Prepared remarks
Good morning, everyone, and welcome to the CMS Energy 2025 Third 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. Just a reminder that there will be a rebroadcast of this conference call today beginning at 12:00 p.m. Eastern Time running through to November 6. This presentation is also being webcast and is available on CMS Energy's website in the Investor Relations section. At this time, I'd like to turn the call over to Mr. Jason Shore, Treasurer and Vice President of Investor Relations.
Thank you, Alex. 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. A strong quarter at CMS Energy from an operational, regulatory, and financial perspective. I am very pleased with the results and continue to see us well positioned for the full year and in the long term. Our consistent industry-leading performance is rooted in our investment thesis that delivers for customers, coworkers, and investors. Speaking of strong performance and consistency, throughout the quarter, we delivered key regulatory outcomes, which highlight the positive and constructive regulatory environment in Michigan. We received a final order in our renewable energy plan that approved an additional 8 gigawatts of solar and 2.8 gigawatts of wind through 2035, ensuring we will meet Michigan's clean energy law. A portion of these investments will be woven into our next 5-year plan. This order also provides further certainty and confidence for our long-term customer investments. As a reminder, this renewable energy plan is a key input into our Integrated Resource Plan that we will file mid-2026. We also received a constructive order in our gas rate case, approving approximately 75% of the final ask and 95% of infrastructure investments for work like domain and vintage service replacements, which are critical to ensuring a safe, affordable, and cleaner natural gas system. Chair Scripps' comments from that meeting continue to support thoughtful and deliberate adjustments in ROE and suggested we have reached the floor for ROEs and, in his words, driven out any excess. Recently, on the electric side, staff filed their position in our pending rate case, supporting approximately 75% of our revised and approximately 90% of our capital ask. This case includes investments supporting reliability and resiliency, which benefits our customers and are well aligned with our Reliability Roadmap and MPSC direction. Again, one of many proof points in our supportive regulatory environment and a strong starting position for a constructive outcome. As shared in previous quarterly calls, we continue to see strong economic growth in Michigan. As I highlighted in the Q2 call, we have an agreement with a data center and continue to see growth with manufacturing as well as a robust pipeline. Year-to-date, we have connected approximately 450 megawatts of the planned 900 megawatts of industrial growth in our 5-year plan. I'm also pleased to share that we've been successful adding another approximately 100 megawatts of signed contracts year-to-date. This growth is coming from new projects, expansion from existing customers in the areas of food processing, aerospace and defense, and advanced manufacturing. These projects bring jobs and supply chains, home starts, and commercial opportunities to the state and create further visibility to our 2% to 3% forecasted annual sales growth over the next 5 years. On the slide, we're showing our economic growth pipeline. You'll note we continue to move projects into and along the pipeline, bolstering our confidence in additional growth from data centers and other diverse industries. As I mentioned on our Q2 call, we have an agreement with a data center with up to 1 gigawatt of load planning to come to our service territory beginning in early 2030 and ramping up from there. You'll see that project in the final stage of our process at near final terms and conditions. I expect further progress, specifically contract signature as the large load tariff is finalized in November when we expect an order from the MPSC. You'll also see other large data centers in the final and advanced stages of development, which speaks to the robust nature of our pipeline. I continue to be confident and excited about the growth coming to our service territory. The data center and manufacturing pipeline is robust and advancing, and we are well equipped to serve and meet their needs as they advance. On the left side of the next slide, you see our current 5-year $20 billion customer investment plan. On the right side, you see the robust and diverse additional investment opportunities we have going forward. Over $25 billion of additional customer investments supported by our Electric Reliability Roadmap, renewable energy plan, and Integrated Resource Plan. As a result of more load growth, we're focused on resource adequacy and the clean energy law, which means more renewables, battery storage, and natural gas generation to meet growing demand. As I shared earlier, our recently approved renewable energy plan provides visibility and certainty on our plan for future investments. Our Integrated Resource Plan that we will file in mid-2026 will also detail additional capacity needed to replace retired plants and support existing and future growth we are realizing. As we see that full plan come together, we anticipate needing more battery storage