Prepared remarks
Good morning, everyone, and welcome to the CMS Energy 2025 Year-end 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. There will be a conference call today, beginning at 12:00 p.m. Eastern Time. 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, Adam. 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 good morning, everyone. Before we get into the financial results, I'm very proud of the team in 2025, as you see from the slide, and I want to highlight a few of the big wins the CMS Energy team delivered in 2025. First, I'm very pleased with our large load tariff, which was approved in November. Supply of energy for data centers is a national story in the rush to serve is on the mind of utility leaders, and I'm very proud of the tariff. The team worked so hard on this year because it's strategic and thoughtful. It protects our customers and supports growth in the state. This tariff provides certainty for our data centers as we bring new load onto the system and it ensures existing customers don't pay a single cent for the investments. In some cases, they will see tangible benefits as this new load supports more affordable rates as we grow Michigan. Next, we received approval for our 20-year renewable energy plan, another area the team worked hard on to put the right plan together that meets the requirements in our state's energy law. More importantly, this approval highlights the constructive regulatory environment in Michigan and provides visibility and certainty for our long-term investments in solar and wind, providing roughly $14 billion of customer investment opportunity over the next decade. On this last one, we have a saying around here: victory loves preparation, and I want to talk about our gas business. It's been a cold start to the winter. And as always, we have been prepared to serve our customers. That doesn't happen by luck or accident; that is a deliberate commitment of our team who work every day to buy gas at the lowest price, store it in some of the largest storage fields in the nation and deliver it safely and reliably to our customers. We're reducing the price of gas when it is needed most by our customers. This is affordability in action. This reflects our ongoing work to replace this important storage and delivery infrastructure investing over $1 billion in the year, so we are there when our customers expect us. At CMS Energy, we wake up every day committed to serve and deliver value for all our stakeholders, and 2025 marks our 23rd year of industry-leading performance. As we prepare for these calls, we do a lot of work on slides, and we all have our favorites. And this next one is mine. It highlights the team's commitment to excellence and what we are able to achieve, and it shows results, proof points of the great regulatory construct in Michigan. I know you hear from Rejji and me all the time when we're on the road, our long history of constructive outcomes multiple years, multiple cases and then add the unique mechanisms like incentives on energy waste reduction and on PPAS, all of which is built into the energy law. It's an outstanding construct. And more importantly, we have been successful getting top-tier outcomes to support our long track record of performance and this year was no different. Two rate orders, electric and gas, both approved with constructive outcomes, delivering big wins for our customers, supporting critically important work to improve electric reliability and ensure gas safety across our system. Our 20-year renewable energy plan approved, over $14 billion of customer investment opportunity to achieve the state's energy law by 2040, visibility and certainty for the recovery of our investments. We also delivered on the first ever storm deferral mechanism approved in June. Our large low tariff was approved in November, priming the pump for growth. Like I said, my favorite slide. These important outcomes provide visibility and certainty for necessary customer investments in our electric and gas systems, and this track record of constructive outcomes continues to highlight what the CMS Energy team is able to achieve and further reaffirms Michigan's top-tier regulatory environment. When I look forward, I have confidence in our ongoing electric rate case. Given the reactions to our recent proposal for decision, I would remind the investment community that this is simply a step in the process and it is not reflective or consistent with our strong track record of performance. The MPSC staff professionals have spent significant time with the testimony and merits of this case. Staff position is constructive, and I would argue much closer to the expected rate case outcome. I would also note that the Commissioner's previous public comments from the bench support the need for an improved electric grid in constructive ROEs. This case is built on the fundamentals of our reliability roadmap, the MPSC Commission Liberty distribution audit and the necessary customer investments to support electrical reliability while maintaining affordability. I expect a constructive outcome for our customers and investors. I also expect the ROE to be 9.9% or better. In our recently filed gas rate case, I'm confident in the investments to ensure the gas system is safe, reliable and clean, and the value to customers of our proposed full gas decoupling. As I shared a moment ago, our gas price is on the decline, and our residential natural gas rate is 28% below the national average, striking the right balance between investment in the system and affordability for our customers. Now on to the financials. For 2025, we exceeded our adjusted earnings per share guidance and delivered $3.61 per share. This is up over 8% from 2024's actual results and delivers that compounding of earnings you have come to expect from CMS Energy. Throughout 2025, we continue to see strong performance at the utility, largely driven by constructive regulatory outcomes and robust performance at North Star driving full year results. This performance allowed us the opportunity to exceed or beat guidance at year-end, deliver better service for our customers and derisk the business for the coming year. For 2026, we are raising our annual guidance by $0.03 to $3.83 to $3.90, which represents 6% to 8% growth off of 2025 actual results, and we continue to guide toward the high end. Our practice of rebasing higher off of actuals is a differentiator