Good morning, everyone, and welcome to the CMS Energy 2022 First Quarter Results. The earnings news release issued earlier today and the presentation used in this webcast are available on CMS Energy's website in the Investor Relations section. This call is being recorded. [Operator Instructions]. Just a reminder, there will be a rebroadcast of this conference call today beginning at 12 p.m. Eastern Time, running through May 10. This presentation is also being webcast and is available on CMS Energy's website in the Investor Relations section. At this time, I would now like to turn the call over to Mr. Sri Maddipati, Treasurer and Vice President of Finance and Investor Relations.

Thank you, Austin. 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 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 Garrick.

Thanks, Sri, and thank you, everyone, for joining our call today. I'm pleased to share the great progress we have made over the quarter and with our IRP. You've heard me speak about our simple investment thesis on many of these calls. It has withstood the test of time, and this quarter was no different. The industry leading at 0 commitments. These aren't just words. They are evident in our actions and our results. Our IRP settlement paves the way to be out of coal by 2025, one of the first utilities in the nation to achieve such a milestone. Our recently announced net 0 goal for our gas system, not just a dream but evident and proof point in our net 0 methane target and a 20% reduction in customer emissions by 2030. Excellent through the CE way. I can't think of a more important time given inflation and supply chain constraints for our industry-leading cost management muscle will play out. Reggie will walk through specifics in his prepared remarks, but I continue to be confident in our ability to offset inflationary pressure and alleviate supply chain concerns. This means keeping customer bills affordable through our CE way lean operating system. Top-tier regulatory jurisdiction. The IRP settlement once again demonstrates a constructive regulatory environment in Michigan, delivering important, industry-leading outcomes for all. I'd be remiss if I didn't thank the Michigan Public Service Commission staff, Michigan Attorney General, customer groups, environmental organizations, energy trade representatives and the Consumers Energy work team for the constructive dialogue led to settlement in a 20-year blueprint to meet Michigan's energy needs while protecting the environment for future generations. All of this, along with the fundamentals of our simple but impactful investment thesis, leads to a consistent premium total shareholder return for you, our…

Thank you, Garrick, and good morning, everyone. As Garrick highlighted, we're happy to report our first quarter results for 2022. We delivered adjusted net income of $346 million or $1.20 per share, up 10% of our 2021 first quarter results, largely driven by favorable weather and economic conditions in this year. From a weather perspective, a relatively high volume of in degree days in the first quarter, coupled with the absence of unfavorable weather during the same period in 2021, provided $0.06 per share of positive variance, as noted on Slide 7. And from an economic standpoint, we continue to see strong commercial and industrial load in our electric business, while weather-normalized residential load continues to exceed pre-pandemic. All in, weather-normalized load in the first quarter contributed $0.04 per share positive variance versus the comparable period in 2021, and is either at or above pre-pandemic levels across each of our customer segments, particularly when excluding the effects of our energy efficiency programs, which reduced customer load by about 2% per year. Another noteworthy driver of our financial performance for the quarter was rate relief net of investment-related expenses, which contributed $0.03 per share of upside as we continue to realize the renewal effects of tax benefits from our 2020 gas rate settlement. These sources of positive variance were partially offset by increased operating and maintenance or O&M expenses and the utility in support of key customer initiatives related to state, reliability and decarbonization is equated to $0.06 per share of negative variance. We also realized $0.02 per share of negative variance for the quarter largely related to annualized financing costs and the timing of tax expenses at the parent company. Looking ahead, we feel quite good about the remaining 9 months of the year. As always, we plan for normal…

[Operator Instructions]. Our first question is from Michael Sullivan from Wolfe Research.

Garrick, can you maybe just give a little more clarity on what you mean by strengthening the 6% to 8% as it relates to the IRP upside? Is there any reason that we shouldn't think of that as putting you above the 8%?

Great question, Mike. Let's start here. This is a great settlement, but there's an important regulatory process that we're still in the midst of. And just like back in 2018 and 2019, there's a few parties that can contest the settlement. That's pretty difficult. We anticipate that to occur over the next month in the regulatory proceeding. There's a schedule for that, a calendar for that, that occurs over the month of May. And then the commissioners will issue an order, which we anticipate in late June. It could drift into July, but we anticipate late June at this point. So I do not want to be out in front of the commissioners on this and put the cart in front of the horse per se, but here's what I'll tell you on this. We feel good about the settlement and the ability because the number of parties are on, and to be able to navigate that process. So what it means from a plan perspective is, as we've shared, that strengthen and lengthen our plan and gives us great confidence in our ability to achieve the 6% to 8% towards the high end. As we shared, this is, again, upside to the plan, IRP is upside of the plan. And here's how I'd think about it. We know and we've certainly made it clear that in 2023, Colbert comes in the plan in the May time frame. That's good from a planning perspective. But remember, this important piece in the 6% to 8%. We deliver each and every year, and then we rebase off of actuals, so that's an important piece. It's that compounding, a quarterly -- compounding it. It's the quality of earnings, which you've come to know and expect. And frankly, that allows us to do the strengthening and lengthening across the broader land.