and gas capacity. And as a side note, you can expect further growth from capital-light mechanisms such as our financial compensation mechanism on PPAs and our energy waste reduction program. On our distribution system, we see a significant need for investment in pole replacement, undergrounding, and system hardening as we work to significantly improve customer reliability and resiliency. And again, well aligned with our Reliability Roadmap and MPSC direction. As I shared before, a robust and growing capital plan, which will continue to provide investment opportunities to serve customers and deliver value for investors. Now this long runway of customer investments must be balanced with affordability. We have demonstrated our excellence in reducing costs, and we do this better than most through the CE Way, digital and automation, episodic cost-saving opportunities, low growth, and energy waste reduction. This is a significant advantage for us to maintain affordability as we make needed investments in our system. Today, our customers' utility bill remains roughly 3% of their total expenses or what is often referred to as share of wallet. This is down 150 basis points from a decade ago while investing significantly in our system to the tune of $20 billion. Our residential bills are solidly below the national average and continue to be over the 5-year plan period as we continue to make thoughtful customer investments across the system. Affordability is an area where we will continue to focus and deliver cost savings for customers, keeping customer rates at or below inflation and bills below the national average. I am proud of the work we have done to develop excellence in this area. We have built strong cost management muscle across the company, and it continues to benefit customers today and well into the future. As I shared in my opening, a strong quarter. For the first 9 months, we reported adjusted earnings per share of $2.66, up $0.19 versus the same period in 2024, largely driven by the constructive outcomes in our electric and gas rate cases and a return to more normal weather. Given our confidence in the year, we're raising the bottom end of this year's guidance range to $3.56 to $3.60 per share from $3.54 to $3.60 per share with continued confidence toward the high end. We are initiating our full year guidance for 2026 at $3.80 to $3.87 per share, reflecting 6% to 8% growth of the midpoint of this year's revised range, and we are well positioned to be toward the high end of that range. It is important to remember, we always rebase guidance off our actuals on the Q4 call, compounding our growth. And like we've done in previous years, we'll provide a refresh of our 5-year capital and financial plans on the Q4 call. With that, I'll hand the call over to Rejji.
Thank you, Garrick, and good morning, everyone. On Slide 9, you'll see our standard waterfall chart, which illustrates the key drivers impacting our financial performance for the first 9 months of 2025 and our year-to-go expectations. For clarification purposes, all of the variance analyses herein are in comparison to 2024, both on a year-to-date and a year-to-go basis. In summary, for the third quarter, we delivered adjusted net income of $797 million or $2.66 per share, which compares favorably to the first 9 months of 2024, largely due to higher rate relief net of investment costs and favorable weather-related sales. With respect to the latter, we experienced a warm summer in Michigan, which in part drove the $0.37 per share of positive variance on a year-to-date basis. Rate relief net of investment costs resulted in $0.28 per share of positive variance due to constructive outcomes achieved in our electric rate order received in March and the residual benefits of last year's gas rate case settlement. From a cost perspective, you'll notice in the third bar on the left-hand side of the chart, $0.04 per share of negative variance versus the comparable period in 2024. Our year-to-date cost performance was largely driven by increased vegetation management expenses due to higher spending levels approved in our March electric rate order and in accordance with our Electric Reliability Roadmap. Before we leave the cost bucket, I'd be remiss if I didn't mention that given our strong financial performance to date, we put several operational pull-ahead measures in motion across the business over the course of the quarter. These discretionary measures provided additional funding for gas system projects, electric reliability, and programs catered to our most vulnerable customers. A portion of these costs were incurred during the quarter, while the balance will flow through our forecasted year-to-go operating expenses, delivering incremental value for customers while derisking our financial plan and the projected year to the benefit of investors. Rounding out the first 9 months of the year, you'll note the $0.42 per share of negative variance highlighted in the catch-all bucket in the middle of the chart. The primary drivers of the negative variance were related to the planned outage of our Dearborn Industrial Generation or DIG facility earlier in the year and the timing of select renewable projects at NorthStar, which I'll note remain on track, coupled with higher parent financing costs. Looking ahead, as always, we plan for normal weather, which equates