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CMS Energy: Proving that
Being a Utility is Good Enough

It’s hard to believe that 20 years ago CMS Energy (NYSE: CMS) was a pariah in its home state of Michigan. The long-time CEO had exited in disgrace, after spectacularly failing to convert the electric and gas utility into a mini-Enron. And the company was floundering in debt and bad will from regulators and customers, notes Roger Conrad, editor Conrad’s Utility Investor.

That’s when incoming management decided being a utility was good enough. They systematically repaired relations with customers and regulators, boosted efficiency, cut debt and squeezed out costs. And the result is a roughly 1,000 percent 20-year total return for investors.

CMS today is still laser-focused on the micro to achieve superior returns. Guidance annual earnings and dividend growth through 2026 is industry standard at 6 to 8 percent a year. And like most utilities, the primary driver is CAPEX that’s pre-approved by state regulators.

What sets CMS apart from its peers is first the extraordinary level of support from Michiganders for its plans. For example, the Public Service Commission approved its 20-year integrated resource plan with support from customer and environmental groups, energy industry representatives and the state attorney general – all frequent adversaries of utilities in many states.

Second, CMS’ five-year $14.3 billion CAPEX budget focuses on spending to reduce operating costs. And resulting savings passed onto customers to offset the impact on actual rates of rate base growth fueling higher earnings and dividends.

The IRP envisions $600 million in annual savings through 2040 in part by phasing out all of the company’s aging coal-fired electricity 15 years faster than expected in 2025. The utility will also buy out high priced power purchase contracts once mandated by the state by acquiring 2.16 gigawatts of natural gas-fired generation.

Entergy Corp’s (NYSE: ETR) retirement of the Palisades nuclear plant this year ends an- other high priced power purchase contract.

Reducing gas system leaks and boosting energy efficiency programs is cutting waste. So will employing digital technology through smart meters and automation. And 8 gigawatts of new solar capacity and 550 megawatts of battery storage systemwide by 2040 will slash fuel costs.

The bottom line is an exceptionally sustainable business plan set to produce ultra-reliable shareholder returns. CMS is a buy for even the most conservative at 68 or lower.

Editor’s Note: Conrad’s Utility Investor delivers high-quality analysis and rational assessment of the best dividend-paying utilities, MLPs and dividend-paying Canadian energy names. This highly regarded service maintains 3 model portfolios that are tailored to different risk appetites. Also, Proprietary Quality Grades for more than 200 stocks. Download a FREE sample issue at www.ConradsUtilityInvestor.com.

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