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Text: Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website.
I'm going to start today with the end in mind, strong quarter and a great first half of the year, giving us confidence as we target the high end of the guidance range.
Rejji will walk through the details of the quarter, and I'll share what the strong results mean for 2021 earnings.
Needless to say, I'm very pleased.
An important gene sale of EnerBank at 3 times book value, moving from noncore to the core business with a strong focus on regulated utility growth.
The sale of the bank provides for greater financial flexibility, eliminating planned equity issuance from 2022 to 2024.
And in the end, Reggie will share how we have reduced our equity issuance need for 2021 in today's remarks.
Furthermore, with the filing of our integrated resource plan, you can see the path for more than $1 billion into the utility, again, without equity issuance.
Not only is there visibility to that investment, that's certainly in the time line for review.
I'm excited about this IRP.
It's a remarkable plan.
Many have set net zero goals.
We have industry-leading net zero goals and this IRP provides a path and is an important proof point in our commitment.
We are leading the clean energy transformation.
It starts with our investment thesis.
This simple but intentional approach has stood the test of time and continues to be our approach going forward.
It is grounded in a balanced commitment to all our stakeholders and enables us to continue to deliver on our financial objectives.
With the sale of EnerBank and the plan to exit coal by 2025, our investment thesis gets even simpler.
But now it's also cleaner and leaner.
We continue to mature and strengthen our lean operating system, the CE Way, which delivers value by reducing cost and improving quality, ensuring affordability for our customers, and our thesis is further strengthened by Michigan's supportive regulatory construct.
All of this supports our long-term adjusted earnings per share growth of 6% to 8%, and combined with our dividend, provides a premium total shareholder return of 9% to 11%.
All of this remains solidly grounded in our commitment to the triple bottom line of people, planet and profit.
As I mentioned, our integrated resource plan provides the proof points to our investment thesis, our net zero commitments and highlights our commitment to the triple bottom line by accelerating our decarbonization efforts, making us one of the first utility in the nation to exit coal or increasing our renewable build-out, adding about eight gigawatts of solar by 2040, two gigawatts from the previous plan.
Furthermore, this plan ensures reliability, a critical attribute as we place more intermittent resources on the grid.
The purchase of over two gigawatts of existing natural gas generation allows us to exit coal and dramatically reduces our carbon footprint.
Existing natural gas generation is key.
And like we've done historically with the purchases of our Zeeland and Jackson generating stations.
This is a sweet spot for us where we reduce permitting, construction and start-up risk.
It is also thoughtful and that is not a 40- to 50-year commitment that you would get with a new asset, which we believe is important, as we transition to net zero carbon.
And, yes, on other hand, our plan is affordable for our customers.
It will generate $650 million of savings, essentially paying for our transition to clean energy.
This is truly a remarkable plan.
It is carefully considered and data-driven.
We've analyzed hundreds of scenarios with different sensitivities and our plan was thoughtfully developed with extensive stakeholder engagement.
I couldn't be more proud of this plan and especially the team that put it together.
We've done our homework, and I'm confident it is the best plan for our customers, our coworkers, for great state of Michigan, of course, you, our investors to hit the triple bottom line.
The Integrated Resource Plan is a key element of Michigan's strong regulatory construct, which is known across the industry as one of the best.
It is a result of legislation designed to ensure a primary recovery of the necessary investments to advance safe and reliable energy in our state.
It enables us and the commission to align on long-term generation planning and provide greater certainty as we invest in our clean energy transformation.
We anticipate an initial order for the IRP from the commission in April and a final order in June of next year.
The visibility provided by Michigan's regulatory construct enables us to grow our capital plan to make the needed investments on our system.
On Slide six, you can see that our five-year capital plan has grown every year.
Our current five-year plan, which we'll update on our year-end call includes $13.2 billion of needed customer investment.
It does not contain the upside in our IRP.
The IRP provides a clear line of sight to the timing and composition of an incremental $1.3 billion of opportunity.
And as I shared on the previous slide, the regulatory construct provides timely approval of future capital expenditures.
I really like this path forward.
And beyond our IRP, there is plenty of opportunity for our five-year capital plan to grow given the customer investment opportunities we have in our 10-year plan.
Our backlog of needing investments is as vast as our system, which serves nearly seven million people in all 68 counties of Michigan's Lower Peninsula.
We see industry-leading growth continuing well into the future.
So where does that put us today?
The bank sale and now the IRP filing provide important context for our future growth and positioning of the business.
Let me share my confidence.
For 2021, we are focused on delivering adjusted earnings from continuing operations of $2.61 to $2.65 per share, and we expect to deliver toward the high end of that range.
For 2022, we are reaffirming our adjusted full year guidance of $2.85 to $2.87 per share.
Given the strong performance we are seeing this year, the reduced financing needs next year and continued investments in the utility, there is upward momentum as we move forward.
Now many of you have asked about the dividend.
We are reaffirming again no change to the $1.74 dividend for 2021.
As we move forward, we are committed to growing the dividend in line with earnings with a target payout ratio of about 60%.
It's what you expect, it's what you own it, and it is big part of our value.
I will offer this.
Our target payout ratio does not need to be achieved immediately, it will happen naturally, as we grow our earning.
Finally, I want to touch on long-term growth rate, which is 6% to 8%.
This has not changed.
It's driven by the capital investment needs of our system, our customers' affordability and the need for a healthy balance sheet to fund those investments.
Historically, we've grown at 7%.
But as we redeploy the proceeds from the bank, we will deliver toward the high end through 2025.
