Earnings Call Transcript
CMS ENERGY CORP (CMS)
Earnings Call Transcript - CMS Q1 2021
Operator, Operator
Good morning, everyone, and welcome to the CMS Energy First Quarter 2021 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. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. Just a reminder, there will be a rebroadcast of this conference call today beginning at 12 p.m. Eastern Time, running through May 6. 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 call over to Mr. Sri Maddipati, Vice President of Treasury and Investor Relations. Please go ahead, sir.
Sri Maddipati, Vice President of Treasury and Investor Relations
Thank you, Rocco. 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, 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 Garrick.
Garrick Rochow, President and Chief Executive Officer
Thank you, Sri, and thank you, everyone, for joining us today. We appreciate your interest in CMS Energy. Over the past five months, I have been on the virtual road and have had the opportunity to meet with many of you to share our investment thesis, which delivers for all our stakeholders. This thesis is grounded in our commitment to the triple bottom line of people, planet, and profit and enables the excellence you have come to expect from CMS Energy. Many of you have asked what will change under my leadership. I want to reemphasize, we've changed leadership, not the simple proven investment thesis that delivers year in and year out. Looking forward, we are committed to leading the clean energy transformation with our net-zero carbon and methane emissions plans, which are supported by our clean energy investments in our current progressive integrated resource plan. Furthermore, we are recognized as top-tier for ESG performance, earning top ratings amongst our peers. We continue to mature our industry-leading lean operating system, the CE Way, eliminating waste and improving our performance. I've seen it, I've worked it, and we have plenty of gas pedal left. Today, we are crafting the next horizon, what I call CE Way 2.0, which layers in greater use of automation and analytics to position CMS Energy as a leader in digital. Another key differentiator of CMS Energy is Michigan's top-tier regulatory construct that has 10-month forward-looking rate cases in constructive ROEs. This all leads to our adjusted EPS growth of 6% to 8% and combined with our dividend, provides a premium total shareholder return of 9% to 11%. At CMS Energy, we wake up every day to get after it, deliver for our customers in all conditions, rain, snow, sleet, or wind. We never quit. This year is no different. Now, let's get into the numbers. In the first quarter, we delivered $1.21 of adjusted earnings per share. This is up significantly, $0.35 from last year, primarily from incremental revenue to fund needed customer investments and sustained cost performance. As a reminder, our full-year dividend is $1.74, up 7% from last year. We are reaffirming our 2021 guidance for the year of $2.83 to $2.87 of adjusted earnings per share and our long-term earnings and dividend per share growth of 6% to 8% with the bias to the midpoint. At CMS Energy, we are committed to our promises to our co-workers, the communities we serve, and our planet, as we are to delivering our financial commitments. During my discussions with many of you, the topic of ESG often comes up. I'm proud of our leadership in this space. We continue to enhance our commitments and our efforts are being recognized with top-tier ratings. We remain an AA-rated company by MSCI and have ranked top quartile for global utilities by Sustainalytics since 2013. This is a deep commitment that began well before it was a trend. Our commitments to net-zero methane emissions by 2030 and net-zero carbon emissions by 2040 are among the most aggressive in the industry. As our industry approaches a cleaner energy future, and we retire our legacy generating units, it is critical that we honor the contributions and service of our co-workers, as well as address the economic impact on those communities. Now, I began my career on the generation side of our business. I have walked the halls and climbed the stairs of every one of our generating plants, shaking hands and drinking coffee with the men and women who work every day to provide energy for our customers. I'm proud of the honorable and equitable way we have cared for both our co-workers and our communities, as we retire these units from service. We built a playbook for success. It began with the retirement of our seven coal plants in 2016. That work will continue with the retirement of Karn 1 and 2 in 2023. Our leadership and track record in this space is something I'm proud of and we will continue as we look to the future. This ensures success for all stakeholders, including our investors. While many focus on the E of ESG, we have a strong record of delivering across all three. In my 20 years of service, I believe our culture has never been stronger. Every single day, our coworkers show up with a heart of service for our customers, our communities, and ultimately you, our investors. Our culture, anchored by our values, is thriving across our company, and it’s why we are recognized for top quartile safety performance, industry-leading employee engagement, Forbes Best Employer for Women, Best for Vets by Military Times, and Best Places to Work for LGBTQ Equality in the Corporate Equality Index. Earlier this month, we were ranked by Forbes as the number one utility in the country as Best Employers for Diversity. Our