in this sector and provides a higher quality of earnings for our investors, and we deliver year in and year out, easy, straightforward math, compounding growth and bringing greater value, how we've done it for years. We are also reaffirming our long-term guidance range of 6% to 8% toward the high end. And as part of our total shareholder return, we'll continue to grow the dividend as we have for over 20 years, targeting a dividend payout ratio of approximately 55% over time. Finally, we remain confident in our ability to manage the business and execute year in and year out regardless of circumstances, 23 years now, consistent industry-leading performance. On Slide 6, we've highlighted our 5-year $24 billion utility customer investment plan, up $4 billion from our prior plan. These investments are necessary to deliver better customer service through improved reliability, both in distribution and supply. I want to take a moment to connect the dots on why I'm excited and confident in our ability to execute on this plan. First, we've increased our electric generation investment by approximately $2.5 billion over the previous plan. Most of this customer investment is already approved in the renewable energy plan with the visibility and certainty I mentioned earlier. Another customer investment that I communicated on previous calls is the addition of natural gas generation in battery storage. Our integrated resource plan that we'll file in mid-2026 will detail additional capacity needed to replace retired plants and support existing and future growth. This customer investment opportunity is not contingent on new data centers, but growth already or soon to be connected to our system. And now we are well on our way in planning and preparation to deliver this capacity in this 5-year window. Second, we continue to roll more of our electric reliability roadmap into our 5-year plan to strengthen our electric distribution system, which has increased by approximately $1.2 billion over the previous plan. This work and these investments are well aligned with the Michigan Public Service Commission and the results of the Liberty distribution audit. We've also seen constructive support of our investment recovery mechanism in the rate case process. Finally, our gas investments also increased in this plan in the amount of approximately $400 million. This aligns with our 10-year natural gas delivery plan as a result of greater demand across the gas transmission system for power generation and industrial growth. So when I step back and objectively look at our 5-year customer investment plan, there is visibility and certainty around the investments. We have an efficient workforce to get the work done. The work provides significant value to our customers, and I have confidence we can do it affordably. This plan supports 10.5% rate base growth through 2030. In addition to our robust customer investment plan, we have meaningful growth drivers outside traditional rate base, which are unique to Michigan and CMS Energy and are sometimes overlooked. The financial compensation mechanism, which allows us to earn on PPAs, grows over the 5-year period, offering nearly $50 million of incentives by the end of the decade. There's approximately $65 million per year of incentives through our energy efficiency programs, enhanced by the 2023 energy law. We also expect incremental earnings from our nonutility business, North Star Clean Energy, as we continue to see attractive pricing from capacity and energy sold at Dearborn Industrial Generation, or DIG. Now we make all these investments with a strong focus on customer affordability. We have a proven track record of driving customer savings through the CE Way and digital automation, episodic cost-saving opportunities, and low-growth energy waste reduction. This creates capital headroom, which maintains affordability as we make important and needed investments in our system. To offer a few examples, in 2025, we had another great year leveraging the CE Way to deliver work more efficiently over $100 million in savings. In 2025, our energy waste reduction program will save our customers approximately $1.2 billion, reducing our customers' bills because when you use less, you pay less. Our efforts here are making an impact. Today, our customers' utility bills remain 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 we've invested significantly in our system to the tune of roughly $24 billion. I'm also pleased to share that our recent electric bill increases are among the lowest in the country. We are committed to keeping our residential bills below the national average, Midwest average, and plan to be over the 5-year plan period. This is an important commitment. Every penny we spend on our infrastructure investments is done with customer affordability at the center. As I've said before, Michigan is growing, and I continue to be positive and confident about the progress of the data center we announced on the Q2 call. The large low tariff was an important milestone to provide clarity for the data centers and to protect our existing customers. I'm pleased to share that there has been great progress with the data centers that are considering locating in our service area. Regarding the data center reference on the Q2 call, and depicted on the slide, we've reached commercial terms on the extraordinary facilities agreement, which is similar to an ESA or electric service agreement. We're also at near final terms in our rate agreement. Our agreements have a path to serve their peak demand, and we know both the timing and incremental supply resources that are needed to serve this load. We also know the expected ramp timeline. That timeline would have their data center online as early as 2028. Keep in mind, the data center is not yet reflected in our 5-year customer investment plan. In addition, we are in advanced talks with the second data center that has been public about their expansion in Michigan and specifically in our service area. While we can't give more details at this point, I can say we are working with them on their needs. We are looking forward to serving this prospective customer. Our pipeline for growth is exciting and robust in Michigan and in our service area. We are well equipped and prepared to serve data center and manufacturing customers. On that high note, let me hand the call over to Rejji to offer additional details.
