Good morning, everyone, welcome to the CMS Energy 2019 first quarter results. The earnings news release issued earlier today, the presentation used in this webcast are available on CMS Energy's website in the investor relations section. This call is being recorded. After the presentation, we will conduct a question and answer session. Instructions will be provided at that time. If at any time during the conference you need to reach an operator, please press the star key followed by 0. Just a reminder, there will be a rebroadcast of this conference call today beginning at 12:00 P.M. Eastern Time, running through May 2nd. 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.
Thanks, Rocco. Good morning, everyone, thank you for joining us today. With me are Patti Poppe, President and Chief Executive Officer, and Rejji Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements which are subject to 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 Patti.
Thanks, Sri. Thanks, everyone for joining us for our first quarter earnings call. This morning, I'll share our first quarter financial and operating results and review our regulatory calendar. Rejji will add more details on our financial results and outlook, as always, we'll close with Q&A. Despite 2 large storms and an unprecedented polar vortex, which challenged our electric and gas systems, we were able to deliver solid first quarter earnings of $0.75 per share, which are better than our plan. Regardless of changing weather, economy, political, or regulatory conditions, we pride ourselves in our adaptability, which enables the delivery of consistent financial results on which you've come to rely year, after year, after year. We're pleased to reaffirm our full-year guidance of 6%-8% EPS growth based on last year's actual results and a bias toward the midpoint.
We're also reaffirming our plan to grow dividends in line with earnings. Our predictability is enabled by our focus and commitment to our triple bottom line of people, planet, and profit, underpinned by financial and operating performance, which remains a low risk and sustainable business approach, it continues to deliver for our customers and our investors. Every dollar of our capital plan is invested with the triple bottom line in mind, we've seen solid support for this thought process over the years, but most recently with the settlement of our gas and electric rate cases, as well as our integrated resource plan. Our continued focus on needed investments in the safety and reliability of our gas and electric systems our approach toward a cleaner generation fleet with the modular build-out of renewable energy, has been reinforced by these positive regulatory outcomes.
The settlement agreement of the integrated resource plan is a great example of how we work with all stakeholders in Michigan. We're excited to report that our clean energy plan reflected in our IRP, received a broad coalition of support, including the Public Service Commission staff, attorney general, our customer advocacy groups, and environmental advocates. Considering the complexity of this case, the parties involved, and the long-term planning of our generation system, this was no easy feat, which is why I am so proud of all the work our team has put into creating a breakthrough outcome for our company, our customers, and our state. The settlement lays the groundwork for our clean and lean energy future and includes the early retirement of our coal units, Karn 1 and 2, and the scheduled expiration of our Palisades PPA.
The agreement also calls for accelerated energy efficiency, demand response programs, and 1,100 megawatts of solar through 2024, of which half will be owned and rate based, and the other half will be contracted with a financial compensation mechanism. The settlement also includes competitive bidding for future solar, so we can have the lowest cost and cleanest energy to the people of Michigan. Longer term, the plan calls for a total of 6,000 megawatts of solar and looks at battery storage in the next decade. The modular and low-risk approach, coupled with the iterative nature of the IRP filing process, provides flexibility and will allow us to take advantage of declining costs and potential technology breakthroughs. We expect a commission decision on the settlement by mid-June. Looking at our calendar for the year, you'll see another successful quarter on the regulatory front.
This included the approval of 525 megawatts of wind in our renewable energy plan, a filed settlement agreement for our IRP, and a commission order in our electric rate case settlement, and where we've agreed to stay out of an electric rate case until 2020. This quarter was just another demonstration of the strength in our regulatory environment in Michigan. While we're on top of recent regulatory developments, we'd like to take this opportunity to congratulate Dan Scripps in his recent appointment to the commission. We really look forward to working with Commissioner Scripps moving forward. Our gas rate case is also moving along, the staff having filed their position earlier this month for an additional $146 million of revenue with support for nearly all of the investments and the O&M we have requested.
We'll continue to work with the staff and stakeholders in this case and expect a final order from the commission by September 30th. With the continued support of the MPSC staff and other stakeholders, our electric rate case settlement allowed for increased investment in electric reliability of $200 million. The case was completed in just eight months after filing, and marked only the second time in our history where we've settled an electric rate case. The settlement also included deferred accounting for emergent work, which enables us to better plan and manage our electric distribution-related capital investments. One of those reliability projects was a circuit upgrade outside of Grand Rapids. As part of that project, we needed to disconnect a customer for a few hours during the week. It was the home of an elderly couple, and the husband had voiced a concern to one of our coworkers.
