Good morning, everyone. Thank you for standing by. Welcome to the CMS Energy 2023 Second Quarter Results Conference Call and News Earnings Release. The earnings news release was issued earlier today and the presentation used in this webcast are available on CMS Energy's website in the Investor Relations section. Today's call is being recorded. After the presentation, we will conduct a question-and-answer session and instructions will be provided at that time on how to queue-up. [Operator Instructions] As a reminder, there will be a rebroadcast of this conference call today beginning at 12:00 PM Eastern Time running through August 3. 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 conference over to Sri Maddipati, Treasurer and Vice President of Finance and Investor Relations. Please go ahead, sir.

Thank you, Michelle. Good morning, everyone, and thank you for joining us today. We apologize for the delay as we're experiencing technical difficulties. If you have any questions and we're unable to participate on the call, please feel free to give me or Travis Uphaus a call after this earnings call. With me are Garrick Rochow, President and Chief Executive Officer; and Rejji Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website. Now I'll turn the call over to Garrick.

Thank you, Sri. And thank you, everyone, for joining us today. CMS Energy, we deliver, we say it and we back it up. So what makes it work for all stakeholders is this investment thesis that we start with in nearly every earnings call. I've reiterated the key points of this thesis on many occasions. Today, I want to draw attention to three key components. First, we continue to make industry-leading progress on the transformation to clean energy. This is required to position the business for the future, and I will share more evidence of our good work this quarter with the exit of our coal units at our current facility and the acquisition of the Covert generating plant. Next, Michigan continues to be a solid place for investment. Our energy legislation is one of the best in the country and we operate in a top-tier regulatory environment, providing important certainty for critical customer investments and there continues to be evidence to support it. I'll share the details on our fourth consecutive settlement in our recent gas rate case. Finally, you'll hear from me on the strong progress we made in cost management, the CE Way, and other countermeasures to offset the unplanned headwinds experienced early in the year. I'm pleased with the progress and remain confident in our plan to deliver 2023 and beyond. Our investment thesis is simple. It's worked for more than 20 years, regardless of conditions, to deliver the operational and financial results across the triple bottom line for all our stakeholders. At CMS Energy, we like to say leaders lead. And we are leading the clean energy transformation. We've set industry-leading, ambitious net-zero targets for both our gas and electric systems, and we continue to get it done. Our actions today serve as proof points…

Thank you, Garrick. And good morning, everyone. We had a strong second quarter, delivering adjusted earnings of $0.75 per share, driven by numerous cost-reduction initiatives foreshadowed on our Q1 call, which I will elaborate on shortly. Our financial performance over the past few months has materially offset the weather-driven challenges we faced in the first quarter. As such, as Garrick noted, we are reaffirming our guidance for the year. And on a year-to-date basis, we're on track with adjusted EPS of $1.45 per share, given the back-end weighted nature of our plan this year. As you can see in the waterfall chart on Slide 7, weather has been a significant headwind to our financial performance in the first half of this year, driving $0.37 per share of negative variance versus the comparable period in 2022. Rate relief, net of investment-related expenses has resulted in $0.06 per share of positive variance versus the first half of 2022, driven by last year's constructive electric and gas rate case settlements. From a cost perspective, our financial performance in the first half of the year has been significantly impacted by higher operating and maintenance, or O&M, expenses to the tune of $0.15 per share versus the comparable period in 2022, attributable to storm restoration costs in the first quarter. However, it is worth noting that our operational O&M expenses, which represent the majority of our O&M expense and primarily exclude costs associated with our energy waste reduction programs and employee benefits, have trended favorably during the second quarter and we're down roughly 10% versus the second quarter of 2022. So we're seeing the fruits of the numerous operational cost-reduction initiatives we put in place earlier in the year, such as reducing our use of consultants and contractors, limiting hiring, accelerating longer-term IT cost-reduction initiatives,…

Thank you, Rejji. Our track record spans two decades and consistently delivers industry-leading results in any conditions. This is what we do. We deliver for all stakeholders, year in and year out, and this year will be no different. With that, Michelle, please open the lines for Q&A.