leadership, commitment, and top-tier ESG performance should provide you with the confidence that our long track record will continue to deliver value for customers and investors. Turning to recent updates, I want to highlight our continued growth in renewables with several exciting announcements. We are pleased to announce the recent commission approval of our Heartland Wind Project in March, which will be online in December of next year. This project adds 201 megawatts of new capacity as a part of our renewable portfolio standard earning a 10.7% return. I'm also pleased to share that we received approval for the first tranche of our current Integrated Resource Plan, which adds nearly 300 megawatts of new solar through two projects that we expect to come online in 2022. We are evaluating the second tranche of our current IRP, another 300 megawatts of solar expected to come online in 2023. In the third tranche, 500 megawatts of solar expected to come online in 2024 for a total of 1,100 megawatts. We are on track to file our next Integrated Resource Plan in June. It has been a popular topic in our meetings with many of you. While we are still finalizing the details, the focus of our upcoming IRP will be to accelerate the decarbonization of our fleet, ensure reliability and affordability, and add renewable and demand-side resources in a way that makes sense for our customers and investors, while maintaining a healthy balance sheet. I'm excited for this next IRP. It serves as yet another proof point that we are leading the clean energy transformation. As part of our clean energy transformation includes retirement of our remaining coal fleet. On Slide 7, you will see our plan to decarbonize as both visible and data-driven. The meaningful reduction of carbon emissions in our plan will drive our ability to achieve net-zero carbon emissions by 2040. Over the past few months, I've been asked quite a bit about the future of our gas business. As I've shared with many of you, our gas business and system is critical to providing affordable and reliable heating here in Michigan. But that doesn't mean we're sitting on our hands. In fact, we are actively working to decarbonize our gas system. Now this aligns very well with the recent announcement from the Biden administration. Our first step is to reduce fugitive methane emissions, which is well underway, as we accelerate the replacement of vintage mains and services, both plans approved by the commission will decrease our missions and achieve our net-zero methane goal. Our decarbonization plans also leverage energy efficiency to reduce carbon usage and put renewable natural gas on our system, which will help decarbonize the most difficult sectors, such as agriculture. By replacing vintage mains and services with plastic piping, we will be positioned to deliver hydrogen or other clean molecules to our customers in the future. As we grow our renewable portfolio and decarbonize our generation fleet and gas delivery system, we remain committed to delivering against the triple bottom line of people, planet, and profit. Before I turn the call over to Rejji, I want to end with this slide. It demonstrates our consistent industry-leading performance for nearly two decades. As much as things change, one thing stays consistent: year in and year out, we have and we will continue to deliver. 2020 proved this. 2021 will be no different, marking 19 years of consistent, predictable financial performance. With that, I'll turn the call over to Rejji.
Rejji Hayes, Executive Vice President and Chief Financial Officer
Thank you, Garrick, and good morning, everyone. As Garrick highlighted, we are pleased to report our first quarter results for 2021. In summary, we delivered adjusted net income of $348 million or $1.21 per share. For comparative purposes, our first quarter adjusted EPS was $0.35 above our Q1 2020 results, largely driven by rate relief, net of investment-related expenses, better weather, and sustained cost performance from our 2020 efforts at the utility. Our enterprises and parent and other segments were slightly down as planned due to the absence of a one-time cost reduction item in 2020 and higher funding related costs, respectively. This modest negative variance was more than offset by strong origination growth at EnerBank, which exceeded its Q1 2020 EPS contribution by $0.06 in 2021 as planned and is tracking toward the high end of our guidance for the year of $0.22 per share. The waterfall chart on Slide 10 provides more detail on the key year-to-date drivers of our financial performance versus 2020 and highlights our latest estimates for the major year-to-go drivers to meet our 2021 EPS guidance range. To elaborate on the year-to-date performance, while weather in the first quarter of 2020 has been below normal to date, which has led to lower volumetric gas sales, it has been better than the historically warm winter weather experienced in the first quarter of 2020. And the absence of that weather has led to an $0.08 per share of positive variance period-over-period. From a rates perspective, given the constructive regulatory outcomes achieved in the second half of 2020 for our electric and gas businesses, we are seeing $0.26 per share of positive variance. As a reminder, our rate relief estimates are stated net of investment-related costs, such as depreciation and amortization, property taxes, and funding costs. It’s also worth noting that our 2021 financials reflect the accelerated amortization of deferred taxes, as part of our 2020 gas rate order settlement. On the cost side, as