CMS Energy Corp
NYSE:CMS
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CMS Energy Corp
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Good morning, everyone and welcome to the CMS Energy Second 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. [Operator Instructions] Just a reminder, there will be a rebroadcast of this conference call today, beginning at 12 p.m. Eastern Time, running through August 5. 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.
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.
Thanks, Sri, and thank you, everyone, for joining us today. It’s great to be with you, and we thank you for your continued interest and support. I’m going to start today with the end in mind, strong quarter and a great first half of the year, giving us confidence as we target the high end of the guidance range. Rejji will walk through the details of the quarter, and I’ll share what the strong results mean for 2021 earnings.
Needless to say, I’m very pleased. An important gene sale of EnerBank at 3 times book value, moving from noncore to the core business with a strong focus on regulated utility growth. The sale of the bank provides for greater financial flexibility, eliminating planned equity issuance from 2022 to 2024. And in the end, Reggie will share how we have reduced our equity issuance need for 2021 in today’s remarks. Furthermore, with the filing of our integrated resource plan, you can see the path for more than $1 billion into the utility, again, without equity issuance.
Not only is there visibility to that investment, that’s certainly in the time line for review. I’m excited about this IRP. It’s a remarkable plan. Many have set net zero goals. We have industry-leading net zero goals and this IRP provides a path and is an important proof point in our commitment. We are leading the clean energy transformation. It starts with our investment thesis. This simple but intentional approach has stood the test of time and continues to be our approach going forward. It is grounded in a balanced commitment to all our stakeholders and enables us to continue to deliver on our financial objectives. With the sale of EnerBank and the plan to exit coal by 2025, our investment thesis gets even simpler. But now it’s also cleaner and leaner.
We continue to mature and strengthen our lean operating system, the CE Way, which delivers value by reducing cost and improving quality, ensuring affordability for our customers, and our thesis is further strengthened by Michigan’s supportive regulatory construct. All of this supports our long-term adjusted EPS growth of 6% to 8%, and combined with our dividend, provides a premium total shareholder return of 9% to 11%. All of this remains solidly grounded in our commitment to the triple bottom line of people, planet and profit.
As I mentioned, our integrated resource plan provides the proof points to our investment thesis, our net zero commitments and highlights our commitment to the triple bottom line by accelerating our decarbonization efforts, making us one of the first utility in the nation to exit coal or increasing our renewable build-out, adding about eight gigawatts of solar by 2040, two gigawatts from the previous plan. Furthermore, this plan ensures reliability, a critical attribute as we place more intermittent resources on the grid. The purchase of over two gigawatts of existing natural gas generation allows us to exit coal and dramatically reduces our carbon footprint. Existing natural gas generation is key. And like we’ve done historically with the purchases of our Zeeland and Jackson generating stations.
This is a sweet spot for us where we reduce permitting, construction and start-up risk. It is also thoughtful and that is not a 40- to 50-year commitment that you would get with a new asset, which we believe is important, as we transition to net zero carbon. And, yes, on other hand, our plan is affordable for our customers. It will generate $650 million of savings, essentially paying for our transition to clean energy. This is truly a remarkable plan. It is carefully considered and data-driven. We’ve analyzed hundreds of scenarios with different sensitivities and our plan was thoughtfully developed with extensive stakeholder engagement. I couldn’t be more proud of this plan and especially the team that put it together. We’ve done our homework, and I’m confident it is the best plan for our customers, our coworkers, for great state of Michigan, of course, you, our investors to hit the triple bottom line.
The Integrated Resource Plan is a key element of Michigan’s strong regulatory construct, which is known across the industry as one of the best. It is a result of legislation designed to ensure a primary recovery of the necessary investments to advance safe and reliable energy in our state. Michigan’s forward-looking test years and the three-year pre-approval structure of the IRP process is visibility on our future growth. It enables us and the commission to align on long-term generation planning and provide greater certainty as we invest in our clean energy transformation. We anticipate an initial order for the IRP from the commission in April and a final order in June of next year. The visibility provided by Michigan’s regulatory construct enables us to grow our capital plan to make the needed investments on our system.
On Slide six, you can see that our five-year capital plan has grown every year. Our current five-year plan, which we’ll update on our year-end call includes $13.2 billion of needed customer investment. It does not contain the upside in our IRP. The IRP provides a clear line of sight to the timing and composition of an incremental $1.3 billion of opportunity. And as I shared on the previous slide, the regulatory construct provides timely approval of future capital expenditures. I really like this path forward. And beyond our IRP, there is plenty of opportunity for our five-year capital plan to grow given the customer investment opportunities we have in our 10-year plan.