Thank you very much, Garrick. [Operator Instructions] Your first question will come from Jeremy Tonet of JPMorgan. Please go ahead.

Hi, good morning.

Hi, good morning, Jeremy. How are you?

Morning, Jeremy.

Good, good, thanks. Maybe just wanted to start off with the undergrounding pilot, if we could, and just wondering if you could expand a bit more I guess on what would define success there or I guess future outlook for how quickly that could fold into the plan in larger size over time.

So I've got an interesting story on this, Jeremy. I was out with our crews here about two weeks ago and we had an undergrounding in a - replacement undergrounding in a subdivision area. So remember, in Michigan, subdivisions are underground. A lot of people request their service underground. And so we know how to do this work. And in fact, we have a large gas business that does a lot of undergrounding, and so we're sharing practices back and forth. And so, again, right now, we're starting out with the pilot. And that's just a nice way to step into this with the Public Service Commission to show them our capabilities in being able to deliver that at a low cost for our customers. Again, as I've shared in past calls, the cost for undergrounding in Michigan, given the soil, given where we intend to put the undergrounding, it's really conducive and it's really almost at parity with above-ground construction. So it makes it really affordable for our customers. And so we intend to use that practice, it's recognized through EPRI as a best practice; not everywhere, but strategically or selectively across our system. And so starts with 10 miles. We've got six counties identified. We've got projects starting up in one of the North of Grand Rapids area here in about two weeks. The Public Service Commission will be on that site as well to watch that, observe that. And what we intend to grow that is about 400 miles annually. As I've shared in the past, about 10% to 15% of our system is undergrounded. Other Midwest peers, around 35% to 40%. So again, it's best practice, and we see it as a way to improve reliability and resiliency for the future.

Got it. That's helpful, thank you for that. And storms have been topical in Michigan, obviously, in recent time here. And just wondering if you could provide a bit more color, I guess, on your efforts, hardening efforts and where you stand, where do you want to be to improve resiliency there, and just kind of how you feel local stakeholders are aligned against those - against this outlook in the state.

As I shared in the Q1 call, our focus is clearly on reliability and resiliency coming off of the large ice storm. We are making a lot of investments, considerable investments across the electric system. And we've seen good performance here over the course of the summer. Even just the last night, we had 65-mile winds come through and the system performed well with about 20,000 customers out this morning and we're quickly restoring them. And so the investments we're making - it's a large system, but the investments we're making are certainly showing benefit. So we've got a great plan. We're filing that plan here in September with the five-year - with our five-year infrastructure plan. This audit that's underway that will start here in September will be another point of alignment for the right investments across the electric system to improve reliability and resiliency. So those things are going well and our system is performing well. And so I feel good about our performance this summer, and we'll continue to be focused on it.

Got it, that's helpful. I'll leave it there. Thanks.

Thanks, Jeremy.

Your next question comes from Julien Dumoulin-Smith at Bank of America. Please go ahead.

Hi, good morning. This is Heidi Hauch on for Julien. Thank you for taking my question.

Hi, Heidi.

Morning.

Hi. Just first question, noting your plans to file another IRP in the next year or two, do you see any read-throughs for your next IRP related to the latest peer IRP settlement approved by the Michigan PSC, either from the coal retirement front, renewables investments or otherwise? Thank you.

Well, first, I want to congratulate that peer utility that had an IRP settled this week. So congratulations to the DTE team. A lot goes into those IRPs. And if you take one thing away from that IRP, it just speaks to the constructive environment here in Michigan. Four settlements for us, a settlement in IRP for DTE. That's really good. So we'll obviously look at their IRP and look at what we want to take into our next IRP. The other things that we'll consider, the Inflation Reduction Act has certainly changed PTCs and ITCs and is shaping the industry investment. Infrastructure and Jobs Act is also shaking up some things in our industry. And so all that will go into our next IRP and into some of our thinking. The IRP process takes about 12 months to 18 months to build really a thoughtful and thorough plan that we would submit to the Commission. I anticipate we'll start that process in 2024, building out that. So if you played it out, that means we file maybe late 2025/2026 timeframe. And so there's still some work to define that and tie that down, but that's our early indications of how we think about our next IRP.

