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CMS Energy Q4 2023 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing

Participants

Corporate Executives

  • Sri Maddipati
    Treasurer and Vice President of Finance and Investor Relations
  • Garrick J. Rochow
    President and Chief Executive Officer
  • Rejji P. Hayes
    Executive Vice President and Chief Financial Officer

Presentation

Operator

Good morning, everyone, and welcome to the CMS Energy 2023 Year-End Results. The earnings news release issued earlier today and the presentation used in this webcast are available on CMS Energy's website in the Investor Relations section.

This call is being recorded. After the presentation, we will conduct a question-and-answer session and instructions will be provided at that time. [Operator Instructions] Just a reminder, there will be a re-broadcast of this conference call today beginning at 12:00 PM Eastern Time running through February 8th. 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, Treasurer and Vice President of Finance and Investor Relations.

Sri Maddipati
Treasurer and Vice President of Finance and Investor Relations at CMS Energy

Thank you, Emily. 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.

As some of you may know, this will be my last earnings call, as I've transitioned to a new role in the company responsible for our electric supply and the implementation of the new energy law. While I'm excited for my new role and responsibilities, I will miss working with all of you in the investment community so closely. I want to thank you for the support you've all given me in this company.

Jason Shore, a 25 year veteran at CMS has been named Treasurer and VP of Investor Relations. As I hand over the baton, I'm confident in Jason and our very experienced IR team.

And now, I'll turn the call over to Garrick.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Thank you, Sri, and thank you, everyone, for joining us today. Before I get started, I want to thank Sri for his leadership in the finance area, and I look forward to his continued growth and impact as he takes on this important role in electric supply where he'll lead critical filings like our renewable energy plan and integrated resource plan, which I will discuss later in this call.

We have a deep bench of talent at CMS Energy and it is critically important that we develop our leaders in key areas of the business, continuing to strengthen the bench, build dexterity, and provide challenging growth opportunities. I know both Sri and Jason will make a big impact in their new roles.

I've shared before on these calls, this isn't our first rodeo. The CMS team delivers now 21 years of exceptional performance. I am proud to share with you the highlights of the year and I am proud of this team. You will see in the numbers and our operational highlights, 2023 was an incredible year. We met and faced challenges that tested our team and we rose to the occasion.

First, let's talk about the weather. The 2022-2023 winter was in the top 10 warmest on record. And then there was summer. When much of the world saw warmer temperatures, our summer, influenced by El Nino conditions, was cooler than normal. And then December 2023, the second warmest December on record. Add to that, record storm activity within our service territory. To say the least, it was a challenging year.

Despite severe storms and unfavorable weather, we delivered and offset nearly $300 million of weather -related financial headwinds, serving our customers with heat and light and keeping our financial commitments for our investors. This world-class team comes together and we do what we say we will do year in and year out. No excuses, just results.

As I said earlier, I'm proud of the team at CMS Energy. There are a number of great things we delivered in the year, even more than are represented on Slide 4. In the interest of time, I want to hit on just a few. I want to highlight the Freedom award from the Secretary of Defense, and why this is so special. This is the highest recognition a company can receive for supporting their employees who serve in the guard and reserve.

The nomination was submitted by one of our employees and demonstrates the commitment of our entire company. This is an important part of our culture to support and care for our people and to honor our co-workers who serve our customers and our country. We continue our focus on leading the clean energy transformation. In 2023, we retired over 500 megawatts of coal, further reducing our carbon footprint.

Alongside these retirements, we ensured resource adequacy with the acquisition of the 1.2 gigawatt Covert natural gas generating station and brought online our 201 megawatt Heartland wind farm. This thoughtful transition ensures customer reliability as we move our portfolio from coal to clean.

I also want to give a shout out to our small, but important NorthStar Clean Energy team. They performed well in 2023, exceeding our expectations for the year, completing the Newport Solar project and demonstrating strong operational performance at Dearborn Industrial Generation, DIG. Another solid year of execution at CMS Energy across the triple bottom line, delivering industry-leading sustainable premium growth.

In 2023, Michigan also passed new energy legislation, charting a course for cleaner energy in Michigan while maintaining resource adequacy, customer affordability and strengthening our financial plan. This legislation speaks to the constructive nature of Michigan, provides more incentives to grow our clean energy portfolio, furthering investment opportunities with increased certainty of recovery.

Now, it's still early days. We're evaluating all aspects of the new law, including the strategic advantage of owning versus contracting supply, the increased incentives on PPAs, and what makes the most sense for us and for our customers. The law provides a lot of flexibility and options, which is important. You'll see this play out in a couple upcoming filings.

I want to draw your attention to the renewable energy plan. This is not a new filing, but becomes a more important input in the integrated resource plan. The renewable energy plan will detail our path to meet the 60% renewable portfolio standard by 2035. As you might imagine, this work is underway. We plan to file in the second half of the year.

Following our renewable energy plan filing. Our next 20-year integrated resource plan is due in 2027. Together, the renewable energy plan and integrated resource plan will align our supply resources to deliver cost competitive, cleaner and reliable energy as we target net zero. They also provide important transparency and certainty as we advance the business forward with investments in renewables and clean energy.

Michigan's energy law continues to support its strong regulatory environment and needed customer investments. While the recent legislation provides opportunities to file our updated renewable energy plan, regulatory calendar is fairly routine in 2024. Our electric rate case continues toward a constructive outcome. We've seen positive indicators with key stakeholder support for recovery of customer investments and important investment mechanisms such as the IRM and our undergrounding pilot. We expect an order from the commission on or before March 1.

We filed our gas rate case in mid-December with an ask of $136 million with a 10.25% ROE and a 51.5% equity ratio. The request lines with needed investments outlined in our 10-year natural gas delivery plan. We expect an order before the end of the year.

On Slide 7, we've highlighted our new five year, $17 billion utility customer investment plan, which supports approximately 7.5% rate base growth through 2028. You will note that about 40% of our customer investment opportunities support renewable generation, grid modernization and maintenance [Phonetic] service replacements on our gas system, which are critical as we lead the clean energy transformation.

The plan also includes an increased investment in the electric distribution system to improve reliability and resiliency for our customers. We also have growth drivers outside of traditional rate base. These include adders built into legislation for incentives on our energy efficiency programs and the financial compensation mechanism we earn on PPAs that I mentioned earlier.

