Good morning, everyone, and welcome to The CMS Energy 2018 Year-End Earnings Call. 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. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. [Operator Instructions] Just a reminder, there will be a rebroadcast of this conference call today beginning at noon Eastern Time running through February 7th. 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 conference over to Mr. Sri Maddipati, Vice President of Treasury and Investor Relations.

Good morning, everyone, and thank you for joining us today. With me are Patti Poppe, 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. Now, I’ll turn the call over to Patti.

Thanks, Sri, and good morning, everyone. Before I review our results for the year, I do want to touch on what you’ve likely heard in the media. Michigan and the Midwest are experiencing extremely cold temperatures, which are attacking energy delivery throughout myself and driving record demand on our gas system. The Governor of Michigan has declared a state of emergency given the dangerously cold weather. Our number one priority is to keep people safe and warm. We’ve seen record demand on our system, and while we are working hard to meet that demand, we did have an incident at our Ray storage field, which is now partially back online. But given the weather and demand, we have asked our customers to reduce their gas usage by turning down thermostats and conserving energy across the state. We thank all of our customers who are doing their part to help Michigan crews in dangerous weather, which we expect to last for the next 24 hours. 2018 was a solid year for CMS which Rejji and I will walk through in great detail in addition to sharing the Company’s 2019 goals with the usual emphasis on the triple bottom line. With another year in the books, we’re pleased to report adjusted earnings of $2.33 per share, which is toward the top end of our guidance range as planned. Building on those results, we have raised our 2019 full year guidance range from $2.46 to $2.50 per share, up by a penny to $2.47 to $2.51. This reflects growth of 6% to 8% on top of actuals, as we do every year with a bias toward the midpoint of 7%. It’s also worth noting that earlier this month, the Board voted to increase our 2019 annual dividend to $1.53 per share, a 7%…

Thank you, Patti, and good morning, everyone. As Patti mentioned, we’re pleased to announce our strong results for 2018 with adjusted earnings per share of $2.33, up 7% in 2017 and towards the high end of our guidance as we’ve predicted. Our adjusted EPS largely excludes modest non-recurring costs associated with select legal legacy business matters and federal tax reform, which resulted in a net difference of $0.01 per share between our adjusted and GAAP EPS. As is often the case, we do not carve out much and take the good with the bad with no excuses. Our 2018 results were largely driven by weather and rate relief net investments of the utility, as highlighted on the right hand side of Page 12, which were partially offset by substantial reinvestment activity or pull aheads as we refer to them particularly in the fourth quarter. We had adjusted earnings of $0.40 per share for 2018 compared to $0.51 per share in the Q4 2017. In addition to a record level of operating pull ahead in 2018 of the utility, we also capitalize on non-operating pull aheads by prefunding multiple debt tranches at the parent which is a key driver of the negative variance in our parent and other expense versus guidance. As Patti noted, the numerous reinvestment actions taken in 2018 benefit our customers by enhancing service and reducing costs, while serving to derisk our 2019 financial plan to benefit investors, which I’ll cover in more detail shortly. Closing the books on 2018, Slide 13 lists all of our financial targets for the year and our success in achieving them. I’ll highlight a couple of noteworthy items in addition to achieving 7% annual EPS growth. We grew our dividend commensurately and generated over $1.7 billion of operating cash flow, which exceeded…

Thank you. [Operator Instructions] Our first question will come from Jonathan Arnold of Deutsche Bank. Please go ahead.

Good morning, guys.

Good morning, Jonathan.

Good morning, Jonathan.

And thank you for the update and good luck getting the – keeping everyone warm out there.

Given our best.

Just a quick – just Rejji, this might be for you, but I think you’ve given us quite the granularity on timing of spend by segment, at least not recently. So can you perhaps help us see where the $1 billion of incremental electric investment installing, it looks like 2020 and 2021 are the peak spend years. But I’m just not sure what those were before.