Okay. Sorry. If I could just try a little more. I mean, are you trying to imply that there may just be one outsized growth here, and then that's where you would rebase off of the -- to see 6% to 8% continued off of that? Is that a fair way of reading that?

No, I don't -- we don't do sugar highs. There's -- We've got nearly 20 years of consistent financial performance, I mean, and we're going to deliver -- our plan here is to deliver year '20. And so again, I think there's strengthening, lengthening of that plan comes from the ability to be at 6% to 8% towards the high end. We've got great confidence in that, but also this rebasing. Each and every year, you know our history, we deliver and then we rebase off actuals, and that provides a nice opportunity to strengthen the length of the plan.

Okay. Got it. And maybe going in a different direction, the electric rate case you just filed. Maybe if you could just walk us through conviction level and getting a bigger portion of the ask this time? Given the order late last year, and maybe some differences this time around or lessons learned?

I feel really good about this rate case that we're filing. And I'm, again, confident in this regulatory construct. There's been a number of signals here over the last quarter that gives me confidence in the regulatory construct. Let me start there. We had a rehearing on our electric rate case. That was a positive. For a small dollars, but a positive. Our gas rate case, we had SaaS position. The initial valley was constructive and a great starting spot in this IRP settlement with staff, with the Attorney General provides another data point that speaks to the constructive nature of this. We took feedback after the last electric rate case, I shared that in the last earnings call, and we rewrote a lot of our testimony, specifically in the area of electric reliability. Enhance and bolstered our business cases. And so this is going to be a step change and is a step change in our filing. And I always share we have more work that we're working on to continuously improve that rate case process, but I feel good about our filing. It's primarily made up of electric reliability and resiliency work, important work to deliver for our customers. There's also the Colbert facility is in there. There's a little bit of work on economic development. We've seen a lot of growth here in the state to support that work and this broader clean energy transformation. And so I feel good about the case and the strength of the case and getting a good outcome.

Our next question is from Jeremy Tonet from JPMorgan.

Just want to go with the IRP a little bit more, and you talked about some of the earnings uplift there. And just wondering if you might be able to share, I guess, financing needs that might be possible on the back of that? And then separately, could you walk us through the RFP that was agreed to as an alternative to the DIG acquisition? And just wondering, there's been a lot of focus on the state and potentially extending Palisades. Do you think this could be an option here?

Rejji, you will start with the financing piece, and then we can bounce back and forth on your other questions.

Yes, Jeremy. I'd say with respect to the financing needs coming out of this IRP settlement agreement, we'll be obviously focused on, assuming we get approval, the acquisition of the Colbert facility. And so that would take place around mid-2023, call it the May time frame. And so we would plan to fund that with debt at the utility. Given our rate making capital structure, you can assume about half of it is funded that way. So call it, roughly $400 million or so based on an $815 million purchase price, and then we fund the balance at the parent. And we still feel quite good about the commitment to avoid issuing equity prior to 2025, and so we would assume that the parent financing would likely include the sort of equity credit like securities that we've done in the past that our hybrids are preferred, which we have really executed at optimal levels over the last several years. So that would be the financing plan as we sit here today, and we'll keep an eye on how market conditions evolve over that time frame. Garrick, I'll hand it to you for the RFP and the Palisades.