to $0.15 per share of positive variance for the remaining 3 months of the year, given the roll-off of mild temperatures experienced in the last 3 months of 2024. From a regulatory perspective, we'll realize $0.03 per share of positive variance, driven in large part by the constructive outcome achieved in our gas rate order in September, which will go into effect on November 1. On the cost side, we anticipate $0.06 per share of negative variance for the remaining 3 months of 2025 due to our ongoing vegetation management efforts as well as the aforementioned supplemental spending on operational and customer initiatives at the utility. Closing out the glide path for the remainder of the year in the penultimate bar on the right-hand side, you'll note an estimated range of $0.05 to $0.09 per share of negative variance, which largely consists of the absence of select one-time countermeasures from last year, partially offset by nonutility performance fueled by achievement of key economic milestones on select renewable projects, among other items. As Garrick highlighted, we are well positioned to deliver on our financial objectives for the year and are establishing a solid foundation for 2026 through prudent contingency deployment as we head into the final 2 months of the year. Moving on to the balance sheet on Slide 10. I'll note our recently reaffirmed credit ratings at the utility from S&P in September, and we anticipate a reaffirmation of the parent's credit ratings in the coming weeks. From a financial planning perspective, we continue to target mid-teens FFO to debt on a consolidated basis to preserve our solid investment-grade credit ratings as per long-standing guidance from the rating agencies. As always, we remain focused on maintaining a strong financial position, which coupled with a supportive rate construct and predictable cash flow generation, minimizes our funding costs to the benefit of our customers and investors. Slide 11 offers an update on our funding needs in 2025 at the utility and at the parent. I am pleased to report that we have completed virtually all of our planned financings for 2025, the latest tranche of which was our settlement of approximately $500 million of forward equity contracts at share price levels favorable to our plan. Given the attractive market conditions, we'll continue to evaluate potential pull-ahead opportunities for some of our 2026 financing needs at the parent. As I've said before, our approach to our financing plan is similar to how we run the business. We plan conservatively and capitalize on opportunities as they arise. This approach has been tried and true year in and year out and has enabled us to deliver on our operational and financial objectives, irrespective of the circumstances to the benefit of our customers and investors, and this year is no different. And with that, I'll hand it back to Garrick for his final remarks before the Q&A session.
Thanks, Rejji. At CMS Energy, we delivered a strong first 9 months of the year and are well positioned for the full year. Our strong pipeline of new and expanding load bolsters our confidence in our growth and provides us with the opportunity to invest in infrastructure across both our gas and electric businesses to serve customers with safe, affordable, reliable, and clean energy. It is an exciting time in this industry, and CMS Energy is well positioned. With that, Alex, please open the lines for Q&A.
Questions and answers
Our first question for today comes from Julien Dumoulin-Smith of Jefferies.
Nicely done, continued progress here. If I can, team, can you elaborate a little bit on just what the timing is on the large load tariff? Just again, I suspect that this is more mundane in process than anything else. But just elaborate there. And then more importantly, can you speak to the opportunity that exists behind this, right? Clearly, this is something of a gating item just to deal with process. What are those conversations looking like to the extent to which that something were to manifest itself here in the next couple of months?
It's great to hear from you, Julien. There are three large data centers in the final stages, which represent up to 2 gigawatts of opportunity. We discussed one of them in Q2, and we are now at the stage of finalizing terms and conditions. It's crucial to complete this gating item, the large load tariff, which we expect to finalize on November 7. This will be significant as it pertains to other terms like the contract length and minimum demands. I anticipate that the project at the bottom of the funnel, the one we mentioned in Q2, will progress quickly once the tariff is confirmed. The other two large projects are also expected to advance within the pipeline. To provide some clarity, these projects have secured land and zoning, and we have worked out the preliminary terms and conditions. We continue to see good progress, and the tariff is also a critical gating item. Therefore, I expect these projects to move forward in the pipeline. Hopefully, that clarifies things, Julien. This is an exciting pipeline and an exciting time in the industry.
Absolutely. So it sounds like you could potentially see developments on all 3 here shortly after that were resolved here on November 7 or again, focus first on the initial contract shortly thereafter and then in coming months on the others?