We also expect incremental earnings provided by our non-utility business, NorthStar Clean Energy, as they see attractive pricing from capacity and energy sold at DIG. It's important to note that we have a long and robust runway of additional investment opportunities both within and beyond the five-year window.

As an example, we've incorporated a little less than half of the incremental $3 billion of customer investments associated with our electric reliability roadmap. We've also not yet included the customer investments associated with the new energy law. These will be included in our renewable energy plan filing and will provide more opportunities for investment.

I feel good about our five-year utility investment plan. It is focused on our customers. It positions business for continued success and delivers for all stakeholders.

With that, I'll conclude with the 2023 results and long-term outlook before passing it over to Rejji who will cover the financials in more detail.

2023, no excuses, not weather, not storms, just results. We delivered adjusted earnings per share of $3.11, toward the high end of our guidance range. I'm also pleased to share that we are raising our 2024 adjusted full year EPS guidance $0.02 to $3.29 to $3.35 from $3.27 to $3.33 per share, compounding off of 2023 actual results. Let me repeat, compounding off of actuals. That is a differentiator in this sector.

We continue to expect to be toward the high end of our 2024 guidance range, which points to our confidence as we start the year. Furthermore, the CMS Energy Board of Directors recently approved a dividend increase to $2.06 per share for 2024. Longer term, we continue to guide toward the high end of our adjusted EPS growth range of 6% to 8%, which implies and includes -- up to 8%.

Our dividend policy remains unchanged. We continue to grow the dividend. You'll see that we are targeting a dividend payout ratio of about 60% over time. Finally, we remain confident in our plan for 2024 and beyond, given our long-standing ability to manage the work and consistently deliver industry-leading growth.

With that, I'll hand the call over to Rejji.

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Thank you, Garrick, and good morning, everyone. As Garrick highlighted, we delivered strong financial performance in 2023 with adjusted net income of $907 million, which translates to $3.11 per share towards the high end of our guidance range.

The key drivers of our 2023 financial performance included strong cost performance throughout the organization, fueled by the CE Way, a solid beat at NorthStar, and a variety of non-operational countermeasures, such as liability management and tax planning, which more than offset the significant weather-related headwinds experienced throughout the year.

And to further underscore the magnitude of cost performance delivered by our workforce, our fourth quarter operational -- operating and maintenance or O&M expense, exclusive of service restoration and vegetation management, was approximately 25% below the comparable period in 2022 and over 20% below our five year average for this cost category, a truly impressive achievement.

All in, we managed to offset nearly $300 million of weather-related financial headwinds without compromising our operational commitments to our customers and the communities we serve.

At CMS, we've had plenty of years of adversity, followed by impressive operational and financial feed, but I can't recall one quite like 2023, a year in which our workforce personified grit and displayed that perennial will to deliver for all stakeholders.

To elaborate on the strength of our financial performance in 2023 on Slide 10, you'll note that we met or exceeded the vast majority of our key financial objectives for the year. From a financing perspective, we successfully settled $178 million in equity forward contracts in November and settled the remaining roughly $265 million in forwards in January. As a reminder, these forwards are priced at levels favorable to our planning assumption.

The only financial target missed in 2023 was related to our customer investment plan at the utility, which was budgeted for $3.7 billion. We ended the year below that at $3.3 billion, primarily due to siding and permitting delays at select solar projects. As mentioned in the past, we fully intend to build out all of the solar projects approved in our IRP and voluntary green pricing program. And with the Michigan renewable energy siting reform bill passed last fall, we should see better progress here going forward.

Moving to our 2024 EPS guidance. On Slide 11, we are raising our 2024 adjusted earnings guidance range to $3.29 to $3.35 per share from $3.27 to $3.33 per share, as Garrick noted, with continued confidence toward the high end of the range. As you can see in the segment details, our EPS growth will primarily be driven by the utility providing $3.74 to $3.80 of adjusted earnings, the details of which I'll cover on the next slide.

At NorthStar, we're assuming EPS contribution of $0.16 to $0.18, which reflects strong underlying performance, primarily at DIG and ongoing contributions from our renewables business. Lastly, our financing assumptions remain conservative at the parent segment, and our 2024 guidance range assumes the absence of liability management transactions. As always, we'll remain opportunistic in this regard, and we'll look to capitalize on attractive market conditions should they arise.

To elaborate on the glide path to achieve our 2024 adjusted EPS guidance range, you'll see the usual waterfall chart on Slide 12. For clarification purposes, all of the variance analyses herein are measured on a full year basis and are relative to 2023.

From left to right, we'll plan for normal weather, which in this case, amounts to $0.43 per share of positive year-over-year variance, given the absence of the atypically mild temperatures experienced throughout 2023. Additionally, we anticipate $0.23 of EPS pickup attributable to rate relief, driven by the residual benefits of last year's constructive gas rate case settlement and assumed supportive outcomes in our pending electric and gas rate cases.

As always, our rate relief figures are stated net of investment-related costs such as depreciation, property taxes and utility interest expense. As we turn to our cost structure in 2024, you'll note $0.16 per share of positive variance due to continued productivity, driven by the CE Way, the ongoing benefits of cost reduction measures implemented in 2023 such as our voluntary separation plan, which reduced our salaried workforce by roughly 10%, and initiatives already underway. It is also worth noting that our cost assumptions exclude the impact of the catastrophic ice storm we experienced in the first quarter of 2023.

Lastly, in the penultimate bar on the right hand side, you'll note a significant negative variance, which largely consists of the reversal of select one-time cost reduction measures. These are partially offset by the ongoing benefits of our well-executed financing plan in 2023 and we're assuming the usual conservative assumptions around weather-normalized sales, taxes and non-utility performance, among other items.

In aggregate, these assumptions equate to $0.58 to $0.64 per share of negative variance. As always, we'll adapt to changing conditions throughout the year to mitigate risk and deliver our operational and financial objectives to the benefit of customers and investors.

On Slide 13, we have a summary of our near and long -term financial objectives. To avoid being repetitive, I'll focus my remarks on those metrics we have not yet covered.