His wife was sick, and he was worried about keeping her comfortable while the power was out. One of our field leaders, Jimmy Brady, reached out to the customer to understand his concerns better. What Jimmy found was that they just needed somewhere warm to stay during this planned outage. Jimmy purchased gift cards for gas and dinner and took the extra step to put the gift card in a get well card and delivered it to the customer so he could care for his wife. I make calls to customers every week to get direct sense of what they're experiencing with our team, and I heard this story for the first time on one of those calls. Our customer was so touched by Jimmy's kindness. As he shared the story with me, he broke down in tears.
He was overwhelmed because he had been working so hard to care for his wife, Jimmy's simple act of kindness hit the spot. By the way, we completed the maintenance work on time too, continuing to improve our customer's reliability. We don't have a procedure 42-B that told Jimmy how to live our purpose. We just have people serving people. That is world-class performance, delivering hometown service. Another great example of our purpose at work is our simple but perhaps unique business model. This is not new, and it has lots of runway. At the core of our business model is our ability to self-fund a majority of our needed no big capex capital investments.
These needed capital investments are demonstrated by the settlements of our recent gas and electric cases and the approval of our renewable energy plan with 525 megawatts of new wind, the settlement agreement for our IRP, which includes 1,100 megawatts of solar in the near term, and staff support for the capital investments in our pending gas rate case. In fact, less than 15% of projects in our $11 billion capital plan are over $200 million, and half of those are renewable projects that have already been approved. While we continue to grow rate base, we remain focused on customer affordability. One of our key strengths is our ability to manage costs.
While we continue to focus on waste elimination across all of our cost drivers by executing the CE Way, we also see significant cost reduction opportunities as we retire coal and allow high-priced PPAs to expire over time. Reggie will cover some of that in more detail. Sales enable us to manage customer prices as our economic development efforts allow us to spread our costs over greater volume. In addition to this, our energy efficiency programs help our customers reduce their usage and ultimately lower their bills. We earned $34 million through our energy efficiency incentive in 2018, and we forecast it going to $44 million as we implement our IRP energy waste reduction plans. We're also able to true up our sales through our forward-looking rate-making process.
Finally, we use prudent tax planning and modest contributions from our non-utility businesses to further support our ability to deliver consistent, premier growth. In fact, despite investing $11 billion of capital into our system over the next 5 years, we expect customer prices to remain flat after inflation. Our model has proven durable over the last decade. We are confident in its continued durability over the next. This simple model and our ability to adapt to changing conditions enables us to continue to deliver regardless of weather, the economy, or other external factors. Just look at our track record. 10 years at 7%+ EPS growth. We provide consistent premium results supported by strong operations. With that, I'll turn the call over to Rejji.
Thank you, Patti, and good morning, everyone. As Patti highlighted, we're pleased to report our first quarter results for 2019, which are slightly ahead of plan despite severe weather experienced during the quarter. We delivered net income of $213 million, which translates into earnings per share of $0.75 per quarter. Our first quarter earnings per share for 2019 were $0.11 below our Q1 2018 results, largely due to heavy ice storms experienced in our electric service territory in February. Like always, we plan conservatively, manage the work, and continue to be ahead of plan. Despite the storm activity, utility was a key driver of our financial performance in Q1, contributing $0.80 per share, largely due to our electric rate case settlement and a relatively cold winter in Michigan, which benefited our gas volumetric sales during the quarter.
The utility's strong performance was modestly offset by expected underperformance of enterprises versus Q1 of 2018 due to lower capacity sales at DIG, attributable to the residual effects of the 2018 MISO Planning Resource Auction and a planned outage at our Filer City plant, both of which were reflected in our full-year EPS guidance. All in, we've started 2019 right on track, and we are confident in our ability to deliver another year of consistent, industry-leading financial performance. On slide 12, you can see the key factors impacting our financial performance relative to 2018 in our waterfall chart.
Favorable weather provided $0.08 per share of positive variance versus Q1 of 2018, and rate relief net of investments contributed another $0.03. These sources of financial upside were more than offset by the substantial storm activity, which negatively impacts earnings by $0.10 a share, the aforementioned underperformance in Enterprises, and the higher effective tax rate. The latter two of which, in line with our expectations, and as mentioned, are already incorporated in our full-year estimates. As we look ahead to the remainder of 2019, we remain encouraged by the glide path to achieve our full-year 2019 EPS guidance. As illustrated in the chart, the absence of favorable weather from last year is largely offset by the numerous costs pulled ahead we executed in the second half of 2018.