Our backlog of needing investments is as vast as our system, which serves nearly seven million people in all 68 counties of Michigan’s Lower Peninsula. We see industry-leading growth continuing well into the future. So where does that put us today? As I stated in my opening remarks, we had a strong quarter and a great first half of the year. The bank sale and now the IRP filing provide important context for our future growth and positioning of the business. Let me share my confidence. For 2021, we are focused on delivering adjusted earnings from continuing operations of $2.61 to $2.65 per share, and we expect to deliver toward the high end of that range. For 2022, we are reaffirming our adjusted full year guidance of $2.85 to $2.87 per share. Given the strong performance we are seeing this year, the reduced financing needs next year and continued investments in the utility, there is upward momentum as we move forward. Now many of you have asked about the dividend. We are reaffirming again no change to the $1.74 dividend for 2021.
As we move forward, we are committed to growing the dividend in line with earnings with a target payout ratio of about 60%. While we are not going to provide 2022 dividend guidance on this call, I want to be very clear, we are committed to growing the dividend in 2022. It’s what you expect, it’s what you own it, and it is big part of our value. I will offer this. Our target payout ratio does not need to be achieved immediately, it will happen naturally, as we grow our earning. Finally, I want to touch on long-term growth rate, which is 6% to 8%.
This has not changed. It’s driven by the capital investment needs of our system, our customers’ affordability and the need for a healthy balance sheet to fund those investments. Historically, we’ve grown at 7%. But as we redeploy the proceeds from the bank, we will deliver toward the high end through 2025. I’ll also remind you that we tend to rebase higher off of actuals. We have historically either met or exceeded our guidance. All in, a strong quarter, positioned well for 2021 with upward momentum and with EnerBank and the IRP, it all comes together nicely positioned for the long term. With that, I’ll turn the call over to Rejji to discuss the details of our quarterly and year-to-date earnings. Rejji?
Thank you, Garrick, and good morning, everyone. Before I walk through the details of our financial results for the quarter, you’ll note that throughout our materials, we have reported the financial performance of EnerBank as discontinued operations, thereby removing it as a reportable segment and adjusting our quarterly and year-to-date results in accordance with generally accepted accounting principles. And while we’re on EnerBank, I’ll share that the sale process continues to progress nicely, as the merger application was filed in June with the various federal and state regulators will be evaluating the transaction for approval, and we continue to expect the transaction to close in the fourth quarter of this year.
Moving on to continuing operations. For the second quarter, we delivered adjusted net income of $158 million or $0.55 per share, which excludes $0.07 from EnerBank. For comparative purposes, our second quarter adjusted EPS from continuing operations was $0.09 above our second quarter 2020 results, exclusive of EnerBank’s EPS contribution last year. The key drivers of our financial performance for the quarter were rate relief, net of investment-related expenses, recovering commercial and industrial sales and the usual strong tax planning. Year-to-date, we delivered adjusted net income from continuing operations of $472 million or $1.64 per share, which excludes $0.19 per share from EnerBank and is up $0.37 per share versus the first half of 2020, assuming a comparable adjustment for discontinued operations. All in, we’re tracking well ahead of plan on all of our key financial metrics to date, which offers great financial flexibility for the second half of the year.
The waterfall chart on Slide nine provides more detail on the key year-to-date drivers of our financial performance versus 2020. As a reminder, this walk excludes the financial performance of EnerBank. For the first half of 2021, rate relief has been the primary driver of our positive year-over-year variance to the tune of $0.36 per share given the constructive regulatory outcomes achieved in the second half of 2020 for electric and gas businesses.
As a reminder, our rate relief figures are stated net of investment-related costs, such as depreciation and amortization, property taxes and funding costs at the utility. The rate relief related upside in 2021 has been partially offset by the planned increases in our operating and maintenance expenses to fund key initiatives around safety, reliability, customer experience and decarbonization. As a reminder, these expenses align with our recent rate orders and equate to $0.06 per share of negative variance versus 2020. It is also worth noting that this calculation also includes cost savings realized to date, largely due to our waste elimination efforts through the CE Way, which are ahead of plan.