I'll also remind you that we tend to rebase higher off of actuals.
We have historically either met or exceeded our guidance.
All in, a strong quarter, positioned well for 2021 with upward momentum and with EnerBank and the IRP, it all comes together nicely positioned for the long term.
Before I walk through the details of our financial results for the quarter, you'll note that throughout our materials, we have reported the financial performance of EnerBank as discontinued operations, thereby removing it as a reportable segment and adjusting our quarterly and year-to-date results in accordance with generally accepted accounting principles.
And while we're on EnerBank, I'll share that the sale process continues to progress nicely, as the merger application was filed in June with the various federal and state regulators will be evaluating the transaction for approval, and we continue to expect the transaction to close in the fourth quarter of this year.
Moving on to continuing operations.
For the second quarter, we delivered adjusted net income of $158 million or $0.55 per share, which excludes $0.07 from EnerBank.
For comparative purposes, our second quarter adjusted earnings per share from continuing operations was $0.09 above our second quarter 2020 results, exclusive of EnerBank's earnings per share contribution last year.
The key drivers of our financial performance for the quarter were rate relief, net of investment-related expenses, recovering commercial and industrial sales and the usual strong tax planning.
Year-to-date, we delivered adjusted net income from continuing operations of $472 million or $1.64 per share, which excludes $0.19 per share from EnerBank and is up $0.37 per share versus the first half of 2020, assuming a comparable adjustment for discontinued operations.
All in, we're tracking well ahead of plan on all of our key financial metrics to date, which offers great financial flexibility for the second half of the year.
The waterfall chart on Slide nine provides more detail on the key year-to-date drivers of our financial performance versus 2020.
As a reminder, this walk excludes the financial performance of EnerBank.
For the first half of 2021, rate relief has been the primary driver of our positive year-over-year variance to the tune of $0.36 per share given the constructive regulatory outcomes achieved in the second half of 2020 for electric and gas businesses.
As a reminder, our rate relief figures are stated net of investment-related costs, such as depreciation and amortization, property taxes and funding costs at the utility.
The rate relief related upside in 2021 has been partially offset by the planned increases in our operating and maintenance expenses to fund key initiatives around safety, reliability, customer experience and decarbonization.
As a reminder, these expenses align with our recent rate orders and equate to $0.06 per share of negative variance versus 2020.
It is also worth noting that this calculation also includes cost savings realized to date, largely due to our waste elimination efforts through the CE Way, which are ahead of plan.
We also benefited in the first half of 2021 from favorable weather relative to 2020 in the amount of $0.06 per share and recovering commercial and industrial sales, which coupled with solid tax planning provided $0.01 per share of positive variance in aggregate.
As we look ahead to the second half of the year, we feel quite good about the glide path to delivering toward the high end of our earnings per share guidance range, as Garrick noted.
As always, we plan for normal weather, which in this case, translates to $0.02 per share of negative variance, given the absence of the favorable weather experienced in the second half of 2020.
We'll continue to benefit from the residual impact of rate relief, which equates to $0.12 per share of pickup.
And I'll remind you, is not subject to any further MPSC actions.
We also continue to execute on our operational and customer-related projects, which we estimate will have a financial impact of $0.21 per share of negative variance versus the comparable period in 2020 given anticipated reinvestments in the second half of the year.
We have also seen the usual conservatism in our utility non-weather sales assumptions and our nonutility segment performance, which as a reminder, now excludes EnerBank.
All in, we are pleased with our strong start to the year and are well positioned for the latter part of 2021.
Turning to our financing plan for the year.
I'm pleased to highlight our recent successful issuance of $230 million of preferred stock at an annual rate of 4.2%, one of the lowest rates ever achieved for a preferred offering of its kind.
This transaction satisfies the vast majority of funding needs of CMS Energy, our parent company for the year and given the high level of equity content ascribed to the security by the rating agencies, we have reduced our planned equity issuance needs for the year to up to $100 million from up to $250 million.
As a reminder, over half of the $100 million of revised equity issuance needs for the year are already contracted via equity forwards.
It is also worth noting that given the terms and conditions of the EnerBank merger agreement in the event EnerBank continues to outperform the financial plan prior to the closing of the transaction, we would have a favorable purchase price adjustment related to the increase in book equity value at closing, which could further reduce our financing needs for 2021 and provide additional financial flexibility in 2022.
Closing out the financing plan, I'll also highlight that we recently extended our long-term credit facilities by one year to 2024, both at the parent and the utility.
Lastly, I'd be remiss if I didn't mention that later today, we'll file our 10-Q, which will be the last 10-Q owned by Glenn Barba, our Chief Accounting Officer, who most of you know from his days leading our IR team.
Glenn announced his retirement earlier this year after serving admirably for nearly 25 years at CMS, which included him signing over 75 quarterly SEC filings during his tenure.
As we've highlighted today, we've had a great first half of the year.
We are pleased to have delivered such strong results.
We're positioned well to continue that momentum into the second half of the year as we focus on finalizing the sale of the bank and moving through the IRP process.
I'm proud to lead this great team, and we can't wait to share our success as we move forward together.
This is an exciting time at CMS Energy.
With that, Rocco, please open the lines for Q&A.

user
reaffirms fy adjusted non-gaap earnings per share view $2.61 to $2.65 from continuing operations.
reaffirms fy adjusted earnings per share view $2.85 to $2.87.
q2 adjusted earnings per share $0.55 from continuing operations.
q2 earnings per share $0.55 from continuing operations.

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