The remaining nine months also include additional rate relief ahead of investments from the previously settled gas and electric rate cases, and the expectation of constructive outcomes in our pending gas case. Lastly, we expect to realize cost savings across the organization in line with historical trends, Enterprise's EPS contribution weighted toward the second half of the year. Needless to say, we'll continue to manage the business with a focus on executing on our capital plan and identifying additional cost savings to mitigate future risks to the plan for the benefit of customers. To that end, slide 13 best illustrates our historical track record of managing the work during periods of uncertainty to meet our operational and financial objectives.
As noted in the past, during periods of unfavorable weather or other sources of downside, we rely on our ability to flex operating and non-operating levers to meet our financial objectives without compromising customer service. Conversely, during strong periods, we focus on reinvestment into the business to de-risk future years and achieve longer-term benefits for customers and investors. Every year is different, but we manage to deliver for all stakeholders year in and year out, without excuses, based on our ability to adapt to changing circumstances in any given year by self-funding the vast majority of our rate base growth over the long term to minimize the customer bill impact, as Patti discussed earlier. To elaborate on the core elements of our business model, we have an extensive inventory of capital investment projects at utility due to our large and aging electric gas systems, as noted on slide 14.
As we highlighted on our Q4 call in January, our five-year capital investment program is approximately $11 billion and is largely comprised of gas and electric infrastructure upgrades and investments in renewable generation. The latter of which was supported by the commission's recent approval of 525 MW of wind generation investments to meet the 15% renewable portfolio standard in Michigan. Our robust capital plan will further improve the safety and reliability of our electric and gas systems to the benefit of customers, evolve our generation portfolio to the benefit of the planet, and extend the runway for EPS growth to the benefit of investors. It is also worth noting that our capital investment needs remain significant beyond the five-year period as well.
As we work through regulatory proceedings, most notably the IRP, our financial planning cycle, we expect that the longer-term capital mix will continue to evolve, and we look forward to providing an update to our 10-year capital plan in the second half of the year. As discussed in the past, we invest in our electric and gas systems at a measured pace, given customer affordability constraints. In order to execute on capital investments of this magnitude while maintaining affordable bills, our funding strategy is heavily reliant on the identification of cost reduction opportunities, and we are confident that we can continue to deliver in this regard. Historically, we have emphasized our substantial focus on reducing operating and maintenance expenses, and we have been successful there in the past through coal plant retirement, capital-enabled savings like our smart meter installations, and attrition management, to name a few.
We'll continue to realize cost savings in O&M through those historical measures, as well as waste elimination driven by the CE Way, among other initiatives. However, we do not discriminate when it comes to cost savings, and we view every component of our cost structure as an opportunity. As we look ahead, there are highly visible cost reduction opportunities in our power supply costs through the expiration of the Palisades and MCV power purchase agreements, both priced on average around $55-$60 per megawatt hour, or roughly two times the market cost of power in MISO, which collectively should deliver approximately $150 million of savings per year over time. In the interim, we will continue to realize benefits from modernizing our gas and electric distribution systems to reduce service restoration, gas leak repair costs, among other opportunities.
These opportunities, coupled with our perpetual search for non-operating cost savings, offer a sustainable funding strategy for our capital plan, which will keep customer bills low on an absolute basis and relative to other household staples in Michigan, as depicted in the chart on the right. From our perspective, paying roughly $5 a day combined for safe and reliable electric and gas delivery in the residential channel is an extraordinary value proposition, given the importance of this service to today's standard of living and the substantial cost required to own and operate these systems. In addition to our emphasis on strong cost controls, our self-funding strategy also benefits from economic development. Slide 16 highlights our success in attracting new industrial activity in our service territory over the past few years, which has supplemented modest organic growth in our residential and commercial segments.
In 2018, we attracted over 100 megawatts of new load, which was up from 69 megawatts in 2017. We're targeting another 100 megawatts in 2019 and are right on track with over 25 megawatts secured in Q1. Our load growth from these efforts will collectively offer roughly 5,500 jobs, $2 billion of investment in Michigan, and included companies ranging from internet-based retailers to food manufacturers, among other industries. This level of sector diversity in our new load is indicative of our electric service territory, which represents about two-thirds of our revenue. And is often misperceived as highly cyclical. In fact, in 2018, approximately 2% of our customer contributions came from the auto industry, as noted in the pie chart on the right-hand side of the page.
Our proactive efforts on economic development and strong track record of realizing cost savings to fund our growth not only enable us to perpetuate our success long run, but also de-risk our financial plan in the short term when we overachieve in a year. Overachievement has become a habit, which is a nice segue to our 2019 financing plan. On Slide 17, you'll see that our financing plan is largely de-risked for 2019 due to opportunistic transactions in 2018 and year to date. In the first quarter, we completed just under $1 billion of debt financing for parent, including a $630 million 60-year hybrid issuance, which garners up to 50% equity credit at S&P at an attractive rate of 5.85% pre-tax.