Yes. From an RFP perspective, what we agreed to in the settlement is 700 -- equivalent of 700 megawatts of a portion of it -- some of our megawatts of load out there, capacity out there. The 500 megawatts is dispatchable, and that's the nature of that and available, reliable generation in the state. And then 200 megawatts is in the category of renewables, again, purchase power agreements. For those purchase power agreements that are not associated with the affiliate, there's the opportunity to earn a financial compensation mechanism on those. And enterprise has the opportunity to bid in to that 700 megawatts, primarily in the 500 megawatts that are dispatchable in nature. And so that's the nature of the RFP. In terms of Palisades, it's important to remember, we're not the owner or operator of Palisades. We've not been involved in any conversations with the Department of Energy. And if for specific questions in this call on Palisades, I'd really direct them to Entergy specific to the plant. Now our governor has came back -- has came out in support of keeping Palisades operational. We're certainly supportive of our governor and the administration and in even a broader context, we believe in nuclear energy as part of the solution here for reliable, dispatchable and clean energy across our nation in Michigan. Our PPA on that facility expires here at the end of May. It is an expensive purchase power agreement, and as we've shared in the course of this call, we're laser-focused on reducing costs for our customers, and so that is front and center for us. We'd certainly entertain a long-term purchase power agreement, a new purchase power agreement with the facility entertaining discussions and conversation about that, but it does have to be at a competitive price. That will be an important factor. And then also, we expect to receive on of -- a stand on that new PPA as well.

Got it. That's very helpful there. And maybe pivoting a bit here towards decarbonization, what investment opportunities are you seeing in support of decarbonization for the gas system? And maybe thinking about RNG a bit more, how much regulated CapEx do you think this could translate into?

Well, in our 5-year plan, there's a hefty amount. There's about $5 billion, a little more. It's aimed at decarbonization of our natural gas system. Again, it's multiple benefits. You're out there replacing old pipe, vintage pipe as we call it in services. It makes the system safer, improves reliability of natural gas system, also eliminates methane emissions, one of the leading causes of climate change. And so we've got a target of net 0 by 2030, so those investments are being made right now over the course of the 5 years and will extend into the 10-year plan as well. We see our renewable natural gas is also part of that solution. It is part of this gas rate case that's underway right now. If you get into the details of staff's position, they were not supportive of that renewable natural gas. However, they left an opening in there, which we think we can mitigate in the course of rebuttal, and move that into the utility. There's some work to be done there in our gas case.

Got it. That's helpful. I'll leave it there. .

Our next question is from Andrew Weisel from Scotia Bank.

First question, I want to ask a little bit more about the inflationary pressures. I appreciate all the details you gave. In the past, I think you talked about limiting bill increases to say 2% or 3%, if I remember correctly. My question, how confident are you about your ability to stick to that in, say, 2022 and maybe '23? I assume widespread inflation won't be as big of a concern after that. But in the near term, do you still feel comfortable with those past targets?

Everyone in this sector and even outside the sector, it's been inflation. To me, the bigger question is who do you think is best at managing that? And I would put us up to the top of the list. Our ability to leverage CE way and provide cost savings for our customers is certainly -- again, we talked about it as flexing our muscle here. We got great examples of that in 2020. We saw sales drop. We find $100 million of savings in the organization. We've got in 2021, in August, we had $0.16 of impact just to storms. We offset that. We have an amazing ability to be able to leverage the tools of the CE way and then plus automation, I would add, to be able to mitigate costs. And so Rejji went through a number of examples in the way we manage that across the system. And so long term, when we look at our 5-year plan. And even in the short term, there's a nice ability to manage rates and keep them affordable for our customers. In line with kind of traditional inflation, you might say, but I feel confident in our plan to be able to mitigate much of the impact of inflation going forward.

Okay. Great. Next question is at Enterprise, it's mentioned that Big and the Peakers will likely bid into the upcoming RFP. I don't expect anything too specific for obvious competitive reasons, but can you qualitatively talk about how you think of the trade-off between, say, price certainty and stability that would come with a long-term contract versus the potential for lower revenues given the competitive nature of bidding?

I think, Rejji, I'll tag team this one. Bottom line is it's something that Enterprise is going to consider. Again, I'm not certain we'll participate in that. We have potential to participate in that RFP, and we'll make that evaluation. The capacity market is certainly, as we've seen across MISO, an opportunity as well and -- for upside with our enterprise assets. And so if there's an evaluation, we'll participate in it and take a look at the impact of how Big participates either in the bilateral market or our bid into this longer-term PPA with the utility.

Yes, Andrew. The only thing I would add to that is, philosophically, we've always had the mindset that we try to run our non-utility businesses like a utility and as low a beta fashion as possible. And so if we have an opportunity to get attractive levels for energy and capacity, and we can do that over the long term, that's generally been our bias, and we've done that on the energy and capacity side at DIG for some time now. And when we own the bank, that's how we ran the bank as well. It's just trying to lock in as much revenue as possible and run it on a lower basis. And so we'll see. I think it's a function of where the market is at the time and how long the PPAs are in the bilateral market versus what might be offered in this RFP. So we'll see what the fact pattern looks like and we'll run the business accordingly.