From a balance sheet perspective, we continue to target solid investment-grade credit ratings and we'll continue to manage our key credit metrics accordingly as we balance the needs of the business. As previously mentioned, we have already settled the remaining equity forwards and have no additional equity needs in 2024.

Longer term, we intend to resume our at-the-market or ATM equity issuance program in the amount of up to $350 million per year beginning in 2025 and extending through 2028, which is essentially the same assumption in our previous five-year plan, but for the extension of an additional year.

We're able to maintain our pre-existing equity needs despite an increased utility capital plan, given the expectation of strong operating cash flow generation and the ability to monetize tax credits, courtesy of the Inflation Reduction Act. It is also worth noting that this morning's decision by Moody's to increase the equity credit ascribed to junior subordinated notes, which represents about 40% of our debt at the parent company is not embedded in our plan, thus providing further cushion in these metrics.

Slide 14 offers more specificity on the balance of our funding needs in 2024, which are limited to debt issuances at the utility, over half of which has been opportunistically issued, as noted on the page. And the coupon rate on this newly issued debt is favorable to plan, thus providing a helpful tailwind as we start the year.

Over the coming year, we have no planned long-term financings at the parent and already redeemed its full maturity in January at par. Longer term, we have relatively modest near-term maturities at the parent, with $250 million due in 2025 and $300 million due in 2026.

On Slide 15, we've refreshed our sensitivity analysis on key variables for your modeling assumptions. As you'll note, with reasonable planning assumptions and our track record of risk mitigation, the probability of large variances from our plan is minimized. Our model has served, and will continue to serve all stakeholders well. Our customers receive safe, reliable and clean energy at affordable prices. Our diverse and battle-tested workforce remains committed to our purpose-driven organization, and our investors benefit from consistent, industry-leading financial performance.

Before I hand it back to Garrick, I would be remiss if I didn't take a moment to echo Garrick's praise of Sri, whom I've worked closely with over the past seven years. Sri's contributions to the finance team and the company have been immeasurable since he joined CMS. So thank you, Sri, for leaving it better than you found it, and I look forward to working with you and Jason in your new roles.

And with that, I'll pass it on to Garrick for his final remarks before the Q&A session.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Thank you, Rejji. You all know this last slide very well by now. Over two decades, regardless of conditions, no excuses, just results. Given the challenges of 2023, I'm extremely proud of the team's efforts. Our simple investment thesis is how we run our business. It has withstood the test of time and provides us confidence for a strong outlook in 2024 and beyond.

With that, Emily, please open the lines for Q&A.


Questions and Answers

Operator

Thank you very much, Garrick. [Operator Instructions] Our first question comes from the line of Nick Campanella with Barclays. Please go ahead.

Nicholas Campanella
Analyst at Barclays

Hey, good morning, and thanks for all the info today. And Sri, great working with you all these years. Best of luck in the new role. So, yeah, just to get started, could you maybe just help us understand the DIG uplift and kind of context of the current 6% to 8% CAGR? You have some open capacity there. The current run rates are clearly higher. Just what's the timeline to lock that in, and how should we kind of think about the uplift to the 6% to 8%, or perhaps just adding higher visibility and extending the 6% to 8% for even longer? Thanks.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Yeah. Thank you, Nick. It's good to hear from you, and I appreciate the shout out for Sri and your comment there and then your question. Those traditional, what I'd call outside of rate base growth, so those growth drivers outside of traditional rate base, energy efficiency, financial compensation mechanism, DIG, those are powerful in the plan.

And you asked specifically about Dearborn Industrial Generation. We are seeing both energy and capacity prices elevated, particularly in the out years of the plan. We have available capacity beyond 2026 out through the plan. We're layering in contracts, really as we speak, with attractive numbers and which give us confidence in our plan, particularly in the out years through DIG. Is that helpful?

Nicholas Campanella
Analyst at Barclays

Yeah. Thanks. I appreciate that. Thank you. And then on the REP plan, I guess if you file second half of '24, can you just help us understand regulatory process? When would there be a decision there or what does that kind of look like? And then how does that kind of flow through to your capex plan? Would it be like this time next year we kind of get an update on how that flows through or -- I'll leave it there. Thanks.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Well, thank you, Nick. First of all, this is not a new filing. It is a more important filing. It is a bigger filing, as you might imagine, if you're going to achieve 60% renewables by 2035 or 50% by 2030, it has to grow from a size perspective. So, it takes on increased importance. It's also important to remember it's based on energy versus the integrated resource plan, which is based on capacity. So that work is underway, and it's really a spectrum.

To meet that standard, do you do all PPAs? That's one book-end or do you do all ownership? My view is somewhere in the middle. But what the strength of this energy law is there's a lot of flexibility to be able to chart that path to those clean energy ambitions. We got to think about what the customer impact is. We got to think -- we're still required as a load serving entity to meet resource capacity constraints in the IRP. So that's a consideration.

We got to look at the balance sheet and here's a really capital-light option where we can get an FCM at 9%. That's a really attractive part of this energy law. So there's a lot of dynamics that have to play out in there. That work is underway right now. We will file that renewable energy plan in the second half of the year. We have until '25 to get it done, but we want to pull that forward into 2024, given the work that has to be done in these milestones that are out there.

So we'll file that. The commission has and staff have 10 months to get to a final order, and then that information there will certainly aid our capital plan and the upside from an FCM mechanism, but also flows into our integrated resource plan, and that integrated resource plan should become less complex because of this renewable energy plan work.

Ultimately, that then flows into rate cases as we move forward over time on that annual frequency. So, I know Rejji has some more comments on this as well, so I'll pass it to Rejji.

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Yeah, Nick, good morning. So all I would add to Garrick's good comments is, as you think about that trajectory and sequencing that Garrick laid out, it's important to note that the plan that we laid out today that takes you from 2024 to 2028 does not incorporate any capital investment opportunities associated with the new legislation. And so, as we file the REP in the second half of this year and then get feedback, presumably in the second half of 2025, we won't start incorporating capital opportunities, most likely for a couple of vintages of five-year plans.

Now, we have started to layer in the energy waste reduction or energy efficiency opportunities, as well as modest portion of the FCM opportunities. But I think in subsequent five-year plans, you'll start to see more FCM-related opportunities and certainly more capital opportunities. But it's going to take a couple of vintages before we have real clarity on that. Is that helpful?