We like the direction of all 3. And certainly, there's one further in the funnel like we shared at the Q2 call. And so again, plenty of opportunities for data centers here. But I'd also point to the funnel has semiconductors; it has manufacturing, and we continue to land those as well. And those bring with it, as we've talked in the past, a number of benefits. So a robust pipeline of opportunity here in Michigan and across our service territory.
Excellent. And maybe a little bit more of a strategic question, if I can clarify this. I mean, obviously, having this level of confidence potentially gives you more latitude within the plan in the 5 years. When and how do you think about being able to leverage that and reflect it in the plan? And what I'm getting at is potentially maybe there's some upside even within the 6% to 8% or above the 6% to 8%? Or would you be thinking more about, again, doing something that would be more offensive in as much as you guys transacted on EnerBank earlier to improve the overall quality of your earnings. Could you do something similar to that again?
Looking at our capital plans, we currently have $5 billion, with $20 billion more in the pipeline and an additional $25 billion potentially becoming part of our strategy. These data centers would add to our plans, creating opportunities for growth both in capital and sales. Over the past years, we've consistently delivered strong financial results, outperforming others who have grown at rates of 4% to 6% or 5% to 7%. We've achieved growth rates of 6% to 8%, and we are typically at the higher end of that range. This consistent compounding is a rarity in our industry, and we maintain a high quality of earnings that resonates with our investors. We are committed to playing the long game and are confident in our guidance. However, we remain competitive and continuously evaluate our capital plan, ensuring it remains affordable and achievable. You can expect more details about our capital plan and advancements in data centers during our Q4 call.
Our next question comes from Jeremy Tonet of JPMorgan.
I was just wondering if I could pick up with that $20 billion of CapEx knocking on the door. Just wondering how quickly could the door be opened here? Over what type of time line do you think that could be folded in given all these opportunities?
First of all, it's over $25 billion, which is even better than the $20 billion. We’re building some anticipation for the Q4 call, where you’ll see more details. I expect there will be improvements in electric reliability, which we’re already highlighting in our current electric rate case. This is crucial for enhancing service for all our customers, and we are committed to it. This aligns with the Liberty audit report, the direction from the MPSC, and our Reliability Roadmap. You’ll find more about that plan in electric distribution. We have an approved renewable energy plan that includes an additional 8 gigawatts of solar and 2.8 gigawatts of wind, approved through 2035. We plan to take advantage of tax credits and safe harboring, making our 5-year plan robust with these investments, which will be clear in Q4. Also, we will file our Integrated Resource Plan in mid-2026, leading to an order in 2027, but it’s essential to begin structuring that plan to achieve the needed capacity. I expect that battery storage and natural gas capacity will begin to integrate into that 5-year plan across all areas. I hope that answers your question, Jeremy.
Got it. And just want to pick up, I guess, with the gas plant, as you mentioned there, the potential for that. Would that be simple or combined? Or any other thoughts there, especially with regards to turbine slots?
We continue to work through that. I want to be really clear about this. When we look at what we need in this next Integrated Resource Plan, it's both battery capacity and natural gas capacity. And that's for retiring facilities as well as existing load growth. And so the more we add in terms of data centers, that will continue to grow. And we're evaluating what that mix looks like from a simple cycle and combined cycle perspective. But you can expect, like we always do, that we're well planned, well prepared, and we're moving along in that direction.
Our next question comes from Shar Pourreza of Wells Fargo.
Oh my, Shar. You're back. You're back, Shar.
I just want to follow up on the previous two questions. Regarding the $25 billion you mentioned, does any of that potential upside overlap with the timeframe before 2029?
Yes. The short answer to that is yes. You'll see in our next 5-year plan, you're going to see some of that $25 billion move into the next 5 years.
