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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've had the pleasure of meeting many of you over the past couple of months as I've transitioned into the CEO role.
I'm excited to be hosting my first earnings call and sharing yet another year of consistent industry-leading financial performance.
Before I discuss our year-end results and our updated five-year capital investment plan, I want to take a moment to reiterate our simple but powerful investment thesis, was simple to put on paper it's not easy to replicate, and that is what sets us apart.
It starts with our industry-leading commitments to clean energy.
Our net zero methane and carbon goals require significant investment as we update our expansive electric and gas systems to achieve decarbonization.
These investment opportunities are supported by constructive energy legislation as well as alignment with our Commission and the MPSC staff.
This strong regulatory and legislative framework is why Michigan is consistently ranked a top tier regulatory jurisdiction.
But investment opportunities in a supportive regulatory environment are not enough.
Our focus on affordability is critical, so our customers can afford these investment.
Now, I've been with the company for 18 years, much of it in operations.
Over that time, we've demonstrated our ability to consistently manage costs as we've invested in the safety and reliability of our systems while improving customer service.
That ability to manage costs is not driven from the top down but from the bottom up.
It's our 8,500 coworkers who are committed to excellence, delivering the highest value to our customers at the lowest cost possible.
This is embedded in our culture and was built in partnership with our union over the last two decades.
These unique attributes to the CMS story or would allow us to deliver for our customers and you, our investors.
Our adjusted earnings per share growth of 6% to 8% combined with our dividend provides a premium total shareholder return of 9% to 11%.
Our ability to deliver this growth each and every year is something we are uniquely capable of doing.
Regardless of weather, a global pandemic, who is leading our state, our Commission or our company, we have delivered consistent industry-leading results year-in and year out 2020 proved this, 2021 will be no different.
In 2020, we delivered adjusted earnings per share of $2.67, up 7% from 2019 and achieved operating cash flow of almost $2 billion, excluding $700 million of voluntary pension contributions in 2020.
Today, we're raising our adjusted earnings per share guidance for 2021 by $0.01 to $2.83 to $2.87 with a focus on the midpoint.
This reflects annual growth of 6% to 8% from our 2020 results.
Last month, we announced our 15th dividend increase in as many years, $1.74 per share, up 7% from the prior year.
We continue to target long-term annual earnings and dividend per share growth of 6% to 8%, again with a focus on the midpoint.
Today, we're also increasing our five-year capital plan to $13.2 billion, up $1 billion from our prior plan.
18 consecutive years of industry-leading financial performance.
I'll let that sit with you for a moment.
I'm pleased with our financial performance, but equally important is our commitment to the triple bottom line.
We balanced everything we do for our coworkers, customers and the communities we serve, our planet and our investors as demonstrated on Slide 6.
2020; 2020 was a tough year for everyone, the global pandemic impacted all of us emotionally, physically and financially.
Through it all, I'm proud of the work done by our coworkers.
We were able to provide over $80 million of support to our customers and communities in 2020 through support programs, low-income assistance, donations to foundations and reinvestment to improve safety and reliability.
We focused our efforts on COVID relief for residential and small business customers, payment forgiveness as well as enhanced support in the area of diversity, equity and inclusion.
This quite change in our work practices as a result of the pandemic, we maintained first quartile, employee engagement, achieved first quartile customer experience and attracted 126 megawatts of new load to our state, which brings with it significant investment and over 4,000 new jobs.
From a planet perspective, we continue to lead the clean energy transition.
We added over 800 megawatts of new wind and are executing on 300 megawatts of new solar.
The first tranche of our integrated resource plan.
Furthering our commitment, over $700 million of investments were made to advance our clean energy transition, additionally, our demand response and energy efficiency programs continue to save our customers money, reduce carbon and earn an incentive.
And last but certainly not least we finished the year with more than $100 million in cost savings driven by the CE Way.
Many of you have asked about my commitment to the CE Way, light blue arrow at the bottom of this slide in my experience leading this operating system over the past five years should be a strong signal.
I'll tell you this, we are positioned well but there is still more opportunity.
Through the CE Way, we will continue to improve reliability, reduce waste and deliver better customer service.
And that is just the tip of the iceberg, there are opportunities in every corner of the company to achieve excellence through the CE Way.
My coworkers and I remain committed.
We will continue to lead the clean energy transition with support from our new five-year $13.2 billion capital investment plan, which translates to over 7% annual rate base growth and focuses on enhancing the safety and reliability of our systems, as we move toward net zero carbon and methane emissions.
