All right. Well, good afternoon, everyone. Thanks for being here. I think I know most of you in the room here, but for those who I don't know, I'm Sri Maddipati. I am Vice President of Investor Relations and the Treasurer of CMS Energy, and I want to welcome everybody to CMS Energy's 2017 Investor Day. Just a reminder, a couple of quick housekeeping notes. If you're going to use your cell phone and you want to go outside, remember, you can't use it in the lobby, so there's some phone booths out there to use it at. We're going to keep the day moving pretty quickly. We've got a pretty packed agenda here, and we're going to try to end at 4:00 P.M. pretty sharp. If you've got burning questions, feel free to ask them, but we do ask that if you can, wait till the end.
We've got some time allotted for Q&A. Just a couple of quick thank yous to the folks at Bluewater who are handling all the AV and the folks at Q4 Inc. who are handling the webcast. Also want to thank the University Club and the staff for the wonderful lunch we had. In particular, Nick McKee from Bank of America. Nick, I see him back there, who's a member here at the U Club and was gracious enough to let us use these facilities. Before we move on, I'm going to introduce the team. You all have heard from Patti and Rejji in the past, but if I can ask the CMS Energy folks to stand up quickly, I'll just do a quick introduction of everybody here. In the front row, you all know, obviously, Patti and Rejji.
We've got Garrick, JF, and Brian, who will be presenting today, and you'll hear a little bit more about them from Patti. Venkat Rao, most of you know, who used to run IR and be the Treasurer, is now our Head of Strategy and runs the Enterprises business. Catherine Reynolds is our General Counsel and Senior Vice President. Cathy Hendrian, Senior Vice President of Human Resources. Brandon Hofmeister, our Senior Vice President for Government and Regulatory Affairs. Glenn Barba, Vice President and Controller. And Tom Webb, our honorable Vice Chairman in the back there. Now the important part here, the SEC disclosure. I want to remind you all that this presentation contains forward-looking statements that are subject to risks and uncertainty. Please refer to our SEC filings for a discussion of the risks and uncertainties and how our actual results may differ. Then I want to just touch quickly.
You all know safety is pretty important to us. If you had asked us 10 years ago what our safety record was, we would tell you over 500 people didn't go home safe to their families. That's over one a day. We're happy to report last year we were under 100, and this year we're tracking even better for a record year of safety. That's really tied to a culture of safety and being prepared. What we do before any large meeting is we do a safety tailgate, level set ourselves so that if anything does happen, it doesn't become hectic and you know who's responsible for what. I'll run through that quickly. Reminder, we're at 1 West 54th Street in New York. Nearest exits are the doors and then the windows behind us if you really need to and it's an emergency.
Nearest shelter are the stairwells and the restrooms that are outside in case there's inclement weather. Travis Uphues on the IR team is going to be in charge of incident command. Sarah, who's outside, will be in charge of 911. Nikki will be the director for first responders. I'll man the fire extinguisher. The U Club staff will be in charge of both the CPR and the AED. In terms of if there's an active shooter, remember, run first, hide, and then fight. Lastly, this is a pretty packed room. We got a lot of bags, cords. Just as you move around, make sure you're not tripping. With that, I will turn the presentation over to Patti Poppe, President and CEO of CMS.
Did everyone like our warm-up music there? We know our slides are going to be so boring, the music had to be good. We last held an Investor Day back in 2013. We shared some things with you, people have asked us, "Why are you having an Investor Day? Are you big news?" No big news, everybody. You can relax. You're going to hear much of what you have heard many times before, what we really want you to see is why we think there's still sustainability in this business model. That's why we're here today. You're going to get to meet the team. We don't let them out of the office very often because they have a lot of work to do back in Michigan.
Everybody's in New York. We're happy to be here together. I think you will see that this team stacks up well. I would put them up against any other utility executive team in the industry. I hope after today you'll see why. Welcome. We're so glad to be here. Sri did a lot of introductions, I do want to thank the IR team as well. Sri, under your leadership, Phil and Travis and Nikki and Sarah out in the back. They do all the heavy lifting to make a day like today go smoothly. Thank you to the IR team for bringing us here and for all the hard work that you do. I know many of you interact with them, they are high class, thank you.