Okay. That makes sense. And just lastly, what's the timing of the RFP? And when you'll communicate AFD is, in fact, participating or not, Big and the Peakers?

I would anticipate, at least initially here, is that our RFP would be issued within the fiscal year 2022.

Our next question is from Insoo Kim from Goldman Sachs.

First question. Garrick. On the solar, you've talked about just modular in nature then kind of shift the timing and whatnot. But just holistically, I guess, whether it's the megawatts that's kind of a building transfer or the PPAs that are expected to come online, I guess, over the next couple of years that will earn the financial compensation mechanism. Just your broad level of confidence, I guess, in terms of being able to mitigate any impact from what's going on in the solar space?

I'll start with the punch line or the bottom line. No material impact to the 5-year plan, continued confidence in our 2022 guidance and then continued confidence in the longer-term plan, the 5 years and the 6% to 8% and meeting toward the high end. So that's the bottom line. Let me tell you why. This IRP is 8 gigawatts. It's not 8 gigawatts tomorrow or even in the 5-year plan. We have 15 to 20 years to build this out. So there's considerable on flexibility to be able to construct that. And just like everyone else in the industry, the Department of Commerce and this investigation slowed things up in some of our projects. But these are megawatts that are going to get built. These are renewable projects that are going to get built because they're part of our broader IRP in nature. But again, let me try to offer some context from a size perspective. We're building out own generation here, about 150 megawatts per year. So we're talking about 2 projects. In 2024, we go up to 250 megawatts per year. And so this annual capital spend is around $200 million to $250 million. This is manageable, easily manageable. And in fact, this is -- I've been in operations for 20 years. This is work that happens every year. There's stuff that goes in and out of the plan based on a lot of different variables, and so easily manageable from a capital perspective. In fact, and just as a reminder, we have $3 billion to $4 billion of capital backlog in things like electric reliability, investments in our gas system. 80% of those projects are less than $200 million, so there's ability to put them into the plan and offer real value for our customers. The other important part of this clean energy journey, as well as a reminder here, that although solar has been impacted, we're still progressing with wind in the state of Michigan and we're investing a lot in the space of our hydro facilities. We have 15 hydro facilities here. There's smart and thoughtful investments occurring there as well. And those are on progress, on target. And so I feel good about that from where we're headed from a clean energy perspective. And the last piece that I'll also point to, and I think this is important from a capacity perspective. And I noted in my prepared remarks that Karn 3 and 4 continues to operate to 2031. Karn 3 and 4, we originally proposed retiring in 2023. So this settlement offers some additional flexibility from a capacity build perspective. And so again, we've got some flexibility to weather things and be able to meet all our customers' needs. So again, we feel good about the capital plan, confident in our earnings guidance both in the year and in the long term.

Understood. My second question on those enterprise assets that -- in the non-regulated ones like Big, given we won't be going to rate base here with the settlement. Depending on what you decide on the RFP if whether you'll purchase it or not, how do you just think about strategically these assets now going forward as part of the portfolio?

The enterprise assets are an important part of our portfolio. It's small but important, it makes about 4% of our earnings mix. And again, this goes back a little bit. We used to talk about the Ferrari in the garage and then it was a Tesla in the garage. It's probably the new electric Corvette in the garage. I don't know how you want to say it. But with capacity prices, there's some certainties of upside here in some of our -- in some of our Big and some of the Peakers. But by and large, this business is about renewables and customer-focused renewables. And it's small in nature, and we deliver strategic solutions for our customers. Hasn't changed, but it continues to be a consistent performer for our business.

Understood. It's been a while since we've heard that reference, but good to hear it again.

I want to bring that back. It's -- it's a great asset for us.

Our next question is from Shar Pourreza of Guggenheim Partners.

Great. So just one follow-up on Palisades, Garrick. Just can you remind us how many megawatts could be potentially re-PPA under the assumption the plant can remain viable here? And obviously, the government highlighted that there is a potential owner that's interested in acquiring the asset. Are you having sort of any discussions right now in recontracting, assuming can you keep the assets viable? Which timing seems a little bit tight, but just curious on if there's any dialogue?

It's roughly 800 megawatts, a little shy of 800 megawatts. I think it's around 780 megawatts for Palisades. In line with the Governor's letter, we're certainly open to conversations and discussions. We've had some conversations more just to understand the complexities of the situation to understand what's going on. But nothing that's really got to any level of seriousness on a long-term purchase power agreement.

Okay, got it. And then just real quick, Rejji, you're sort of thinking about financing needs. Can you just remind us on the preferred options? And do you see a potential to lean more on credit metrics, just given nearly a fully regulated business mix and potentially accretive CapEx updates in the near term?