noted during our fourth quarter earnings call, we budgeted substantial increases in our operating and maintenance expenses in 2021 versus the prior year to fund key initiatives around safety, reliability, customer experience, and decarbonization in alignment with our recent rate orders. As you can see, we're $0.02 per share above our spend rate in the first quarter of 2020 as planned, and I'm pleased to report that we are seeing sustained cost performance from 2020, as well as increased productivity in 2021, largely attributable to the CE Way. That said, we do expect to see the bulk of the planned O&M increases to materialize later in the year. The balance of our year-to-date performance is driven by the aforementioned drivers at our non-utility segment and non-weather sales, which though slightly down at about 1% below the first quarter 2020, continue to exhibit favorable mix with the higher margin residential class, up 2% versus Q1 of 2020. I'll remind you that our total electric sales exclude one large low-margin customer. As we look ahead to the remaining nine months of 2021, we are cautiously optimistic about the glide path illustrated on this slide to achieve our full-year EPS guidance. As always, we plan for normal weather, which in this case translates to $0.12 per share of negative variance given the above-normal weather experienced in the second and third quarters of 2020. The residual impact of the aforementioned rate relief, which equates to $0.22 per share of pickup and is not subject to any further MPSC actions. And the continued execution of our operational and customer-related projects, which we estimate as an incremental $0.18 per share of spend versus the comparable period in 2020. We have also assumed the usual conservatism in our utility non-weather sales and our non-utility segments. All in, we are pleased with our strong start to the year and are well positioned for the remaining three quarters of 2021. And needless to say, we will be prepared to flex costs up or down as the fact pattern evolves over the course of the year. As we look out over the long-term, we are in the early stages of executing our $13.2 billion five-year customer investment plan at the utility, which is highlighted on Slide 11 and will provide significant benefits for our customers, the communities we serve, and our investors. As a reminder, we have budgeted over $2.5 billion of investments in 2021, the vast majority of which is earmarked for safety, reliability, and clean energy projects. We are on track thus far and recently filed an electric rate case in March that enumerates our customer investment priorities for the 2022 test year, which are summarized on the right side of the page among other key details related to the filing. We expect an order from the commission by the end of the year. Despite the substantial customer investments that we intend to make on our electric and gas system over the next several years, as you know, we take great pride in taking out costs in a sustainable way to maintain affordable bills for our customers, and we have the track record to prove it. The left side of Slide 12 summarizes the key components of our cost structure, which we have successfully managed over the past several years, while investing significant capital on behalf of customers. In fact, from 2007 to 2019, we reduced utility bills as a percentage of customer wallet by 1%, while investing roughly $19 billion of capital in the utility over that timeframe. As we look ahead, we have several highly actionable event-driven cost reduction opportunities, which will provide substantial savings in the years to come. The planned expiration of our Palisades power purchase agreement and the recently approved amendment to our MCV PPA will collectively generate roughly $150 million of power supply cost recovery savings. And as you'll note, our initial estimates for the potential savings for the MCV contract amendment of approximately $50 million proved conservative with the revised estimate of over $60 million in savings per the commission's order in March. Also, the planned retirements of our five remaining coal units should provide another $90 million of savings in aggregate, exclusive of any potential fuel cost savings, which will create meaningful headroom in bills for future customer investments. Lastly, I'd be remiss if I didn't mention our annual O&M productivity delivered through the CE Way, which last year generated roughly $45 million of savings and serves as a critical tool to our long-term and intra-year financial planning. To that end, many of you have asked about proposed changes in corporate tax policy and its potential impact on our plan. Though at this point, the final details remain unclear, trust that we are evaluating the potential effects and we will leverage the CE Way and other cost reduction opportunities, including potential offsetting tax credits that are also being proposed, as part of the legislation to minimize the impact on customers while executing our capital plan. As we've said before, it is our job to do the worrying for you, and we are uniquely positioned over the next several years to manage any potential headwinds. With our unparalleled track record on cost management, driven by our highly engaged workforce coupled with a robust customer investment backlog and top-tier regulatory construct, we are confident that we can deliver on our ambitious operational, customer, and financial objectives for the foreseeable future. And with that, we'll move to Q&A. So Rocco, please open the lines.