We also benefited in the first half of 2021 from favorable weather relative to 2020 in the amount of $0.06 per share and recovering commercial and industrial sales, which coupled with solid tax planning provided $0.01 per share of positive variance in aggregate. As we look ahead to the second half of the year, we feel quite good about the glide path to delivering toward the high end of our EPS guidance range, as Garrick noted.
As always, we plan for normal weather, which in this case, translates to $0.02 per share of negative variance, given the absence of the favorable weather experienced in the second half of 2020. We’ll continue to benefit from the residual impact of rate relief, which equates to $0.12 per share of pickup. And I’ll remind you, is not subject to any further MPSC actions.
We also continue to execute on our operational and customer-related projects, which we estimate will have a financial impact of $0.21 per share of negative variance versus the comparable period in 2020 given anticipated reinvestments in the second half of the year. We have also seen the usual conservatism in our utility non-weather sales assumptions and our nonutility segment performance, which as a reminder, now excludes EnerBank.
All in, we are pleased with our strong start to the year and are well positioned for the latter part of 2021. Turning to our financing plan for the year. I’m pleased to highlight our recent successful issuance of $230 million of preferred stock at an annual rate of 4.2%, one of the lowest rates ever achieved for a preferred offering of its kind. This transaction satisfies the vast majority of funding needs of CMS Energy, our parent company for the year and given the high level of equity content ascribed to the security by the rating agencies, we have reduced our planned equity issuance needs for the year to up to $100 million from up to $250 million.
As a reminder, over half of the $100 million of revised equity issuance needs for the year are already contracted via equity forwards. It is also worth noting that given the terms and conditions of the EnerBank merger agreement in the event EnerBank continues to outperform the financial plan prior to the closing of the transaction, we would have a favorable purchase price adjustment related to the increase in book equity value at closing, which could further reduce our financing needs for 2021 and provide additional financial flexibility in 2022.
Closing out the financing plan, I’ll also highlight that we recently extended our long-term credit facilities by one year to 2024, both at the parent and the utility. Lastly, I’d be remiss if I didn’t mention that later today, we’ll file our 10-Q, which will be the last 10-Q owned by Glenn Barba, our Chief Accounting Officer, who most of you know from his days leading our IR team. Glenn announced his retirement earlier this year after serving admirably for nearly 25 years at CMS, which included him signing over 75 quarterly SEC filings during his tenure. Glenn, thank you for your wonderful service to CMS. You certainly left it better than you found it, and we wish you the very best in this next chapter in your life. And with that, I’ll turn the call back to Garrick for some concluding remarks before we open it up for Q&A.
Thanks, Rejji, and thank you, Glenn, for your service. As we’ve highlighted today, we’ve had a great first half of the year. We are pleased to have delivered such strong results. We’re positioned well to continue that momentum into the second half of the year as we focus on finalizing the sale of the bank and moving through the IRP process. I’m proud to lead this great team, and we can’t wait to share our success as we move forward together. This is an exciting time at CMS Energy. With that, Rocco, please open the lines for Q&A.
[Operator Instructions] Today’s first question comes from Jeremy Tonet from JPMorgan. Please go ahead.
Hi, good morning.
Good morning Jeremy, how are you?
Good morning.
Good, thanks. Just wanted to start, you mentioned growing earnings at the high end of the 6% to 8% range, and kind of as the proceeds get redeployed here over time. Just wondering if you could dig in a little bit more. If there’s any more color you can provide on how to think about the timing here? It seems like a lot of opportunity with the IRP. But how should we think about the high end? I mean basically, I’m trying to think what type of glide path could we see where the earnings trajectory could overlap, I guess, pre EnerBank guide at that point?
Jerry, I think you said some key words, opportunity in one word I’d add -- or two words, I guess, I would add to that is, upward momentum. And so off of 2022, 6% to 8%, we’re going to lever toward the high end of that through 2025. And then when I think about the IRP, there’s obviously two big tranches, let’s say, Covert in 2023 and the acquisition of that facility and also the enterprise facilities on 2025. Those are incremental to the plan, to the capital plan. And those strengthen and lengthen that growth through that time period. And so again, I feel confident in our ability to deliver on that. And I think this is a great plan with upward momentum as we look at that time period from 2022 to 2025.
Got it. That’s very helpful. Thanks to that. And then I know we’re early in the IRP process here. But just wondering if you could expand a bit more, I guess, on early stakeholder feedback in just your thoughts at this point.