Great, thank you. And then a second question from me, can you comment on the latest MPSC investigation into the natural gas meters and new service delays? How are you planning to address or improve these issues, and are there any potential capital opportunities that may result from this investigation? Thank you.

Thank you for your question. It probably goes without saying this, but I'll say it anyways. We take every MPSC inquiry seriously. And from a customer perspective and bills, we got to get that right. But maybe a little background here, Heidi. Our meters communicate wirelessly. That's our Smart Grid. It's all wireless. And obviously, there's a wireless carrier that communicates that signal back to our home offices here. And as you might imagine, those wireless carriers are moving from 3G to 5G. So they're shutting down some of the 3G systems and moving to 5G. And they made us aware of that, and we were working with our meter vendor to upgrade those meters so they had the right communication components to operate at 4G and 5G technology. That process was underway. However, the meter vendor ran into supply chain problems, in part due to the pandemic, where they couldn't get the components for the meter. That delayed our deployment of these meters. And so when we walked in, in January of 2023, we had about 190,000 meters that were no longer communicating. Today that's around 33,000, and we continue to work with our meter vendor to close that and we expect that to be closed by August. As you can imagine, when those meters aren't communicating, it creates the potential for estimated reads. Our meter vendor was supposed to go out and read meters for us to close that gap. They did not meet our expectations around that and we had to step in and close that gap, which we've done and our reads are being completed and any consecutive estimates are now within historical parameters. And so from a meter perspective, from a consecutive estimate perspective, those are resolved or will be resolved in August. We owe a report to the Commission on August 4, and so we'll do that. From a materiality perspective, we've factored that in, both the reading in the meters and any penalties we may see from the Public Service Commission, and they're incorporated within our guidance that we've offered. I do not see a capital opportunity here. But rest assured that from a customer perspective and MPSC perspective, we are running this to ground, we're doing a root cause on it, make sure that it will not happen again for our customers. Thanks for your question, Heidi.

Thank you.

Your next question comes from Michael Sullivan at Wolfe Research. Please go ahead.

Hi, everyone, good morning. Can you hear me okay?

We can.

Good morning, Mike.

Yes, okay. Great. Hi, Garrick. Maybe this one is for Rejji. Just wanted to ask on the delay in the draw on the forward equity and just how we should think about timing there, whether that ends up getting needed at all. I think my recollection is outside of that, you had no other needs until 2025, but maybe just a little more color on what the equity picture looks like going forward, now that you've done the convert.

Yes, Mike, thanks for the question. Yes, we will still plan to settle the equity. It will likely be, I'll say the back half of this year and deep into the second half, so call it late Q3 or in Q4. But we do still plan to settle the equity over the course of this year.

Okay, great. And just in terms of the impact on metrics and FFO-to-debt from the convert issuance and tender and delay in equities, does that kind of move you at all up or down to within your mid-teens target?

No, the convert transaction was for all intents and purposes, when you take into account all the puts and takes, is effectively credit-neutral, maybe modestly accretive. And then the delay of the equity settle, again it's still going to take place over the course of this year, so again, all credit-neutral. And so we'll still be right in that mid-teens area and well in alignment with the expectations of the credit rating agencies so we can maintain our investment-grade ratings.

Okay, great, thank you very much.

Thank you.

There are no further questions from the phone lines, so I will turn the conference back to you, Garrick Rochow, for any closing remarks.

Thanks, Michelle. I'd like to thank you for joining us today. We'll see you on the road too. Take care and stay safe.

Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines.