Earnings Call Transcript
CMS ENERGY CORP (CMS)
Earnings Call Transcript - CMS Q3 2020
Operator, Operator
Good morning everyone and welcome to the CMS Energy 2020 Third 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. Just a reminder, there will be a rebroadcast of this conference call today beginning at 12:00 p.m. Eastern Time running through November 5th. 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.
Srikanth Maddipati, VP of Treasury and Investor Relations
Thank you, Rocco. Good morning everyone, and thank you for joining us today. With me are Patti Poppe, President and Chief Executive Officer; and Rejji Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements, which are subject to risk 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 will turn the call over to Patti.
Patricia Poppe, CEO
Thank you, Sri, and good morning everyone. We hope you’re all doing well and thanks for joining us today for our third quarter earnings call. This morning I’ll share our financial results and outlook for the first nine months of the year. I’ll also introduce our 2021 guidance, review our capital plan which supports our de-carbonization efforts, and I’ll touch briefly on our regulatory calendar. Rejji will add more details on our financial results, and as always, we will call for Q&A. We’re happy to report that for the first nine months of the year, we delivered adjusted earnings per share of $2.11, up 17% from the same period in 2019. Our year-to-date results were driven by our team’s best-in-class cost management through the CE way. Given the risk mitigation in place for this year and our visibility into next year, we’re pleased to reaffirm our adjusted guidance for the year of $2.64 to $2.68, with a bias toward the midpoint and introduce our adjusted guidance for 2021 of $2.82 to $2.86, up 6% to 8% from the midpoint of our current guidance range. We continue to target long-term annual earnings and dividend per share growth of 6% to 8%, again with a bias toward the midpoint, which reflects both consistent and industry-leading growth. We remain grounded in our commitment to the triple bottom line of people, planet, and profit. We’re committed to diversity, equity, and inclusion and are doubling our spend on diversifiers over the next five years after having tripled our spend over the last seven. Just last month, the Governor of Michigan announced the State’s goal to reach carbon neutrality by 2050, which supports our clean energy plan and all the actions we’ve already taken to protect our planet and reduce our carbon footprint. And before moving on, I want to highlight we’ve realized over $100 million in cost reductions year-to-date through the CE way. This is a true testament to the maturity of our CE way mindset and what this team is capable of when called to action. My quick story of the month is from our team at Filer City generating station, who identified a shorter route throughout the building to perform operator rounds. This eliminated over one hour or 2,500 steps on each shift. The annual mileage savings are equivalent to the distance from the southern border of our state all the way to Mackinac Bridge. Step-by-step, minute-by-minute, dollar-by-dollar, it all adds up to the CE way. Our team has proven that we can put the pedal to the metal on cost performance to deliver the required results now and in the future. Our commitment to the triple bottom-line shines through in our capital investment plan that focuses on enhancing the safety and reliability of our system while keeping customer bills affordable, protecting our planet, and delivering for our customers and investors as we move toward net zero. We benefit from a regulatory structure in Michigan and a statute that allows for financial incentives above and beyond our current authorized ROE. These include a 20% return on our energy efficiency spend as we help customers reduce energy waste and lower their monthly bills. A financial mechanism equal to our weighted average cost of capital on new renewable PPAs and a premium ROE of 10.7% on renewable investments to meet our 15% renewable portfolio standard in Michigan. All of which illustrates that we can deliver reliably on the triple bottom line; what’s good for our people and the planet can also deliver top-tier profits. By 2024, we will have added 1,100 megawatts of solar to our system on top of 1 gigawatt of RPS renewables since 2011. Our clean energy plan calls for a total of 6 gigawatts of solar additions to our system or $3 billion to $6 billion of investment opportunities through 2040. As we move forward and file our next IRP in 2021, we will look to realize some of this opportunity and pull it into our plan as utility-scale renewables continue to make triple bottom-line sense. Our commitment to serving all our stakeholders has not gone unnoticed. We’ve been recognized nationwide for our good efforts and slide 7 celebrates that recognition, including that as of 2019, CMS Energy received an MSCI ESG rating of AA. Moving onto our regulatory calendar. We settled our gas rate case last month and agreed not to file another gas rate case before December 2021. We expect an order in our electric rate case and an outcome on our securitization filing by the end of this year. Following that, we will not have any general rate case decisions impacting our 2021 earnings, which provide further visibility and economic certainty throughout next year. Turning to my favorite slide, slide 9 reminds you of how we manage the work intra-year to mitigate risk in future years and deliver the financial results you’ve come to expect. So in a year like this year when we’ve seen an enormous amount of headwinds, our team hunkered down and exercised our lean operations to find and eliminate waste at every level. To date, we’ve realized over $100 million in savings through these efforts and I’m so very proud of all my co-workers for demonstrating world-class cost performance and enabling us to deliver savings through the CE way so that we can continue to deliver a world-class customer experience and consistent industry-leading financial performance. Now, you might be wondering if that $100 million of savings would make us deviate from our bias toward the midpoint of the guidance range. It does not. We’re sitting in the driver's seat as we put the pilot savings to work for 2021 and 2022 and begin to de-risk those years. It is precisely this cost discipline which keeps us on track to deliver the consistent top-tier annual growth rate every year, not just the easy ones; 7% year after year after year. We wrote the book on adapting to changing conditions and delivering results in the current year that enable next year’s success and the year after that. We ride the rollercoaster so that you can count on the predictable EPS and dividend growth you expect. And now I’ll hand the call over to Rejji.