Thank you, Garrick, and good morning, everyone. To elaborate on the strength of our financial performance in 2025, on Slide 9, you'll note that we met or exceeded all of our key financial objectives for the year, most notably our adjusted earnings per share. To avoid being repetitive, I'll just note that we successfully invested $3.8 billion, largely in line with our original guidance to make our electric and gas systems safer, more reliable and cleaner on behalf of our 3 million customers at the utility. We managed to do this while funding the business in a cost-efficient manner, largely through operating cash flow, well-priced bond and equity financings and tax credit transfers. This prudent funding strategy enabled us to maintain our solid investment-grade credit metrics and associated ratings as affirmed by each of the rating agencies over the course of the year, most recently by S&P for our parent company, CMS Energy in December. Moving on to our 2026 EPS guidance on Slide 10, you'll note the rebasing of the range higher off of our 2025 adjusted EPS actuals as per our historical practice. More specifically, our 2026 adjusted EPS guidance range has increased by $0.03 per share on both ends of the range to $3.83 to $3.90 per share. Our increased 2026 EPS guidance implies 6% to 8% growth with continued confidence toward the high end of the range, as Garrick, which is effectively 7% to 8% given our historical performance. As you can see in the segment details, our EPS will primarily be driven by the utility, providing $4.28 to $4.33 of adjusted earnings as we plan for normal weather, constructive regulatory outcomes and earn returns at or near authorized levels. At North Star, we're assuming an EPS contribution of $0.25 to $0.30, which incorporates normalized operations at DIG, benefiting from an increasingly favorable mix of capacity contracts and the completion of select renewable projects. Lastly, our financing assumptions remain conservative at the parent segment with expected equity issuances of approximately $700 million to support the increased capital plan at the utility. Our guidance in the parent segment also includes a full year of interest expense from last year's successful convertible debt offering in the fourth quarter and assumes the absence of liability management transactions. To elaborate on the glide path to achieve our 2026 adjusted EPS guidance range, you'll see the usual waterfall chart on Slide 11. For clarification purposes, all of the variance analysis herein are measured on a full year basis and are relative to 2025. From left to right, we plan for normal weather, which, in this case, amounts to $0.22 per share of negative variance given the absence of favorable temperatures experienced in 2025, largely in our electric business. Additionally, we anticipate $0.37 per share of pickup attributable to rate relief driven by the residual benefits of last year's gas and electric rate cases and the expectation of constructive outcomes in our pending electric and gas rate cases. Outside of the general rate cases, we also expect to see earnings contributions from our investments in renewable generation assets in accordance with our recently approved renewable energy plan. As always, our rate relief figures are stated net of investment-related costs, such as depreciation, property taxes and utility interest expense. As we turn to the cost structure in 2026, you'll note $0.12 per share of positive variance due to the anticipation of continued productivity driven by the CE Way and more normalized storm activity in our service territory. It is also worth noting that our projected operating expenses reflect the benefits of operational pull aheads executed in 2025. And as always, we will adjust our cost assumptions in accordance with rate case outcomes given the financial flexibility inherent in the forward-looking test year. Lastly, in the penultimate bar on the right-hand side, you'll note a modest variance, which largely consists of growth at North Star per my earlier comments. This bucket also includes the roll-off of 2025 liability management transactions and the usual conservative assumptions around parent financing costs and taxes, among other items. In aggregate, these assumptions equate to a variance of negative $0.05 to positive $0.02 per share. As always, we'll adapt to changing conditions throughout the year to capitalize on opportunities and mitigate risks to deliver on our operational and financial objectives for the benefit of customers and investors. On Slide 12, we have a summary of our near and long-term financial objectives. As Garrick noted, from a dividend policy perspective, we're targeting a payout ratio of approximately 60% in 2026 and roughly 55% over the course of our 5-year plan. Given the elevated cost of capital environment and the breadth and depth of customer investment opportunities before us, we continue to believe that it is prudent to retain more earnings to fund growth. From a balance sheet perspective, we continue to target solid investment-grade credit ratings, and we'll continue to manage our key credit metrics accordingly as we balance the needs of the business. As such, we intend to continue our at-the-market or ATM equity issuance program in the amount of approximately $700 million in 2026, as mentioned earlier. Over the course of the 5-year plan, our aggregate equity needs will be consistent with our historical ratio of $0.40 of equity for every dollar of incremental CapEx, and equates to an average of approximately $750 million per year given the substantial increase in our 5-year customer investment plan. And while we do have some capacity remaining with our existing ATM program, you can expect us to file a new prospectus supplement to reflect our updated needs later this year. Lastly, we also expect select large multiyear economic development projects to begin ramping up in 2026 yielding approximately 3% weather-normalized load growth for the year with run rate assumptions of 2% to 3% in the outer years of our plan. Slide 13 offers more specificity on the funding needs in 2026 at the utility and the parent. At the utility, we're planning to issue a little over $1.7 billion in aggregate. And at the parent, you'll note that our debt financing needs were pulled ahead in November of 2025, which leaves the aforementioned equity issuance needs of roughly $700 million. Needless to say, we'll remain opportunistic throughout the year, and we'll continue to monitor the market for attractive issuance windows. On Slide 14, we have refreshed our sensitivity analysis on key variables for your planning assumptions. As you'll note, with reasonable planning assumptions and our track record of risk mitigation, the probability of large variances from our plan is minimized. Our model has served and will continue to serve all stakeholders well. Our customers receive safe, reliable, and clean energy at affordable prices; our diverse and battle-tested workforce remains committed to our purpose-driven organization; and our investors benefit from consistent industry-leading financial performance. 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 deliver. 23 years now of consistent industry-leading performance regardless of changing circumstances, year in and year out. You can count on CMS Energy to deliver for all of its stakeholders. With that, Adam, please open the lines for Q&A.
Questions and answers
Our first question comes from Julien Dumoulin-Smith from Jefferies.