This is Rejji. Shar, just if I could add to Garrick's comments, all I would add is I'd be surprised actually in this next vintage of 5-year plan that we'll roll out in our fourth quarter call early next year. I'd be surprised if we're not dipping into each of those 3 components of that $25 billion. We're going to be in a steady march of reliability and resiliency-related work. And so that's part of that $10 billion bucket of electric distribution. We will continue to chip away at the renewable energy targets embedded in the clean energy law. And we have an upcoming milestone of 50% renewables by 2030. And so we will definitely be dipping into that 8 gigawatts of solar that Garrick noted, 2.8 gigawatts of wind that will certainly be incorporated into the plan. And then with respect to the IRP-related opportunities, that $5 billion bucket, remember, as I'm sure you know, the harvesting period for building out, whether it's simple cycle or combined cycle, you really have to do a lot of work upfront. And so we've already done the siting work. We are in the interconnection queue, but you do have to start spending money to really get on the front end of the gas turbine procurement. And so there will be dollars associated there with embedded in this next plan. And so it's a long-winded way of saying we'll be dipping into each of those buckets, and those related costs and investments will be incorporated in this next, what I'll call a '26 through 2035-year plan.
Got it. And then just, Rejji, maybe just help me bridge, I guess, because you're getting a lot of questions around the CAGR this morning and it's just the way the math works given the base plan already grows at the higher end. I guess what is the offsetting factor on this CapEx being put into the plan potentially before '29 and it doesn't move the trajectory or accretive to this trajectory, I guess, what are the offsetting factors we should be thinking about?
That's a great question. To begin, let me explain how we create our plan. We emphasize the constraints of our capital and financial strategies, ensuring that our rates increase in line with inflation. This process involves significant effort, and we'll continue to apply our established methods. As Garrick mentioned earlier, we have ongoing opportunities for cost reductions. Additionally, we believe that economic development opportunities will contribute positively over the next five years, and we anticipate sharing promising updates soon. We'll manage affordability carefully to meet our financial goals. Regarding our balance sheet, we aim to fund our plans in a cost-effective manner and have successfully minimized our equity requirements to support growth. We're also prioritizing workforce planning and productivity to ensure thoughtful execution of our capital projects. I know you're curious about when this will result in higher growth rates, and we must acknowledge a few challenges. As Garrick pointed out, we base our projections on actual results, which we take seriously when targeting a growth rate of 6% to 8%. We aim to maintain this growth annually through 2026, 2027, and 2028. However, we must also consider the difficulties of achieving this goal. Furthermore, our rate structure is not decoupled, and while we implemented a service restoration mechanism this year, we need to include some margin for uncertainty, particularly concerning weather and increasing storm activity. This uncertainty could inhibit our ability to grow at an accelerated rate. Nevertheless, we were among the first utilities to commit to a 6% to 8% growth rate in 2016 when the standard was lower. We're open to pursuing higher growth if it can be maintained over the next five years, but we must remain aware of the various factors that impact our business.
Our next question comes from Andrew Weisel of Scotiabank.
First, I just want to clarify something. The IRP-related spending opportunity of $5 billion, am I right, that won't be included in the February update for CapEx, right? I think that's what you said in the past given the timing of the regulatory approval. But the way you're talking about it this morning, I'm a little unsure. Is that still how you're thinking about it?
There has to be a consideration of what it takes to install a turbine and some of the longer-term factors, such as EPC contracts and the MISO queue. It's essential to invest now to ensure delivery over the next five years. I believe part of that will be incorporated into this five-year plan on the IRP, especially towards the end as we aim to bring significant equipment online.
Okay, great to hear that, and it's helpful. Regarding economic growth, you currently have 450 megawatts out of the planned 900 megawatts, which seems conservative. I'll just mention that as a comment. My question is about your excess capacity to handle the load, especially with a couple of gigawatts potentially coming soon. How much slack do you have in the system compared to what you would need to match megawatt for megawatt?
That's connected load, which is not yet delivered or in transit. We have the capacity to serve that load today, along with some excess capacity. I want to remind everyone that we are continuing to expand due to the clean energy law, adding over 1 gigawatt of renewable energy this year, with a similar plan for next year. Several battery storage projects are also in progress, including both self-builds and power purchase agreements. Many of these initiatives are already in motion, so our capacity profile is actively growing.
Okay. Very good. Then lastly, if I can, a question on Campbell. I know you haven't made any final decisions, but there have been some conversations about the plant potentially continuing to run maybe as long as the duration of President Trump's administration. So can you just kind of explain what kind of shape is the plant in? What kind of maintenance might be required if it were to run through 2028? And how does the accounting work for the economics? I believe you're booking all the costs on the balance sheet, but maybe just kind of walk us through from a MISO perspective, from a tariff perspective, how does all that work in terms of cash and earnings impact for investors and for customers?