Operator, Operator
Thank you. We will now begin the question-and-answer session. The question-and-answer session will be conducted electronically. Today's first question comes from Jonathan Arnold with Vertical Research Partners. Please go ahead.
Jonathan Arnold, Analyst
Good morning, guys.
Garrick Rochow, President and Chief Executive Officer
Good morning, Jonathan.
Jonathan Arnold, Analyst
Good morning. Quick one to Garrick. I appreciate the comments on the IRP, and you mentioned the sort of focus will be on accelerating decarbonization. Are you willing to sort of talk about how significant an acceleration you might sort of have in mind? Could we be talking about bringing net-zero sort of into that 2035 timeframe on electric, for example?
Garrick Rochow, President and Chief Executive Officer
Well, thanks for your question, Jonathan. We've laid out those objectives, and all of those objectives, I would just put them all as equally important. Decarbonization is one, but so is reliability and affordability and the rest of them that are listed there within the deck. You'll recall from the settlement we had on our current Integrated Resource Plan in 2019 that we were going to take a look at the potential for accelerating Campbell 1, 2, which is currently scheduled to retire in 2031. We're doing that as part of this evaluation. I don't want to get too far ahead of our Board of Directors here, but our objectives are true. That's what we're targeting, and we look forward to sharing more in the Q2 reports.
Jonathan Arnold, Analyst
Okay. Fair enough. Thank you for that. And then, just on – may I ask on EnerBank? I mean, obviously, you've mentioned you're now tracking to the high end of the range, but it seemed to be an unusually large number in the first quarter. Is there anything other than strong origination going on there maybe, Rejji?
Garrick Rochow, President and Chief Executive Officer
Yes. As you know – yes, Rejji chairs it. So Rejji, why don’t you go ahead?
Rejji Hayes, Executive Vice President and Chief Financial Officer
Jonathan, thanks for the question. I think you hit one of the bigger drivers, and so it's really a couple of things. You've got strong origination growth. We talked about this in quarters two through four last year; a nice vacation bid with very good loan origination volume for swimming pools, HVAC systems, and that has carried on. So you've got strong origination growth. You also have a weak comp in Q1 of last year due to the pandemic which started to impact the global economy in the latter part of March. And so Q1 of last year picked some of that up. We also do have a loan sale as part of that earnings growth, which was unplanned but contributes to favorability relative to Q1 of 2020. We've always talked about the fact that we don't allocate capital to the bank, so they have to fund their own growth. So it's really a combination of strong origination growth coupled with the loan sale.
Jonathan Arnold, Analyst
Okay. I mean, can you maybe quantify how much that piece was and perhaps also talk about where that leaves the book in terms of size relative to where it was?
Rejji Hayes, Executive Vice President and Chief Financial Officer
They gave about $0.06 of upside from my prepared remarks relative to Q1 of 2020; roughly half of that was due to the loan sale and about the other half for the origination growth. So about $0.02 for each or $0.02 to $0.03 for each. The book still looks quite good. For competitive reasons, we don't talk about the annual origination volumes, but they are still around $3 billion of assets all-in.
Jonathan Arnold, Analyst
Okay. Thank you, Garrick. And I'll leave it there. Thanks.
Garrick Rochow, President and Chief Executive Officer
Thank you.
Operator, Operator
And our next question today comes from Andrew Weisel with Scotia. Please go ahead.
Garrick Rochow, President and Chief Executive Officer
Hi, Andrew.
Andrew Weisel, Analyst
Thanks. Hi. Good morning, everyone. Just maybe if I'll start continuing on the EnerBank conversation there. I think Rejji, you just said that the strong origination growth from last year has continued. What's your latest thinking on when that might return to sort of a more normal level? In other words, the COVID trade will eventually moderate. There are only so many swimming pools to be installed.
Rejji Hayes, Executive Vice President and Chief Financial Officer
Yes. It's a good question, and we may not see the feverish volumes we saw in 2020, but we continue to see high applications and again, very good origination volume going into the second quarter. So I'm not convinced that that trend will abate any time soon. It's not just swimming pools; they also do HVAC installation. That's a fairly non-cyclical product, and they also do residential solar. There is still good organic growth there as well. So there is decent diversification, Andrew, in the loan portfolio. Swimming pools certainly are quite strong. But again, we haven't seen any signs that that will abate anytime soon. If that does happen in 2022 or beyond, there is good HVAC volume, good residential solar, and they also do kitchen and window installations. Home improvement from our perspective is not going to die out anytime soon. We've been at this now for over a decade, and they’ve delivered in a very non-cyclical way for some time now.
