 9 months of the year, given the mild temperatures experienced for virtually all of 2023. From a regulatory perspective, we're assuming $0.18 per share of positive variance, which is largely driven by the constructive electric rate order received from the commission in early March.

Speaker 3

We're also assuming a supportive outcome in our pending gas rate case. On the cost side, we anticipate lower overall O and M expense at the utility, driven by the usual cost performance fueled by the CE Way and last year's voluntary separation program among other 2023 cost reduction initiatives that continue to bear fruit. We also assume lower service restoration costs given last year's record level of storm activity in our service territory. In aggregate, we expect these items to drive $0.09 per share of positive variance in the remaining 9 months of the year. Lastly, in the penultimate 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 the usual conservative assumptions around weather normalized sales and non utility performance among other items.

Speaker 3

In aggregate, these assumptions equate to $0.52 to $0.58 per share of negative variance. Slide 8 offers the latest updates on our regulatory forward calendar. As you'll note in the top section, we plan to file a Renewable Energy Plan or REP by mid November, which will highlight our strategy for complying with the various renewable energy targets associated with Michigan's new clean energy law. We are excited by the prospects of the new law, which will support our net zero carbon by 2,040 goal and look forward to socializing our filing with key stakeholders in the coming months. Once filed, the commission will have 300 days to issue an order, which will likely be in the Q3 of 2025.

Speaker 3

Therefore, as mentioned during our Q4 call, you should expect that the 5 year plan that will roll out in the Q1 of 2026 will incorporate a greater portion of the financial impacts of the REP. Moving on to our general rate case filings, you can expect our next electric rate case to be filed in late May to early June timeframe. This filing will incorporate some of the initial spend we have outlined in our 5 year electric reliability roadmap that Garik touched on earlier. Given the 10 month stipulated period for rate cases in Michigan, we would expect to receive an order from the commission in the Q1 of 2025 and thus the related financial impacts. Lastly, we anticipate an order in our pending gas rate case by mid October, absent a settlement.

Speaker 3

While we don't always include a balance sheet update in our formal presentation, it is worth noting that Moody's and Fitch reaffirmed our credit ratings in March April, respectively, as noted at the bottom of the table on Slide 9. Longer term, we continue to target solid investment grade credit ratings and we'll continue to manage our key credit metrics accordingly as we balance the needs of the business. And with that, I'll hand it back to Garik for his final remarks before the Q and A session.

Speaker 2

Thank you, Reggie. Our simple investment thesis is how we run our business and provides us with confidence for a strong outlook this year and beyond. 21 years of consistent industry leading financial performance. 21 proof points regardless of conditions, no excuses, just results. With that, Drew, please open the lines for Q and A.

Operator

Thank you very much, Garik. The question and answer session will be conducted electronically. Our first question today comes from Shahriar Pourreza from Guggenheim Partners. Your line is now open. Please go ahead.

Speaker 4

Hey guys, good morning.

Speaker 2

Hey, good morning, Shahriar.

Speaker 4

Good morning. I guess firstly, just given you have an upcoming electric case, how are you thinking about any kind of incremental construct improvements there? Would you kind of seek an expanded IRM framework? And do you need to address any kind of the rate design issues with C and I rates, especially as you're trying to accommodate new load like data center growth, especially just trying to kind of balance that customer rate impact?

Speaker 2

Shar, you want me to get into rate design? You guys are all going to fall asleep on this call if I go into rate design. Let me start out with the fundamentals of this electric case because I think this is really important. You've heard me time and time again, whether it's investor meetings or in our calls, on the importance of improving reliability. We've seen higher wind speeds, more frequent storm activity and just this is our focus as a company, how do we improve reliability and the longer term resiliency of our electric system.

Speaker 2

You can also hear that from the commissioners. They're very clear about that expectation. And so I would say there's really good alignment there. And this reliability road map does just that. It's aimed at those important capital improvements.

Speaker 2

There's some O and M work associated with that as well. These are best practices in the industry, which we're deploying across our system and are going to be meaningful benefit for our customers. In addition to that, we're focused on the affordability piece. This is how the fundamentals of this. Great to invest the capital, but you also have to be focused on the affordability piece for our customers.

Speaker 2

And so it's driving down unit cost through the CE way. It's other cost offsets. There's a whole range of things we're doing to make sure this next electric rate case delivers for our customers in terms of improved reliability and offsetting from a cost perspective. So that's the fundamentals of the case. And so we're going to look at different mechanisms in that case.