Jeremy, I wish you could see my face, I’ve got a big grin on my face. I’m smiling. I love to have a case where there’s no push back and there’s no innovators that happened with every case, as you well know. But here’s where I see the IRP there is a win in here and this is why it’s remarkably there’s a win for everyone that saw the intervenors or stakeholders. When I think about the environmental community 60% reduction in Co2, well above and beyond the requirements of the Paris Accord the 2 degree and the 1.5 degrees scenario, well above and beyond what Biden proposed for 2030. So a big win for the environmental community in there.
A big one for our customers affordability, $650 million of savings. That’s a great opportunity. Reliability or maybe better state and resiliency of the electric grid. This is a more reliable plan that our previous IRP. We have done more homework to ensure that we don’t have a Texas like situation as we look forward to the future with intermittent resource. I feel really great about that. And then for our investors over a billion dollars of incremental investment. The ability to treat these assets, and other securitization is voluntary. The ability to treat these assets, the existing assets than the book value as a regulatory asset process. I feel really good. There’s a winning here for everyone. And then there’s a win for everyone the opportunity to reach settlement and even if it’s not fair enough to go the whole distance I feel really good about that. And just one last reminder on this 2018 IRP number of intervenors engaged with that. We settled that case, 21 IRP number of intervenors in that case, and with that pattern of wins that I just walked through, there’s a great way that we can reach a great outcome of our IRP, feel good about it Jeremy.
Got you. That’s really helpful. Sounds promising just a small one if I could just want to reconcile I think the equity 100 million for the balance of the year, I think was in the slide in a good chunk that already locked in. But were there any comments as possible, even less than that? Just want to make sure I had that straight as far as what the equity thoughts were for the balance of the year?
Yes. I am going to move to Rejji about that one.
Yes. Good morning Jeremy. Good question. So where we sit today, we’re comfortable saying up to 100 because of the preferred stock issuance. And remember, we’ve got a little north of 50 million of that already locked in through fours. We’ll continue to evaluate opportunities over the course of this year. And if we can reduce that, we may do that. But for now, we’re comfortable saying up to 100 million.
Got it. That’s very helpful. I’ll stop there. Thanks.
Thank you.
Our next question today comes from Insoo Kim with Goldman Sachs. Please go ahead.
Thank you. Just first question is following up on Jeremy’s question on the earnings growth trajectories, I just want to clarify from my end that you’re saying often to 2022 a guidance range your growth is going to be toward the upper end of 6 to 8 percent range through 2025 and that irregardless of whether the hierarchy [indiscernible].
Thanks for your question. It’s great to hear from you. That’s exactly what we stated six to eight. We expect to deliver toward the high end and the IRP cohort and those enterprises assets strengthen and lengthen that path. So absolutely.
Okay. Got it. Got it. And then just -- so picking the IRP side, you’ve been so consistent in achieving that 10% range like clockwork for a long time. I guess, going to that upper end, again, excluding the IRP, what kind of gives you confidence that maybe that could -- what the longer-term run rate could be of that type of growth rate?
Well, I’d actually started with this year in 2021. This momentum that we have right now carries into 2022. Hopefully, you heard that in our comments from the $2.85 to $2.87, and we’ll continue to revisit that on the quarterly calls. But again, that carries into this plan. And remember what we do, we rebase off that source. So we deliver, we either meet or exceed guidance. And then that’s the point where we rebase off of. And so it’s that compounding effect that you’ve seen time and time again. And so that’s an important piece of it.
But also we think about the entire triple bottom line. And so I think a great example of this IRP, we’re going to put $1.3 billion in, and it saves our customers $650 million. That’s at CE Way mindset coming play, making these investments, attacking the cost stack, share of wallets 3%. It was 4% went to 3% share wallet. So we balance all those things, the affordability, the balance sheet and make this come together. So again, I feel really confident about our glide path forward. And Rejji, might have some comments on that as well.
Insoo, the only thing I would add to Garrick’s good comments is, as you think longer term, we noted in the IRP that we intend to do about eight gigawatts of solar new build, and that’s about two gigawatts higher than the prior plan. And so that creates additional capital investment opportunities. We’re assuming it’s a similar construct where it’s about 50% owned and 50% contracted.