Andrew Weisel, Analyst
Okay. Great. And you mentioned it's trending to the high end for the full year. I mean, that kind of sounds like an understatement given that they earned $0.11 in the quarter alone. So what might be the limiting factor there as far as the – let me put it this way: is the balance sheet of CMS a limiting factor? Or are there other ways that you might slow down the growth rate to elongate the trajectory?
Garrick Rochow, President and Chief Executive Officer
Yes. Let me be clear. Even though they delivered $0.11 of EPS contribution for the quarter and that was a strong beat versus Q1 of 2020, that was on plan. They were about a penny ahead of plan. So we assumed about $0.10 in a pretty front-end loaded earnings trajectory in 2021. We still see them kind of being within the range of $0.20 to $0.22. I wouldn't say it's due to actively potentially slowing them down. It's just part of the plan. There is a little bit of seasonality to the business. We'll see how it trends over time. But like the rest of the business, we try to manage it, and if there are opportunities to derisk 2022 and beyond by some levers we pull at the bank as well as the other business, we’ll look to do that.
Andrew Weisel, Analyst
Okay. Great. And then just more broadly, when you think about the CE Way, obviously, you had a really strong year last year with cost savings. Strong start to the quarter this year. Are you already in a reinvestment mode to benefit customers and position yourselves well for next year and beyond? Or is it just too early given your typical uncertainty around summer weather?
Garrick Rochow, President and Chief Executive Officer
I'll tell you the CE Way is alive and well, and we continue to work that system. As I shared in my comments, I truly love that system and what it means for not only cost management but what it means for improved customer service and co-worker empowerment. So we work it all the time because it really provides nice value for our customers in addition to cost management. That's well underway. But to get to the heart of your question, we're early in the first part of the year here. We feel good about the quarter and as you know, when there are opportunities, should they show themselves, we'll reinvest for the benefit of our customers and for our shareholders here to really derisk the future years.
Andrew Weisel, Analyst
All right. Sounds good. Looking forward to the IRP.
Garrick Rochow, President and Chief Executive Officer
Thank you.
Operator, Operator
And our next question today comes from Jeremy Tonet with JPMorgan. Please go ahead.
Garrick Rochow, President and Chief Executive Officer
Good morning.
Jeremy Tonet, Analyst
Hi, good morning. I was wondering if you could comment a bit more on how energy transition could impact the upcoming IRP, especially with the focus on hydrogen and expanded tax credits, such as 45Qs enhancing CCS economics. But what type of timeframe do you think this could make sense for CMS? Could it find its way into your plans?
Garrick Rochow, President and Chief Executive Officer
We've been talking about it in a bigger way than just energy transition; we call it the energy transformation. What we're leading here shows up in our current Integrated Resource Plan. The one that we're building out now includes a lot of solar, 1,100 megawatts, the retirement of Karn 1 and 2, and energy efficiency and demand response programs that are outstanding offerings for our customers. But every Integrated Resource Plan, particularly towards the end years of that plan, has about a 10% to 20% gap that you have to close. And that's not unique to CMS; you'll hear our peers talk about that as well. But I'll remind you, we're one of the most aggressive plans out there in decarbonization by 2040. There need to be technology advancements that come in carbon capture, hydrogen, and lithium-ion from both reliability and affordability perspectives. We are advocating for R&D type funding to continue to close that gap particularly in the out years. We'll participate as it makes sense within the regulated utility to close some of those gaps, but they are out in the 2035, 2040 timeframe.
Rejji Hayes, Executive Vice President and Chief Financial Officer
The only part I would add to Garrick's comments is just around the tax incentives. I mean, it's obviously early days, but we've been encouraged with some of the proposals we've seen offered particularly in the widened bill with tax potential incentives applied on a technical basis for zero carbon emitting resources and flexibility on choosing PTCs versus ITCs and more refundability, which is really one of the biggest constraints for utilities to execute on some of these renewable projects. If we see good advancements there, that obviously allows us to do more front-of-the-media solutions in a cost-effective basis for customers. So that's encouraging, but obviously, it's early days there.