Happy to do that. Yes, so you’re right, we do crossed over the five-year period in 2021 and that has a lot to do with the renewables and the trajectors and giving them timing of the tax credits. But if you look at the $11 billion in our new five-year plan versus the $10 billion in our prior vintage, the real difference is, one, you’ve got about $0.25 billion of renewables flowing through our electric supply spend and that again is the gas to the 15% RPS. And then you’ve got about a commensurate increase in electric distribution and gas infrastructure and as we roll forward one year. So I’d say it’s a combination of those three things. Incremental renewables, electric distribution spend as we roll our five-year distribution plan one year forward and then an uptick in gas infrastructure spend. So it’s really those three things, Jonathan.

So the revenue – I feel the renewables – $1 billion of renewables was already in the plan – the prior plan.

We had it close to those levels. I’d say we were probably about $0.25 billion south. We were in that zip code, but at the end of the day, we wanted to make sure that the renewables we had in the prior plan and this plan reflected what we’re seeing in our renewable energy plans that we filed in the RFPs.

Okay. And it’s a similar topic, last quarter, I think you said you were planning to give an update to the 10-year view on capital late – sometime later this year, you still think you’ll do that and any sense of timing and what you’re specifically waiting for before you do it.

Yes. So we would foresee rolling out a new 10-year plan by the second half of this year as we mentioned in Q3 and prior to that, I think I mean the real gating item is, we see it, is the IRP. And so we’re going to get most likely a preliminary point of view from the commission in April of this year. We get 60 days to respond to that. And so that will most likely play itself out by midyear at which point we’ll have better visibility on our electric supply spend over the next 10 years, particularly in those outer years, because that’s when you start to see a ramp-up of, I’ll say, renewables-related spend. So that’s a key data point. And at the end of the day, we also have to spend a good deal of timing internally making sure that we can solve the customer affordability equation and would be irresponsible to roll out a capital plan that we couldn’t when I say we, our customers and/or our balance sheet couldn’t afford. And so we want to get all of that math right before we roll it out. I can say with great confidence that the 18 billion that we rolled out in the prior vintage in September of 2017 is well stale and we expect it to be higher than that, but want to spend some more time figuring out how much higher.

I mean, would it be reasonable to think it would be more than double the five-year plan given the need to kind of – the compounding effects?

It’s premature to guide you at this point. We had said that, we think there’s about a $3 billion capital investment opportunity in the IRP in the outer years. And so we would feel pretty comfortable saying that we will likely be included in the new plan. And also we’ve talked about this sensitivity in the past, where basically every $60 million or 1% reduction we can achieve in rates creates about $400 million of incremental capital investment capacity. And so if you think about our PPAs rolling off, if you think about some of the cost savings we expect as we retire the coal fleet over time on O&M and fuel side, we do think it’s going to create substantial headroom to accommodate additional spend. So I’d hate to guide you at this point and give you a directional number, but we think it will certainly be in excess of $18 billion.

Okay. One final thing, how certain are you guys, you’ll need to file another electric case in 2020? Is there a chance to get under the settlement you could potentially go longer?

I think given the needs of the system, it’s likely that we will file in 2020, Jonathan. We have the settlement this year. We’re so happy about it, because it does enable certainty in our reliability spend and we don’t have to trade off with some of the other more variable programs that often compete for the capital dollars on reliability, because we have this new regulatory mechanism, but it isn’t, we didn’t sell for a full tracker. We do think there is a basis in this settlement for a tracker in the future, but we know that there is significant electric investment required and our cost effectiveness is captured there. So we think that we will definitely be filing in 2020.

Great. Thank you very much, guys.

Thank you.

Thanks, Jonathan.

Our next question will come from Greg Gordon of Evercore. Please go ahead.

Thanks. Good morning.

Good morning, Greg.

Good morning, Greg.

Couple questions. I was just a tad late hopping on the call and I just missed hearing the rollup of the actuals for 2018 and you had commented that there was a reason as to why the corporate overheads came in higher than initially budgeted. What was that if you wouldn’t mind restating that, please?

Yes, happy to, Greg. It was largely due to the significant amount of reinvestment activity both in the operating and non-operating sides. So in corporate, you’re going to have some of the non-operating related spend embedded in that. And so we took out at least two tranches of parent-related debt prematurely in 2018, $100 million remaining from our eight and three-quarter notes and then $300 million of the six handle note around midyear. And so a lot of those upfront costs flow through the corporate and other expense.