As always, appreciate your infectious energy you convey on these calls. If I can kick it off here as it pertains to the data center opportunity you guys alluded to here, obviously, you're in advanced talks as you characterize it here. Can you give us a little bit more of a sense as to where we stand on data centers in Michigan? Obviously, there's been a lot of discussion in the state, more broadly, maybe not necessarily specifically as to the second site here. But how are you thinking about that opportunity? And how would you set expectations on the timeline? Obviously, you can't give too many details, but at least from a financial update and frankly, in terms of a roll forward of your overall plan, you've put a lot of progress in here with the 10.5% rate base CAGR. Just want to see how you would marry up any kind of timing on a second data center here against your wider financial plan here, ultimately...
I'm very pleased with the progress we've made from a data center perspective. The entire funnel has actually grown, with another two data centers joining us in the last month. They are still at the top of the funnel, so they haven't progressed far yet. Additionally, there are two large manufacturing customers that are also new to this process. From my viewpoint, Michigan's economic development looks very strong. These projects are moving through the funnel, and I've mentioned a couple in my earlier remarks. The one we announced in Q2 with a tentative agreement is continuing to move forward. The initial step is to get the data center tariff established, which lays the groundwork for these projects as they understand the terms and conditions. Securing the extraordinary facilities agreement was a significant achievement. This is similar to a service agreement in other utilities. We are nearing finalization of the rate contract, which is essential for the regulatory approval process. I feel optimistic about this since we've completed many pre-approvals. We're also working with customers to finalize zoning, and everything seems to be progressing in the right direction, which strengthens my confidence in potentially securing a couple of data centers. My main focus is on one where we are closest to finalizing the contract terms and conditions. Is that helpful?
Yes, absolutely. And then maybe secondly, I mean you guys just gave a big update on the plan here. I just love to nitpick a little bit around it in as much as it really puts a lot of latitude within the plan here. So would love to think about or walk through a little bit what's in and what's out of the plan and how you would think about the pieces here? Because you got a 10.5% against the 6% to 8%, obviously, you guys are talking about a certain degree of dilution against that. But separately, you talked about a $50 million pretax FCM. You talked about some $65 million of energy incentives or energy efficiency incentives. You talk about North Star DIG recontracting, like if you take the rate base plus some of these other items, how do you feel about the 6% to 8%? And what's in and what's not encompassed in the formal plan today? I'm cognizant of much of the data center discussion we just had is not explicitly.
Yes. Just to confirm that the data center piece is not, and that would be incremental investments. And again, we know what that timeline looks like and those resources and how to accommodate those to deliver for the customers. But Rejji will walk you through a little bit of the math here in the 6% to 8%.
Yes, Julien, we anticipated that question would come early in the call, so well done on bringing it up. You have the right idea regarding the components, with a 10.5% rate base compound annual growth rate over this five-year period. When you factor in the North Star opportunities and the FCM, both of which have improved from previous estimates, that adds about another percentage point to that 10.5%. There are additional factors we can discuss later. This results in a low double-digit CAGR when you combine North Star, FCM, and rate base growth. The adjustment that brings us to the guidance of 6% to 8%, leaning toward the higher end, which I mentioned earlier, is realistically around 7.5% to 8%. The reason we go down from the low double-digit CAGR is primarily due to the funding costs, as we are issuing more equity in this plan than in previous years, which we estimate at approximately 3.5% based on our current market capitalization and the amount of equity involved. Therefore, we adjust from a low double-digit CAGR of growth downwards because of this equity cost. Another factor contributing to the downward pressure on that growth is that we have about $1.7 billion in parent refinancings planned over this five-year window. It's essential to note that, unlike the first 15 years of this century, money is no longer free. Consequently, we will be refinancing those parent bonds at higher issuance levels than when they were initially funded, leading to some negative arbitrage. This situation is not unique to us but affects the entire sector. It's crucial to keep in mind that these financing costs at the parent company are not recoverable. Therefore, the combination of equity needs and parent refinancings will lead us back to the 7.5% to 8% range. Finally, even if you calculate that to potentially reach around 8.5%, remember that we compound off actual results each year. As Garrick mentioned, we believe that's a higher quality of earnings, and you need to factor in some contingencies to sustain that year after year, as we've successfully done for the past 23 years. Additionally, as we've discussed before, we have not fully decoupled gas and certainly not electric, along with the risks posed by weather activities. Hence, we need to account for that uncertainty. For all these reasons, we are confident in our guidance today and how we transition from a low double-digit CAGR down to the 6% to 8%, specifically to around 7.5% to 8%. Did that clarify things?
Let me add some clarity to Rejji's positive remarks. Looking ahead to 2025, constructive regulatory outcomes and strong performance at North Star enabled us to reinvest in the business. Rejji mentioned our improved customer service this year, which includes additional tree trimming work on the gas system. We also reduced risks for future years, and we were able to share some of that upside with our investors. This gives us the confidence to add $0.03 to our guidance. This highlights the strength of our plan and our belief in its success. So, don't overlook the significance of this compounding growth.
The next question comes from Nick Campanella from Barclays.
