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New gas, renewables spend lifts CMS Energy CapEx plan by $1 billion

CMS Energy Corp. raised its 10-year CapEx plan by $1 billion to cover investments in power supply and gas systems, executives said on its fourth-quarter 2016 earnings call.

The utility, one of the two largest in Michigan, allotted $18 billion for its 2018-2027 CapEx plan, up from the $17 billion it planned for 2016 to 2025, according to its Form 8-K as of Feb. 2. Of the $18 billion, roughly $8 billion is for gas infrastructure and maintenance, $4 billion is for new power supply, and $6 billion is for electric distribution, according to the filing.

"We've also added an additional $500 million in our large gas system to continue to reduce costs and improve safety and deliverability over the next 10 years," CMS President and CEO Patti Poppe said during the call.

The updated CapEx plan also covers about 500 MW of renewable capacity needed to help the utility meet 15% of its power sales by 2021 with renewables, a goal adopted in 2016 as part of Michigan's comprehensive energy package. The state's prior standard required 10% of power sales to come from qualified renewables by 2015. The additional investment in renewables is also because of increased demand, Poppe suggested. Some of CMS' large industrial customers and customers with national brands want more renewables, Poppe said.

Poppe said additional cost reductions over time will help fund future CapEx opportunities. The company identified another $3 billion in opportunities for capital spend, which were not included in the 10-year plan, related to gas infrastructure, grid modernization, more renewables and the replacement of its power contract with Entergy Corp.'s Palisades nuclear plant in Van Buren County, Mich.

CMS in December 2016 announced plans to terminate its power supply contract with the 820-MW nuke plant in 2018 instead of its original expiration year of 2022. The company is still working with the Michigan Public Service Commission over the next several months on a "backfill plan" to replace the contract, Poppe said, reiterating comments from a December investor call that the backfill plan could include a mix of demand response, energy efficiency, fuel switching, renewables and the use of the 710-MW Dearborn Industrial Generation CC plant, or DIG. Poppe, on the call, said the DIG plant is a "major" part of the backfill plan.

CMS Executive Vice President and CFO Tom Webb spoke about anticipated federal corporate tax reform. "None of us really knows what tax reform will include or if it will occur," Webb said during the call. He presented scenarios assuming corporate tax rates of 15%, 20% and 25%, down from the current rate of 35%. The impact of corporate tax reform differs by business segment, Webb said, showing results for the parent and utility, and the company-owned commercial bank called EnerBank USA.

CMS raised its 2017 guidance range for earnings per share by a penny to $2.14 to $2.18 after full-year 2016 results came in at the top of its expectations at $2.02 per share. The company, however, held its expected earnings per share growth rate at 6% to 8% above the prior year's results.

Wells Fargo Securities analysts said CMS' ability to effectively manage its business and consistently produce attractive results suggests that the 6% to 8% growth rate is "very achievable - even in the face of potential tax reform," according to a Feb. 2 note to investors.

The utility, in its earnings release, highlighted its retirement of about 1,000 MW of coal capacity from its seven oldest plants, known as the "Classic Seven," and added two solar plants, including a 1-MW solar plant at Western Michigan University and a 3-MW solar plant at Grand Valley State University, according to September 2016 release. The retirements dropped coal to 21% of its resource mix, down from 41% in 2005, the Form 8-K shows.