Okay. I know you’ve been just refinancing at a lower rate, or are you diffusing that debt permanently?

Combination of both.

Okay. And so I guess I wonder why…

Hang on, to be clear, sorry, just to circle back here, when you say diffusing, do you mean just taking out altogether...

Were you paying off or are you refinancing it?

No, we’re refinancing, just to be clear. So we’re extending maturities at a much lower cost.

Okay. I guess what’s driving the – if that’s sort of a one-time expense to prepay the debt, what’s driving the assumption of a flat corporate overhead number this year?

Well, the reality is we’ve been so proactive over the last several years in taking out, I’ll say, high coupon bonds that there really are too many opportunities left in the portfolio. So credit to Sri and his team for their wonderful prefunding efforts, but if you look at the rest of portfolio both of the parent and the operating company, you really see four and five handles and I don’t think we have maybe one six-handle left, but we’ve done a nice job. So, I don’t foresee too many opportunities to prefund at attractive level. So, that’s why we’re being fairly conservative in the year-over-year corporate.

Okay. And then my second question was your FFO to debt came in at 18.5% for 2018, you’ve told us the expectation is that’s going to be around 17% in 2019. What’s driving that delta? And do you expect movement in your FFO to debt metrics post 2019 up or down in any meaningful way?

Yeah, I would say it’s a couple of things. And so first, we talked about the prescribed pace at which the effects of tax reform are being passed onto customers and so we initially assumed at the beginning of 2018 that we have an outflow around, call, roughly $200 million and that’s both sort of credits A and B to reflect the reduction in the current rate that flows through base rates from 35% down to 21%. And then we thought there may be resolution on the deferred tax-related refund to customers. That obviously has – was a little bit too aggressive in assumption. And so the fully adjudicated process will extend well into 2019. And so we had about, I’ll say, $150 million of upside from an OCF perspective in 2018, because the outflows back to customers did not occur during this year. Now, there is no P&L effect. But there certainly is a cash flow impact. So we expect there will be a headwind in the form of giving those dollars back to customers in 2019. And so that’s, I’d say, the largest source of the variance year-over-year. And then what you also see, two, is just the reality, as we’re increasing our annual run rate for capital investments. So we’re going from $2 billion a year at the utility to $2.25 billion and so funding that also has credit metric implications and we also still assuming, that the equity, ratio at the utility is at that sort of 52.5% level. And so that’s going to require infusions from the parent down there. And we do debt fund a portion of that. And so that’s really what’s driving us to that 18.5% or thereabouts down to, what I’ll say is approximately 17% in 2019. And we expect to stay at that level for the foreseeable future. Is that helpful?

That’s extremely helpful. Thank you. Have a great day.

You too, Greg. Take care.

Our next question will come from Michael Weinstein of Credit Suisse. Please go ahead.

Hi, good morning, guys. So could you talk a little bit about the equity issuance needs of $150 million a year? I guess that’s a long-term plan and how that differs from the $70 million, like what’s the increment between those two?

Yeah, sure. So similar to what I described in terms of the variance in our FFO to debt metrics year-over-year, it’s really – it’s few things, Michael. It’s again the increase in our capital spend rate. So our run rate historically has been about $2 billion or at least over the last couple of years and now will be at $2.25 billion with an increase in the new five-year vintage of $11 billion in total. So assuming about $2.25 billion per year at the utility. So that’s going to drive our sort of leverage-related needs and our equity needs as well. And then again we’re assuming that our equity component of our rate-making capital structure will stay at 52.5%. And so that’s going to lead to fairly substantial equity infusions from the parent into the utility, most of which we fund with equity issuances. And so you have a couple things there. And then the other reality is to in 2018 again, we did not have a significant an outflow for tax reform back to customers as we had anticipated and so we didn’t issue as much equity in 2018. And so some of that will flow into future years. And so we assume again we’re going to – run rate will be about $150 million per year of planned equity issuance. We will be proactive about that as we can. So we did a good deal of forwards in the fourth quarter of last year, while we thought our stock was at a relatively attractive price and so we’ve taken a lot of the price risk off the table in 2019 and we’ll see where we end up going forward, but we think that that’s a reasonable level if you’re doing $150 million per year and you look at that as a percentage of market cap, we definitely think that that’s doable in an ATM program.