In fact, 40% of our plan directly supports our clean energy transition and includes our renewable generation, electric distribution investment to support this generation, grid modernization as well as programs like our main invented service replacement programs which reduce methane emissions.
In addition to our traditional rate base returns, our wind investments, renewable PPAs and demand side resources are supported by regulatory incentives above and beyond our ROE.
These incremental earnings mechanisms enhance our earned returns and combined with our investments in clean energy, our growing percentage of our earnings mix.
Our customers' ability to afford the investments in our system is complemented by our continued focus on cost savings.
Over the last decade, we have reduced the utility bill as a percentage of the customer's wallet and we continue to see further opportunity to reduce costs in the future.
We have unique cost saving opportunities relative to peers and two above market PPAs, Palisades and MCV, which will generate nearly $140 million of power supply cost recovery savings.
This coupled with the future retirement of our remaining coal facilities provides over $200 million or 5% cost savings for our customers.
These structural cost savings combined with the productivity we will deliver through the CE Way will ensure we deliver on our capital plan and keep customer bills affordable.
Now the great thing about the CE Way is it delivers more than cost savings.
What makes us unique is our engaged coworkers, we value our best-in-sector employee engagement and our 8,500 coworkers who work every day to deliver the best value for our customers.
This engaged workforce has doubled productivity which has enabled us to consistently increase our capital plan without significantly increasing our workforce.
Furthermore, we have never served our customers better as we move from the bottom quartile to top quartile not just in the utility industry but across all industries.
Slide 9 serves as an excellent example of how our team leverages the CE Way to deliver on our triple-bottom line.
Our ability to deliver this level of excellence for our customers and investors supported is by Michigan's constructive regulatory environment.
We benefit from a legislative and regulatory construct that supports our rate case proceeding and a statute that allows for financial incentives above and beyond current authorized ROE.
Michigan's regulatory jurisdiction has been ranked in the top tier since 2013.
That's not by accident, it's a reflection of the hard work my coworkers do every day to earn the trust of our customers, policy makers, environmental groups, EMV and MPSC Staff.
Turning to Slide 11, you know, we have a light regulatory docket with no financially significant regulatory outcomes in 2021.
With the approval of our current securitization and electric rate case in December of last year, we'll file our next electric rate case in the first quarter and our gas rate case in December of this year.
Notably, we'll file our second iteration of our integrated resource plan in June.
I'm sure many of you would like a sneak peek, but it's too early, we're in the midst of the modeling phase.
You can be confident that this next iteration will continue to build on industry-leading clean energy commitments and we'll find ways to get cleaner, faster and a corporate storage in customer-driven solutions as they become more cost effective.
Beyond that we'll ask you to stay tuned until our second quarter earnings call, we will provide more information after we file.
We're pleased to report our 2020 adjusted net income of $764 million or $2.67 per share, up 7% year-over-year off our 2019 actuals.
To elaborate on the key drivers of our year-end results, we realized increases in rate relief net of investments due to constructive orders in our recent gas and electric rate cases, strong performance in our non-utility segments and most notably our historic companywide cost reduction efforts led by the CE Way which Garrick noted earlier.
These positive factors were partially offset by mild weather and reinvestments or flex up back into the business.
We've talked in the past about our practice of flexing up, which enables us to put financial upside to work in the second half of the year to pull ahead or connect to work to improve the safety and reliability of our gas and electric systems to fund customer support programs, which was particularly important in 2020 given the effects of the pandemic, invest in coworker training programs and derisk our financial plan in subsequent years.
This tried and true approach benefits all stakeholders, which is the absence of the triple bottom line of people, planet and profit.
On Slide 13, you will note that we met our key financial objectives for the year.
To avoid being repetitive with Garrick's earlier remarks, I'll just note that we invested $2.3 billion of capital in our electric and gas infrastructure to the benefit of customers, including investments in wind farms, which add approximately $500 million of RPS related rate base, which I'll remind you earns a premium return on equity of 10.7%.
I'll also note that our treasury team had a banner year successfully raising approximately $3.5 billion of cost effective capital which includes roughly $250 million of equity while navigating turbulent capital market conditions over the course of 2020.
These efforts further strengthened our balance sheet to the benefit of customers and investors.
Turning the page to 2021, as mentioned, we are raising our 2021 adjusted earnings guidance to $2.83 to $2.87 per share, which implies 6% to 8% annual growth off our 2020 actuals.
