Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy
Thank you, Garrick, and good morning, everyone. As Garrick highlighted, we're happy to report our first quarter results for 2022. We delivered adjusted net income of $346 million or $1.20 per share, up 10% of our 2021 first quarter results, largely driven by favorable weather and economic conditions in this year. From a weather perspective, a relatively high volume of in degree days in the first quarter, coupled with the absence of unfavorable weather during the same period in 2021, provided $0.06 per share of positive variance, as noted on slide seven. And from an economic standpoint, we continue to see strong commercial and industrial load in our electric business, while weather-normalized residential load continues to exceed pre-pandemic. All in, weather-normalized load in the first quarter contributed $0.04 per share positive variance versus the comparable period in 2021, and is either at or above pre-pandemic levels across each of our customer segments, particularly when excluding the effects of our energy efficiency programs, which reduced customer load by about 2% per year. Another noteworthy driver of our financial performance for the quarter was rate relief net of investment-related expenses, which contributed $0.03 per share of upside as we continue to realize the renewal effects of tax benefits from our 2020 gas rate settlement. These sources of positive variance were partially offset by increased operating and maintenance or O&M expenses and the utility in support of key customer initiatives related to state, reliability and decarbonization is equated to $0.06 per share of negative variance. We also realized $0.02 per share of negative variance for the quarter largely related to annualized financing costs and the timing of tax expenses at the parent company.
Looking ahead, we feel quite good about the remaining nine months of the year. As always, we plan for normal weather, which we estimate will have a negative impact of about $0.09 per share versus the comparable period in 2021. We expect the impact of weather will be offset by rate relief net of investments, which we estimate to be roughly $0.20 per share versus the comparable period in 2021, and is largely driven by our expectation of a constructive outcome in our pending gas rate case later this year. Closing out the glide path for the remainder of the year, as noted during our Q4 call, we anticipate lower overall O&M expenses at utility, driven by the usual cost performance fueled by the new way and other cost reduction initiatives and a more normalized level of service restoration expense on the fields of record storm activity in 2021. Collectively, we assume O&M cost performance will drive $0.29 per share positive variance. Lastly, we're assuming normalized operating condition to enterprises given the extended outage mid last year, coupled with the usual conservative assumptions around revenue normalize. As we've said before, we'll continue to plan conservatively like we do every year to ensure we deliver on our operational and financial objectives, irrespective of the circumstances, for the benefit of our customers and investors.
Our ability to deliver the results you expect year in and year out is supported by Michigan's strong regulatory environment. And as Garrick highlighted earlier, the multiparty settlement of our IRP provides more evidence of that. As noted, the IRP settlement that we recently filed includes a substantial near-term capital investment opportunity and the acquisition of the Colbert gas plant, which strengthens and lengthens our financial glide path to the tune of about $0.40 to $0.04 per share, with the assumption of reasonable parent funding cost and a 9% ROE on the retired coal assets. As we look ahead, we remain acutely focused on obtaining approval of our IRP settlement agreement and making progress on our pending rate cases, which are highlighted in the regulatory calendar on Slide 8. As for the latter, just last week, we filed an electric rate case requesting a $272 million revenue increase with a 51.5% equity ratio and a 10.25% ROE. And I'll note that even with this request, the typical electric bill for residential customers will remain below national average. From a timing perspective, we expect an order of electric rate case in the first quarter of 2023. We also continue to work through our pending gas rate case and recently filed in votes. We anticipate an order for the gas rate case by October of this year.
The question we often get when we discuss our capital investment opportunities and regulatory construct is whether we can manage our cost to minimize the rate impact for our customers. And I'm pleased to report that we remain hard at work on all aspects of our cost to preserve headroom for needed customer investments in the long term and to mitigate the challenging inflationary environment in which we live. Turning to Slide 9, you'll see that several countermeasures have been implemented over the past several quarters to offset inflationary pressures. On the left hand side of the slide, you'll note that the table highlights across categories that have had well-publicized atypical levels of inflation, specifically cost related to labor, materials and commodities, and the corresponding risk mitigation efforts that we have employed. Starting with labor. Our workforce is roughly 40% unionized, and in 2020, we renegotiated all three of our collective bargaining agreements with 5-year terms, which provides cost and labor stability over the next few years with a substantial portion of our employee base. On the non-union side, we have benefited from a strong retention rate, which is in excess of 95%, and allows us to minimize hiring in a tight labor market.
From a materials perspective, we are actively managing our supply chain to reduce rising input costs. Part of these efforts include leveraging market analysis to optimize terms and conditions with new and existing vendors where possible, while broadening our vendor base. We are also deploying the CE way in our distribution centers to eliminate waste, and we are exploring those best practices with our suppliers to reduce their costs and maintain availability of key materials. It is also worth noting that approximately 90% of our material costs were capitalized, which reduces the income statement impact in the short term as those costs are incurred over time. Lastly, given the well-publicized tightening of slower equipment supply, we'll remind you that our solar build-out is modular in nature and allows us to flex the projects over the plan period. On the commodity side, we continue to run our electric generation fleet in a cost-efficient manner to insulate our customers from market volatility when they are dispatched. In fact, the heat rate of our natural gas plants were some of the lowest in the region, which means we can offer power at a cost lower than market, and that provides substantial value for our customers.
As we manage inflation risk in the current environment, you'll note on the right-hand side of the slide that we still have substantial episodic cost reduction opportunities longer term, which we estimate will generate over $200 million through coal plant retirements and the expiration of high-priced power purchase agreements. These cost savings are above and beyond what we'll aim to achieve annually with the CE way, which I'll remind you was a key driver in our achievement of over $150 million of cost savings in aggregate over the past few years. Sustainable and agile cost management has been one of the key pillars of our success and enabled us to deliver on our financial objectives and they remain ample opportunities to reduce costs across the business going forward. Given our track record of reducing costs, we're highly confident that we'll be able to mitigate risk in the current environment, and in the long run, execute our capital plan, delivering substantial value for customers and investors, as we always have. And with that, Austin, please open the lines for Q&A.