Nicholas Campanella
Analyst at Barclays

That is helpful. And that was a lot of information. I appreciate it. Looking forward to seeing you next week. Have a good day.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Thanks, Nick.

Operator

The next question comes from Jeremy Tonet with J.P. Morgan. Please go ahead, Jeremy.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Good morning, Jeremy.

Jeremy Tonet
Analyst at J.P. Morgan Securities

Hi, good morning. Hi, just wanted to touch base, I guess, a little bit more on the Moody's change this morning. If you could just walk us through that a bit and quantify how much equity credit that is? Just trying to get a sense for what that means.

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Jeremy, this is Rejji. Thanks for the question. So, Moody's this morning increased the equity credit that they ascribe to junior subordinated notes, which are more informally referred to as hybrids. It was previously a 25% equity credit, and they're essentially now at parity with S&P at 50%.

And so, the reason why that's impactful for us is that we've issued those securities quite a bit over the last five to six years, and so it currently represents about 40% of our debt portfolio at the holdco.

And so, by them increasing the equity credit ascribed to this, it really increases, I'd say, the FFO debt metrics -- FFO to debt metrics at Moody's by about 50 basis points to 60 basis points. So, fairly accretive from a credit perspective to plan.

Jeremy Tonet
Analyst at J.P. Morgan Securities

Got it. That's really helpful there. And as we approach finalizing the electric rate case, just wondering if you could provide any more incremental thoughts, I guess, on how you feel about -- how things are progressing there. Just any color would be appreciated.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Jeremy, things are progressing nicely. I feel good about a constructive outcome. Staff had a great starting spot on what I think can be a constructive outcome and feel confident that we can get there. There's a lot of positive indicators support for the important work on reliability. I would say there's a great alignment between staff and frankly, the commissioners on where we want to go and improve reliability in the state. That's a big part of this electric rate case.

And also, positive indicators on the mechanisms that we've talked about in the past, this infrastructure recovery mechanism. We think that's really important from a go-forward reliability perspective. It's also lines up with what Chair Scripps has shared about ring fencing and providing opportunity to capital to see the insight of where those investments are and how they make a difference.

And then finally, our undergrounding pilot, that's seen support as well. That's an important first step in this resiliency play and our larger ambitions that are evident in our reliability roadmap. So, again, I feel really good about where the case is headed, and we expect a final order on or before March 1.

Jeremy Tonet
Analyst at J.P. Morgan Securities

Got it. That's very helpful. Thanks. I'll leave it there.

Operator

Our next question comes from Shar Pourreza with Guggenheim Partners. Please go ahead.

Shahriar Pourreza
Analyst at Guggenheim Partners

Hey guys, good morning.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Hey. Good morning, Shar.

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Good morning, Shar.

Shahriar Pourreza
Analyst at Guggenheim Partners

Just a real quick clean-up question on the capex and rate base. Is part of the rate base CAGR increase to that firm 7.5% and the higher capex run rate, is that driven by some of the spending and solar delays in '23, so slightly off, maybe a lower base and timing differences? Or is it driven by new capex, the tail-end of the plan or maybe a combination of both, especially since you guys don't really include a lot of capex until we get through the approval process, right?

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Yeah, sure. This is Rejji. Appreciate the question. I would say, it's largely due to the latter, and that's incremental capex. So, remember, we have the electric reliability roadmap that we provided -- that we filed with the commission in late September of last year. And so, that had $3 billion of incremental capex opportunity versus the prior vintage.

We haven't incorporated all of that, but about half, as per Garrick's prepared remarks. So, call it roughly a good portion of that $1.5 billion step up in our new plan versus our old plan. We also do have increased renewable investments, but I wouldn't say that that's sort of the deferrals that are coming into 2024 from 2023.

Yes, there's a little bit of that, but it's largely additional IRP execution on the renewable side as well as our voluntary green pricing program. So, I'd say the vast majority of that uplift from our five year capex plan, the current one versus the prior, is driven by electric reliability related investments. And then you got a portion attributable to clean energy investments, largely renewables.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Let me -- just to reinforce that. And the way I like to think about add on to good -- Rejji's good comments there is that clean energy piece and the supply, it's what's approved in our '22 IRP. And the upside will be to the tail end because we haven't built in any of this new energy law, as Rejji stated in some earlier comments. So as that renewable energy plan is filed and eventually approved, then you'll see that it'll likely hit the tail, but even beyond the five years. You can see a nice path of 10 years of investment opportunity as a result of this energy law.

Shahriar Pourreza
Analyst at Guggenheim Partners

Got it. Okay. Yeah, it just sounds like it's more incremental versus shifting from '23 to '24. Okay. And then just on the balance sheet, the $350 million in equity after '25, I guess, does that contemplate sort of an increases beyond the current capex plan as you look to ramp-up reliability and renewable spending?

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Sure. This just incorporates the current five year plan of $17 billion of utility capex. And it's enough work to prepare these five year plans, so we're not thinking about years six through 10 just yet. So I would say that it's, again, just this $17 billion utility capex plan and the funding associated therewith. But as per my prepared remarks, we're quite pleased that even with that upward pressure on equity needs as a result of that growing capital plan, we didn't have to change the annual amount. So, we're still up to $350 million, as we were in our prior plan. And it has a lot to do with just good cash flow generation and the plan to monetize tax credits as a result of the IRA.

Shahriar Pourreza
Analyst at Guggenheim Partners

Got it. And then just Rejji, last one is just on the Palisades, revival seems to be moving forward with the DOE loans. Does that change sort of the calculus? Maybe from a resource planning perspective, would you be open to purchasing the power under an FCM construct or does it still seem too expensive for you?

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

We're watching the activity on Palisades, but I just want to remind everybody on the call here, we're not involved in Palisades. And from a PPA perspective, it's spoken for both with two co-ops. And so, we're not engaged at all within that process. Now, we hope from an implication perspective, we think it's great for Michigan and we wish them well and success in getting the plant up and operational.

Shahriar Pourreza
Analyst at Guggenheim Partners

Got it. So no change in your resource planning, is what I guess the point was.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

No change in the resource planning. And I would just remind everybody, even with that potential out there, we see great opportunities in energy and capacity that are evident at Dearborn Industrial Generation.