Our speakers today, I'm going to just go through quickly, a little bit more in-depth introduction to our speakers. I'll do a quick overview, then Garrick Rochow, who is our Senior Operations Executive. You'll get a chance to meet him. Garrick is a utility veteran. Our team back in Michigan loves Garrick. He is a great operating leader. He's demanding, high-driving, has high standards of all of us, his team lives up to it. I think you'll find he'll talk about our capital and customer-driven capital investment strategy. I think you'll be impressed with the depth of experience and knowledge that he brings to the table. In addition to Garrick, you'll hear from Jean-François Brossoit. We call him JF because Jean-François is a little more high class in our good old Consumers team. He's JF to us.
He brings a wealth of experience outside the industry of lean operations. He's our chief engineering executive, and he runs our engineering organization, but he's also leading our transformation efforts and the deployment of the Consumers Energy Way. I think you'll get an interesting spin on our take on lean for the utility industry. He'll have some interesting things to share for you, which I think is a key comparative advantage for us going forward, what continues and will allow us to continue to differentiate ourselves from our peers. Brian Rich, who is our chief information officer, as well as our senior-most chief customer experience executive. I think that's also consistent with our business strategy that customer and technology go together. We have combined those organizations on purpose.
You'll hear from Brian, he's got a wealth of experience in the industry and leading technology. We're really lucky to have this team with you all today. We are organized in a particular way. I just want to take a minute and explain a little bit about our titles. I think many utilities in the industry of a company our size might have a gas business and an electric business. We have one business, it's CMS Energy. It's simple and straightforward, but we are organized in a particular way that begins and ends with the customer. Everything that we do for the enterprise begins and ends with our customers. Our functional organizations, focused on functional excellence, use that customer feedback to drive their actions, strategies, behaviors, things like finance, HR, our regulatory affairs. It's all customer-driven.
Those functional teams then lead and support our engineering and operations organization led by Garrick and JF, and they are then in service of our customers. That customer feedback organization comes through Brian's group. The loop starts back over and comes back, that customer influence and customer organization then feeds the rest of us in everything that we do. We would like to say that there's two attributes of our organizational design that are important. Number one, we're flat. We don't have presidents of this business, presidents of that business, and lots of hierarchy at the top. This is the team who runs the company. The people who are in the room with you are very close to the work. We know our coworkers, we know our customers.
We're not so big that we can't keep our hands very close to where the work is happening and our eyes on the process on a daily basis. You'll hear a little bit of that from the team. We're flat, we're focused on the business, we're organized to deliver. When we were last at an Investor Day, we were in Grand Rapids. Many of you were there, Grand Rapids, Michigan. We made some promises. Those promises included having a $7 billion capital plan for 2014 through 2018, that we would be reducing our operating expense about 2% per year, that our customer rates on the electric basis would be up about 2% and gas up about 2% per year over that time period, an amount that we feel is consistent with our customers' ability to afford.
We promised 5%-7% EPS growth and a dividend that followed. Well, let's just check how we're doing. Three years into that five-year plan, we've already spent $5.25 billion of that CapEx plan, we're ahead. Our O&M costs are better than planned at 3.5% per year on average down over that time period. Our electric rates, better than planned at 1.5%. Our gas rates on par at 2%. When you think about that combined with the price of the commodity, we are the lowest cost gas provider in Michigan, one of the lowest in the region. We take great pride in having the lowest prices our customers have experienced in a decade. There's a lot good happening in our gas business, which you'll hear a little bit more about. We've delivered 7%. Is everyone familiar with that number? 7%.
We said 5%-7%, we delivered 7%. It wasn't just those three years. We've delivered 7% for the last 14 years. Again, I think we're pretty consistent and pretty good at keeping our promises. The key question that I often get is can you continue? Is it possible that you can continue to deliver that kind of performance year after year after year? We're going to share with you why we're so bullish on yes, we can. The next five years, what do they look like? The next five years, we've bumped up the capital plan because of the age and the need of our infrastructure.
Garrick's going to go in detail about that, it's really important to recognize the depth of investment, the opportunity that there is, we're only limited by the ability of our customers to afford to pay for it. We don't have a problem internally trying to figure out where can we find capital projects. That is not the problem we have. The problem we have is figuring out how to prioritize all of the capital projects that we have and get the highest value ones in each and every year. We work really hard to make sure that the capital projects that we are investing in have high customer value, and in fact, many of them help us reduce our structural cost, which in fact self-funds those very same capital projects. We'll talk more about that.