However, if we continue to be more and more cost competitive, that could create additional upside to own more of that opportunity over time. You couple that with the fact that we’ve talked about the $3 billion to $4 billion of upside opportunities in our 10-year capital plan, a portion of which we think will be in our next five-year plan, but there’ll still be balance after that. And so as we continue to take costs, whether it’s through the CE Way or some of these episodic opportunities like PPAs, repricing and so on, well, that creates more headroom to bring in that additional capital. So we feel very good about the long-term glide path for capital growth, which drives rate base growth and then earnings.
Understood. That’s definitely helpful. Just one more, if I could. Going back to that IRP plan, I think a lot of the questions that people have is whether this plan, which basically swaps out coal for at least in the interim, gassing the portfolio, and how that will be received by the various stakeholders. I appreciate your comments on working with the various stakeholders as well as the commission on this type of plan. But how confident are you in this time being the best one? And if there are some, I guess, room for negotiation, if this doesn’t end up being the best plan for the commission, what are some of the alternatives that could potentially also work?
Well, this is the best plan for Michigan. One of the things that our first IRP taught us is that -- we learned a lot from that. And this is, I would just say, a great plan, remarkable plan for all the reasons I mentioned a few minutes ago. And so there’s a win in here for everyone. And when there’s a win, there’s an opportunity to reach settlement or go the whole distance. And so again, I would just reference 2018. We were very successful with a number of interveners and being able to get to a settlement. But that’s what’s great about this regulatory construct. We’re working with these interveners in the process. And if there’s an opportunity to settle where there’s an outcome that is good for all, we will do that. And so we’re early on into -- and again, I’m very optimistic we have a great plan. And I don’t know Rejji, do you want to add to that?
Insoo, the only thing I would add to that is that trust that we evaluated the number of different permutations that as instructed for the IRP construct. And so we certainly looked at whether we could transition to renewable power more rapidly or fully in as a substitute for the retirements and the economics just don’t get you there, plus you also introduce significant reliability and resilience trends given the lack of really long-term storage solutions. And so we certainly evaluated it. But as Garrick noted, we deem this plan where it sits today as the best plan for Michigan. And also with the gas facilities and obviously foregoing the O&M and capital we know we would have on our coal facilities, you take that into account with the fuel arbitrage you get from gas versus coal and just less purchases you now have controllable dispatch. It just brings substantial cost savings to customers, which would not be offered if we went to a full renewable solution in lieu of gas as a bridge fuel. So we feel like this is the most economic opportunity for all stakeholders.
Yes, I’m going to add to that. I just want to be just crystal clear on this, not only affordability piece, but those natural gas plants are required for resiliency in the state. You can’t get here from there. That’s just bottom line. And so it’s that crystal clear. And that’s why I have just a high degree of confidence.
Thanks for the color. Thank you so much.
And our question today comes from Anthony Crowdell with Mizuho.
Hey Anthony.
Hey, good morning Garrick. Thank you so much. Just one quick question on the dividend. You’ve laid out a nice plan for earnings growth rate, and you’re pretty confident in that 2025 high end. But you -- what’s your concern over providing that type of detail on the dividend growth rate?
Well, you said pretty confident. I would change that word to really confident. And so there’s a little bit [indiscernible] your question. But I’m equally confident in our dividend piece. And what you heard from me is that confidence in dividend growth for 2022, we recognize the importance of it, and we have it built into our financial plan. I really want to hand it over to Rejji here because there is an important piece that’s associated with the sale of the bank and closure in Q4 that also shapes that dividend. And so that’s why we’re -- most pieces have to come together so that we can share that potential here at the end of the year. But go ahead, Rejji.
Yes, that’s right. So if you think about some of the dynamism we might see in the second half of the year, the closing and the timing of the closing of the EnerBank transaction could certainly impact what we might plan to do for 2022 dividend. But to go back to Garrick’s comments, our commitment is to grow the dividend beyond the $1.74 per share, where it is today. And then longer term, again, we’ll certainly have that dividend grow commensurate with earnings. But certainly, the bank sale and the timing of that will have an impact in the near term and then longer term, again, right in line with earnings growth. And so we feel highly confident that we will have a competitive dividend. And we know that it’s a core part of our value proposition, as Garrick noted in his prepared remarks.
And just add to that. There’s -- with the sale and that closure there, there’s upside potential there from a dividend perspective, again. So we want to be able to -- our investors to be able to share some of that positive news.
If I could just jump in with one last question related to the IRP. Is there any part of the IRP you think maybe be the most challenging or may generate the most concern with the interveners?