Yes, Andrew, that's a great question. I'll start and then turn it over to Rejji. First, I want to highlight the team’s outstanding performance. As you might expect, some team members are contemplating retirement and transitioning to new roles within the company, while others are preparing for retirement. Despite this, we have a dedicated workforce that is focused on the success of the plant and fulfilling our commitments to the Department of Energy. I cannot emphasize enough how well our people have responded. From a personnel standpoint, we are in a strong position. We continue to receive orders from the Department of Energy via the Federal Power Act, and we anticipate these will persist in the long term. We are ready to operate the plant and adhere to those orders. I also want to remind everyone that we proposed sharing the costs since the benefits extend beyond our customers to MISO, and this has been supported by FERC. These costs and the corresponding revenue are allocated across nine MISO states in the North and Central regions as appropriate. The Department of Energy's order has established a clear route to cost recovery, and we are confidently moving forward in that direction. We will continue to invest in the plant sensibly, and those expenses will be recovered through this ongoing process. Now, I’ll hand it over to Rejji for further insights.
Yes. Thank you, Derrick, and thank you, Andrew, for your question. We are currently treating all costs related to operating the Campbell units as a regulatory asset. There has been minimal capital investment in operating and maintenance expenses. However, if we incur any capital investments, they will also go through the regulatory asset line item we have established, which will amortize over time as we recover costs. It's essential to highlight that once we start receiving recovery of investments and expenses from MISO North and Central customers based on the approved structure with FERC, we will refund Michigan customers for their contributions. We are committed to ensuring that Michigan customers are not adversely affected as we continue to operate the plants for the benefit of the region. The regulatory asset treatment will decrease as we recover expenses, and we will refund Michigan customers who have already contributed to some of those investments. This refund will be funded by MISO North and Central customers. I hope that clarifies things.
Our next question comes from Travis Miller of Morningstar.
Now that you have the REP, could you explain your thoughts on the timing and the balance between self-build and PPA? Can you walk me through what the $10 billion figure means regarding your building plans, timing, and PPA mix?
We're very pleased with the outcome from that renewable energy plan. As I stated, additional 8 gigawatts of solar, 2.8 gigawatts of wind. And just given the safe harbor provisions, we're going to want more of that in the first 5 years, right? That makes sense from a cost to our customers' perspective. And we've got those assets with those projects laid out. So we have safe harbor really out to 2029. And so that will be the plan. Competitively bid. And we've been doing that for a long time. More often than not, we win the competitive bid because of the projects we're putting together and our familiarity with Michigan. And so there's going to be a good portion of self-build in that mix. But remember, I'm not opposed to a PPA either because I really view that as a capital-light way of earnings, right? We're going to earn roughly 9%. It's capital-light. It's a derisked process. I'll let a developer build an asset, build wind, build solar; it will be a mix. And we'll take the offtake of that. And so again, that's kind of how we see it playing out going forward. And so when I say we're building about a gigawatt now and we'll have a gigawatt next year, we'll be building. It will be a mix of self-build as well as developers.
Yes. And Travis, this is Rejji. All I would add to just give you some of the underlying assumptions that support the $10 billion that we have in that sort of CapEx or customer investment opportunity section of the slide. We're assuming just for analytical purposes, about 50-50 owned versus PPA. And so that $10 billion assumes 50% of the solar opportunity. So think about that 8 gigawatts. We're assuming half of that we would own. And for the wind, the 2.8 gigawatts, it's a greater assumption of 50%. I'd say it's closer to 100%, but I don't want to split hairs here. And so that's the working assumption. So clearly, if we end up owning more of that solar opportunity, there could be upward pressure in that $10 billion estimate. If we end up PPA more through a competitive bid structure, then there could be some downward pressure on that. But as Garrick noted, there's just great financial flexibility inherent in the law, and it's nice to have the opportunity to earn in a CapEx-light fashion, and that gives us more balance sheet capacity to deploy potentially to the IRP opportunity, the $5 billion on the page and/or the $10 billion of distribution-related investment opportunities.