Speaker 2

As I've shared before, I would anticipate that we again take advantage of our infrastructure recovery mechanism that was supported in the last case. We'll look at a storm recovery mechanism. We've utilized that in previous cases. We'll continue to look at that optionality and what that could look like in this case. Again, longer term, we'll file this end of May, 1st part of June.

Speaker 2

I feel confident about what we're putting together based on the important merits of the case that are going to improve reliability, well balance the important components of affordability. Now your question on rate design, there's a lot in rate design. I really will put you to sleep if I go there. We're going to make sure as the state expands and we have this important load growth that both energy and capacity components, that cost of service mechanism is appropriately allocated to where those costs are. That's what we've done historically.

Speaker 2

That's what the commission supported. And so we'll look at that certainly within the context of this case, but it's really smaller in the grand scheme of the important work in this case.

Speaker 4

Got it. Perfect. And then lastly, as we're thinking about the energy law construct in New England, right, I guess, what are some of the first changes you can implement, especially as we're thinking about the upcoming IRP update? Would you lean more on sort of that FCM construct? And is any of this kind of embedded in your longer range growth guidance?

Speaker 4

Thanks.

Speaker 2

It's still early days on some of this modeling. So we'll file our REP, Renewable Energy Plan November 15. And as I've shared historically here or previous here, there's a broad spectrum of compensation mechanism or if you're going to build everything and own everything, obviously, you have the opportunity to earn your ROE. So there's a broad spectrum. You do all either end.

Speaker 2

Those are the bookends. I think it's somewhere in the mix, and there's a lot of variables we need to consider that we're modeling out right now. And that's why we're not prepared to share what that looks like. But let me hand it over to Reg. I know he has some additional thoughts on this.

Speaker 3

Shah, good morning. Thanks for the question. All I would add to Garrett's comments is that in our current 5 year plan, what we've incorporated is just a modest amount of PPAs with the financial compensation mechanism, and that's solely because of the fact that any PPA put in place after June of this year would be subject to the new FCM, which is around 9% versus the prior of about 5.5%. And so we have a portion of that, albeit a small portion, incorporated in those 5 year plan. We've also incorporated the enhanced economic incentives associated with energy efficiency.

Speaker 3

And so that's flowing through our plan as well. And remember, historically, we've on the electric side been reducing load about 2% year over year. And before the new energy law, we get a 20% incentive

Speaker 5

on top

Speaker 3

of that spend. That's now 22.5%. So that's also a source of financial upside embedded into plan. But to Gerrick's earlier comments, the much more expansive opportunities, whether it's scaling contracts or the ownership opportunities or more specifically the rate base opportunities, those are not incorporated into our 5 year plan and really won't be until 2026.

Speaker 4

Okay, perfect. Thank you guys. Appreciate it and Garik for the record. Your rate design answer was not boring at all. Thanks guys.

Operator

Our next question comes from Nick Campanella from Barclays. Your line is now open. Please proceed.

Speaker 2

Good morning, everyone.

Speaker 6

Thanks for taking the call. Good morning. I guess just thinking about the other upside opportunities, could you maybe give us an update on your conversations around DIG and the re contracting opportunity there and how those discussions have been progressing? Is this something that we can maybe see an update on by year end? Or is it more a 'twenty five, 'twenty six item?

Speaker 6

Maybe just talk about timing there. Thanks.

Speaker 3

Yes. Good morning, Nick. This is Reggie, and I appreciate the question. Yes, as we talked about on our Q4 call, we still have about 30% to 35% open margin in the outer years of our plan, really starting in sort of 2026 or second half of twenty twenty six going through 2028. We certainly are seeing attractive reverse inquiry for that open margin on the capacity side.

Speaker 3

We're sold through on the energy side through 2028 or through the duration of this 5 year plan, but there still are opportunities in the capacity side. And we'll be thoughtful. We never are too aggressive in selling down that open margin. Like to have a little bit of optionality, particularly with a really attractive technical that we continue to see in Zone 7 with the tightening of supply and upward pressure on demand. And so we'll provide an update in our next 5 year plan as we always do, and I expect that we'll be selling down a portion of the open margin ratably over the coming months quarters, but should still have probably a little open margin as we provide a new 5 year plan in the Q1 next year.