Rejji Hayes, CFO
Thank you, Patti, and good morning everyone. In the third quarter, we delivered adjusted net income of $221 million, which translates to $0.77 per share. Our third quarter results were $0.04 above our third quarter 2019 results, largely due to cost performance, constructive regulatory outcomes, and favorable weather at the utility. It is worth noting that our adjusted earnings for the quarter exclude non-recurring items primarily related to retention costs associated with the pending retirement of our current coal facilities, which commenced in the fourth quarter of 2019. Year-to-date, we’ve delivered adjusted net income of $605 million or $2.11 per share, up 17% from the same period in 2019. As Patti noted, we’re trending well largely due to our company-wide efforts in cost reduction, largely driven by the CE way. As you know, we continue to monitor our electric sales and utility closely given that the pandemic is not yet fully contained, and we remain encouraged by the trends we observed across each customer class over the course of 2020. On slide 11, you will see that weather-normalized electric sales were up roughly half of a percent for the quarter versus the third quarter of 2019, with the residential segment continuing to lead the way, up 6% for the quarter versus the comparable period in 2019. The commercial and industrial segments continue to recover down 4% and 3.5% respectively versus the prior year, which aligns well with the phase re-opening of Michigan's economy. As noted in the past, the weather-normalized industrial and total electric sales I just quoted exclude the effects of one large low-margin customer. As we look ahead to the fourth quarter in 2021, we're cautiously optimistic about the normalized trends we've seen so far in 2020, with normalized load for the residential segment continuing to outperform expectations, which I'll remind you offers a higher margin than those of our commercial industrial segments and has historically represented over 60% of our customer contribution. Turning to our waterfall chart on slide 12, you can see the current and expected drivers of our year-over-year financial performance. As mentioned, cost performance continues to be a key factor to our financial results for 2020, and as Patti noted, we have delivered over $100 million of savings to date, the vast majority of which is represented in the $0.28 per share of cost savings highlighted in the table on the left-hand side of the page and more than offsets the pandemic-related expenses incurred to date and mild weather experienced in the first quarter. Rate relief, net investments, and less storm activity relative to the comparable period in 2019 provided $0.13 and $0.05 per share of positive variance respectively in the first nine months of the year. With three months to go in 2020, we plan for normal weather as we always do, which implies $0.02 per share of negative variance versus the prior year and is more than offset by the constructive outcome we achieved in our gas rate case settlement, which equates to $0.07 per share of pickup in the fourth quarter. Needless to say, we will remain vigilant by maintaining sufficient contingency to mitigate the inherent risk to our business such as weather and storms as well as a potential resurgence of the virus in Michigan and will concurrently reinvest any estimated excess contingency to provide near and long-term value to our customers, co-workers, and investors. As we look out longer term, even with our significant success reducing costs in 2020 and in years prior, there are still ample opportunities to further reduce costs to create headroom in customer bills for future capital investments. As a reminder, the expiration of our large PPAs and the retirement of our coal fleet offer sustainable cost reduction opportunities over the next several years. We'll also realize capital-enabled savings as we modernize our electric and gas distribution systems and will continue to reap the benefits of the ongoing maturation of the CE way. You can see the long-term effects of our historical cost reduction efforts in the chart on the right-hand side of slide 13, which highlights that we've kept customer bills low on an absolute basis and relative to other household staples in Michigan from 2007 to 2019 while investing roughly $19 billion of capital in our gas and electric systems over that timeframe. In fact, in 2019, our utility bills made up approximately 3% of household expenditures in Michigan, down 4 percentage points from the 2007 level. 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. You name the risk, and I can assure you we've heard it before. Well, the reality is that change is the one constant that you can count on in this business, and we'll continue to adapt to the inherent risks and other external factors that may impact our business and still deliver for our customers, co-workers, the planet, and our investors as we have for almost two decades now, as illustrated on page 14. And with that, I’ll pass it back to Patti for some closing remarks before we open up the lines for Q&A.
Patricia Poppe, CEO
Thanks, Rejji. Simply this: our model holds together well, and that's why this thesis remains strong. With that, Rocco, please open the lines for Q&A.
Operator, Operator
Thank you. Our first question today comes from Jeremy Tonet with JP Morgan. Please go ahead.
Jeremy Tonet, Analyst
Hi, good morning.
Patricia Poppe, CEO
Good morning, Jeremy.
Jeremy Tonet, Analyst
I just want to start off, if you might be able to provide us some thoughts on what the next IRP filing could look like and any more color if you see opportunities to further accelerate coal retirement, integrate renewables more and include storage as part of the resource mix there?
Patricia Poppe, CEO
Yes, Jeremy, great question. We are excited about our next filing of IRP which will be made in 2021. We're still in the modeling phase, so no early read just yet. So I will say we're hopeful that in the outer years, particularly in our first filing, we had about 450 megawatts of storage. I would love to see more storage in the outer years. We were requested in our settlement and agreed to study earlier retirement requirements of some of the other coal plants, but right now our plan remains the same. But certainly when we know, we will let you know, and we're excited about the potential that new IRP offers to benefit the planet and the cost structure and our customers. It's really a great time in this business.
Jeremy Tonet, Analyst
Got it. Makes sense. Thanks for that and then separately just wondering if you could provide a bit more detail on the benefit that a 6% uptick in residential sales has had on the electric margins and really just, with this increased residential skew and cost for mix and sales and the cost cuts you've achieved so far just wondering how we should think about that and how that might impact the upcoming rate filing?
Rejji Hayes, CFO
Yes, Jeremy. We talked about in the past the impact that the residential segment has on our electric business. So the general – you’re thinking about the annual impact is 1% change and residential equates to $0.03 of EPS accretion and that's symmetric, so up or down. And for industrial, on the other side, it's about half a penny for a 1% change; commercial is relatively close to residential. So it does have a pretty good impact. As you think about the road ahead, I'll just remind you that the electric case we have pending reflects all of 2021, and we are contemplating a subsequent electric rate case filing, which will obviously have an impact on 2022. But if we continue to see a trend like we've seen over the course of this year, it could provide a potential tailwind in 2022, but we're still in the early stages of our planning process for 2021. That being said, the electric rate case that’s pending will dictate many of our economics going into 2021, while the existing gas settlement we've already got provides a lot of economics going into 2021. Does that address your question?
Jeremy Tonet, Analyst
Yes, that's very helpful. Thanks for taking my question.
Patricia Poppe, CEO
Thanks, Jeremy.
Operator, Operator
Next question today comes from Michael Weinstein with Credit Suisse, please go ahead.
Patricia Poppe, CEO
Good morning, Michael.
Operator, Operator
Michael, your line is on mute perhaps.
Michael Weinstein, Analyst
Okay. Sorry about that. Here I am. Good morning. I was wondering if you could comment a little bit on whether you might be considering some type of multiyear rate plan going forward. I know you have forward test years and annual rate cases have worked out well for the company, especially in Michigan, which is a pretty favorable state for investors. But has there been any consideration for some type of multiyear situation going forward?
Patricia Poppe, CEO
Yes, Michael, you make a really good point. In fact, we do have forward-looking test years. We like our annual filing for a couple of reasons. Just because we file a rate case doesn't necessarily mean customers' bills will go up. And as Rejji described in his prepared remarks, we can do capital investment, and this business model of ours, where cost savings are passed along to customers, must occur in those proceedings. Our annual filing provides us two advantages particularly given the certainty of the regulatory environment here in Michigan. One, we have alignment with the Commission before we spend it. So we have no risk post a rate order that we will have disallowances. We have alignment on the work that we're going to do, and we have alignment on the investments that we're going to make. And so that is a real certainty going forward. But two, it also allows us to adjust the plan as conditions change, and we can pass along the cost savings that the team achieves while we're adjusting those plans. So we can build the budget, we can build an operating plan that matches and is agreed upon with the Commission. And so I think that's good regulation; it's the right kind of transparency, the right kind of certainty, and yet at the same time demonstrates agility as we move forward and conditions change around us. I do think it's in the best interest of our customers.
Michael Weinstein, Analyst
Great. And also for the DIG plan, as you go forward with the Michigan Supreme Court, do you think you'll be trending more towards the upper end of that opportunity range of 3 to 750 going forward?
Patricia Poppe, CEO
Yes. Exactly, Michael. In October 21, for example, we secured some contracts for the planning year 24 and 25 and 25 and 26 at the $4.25 kilowatt month. We secured about 30 megawatts. So we're definitely seeing a pickup that wasn't all the way at comp. But with the LCR, there are only a few places within zone 7, which is Michigan's lower peninsula, where an alternative energy supplier can secure that capacity, and DIG is one of those places, and so we've absolutely already seen a little bit of that upside.
Michael Weinstein, Analyst
Great, and I guess that's about it for now. Thank you very much.
Patricia Poppe, CEO
Great. Thanks, Michael.
Operator, Operator
Next question today comes from Shahriar Pourreza with Guggenheim Partners. Please go ahead.
Shahriar Pourreza, Analyst
Good morning, guys.
Patricia Poppe, CEO
Morning, Shahr.
Shahriar Pourreza, Analyst
Just a couple of questions here. On equity, you obviously had, you don't have any equity in 19 that was deferred to 2020. And then you've got 250 million planned for this year. Can you remind us what your new 21 guidance embeds in terms of equity, and how we think about sort of the perpetual need? Should we just assume around 150 million per year level set for 2020 excluding the 2019 that you deferred into 2020?