Unsurprisingly, the majority of our growth will be driven by the utility and I'll also note a modest level of anticipated upside at the parent and other segment in 2021, largely due to the absence of select non-operating flex items executed in 2020.
All in, we will continue to target the midpoint of our consolidated earnings per share growth range of 7% at year-end, which is in excess of the sector average.
To elaborate on the glide path to achieve our 2021 earnings per share guidance range, as you'll note in the waterfall chart on Slide 15, we'll plan for normal weather, which in this case amounts to $0.06 per share of positive year-over-year variance given the mild winter weather experienced in 2020.
Additionally, we anticipate $0.41 of earnings per share pickup in 2021 attributable to rate relief net of investment costs largely driven by the orders received in the second half of 2020.
It is also worth noting that the magnitude of earnings per share impact here is in part due to the absence of an electric rate increase in 2020 which was a condition of our 2019 settlement agreement.
While we do plan to file an electric case in Q1 of this year, as Garrick mentioned, the test year and economic impact for that case will commence in 2022.
As we look at our cost structure in 2021 you'll note approximately $0.27 per share of negative variance attributable to incremental O&M approved in our recent rate cases to support key initiatives around safety, reliability customer experience and decarbonization, needless to say we have underlying assumptions around productivity and waste elimination, driven by the CE Way and we'll always endeavor to overachieve on those targets while delivering substantial value for our customers.
Lastly, we apply our usual conservative assumptions around sales, financings and other items.
And I'll note that while the pandemic remains relatively uncontested, we are assuming a gradual return of weather normalized load to pre-pandemic levels around mid-year.
In the event, the mass teleworking trend persists and/or we see an accelerated reopening of the Michigan economy, we can potentially see some upside from incremental, residential and commercial margin.
As always we'll adapt to changing conditions and circumstances throughout the year to mitigate risks and increase the likelihood of meeting our operational and financial objectives.
We're often asked whether we can sustain our consistent industry-leading growth in the long-term given the widespread concerns about economic conditions or potential changes in fiscal, energy and/or environmental policy?
And our answer remains the same, irrespective of the circumstances, we view it as our job to do the worrying for you.
Our familiar earnings per share chart on Slide 16 illustrates one of our key strengths, which is to identify and eliminate financial risk and capitalize on opportunities as they emerge to deliver additional benefits to customers while sustaining our financial success over the long term for investors, each year provides a different fact pattern.
And we've always risen to the occasion.
2020 offered some unique challenges resulting from the pandemic and more familiar source of risk in the form of mild winter weather.
And as usual, we didn't make excuses instead we offer transparency, devise our course of action and counted on the perennial will of our 8,500 co-workers to deliver for our customers, the communities we serve, and for you, our investors.
To summarize our financial objectives in the near and long term, we expect 6% to 8% adjusted earnings per share and dividend growth and strong operating cash flow generation.
From a balance sheet perspective, we continue to target solid investment grade credit ratings and we'll manage the key credit metrics accordingly.
One item I'll note in this regard is that we have slightly modified our FFO to debt targets to align better with the various rating agency methodologies.
Given the increase in our five-year capital plan, we anticipate annual equity need of up to $250 million in 2021 and beyond, which we are confident that we can comfortably raise through our equity dribble program to minimize pricing risk.
And two additional items I'll mention with respect to our financial strength as we kick off 2021 that are not on the page but no less important are that we concluded 2020 with $1.6 billion of net liquidity, which positions our balance sheet well as we execute our updated capital plan going forward.
And we have fully funded benefit plans for the second year in a row due to proactive funding.
The latter of which benefits roughly 3,000 of our active co-workers and 8,000 of our retirees.
Our model has served and will continue to serve all stakeholders well.
Our customers receive safe, reliable and clean energy at affordable prices while our co-workers remain engaged well trained and cared for in our purpose-driven organization, and our investors benefit from consistent industry-leading financial performance.
As you'll note with the reasonable planning assumptions, rate orders already in place in our track record of risk mitigation, the probability of large variances from our plan are minimized.
And with that, I'll hand it back to Garrick for some final comments before Q&A.
Our investment thesis remains simple but unique.
It enables us to deliver for all our stakeholders year in and year-out.
We remain committed to lead the clean energy transition, excellence through the CE Way and delivering our premium total shareholder return through continued capital investment that benefits the triple bottom line.
With that, Racho, please open the lines for Q&A.

user
raised guidance for 2021 adjusted earnings to $2.83 - $2.87 per share.

assistant