We've also completed roughly $250 million of forward equity issuance through our ATM program over the past 12 months, which eliminates pricing risk for our planned equity issuance needs through 2020. As we evaluate potential sources of volatility through the remainder of the year, the accelerated execution of the majority of our financing plan, the early settlement of our electric rate case, and the aforementioned 2018 pull-aheads have reduced the probability of large variances in our plan. There will always be sources of volatility in this business, be they weather, fuel cost, regulatory outcomes, or otherwise. Every year, we view it as our mandate to do the worrying for you and mitigate the risk accordingly. With that, I'll hand it back to Patti for some closing remarks before Q&A.
Thanks, Rejji. With our unique self-funding model, enhanced by the CE Way, a large and aging system in need of capital investment, a constructive regulatory framework, and a healthy balance sheet to fund our plan cost effectively, we believe our financial performance is sustainable over the long term. With that, Rocco, please open the lines for Q&A.
Thank you very much, Patti. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touch-tone telephone. If you are using the speaker function, please make sure you pick up your headset. We'll proceed in the order you signal us, and we'll take as many questions as time permits. If you do find your question has been answered, you may remove yourself by pressing the star key followed by the digit 2 on your touch-tone telephone. We'll pause for just a second. Today's first question comes from Greg Gordon of Evercore ISI. Please go ahead.
Hey, good morning. How are you guys?
Good morning, Greg.
Morning, Greg.
I think it goes without saying, as you've been very clear, you had a very rare, modest miss versus street consensus in the quarter because you had such extraordinary storm activity. Given your historic ability to manage the business, you don't have any concerns about being able to bring in the earnings expectation as you articulated for the year, just because the first quarter was challenging, correct?
That's correct, Greg. We always adapt, and as we mentioned, we're ahead of our own plan, and so we're very confident in our ability to continue to deliver as always.
Thanks. Then, I'm sure there'll be a lot of questions on the regulatory activity, so I'll leave that for other people. I had a sort of an esoteric question. On the DTE call yesterday, we talked about why they don't have, and I don't think you guys have either, a large amount of lithium-ion battery storage built into your expectations for future infrastructure needs. They pointed to the fact that because you guys have the Ludington storage facility, and it's such a large and unique asset, that it really creates the balancing capacity you need so that battery storage may not, other than in very unique circumstances, necessarily be a big part of Michigan's future needs. Is that a fair assessment or not?
Well, first of all, yes, Ludington is storage, and it's 2,200 megawatts of storage. Yes, we love that. In fact, as you've been there, Greg, I know you visited the site. We have six of the world's largest motors at that location. Six 500,000-horsepower motors. It is a sight to be seen. Anyone who hasn't been there, open invitation. Obviously, we have a lot of experience actually pricing in storage on a daily basis. What we're waiting for, I think we do see more storage, and in fact, in our IRP, we have storage toward the latter half of the plan. What we're waiting for is the price curve. I'm very confident that price curve will materialize, and with all the research that's underway with lithium ion for vehicles today. Maybe there will be a breakthrough in solid state.
I look forward to that. I think storage is going to be important on the grid to balance voltage and do voltage control for our solar installations that are going to be distributed across the state. We are hopeful for storage and a technological breakthrough in that, we don't need it to execute our IRP plan until the last part of the 20-year plan.
Greg, the only point I would add is in addition to Ludington, as you likely know, we also have peaking capacity in the form of our Karn 3 and 4 facilities, which is over a gigawatt. That also supports us as we flesh out the renewable plan.
Great. Thank you, guys. Have a great morning.
Yep. Thanks, Greg.
Our next question today comes from Jonathan Arnold of Deutsche Bank. Please go ahead.
Good morning, guys.
Yeah.
Just have a question on Enterprises. That segment came in at nothing for the first quarter. You said, is that really going to be mostly a Q3 segment now with the shift to more of an energy contract, or is it more linear through the second half? Can you just give us a bit more sense on the timing there?
Yeah, I would say it's certainly more back-end weighted, and I would say it's more weighted towards Q3 and Q4. You'll get a little bit of pickup in Q2, but mostly Q3 and Q4. The reason why that is, Jonathan, is we had lower capacity sales, and that had to do with the fact that we had to basically sell about 400 megawatts of capacity at DIG in the MISO Planning Resource Auction in mid-2018. As you know, the planning year runs from basically May of the prior year to June of the subsequent year. So we've got about two quarters of exposure in 2019 of those lower capacity sales.