Shahriar Pourreza
Analyst at Guggenheim Partners

Okay, great. Thanks, guys. Appreciate it.

Operator

The next question comes from David Arcaro with Morgan Stanley. David, please go ahead.

David Arcaro
Analyst at Morgan Stanley

Great. Hey, Garrick. Hey, Rejji. Good morning, and congratulations to both Sri and Jason. Really great working with both of you. I was curious if you could give your latest thoughts on load growth expectations here and whether you're seeing any activity, increased activity in manufacturing or data center growth kind of hit the radar.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Let me start and then I'll pass it over to Rejji, too. There's a lot of great things going on in Michigan from an economic development perspective, onshoring, friendshoring, benefits of the CHIPS act, the IRA, we're seeing growth in polysilicon. We're seeing growth in semiconductors. We're seeing growth in agricultural processing, battery manufacturing and parts that go into vehicles and the like.

So just a lot of manufacturing growth, which I love, frankly. It creates jobs. It has a supply chain that goes with it. And frankly, there's a lot of margin in those areas. To your point, we're also seeing some data center growth. That's part of the plan. But we get really excited with the manufacturing side just because of the other additional benefits that are associated with that. So that's kind of a big level picture. And that pipeline continues. We've got a nice pipeline of growth into the years.

And I want to remind everybody we plan conservatively. We're not counting any of that upward supply and sales type opportunities until we see the meter spinning. And so, that's just our conservative approach. But let me hand it over to Rejji for some additional comments.

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Yeah, David, I think Garrick summarized it pretty well. And the big takeaway here is we plan conservatively. But what I'm pleased to represent, just to add some numbers to Garrick's good comments, is that when you think about the last several planning cycles we've had, we've suggested that we've had sort of flat to stable or slightly declining load growth. And it's always important to remember that our load growth math includes our energy efficiency actions where we're basically reducing load year-over-year by 2%.

And so if you take that into account, we've been up about 2% or thereabouts on a gross basis for many years. But this current plan on a five-year basis offers about a 1% swing from where we were just in our last five year plan. And so, we're assuming a little over 0.5% of growth over this five year plan, again inclusive of our energy efficiency efforts.

And so even though Garrick highlighted that we have a pretty robust and diverse pipeline of opportunities, all we have embedded in our current five-year plan are the two large projects that were announced over the last year or so with [Indecipherable] and Ford. And so, that's really all we have incorporated in our plan. And I'll tell you candidly, we'll be disappointed if that's all we're talking about in the next two to three years, given, again, the breadth and depth of our pipeline today. So good opportunities going forward on the load front. We're already seeing that in the numbers, but I think there's more opportunity going forward.

David Arcaro
Analyst at Morgan Stanley

Got it. Excellent. That's helpful. And then back on the topic of rate cases, I was just wondering your latest thoughts on the ability to settle rate cases, not for the electric one, obviously, but maybe your gas rate case and then more broadly going forward in the state for future rate case activity.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Sure. We have a historic practice and we're coming off of four or five. I've lost track now with settlements. And so, that's still part of our makeup. We're still going to look at how to -- when a case is underway, how do we best reach the right conclusion for our customers and for our investors? And so, we'll look at those opportunities.

I've been on these calls before and said I'll look for any opportunity for a settlement when the conditions are right. But we're also comfortable going to the floor because we're that confident in our ability to get a constructive outcome here in Michigan. And so, this gas case that we filed in December, fairly straightforward. I'm hopeful that we can reach a settlement. But again, if it doesn't, that's okay too. We can get to constructive outcome here in Michigan.

David Arcaro
Analyst at Morgan Stanley

Okay, great. Makes sense. Thanks so much.

Operator

Our next question comes from Michael Sullivan with Wolfe Research. Please go ahead.

Michael Sullivan
Analyst at Wolfe Research

Hey, everyone. Good morning,.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Good morning. Michael.

Michael Sullivan
Analyst at Wolfe Research

Congrats, Sri. Go blue. Hey, Garrick.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

You have to go blue in there. That's great. That's awesome.

Michael Sullivan
Analyst at Wolfe Research

Yeah, I know this got asked like a couple of different ways, Rejji, but just on the equity need, just maybe if you could just frame how to think about where they could go as capex goes higher, as we start to roll forward with the REP refresh, like taking into context the ability to use transferability, this cushion you got from Moody's, like the capex goes up by X, how much could that potentially increase equity?

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Yeah, Michael, appreciate the question. I would say, clearly, we've made the working assumptions in this current five year plan quite clear at up to $350 million starting in 2025, through the duration of this plan, out to 2028. As it pertains to future five-year plans, mathematically I would say yes, if your capital plan increases, and I think based on what we've talked about with respect to the prospects of the new energy law, we will see upward pressure on our capital plan going forward.

Remember, there are sources of offsetting pressure, given the strength of the regulatory construct in Michigan, there is very strong operating cash flow generation, which obviously sources -- obviously provides a source of internal equity. And then we've got now sources of downward pressure with the ability to monetize tax credits.

The amount we have embedded in our plan is just over $0.5 billion, and I expect that to accrete over time as we take on new renewable projects. And then obviously, the good news from Moody's this morning offers a little bit more headroom on the Moody's side.

Now, I would not suggest at the moment that we're prepared to give sort of new equity needs on a hypothetical basis, but we'll recalibrate every year. But I think, again, the strong sources of downward pressure on equity needs will be operating cash flow generation, the ability to monetize credits, and obviously Moody's decision today is helpful. And obviously, we plan conservatively. So that's the other aspect of it as well.

And obviously, with the great rate construct, in addition to the cash regeneration, we have a solid level of retained earnings, particularly with a very disciplined dividend policy that Garrick highlighted in his prepared remarks. So that's the other aspect I'd add as well.

Michael Sullivan
Analyst at Wolfe Research

Okay, super helpful. Thanks. And then, just wanted to check in the latest on the PSC looking at performance based rates in Michigan and where that stands and where you potentially see that going.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

The process is well underway, Michael, and it's improving. We've seen a move from a handful of metrics down to four metrics that are very benchmarkable across the industry. Our next set of comments are due by February 2. And what we're leaning into in those comments is a better connection between these outcomes and reliability and more certainty on capital recovery.

