Good morning, everyone, and welcome to the CMS Energy 2024 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. [Operator Instructions] Just a reminder, there will be a rebroadcast of this conference call today beginning at 12:00 p.m. 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 Shore, Treasurer and Vice President of Investor Relations.

Thank you, Drew. Good morning, everyone, and thank you for joining us today. 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. And now I'll turn the call over to Garrick.

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 in 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. 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 road map, natural gas delivery plan and our upcoming renewable energy plan, which all provide visibility and transparency, and the work will 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 CE Way lean operating system helps us improve our performance, increase productivity and take costs out of the business. 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 have me excited about our future and give us confidence in our outlook. First, our electric distribution system. As our world becomes more dependent on electricity for…

Thank you, Garrick, 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 expectation. For clarification purposes, all of the variance analysis herein are in comparison to 2023, both on a first quarter and 9 months to go basis. In summary, through the first quarter of 2024, we delivered adjusted net income of $288 million 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 of utility, partially offset by mild weather. To elaborate on the impact of weather, we experienced another warm winter in Michigan during the first quarter, which had the second lowest number of heating degree days in the past 25 years. 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 first quarter of 2024 were positively impacted by lower operating and maintenance or O&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, and we anticipate this trend to…

Thank you, Rejji. 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 point, regardless of conditions, no excuses, just results. With that, Drew, please open the lines for Q&A.

[Operator Instructions] Our first question today comes from Shar Pourreza from Guggenheim Partners.

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&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.

Shahriar, 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. I think this is really important. You've heard me time and time again, whether it's investor meetings or in our calls and 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 we improve reliability and the longer-term resiliency of our electric system. 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. There's some O&M work associated with that as well. These are best practices in the industry, which we're deploying across our system and going to a 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. 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. 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 in the May, first part of June. I feel confident about what we're putting together based on the important merits of the case that are going to improve reliability, will 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 component, that cost of service mechanism is appropriately allocated to where those costs are. That's what we've done historically. 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 of this case.

Got it. Perfect. And then lastly, as we're thinking about the energy law construct [indiscernible], 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 long-range growth guidance?

It's still early days on some of those modeling. So we'll file our REP, Renewable Energy Plan, on November 15. And as I've shared historically here or previous here, there's a broad spectrum of ownership versus PPAs. PPAs obviously have the opportunity for the financial 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, 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 Rejji, I know he has some additional thoughts on this.

Thanks for the question. All I would add to Garrick'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 this 5-year plan. We've also incorporated the enhanced economic incentives associated with energy efficiency. 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 on top of that spend, that's now 22.5%, so that's also a source of financial upside embedded into this plan. But to Garrick'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.

Okay. Perfect. Appreciate it, Garrick, for the record, your rate design answer was not boring at all.

Our next question comes from Nick Campanella from Barclays.

I guess just thinking about the other off-site opportunities, can you maybe give us an update on your conversations around DIG and the recontracting 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 '25, '26 item? Maybe just talk about timing there.

Nick, this is Rejji. I appreciate the question. Yes, as we talked about on our fourth quarter 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 2016 going through 2028. We certainly are seeing attractive reverse inquiry for that open margin on the capacity side. 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. We 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 and quarters, but should still have probably a little open margin as we provide a new 5-year plan in the first quarter next year. Is that helpful?

That is helpful. I appreciate that. And I guess thinking about the rate case cadence and outcomes. On the electric side, the last case to kind of pursue the fully litigated outcome, but on the gas side, you just received staff testimony. And I think, Rejji, I heard you say you get an order in fourth quarter absent a settlement. So just what's your reaction to staff starting point here? And what are your thoughts on being able to settle the gas case?

I'd go back Nick to the fundamentals of that case, aiming for a safe natural gas system, you continue 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 likes. So those fundamentals are true. Staff position, I would categorize as constructive, a constructive starting point. And so we'll look, once we have that position, we're going to look for the 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 I also hear this, I'm confident in the testimony and the merits of the case. So if we need to go to full distance, we will, and get a constructive outcome both for our customers and stakeholders.