The reason why, as you may recall, that we had to subject ourselves to the MISO Planning Resource Auction is that we held 400 megawatts of capacity in escrow, effectively at DIG as part of the potential Palisades early termination in 2017. We'll wear that for a couple of quarters. It's in our plan, and so we would expect that would recover over time. We've already sold through capacity through 2020, and so we feel pick up some in Q2, but most of it in Q3 and Q4.
By extension then, Q1 of next year should probably be more positive than Q1 of this year.
You would think because, again, we've sold capacity through 2020 around $2-$3 per kilowatt month, we would expect to get a more favorable comp in Q1 of 2020 certainly versus Q1 of 2019.
Okay, great. Just one other item. You talked about expecting energy efficiency earnings to increase from $34 million to $44 million or so as you implement the IRP. What's the timing on getting to that higher level? It's not for a year or two, is it sooner than that?
Jonathan, great question. We're going to phase that in. We're going from 1.5% in our electric business energy efficiency to 2%, it's when we get to that 2% that it takes it to $44 million. That'll be mid-2020.
Mid-2020. Okay, great. That's it. Thank you.
Thank you.
Our next question today comes from Michael Weinstein of Credit Suisse. Please go ahead.
Hi, good morning.
Morning.
Hey, question on the financial compensation mechanism. I realize that, I guess there's continuing talks about this. At 5.88%, that's above short-term debt, but probably below the overall weighted cost of capital for the company. I'm just wondering if this 5.88% that was settled, is this an opening bid? If things go well, later on, people might be more amenable to raising that number as long as the markets seem okay with it, the solar markets seem okay with it?
Michael, it's a good question. Just to be clear, the 5.88%, that does reflect our WACC, our weighted average cost of capital, and that was what was agreed to in the settlement. We think that's the appropriate level for an FCM, particularly given the fact that we'll be able to own and rate base effectively half of the solar investment opportunity over the next few years. Of the 1,100 megawatts that we agreed to effectively through 2024, we'll get 550 megawatts of that. As you know, the filing and the IRP itself is an iterative process per the statute, and we've agreed per the settlement to file again in June of 2021. We'll see what the fact pattern is at that point.
Obviously, cost of capital moves all the time, if it makes sense to adjust it at that point and suggest something else, we'll look to do that at that point.
To be clear, we're really excited about that FCM. It gives us optionality in the best way to have the lowest cost energy delivery and supply. We're very happy with the outcome of the IRP. We think it really reflects our values, we think it reflects our business model, it just allows our business model of ample CapEx backed up by our ability to do it at the lowest cost to protect customers from affordability constraints. It really fits right into our plan.
Right. Could you characterize what the discussions are surrounding at this point as over the next month or two? What do the solar advocates want out of this process at this point?
To be clear, there's a range of solar advocates. We had the Sierra Club, the NRDC sign on to our settlement, and certainly they're solar advocates. I guess I would consider us solar advocates. We all agree that solar has an important role to play here, and Michigan matches our load profile extremely well. Combined with things like Ludington and Karn, as Reggie mentioned, we've got a really nice mix of supply. The conversation has been how to do that at the lowest cost possible. We feel very excited about the competitive bidding process for the supply resources.
We think that's an important stand to take on behalf of the people of Michigan, that we want to make sure we have the lowest cost resources on the system and have optionality around the CapEx that surrounds that so that we can invest the next best dollar where it needs to be invested in the entire system. I would say some of the large, out-of-state profit-maximizing solar developers don't love the outcome because they're going to have to compete on price and not lean on PURPA. That PURPA loophole doesn't work. It saddles the Michigan customers with unnecessary high-priced solar. I would suggest that our commitment to competitive bidding really changed the nature of the discussion here in Michigan, that we're going to stand for the lowest cost and cleanest energy resources for the people that we serve.
Gotcha. Thank you very much.
Thank you.
Our next question today comes from Julien Dumoulin-Smith of Bank of America. Please go ahead.
Hey, good morning. Thanks for the time. Congratulations.
Hi, Julien.
Hi, Julien.
Hey.
Thanks.
Perhaps just to reconcile this, just at a high level, the IRP, obviously you've got just about over a gig of potential opportunity here. It's split between rate base and PPA. How does that reconcile with your current CapEx budget at the end of the day? Then maybe a second but related question is how do you think about updating the needs for generation over time here? What would that timeline look like and how could that reconcile against what you all have here in the IRP today? I know that's somewhat of a transient question, right? It'll change over time.