Thanks for the answer on the rate base to earnings walk. That was very helpful. Maybe just a large component of the plan is also just the authorized returns. And I hear the comments about expecting something closer to a 9.9%, but just the PSD, I would say, is just quite concerning from seeing an 8% and change ROE significantly below the national average, not really representative of the cost of capital environment that you guys kind of spoke to and to prepare. So just maybe kind of talk a little bit about what the feedback from stakeholders have been since this has come out? And how you're kind of viewing the decision tree into March here and just overall confidence for a constructed outcome?
Look, I'm not concerned about the ALJ PFD at all, just to be super clear. This team, the CMS Energy team has delivered, and we've got a track record of performance. And credit goes to the team and a very constructive regulatory environment. And as I shared, just to be clear, we expect a constructive outcome, and I expect an ROE of 9.9% or better, not close to 9.9%, 9.9% or better in the context of this case. And let's just take that 8.2%, like it's an outlier. It's not well supported. It doesn't match the environment, like it's going to be discounted in this case. But I will point to this, take the revenue deficiency that the ALJ offered, $168 million, apply a prevailing ROE of 9.9%, it's like the number goes to $314 million, right? That's actually in the ballpark where staff is at. It's actually gets a lot closer, and so that speaks to the merits of the case, like there's good justification for the capital investment. There's good justification for what we need to do in O&M and tree trimming and storm-restoration and the like, and then turn to staff position, right? Like I said in my prepared remarks, professionals, amazing public servants who are dedicated to understanding this industry. And there's a lot of stuff that goes on outside of the cases. High REPs and reliable road maps. We're building the case like we're building outside the case for the next case. And then you go into the case. And this team, the CMS Energy team, does an amazing job and have improved our testimony and justification and business cases for these investments. And the revenue efficiency for staff is very constructive as well, right? It's $317 million, I guess an ask of $423 million. And so like there is a clear path to a constructive outcome. In terms of ROEs, we've heard it from the bench, from the Chair that access has been driven out, and I believe, supported by testimony, again, clear testimony supports these ROEs that this commission sees the importance of attractive and tracking capital to Michigan, and that's important for all stakeholders, including our customers. So that gives me great confidence that we'll be able to achieve a successful outcome in this rate case as well as an ROE of 9.9% or better.
Thank you for that. Can you discuss how the 1 to 2 gigawatts in the final stages affects the capacity needs? Additionally, what is the outlook for capacity needs heading into the early 2030s? Furthermore, when you incorporate the 1 to 2 gigawatts, do you consider it to be truly incremental to the 10.5% CAGR you mentioned today, considering that the large low tariff should protect customers from rate increases and result in additional rate base growth?
To clarify, the data centers are not part of the plan, so any growth from the data centers in the funnel is excluded from the customer investment plan. Regarding the integrated resource plan, we have a renewable energy law and a clean energy law, much of which has already been approved in the renewable energy plan. You'll see that reflected in the IRP. However, there is a capacity gap; even with the introduction of clean energy, we need to address times when the sun isn't shining and the wind isn't blowing. We will need to use batteries and natural gas to fill those gaps. Looking ahead, we know there's load growth in the state. Excluding the funnel, we connected 450 megawatts of load last year, which was mentioned in our previous quarter’s slide. This represents a 3% load growth just for next year, and we project 2% to 3% growth over the next five years. We need to be prepared to meet that demand. Additionally, we are anticipating retirements of oil-fired plants, specifically units 3 and 4, which will retire in 2031, accounting for roughly a gigawatt of capacity. Therefore, the capacity needs we are anticipating must be addressed in the next IRP and are included in the $24 billion customer investment plan.
Yes, Nick, this is Rejji. I would add to Garrick's good comments is that, and I think we've shared this sensitivity in the past. But generally, every gigawatt of additional load we bring onto the system, we'll need anywhere from, call it, $2.5 billion to about $5 billion, $5-plus billion, and that is a combination of the distribution-related resources needed to interconnect the load opportunity as well as additional supply. And I think this point that Garrick has raised is critical our differentiation versus perhaps some of our peers. This CapEx backlog that we're laying out for you today, this 5-year plan, the $24 billion not predicated on us landing these large load opportunities. So that creates incremental CapEx. And to directly ask answer one of the parts of your question, the rate base CAGR would in fact go up if we landed one of these opportunities and had to build out more capacity to accommodate its needs. So obviously, a lot of opportunity on the outside looking in and look forward to giving you updates later in the year.
The next question comes from Shar Pourreza from Wells Fargo.
This is Marcelo Petrin on for Shar. So you highlight bill growth compared to the national average and to share of wallet as well as potential savings with the 1 gigawatt data center addition, and we've seen rates be a really big topic in the codetorial election, so ester Nike Sherlan, New Jersey and Lisa week with Josh Sekiro in Pennsylvania. How are you thinking about affordability going into the election year initiative?