Jeremy Tonet, Analyst
Got it. That's very helpful. And then just wondering if you could kind of frame your thoughts for us when it comes to the proven versus maybe the less proven technologies, targets as far as how much could be directly owned by CMS versus PPAs, just kind of any framework you could share with us there?
Garrick Rochow, President and Chief Executive Officer
From a proven perspective, one of the things that we're considering within this next IRP is reliability. So we look at loss of load expectations, particularly in the backdrop of the unfortunate events in Texas. We're going to ensure that our system is reliable in every weather condition. We’ve got a history of that, and we'll continue to do that. Clearly, we want proven items on the grid but we're also open to looking at R&D advancements.
Rejji Hayes, Executive Vice President and Chief Financial Officer
As Garrick mentioned in his prepared remarks, we got recent approval from the commission on our first tranche of new solar attributable to the Integrated Resource Plan, the current Integrated Resource Plan. We were pleased with the average cost we saw over the life of the projects when we looked at the owned opportunity versus the contracted. On a levelized cost of energy basis, we saw kind of high $50 per megawatt hour for the owned solution and kind of low $50 per megawatt hour for the contracted solution. We believe longer term there could be good opportunities to own more, but it's early days in the context of the IRP.
Jeremy Tonet, Analyst
Got it. So is it fair to say there could be CapEx upside in IRP here based on what you're talking about?
Garrick Rochow, President and Chief Executive Officer
We've got $25 billion in the next 10 years and $3 billion to $4 billion of opportunity out there and a long, long, long track record of organic needed customer investments in the state, renewables, electric, and gas to decarbonize. Again, you know our history here—there are lots of opportunities here at CMS Energy.
Jeremy Tonet, Analyst
Got it. Just one last one, if I could, with COVID and reopening. Just wondering if you could comment a bit on load trends in service territory and degree of residential stickiness that you have seen and could expect to see over the balance of the year?
Garrick Rochow, President and Chief Executive Officer
I'm going to turn it over to Rejji first, and then, I'll come back to some larger COVID and state-type topics. So Rejji, why don't you start?
Rejji Hayes, Executive Vice President and Chief Financial Officer
Sure. Jeremy, a pretty good trend over the course of the first quarter. As I mentioned in my prepared remarks, residential was up 2% versus Q1 of 2020. There still continues to be stickiness in residential, which is higher margin as we've talked about in the past. Commercial is down 4%, still not quite at pre-pandemic levels. I think that has a lot to do with the resurgence we’ve seen in terms of case counts in Michigan. We do expect over the course of the year both commercial and industrial, which were down about 2%, to be at pre-pandemic levels around mid-year. We're also encouraged with what we've seen for most of April in our smart meter data, particularly for the residential segment, which is up 4% ahead of plan. Again, the trends look quite good, and we're seeing just good economic trends in general. I still account for the fact that we've seen the residential class up about 1% versus the same period in 2020; we've seen commercial down a little less than 0.5% with good count volumes. I'll have Garrick talk about the interconnection volumes we've seen, as it’s been robust to say the least.
Garrick Rochow, President and Chief Executive Officer
Broadly from a Michigan perspective, I was with the Governor this week. As we've seen COVID and its B117 variant, the number of hospitalizations declined, the number of positive cases declined, and vaccinations continue to increase. I'd be surprised if there was an announcement here in the next couple of days that opens up more of Michigan, which will help from a commercial perspective. Unemployment is better than the U.S. right now across Michigan; Grand Rapids is even better. We’re also seeing good new service connects. 2020 was a record year for new service connects in the midst of a pandemic, and Q1 is up 27% over last year over the same time period. This is not just an initiation; that’s basically initiation and construction executed. So initiated and built, up 27%. Again, we see a number of positive indicators. Life sciences are up; food processing is up. There is great growth opportunity we're seeing, and I believe it's going to continue to pick up, as we open up more and more of the state.
Jeremy Tonet, Analyst
That's super helpful. That's it from me. Thanks.
Operator, Operator
And our next question today comes from Michael Weinstein with Credit Suisse. Please go ahead.
Garrick Rochow, President and Chief Executive Officer
Good morning, Michael.
Michael Weinstein, Analyst
Hey, good morning, guys. In terms of a potential for a higher corporate tax rate, could you talk about the potential impact that would have on you and your NOLs that you have through 2024? And then also, on the same line, if you have a higher tax rate, does that incur and let's say tax credit extension for renewables – does that encourage you and regulators to build to accelerate the build-out of renewables in order to keep taxes down?