Shar. So we have been targeting that sort of mid-teens FFO to debt for the rating agencies for some time now. And certainly, the sale of EnerBank gave us a nice uplift, at least in the case of S&P. And so while we do have some cushion to maybe be a little more aggressive on the funding strategy, we worked very hard to get to the level that we're at today. We've worked very hard to get the ratings we have today, and so our intent is not to stress those metrics. And so we like the fact that we've got a little cushion on those metrics. And if that allows us to continue not to issue equity through 2025, we'll look to do that. And if we can extend beyond 2025, we'll look to do that, but not to the detriment of our metrics or rating. So we still like that mid-teens area. That's where we are. We have a little cushion there, and we'll continue to plan the business that way.

Our next question is from Jonathan Arnold of Vertical Research.

A quick one on -- just Palisades, where it to be extended? I guess, whether or not that was with the PPA, how would you think about that in the context of your overall IRP plan and just case as you need?

Two pieces there that's really, really important. And it does have to be a competitive purchase power agreement, so I'll reemphasize that component of it as well. And if we were to consider that and have those -- and have those conversations, again, we would expect financial compensation mechanism on those as well. Again, it just provides additional flexibility for us in clean energy. And so we'll be a little bit long from a capacity perspective, but there's opportunities to think about different investments and give us a little more flexibility in our -- even further flexibility in our solar build-out.

Okay. And then just -- I had to go back a bit. I think it was early last year that you last gave a slide on [indiscernible] showing potential pre-tax earnings, step-up opportunities. So my question really is, is that prior disclosure still a bad one that we can think about? Or should we be looking for you to tell us something else at some point in the future? Or is that still a decent guide?

Yes. So Jonathan, we still feel good about the revenue opportunities at DIG, particularly now that we don't foresee it being part of the IRP. And so I'm going to go from memory, but we were somewhere around $35 million of revenue or pre-tax earnings associated with DIG and we still think that that's a pretty good base case to run. And what we're also seeing, probably unsurprisingly, is a tightening of the bilateral capacity market, which I think Garrick had accurately noted as attractive in his prepared remarks because we do continue to see it tighten and we do expect to see even more attractive capacity and energy opportunities on the contracted side at DIG. So I'd say base case, it's good to be around that $35 million area, but there's certainly upside opportunities in the coming years if we continue to participate in that bilateral market.

I guess I was asking more about the $90 million that you had that $35 million stepping up from. I wasn't sure if you want to --

So, yes. So that's -- Yes. So that working assumption was if the bilateral market went to CONE, which was at the time around $7.50 per kilowatt month. And so in the event the bilateral market continues to tighten and gets to those levels, that certainly could be within the realm of possibility to see upside at that level, but we're certainly not planning for that given our nature. But yes, it could be an opportunity over time if we continue to see Zone 7 tighten.

Great. And I -- yes, I think that's it.

Our next question is from Travis Miller of Morningstar.

Wondering as you did your long-term reliability modeling as part of that IRP, when did reliability get to be an issue? Is that 60-plus percent range in 2040 with renewables, is that about where you start to max out on renewable ability to put into the mix?

I wouldn't put it that way. Here's the process of an integrated resource plan. We do loss of load expectations study. There's a number of other variables. We look at it from a system reliability perspective. And so it's an important mix of renewables and batteries, particularly in part of the plan, but also dispatchable generation. So you're getting things like gas, at least in our case, natural gas and part of the plan. And so all those come together. And this plan that we submitted was more reliable than our previous IRP in terms of the -- in terms of the build-out. And then our extension of Karn 3 and 4, again, it was planned to be retired in 2023 and extending that to 2031, continues to provide additional reliability over the course of this decade.

Okay. Got it. And then kind of similar on that, could we expect some of that upside in the distribution and transmission bucket as opposed to maybe more on the generation side? The upside CapEx that you were talking about?

Well, broader, we have -- again, I look at the our 10-year, 15, 20 years, there's ample capital upside. And we have about $3 billion to $4 billion of capital that's not in the plan that are specific projects identified that improve our gas system, more replacement of mains that looks at reliability and resiliency. We've got a large $5.5 billion focus on that. I mean, much of that is in this electric rate case to improve reliability for our customers. Those are the things that fit into that plan and continue to have that long horizon of capital investment opportunities.

Okay. And then one just real quick. With the IRP change, your general kind of every year type of cadence on the regulatory filings, either electric or gas?