Marcella, it is a great question. And the good thing is this isn't our first rodeo. We've been doing the affordability and the cost savings for a long, long time. But this issue, as you pointed out, is not a Michigan issue; it's a broader national issue. And frankly, when you got a K-shaped economy, this president is going to have some challenges in this midterm election. And so when you look at across the nation, and particularly look at energy costs, it's most pronounced in PJM. Reminder, we are not PJM, we are MISO. In PJM, all those costs are flowing through to the customer. All those supply, energy, and capacity dynamics are flowing right to the customer, 50% of the bill. And it's happening with deregulated utilities, right? All that flows through and impacts the residential customer. The good thing about us, again, we're not PJM; we are MISO, and also, we're a regulated utility, and we own generation. So we're able to hedge that cost. And I showed on my first slide, just this year alone, in 2025, we saved our customers $250 million by self-generating with our own units that at a good heat rate versus buying from the market and an exposure to the volatility market, $250 million. If you go back a year ago, it was over $200 million. If you go back 3 years ago, it was approaching $200 million. If you go to a Q4 calls in the slide deck, you'll see all that information. So that's why I say it's not our first rodeo. We do the same thing in our gas business. We buy gas in the summer. We have the largest natural gas storage fields in the world, and we deliver that low-cost gas in the winter, keeping our gas supply costs low. This affordability is not new to us. I talked about it in my prepared remarks: $100 million of savings through CE Way, $450 million over the last 5 years, $1.2 billion of customer measures from an energy efficiency perspective, right? I can go on and on about the things we do. And here's some data, and you can look at the Detroit News on this; Richard Zuma, old Michigan residents, Michigan voters, and they asked about this question on cost of living. And 80%, that's a huge number to pull, 80% of Michigan residents said that issue with cost of living was groceries, not energy. Like it's a different fact pattern here in Michigan. And so we continue to focus on it, and that's why we're able to talk about being below the Midwest average and the national average because we deliver. Now you brought up the important piece of this affordability and the election. And just to be clear, we've got 10 people running for governor. It's a crowded field, right? And everyone is trying to find their little lane, and they talk about different extremes, extreme politics, like dead catting; there's all kinds of ways to describe all this stuff. But again, you've got to look at the polling numbers here. And the other important piece is, so who's pooling? And so we know that; we work with them. That's an important piece. But also remember, another piece on this, there's plenty of information that shows the rate freezes in Michigan are legal. Go back to Act 3 of 1939, go to Public Act 191 of 1982. Go back to case law of Michigan in the Michigan Supreme Corp. So again, we've got a good fact pattern affordability. We've got good case law and good precedent, but that's not all we do. Well, we go meet with these candidates is Googling to candidates, and I pull out 2 pieces of paper, double-sided, 2 pieces of paper. And I present them with 10 policy things, policy and legislative things that they can do to improve affordability. I will tell you, ours like some of them and like some of them, but you know what? That changes the conversation. Now I'm with them. Now I'm a partner. Now we're able to provide solutions to continue to take this great affordability equation we have and make it even better here in our capital in Lansing, Michigan. And so like here's part of our success, 23 years of consistent financial performance. That doesn't happen by luck or accident, right? It's good because we've got good energy law. That's a big piece of it. But also, our job is to be solution providers, to work with everybody on either side of the aisle. And when you can call them and be a solution provider, man, that's how you get good outcomes. And that's why this investment thesis works and why we're able to do what we do. Great question, Marcella.
Next question comes from David Arcaro from Morgan Stanley.
I appreciate your comments, Garrick. Could you discuss the data center aspect regarding the large load tariff? We've noticed that data centers are increasingly covering their full share of costs, as evidenced by Microsoft's initiative. Could you elaborate on the large load tariff and the challenges in allocating certain costs, such as full generation or transmission costs? What strategies do you have in place to protect customers from large loads beyond the existing large load tariffs?
It's a positive tariff designed to protect customers. We're actively discussing this publicly and addressing some of the misinformation suggesting that it will increase residential rates, which it won't. In fact, the presence of these data centers brings benefits. We are close to finalizing the rate structure, ensuring it is clear how they will cover costs for capacity and energy, which will be their responsibility for transmission and distribution. It's encouraging when companies like Microsoft affirm their commitment to protecting residential customers, as it aligns well with this tariff. We will need to seek approval from the Michigan Public Service Commission regarding these contracts, and the guidelines are well defined. I am happy to report we are making significant progress. While I can't disclose specific details about the supply or timing, it's possible for it to be operational by 2028. As we finalize the contract and zoning, we will communicate that information to the investment community and others.
Okay. Great. That's helpful. And not sure if you specifically mentioned, but has there been support from data centers on the large load tariff, just in terms of continued interest in coming to Michigan able to work under the new provisions under that tariff?
Yes. Yes. In fact, as I shared in some of my earlier responses, that data center pipeline has advanced, and it's even grown in size. And so again, both positive indicators in support for this data center tariff in Michigan's growth.
The next question comes from Michael Sullivan from Wolfe Research.
I wanted to pick up on the last couple of questions just around data centers coming to your territory, particularly on the zoning front. There's a lot of articles out there locally and even nationally, too. Just how much of an impediment has that been, if at all? And how much should we think about that as just like a gating factor to get these things over the finish line?