Speaker 3

Is that helpful?

Speaker 6

That is helpful. I appreciate that. And I guess thinking about the rate case cadence and outcomes on the electric side, the last case you kind of pursued a fully litigated outcome. But on the GAAP side, you just received staff testimony. And I think, Reggie, I heard you say you get an order in Q4 absent a settlement.

Speaker 6

So just what's your reaction to staff starting point here? And what are your thoughts on being able to settle the gas case?

Speaker 2

I'd go back, Nick, to just the fundamentals of that case, aiming for a safe natural gas system. You're continuing to reduce methane across that and deliver affordable natural gas to our customers. And so again, the imbalance, that equation of making the investments in the natural gas system also just like we're doing in the electric business, aiming for an improved affordability across the gas system through unit costs, through cost out using the CE Way and the like. So those fundamentals are true. Staff position, I would categorize as constructive, a constructive starting point.

Speaker 2

And so, we'll look. Once we have that position, we're going to look for opportunity for settlement. We've been able to work with a number of the interveners in the past and have a good track record there. But also hear this, I'm confident in the testimony and the merits of the case. So if we need to go to the full distance, we will and get a constructive outcome both for our customers and stakeholders.

Operator

Our next question comes from Jeremy Tonet from JPMorgan. Your line is now open. Please go ahead.

Speaker 7

Hi, good morning.

Speaker 2

Good morning, Jeremy.

Speaker 7

Thanks. Just want to dive in, I guess, to the sales outlook. Came in a bit better than expected, I guess, for the Q1 and for the balance of the year. It looks like that's trending better than expected. And just wondering by customer class, if you could dive in a bit more on the drivers that you're seeing that within each class that is leading to this uptick?

Speaker 3

Yes, Jeremy, this is Reggie. I appreciate the question. So yes, we were pleased with the Q1 performance of non weather sales. We provide good color on that in our earnings digest, which you probably saw. But going through the customer classes, we saw a residential up just under 1.5% versus Q1 of 2023.

Speaker 3

And so on the surface, that looks quite good. It's important to note that the leap day in the quarter, because it's a leap year, drove about 2 thirds of that. But still even absent LEAP Day, as I mentioned in my prepared remarks, still up about 0.5%. I still think we continue to see continued upside of the return to work or return to facilities trend, where I think we had pretty conservative assumptions about return to facilities. And we are seeing a stickiness to folks having or corporations retaining what I would describe as a hybrid workforce.

Speaker 3

And so that is still, I think, delivering some surprise to the upside and it is a higher margin customer class, as you know. On the commercial side, really quite pleased with what we've seen. And so the number was just under 3.5% increase versus Q1 of 2023. And the LEAP year only affected about a third of that. So pro form a for the LEAP year, we were still just under 2.5%.

Speaker 3

So very pleased with that. And our speculation, we've seen some of the subsectors within commercial that have performed pretty well. Agriculture, mining, up about 6.5%. We also saw entertainment up about 3%. And so we've seen some of the subsectors perform pretty well.

Speaker 3

But we also think because folks are actually going to the office at least 3 days a week, that does create foot traffic in communities and folks are going to cafes and things of that nature. So that's also part of it as well, but that's a bit more speculative, but that's our sense. And then within industrial, if you exclude 1 low margin large customer, we're just over sorry, just slightly up, let's say, about 20, 25 basis points. And the leap year did have a big impact on that class. And so pro form a for the leap year, you're down about 1%.

Speaker 3

I will always caveat 2 things whenever we talk about weather normalized sales. 1, remember, those numbers include the fact that we're reducing our load by 2% each year in electric due to energy efficiency. So all these numbers should be, on a gross basis, up 2%. And so you should provide that color to these industrial numbers. The other thing I always caveat is that weather normalization math, as good as our team is, as hard as they work to get it right, is a very imperfect science.

Speaker 3

And so it is very difficult to get these numbers exactly right. But what I would say in terms of industrial that we feel very good, as Garrick noted in his prepared remarks, about the economic outlook and just have a robust pipeline and a very diversified pipeline of industrial opportunities, which really aren't reflected in our numbers at this point and won't be until the outer years of our plan. And we'll be disappointed if that opportunity doesn't continue to bear fruit for the next couple of years. So that's the color it can offer across each customer class, but certainly happy to take any follow ups as needed.