Garrick Rochow, President and Chief Executive Officer
Let me offer a few comments on this, and then, I'll turn it over to Rejji as well. You're getting really to the affordability and headroom question as Rejji mentioned earlier with the widened proposal; there are a few others out there we're following closely. We're advocating frankly at Washington. This could be a real tailwind. We already have a very aggressive solar build-out in our current IRP, and these renewable credits can provide a nice savings opportunity for our customers. I get excited about that. Many positives are out there, but we know that there are some proposals on the table. I'm confident in our ability to manage that on behalf of our customers and keep bills affordable. Rejji, you may have more to add.
Rejji Hayes, Executive Vice President and Chief Financial Officer
What I would just add to all of Garrick's good comment is that when tax reform is enacted in 2017, we saw a remeasurement of NOLs, and that led to a non-cash loss and a significant one. Just with the tax rate going from 35% down to 21%, if you see it come back, let's say, to 28%, you'd have a favorable remeasurement. Clearly, we would carve that out like we did, but that could be beneficial because it creates a greater tax shield. We'd also see some benefit at our parent and other segment, which is primarily interest expense, and this adds greater value to that tax shield as well. Whether there is a push for more renewable build given incentives to offset the rate increases, we'll hold off on speculation around that. But as I mentioned earlier, we think there will be potential attractive incentives that should offset some of the rate increase implications.
Michael Weinstein, Analyst
All right. Okay. You can see what I'm getting at. I mean, the higher – the Federal Government is giving away tax credits, at the same time they're raising taxes. It would seem that state regulators would want you to build more, just standard reason, I guess. Anyway, that's all I have. Thanks.
Rejji Hayes, Executive Vice President and Chief Financial Officer
Thank you.
Garrick Rochow, President and Chief Executive Officer
Thanks, Mike.
Operator, Operator
Our next question today comes from Julien Dumoulin-Smith with Bank of America. Please go ahead.
Garrick Rochow, President and Chief Executive Officer
Good morning, Julien.
Julien Dumoulin-Smith, Analyst
Hey, good morning team. Thanks for the time and the opportunity. If I can keep ripping off perhaps a couple of the other questions here in brief, now we’re getting late. With respect to the widened plan or what have you in terms of infrastructure, how do you think about the different scenarios that you come out with on the IRP? More critically, is there any risk of delay in timeline based on the timeline of credits? I'm just curious as to how you’re thinking about the different scenarios and impacts here.
Garrick Rochow, President and Chief Executive Officer
There's a lot of tax proposals on the table, and we don't see them being settled here in the next several months. We're on track to file our IRP in June, and it will meet those objectives that are laid out there in the presentation. It will be a plan that’s good for Michigan and our planet and matches our triple-bottom line.
Julien Dumoulin-Smith, Analyst
All right, fair enough, but it doesn't seem that you're going to tailor any specific bulls around any of the proposed infrastructure efforts that could shift the planning through the IRP cycle or a process, right?
Garrick Rochow, President and Chief Executive Officer
It's just too early. We'll take it to the Board of Directors as we normally do. These proposals are likely going to move a lot this summer, so there’s a bit of unpredictability in where they land. There are positives we see, but they are a bit unpredictable.
Rejji Hayes, Executive Vice President and Chief Financial Officer
It's important to remember that the legislation and how it's structured along with the IRP process is multifaceted and takes into account the dynamism of the world. We look at the business as usual case, emerging technologies, environmental policy changes, and various variables like low price and low growth. There are hundreds of permutations as we structure the IRP, and we do consider numerous scenarios to pinpoint what's best for the triple bottom line perspective.
Garrick Rochow, President and Chief Executive Officer
To boil this down, to the degree there is a renewable tax, what it does is it makes it cheaper. So that is the tailwind. That's the opportunity, and we'll file a great IRP. It's just going to make it cheaper and less expensive for our customers, which is a good thing.
Julien Dumoulin-Smith, Analyst
Great. Best of luck. Will speak to you after. All right.
Garrick Rochow, President and Chief Executive Officer
Thank you, Julien.
Operator, Operator
And our next question today comes from Travis Miller with Morningstar. Please go ahead.
Garrick Rochow, President and Chief Executive Officer
Good morning, Travis.