I don't see that as a barrier at all. Just to clarify, I know the Wall Street Journal had an article discussing how Michigan isn't in our service territory. However, your question is still very important and valid. We've been operating in the state for 140 years, dating back to the Foot Brothers. We understand which communities are more pro-investment and which are less so. This knowledge comes from our efforts in building solar and wind projects and conducting pipeline work. We help direct data centers toward areas that are more welcoming to growth. Regarding the Wall Street Journal, they were incorrect in stating that the moratorium means progress has stopped. In reality, these are short processes; they typically last 30, 60, 90, or sometimes 180 days, but we are still making progress. I believe it’s a good due process, as township and community officials gather information from their constituents and conduct research. For instance, in Mason, Michigan, which is in our service territory, they had a 90-day moratorium in place but actually came out with a new zoning ordinance allowing data centers before the 90 days were up. So when I mention finalized zoning, we collaborate with hyperscalers and developers to ensure success. Therefore, I don't view this as a hold-up or impediment in Michigan.
Okay. That's really helpful. I appreciate the color. And then just shifting back to kind of the pending rate case and regulatory strategy. What are your thoughts on just being able to get back to more frequent settlements to maybe just take volatility out of the process associated with ALJs like we just got? And then also like potential to space out cases a little bit more, just given I think there's been commentary from the commission in the past and now whether or not rate freeze is legal, illegal materializes, but anything that can like alleviate pressure on frequency? And then also, yes, just parties putting things forth and being able to settle more preemptively?
As I've shared before, I continue to be open towards settlement and settlement discussions, and we'll continue to explore those. Again, the merits of the case and just the fact pattern in Michigan, when we go the full distance, as we did last year in 2025 with our cases and get very constructive outcomes. And so I'm happy to go that route. And I don't think it's reflective at all about the environment in Michigan. Again, because at the end of the day, we're getting successful and constructive outcomes from this commission. In terms of spacing out, I think a really important data point that I referenced on the call, and we have this information. And I think actually Wolfe has presented this in a different format, too, is that Michigan and particularly CMS and the other large utility like our rate increases are some of the lowest in the country, right? And so can we space them out? Sure. But like let's do the math and like what's going on in these other states, frankly. And so we've got a really good story. And when we go on annual rate cases, we're able to pass savings back to our customers. We're able to make sure that those increases are more in line with inflation or better than inflation. And so smaller little bites at the apple is really a great approach. Now I'm always open with the right construct, if there's a way to expand those out and go longer, but we have to have the right construct in Michigan to be able to do that. There's some talks, early talks in that direction, but nothing that is serious at this point, Michael.
The next question comes from Jeremy Tonet from JPMorgan.
Thanks for all the good color today. Just was curious with the upcoming state of the state here, we've seen in other states utilities kind of featured in some of the commentary here. And wondering if you had any expectations or any thoughts to share here given what we've seen in other states?
Let me offer this. Again, I'll start with a big headline: 23 years of consistent financial performance. We had that one slide in there. Regardless of the weather, the CEO, the governor, the legislature, or the commission, we deliver. I may have overused this term, but it's not by luck or accident; it's energy law, which is largely established and typically bipartisan. That sets many of the parameters. The commissioners are on staggered 6-year terms, and you can only have 2 from one party, which also establishes many parameters in Michigan. That’s the great thing about Michigan. As one of the largest investors in the state, property taxpayers, and job providers, candidates recognize this. We work with these candidates to find solutions, as I mentioned earlier. When I present candidates with 2 pages, front and back, of good policy solutions, it influences the discussion. I'm there to help them succeed. When they are out with their constituents, they can point to concrete actions we can take in Michigan to make bills more affordable. We're starting from a strong position, which creates a dynamic that contributes to our consistent success. So hopefully, that addresses your question, Jeremy.
The next question comes from Andrew Weisel from Scotiabank.
You covered a lot of the main topics, so I've just got 2 sort of more nuanced ones. First on equity. Obviously, as you kind of previewed a tick up from $500 million last year to $700 million this year to an average of $750 million in the long-term plan, how should we think about that going forward? Should it be consistent, should it be ramping up to the capital expenditure profile? Or would it be more front-end loaded given the lag of cash recovery for generation relative to distribution? And does that assume additional use of hybrids or JSNs? Or would hybrids potentially reduce the equity needs?
Andrew, it's Rejji. I appreciate the question. As I'm getting older, I may need to revisit multipart questions, so please let me know if I overlook anything. Regarding equity, you've captured the essence of your question accurately. Equity generally increases with capital expenditure needs. This plan is $4 billion higher, with $24 billion in capital expenditures for the utility, compared to the previous plan of $20 billion. Based on our historical ratio of $0.40 of equity for every $1 of incremental capital expenditure, this plan has about $1.5 billion more in equity needs than the previous plan, which was $2.2 billion in total, compared to the current plan of about $3.75 billion. This historical relationship remains intact, allowing us to maintain our preferred mid-teens credit metrics on a consolidated basis. Regarding junior subordinated notes, we have incorporated a little over $1.5 billion in the plan over a 5-year period. We've noticed a positive increase in the breadth and depth of liquidity in that market, as well as particularly strong execution over the last 36 months. Although we don't plan to utilize this in the current year, it will come into play later in 2027 and 2028. In terms of shaping the equity needs, they align fairly well with our capital needs, which are somewhat front-loaded based on the details in the appendix of today's deck regarding our capital expenditure plan. We expect to issue a substantial portion of that in the first three years, with a significant decrease in the last two years. We will remain opportunistic, and if our stock trades at favorable levels, which I currently don’t believe it does, we will take advantage of that. However, the plan for this year is to gradually release that $700 million. If our stock trades at levels we consider reasonable over time, we might be more aggressive. Let me pause here and see if that answers your questions.