Speaker 7

That's very helpful. Thank you for that. And maybe just pivoting a bit here, it seems on the size as they lay out, there's a bit of cushion to hitting the guide in 2024. And so just wondering, I guess, how you feel confidence level guide in 2024 at this point? Does it put you in a Obviously, we're

Speaker 3

delighted that 2024 is not Obviously, we're delighted that 2024 is not 2023, in that we don't have a big storm as well as mild weather to start off the year, which we obviously saw last year. But to be clear, we still saw negative variance in terms of weather, top line related weather. And so there's still some work to do. And so we are countermeasuring and again, very confident in the outlook, but it's a little early before we start thinking about de risking 2025 and beyond.

Speaker 7

Got it. Fair enough. I'll leave it there. Thank you.

Speaker 3

Thank you.

Operator

Our next question comes from David O'Kuro from Morgan Stanley. Your line is now open. Please go ahead.

Speaker 5

Great. Good morning. Thanks so much.

Speaker 2

Good morning, David.

Speaker 5

I was wondering what you're seeing in terms of maybe data center demand in the pipeline, any uptick in further requests to connect beyond the big kind of megawatt addition that you called out? And wondering if that customer class, I guess, would potentially be involved in the voluntary renewables plan, any upside potential there?

Speaker 2

Thanks for your question, David. A couple of things on this. I typically don't like to talk about the pipeline just because it's pretty speculative on that. And many of these data center companies are testing the waters in a variety of different utilities. And so we typically talk in terms of contracts.

Speaker 2

And when we talk about economic development, whether it's manufacturing or data centers, it's secure contracts, which we, again, feel really good about. Let me reflect a little bit on this project, and then I'll talk I will highlight the pipeline. I will get to your answer. This particular project, this data center expansion that we mentioned in the prepared remarks is 230 megawatts, online by 2025, majority of the load in place by 2026. And so that does speak to our ability and capabilities to be able to deliver for these customers.

Speaker 2

And then you see Michigan. And I said this in some of my remarks, temperate climate, which is great for the heating and cooling load of a data center, a lot of fresh water and then energy ready sites, attractive energy rates, good fiber network. All that comes together to make Michigan really attractive. I will say within the state of Michigan, there is a sales and use tax that exists where there's roughly a dozen states that have the sales and use tax in place, about 6%. There is an exemption process that's being bills that are being considered in the House and Senate.

Speaker 2

It's passed the House in a bipartisan way. It's moved over to the Senate for consideration. We think that's going to move forward, that exemption, probably in the June, July timeframe at the end of this session before they go on summer break. And that will open up Michigan a bit more for that pipeline. There are companies that are exploring Michigan right now, large data center providers, names that you would recognize.

Speaker 2

But again, a little bit they're testing the water in a lot of different locations. And so, we'll see how Michigan progresses. We're certainly an attractive place to do business. And we'll look to attract that low growth appropriately. And but as I stated in my previous remarks, we want to make sure there's a good balance that they're picking up the cost associated with that load as well, both from an energy and capacity perspective.

Speaker 2

So that's all the things we're working to balance, David. Hopefully, that provides some light to your question. Let me know if I didn't strike the right balance there.

Speaker 5

It does. That's helpful, yes. And are you thinking there could be upside to your longer term load growth expectations? Or is it still early?

Speaker 2

We've got a we have between the manufacturing load that's contracted and the data center load that's contracted, as Reggie said, it's a nice piece of low growth that we factored in not only the latter years of this 5 year plan, but future 5 year plans. And we're excited about what that means. And there's a strong pipeline, both from a manufacturing perspective and to a degree, the data center perspective as well. I'd be disappointed if some of those projects in the pipeline didn't materialize.

Speaker 5

Okay, great. Thanks. That's helpful. And a separate topic, I was wondering your just latest expectations for the performance based rates process in terms of timing and where that outcome might be headed?

Speaker 2

That's progressed in a constructive way. We had close to 10 or a dozen metrics that were originally proposed. It's narrowed to 4 metrics that are benchmarkable and there's good standards. And so again, that constructive process plays out. There's more work to do from our perspective, and we filed comments in the February March time frame.

Speaker 2

We're expecting a report from the Michigan Public Service Commission staff in May, and so we'll see the next round of thinking. I would suggest the couple electric rate cases away, not this case, perhaps the next case before we see implementation. But again, this is an evolving process with the public service mission.