Yeah. Julien, good question. I would say as it pertains to the five-year plan, we don't see a great deal of, I'll say, capital investment impact on our five-year plan. As you know, we're at about just over $11 billion, most of which is wires and pipes capital investment. We've got $1 billion of renewables in our plan, but that's largely attributable to wind build-out, basically to get to the 15% RPS. So a lot of the capital investment opportunity that's coming out of this settlement agreement is really beyond this five-year plan. You'll see some of it. We'll take ownership of some of it, kind of in the 2022, 2023 period, but not a great deal.
It's also worth noting that you're going to have Karn 1 and 2 in the outer years of our plan come out if we succeed in retiring that plant in 2023 as promised. So when you think about the puts and takes, you'll see probably a net neutral impact, I'd say in the next 5 to 6 years. Now, the bigger opportunity going forward is as you look at the incremental 5 GW that we'll build out over the next decade plus, I think in years 6 to 10 of a potential 10-year plan, you'll see more significant capital investments on the solar side. So there could be upside there. Again, we've talked about in the back half of this year offering a new 10-year plan, which likely reflects some of that.
Then if you think about the capacity build-out, I'll say a couple of decades from now in our capacity plan, we're going to be losing over time about 4 GW of capacity. You're going to see 2 GW come off in the form of the MCV and Palisades PPAs. Then another 2 GW come off over the next 20 years as we retire the coal fleet. So a substantial capital investment opportunity on the solar side over time. We think that offers potentially around $3 billion of capital investment opportunities as you think about the spend on the capital side through 2030. Quite a bit of opportunity, but early days of course.
I would also offer that the capital opportunities on our entire system, we don't require all of our investment to go into supply. It's not the investment mix of the past. The opportunity to have distributed resources is going to require a significant amount of grid investment as well to make sure that we can integrate those distributed resources into the grid and make sure that our reliability is high. The mix between distribution and supply is going to shift to distribution as well as in our gas system. When I talk about looking for the next best place to put a capital dollar, everyone can remember and always remember that this is not a question of building up a rate base.
This is a question of how best to affordably deliver the capital that delivers the customer value, and customer service, the reliability, all of those things are driven by how much capital is required in the system. The system needs are driving the CapEx. We're not trying to backfill CapEx and searching for CapEx and using supply as a means of doing that. We're trying to figure out the best way to deliver the services for customers with all the CapEx that needs to be done and to be able to do that affordably.
Got it. Excellent. Just to clarify this, I know you have about a billion-ish in the plan today for renewables. When you talk down the materiality of 2022, 2023 solar, it's more because it's something of a rounding within the wider plan contemplated?
Yeah, that's right. You basically, in the outer years of the plan, you'll start to take ownership of some of that 550 megawatts. Again, as we always talk about, the constraint on our capital plan is really affordability. We think based on the five-year plan we rolled out on our Q4 call, that a little over $11 billion of aggregate capital investment is what our customers can comfortably afford as well as our balance sheet, I might add. The composition of that capital investment program may change a touch as we look at the outer years of the plan. I would say for now, it's primarily wires and pipes. Again, you may get a little additional solar, but we think $11 billion is right at this point in time.
Got it. All right. Well, thank you again very much. All the best.
Thank you.
Thanks, Julien.
Today's next question comes from Stephen Byrd of Morgan Stanley. Please go ahead.
Hi, good morning.
Morning, Stephen.
Morning.
I wanted to go back to everyone's favorite topic, the financial compensation mechanism. Really interesting and really innovative approach. I guess the mechanic that ultimately got used here is a bit different than what you had proposed, but it strikes me that the result is broadly in line with the approach that you had initially proposed. Is that a fair characterization?
That's a fair characterization. At the end of the day, we wanted to, first of all, be agnostic around who builds and who owns these assets. We wanted to make sure that we had the proper alignment, that we have the lowest cost supply resources on the system. Conceptually, what we're talking about is making sure that the reflection on our balance sheet of our being this high-quality off-taker for any kind of contract, there's no way a developer gets that contract or the financing approved without us being the off-taker. That's reflected, and there's an impact on our balance sheet, at least the way S&P calculates. Conceptually, that's what the SEM is intended to represent. We're very happy with this outcome. We think it's a new standard and really gives us a position to advocate for customers fully.
That makes sense. My next question is really longer term when you think about renewables. In your discussion with the variety of parties in the state, this concept of basically splitting ownership versus PPA, a 50/50 split beyond the 1,100 megawatts in there and kind of near to medium term, is that an approach you think that has buy-in in the longer run within the state?