Okay. Perfect. You answered my follow-up question. So I appreciate that. I'll throw one more other follow-up question, different subject, but the manufacturing growth, the new customers you're seeing there and the new pipeline customers, can you characterize that, not just industry, but are these expansion of existing? Are these brand-new customers coming from somewhere else? Are they onshoring, reshoring, however you want to say that?
Yes, it's all of the above. It's all of the above. And I mentioned like here's a little surprising fact about Michigan. There are over 4,000 businesses in the aerospace and defense industry in Michigan. And so that's an example of where we're seeing new customers and existing customers grow in Michigan and just manufacturing. We're seeing advanced manufacturing. We're seeing a lot of food processing. One of the unique facts about Michigan is the second most diverse state when it comes to agriculture perspective, and there's been a general trend with food processing to move closer to the fields, to move closer to the farms. And so we're seeing everything from dairy products to baked goods that are continuing to grow in the state, which is a nice business for Michigan and really is a nice path to jobs, supply chains, home starts, and the like.
Our next question comes from Michael Sullivan of Wolfe Research.
Circling back on the data center or large load customer pipeline. Can we just get more of a feel for the timeline of the ramp for some of these? I think you had said on the last call, the 1 gigawatt was like a '29, '30 type timeframe, but maybe the rest of that final stage bucket, what sort of ramp time line are we looking at?
You're right about what we discussed regarding the Q2 estimate, which indicates that the first electrons should arrive by late 2029 or early 2030, followed by a ramp-up. The other two projects mentioned are earlier in the five-year timeframe, and we can meet our supply and infrastructure needs for those. I hope this gives you a clearer insight into our pipeline and its final stages, Michael.
Okay. Very helpful. And then, Rejji, I know you get asked this all the time, but just how to think about how much incremental equity comes with each dollar of incremental CapEx as you get ready to refresh all that? And is there anything in the low tariff that's pending here that maybe helps with some of that in terms of cash recovery?
Yes, Michael, thanks for the question, as always. Yes. So I would say that the historical sensitivity between CapEx and common equity is still, I think, a good working assumption. And so for those who are unfamiliar with it, for every dollar of CapEx that's incremental to our plan, assume about $0.40 of common equity would need to be issued. We always try to put downward pressure on that, and we've been quite effective. Obviously, over the last couple of years after the enactment of the Inflation Reduction Act, we've been monetizing tax credits, which has been a helpful vehicle for financing. We also, just given the nature of our rate construct in a forward-looking test year, we have very strong cash flow generation. And so I tend to not need quite as much equity for CapEx. And with these other mechanisms, and I think it just is always worth repeating that we earn 9% on PPAs, and that's codified in the statute. That also offers an opportunity to put downward pressure on equity needs. But again, the rule of thumb for now should be for every dollar of CapEx, we'll probably have to raise about $0.40 of equity and hybrids offering opportunities as well, I'd be remiss if I didn't mention that we don't usually incorporate that into our plan, but it does create an opportunity. And so those are the ways in which we could put downward pressure on that sensitivity. But again, in the absence of any new information, just assume for now $0.40 of equity for every dollar of CapEx. With respect to the data center tariff, while certainly, we have been very focused on making sure that we are minimizing stranded asset risk for incumbent customers and making sure we have the right protections in place. And there's a little bit more margin given that it's a general primary demand rate versus our most aggressive economic development rates. So you get a little more margin for that. I don't think there's really, at the moment, any working assumptions you should add where we would see significant cash flow generation that would reduce our equity needs if there's additional CapEx. Now who knows over time, based on discussions with select data centers, there may be things that we can incorporate into a potential agreement with the data center. But for now, I would assume, again, most of the provisions in the data center tariff are focused on protecting our incumbent customers. Is that helpful, Michael?
We currently have no further questions. So I'll turn the call back over to Mr. Garrick Rochow for any further remarks.
Thanks, Alex. I'd like to thank you for joining us today. I look forward to seeing you at EEI. Take care. Stay safe.
This concludes today's conference. We thank everyone for your participation. You may now disconnect.