Speaker 5

Okay, great. Thanks for all the color.

Speaker 2

Yes. Thank you, David.

Operator

Our next question today comes from Michael Sullivan from Wolfe. Your line is now open. Please proceed.

Speaker 8

Hey, good morning.

Speaker 2

Hey, good morning, Michael.

Speaker 8

Hey, Garik. Yes, just sticking with the data center conversation, it sounds like you're kind of optimistic on this legislation. And if that does pass and start to bring more interest to the state, what do you think about the potential for DIG being used in its entirety as like a behind the meter solution for like a larger type data center build out. I know there's been a lot of focus on that on the nuclear side of things elsewhere, but people talking about gas as well. So just curious your thoughts

Speaker 2

there. Similar to Reggie's comments, from an energy perspective, energy tolls and the capacity of the bilateral contracts, much of DIG has been spoken for at attractive really attractive position that either meets our expectations or is above our expectations. And so there's really unless you're beyond 2028 and maybe even the 2030s decade, DIG is really not available because it's already been secured and with, again, attractive energy tolls and bilateral contracts for capacity.

Speaker 8

Okay. Fair enough. Makes sense. And then just on your upcoming audit your case filing here, just to set expectations. I know one of your peers in the state recently filed and got a pretty quick response from the AG.

Speaker 8

Are you anticipating something similar with yours? Should we just be prepped for that?

Speaker 2

It is we have primaries in August, and that means early absentee ballots are in June. And so it's political season already in Michigan. And so I would anticipate that. Look, the attorney general participates in all our cases. That's been a historical practice.

Speaker 2

Sometimes those are more public than other times. We stand, as I shared earlier, by the merits of the case, both in our gas case that's underway right now and this electric rate case. The team just went through a walk through this week, and I couldn't be more proud of the work the team's putting together on it. As I shared earlier in my questions or responses to questions, we're focused on reliability. That's going to improve for our customers.

Speaker 2

That is absolutely the right thing to do, well aligned with the Public Service Commission. We're working hard to create affordability. And we're good at that through the CE way, through reducing power supply costs, through unit costs, through execution of capital. And when you get that mix right, that equation right, it makes it you get good outcomes. And so I'm excited about this case.

Speaker 2

It's certainly going to be a step up in capital. There's going to be some O and M work too that's focused on reliability, but there's also some offsets that are really exciting, that make us get me excited, as you can tell by the tone of my voice about what we're finding and what we're putting together because it's going to be good for customers and it's going to be good for all stakeholders.

Speaker 8

All right. Yes, you sound pretty pumped. Sounds good. Thank you.

Operator

Our final question comes from Andrew Weisel from Scotiabank. Your line is now open. Please go ahead.

Speaker 9

Hey, good morning, everybody.

Speaker 2

Hey, good morning, Andrew. How are you today? Just a

Speaker 9

couple of follow ups on the rate case to this to the electric side. You're going to have more capital and more O and M. Just from a headline perspective, should we expect a larger revenue increase request than what we've seen in past filings in terms of percent increase to customer bills?

Speaker 2

Yes. The short answer is yes. But again, important work from a capital investment perspective on reliability, and we've done a lot to offset some of the O and M cost components of this to strike that right balance. And that's what I mean by the important fundamentals or merits of the case.

Speaker 9

Okay, very good. And then procedurally on the gas side, I know this case is unique in that there's no ALJ. Does that change the timeline at all or the potential for settlement? You talked a bit about settlement, but the lack of ALJ, does that factor in at all?

Speaker 2

No. The team is excited about the opportunity to get to the table. Now that we have staff position, now that we know where interveners are at to talk settlement. And as I shared, we've been able to navigate that with success in the past with all interveners, all stakeholders. And so we'll look to do that.

Speaker 2

But also hear my confidence in the merits of the case that if we need to go the full distance, we will. And I know that will get a good outcome for our customers and for stakeholders.

Speaker 9

All right. Sounds good. Appreciate all the updates today.

Speaker 2

Yes. Thank you, Andrew.

Operator

That concludes the Q and A portion of today's call. I'll now hand back over to Garik.

Speaker 2

Thanks, Drew. I'd like to thank you for joining us today. I look forward to seeing you on the road soon. Take care and stay safe.

Operator

That concludes today's call. Thank you for your

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Earnings Conference Call
CMS Energy Q1 2024
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