Well, it is, it worked for the 2008 energy law. As we file subsequent IRPs, we could revisit it. We actually didn't go in asking for the opportunity to own. Our original filing did not include an opportunity for us to be guaranteed the right to own. Through the discussions, that's what's healthy about a settlement process, you can have really in-depth discussions with the parties to come to a conclusion that everyone really can live with. The settlement process has served, I think, the people of Michigan very well in this scenario, and certainly you, our investors, are equally well-served through the outcome of this IRP.
Great. Thank you very much. That's all I had.
Thank you.
Thanks, Keith.
Our next question today comes from Praful Mehta of Citigroup. Please go ahead.
Thanks so much. Hi, guys.
Hi, Praful.
Hi. Maybe just firstly on the quarter on the storm costs, this is something we've seen across the space where utilities have had challenges with storm costs. What is the threshold we should be thinking about as it relates to CMS in terms of what size storms are recoverable, what size storms are not, and how do you see this going forward as an impact to your earnings?
It's a good question, Praful. Recoverable, I'll go about that in a couple of ways. There's recoverable in the form of what's in rates, there's recoverable in the form of we do have transmission and distribution insurance, which also offers a little bit of risk mitigation. In terms of what's in rates, the amount of storms that we realized over the course of Q1 is already in excess of what's currently incorporated in rates. We do plan conservatively, in our budget, we did assume that there would be service restoration needs in excess of what's in rates. As you think about the insurance programs we have in place, it's a function of the deductibles you have and whether a particular storm exceeds that deductible, that's what allows you to get recovery.
As you may recall, when we had the significant storm activity in March of 2017, we actually got quite a bit of claims back our way because of the level of deductible at that point. Admittedly, deductibles have gone up a bit, I would say that you need a pretty substantial storm activity to get insurance recovery. We did get some recovery of the storms we saw in early February in the Grand Rapids area. Is that helpful?
That's super helpful, collor. Appreciate that. Maybe for the second question, you guys talked about the runway of the plan where cost management clearly is something that you guys have executed successfully, and one important part of that is these PPAs rolling off. I guess as these PPAs do roll off, do you see limited scopes going beyond that, or do you see this horizon of the ability to kind of manage costs and keep rates low while you build out on CapEx even beyond that PPA roll-off?
Oh, Praful. The cost savings as far as the eye can see. It's certainly the PPAs, I like to call those our, well, I call them our cash for clunkers because those PPAs are out of market. They're high priced. When we replace those with fuel-free energy, it really is an amazing combination to grow earnings while we're reducing costs for customers. Certainly, we've got, in the five-year plan, ample cost savings. Beyond that, our abilities that we are creating through our Consumers Energy Way to see and eliminate waste on demand are still in their early stages. I'm just watching the team really develop the skills to see and eliminate waste that reduces the human struggle for our coworkers as they're attempting to serve customers, and at the same time reduces cost and improves the customer experience.
Rest assured, our simple, unique business model has lots of runway. This model lives. We've got ample CapEx, lots of costs yet to be reduced. That just protects our customers from affordability constraints and enables positive regulatory outcomes that improves the service to customers every single day. Rest easy. The model lives.
What a great story, guys. Really appreciate it. Thank you.
Thanks, Praful.
Thank you.
Our next question comes from Andrew Weisel of Scotiabank Howard Weil. Please go ahead.
Hey, good morning, everyone. Just another question on the FCM. The WACC, I believe is, as you previously discussed a little bit, it's relatively low at 5.88%, but I believe that's because of the deferred taxes in your capital structure, right? Can you remind us what % of the cap structure is deferred taxes, and over how many years you expect to work that down to zero?
Yeah. You're right, Andrew. The 5.88%, the WACC that we agreed to as part of the financial compensation mechanism, that is on an after-tax basis. It does take into account what I'll call about 20% or just under that of deferred federal income taxes that are a component of our rate-making capital structure. I can't tell you exactly when that will amortize down to zero, but I can say directionally, if you think about the glide path for refunding customers effectively, the deferred income taxes that we collected over the last several years as part of normalization, and then also as part of the settlement for unprotected assets and liabilities that at some point will be returned to customers.
I would say you'd have a gradual, somewhere between $35 million-$45 million reduction in that deferred federal income tax component of our rate-making capital structure over the next several years. Probably 35-45 years, depending on the asset class. Electric amortizes a little faster because it has a little shorter useful life than the gas assets. My sense is about 35-45 years as that ticks down.
I certainly hope to not still be following your stock when that happens.
As do I.
You previously said you don't expect to be a cash taxpayer until 2023. Is that still the case given the solar plans?
That's right. I would just qualify it a little bit. We expect to be about a partial cash taxpayer at that point, and more closely to a full cash taxpayer by about 2024.