If you look at best practices for performance-based rate-making across the country, frankly across the globe, there's a greater tie between here's the outcome and here's the certainty on recovery. So we're wanting to make sure in our comments that that is true here in Michigan. And so that's the work that's underway. So, we'll continue to follow the process. And I'm sure here, just given the constructive nature of Michigan, we can get to a place, a good landing spot for PBR.

Michael Sullivan
Analyst at Wolfe Research

Any sense of just timing on when it could all kind of come to a conclusion?

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

So, we're still in process right now. Like I said, comments are due here February 2, ideally here, there's some milestones around May time frame as well, but we haven't got a clear picture on from an ending perspective. [Speech Overlap] I'm sorry, just -- it likely plays out in the next electric rate case well beyond this one.

Michael Sullivan
Analyst at Wolfe Research

Sounds good. Thanks again.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Yeah.

Operator

The next question comes from Julien Dumoulin-Smith with Bank of America Merrill Lynch. Please go ahead, Julien.

Julien Dumoulin-Smith
Analyst at Bank of America

Hey, good morning, team. Thanks again for the time. I appreciate it very much. Just following up, maybe zeroing back to where we've been talking about the balance sheet here for a little bit. I just want to clarify what's in the updated CFO, the cash flow number that you projected. I presume that doesn't include any kind of expectations for uplift on DIG, among other factors.

Also, maybe we could talk at the same time about how much additional latitude you're getting from Moody's, given the tweak with the juniors there, and then ultimately on the dividend, it seems like dividend growth may be slowing a little bit. Should that be the new norm here, just given, maybe trying to target a lower payout given the accelerated growth? Sorry, I'm just throwing it all at the same time here, if you want to address.

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Julien, appreciate the question. That's quite a bit to unpack there. So let me start with DIG and the OCF implications. And so, everything that we've highlighted in our five-year plan. So think about the rate base growth up to 7.5%. We also talked about additional opportunities attributable to energy efficiency. These are the non-rate base growth drivers at the utility FCM. And then we talked about non-utility opportunities with DIG recontracting. All of that is based on -- all of that is incorporated into our earnings as well as our cash flow generation.

And so, we have a page in the appendix that shows about a little over $13 billion in aggregate cash flow generation over the course of this five-year plan. And that incorporates some re-contracting that we've seen at DIG on both the energy and capacity side. But it does not take into account that open margin that we have on Slide 21 in the appendix and the potential opportunities if you see a higher capacity price over time.

And so, there is some upside, both from an earnings and cash flow perspective. So not all of that is baked into the cash flow. So there's additional opportunity there. Just transitioning over to Moody's, I'll note that the decision to increase the equity credit from 25% to 50% for junior subordinated notes, that's worth about 50 basis points to 60 basis points of FFO to debt accretion. And then, with respect to dividend policy, we've really been very consistent in dividend policy since we sold EnerBank and started to accelerate the earnings growth of the business.

And really the idea has been to trend down to a low 60s percent payout ratio, as Garrick highlighted in his prepared remarks. And so, what that equates to is really decoupled growth between our DPS growth, our dividend per share growth, and our earnings per share growth. We've said 6% to 8% toward the high end for earnings per share.

We'll probably be closer to the low-end as the $0.11 increase today implies, and that'll be the plan going forward because we do believe that that's a very efficient use of capital to have the dividend policy in that level, so that we can efficiently fund the growth of the business. And so really that's how we're thinking about it going forward. Was that helpful?

Julien Dumoulin-Smith
Analyst at Bank of America

Yeah, absolutely. And maybe just to tie that together here, as you look at your FFO metrics altogether, you raised the rate base growth 7%, up to 7.5% now through the five year period. I get, it's not exactly apples-to-apples across the years, but it doesn't seem like there's incremental equity versus the original plan per se. So, how do you think about your metrics through this outlook? Are you actually intact net-net-net, given the various factors we just elaborated on or are you seeing a slight uptick prior to reflecting some of these other pieces, if you will? Just how do you think about where you land?

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Yeah. So, we feel very good about the credit metrics staying in that mid-teens area, which we have targeted for some time now to preserve the solid investment grade credit rating we've had for many years now. And that's with a longstanding dialogue with the rating agencies. The OCF generation coupled with the equity needs up to $350 million, as well as the monetization of tax credits. And again, just a very disciplined dividend policy. All of that allows us to maintain our credit metrics in that mid-teens area.

And again, yes, we've increased the utility capex plan. We've held on to the equity needs and those supporting factors allow us to stay in that level. So that -- and certainly, there may be opportunity longer term, but we feel very good about the metrics where they are today and don't intend to deviate from our current credit ratings. I don't think that's the implication of your question, but just wanted to say that for the avoidance of doubt.

Julien Dumoulin-Smith
Analyst at Bank of America

Awesome. Excellent. And then just through the plan outlook here, I mean, just given all the focus on legislation, can you just clarify what is the sort of expected bill impact or commitment here, rather given all to come on what that means for customers as best you guys are going to try to target this?

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Yeah, Julien, to be clear, this is with respect to the new energy legislation?

Julien Dumoulin-Smith
Analyst at Bank of America

Yeah. As you think about what is on the come [Phonetic], I mean, is there any kind of commitment you guys are making on trying to level that out for customers at any specific pace?

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Yeah. Needless to say, as we've always talked about, when we prepare not just this five-year plan or prior plans, but future plan, the key governors will be affordability, balance sheet and can we get the work done. And as it pertains to new energy legislation, yes, it does create additional opportunities, whether that's on the capital investment side or on contracts with the financial compensation mechanism. But trust, we will not turn a blind eye to affordability.

And what makes us really excited about the opportunity going forward is, when we think about our current energy mix and how we're sourcing energy, we have about $1.5 billion that we spend each year on a combination of PPAs as well as open market repurchases, that we're paying a pretty high levelized cost of energy on a weighted average basis.

And so, with the new energy law going into effect and the opportunities associated therewith, we think there's a lot of headroom to get economics on energy going forward without increasing customer bills. Now there's a lot more process left, as Garrick noted. But we do think there's a lot of headroom already in bills for us to potentially deliver on that triple bottom line where there's nice economic opportunities for investors. But again, not doing that to the detriment of customers.