Our next question comes from Jeremy Tonet from JPMorgan.

Just want to dive in, I guess, to the sales outlook, came in a bit better than expected, I guess, for the first quarter 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?

Ye's. Jeremy, this is Rejji. I appreciate the question. So yes, we were pleased with the first quarter 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 residential up just under 1.5% versus Q1 of 2023. And so on the surface that looks quite good, but it's important to note that the leap day in the quarter because it's a leap year, drove about 2/3 of that. But still even absent leap day, 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 returning to facilities, and we are seeing a stickiness to folks having our corporations retaining what I would describe as a hybrid workforce. 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 1/3 of that. So pro forma for the leap year, we were still just under 2.5%. 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. 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's very helpful. And maybe just pivoting a bit here, it seems on the side that they lay out there's a bit of cushion to hitting the guide in '24. And so just wondering, I guess, how you feel confidence level guide at this point, does it put you in a position to start thinking about '25? Just wanted to get a sense for how that stands.

Yes. I would say, Jeremy, early days. 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 derisking 2025 and beyond.

Our next question comes from David Arcaro from Morgan Stanley.

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?

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. And when we talk about economic development, whether it's manufacturing or data centers, it's secured 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, a 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. 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 freshwater 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 as being a build that are being considered in the House and Senate. 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 time frame at the end of the 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. But again, it's 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 track 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 costs associated with that load as well, both from an energy and capacity perspective. So that's all the things that work in the balance, David. Hopefully, that provides some light to your question. Let me know if I didn't strike the right balance there.

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

We've got a -- we have -- between the manufacturing load this contract and the data center load that's contracted. As Rejji said, it's a nice piece of load growth that we factored in the later 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.

Okay. Great. That's helpful. And a separate topic. I was wondering you're just latest expectations for the performance-based rates process in terms of timing and where that outcome might be headed.

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, a constructive process plays out. There's more work to do from our perspective when we filed comments in the February, March time frame. 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 that a couple of 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 Commission.

Our next question today comes from Michael Sullivan from Wolfe.

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 of your thoughts there.

Similar to Rejji's comments, from an energy perspective, energy tools and a 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 in the 2030s decade, DIG's really not available because it's already been secured and with, again, attractive energy tools and bilateral contracts for capacity.

Okay. Fair enough. Makes sense. And then just on your upcoming [ audit rate ] case filing here just to set expectations. I know 1 of your peers in the state recently filed and got a pretty quick response from the AG. Are you anticipating something similar with yours? Should we just be prepped for that?

It is -- we got primaries in August, and that means early [indiscernible] balance start in June. And so its 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. 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 put 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. 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, the reducing power supply cost, their unit costs from execution of capital. And when you get that mix right, that equation, right, it makes it I mean you get good outcomes. And so I'm excited about this case. It's certainly going to be a step-up in capital. There's going to be some O&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 filing and what we put it together because it's going to be good for customers, and it's going to be good for all stakeholders.

Our final question comes from Andrew Weisel from Scotiabank.

Follow up on the rate cases here. Just a couple of follow-ups on the rate cases. So first, I think you just alluded to this to the electric side. You're going to have more capital and more O&M. Just from a headline perspective, should we expect a larger revenue increase request than what we've seen in past [ dialings ] in terms of percent increase to customer bills.

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

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 time line at all or the potential for settlement? You talked a bit about settlement, but the lack of ALJs that factor in at all?

No. The team seems excited about the opportunity to get to the table. Now that we have staff position now that we know where intervenors 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, but also hear my confidence in the merits of the case that if we need to go to full distance, we will. And I know that will get a good outcome for our customers and for stakeholders.

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

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.

That concludes today's call. Thank you for your participation. You may now disconnect your lines.