Okay, great. Lastly, what do you think about, I know the plan for the next 3 years is just solar, and beyond that, you talk about solar and batteries. What would it take for wind to become a part of that plan going forward?
Well, we do have 525 megawatts of additional wind that we're going to be adding to achieve our renewable portfolio standard in the near term. That's underway. What we see about wind is it's getting harder and harder to cite. As we did the analysis for the long term, distributed solar really matches the load curve here in Michigan. Combined with, we do have 1,200 megawatts of base load gas plus the Ludington pump storage. We have our base load power really available. Solar, because it's distributed, because it's modular, because we can build it fast, and because that cost curve is occurring so fast, that we really do see that combined with the current wind we have, the 525 additional megawatts of wind is the right mix.
Very good. Thank you.
Thank you.
Our next question today comes from David Fishman of Goldman Sachs. Please go ahead.
Hi. Good morning.
Morning.
Morning.
Just following on, I think it was Stephen's IRP question. Is there an expectation or a goal that when you refile in 2021 or at some other point for the larger 6-10-year opportunity set, that CMS can show effectively that utility-owned renewables is more economic than some of the third parties' prices that you expect to see or have been seeing? As a result, maybe it'll be easier in the future to get a guarantee higher than 50% for owning?
I would say that because of the way the law was written and that we do these ongoing filings, it does mean the plan is adaptable and can change over time. If we do demonstrate that we're the most cost-effective, then I think that will be compelling. What I would suggest is that being able to build 50% is a really great position to be in, and being able to then deploy our capital elsewhere in other parts of our system that are in high demand really works for our model. Because, again, I can't overemphasize the amount of capital that the system demands relative to customers' ability to pay and the balance sheet to be able to afford. It's a constant internal battle for where the next best capital dollar is, and so having some optionality on the supply side actually really works for us, especially with the FCM.
It really is a great mix for us in our opinion. As we do future filings, of course, the plan can adapt and change as conditions change. That's really one of the secrets, I would say, of CMS. This no big bet strategy, modular, adaptable, changing conditions, whether it's weather or politics or the economy. This is what's special about us. We adapt to those changing conditions because we can, because we don't have big bets. As I mentioned, only 15% of our $11 billion CapEx plan are projects over $200 million, and half of those are pre-approved renewable projects. The fact that our plan has so much flexibility in it going forward is part of our strength and part of the secret that we can continue to deliver year after year after year, that premium growth, six to eight, reliably.
Okay. Thank you for the very thorough explanation. That makes sense. It helps to provide you a good bit of balance and flexibility. One small follow-up, just more a housekeeping item. I think there was a small outage for TES Filer because it's no longer going to be repowered. I was just wondering, does that spill over at all into the second quarter?
There may be a touch of it that spills in the second quarter, but I wouldn't say it's of a material amount. It's also important to note that Filer City, yes, it's a contributor to Enterprise's performance, but it's not a significant contributor. DIG really dictates the vast majority of the financial performance of Enterprises.
Right. Okay. As I think you answered before, the DIG, you'll have one more quarter of material headwind, then it should kind of go back to being in the bilateral market second half?
That's right, given just the timing of the planning year versus the calendar year.
Okay, great. Thank you. Congrats again on the quarter.
Thanks.
Thanks.
Our next question comes from Shahriar Pourreza of Guggenheim Partners. Please go ahead. Hello, Shar, your line is open. Perhaps you're muted.
Sorry about that. It's actually Constantine for Shahriar here. Yeah, I was on mute. A lot of great disclosure and a lot of the questions have been answered. One kind of high level on the IRP and the 6,000 megawatts of long-term solar. Are you thinking about a sort of timing or a shape to how that gets deployed? I know you talked about the 1,100 megawatts solar being a little bit more tail end in the five-year plan. Beyond that, how linear is deployment?
Yeah. It's ahead of the retirements, because obviously we don't want to wait for the retirement date and then start to build the solar. We front feed, I would say, the plan, and then it spreads across the time horizon up to the point that our last coal unit, Campbell 3, retires. It really is relatively smooth across the 20-year time horizon. Just again, as conditions change, if load materializes more or less, that's the strength of this plan, that it's modular and we can adapt.
Okay. That answers all of it, thanks again for all the great disclosure.
Thanks, Constantine.
Thank you. Ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to Patti Poppe for any closing remarks.
Thanks, Rocco, and thanks, everyone, for joining us this morning, and we certainly look forward to seeing you all out on the road.
Thank you. This concludes today's conference. We thank everyone for their participation. Have a great day.