Julien Dumoulin-Smith
Analyst at Bank of America

Excellent. Thank you again. Best of luck, Sri and Jason. Talk soon.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Thanks, Julien.

Operator

The next question comes from Andrew Weisel with Scotiabank. Please go ahead.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Hi, Andrew.

Andrew Weisel
Analyst at Scotiabank

Hey, good morning, everybody. Thank you. Two questions; the one just to elaborate on your earlier comments. So first, '23 capex fell short of your target, $3.3 billion versus $3.7 billion planned. Can you just talk about what happened there? I think some of that might have been the solar delays? And then what happened to that $400 million? It sounds like that was not part of the $1.5 billion increase. So, can you just help explain what happened there?

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

It's expected in the context of a year that you're going to have projects. Andrew, of 25 years in this business and no project goes exactly as you planned, and sometimes they shift and move. And particularly with the solar piece, as Rejji mentioned in his prepared remarks, it's really not the supply chain at this point. We've got a lock in on panels and the like. It is really about local entities and siding and permitting. Now, we work through that. It just means we might move to a different community or there might be different setbacks that we have to work through.

All that is doable, but it does create some shifts in the context of the year. But the key piece is, it's not moving. We still have to deliver on 2030, 50% renewables. We have to be at 60% by 2035. That doesn't change. And so, if it's not in this year, it just moves to a different year and we'll continue that project. So there's a bit of shifting that ends up moving on the capital plan. So hopefully that helps.

Hold on, Rejji has got a comment as well.

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Yeah. And Andrew, what I would add, and I think you're sort of reflecting on Shar's question and my response to that. To be clear, we do have some of that spend that we did not achieve in 2023. Some of that is certainly pushed into this new five-year plan. It's just the vast majority of the increase in this five-year plan versus the priors driven by reliability-related investments. So there certainly is a portion of those deferrals being pushed into '24 and beyond. But again, the biggest driver of this new five-year plan is reliability.

Andrew Weisel
Analyst at Scotiabank

Okay. That makes a lot of sense. And a quick follow-up on that, in the Page 24, you give spending by year. The number for 2028 at $3.1 billion is actually the lowest of the next five years. Directionally, I would have expected the opposite. I personally assume you'll be increasing that as you go through these regulatory processes. But maybe you can just talk about why the trend is dipping down rather than going up every year.

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Hey Andrew, this is Rejji. I'll take that. Yeah. So, what you're seeing here in that '24, '25 time frame is just, we do anticipate a pretty big increase in reliability related investments. And so, that's what's driving a lot of that. Obviously, that's going to be subject to regulatory outcomes, and so we'll toggle the plan as needed. And I think Garrick's earlier point is well taken that these plans, you see capital projects come in and out.

Some get pushed in, some get pushed out. And so, we do anticipate that smoothing out over time. And so, the composition over this five-year time frame may change, but we feel very good about the quantum overall of $17 billion. And so, you may see some of that lumpiness go in and out or, sorry, smooth out over time.

Andrew Weisel
Analyst at Scotiabank

Okay. Thank you very much. And congrats again to Sri and Jason. Sri, you're going to have your hands full. And Jason, you've got very big shoes to fill. But best of luck to both of you.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Thanks, Andrew.

Operator

The next question comes from Durgesh Chopra with Evercore ISI. Please go ahead.

Douglas Chopra
Analyst at Evercore ISI

Hey, good morning, team. I know we're close to the hour, so thank you for letting my question in here. Just, Rejji, can you quantify for us, off that $13 billion in operating cash flow, how much of that is tax credits monetization?

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Durgesh, yeah, happy to offer that color. It's about a $0.5 billion of tax credit monetization that's incorporated a little over $0.5 billion. And that really drives a good portion of the vintage over vintage difference. In the prior vintage, I think we were saying, call it, almost $12.5 billion of aggregate cash flow -- operating cash flow generation. And this one, we're kind of $13-billion-and-change. So a good portion of it's driven by the tax credit monetization, which again is over $0.5 billion.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

So that's like over the five-year period. So, $100 million a year, roughly speaking.

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

I wouldn't say it's as linear as that or as flat as that. I would say it actually -- it's going to be a little lower in the front end and then it's going to grow over time.

Douglas Chopra
Analyst at Evercore ISI

Understood. Thank you so much. I appreciate that. And then a quick follow-up. Any update on the storm review process? What's going on there? I know we're expecting a report out, I think, in September this year. Just anything you could share there?

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

As I've shared in previous calls, Durgesh, we're working on improving reliability. You can see that in the capital investment plan. You can see that in the reliability roadmap. We're focused on it, the commission is focused on it. The audit's underway. It's a process audit. And I look forward to the results and would anticipate we're going to incorporate it in future rate cases. From a process perspective, still looks like we're on track for September time frame.

Douglas Chopra
Analyst at Evercore ISI

Thanks so much, guys. I appreciate the time, and congrats. My congrats also to Sri and Jason both.

Operator

Your next question comes from Travis Miller with Morningstar. Please go ahead, Travis.

Travis Miller
Analyst at Morningstar

Good morning, everyone. Thank you. Again, I echo congrats to Sri and Jason. Sri, appreciate all the help over the years. It's been great. A quick question on Slide 12. The $0.16 of the cost savings, how much of that is just the reversal of higher costs and how much is incremental cost savings you're expecting this year?

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Travis, hey, it's Rejji. Appreciate the question, yeah. So on the waterfall chart, just for others reference for 2024, yeah, the $0.16 of pickup that we're seeing or that we're anticipating year-over-year, you do see a portion of reversal related to storm activity. Obviously, I mentioned in my prepared remarks that we had a significant ice storm in the first quarter of 2023, and so we do not anticipate storms of that magnitude year in and year out. But we also have a good portion of CE Way related savings, and I'd say it's about $60 million or, call it $0.15.

And you have to think about the puts and takes here. So you've got the reversal of storms. You definitely have cost savings embedded in this current plan. But we also have inflation in other cost categories, like salaries as well as other costs, non-labor related costs. And so, there's a mix of inflation as well as cost savings to offset or fund that inflation. And then that, coupled with the reversal of the storm is what drives that $0.16 per share.