Got you. And looking at the DIG slide, in the old slides, right, you had $75 million opportunity from a $7.50 capacity price getting out into the future and now it looks like it’s $95. Is there –maybe I just misunderstood why that I don’t know if you explain that before. Maybe could you explain it again?

No, I mean the math that we have, it really is looking at just the potential opportunity that you would have. If you have either a local clearing requirement established in Michigan and we stink the jury quite literally is still out on that, or just given the tightening we expect in the bilateral capacity markets as you see inevitable coal retirements in the zone 7 and throughout the region and so the math is basically rolled forward a year. We’re assuming somewhere around $7.50 and that coupled with the extension and amendment of existing energy contracts with some of our big contracts. DIG is really what’s fueling a little bit of that incremental upside, but needless to say, we have not incorporated that into our plan. We are assuming what you see on the page here for 2019 about a run rate of $35 million of pre-tax income that we think will last for the foreseeable future. And as you probably noted in the table above, we really have derisked the portfolio a good deal, by amending and extending energy contracts and selling forward capacity fairly ratably over the last several months.

So a lot of the upside – or a lot of the benefits, reason why it’s more stable for energy, there’s energy contracting, even though the capacity pricing has been softer.

That’s right.

That’s reasonable. Okay. Thank you.

Thank you.

Our next question will come from Julien Dumoulin-Smith of Bank of America Merrill Lynch. Please go ahead.

Hey, good morning. This is actually Eric on for Julian. But I just wanted to ask if you could discuss progress on the IRP filing thus far, and what could drive further confidence in renewables spend beyond that $1 billion IRP through 2021 in the current plan, specifically with the remainder of the solar ITC safe harbor period in 2022 and 2023 ? Thank you.

Hey, good morning, Eric. We’re making good progress in the IRP, as I’m sure everyone knows where the first IRP to be filed and process here in Michigan. The hard work that we did to get lots of stakeholder input before we filed has made for very constructive discussions throughout the process, because it is a complicated process. We are planning on it and going to its full regulatory timeline, which would be first preliminary order from the commission in April and then a final order in June. And we’re looking forward to working through the remainder of that process. To your question about additional renewables to the plan, what we have in the plan right now reflects no additional incremental renewables as a result of the IRP that would be premature to do before we have a final order in that. So right now, what we have built into the plan is meeting the renewable portfolio standard through our RAP.

Thanks. And then just regarding 2022 and 2023, presumably I know you mentioned customer affordability type of equation, if you were to have supportive IRP result, could we potentially see incremental renewables spend in 2022 and 2023 supported by, say, lower fuel cost replacement and whatnot?

You know the driver for the renewables is demand on the system and what’s required both to meet the law, but also to meet the needs of customers for their demand for energy. There is – we do – we have published our time line of retirements of our coal plants and we also do have the retirement of the PPAs, but in the 2023 time horizon. The power of sales PPA that comes off doesn’t require additional capacity to backfill it. We’ve replaced it with energy efficiency, demand response and other sources in the short run. So I don’t think that would drive incremental renewables in that time horizon.

Okay. Thank you.

Our next question will come from Ali Agha of SunTrust. Please go ahead.

Thank you. Good morning.

Good morning, Ali.

Good morning, Ali.

Good morning. First question, just looking at your quarterly disclosure on weather-normalized sales. On the electric side, I mean the electric sales weather normalized were negative in three of the last four quarters, ended up negative for the year. Just wondering what’s kind of driving that and can you just remind us what you assumed for weather-normalized electric sales going forward ?