Travis Miller, Analyst
Good morning, everyone. Thank you. I was wondering, we've seen a couple of states here just recently suggest potentially securitization options for coal plant retirements and accelerating that. What's your thought around that? Have you had discussions with Michigan politicians, regulators around that? Just want your thoughts.
Garrick Rochow, President and Chief Executive Officer
We have worked securitization here for a long time in Michigan. In fact, as part of the law here in Michigan, it requires a 90-day process. We just completed one in December for Karn 1 and 2. Many states and jurisdictions do not have this. We've got a good process underway that exists. One of the challenges with coal plants is that they have a book value, and if you continue to securitize those, it can impact credit metrics. As I shared in our IRP objectives, that’s one of the things we need to watch as we pursue decarbonization and our clean energy goals.
Travis Miller, Analyst
Fair enough, I appreciate that. That's all I had; you answered my other questions. I appreciate the time.
Garrick Rochow, President and Chief Executive Officer
Yes. Thank you, Travis.
Operator, Operator
And our next question today comes from Anthony Crowdell with Mizuho. Please go ahead.
Garrick Rochow, President and Chief Executive Officer
Hey. Good morning, Garrick. Good morning, Rejji.
Anthony Crowdell, Analyst
I have a quick question. Mostly been answered, and it's a follow-up of an earlier question on decarbonization. You kind of touched briefly on maybe the events in Texas. But have you noticed any pause in the policymakers or any of the parties that you're involved with during an IRP process, slowing down decarbonization due to reliability? I know you touched on reliability earlier. But have you noticed any change following the Texas storms on the desire to keep fossil generation around a little longer?
Garrick Rochow, President and Chief Executive Officer
As I shared earlier, our Integrated Resource Plan looks at loss of load expectation. That's one of the criteria we’ll ensure to deliver reliability. There are a variety of ways to achieve this. We want to present a plan to the commission, to the staff up there, to all our intervenors, that it has to be affordable, reliable, and clean. We have to do all three, and that's the challenge. We've got a great plan and you'll hear more about it in Q2.
Anthony Crowdell, Analyst
Great. Thanks for taking my question.
Garrick Rochow, President and Chief Executive Officer
Yes. Thank you.
Operator, Operator
And our next question today comes from Stephen Byrd with Morgan Stanley. Please go ahead.
Garrick Rochow, President and Chief Executive Officer
Good morning, Stephen.
Laura Sanchez, Analyst
Hi, good morning. This is Laura calling for Stephen. On the energy transformation front, I'm sorry if this is repetitive, but beyond potentially accelerating the retirement of the coal units, how much more can you do without compromising the reliability of the grid? I'm wondering if there are gas plants that you can retire early without that affecting grid reliability and without assuming new technologies pick up? Basically, how much is affordability versus reliability?
Garrick Rochow, President and Chief Executive Officer
Hi, Laura. How are you? Good to have you on the call.
Laura Sanchez, Analyst
Thank you.
Garrick Rochow, President and Chief Executive Officer
That's what the loss of load expectations study looks at. Again, we're going to model out energy and energy supply for 20 years to ensure we look at the reliability across the system to provide the most affordable plan for customers while ensuring a healthy balance sheet. That’s the entire balance, and that's what the model solves for. We'll share more of what that looks like in Q2.
Laura Sanchez, Analyst
Understood. Lastly, if I may, could you comment on your current efforts on renewable natural gas and if there are any voluntary programs altered or that will be offered in your gas utility?
Garrick Rochow, President and Chief Executive Officer
There is a small amount of RNG on our system as we speak. To obtain net zero methane by 2030, we will have to put a bit more RNG on our system. To quantify that, we move about 300 billion cubic feet of natural gas on our system annually. We'll need about 0.3 billion cubic feet of RNG to help us get to net-zero. We will add more as we move forward. While we think about our carbon footprint, there is the potential to add more renewable natural gas across our system. We intend to add a program over the course of this year and will be making a filing in 2021 that offers this for our customers.
Laura Sanchez, Analyst
Sounds good. Thank you so much.
Operator, Operator
Ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the conference back over to Garrick Rochow for any final remarks.
Garrick Rochow, President and Chief Executive Officer
Thank you, Rocco. I'd like to thank you all again for joining us today. I'm looking forward to when we can meet face-to-face, hopefully soon, and we can do that safely before the year is over. Take care and be safe.
Operator, Operator
Thank you, sir. This concludes today’s conference. We thank everyone for your participation, and have a wonderful day.