Rejji Hayes, CFO
Yes, Shahr, just to be clear, we haven't provided a point of view based on our latest modeling for equity needs in 21 and beyond. But I think the working assumption that we provided as we rolled out our five-year plan in the first quarter of this year was 250 this year, as you rightly note, and then we said run rate 150 per year. That presupposes a $12.2 billion five-year capital plan at the utility. As you know, we provide a new five-year look in Q1 and every year on our fourth-quarter earnings call, and we will calibrate and look at what the capital plan looks like from 21 through 25. If that dictates additional equity needs, then we will adjust accordingly, but I will say this: I feel very confident that this has been our general rule of thumb that we will be able to continue without block equity and really just be able to execute our equity needs through our dribble program, which I generally like to think is around 1.5% to 2% of our market cap. So we feel that the equity needs may change. We'll see what the math ends up in our five-year plan, but I don't expect us to be issuing a material amount of equity every year going forward.
Shahriar Pourreza, Analyst
Got it. And then just on the cost savings, you called that $100 million savings in 2020 actively being reinvested. How much of that is from the first mortgage bonds and opportunistic refinancing year-to-date, and how do we think about sort of that being one-time versus sort of perpetual nature? What types of things are you learning as you move past the crisis stage of COVID?
Rejji Hayes, CFO
Yes. It's a great question, Shahr and so I think generally we look at identifying and realizing cost savings as two classes: operating cost savings and non-operating cost savings. What we highlighted in our prepared remarks, and this has been an ongoing theme over the course of this year as well in Q2, the vast majority of the savings realized to date have been operating savings. There have been some non-operating savings. So, you probably saw in a waterfall slide that we had about 7% of the benefits of those were clearly non-operating. Sri and the team and treasury have been really quite opportunistic in executing on very attractively priced financing over the course of this year. I can come back on the exact EPS amount. I think we had about a penny or two of upside this year, and we do anticipate a good portion of that being ongoing and sustainable because if you price the bond below plan, particularly with the recent plan, you obviously have your savings over the life of the bond. And now obviously our debt financing needs will increase to fund capital, so you have some new money in there, but to refinance those lower bond financing, particularly when we pull forward bond maturities we have in the past, those savings you should get for several years.
Shahriar Pourreza, Analyst
Got it, perfect. And then just one last one for me on sort of the load growth. Obviously, you reported very healthy weather-adjusted load numbers in the third quarter. I'm curious about what you're embedding in the guidance for 21. What are you assuming as far as the COVID-related backdrop? It seems like you alluded to it a little bit in the prepared. But are you assuming sort of a V-shaped recovery, which is I think what a lot of your peers are saying, or are you seeing more of a gradual pickup? What's kind of embedded in your plan? You touched a little bit on the contingency there, but it seems like from what you're highlighting, even if you see another protracted downturn or even a weakening in the residential market that you have enough levers to offset sort of that headwind. But I don't want to be leading the witness, so you go.
Rejji Hayes, CFO
Yes. Let me approach that in a couple of ways, Shahr. First, there are sales assumptions embedded in the pending electric rate case, which will capture all of fiscal year 2021, and so we're past the evidentiary phase. I don't want to pre-judge or foreshadow where the Commission may end up. But I think clearly there is a change in the assumptions embedded in the rate case and what we've observed over the course of 2020. As we've talked about the last several quarters now, we are seeing a favorable mix in the form of residential in excess of expectations, and C&I I'll say is slightly down. The variables which could lead to a tailwind in 2021, it's clearly residential. We've seen just this sustained level of residential non-weather uptick, and I think it has a lot to do with remote working. A number of companies have sustained that, and we said we have a sense they may sustain it even post-pandemic, and so that could provide a bit of a tailwind going into next year. The rate or pace at which C&I has recovered over the course of this year has also been a little bit of a surprise to the upside. So going into the next year, what’s embedded in the rate case, there's maybe a little bit of upside there, but if you think about it now that we're 10 months smarter since we filed our rate case, what are we seeing and how do we think that compares to what we've seen over the course of 2020. I'll say it's fair to assume that the pandemic started in mid-March in Michigan, and we had the shelter in place in late March, and so a lot of the pandemic's effects are flowing through our 2020 forecast. So when you think of the year-over-year comparison, I don't expect we'll see a material bump in residential versus what we've experienced in 2020 because again, a lot of that's already reflected in our numbers. But I do think C&I could be flat. I hate to put a letter to any type of shape of recovery. I would say the Nike Swoosh seems to me to be the most applicable shape. I've also heard people talk about a K-shape because you have some sectors that bounce back quickly and some that do not. I hate to hazard a guess at this point. But I think it'll be a gradual recovery and a continued recovery for C&I. Again, we’ve been surprised to be upset, but the pandemic has yet to be contained. So we'll plan cautiously as we always do.
Shahriar Pourreza, Analyst
Terrific. Thanks guys. Congrats again.
Patricia Poppe, CEO
Thank you.
Rejji Hayes, CFO
Thank you, Shahr.
Operator, Operator
And our next question today comes from Durgesh Chopra with Evercore ISI. Please go ahead.
Durgesh Chopra, Analyst
Hi, good morning team. Two big picture questions. One: with the election around the corner, just can I get your thoughts on the opportunities and risks of the climate plan and a potential tax change? I appreciate it early, but just any thoughts there?