I don’t know about most challenging. I think that’s -- I’ll just tell you this, Anthony. Back in 2014 and 2015, I was a policy witness. I’ve been on the stand with interveners been crossed by attorneys. They go after a lot of different things in the case. And here’s -- again, we’ve got strong testimony. We got great precedent. We’re used to this stuff. We do this all the time with our rate cases. We’ve done it with a previous IRP. I don’t think there’s anything this team can’t handle, frankly. And so -- and we’re prepared to do that. As Rejji alluded to a minute ago, there’s a lot of detail, a lot of modeling and data that went into this. And so it’s a very strong case.
Great, thanks for taking my questions.
And our next question comes from Durgesh Chopra with Evercore ISI.
Hey good morning team. Thanks for taking my question.
Good morning.
Thanks for taking my questions. Maybe just on the IRP. I noticed that you proposed a couple of coal plant shutdowns but then including them in the rate base post their shutdown, just kind of curious as to sort of if the state has done that previously, or are there some precedent there that you feel comfortable with that proposal?
Well, I do feel comfortable with it. There’s a precedent set in Colorado, Florida, Wisconsin for a similar approach in Michigan. We do have a nice ability to securitize, but it is voluntary, and that’s an important piece of this. And so it’s essentially -- in 2025, it’s about $1.2 billion of remaining book value, to going through and securitize that just doesn’t make sense. This is going to be a drag in credit metrics. They have an impact on cost of capital, which ultimately shows up on the customers’ bill. That’s -- I mean, that doesn’t make sense. And so we’ve really got a good approach there. It’s different than how we’ve approached it previously. But again, there’s a nice precedent that’s been set, and I’m really -- the testimony -- I’ve reviewed the testimony, it’s -- we’re in a good spot.
Understood. I appreciate the color there. And obviously, you can always fall back to securitization if that leads -- if that ends up being the case. But I appreciate the color there. And then just maybe to Rejji, can you clarify sort of the -- I’m trying to see the equity elimination through 2024. You don’t talk about 2025. So should we assume sort of the normal cadence of equity, I believe that was $250 million per year, to go back to that starting in 2025. I’m just trying to reconcile that to the comment that the $1 billion additional in the IRP, you don’t need to finance that with equity. Just any color there, Rejji, would be helpful.
Yes. Happy to, Durgesh. First, let me just circle back to your closing comment just to be unambiguous around this. And so the notion of falling back on this securitization. As we noted when we rolled out the IRP, as we noted in our prepared remarks, this is the proposed plan. This is not a buffet. We’re not thinking about any type of fallback option. And again, from a securitization perspective, to Garrick’s comments, given the impact it could have on our balance sheet, we’ve already done with the inclusion of Con one and two in the retirement and securitization there, we will already have $1 billion of securitized debt on our balance sheet as of 2023. So we really cannot accommodate alternatives like that.
So I want to be very clear, we do not view that as a fallback option and the proposed plan is what it is. So with respect to the question around equity, yes, you’re right in that as we disclosed when we announced the EnerBank sale, we are not planning to issue any equity from 2022 through 2024, even with the capital opportunities that we’ve announced today with the IRP and potentially some of that upside opportunity. So no additional equity. For 2025, you can assume the up to $250 million level that we articulated when we first rolled out our five-year plan. So that’s still a good working assumption for now. But obviously, there’s a lot of time left. And if we can recalibrate and see the data moving away that supports reducing that, at some point, we may revisit that. But for now, assume $250 million in that out of year of 2025. Is that helpful?
Very helpful. And thanks for clarifying that securitization comment.
Thank you.
Thanks.
And our next question comes from Shahriar Pourreza with Guggenheim. Please go ahead.
This is actually Constantine here for Shar. But I think if I may -- if I can just follow up on kind of one more kind of, I guess, IRP capex-related question. What are some of the constructs that are -- that the incremental portion of capex fall under? Is it all fully covered by the IRP as proposed, plus kind of the annual rate case process that you have? Any kind of -- does any of the non-IRP work can need any incremental trackers? But does any of this incremental work can start prompting more equity needs down the line? Or is it fully kind of baked in at this point?