The IRP won't have any impact on our rate case proceedings. So we'll continue to stay -- the main plan is just to go with annual rate cases. But on occasion, we do stay out for a year, and we have. Our gas case is a great example that we've been out for 2 years and are in for a case right now.

Okay. Great.

Our next question is from Durgesh Chopra of Evercore.

Just one for me. Maybe can you just, at a high level, elaborate how the financial compensation mechanisms work? And then as we're thinking about our models, how should we be modeling upside in terms of timing? Is there sort of gradual pickup in earnings as you sort of go through the RFPs? Or how does that work? Any color is appreciated.

Durgesh, this is Rejji. So the financial compensated -- financial compensation mechanism, it applied to PPAs. And we can have the team go through the math with you off-line, but in essence, you're applying what is the equivalent of our after-tax WACC as it stood in the 2018 IRP at just over 5.6%. And you're going to apply that to the megawatts of PPAs you're taking on as part of the IRP. And then the first IRP in 2018 was 550 megawatts or thereabouts, and so you would apply it to that. You also obviously take into account the hours per year, the energy cost as well as just capacity factor of the resource. And so you put all that through the vegematic. And for that first tranche of the IRP, we assume that was about $4 million of pre-tax earnings. And so per that math, you would apply that to what we will PPA in this next IRP. And so we've said it's a 700 megawatt RFP that will roll out, assuming we get approval in the latter portion of this year, as Garrick noted. And there'll be 2 tranches, 500 megawatts dispatchable, 200 megawatts of other, and we'll have an FCM-applied to those PPAs once those are resolved. Is that helpful?

Very helpful. And then in terms of timing, you mentioned later this year. So these are basically -- these are earnings uplifts next year. Is that the right way to think about it?

Yes. Let me be clear, the RFP for that 700-megawatt tranche of PPA, and again, it's going to be 2 tranches, 1500 megawatts of dispatchable local and 200 megawatts of other. The RFP would commence this year, but we would not effectuate the PPAs until the 2025 time frame. And so you wouldn't see any of the earnings associated with those financial compensation mechanism until that time frame. I also want to be very clear that in the event Enterprises participates in that 500-megawatt tranche, then they would not be eligible for the FCM or we would not be eligible for the FCM.

That is very helpful. I'll follow up with the IR team with some more details, but this is extremely helpful.

Next question is from Gregg Orrill of UBS.

Yes. Maybe a clarification. This might bring up an old discussion, but what is the design life on Campbell units where you earn -- you would earn the 9% ROE under the IRP settlement?

Yes, Gregg. So of the 3 units, 2 of the units, design life runs until 2031. That's for Campbell 1 and 2. And then for Campbell 3, it's through 2039, and so that's where we'd earn that 9% on the regulatory asset after the retirement date.

Next question is from Julien Dumoulin-Smith from Bank of America.

So just coming back to the earlier conversation on the $0.03 to $0.04 of upside here from the IRP, can we go back to that math and just rehash it to start from the gross number and net that down? And specifically, what I was trying to reconcile is how do we think about the acquisition here, sort of the gross $800 million, and then reconcile that down to $0.03 to $0.04 ultimately? It seems just a little conservative, shall we say, relative to what I would otherwise expect. And maybe we could be a little bit more explicit, again, understanding some of the nuances on financing to try to reconcile that?

Yes, Julien, this is Rejji. For the $0.03 to $0.04, we're assuming it's an $815 million purchase price is codified in the settlement agreement. And so given our rate construct, you can assume, again, with our ratemaking capital structure, you're going to get 40% of that as equity. And you have to net of, obviously, parent funding costs, and we've made the usual conservative assumptions around that. And so that's where you get a good portion of the accretion I noted. But then you also have to net out, I'd say, the downward revision in the ROE on the regulatory assets. And so remember, the IRP was not incorporated into our 5-year plan. And so we were assuming we're going to earn 9.9% on those coal facilities through their design life. And so when the settlement agreement is structured, that's going to step down to 9%. So you get a little bit of dilution there plus dilution from the parent financing, and so that's what gets you to sort of $0.03 to $0.04. It's also worth noting, again, clearly, we are not presupposing any outcome on the PPA, that 700-megawatt tranche, so that's not included in the math. And so we're applying the usual conservatism, but that's where the math takes us, about $0.03 to $0.04. In 2023, if all comes to fruition, obviously, you have a partial year. So you wouldn't get -- you'd only get about 6, 7 months of that if we close the transaction in May as anticipated, and then you get annualized about $0.03 to $0.04. Is that helpful?