Travis Miller
Analyst at Morningstar

Okay, great. That makes sense. And then a broader question, you have touched on a little bit in the call here, but when you think about those clean energy standard buckets in terms of the nuclear, natural gas with carbon capture and renewables, what's your thought long term in general? I know you don't have the specifics yet, but how those three buckets work for you? It seems like in your previous -- earlier comments, nuclear is not really on the table right now. How much does nuclear natural gas/CC mix go into that mix when you're thinking about 2035 or 2040?

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Yeah, great question, Travis. What I love, and I do love it about this energy law is there is a lot of flexibility, just a ton of flexibility in there, and that's the strength. And that served us well in previous energy laws. Even if you go back to 2016, the integrated resource plan, you build a plan that works for your customers, works for your investors, and allows you to deliver the energy supply that you need across your service area.

Our focus right now is really on this first step, which is the renewable energy plan, and that is wind, it's solar, it's Hydro. We have to hit the milestone by 2030 of 50%, and then by 2035 of 60%. Those are important milestones first. So that's our focus right now.

Now we're not taking our eye off the ball. By 2040, we have to have 100% clean energy. There's a milestone along that journey as well. That will get into the carbon capture, that will get into other considerations on how we meet that. So that's a broader definition where nuclear is part of it, natural gas with carbon capture. And so I anticipate that once we get this renewable energy plan finalized, we're going to start looking out there at those other future sources.

Right now, we would see it, given our natural gas fleet, as consideration for carbon capture as one of the options. But we're not taking anything off the table. We got to have a wide open landscape. We got to do the right math. We got to make sure we have the right plan for our customers and for our investors. So, we're not saying no to anything. So hopefully, that helps.

Travis Miller
Analyst at Morningstar

Yeah, no, that makes sense. That's all I had. Thanks a lot.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Yeah, thank you, Travis.

Operator

Your next question comes from Sophie Karp with KeyBanc. Please go ahead.

Sophie Karp
Analyst at KeyBanc

Hi, good morning. Thank you for taking my question, [Indecipherable] at the end of the hour, appreciate it. So I wanted to ask you about your prospective growth in renewable energy investments, obviously, as outlined by the new law and the filing you intend to make. I guess, what we are seeing in other states and other jurisdictions right now is somewhat of a pushback maybe on those types of investments.

And the genesis of that might be different in different jurisdictions, but it seems that the cost is often a barrier. So, my question is, how do you plan to sort of avoid that and what are the steps you're taking to socialize this plan as to not shock the regulators or interveners or consumers like once that becomes a reality?

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

It's a great question. There's a lot of dynamics that play out in any type of construction, whether you're putting in a gas pipeline or whether you're building renewables. And we've really -- really, at a ground level, from a community perspective, is where we see the opportunity to be able to best influence this. And so, for example, we completed the 201 megawatt Heartland wind farm up in the Gratiot County area. Gratiot County and surrounding counties have been very welcoming to renewables. And so, we know that because we're on the ground making that happen, and that's the way we intend to approach these at a very local level.

Now, there has been siting reform in the state that was signed in November time frame by our governor. That has to be implemented by the commission, and so, there's some work there, but that could also help from a siting perspective as we move forward. I would remind you too, within this new energy law, we have the opportunity to be outside of Michigan as well in MISO.

And so, we're going to look for a lot of -- there's windier states, there's sunnier states. We're going to look for those areas where projects are underway or there's good siting opportunities to be able to connect and be able to achieve the clean energy standard as well. As I shared also, when I think forward about this new energy standard, it's a mix, right? It's not all ownership, but it's not all PPAs. There's probably a blend that makes the most sense, and that's what we're figuring out right now.

And so, that gives us a lot of options. Again, that's a strength of this, to be able to find all those important resources, get them all cited and get them constructed. I would also remind you, last comment, I'm a little long winded here, but there is flexibility in this law. And so, if you're not there exactly in 2030 or 2035, you can get an exception through the Public Service Commission. So that also offers flexibility to be able to achieve these ambitious clean energy goals.

Sophie Karp
Analyst at KeyBanc

Thank you. Appreciate it. That's all from me.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Thank you.

Operator

Our final question comes from Anthony Crowdell with Mizuho. Please go ahead, Anthony.

Anthony Crowdell
Analyst at Mizuho

Hey, thanks for squeezing me in in Sri fest [Phonetic] 2024. Just quickly, I wanted to take the other side of Julien's question. I think you finished a year slightly under a 15% FFO to debt, potentially get 60 basis points adder for the change at Moody's. I mean, any thought, I think the upgrade trigger for you guys at Moody's is 17%. I mean, any thought of maybe achieving that to get an upgrade at your credit rating?

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Anthony, it's Rejji. Appreciate the question. And we're also enjoying our time in the 2024 Sri fest [Phonetic]. So thank you for acknowledging that. I would just say, it's a pretty big lift, I would think, to get mathematically to that 17 or high-teens area that Moody's, and S&P have guided us toward if we wanted to get an upgrade. And so that would require, in the absence of additional equity, pretty substantial cash flow generation and/or monetization of tax credits.

And so, I don't foresee that in the near-term or in this vintage of our five year plan. And I've also just observing markets now for -- seems like the last 15 to 20 years, it really hasn't been worth the cost of getting to those higher credit rating levels. If you think about the juice being worth the squeeze, just the amount of coupon that you can save by having a higher credit rating has not been worth the cost of all the equity issuances and so on.

And so we like where we are right now. We think that's the most efficient area from a credit rating perspective to issue debt. And really, there's no appetite to equitize the balance sheet in a manner that would allow us to get an upgrade. So, we feel good where we are, is long-winded way of saying that.

Anthony Crowdell
Analyst at Mizuho

Okay, thanks so much for taking my questions.

Rejji P. Hayes
Executive Vice President and Chief Financial Officer at CMS Energy

Appreciate it.

Operator

We have no further questions. I'll turn the call back to Garrick for closing remarks.

Garrick J. Rochow
President and Chief Executive Officer at CMS Energy

Thank you, Emily. And I'd like to thank all of you for joining us today for our year-end earnings call. I look forward to seeing you on the road here in the near future. Take care and stay safe.

Operator

[Operator Closing Remarks]

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