Patricia Poppe, CEO
Yes. You bet. Just at the highest order, as we have always said, we work with everyone, and so we're sure that America will sort out all of this election business. Now we know I think what to expect from Donald Trump and his administration, and that has been working fine for us. If Joe Biden is elected and there's a stronger push for a clean energy transition or a carbon-free electric sector, we have a plan that's pretty aggressive already. We have a plan that gets to net zero by 2040. And so, even when he says 2035 in kind of campaign ads, the idea of it really being national at 2035 seems aggressive. However, we could actually work to adapt. One thing we'd like to remind people about this is that as we make this clean energy transition—we've been very ambitious, as you know. We've retired seven of our twelve coal plants already and reduced our carbon emissions by 40%. Our net zero plan for 2040 puts us again about a decade ahead of most in the industry. So given that we feel like there's a need for some technology advancements in those outer years, when those breakthroughs occur and as the cost of solar and potentially storage continues to decline, we'll look forward to accelerating our plans. And we know that that can be good for both our triple bottom line—people, planet, and profit. So we're pretty agnostic on the outcome of the elections. We think our clean energy plan stands on its own.
Rejji Hayes, CFO
I'd be happy to. So Durgesh, as you know, the Biden team has rolled out at least a preliminary look on fiscal policy. What we've seen is a potential increase in the marginal tax rate from 21% to 28%. Since federal tax reform is in the too distant past, you may recall just sort of the puts and takes we saw there. I think conceptually, you can anticipate that there may be a rate increase and that’s obviously the inverse of what we saw when we went from a 35% tax rate down to 21%. So there would potentially be a rate increase, and the commission in Michigan was very thoughtful in how they incorporated that into our filing process. I anticipate that they'll probably take a similar approach. And so obviously that will eat into headroom, but I think we've proven time and time again, irrespective of the headwind, we'll manage the costs to make sure that our customers' bills stay at or below inflation. So I think you'll see some pros and cons, and it's almost the inverse of what we saw when we had federal tax reform in '17.
Durgesh Chopra, Analyst
Understood, guys. Thanks for all the color. One quick follow-up: just on strategy and long-term strategy, so a couple of transactions here year-to-date—portfolio optimization. Companies kind of streamlining the businesses and selling non-regulated businesses. Just your most recent thoughts on Interbank and your other non-regulated businesses. How does it fit into your long-term value proposition? And then just flipping the coin, are there perhaps even opportunities for expansion given the sort of multiple you're trading at versus peers?
Patricia Poppe, CEO
Well, great questions, Durgesh. First of all, the Interbank team—shout out to that team—they're performing well and benefiting from this year actually from the uptick in home improvement. I've heard in fact it's called investing and nesting, and Interbank is participating in that. So that's been good. But really, the bottom line is this: we're very content with our business mix where it is. And I just want to remind everyone that our utility is far and away the driver of our growth at CMS Energy, with 90% of our business mix. So really, to that end, there is nothing new to share about our non-regulated businesses. We manage them very much like we manage our utility business—with consistency, high-quality off-takers, long-term contracts, leveraging our core competency, downside risk management, and no big bets. We like our mix.
Durgesh Chopra, Analyst
Excellent, and just maybe any thoughts on potential expansion M&A?
Patricia Poppe, CEO
Yes, it just ends up not really being on the top of our list given our organic growth strategy. We've got ample CapEx to deploy. People ask us because of the CE way if that's something you could deploy, and maybe someday we would want to, but that's a long time from now. We really have a solid five-year capital plan and a ten-year capital plan, and in the next five years, we have real visibility to our ability to deliver growth and shareholder value.
Operator, Operator
And our next question today comes from Jonathan Arnold with Vertical Research Partners. Please go ahead.
Jonathan Arnold, Analyst
Hi, good morning, guys.
Patricia Poppe, CEO
Hey, Jonathan.
Jonathan Arnold, Analyst
Hi. Just a quick one on the $3 billion to $6 billion, Patti, that you called out and the renewables or it sort of sits on top of the 2040 bar on that slide. I'm just curious how much of that is in the 10-year plan versus sort of in the subsequent years?
Patricia Poppe, CEO
Yes, great question. We have a billion dollars—actually $1.8 billion—in renewables in the five-year plan, and in the 10-year plan, we have a potential for additional maybe even up to $3 billion of total renewables. When we think about the $3 to $6 billion by 2040, that's another 10 years. But our solar deployments are front-end loaded. We intend to deploy 5,000 of our 6,000 megawatts of solar by 2030. So that really makes up and that's already in our 10-year plan, but we'll share more visibility on that when we update the capital plan at the year-end call.
Jonathan Arnold, Analyst
Great. Thank you for that. And then just a little more high level, you've been very clear that you're going to be using the outperformance you've had this year and the sales help to reinvest—not just in 2021, but also beyond. And so I'm curious as to why have a range on earnings growth and why not just target seven? And then, yes, sort of secondary to that, what could potentially push you to a change in a given year, seeing how you're handling this year for example?