Sure, Ali. I will not try to spend too much time on the soapbox around the imperfections and shortcomings of weather normalized math, but I do think that is flowing through the numbers, particularly if you take into account the stark contrast between weather in 2017 and 2018. So I would start there, but then as you look at just numbers that are on the page putting that aside. And so we are approximately 0.5% down blended for electric for 2018 and it’s really important to note that that customer usage level reflects our efforts to reduce customer usage year-over-year through energy efficiency, where we get compensated to do that. And so we’ve been at this for now about 10 years if you go back to the prior Energy Law in 2008, and so now it’s a 1.5% bogey, and we expect to clear that and we’ve cleared it the last year and we expect to clear it this year as well and so you’ll see that flowing through 2018. So what does that mean. So when you’re negative 0.5% on a blended basis for electric, if your gross it up, you’re about 1% for electric and so we still think that on a normalized load basis is comparable to what most folks are seeing across the country. And then if you peel the onion a little bit and you look at residential, it was down about 0.3%. So you gross that up, you’re up over 1%. Commercial was up about 0.3%. Again, gross that up, you’re down over – you’re up a little under 2%. And so we still see pretty good trends there and I think what’s also important to notice that, if you look at the economic conditions in our service territory, they still remain quite good,…

Okay. That’s very helpful. Second question, perhaps for Patti as well, I mean you’ve got a new Governor obviously in place now. By the middle of the year, you will have two new Commissioners out of three. Just wondering how you’re thinking about the regulatory framework in the state? And do you expect any changes once all of this is settled going forward?

Well, we are looking forward to learning the Governor’s plans on our current open position at the commission with Commissioner Saari and Commissioner Talberg there, that’s six more months of that quorum, and with the addition then of a new Commissioner, we look forward to that appointment. I would say that one of the strengths of the Michigan regulatory environment is that it’s captured in the statute and so our energy law that was passed originally in 2008 and then further improved in 2016 provides a lot of continuity in regulatory planning. And so we do have a great working relationship with the new Governor, many of her staffs are people we’ve worked within the past and so we’re quite optimistic that she’ll make great appointments to the commission and we’ll look forward to working with them, and like our track record has been independent of Commissioner changes, Governor changes, economic changes, weather changes, we have the core capability of adapting to those changing conditions. We have a lot of confidence in our ability to adjust and adapt as necessary.

Okay. And lastly kind of related to that, my understanding is through because of term limits, there has been a fair amount of turnover in the legislature as well. As you look out over this session or even beyond, anything in particular for us to keep an eye on, or that you’re keeping an eye on anything that could either tweak or change the energy law in any way, any expectations on that front?

Well, we – you’re right, Ali. We have term limits and Michigan was a good concept in practice, it’s pretty difficult, because we do have a lot of turnover. The good news is, it took a lot to pass the 2016 energy law. It was bipartisan wide support. We have two strong committees in both the House and the Senate. We’re really excited about the leadership appointments in both the House and the Senate. And so, as far as we are hearing from the legislative leadership both from the Governor’s office as well as the Senate and the House, they’ve got other very important issues that need to be attended to, no-fault auto insurance, the road, education in Michigan are really taking top priority for the current legislature and the Governor. And we’re happy to work with them and help make those improvements, but I think the general consensus is the energy law that was passed in 2016 was a great and difficult body of work. And so, it’s really still in the implementation phase of that law and we don’t expect changes to it in the short run.

Got it. Thank you.

Yep, you’re welcome.

Our next question will come from Praful Mehta of Citigroup. Please, go ahead.

Thanks so much. Hi, guys.

Hey, Praful.

Hey, Praful.

Hi. So, maybe first just on this extreme weather events, right, whether it be 2018 summer or now the winter and this polar vortex, just trying to understand, if these kind of events continue, does that fit within the IRP and the load planning that you have, do you think it changes any of the infrastructure needs and does that change potentially the growth profile? So any color on that or thought around that would be helpful?

Well, so specifically on the electric side, if that’s what you’re asking about, the IRP, first of all, has the ability to be refiled every three to five years. So, if we start to see a material load difference, then we would plan accordingly. I will say that even yesterday, for example, where MISO had issues in the Midwest. We were plus 1,000 megawatts in Michigan of supply. So, our planned forecast IRP that we published, I think, reflects a very conservative perspective about being able to deal with the kind of peaks that occur on the electric system. And on the gas system, I think traditionally our system is well equipped and capable of serving this volume of load. Our interruption yesterday was driven by an equipment failure at our largest storage field, but normally under any kind of, even these extreme conditions, we would have been well equipped to serve that load. And in fact, yesterday morning, when we hit our peak load, our system works perfectly and we had ample supply and ample ability to deliver that supply and we’ve not had to curtail any residential customers even to this unprecedented weather events with the shortfall of our Ray storage field included. So, very proud of the team and how we’re handling the situation, but the system definitely is robust and prepared for the future.