We expect to continue to have cost savings in the 2%-3% per year. I do hear some of my peers saying, "Yes, it's hard. We're going to have to hire a consultant to come help us find our cost savings." We have a different approach to that. We see cost savings as far as the eye can see. We see a steady culture of continuous improvement forming that's based on our track record to date, our average of 3% for the last several years per year of O&M cost reductions. We see that as a way of life. We see that as a core competence. We see that as part of the fabric of who we are as a team and as a company.
What you'll hear from JF when he talks about the Consumers Energy Way, we're actually building our lean muscle in that area so that we can even do more. Build on our track record and strengthen this team. We do feel like we continue to separate ourselves from the pack with our capabilities. Combined with then our commitment to continue to have competitive prices for customers, 2% electric rate increases in the plan. We think there's a little more headroom in gas. By saying 3% base rate increases for gas still reflects a lower cost for customers as a result of the commodity. Given the age of our infrastructure, we actually think it would be unwise not to make the investments. We have a lot to do on our gas system, and we want to make sure that we're not penny-wise and pound-foolish.
We know that our customers can afford the infrastructure investments because of the price of the commodity, and we know the infrastructure investments are necessary to continue to deliver a safe and reliable gas system for our customers. We've changed our range, as you know, from 5%-7% to 6%-8%. The dividend growth will follow. Let me be really clear about what we mean when we say 6%-8%. For many of you in the room, and those of you on the webcast, when you hear us say 6%-8%, you might think, "Well, Patti, you've said 5%-7% all those years, and you delivered 7% all those years. Does that mean when you say 6%-8%, you mean 8%?" Let me just be perfectly clear with all of us here together.
When I say 6%-8%, what we mean is we have certainty around 7%. We have certainty around the midpoint. We said 5%-7% all those years and delivered 7%. 5%'s sort of off the table. 6%-8% is our range, and we like the latitude of on a given year when we have favorability, maybe some one-time things going on. We have a strong track record of putting those savings back into the operating expenses of the business as we make decisions throughout the year. In fact, $340 million we've plowed back into the business over the last four years. We do want the latitude to give some more to you. That's the balance that we're striking. 6%-8%'s the range, certainty around the midpoint, and on a particular individual year, there might be an opportunity for a little upside.
That's how we think about 6%-8%. Happy to take any questions later about that. How are we so certain, and why would we be confident enough to raise the range? I know all of you would be very satisfied with a continued 7% every year. In this industry, that's very good. We're proud of that fact, and we're proud of the consistency, but we're confident about it because of our business model. It's simple. It's repeatable. It's something that helps you sleep at night. I think, in fact, there's a quote that goes that way. We have 6%-8% as the basis based on our CapEx, and again, the infrastructure, which we'll talk some more about, self-funded with operating cost savings, conservative sales, no block equity.
We can then really focus in on top-end EPS growth while protecting our customers from significant rate price increases that they cannot afford. The whole picture is simple but consistent. This model continues to hold, let me show you how. We have a large and aging infrastructure. We have older than average key parts of the system. Garrick's going to go, I don't want to steal his thunder. He's going to go into great detail about where those CapEx opportunities are. Here's the key point about our aging infrastructure. We don't have to make any big bets to fill out our CapEx plan. We actually need to balance the demands of the system, and like I said, have internal competition, if you will, for the right projects to assign those capital dollars to.
Smaller bets, smaller bites that enable us to de-risk our capital strategy. At the same time, we're improving customer experiences and improving our service to them. Combined with our commitment to cost savings. Our capital plan itself actually drives some of those operating cost reductions. Our smart meter installation, for example, helps to reduce estimated meter reads. Therefore, we have better bills. Therefore, we have less manual rework, we have less calls to the call center. Net operating costs down. In addition to the meter reading itself, it's a lower operating cost because of a capital investment. Much of our capital plan, in fact, does that. It enables lower operating expense. We also have technology-enabled savings. Smart meters actually fall a little bit into both of those categories. It's a big capital program, but it also has a big undercurrent of technology.