Patricia Poppe, CEO
Yes, Jonathan. I will remind you that our six to eight are a $0.04 range. So a single point, we're practically at a single point as it is. But we do think that this top-tier 7% EPS growth for the sector is among the best, especially when you factor in the consistency of it. I just think as a utility that you can count on for 6% to 8% with a $0.04 range. The push to 8% has a temporary benefit, but we would prefer to have an annual take it home, take it to the bank, sleep at night. We ride that straight, we ride that rollercoaster so you can plan on that straight line. The idea of pushing it to 8% is something we talked about in the past. When we first announced that we were going to 6% to 8% years ago, we said there might be a year that there were surprises to the upside. However, I want to be really clear about is that this year we have ample opportunity to redeploy those savings into protecting outer years. That's always our first priority. I don't want to mislead anyone and make them think there's going to be a sugar high in 2020. This is the perfect kind of year to plan for uncertainty we're heading into for 2021 and making sure that 2022 can be delivered too.
Jonathan Arnold, Analyst
We like that stability, so thanks for the reminder.
Patricia Poppe, CEO
Yes. Thank you, Jonathan.
Operator, Operator
And our next question today comes from Stephen Byrd with Morgan Stanley. Please go ahead.
Stephen Byrd, Analyst
Good morning.
Rejji Hayes, CFO
Good morning, Steven.
Patricia Poppe, CEO
Good morning.
Stephen Byrd, Analyst
Congrats on the continued strong execution. A lot of my questions have been addressed. I wanted to go back to the point about, in the event that there is a Democratic sweep and there's clean energy legislation, and I just wanted to talk a little bit more about your resource mix. You have a resource plan as you mentioned coming up in mid-2021. If there was legislation that extended tax credits for wind and solar, or perhaps created a new tax credit for storage, is it your sense that that would be enough to essentially sort of tip the scales further meaningfully in favor of renewables adoption more quickly and phasing out fossil fuels more quickly just given the magnitude? How do you kind of think about the sort of magnitude of impact of that kind of support on your thinking on your resource plan?
Patricia Poppe, CEO
Yes, Stephen, great question. A couple of things. One, I do think further tax incentives on storage would be beneficial. I think what's going to be more beneficial is the amount of R&D that's underway in storage. You and I have talked many times about the electric vehicles and all the research happening there on battery storage. Some of the research being done on hydrogen, both for fuel cells for vehicles, but more importantly for us from a perspective of hydrogen as a fuel cell version of storage on our system. Those kinds of whether it's tax treatment or R&D investments can accelerate the deployment of clean energy, and we look forward to that. There is a real problem with the ITC with solar that utilities can't because of normalization, can't take full advantage. I think if there were some fixes from a tax perspective on the ITC for solar, that could be interesting for utilities and could potentially make solar deployments more economic faster. I do think there will be some interesting developments with them if there is in fact a blue wave here in a couple of weeks.
Rejji Hayes, CFO
The only thing I will add to Patti's comment is that, obviously, the tax credits can help address the cost-related problem or cost-related challenge, and that's a big element of the equation. But the other elements of the equation, obviously, are resource adequacy and I'll also add balance sheet to that equation. I think if you're getting at whether that could lead to an accelerated retirement of coal, you'd have to see an improvement in the cost and again tax credits may get that. But also the efficacy of those alternative resources. If you really want to be comfortable taking out, say two gigawatts of coal on an accelerated basis, there are balance sheet issues as well. Cost is a huge component that tax credits could solve, but we have to make sure that all elements of the equation add up to the interest of the triple bottom line.
Stephen Byrd, Analyst
Yes, Rejji, it's a good point about sort of the balance sheet treatment. If you're required to do a PPA and the negative impacts to your balance sheet. I guess if I were to think through what you both said, if there were a way for utilities to actually really utilize the tax credits, which could require modification, well, let's assume that that modification could happen. If there was a way with tax credits to reduce the cost of storage, would those types of changes together potentially permit a somewhat more aggressive shift, shutdown of coal and more aggressive deployment of renewable storage? Are those the kinds of changes that could actually kind of make a difference in your thinking?
Patricia Poppe, CEO
Those are some of the changes. I think we have to prove the efficacy of these distributed resources, Stephen. There's a lot of theories about it. I think we need to prove to ourselves that with a distributed resource mix, we can provide the reliability that customers want. We can't have rolling curtailments because we didn't plan and don't have the resources necessary. When we think about our 2040 net zero plan, that feels to us like a good timeline to really build out these new technologies, including energy efficiency and demand response. Those things take time to enroll customers and get the right behaviors. So I do think there's a two-prong approach: there's the cost, as we've talked about, but there's also, as Rejji mentioned, the efficacy of those resources and making sure that we can provide the reliability that customers expect. You have to actually build the stuff and prove it to ourselves before we can scale the whole system.
Stephen Byrd, Analyst
That makes sense. Thanks so much for the thoughtful comments. That's all I had.
Patricia Poppe, CEO
Yes. Thanks, Stephen.
Operator, Operator
And our next question today comes from Travis Miller with Morningstar. Please go ahead.
Travis Miller, Analyst
Good morning. Thank you.
Patricia Poppe, CEO
Morning, Travis.
Travis Miller, Analyst
I was wondering if you could give your thoughts on the role that you'll play in the Healthy Climate Plan. I know you've got a lot of the goals already out there and the investments out there that correspond to the goals in that plan. But just wondering next year if you'll be involved specifically in the planning and goal setting around that and then kind of any other thoughts in terms of how it might affect say your next five years in the early stages of the plan?