Got it. That’s a super helpful color and great performance by infrastructure. So, that’s phenomenal. Maybe moving on, more on the financial side, the pension funding aspect in – you had $240 million in 2018, could you remind us is there any plan to have any incremental funding in 2019 that’s just currently in your plan, or is there any need to fund 2019 or 2020?

Yes, there’s currently no obligation based on the funded status to fund the pension in 2019. We basically pulled forward about $100 million of required spend in 2019 through this contribution in December of 2018. So, I think at least for 2019, there is not an expected contribution. 2020, I don’t believe there’s one either, but we think that we derisk the plan most importantly, rather significantly by this discretionary contribution in 2018.

Got you. Thanks, Rejji. And then in terms of parent and other, obviously, there was a big move, just to understand that impact on parent and other, you clarified that this was mostly related with one-time costs of refinancing and taking out older debt with more obviously cost-efficient debt at the parent level. Is that the entire impact or are there other impacts at the parent level that we should be aware of?

Well, I think in addition to the proactive refinancings, which have associated make-whole costs. I mean obviously every year because the business is growing and we’re funding capital investments, we will have incremental increases in parent debt, which is basically new money financing that we do each year. And so we did issue some hybrids in like a couple of tranches in 2018. So, you’ll see interest – incremental interest expense associated with. So that’s another source of drag that you see in the corporate.

Got you. And that 2019 level that you have, is that the expected level of interest expense at the parent and the EPS at the parent, is that expected to stay flat from there? Or how do you see the parent earnings going forward post 2019?

Yes. I mean, well, remember you got a few things in there. And so we’ll expect incremental interest expense given the growth of the business. And so you’ll have that flowing through the parent and clearly that’s non-recoverable. We do have also a little bit of drag that we talked about in our Q4 call of last year and that’s because of the impacts of federal tax reform, where just the net deductions that you get at that level just aren’t worth as much as they were previously, but I think the other impact too is that we have EnerBank flowing through those numbers. And so that will also be impacting the parent and other expense, because EnerBank is a component of that. And as we always have talked about in the past, we do expect that EnerBank will grow in excess of the consolidated business. And see a little – you see that as a little bit of an offset of those other, I’ll say, sources of drag.

Got you. Thanks so much guys. Really appreciate it.

Thank you, Praful.

Thanks, Praful.

Our next question will come from Travis Miller of Morningstar. Please go ahead.

Good morning. Thank you.

Good morning.

Good morning, Travis.

I was wondering if you talk a little bit about some of the puts and takes, how you think you achieve that settlement deal when you’ve had some issues trying to do that in the past, what was the key with that settlement?

Well, I think there are a couple of things that were critical to the settlement. We’re very proud of the fact that we were able to settle that, but I think it’s a reflection of the quality of the regulatory environment. As we have mentioned over the last couple years with Chairman Sally Talberg at the Public Service Commission, she has done an excellent job of building the quality staff, nothing raised the bar for the quality of our filings, the request of a five-year electric distribution plan combined with the visibility that the commission and the staff had on our integrated resource plan. You can imagine their ability to see how our filing fits into those long-term plans is a much better way to do good regulation and make good decisions on behalf of the citizens of Michigan. So I would attribute it to a lot of hard work by our team to have good long-term plans. Our request by the commission to see those plans and have them be public, so that we can have good discussions with critical stakeholders and then a willingness to make good decisions together and have a settlement for the best interest of all customers. So, very happy with that outcome. I think it really sets the ground and the framework for future orders as well as future cases regarding our electric investment strategy and cost savings that we can pass along to customers through those filings.

Okay. Great. And then one other on the whole electric rate case In general. What kind of distribution upgrades either in – that were approved in the rate case or future would be needed to integrate the level of renewables. Is there anything at the distribution level and perhaps how much and what would be needed in terms of grid upgrades to integrate?