I think Rejji and I will tag team this one. And so let me just kind of frame up when I think about our capital plans. And I think we’ll talk about our current work across our utility but also this IRP. And so at the end of the year, in our January call, we’re going to add another year to that five-year capital plan, and that’s going to be more capital opportunity. That five-year plan is going to grow. And it’s going to be in our gas business, it’s going to be in our electric distribution business. And so there’s some growth opportunity there. Then we’ll continue to follow this IRP through the process through that 10-month process.
Again, we feel confident in the outcome of that. And then that’s an incremental 1.3. And so you can imagine in Q2 of 2022, we’re going to -- with a successful outcome, there will be an adjustment in 2023 to accommodate the Covert facility. And then also an adjustment in 2025. And so you can see some of that play out over the five years and into the 10-year because when you look at this integrated resource plan, it goes from ‘25 to ‘27. And so some of that still will be able to fall in the 10-year piece as well. And so there’s some update that will take place along those lines. So that’s kind of the capital layout. But, Rejji, certainly, tag team this with me.
Sure, happy to. So Constantine, I appreciate the question. We’re pretty methodical. So I’ll put the IRP aside, we’re pretty methodical in how we think about the capital plan of the utility. And we really spend a lot of time providing long-term visibility on customer investment opportunities across each of the businesses. And so the current five-year plan has around $2.5 billion of what I’ll call clean energy generation spend. And then the balance is electric and gas infrastructure spend. And so we noted when we filed our gas case a couple of years ago that we had about $10 billion of gas infrastructure-related investments for safety, reliability and decarbonization of about $1 billion per year of run rate. And so you can expect an extension of that capital investment opportunity and subsequent iterations of -year plans. And so we’ll do more gas infrastructure. And again, we run about $1 billion per year run rate in that regard.
Electric infrastructure is comparable, where we’re doing a little over $1 billion per year of electric infrastructure work to improve reliability. And the IRP is also where we’re seeing capital investment opportunities. So the existing IRP, remember, we’re still executing on a 1.1-gigawatt tranche, and we’re going to own half of that. And so all of that is going to be part of the next iteration. And so those are the sort of non-new IRP opportunities. Again, we’ll see those come in, and we also talked about starting to take on some of those upside opportunities, which in our 10-year plan of $3 billion to $4 billion, we wouldn’t do all of that in the next vintage, but a portion of it.
And again, it’s more electric and gas infrastructure, as well as clean energy generation related spend. And so those would be some of the projects that we would invest in beyond this new IRP. We’re highly confident that we’ll be able to create the headroom to introduce those into the capital plan. You asked about trackers. The only thing I would mention in that regard is in our gas infrastructure capital plan, we do have the equivalent or comparable structure, like a tracker and that’s in our enhanced infrastructure replacement program. And so we have that on the gas side, but we don’t have any other say sort of a historical type trackers like that. And so we obviously put them into the cases we filed on a serial basis and then that dictates what ends up in the final plan. Does that make sense?
It does. I think that’s very helpful. And if I may shift a little bit to more of a fundamental question. So the electric sales volumes seem to be normalizing with reopening more or less and especially with the strong kind of C&I growth and residential coming down a bit, can you kind of talk about your thoughts on the residential load and how sticky it is versus expectations? And maybe kind of the reversion of the residential load causing headwinds in terms of earnings for ‘21 or expectations in ‘22?
I’m going to have Rejji start with some of the specifics and then I’ll talk about some macro at the end. So Rejji, why don’t you grab it?
Yes. Constantine, we’ve been quite pleased with what we’ve seen really across all of the customer classes to date. And so we have good detail on the 15-page guide just we distributed. Also in the appendix, you can see the year-to-date trends in the presentation today. And so we’ve got residential year-to-date down a little over 1%. That compares favorably to plan. We had much more bearish expectations because we were assuming a more rapid return to facilities. And so our full year plan was something closer to down roughly 5% and we’re ahead of plan. So that does imply that we’re seeing a good level of stickiness to this mass teleworking trend, which I do think will be part of a post-pandemic normal. And obviously, that’s higher-margin load. And so residential continues to outperform our expectations.
And then we’re also seeing commercial and industrial, as I mentioned in my prepared remarks, come back nicely. And so year-to-date, commercial is up around 3.5%. And we had in our plan about that level and then industrials at 13% year-to-date, 2021 versus 2020. And our plan, we said on a full year basis, about 6% up. And so we’re seeing surprise to the upside across all fronts. And so intra-year, that obviously creates upside and potential contingencies as we go into the second half of the year. But longer term, as you roll that into your rate cases, that creates headroom because you’re introducing more kilowatt hours into the denominator of your rate calculation. So we feel very good about the road ahead to date. It’s still early days; the pandemic is not behind us yet. But again, we’re still seeing very encouraging trends on the load side.
