Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CMS Energy Corp (CMS, Financial) reported adjusted earnings per share of $1.63 for the first half of 2024, showing a favorable comparison to the same period in 2023.
- The company reaffirmed its full-year guidance of $3.29 to $3.35 per share, with confidence towards the high end.
- CMS Energy Corp (CMS) has a strong regulatory environment in Michigan, which supports necessary investments and provides financial incentives.
- The company has successfully settled four consecutive gas rate cases, highlighting a stable regulatory environment.
- CMS Energy Corp (CMS) continues to focus on customer affordability while making significant investments in renewable energy and infrastructure improvements.
Negative Points
- Weather conditions have been a headwind, resulting in a $0.05 per share negative variance due to mild winter weather and heavy storm activity.
- The company experienced a $0.03 per share negative variance due to storm-related costs in the first half of 2024.
- CMS Energy Corp (CMS) plans to issue approximately $675 million in debt in the second half of the year, an increase from the original estimate of $500 million.
- The company faces challenges in maintaining reliability and reducing outage sizes, despite ongoing investments in tree trimming and system hardening.
- There is uncertainty around the implementation timeline and impact of performance-based ratemaking mechanisms, which could affect future earnings.
Q & A Highlights
Q: Can you provide updated thoughts on recontracting and the outlook in the current environment given trends in power prices?
A: Garrick Rochow, President and CEO: The upward pressure in energy and capacity markets continues to present opportunities. We are securing favorable bilateral contracts with higher energy and capacity prices, which strengthens our financial performance.
Q: How is the weather outlook for Q3, and are there any plans to pull forward costs to de-risk the future outlook?
A: Rejji Hayes, CFO: The weather outlook for Q3 looks favorable, but we remain cautious. We continue to execute cost management initiatives and will consider pull-aheads for 2025 only if conditions remain favorable deeper into Q3.
Q: What are your thoughts on opportunities to service data centers and the impact of potential legislation in Michigan?
A: Garrick Rochow, President and CEO: There is strong interest in both manufacturing and data centers in Michigan. We are seeing growth in data centers regardless of the legislation. The economic development rate adjustments have been approved, and we continue to see significant interest from hyperscalers and mid-scale data centers.
Q: Can you provide an update on the performance-based ratemaking docket and its potential impact?
A: Garrick Rochow, President and CEO: The dialogue has been constructive, and the metrics have been narrowed down to four benchmarkable metrics. Implementation is expected to be a few rate cases away, potentially one to two years out. The mechanism is intended to be symmetric, with both upside and downside opportunities.
Q: How is electric demand trending versus your 2021 IRP, and how will this affect the renewable energy plan filing?
A: Garrick Rochow, President and CEO: Electric demand is trending higher due to economic development activities. This will be reflected in our renewable energy plan filing, indicating a greater need for renewable energy.
Q: What is the status of the Palisades plant, and would CMS Energy be interested in incorporating it into your plan?
A: Garrick Rochow, President and CEO: Palisades is making forward progress with state support. A PPA has already been struck for the offtake from Palisades, and we do not see any adverse impact on CMS Energy from its return.
Q: Can you elaborate on the impact of heavy storm activity in the quarter and your restoration efforts?
A: Garrick Rochow, President and CEO: We have made significant improvements in reducing the size of outages and increasing tree-trimming efforts. We restored 95% of customers within 24 hours this year, up from 90% last year. Financially, we have avoided over $40 million in costs through efficient storm restoration practices.
Q: How are you approaching financing and potential equity issuance in 2025?
A: Rejji Hayes, CFO: We plan to issue approximately $675 million in debt at the utility in the second half of the year. We will be opportunistic with parent debt financing needs, potentially pulling forward some 2025 needs if market conditions are favorable. However, we do not plan to issue equity in 2024.
Q: What are the underlying trends in C&I weather-adjusted volumes, and what is the near-term outlook?
A: Rejji Hayes, CFO: C&I weather-adjusted volumes were down in Q2 compared to Q2 2023. However, on a year-to-date basis, we are outperforming our initial expectations across all customer classes. We continue to see non-weather sales upside, and energy waste reduction programs are contributing to these trends.
Q: How do you view the potential for settlement in the upcoming electric rate case?
A: Garrick Rochow, President and CEO: We always look for settlement opportunities but are confident in our ability to litigate if necessary. The electric rate case focuses on reliability investments, which align with customer and regulatory expectations. We are optimistic about achieving a constructive outcome.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