Yes. Of course, that definitely will have a key eye on the distributed energy resources and how to integrate those into the grid. I would suggest in this filing, It’s more about the basic blocking and tackling of poles and conductors and substations, transformers, making sure that the equipment that is on the system is robust and reliable. Our five-year electric distribution plan is a $3 billion investment strategy that has more of the high technology attributes at the latter half of the five-year plan. So, including better visibility through SCADA systems on the distribution system, our ability to have control remotely, our ability to see the operations of the grid to do more looping and smart switching on the system, all of those investments are throughout the five-year plan, but more back-end-weighted. So, this specific settlement really is focused on the backbone and the basics of the electric distribution system. I often say you can’t put fancy whizbang technology on poles that are falling over. So, make sure we’ve got the poles secure. We’ve got the right conductor, transformer, substations and then we’ll bolt on the technology to the best service of customers throughout the distribution plan.

Okay. Great. Look forward to the whizbang technology.

We do too. I know it’s going to make operating drill a lot easier, but first thing is first. Thanks, Travis.

Thank you.

Our next question will come from David Fishman of Goldman Sachs. Please go ahead.

Hi. Good morning. Congrats on another solid year.

Thank you.

Thank you.

Thanks. Just following up on the regulatory items that we’re talking about, it seems like when I was reading a little bit of staff testimony, it was actually pretty favorable with regarding earnings sharing mechanism. I know this is meant to coincide with a tracker. But I was just curious if this is something in a future filing, you might pursue separate from a tracker.

I think what we believe about this current electric rate case settlement is that this deferred accounting that we agreed to really is a first step in the direction of tracker – of a tracker for future filings. And so that again, comes with as we build trust. We have a tracking mechanism for example on the gas system for our enhanced infrastructure replacement program. And over the last couple years, we’ve done a great job of doing precisely what we said we would do and that gives confidence then to the commission that they can do preapprovals in a more routine formulaic tracking mechanism, but we’re quite satisfied with this outcome of the settlement and we think it foretells well future filings.

Okay. Thank you.

Our next question will come from Andrew Weisel of Scotia Howard Weil. Please go ahead.

Thanks. Good morning, everyone. Just first I want to clarify something; I think Rejji answered in an answer to Ali’s question about demand growth. I think you said you’re expecting flat, maybe up a 0.25%, but in your Slide 16, you showed 1% growth from sales and economic developments. How do I reconcile those, is that purely energy efficiency?

Yes. So, long-term over the five years, we expect flat to a 0.25% for growth. So that is first and foremost. I am referring to the five-year period, but this page often, I think, is a source of confusion. When we talk about sales growth and the simple perhaps unique model slide, Slide 19 that you reference, we’re not suggesting that long-term we’re expecting 1% sales growth. What we’re talking about on that page is how much sales growth contributes to the self-funding strategy. And so when you look at the pieces, we say cost reductions two to three points. That means cost reductions fund half of our capital investment or rate base growth to alleviate the burden to customers. And so sales is a component of that equation as is tax planning as is non-utility contribution. And so those are the pieces that allow us to fund about three quarters in aggregate of our rate base growth. So we can keep total rates, customer prices, bills at or below inflation and so it’s a little bit difficult to fall the way it’s positioned on that page. But we’re not implying 1% growth in long term.

Got it. Okay. And then just to follow up on the sales side, any updated thinking with marijuana now legal, have you seen any activity around Grillhouse’s increased demand, and if and when this could turn into a meaningful driver or could it add complexity of demand unexpectedly spikes in house or warehouse, without you guys getting sufficient warning?

Yeah, those are all great questions. And we are working on evaluating what the effect will be from what we’ve seen from other jurisdictions anywhere from 1% to 4% additional load as a result of the legalization of marijuana has been experienced elsewhere. We’re not forecasting that in our plan yet at all. The regulations are still being defined and clarified, and they are slightly different than other states. We are the only state in the Midwest and so there is a potential that it could be a driver here. We’re actually working very proactively to identify who those growers would be. We’ve had inbound contacts from large growing entities that want to come and locate here and – which is great because if we have advanced notice, then we can plan where best to place that new quickly growing loads. So we definitely haven’t built into anything into our plan. But we are actively working with the growing community to make sure that we are prepared to serve.