The other leading indicators we’ve talked about in the past are just interconnection activities, new service requests; they’re up over 30% year-to-date versus where they were in 2020. And 2020 may not be the best comp given the pandemic. So we also look at 2019, again, up 30% versus where we were pre-pandemic. So interconnections are strong, staking requests are strong. Customer counts are quite good with commercial up 1%. And so again, everything seems to be trending from a load perspective in the right direction.
I’ll just add to that, just a little bit of clarification. So those new service connections -- interconnections, those are installs. Those aren’t someone dreaming of a house or thinking about a business. Those are actually in the ground. And so again, it gives you some idea of the momentum here. We continue to have unemployment rates well below the national average here in Michigan in the heart of our service territory. Grand Rapids, it’s even better. And just to give you a little flavor over the quarter, we’ve even seen growth in, again, macro trends and people opening new business in Michigan. In fact, we’re under an NDA right now with the company. But it’s $300 million investment, 30 megawatts, 150 jobs that are locating here in our service territory in Michigan. And I could [indiscernible] two other examples of that. And so coming out of the pandemic here, and we’re seeing a nice economic development growth here in Michigan as well.
That’s very helpful color. Thanks so much for taking the questions and congrats on the great quarter.
Thank you.
Next question comes from Paul Patterson with Glenrock Associates. Please go ahead.
Good morning guys, how are you doing?
Good. We’re doing great Paul.
So most of my questions been answered but just back on that securitization question. Could you remind me the size of the asset that’s now going to be amortized as opposed to
securitized?
Yes. The remaining book value in 2025 of the those coal plants would be $1.2 billion. That is another consideration in this filing.
Okay. And you guys mentioned that the securitization you thought would be credit negative in comparison to the plan that you’re putting forward. And could you -- I mean, just to sort of walk just sort of very high level, the reason for that is because you’ll be amortizing the cash flow faster. Is that the way to sort of think about the -- excuse me, you’ll be amortizing the assets faster and the cash flow will be stronger, is that how you’re looking at this? Or is there something else I should be thinking about?
So Paul, this is Rejji. So a couple of things there. So Moody’s, as you may recall, treat securitized debt as debt in their metric calculations. And so you have that levering effect of securitizations because they are effectively nonrecourse debt, but Moody’s is the one rating agency that does impute it as debt. And so that $1.2 billion that Garrick noted would be dollar-for-dollar accounted as debt in our credit metric calculations. So you’ve got credit dilution there. And then you couple that with the fact that you’re going to forego earnings on $1.2 billion of rate base over time. And so you couple sort of the impact on the denominator where you just have dollar for dollar debt of $1.2 billion, and then you have the dilution in your numerator because you’re foregoing earnings on that equity portion of that rate base over that period of time. That’s what offers that levering effect.
Okay. I follow you on that. Of course, you’re getting the cash upfront though with the securitization. So I mean, I’m just sort of -- maybe we can take that off-line, but okay, I understand that. And then in terms of the plan, I mean, it sounds like it really is a win-win-win. I’m just wondering, has there been any change in the trajectory or your -- what you’re expecting in terms of customer rates going forward, as a result of the IRP? Or is it too early to sort of tell? Are you guys pretty much on track as you were thinking before, and this is just going to be some incremental savings that will help you meet your goals? Do you follow what I’m saying?
I do follow what you’re saying. And so we look at -- across that 5-year plan of investments we look at the rate impact and two, the bill impact, which is also critically important for our residential and commercial customers. And so that is part of the five year. And as we -- again, this incremental capital of $1.3 billion, it provides $650 million of savings over our current plan. And so this is -- so again, this comes together nicely to your point, Paul, from an affordability perspective for our customers.
Okay. well awesome thanks so much and congratulations.
Yes. Thank you Paul.
Ladies and gentlemen this concludes the question and answer session. I’d like to turn the conference back over to Garrick Rochow for closing remarks.
Well again I want to thank everyone for joining us today. Again strong quarter, great first half of the year and upward momentum and just again I’m looking forward to seeing everyone in person here as we again faithfully as we move through the latter half of the year. Take care and be safe.
Thank you sir. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.