Yes. Absolutely. I appreciate it. I very much appreciate that. I -- actually, since you bring it up here, just to keep going along that logical thought process. How do you think about that 700 gigawatt PPA? I mean, in terms of ownership opportunities, you seem to be, in part, downplaying the big element of this in terms of committing to bid that -- into that procurement process. I mean, what other avenues or shots on goal, if you want to call it, do you have for an ownership opportunity there as you think about the array of different approaches you could take?

Well, yes, to be very clear, it's certainly an opportunity for DIG, particularly or specifically for that 500-megawatt tranche, which is essentially going to be earmarked for local stackable -- a local dispatchable resource. And so certainly, DIG would qualify for that, and so that is certainly an opportunity. And as we think about the alternatives as fiduciaries, they could certainly participate in that or DIG could participate in that. And a 10-year PPA, if DIG prevails, that's not an -- that's a pretty attractive alternative depending on where the economics end up. But as I mentioned earlier, we're also seeing a very attractive bilateral market shaping up here in Zone 7, just with continued tightening. And so we are seeing levels that are in excess from our existing capacity contracts and energy contracts, and so we'll weigh the alternatives once the RFP comes around and see what we'll do there. On the 200 megawatts, obviously, DIG wouldn't be eligible for that. But we'll see what else comes around, and we'll get an FCM on that. And so we're not presupposing any of those economics in the EPS I noted in my prepared remarks, but it certainly creates an opportunity for DIG without a doubt.

Yes, indeed. All right. Best of luck.

Our next question is from Nicholas Campanella of Credit Suisse.

Congrats on the IRP. I just wanted to -- sorry to belabor the point on the renewable supply chain stuff. But I just -- just the bottom line takeaway is that you have, I think, roughly $700 million of clean, call it, clean generation spend in '22 and then $600 million in '23. That's all unchanged. Is that correct?

I think the important part of that clean energy spend in those 2 years you referenced is it's not all solar. There's a good portion of hydro and wind in there, and so again, we're talking about into $200 million, $250 million that would be on an annual basis that would be in the solar area. So it's -- that's the difference. Is that helpful?

Great. Yes, that's very helpful. And then just -- I know in the fourth quarter, we talked a lot about Colbert, so I figured we can talk about some other upside opportunities. In the fourth quarter, we talked about the VGP potential gas and electric capital upside. I know they weren't in the deck today, but maybe can you just kind of talk about where you are in potentially bringing those opportunities into the 5-year plan? Is that more of an EEI fourth quarter item? And I know we're focused on the IRP in the near term, but just what about all the other upside opportunities that are outside the plan today?

That's great. Again, we'll take a look at this 5-year plan. We're building it out right now, and we'll share it here in Q4. Obviously, Colbert is a big piece of it. Those other areas within the IRP as well. We accelerated 75 megawatts of battery storage into the years of 2024 and 2027, so that has to be incorporated in as new capital upside in that 5-year plan. Extension of Karn 3 and 4 has some impact as well. So those are all additions and things that need to be worked through from a capital plan. In terms of the voluntary green pricing, that also continues to progress nicely with our customers as they subscribe. We build out that plan. We've issued an RFP for that work. I haven't seen the results of that yet. It's still out there, but that would be a -- potentially solar could be other renewables build in the 2024 to 2027 time line. So that's -- upside is, again, we plan conservatively, is materializing, so we're not ready to announce that yet. But directionally, it looks good. Is that helpful?

Yes. Congrats again on the IRP.

Next question is from Paul Patterson of Glenrock Associates.

Congratulations on the IRP settlement. And most of the questions have been answered here, but just with respect to sales and what have you. Is COVID over, do you think? I mean, are we now sort of the normal level of what you think will be normal going forward? Or -- I don't know. Just hoping maybe it is.

We're all hoping it is over, too. Rejji, walk through sales piece a little bit, and then I'll talk more on some macro factors. So maybe just touch on sales, Rejji.