Great. And then one just last one here in terms of the gas storage. So obviously you’ve asked customers to conserve usage during this cold snap. My question is, how are gas storage levels going into this week’s polar vortex, and in the past, have there been instances where the reservoirs ran dry or close to it, and how did that work mechanically?

Yes, no, we had ample supply. In fact, our storage fields were perfectly prepared and ready to serve even peak demand that’s early in the season. So certainly we have abundant supply. If a day like this happened in April, that would be a challenge to the system, because our annual cycle is to draw off the field throughout the winter season. However, we had ample supply. The disruption at our Ray storage field was the equipment that is able to then deliver the stored gas to the system. And so that’s where the bottleneck was yesterday and today, but it certainly wasn’t lack of abundance of gas. We have some of the largest naturally occurring storage fields in the nation, in the continent right here in Michigan, and so we have ample supply, it was just a matter of getting it distributed effectively.

Great to hear. Stay warm, I see mixed and feels like it is negative 32 in Jackson. So I guess I can’t complain about five degrees in New York. Good luck.

Yes. We’re definitely setting records in demand. There is no doubt about it. Yes. Thank you.

Our next question will come from Shahriar Pourreza of Guggenheim Partners. Please go ahead.

Hey. Good morning, guys.

Hey, morning, Shahriar.

Apologize if this was covered, it’s unfortunate to harp on a little bit late. Just in your sort of IRP discussions right now that you’re going through. Is there sort of any dialog or any movement around potentially earning on the PPAs? I mean I know obviously your interest would be to own, but is there still an option right now turn on the PPAs?

Yes. And if you read the staffs filing, they did not have object to the earnings mechanism. They just had a different formula, which yielded a much lower earnings mechanism on top of the PPA, but like all things, that has definitely opened for negotiation. The staff also filed that we would be able to own 50% of the supply. So there’s lots of room, I would suggest. What I appreciate very much is that all of the stakeholders have been working together for the best integrated resource plan for Michigan. This is a long-term plan. It has long-term ramifications. Some of the current methods of people being able to, for example, purpose solar being added to the system at uncompetitive prices not in the best interest of customers, even though we are fully supportive of additional solar being added to the system. So we think that integrated resource plan has created a great framework. Our willingness to offer a market-driven avoided cost calculation through competitive bidding creates the open platform for this earnings mechanism, so that a developer who is leveraging our balance sheet. The cost of that impact on our balance sheet is adequately reflected in their bid is we think a very constructive framework and we like the direction of the conversations that have been happening here with all the critical stakeholders. So I would suggest that we’re making good progress.

And then just want to confirm this is incremental to your plan, right, so when you think about your planning inceptions on how you guide. This is something that would be incremental?

You know, we would say, yes, it would be incremental. But don’t forget, we always are working toward that 6% to 8%, right, and so everything we do is in for the purpose of solidifying our consistent, repeatable, reliable performance. And so all of these outcomes add up to a total picture, it is predictable in total and that’s what we know you love about us and that’s what we really work toward every day.

Noted. And then just one last question, Patti, and then it’s a little bit of message left more of a minor, question is just around not getting the tracker, at least potentially punting it. Did that impact at all as you think about your 10-year plan that we’ll see very shortly. Did that impact the profile of the spend at all?

No, because, again, we’re pretty happy about the agreement and the settlement, because it does create a framework for our long-term trackers, but we didn’t plan on long-term trackers. We don’t object to coming in annually and describing what our spend plan is, and that in fact allows us to be more adaptive to changing conditions. And we’re pretty satisfied with that arrangement. So we were very happy with the outcome of the settlement and not to say we wouldn’t appreciate more formulaic rate making, but we are all Okay standing up to the scrutiny of an annual filing as well.

Okay. Great. Thanks so much. All my questions have been answered. Have a good one.

Great. Thanks. Thanks, Shahriar.

Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I’d like to turn the conference back over to Patti Poppe for closing remarks.

Thanks, everyone, for joining us this morning. And we’re bundled up here in Michigan working to stay warm. We hope you are where you are. We look forward to seeing you on the road.

Thank you. And the conference is now concluded. We thank you for attending today’s presentation. You may now disconnect.