Patricia Poppe, CEO
Yes. We will definitely be involved. We're a trusted resource here in Michigan as a clean energy leader and the clean energy advocates. I think it's just reaffirming to our clean energy plan that we filed, and it certainly is an ambitious goal for Michigan. But we really intend to continue to be leaders, and our IRP is very much in support of the governor's ambition.
Travis Miller, Analyst
Okay. What do you think about the political viability of that? I mean, when you're talking about 20 plus years of a policy, obviously, politics can change here. What are your thoughts around that and the buy-in from all the different parties in Michigan and industries even to five-year plans?
Patricia Poppe, CEO
Yes. You make a great point because there's a couple of things that are going to be challenging, I think, for Michigan. One of the things we've learned here in Michigan: the actual law that we passed in 2008 and then I'd say upgraded in 2016 is where the actual targets get set that drive actions, and they're more near-term, clearly. Our RPS, for example, in 2016, well in 2008, was 10% by 2015, and then 2016 we passed a law to take it to 15% by 2020. Those incremental concrete targets are passed in legislation. So you're absolutely right that there needs to be a full appreciation and adoption, and energy legislation here in Michigan has typically happened every eight years or so. It would take some time, I think, to get new legislation passed. But nonetheless, the other challenge here in Michigan with natural gas for example for home heating is very economic, and so I think politically it would be a difficult uphill battle to tell all Michiganders they are going to pay twice as much for their home heating. I think that's a challenge that politically would be hard to overcome without a significant change over time.
Operator, Operator
Our next question today comes from Angie Storozynski with Seaport Global. Please go ahead.
Angie Storozynski, Analyst
Thank you. So Patti, you just mentioned your gas LDC, and so I have two questions about it. One is this really the first season that your gas LDC will be going through COVID-like conditions. Obviously, it's a bit of a guessing game, but do you have a similar customer mix on the gas side as the electric side? And do you think the trends that you've seen in volumes could be replicated at the gas utility, do you think?
Patricia Poppe, CEO
Yes. We don't expect the same kind of uptick in use. Most people heat their homes and keep them at that level; they might lower it a couple of degrees during the day while they're at work. But we don't expect sort of the increase that we've seen on the electric side. However, we are more residential mix on the gas business, but we have ample supplies here in Michigan. We are blessed with robust natural gas storage fields here, and we have no concerns about having any inability to meet the needs of our customers for their winter heating.
Angie Storozynski, Analyst
Okay, and my second question is you just mentioned the economics of gas-based heating versus electric heat pumps in Michigan. But on the other hand, we have seen this meaningful de-rating of standalone gas LDCs. You guys own a big one, and it's coupled with electric utility, so you haven't seen an impact. But if you look at your longer-term growth plans, do you feel the need to shift some of your spending away from the gas LDC towards the electric utility? Because that's basically the preference of investors, and also that's more of a trend to decarbonize the entire entity?
Patricia Poppe, CEO
Well, there are a couple of thoughts as we look at our capital planning. Number one, a safe and reliable gas system is extraordinarily valuable today and will be in the coming decades. Safety is always number one. The replacements we are doing are like for like. We're not adding capacity; we're making our system safer and, by the way, at the same time reducing methane emissions. So it's good for people and the planet, and then those investments obviously have reliable returns. So it's our triple bottom line thinking there. I would also say that the electric utility, the combo—the fact that we're a combo utility—does make us hedge to some degree if there is a big push for electrification. If electric home heating becomes a real trend, then we will be able to benefit from that, and in fact, the earnings potential is even greater from that perspective. When we think about it from a triple bottom-line perspective, we think we can do the net zero methane target for 2030 as we've stated through our capital investments in the gas system without hazarding sort of stranded assets. I guess I would just offer in a state like Michigan with the kind of temperatures we experience and the value that customers receive for the cost of natural gas, we'll be the last to go. I mean, our customers really appreciate our natural gas as a home heating source, and so I think it'd be a long time before there's a big change there. But when that change happens as a combo utility, we're in a good position to weather that.
Angie Storozynski, Analyst
Great, thank you.
Operator, Operator
Our next question today comes from an undisclosed source. Please proceed.
Unidentified Analyst, Analyst
Good morning, Patti, good morning, Rejji.
Patricia Poppe, CEO
Good morning.
Unidentified Analyst, Analyst
I know you addressed it earlier in Durgesh’s question, but you're comfortable with your business mix. I think utilities are the ones that's really growing, like a 90% mix between regulated and non-regulated businesses. If you start to see other utilities—and I know you're not going to comment on DT—but if DT were to go like 100% regulated, or it seems that all utilities, even that small slice of 10% of non-regulated earnings, are CMS's benefit from maybe being one of the more robust valued companies, but would that cause you to look again at the business mix that you have?
Patricia Poppe, CEO
You know, like I said, Anthony, and I'll just reiterate, we're really comfortable with our business mix—90:10. When we think about our enterprises business in particular, we learn a lot from customers having them in the family. We get a chance to understand what the competitive marketplace looks like, and it makes us a better utility, and so we're very satisfied, as I mentioned, with our business mix.
Unidentified Analyst, Analyst
Great. Thanks for taking my questions.