It is. And your memory is still intact. You got all of those. Next one, you previously talked about a $20 billion CapEx plan with $25 billion of incremental opportunities. Now you're guiding to $24 billion. Should we think of that as pulling from the opportunities bucket into the formal plan? Or is this more like an incremental $4 billion that you've identified and you still have similar opportunities bucket beyond the new outlook?
Yes. So great question. And I would say, in terms of that $25 billion of backlog we've been talking about, that's outside of the prior plan looking in, yes, we certainly dipped into that with the $4 billion incremental. But I would say it's not a perfectly symmetric equation because the reality is we have additional CapEx needs as we're preparing this new integrated resource plan that will likely drive additional CapEx needs. As Garrick and I noted earlier, our plan does not presuppose us realizing some of these large load opportunities from a customer investment perspective. And so that would add to that backlog as well. And then I would also just note in this plan, obviously, with the growth of financial compensation mechanism-related earnings, we are taking some of that CapEx opportunity and converting it into PPAs. And so we have dipped into that well, but I would say from where we sit, the well is quite infinite when it comes to CapEx backlog at the utility, and it just grows every year because there's a lot to do on both the distribution side and the supply side in electric and gas is quite a bit to do as well.
The next question comes from Anthony Crowdell from Mizuho.
Rejji, I'm glad to see that CMS is still providing caffeinated coffee in the employee kitchen. I have a quick question. You're currently seeking decoupling in your gas case, and I'm wondering if you plan to pursue that in your next electric case as well, especially considering the significant increase in industrial load projected for 2025.
I appreciate the question, Anthony. It's great to hear that you noticed our enthusiasm. Our focus is currently on revenue decoupling specifically in the gas business. Historically, we've analyzed sales trends in our electric business and see no need to pursue decoupling in that area. Right now, our intention is solely for the gas business, which is reflected in the case we filed in mid-December. We don't have any plans at this moment to consider this for the electric side. The only other thing I would note is that it is actually not permitted to utilize decoupling in the electric business that is actually a part of the legislation that's been passed.
Final question today comes from Bill Appicelli from UBS.
I just had a question around the 3% residential bill inflation, maybe you just unpack a bit when we think about 10.5% rate base growth. So how much are you managing with the CE Way? And then do you have anything else on the affordability side that can help, right? So I think in the past, you've talked about some higher-priced PPA contracts that roll off. Maybe you could just speak to other tools that are there to manage the affordability?
Thank you for the question, Bill. You've highlighted some of the main factors that contribute to the persistent downward pressure on bills and rates each year. As Garrick mentioned earlier, we’ve been focused on this for many years, working hard to self-fund much of our rate base growth. Over the past two decades, we have achieved periodic cost reductions and made effective decisions, while we expect that some of our high-priced power purchase agreements will expire in the future. Eventually, we will phase out coal, which will also lead to cost savings. Although these savings can be sporadic, our CE Way initiative consistently provides more savings each year. It’s important to note that we implemented this program only about ten years ago, and we believe we have only begun to see its full potential. Back in 2018 and 2019, we managed to achieve nearly $10 million in operating expense reductions from the CE Way, and we were celebrating this success as we were just starting out. As Garrick pointed out, last year alone we realized an additional $100 million in savings, showcasing the significant potential we have. Moreover, we are particularly enthusiastic about our ability to self-fund our growth by capitalizing on this promising economic development backlog. This aspect is crucial for maintaining affordability. We are committed to delivering strong cost performance, and if we can convert even a fraction of this backlog, it will greatly reduce bills and help fund necessary investments in our electric business. As demonstrated in one of Garrick's slides, converting just 1 gigawatt of this backlog, which is linked to the large load tariff, could potentially lead to a 2-point reduction in the compound annual growth rate of our bills. Therefore, we have many strategies at our disposal, and we look forward to implementing them to generate downward pressure and support our capital expenditure plan.
Great. That's very helpful. And I guess 1 housekeeping item. It looks like the D&A in '28, '29 is about $100 million lower than the prior guide you had given. Is there anything driving that? Or despite the fact that the CapEx is higher, so any color there?
Yes. My sense is it's mix. That's usually what it is because you do have different depreciation rates depending on the assets. The distribution assets tend to be longer-lived than the generation assets. And so it's got to be mixed, but the IR team will certainly follow up with you after the call to unpack that some more, Bill.
This concludes today's Q&A session. So I'll hand the call back to Mr. Garrick Rochow for any closing comments.
Thanks, Adam. I'd like to thank you for joining us today. I look forward to seeing you on the conference circuit. Take care and stay safe.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.