Yes. So Paul, to be clear, I won't give you a medical assessment because clearly, the pandemic is still with us. I know that's not the spirit of the question, but I figured I'd be remiss if I didn't say that. But from, I'd say, a retail sales perspective, we continue to be encouraged with what we're seeing virtually across all the customer classes, as I noted in my prepared remarks. And so whether it's commercial, we're up 3% above pre-pandemic levels. So looking at sort of Q1 2022 versus Q1 2019, residential is up versus the 2019 pre-pandemic level, so we're still seeing that nice mix that we've enjoyed for the last couple of years. And so Residential is starting to come back to a good deal, but still hanging in there and again, in excess of the pre-pandemic levels. And then on a total retail sales basis, we are now about 1% above the pre-pandemic levels, and industrial is about flat, excluding one large low-margin customer. So I would say, again, per my prepared remarks, I think at this point, we are effectively at or better than pre-pandemic levels across most of our customer classes. And so we feel good about the economic conditions in Michigan, and we continue to see very attractive leading indicators. And I think it's also worth noting that of the percentages I just shared with you, that does not take into account the energy waste reduction programs we have that reduced our load year-over-year by 1.5% to 2%. So when you exclude that, that performance looks even better. So we feel very good on the retail sales side, but again, obviously, the pandemic still with us. But Garrick, if you have any other comments.

Yes, so just some quick macro factors. So Bloomberg recognized Michigan is the number one economy -- the state economy coming out post-pandemic, and so that's certainly a highlight. They've been recognized as the top state for foreign direct investment, over 14 -- really approaching 15,000 different firms that are located here in Michigan, 5,000 different locations. The big announcement with General Motors, but it's not just General Motors, there's a host of other things from manufacturing to agriculture and then agricultural processing that have grown here in the state. So I feel good by the broader economic trends that we're seeing here in Michigan as well. Paul.

Okay. Great. And just -- the other final thing is that there was some legislation that was -- recently introduced regarding outages and reliability. It seems to me that maybe it was more of a Detroit thing that might be driving -- I wasn't really completely clear. I was just wondering, do you have any color about -- you don't see this very often about what might be driving that legislative? I mean, it seems like it's some Democrat representatives or whatever that are proposing it. And I'm just wondering if you had any thoughts about that?

Our electric rate case and our plan underway certainly looks at improving electric liability across the state to improve value for our customers. And so that's well underway. This legislation that was introduced, we don't anticipate getting any traction without a committee. That's the short of it.

Our final question is from Anthony Crowdell of Mizuho.

Garrick, Rejji. Hopefully, an easy one. Where is Rocco? It's the first call I've been on without Rocco. Just hopefully, two easy ones. I guess following up on Mike's earlier question. I think the question is going around maybe moving above the 6% to 8% EPS growth rate. I think, Garrick, you responded with CMS doesn't do sugar highs, I guess. If I think about it, is there any desire of the company maybe to get back to that previous earnings trajectory that you had before the EnerBank sale?

Well, let me say. The first question is Rocco's great. Austin is really performing well during those calls as well. Shout out to Austin. But bottom line, from the earnings guide path we had with EnerBank, we see a clear path to do so. And I would suggest that we're on that path for all the reasons I stated earlier in regards to my response to Mike. And so I feel good about where we're heading, and confident here in that growth rate in the future.

Great. And then last question, then I'll let you guys get back to doing some work there. I guess since the IRP filing, it appears we've moved from an energy transition theme to maybe energy security theme. Have the state regulators given any messaging on energy security that would benefit your CapEx plan?

I would argue that we're focused on both. Again, we can't sacrifice one for the other, and so this IRP that's settled here does both. It allows us for that clean energy transformation as well as ensuring reliability and security of the state. And so again, there's always some policymakers and legislators that are looking at that, and we're going to continue to look at opportunities from a capital investment perspective. But again, we feel really good about our 5-year plan to balance both reliability security of the grid as well as planet. And I would add to it, our customers and ensuring that it's affordable. And Rejji, why don't you add something as well?

Anthony, the only thing I would add just to get into some of the specifics of the IRP from a capacity perspective, and to Garrick comment, this is why we feel quite good about energy security and reliability, however you want to refer to it, is that the Colbert facility is going to bring over 1.1 gigawatts of capacity. Again, assuming the settlement agreement is approved. We're also going to RFP shortly after approval. If all goes according to plan, the 700-megawatt tranche of PPA opportunity by 2025, and so that offers additional capacity. And again, 500 megawatts of that will be local dispatchable capacity. We're also extending the retirement or delaying the retirement of Karn 3 and 4, which also provides over a gigawatt of capacity. And so again, we're taking, obviously, affordability into account. We're taking reliability into account and we're taking, obviously, the clean aspects of our plan into account, and that's what we feel good about. Not just the economics for all stakeholders, but most importantly, reliability.

Looking forward to seeing you guys in Miami.

Same

That concludes the question-and-answer session. I would now like to turn the conference back over to Mr. Garrick Rochow for any closing remarks.

Well, thank you, Austin. Nice job for our first time with Austin. And I'd like to thank all our callers and investors for joining us today. Take care and stay safe.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.