Patricia Poppe, CEO
You're welcome. Thanks, Anthony.
Operator, Operator
And our next question today comes from David Fishman with Goldman Sachs. Please go ahead.
David Fishman, Analyst
Good morning, Patti and Rejji.
Patricia Poppe, CEO
Good morning, David.
David Fishman, Analyst
Just a quick question on the IRP filings. I believe you had about 1.1 gigawatts or so of solar—50% owned, 50% PPAs. I was just wondering if you could discuss if your thinking has evolved at all around maybe the appropriate balance between PPA and utility ownership in the future, especially as CMS has started getting a little more scale and renewables and just how you might be able to deliver a better value for customers?
Patricia Poppe, CEO
Yes. We will refile an IRP every three to five years, and so as I mentioned, we're preparing for next summer to file our next one. The agreement that we made for 50:50 ownership and purchasing PPAs with the financial compensation mechanism we felt was a great outcome for customers. It's a competitive marketplace. We're getting to see and observe the landscape. We do continue to learn, and it'll be interesting to continue to learn. So, I guess I would say it's too soon to say that we would recommend a change because we feel like it has provided a huge benefit to customers and investors given the FCM combined with the ownership and the PPAs. I would just suggest it is too early to recommend any kind of change there, and we continue to learn and balance that triple bottom line.
David Fishman, Analyst
I think that makes a lot of sense. And just one quick follow-up on that. I know in the past you guys have kind of discussed how you like have a smoother, less lumpy CapEx project profile. Would having too many large renewable investment opportunities at once kind of be going away from that, or is that something that you can get comfortable with just theoretically?
Patricia Poppe, CEO
No. One of the things we love about renewables is that they are modular just in nature, and so we can phase them in. As demand grows, we can move them faster. If demand diminishes, we can install them more slowly. We're not going to have just one big project. We're going to have lots of, call it, 200, 300 megawatt projects, maybe 100 megawatt projects, and that gives us real modularity. I think that’s a huge advantage to this clean energy transition over the old traditional just building big central station power plants, you were locked in. Once you dug that first hole, there you went, and that was going to be a real challenge if conditions changed. So we do love renewables for that feature.
David Fishman, Analyst
Perfect. Very helpful. Those are all my questions. Congrats on a great quarter.
Patricia Poppe, CEO
Thanks.
Operator, Operator
And our next question today comes from Andrew Weisel with Scotiabank. Please go ahead.
Andrew Weisel, Analyst
Thanks. Good morning, everybody. A lot of good details, so I've just got two quick ones for you. One housekeeping and one big picture. First, it looks like the overall liquidity fell by about a billion dollars, mostly related to lower unrestricted cash balance. Is that a timing issue, and will it reverse, or are you comfortable with the overall liquidity at around $2 billion versus over $3 previously?
Rejji Hayes, CFO
Andrew, I'll answer your last question first. I mean, the quick answer is very comfortable with the $2 billion net liquidity position. I mentioned in Q2 that the $3 billion that we had at that point, there was a bit of timing in that where we had some looming maturity that just didn't flow through our second quarter numbers and they were pending. You'll see that if you compare the maturities in this document versus what we shared in the second quarter. We feel very good about the $2 billion. My sense is that it will come down a little bit more again because in the initial stages of the pandemic, we really wanted to err on the side of having excess liquidity, particularly given the cost of funds. But longer term, again, we will not have a bunch of lazy capital just sitting on our balance sheet. We'll put it to work, and that's what we look to do over the next couple of quarters.
Andrew Weisel, Analyst
Yes. There is definitely a capital-raising bonanza in March and April. That makes sense. My other question is maybe a little esoteric, but you talked a bit about Michigan's naturally occurring natural gas storage fields in the context of hydrogen potentially being one of the next big things. Do you know geologically if those storage fields could store hydrogen?
Patricia Poppe, CEO
We are studying that. We understand that it's likely that they can, and so we do find that intriguing. As we're doing our long-term gas planning, we're exploring and looking for opportunities to pilot using hydrogen in a different way, whether that’s as a portion of our mix, whether we would use it in some blend in our power generating at our natural gas power plants, or just in the system. We're doing a lot of homework and study on hydrogen right now. We've joined with various experts and their carbon studies, so we're excited about learning more, and we have a feeling that Michigan is going to be extraordinarily well-positioned if in fact that transformation starts to occur.
Andrew Weisel, Analyst
Good to hear. Thank you very much.
Patricia Poppe, CEO
Thanks, Andrew.
Operator, Operator
Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Patti Poppe for any final remarks.
Patricia Poppe, CEO
Thanks, Rocco, and thanks again everyone for joining us today. I'd love to take just a moment to highlight that we will be working with various stakeholders again this year to continue our efforts. We're never satisfied, and so we're going to continue to pursue world-class performance including in investor relations. Please be on the lookout for an email from the team for more details on that survey, and we look forward to your honest feedback and continued support. We wish you all please be safe, be well, and make sure to wear your mask. Thanks so much. Have a great day.
Operator, Operator
And thank you, ma'am. Today's conference is now concluded. We thank you for your participation. You may now disconnect your lines and have a wonderful day.