Things like our field service suite, where we're optimizing routes, we're eliminating waste in the routes that our trucks drive, reducing miles driven, reducing gas used, lowers operating expense through the use of technology. Brian will spend some more time talking about how we can do both cost savings driven by technology and customer experience enhancements because of technology. We also have structural and process changes. Powered by our Consumers Energy Way, we're learning new skills. We're teaching the whole team. Every one of us can be equipped to see and eliminate waste, you'll hear more about that. We also have structural things like our PPAs. It's a good time for me to talk a little bit about the PPA order from the commission on Friday. We're not finished. The commission approved the Palisades PPA securitization.
We will wait now for Entergy to determine whether they'll take the lower price. The important thing for all of you, we can't speak for Entergy, so we won't today, you can respect us for not being able to discuss what Entergy might do. What the important thing to remember is it's not in our plan, it hasn't been in the plan, that PPA will expire. If Entergy opts to not take the lower offer for that termination payment, we actually get that same upside in the out years of the plan. Our 5-year plan didn't require it, we actually can just defer the benefits to when the PPA expires without a securitization payment. We're not concerned about it, we'll see over the next couple of days.
Entergy does have a refueling outage that they would need to conduct if they were going to keep Palisades open. They have a time constraint on when they will determine whether they would pay a lower payment. On behalf of the commission, they're balancing a pretty complex issue for the state in terms of jobs, community impact, baseload nuclear. It was an important decision for the commission, and I think they were working hard to balance resource adequacy for an affordable price. We'll see what happens. We're not finished, and again, the key takeaway, it's not never, it's just not now. It's in fact, it is delayed by four years, and that buys the upside in the plan in the out years. We're pretty excited and definitely bullish on Michigan. I had the privilege last week of being up at Mackinac Island.
How many of you have ever been to Mackinac Island? Yeah, of course, my whole team, all the Michigan people have been there. My daughters would argue, for those of you who have been to Nantucket, that Mackinac Island is preferable to Nantucket. Just let it be known you should put it on your bucket list. It would be worth your time for the trip. I was up at Mackinac, not vacationing, but rather with the governor, selling our state. I heard somebody mention lobster. No, they don't have lobster on Mackinac Island. Fresh water up there. I was up at Mackinac Island with the governor with site selectors selling Michigan and all the great things that are in place in Michigan.
I was reminded, actually, as the governor and I were presenting to companies who represent companies looking to locate in Michigan, how far we have come. The governor told a funny story that when he was first named governor, he went to new governor school. This was in 2007. He became governor in 2008. He left for break at the session and came back, and there were envelopes on all the governors' chairs. In the envelope, there was one sheet of paper that you could pull out, and it had a number on it, and it was your ranking for relative ease in which to do business and attractiveness for your state in which to do business. His said 5-0 on it. 50. 50th. Lower is worse in this scenario. That was not good.
He was really struck in that moment that there were some significant structural changes that needed to be made in Michigan. I'm happy to report that if he went back to that class and he got his envelope after break, it would say 11. We have improved our tax structure and our business tax structure. We've improved, and in fact, talking to the site selectors, one of the biggest problems that they have is access to talent. Across the country, there's a shortfall in talent. We have more skilled trades workers than any other state in the nation, 200,000 journey workers in the state of Michigan. We have more mechanical and industrial engineers than any other state in the nation. That's a huge comparative advantage for our state, and it was fun to hear the governor brag about that and the improvements that we've had.
In terms of business attractiveness, we also have financial stability. We passed the budget. The governor and the legislature passed the budget for the past 7 years early. There's no threatening to shut down the government in Michigan. It is very productive, fiscally responsible government that creates a very business-friendly environment, and we're starting to see that manifest. Rejji will spend some time talking about some of the economic development wins that the state continues to have. Michigan's attractive for companies to come and locate and come to do business. It's also attractive for you as investors and owners for the regulatory construct. I was on a panel just a couple of weeks ago with some other utility CEOs, I was reminded as I heard them sing the woes of their regulatory constructs and how they had rate cases tied up in proceedings for years.
I was like, "Wow, we really do have a great construct." It's in statute. It's not personality-driven. It's legislated. We have forward-looking test years. Our 2008 law set the framework, and the new law that was passed in 2016 enhances it with more longer-term visibility, including enhanced and raising the RPS standard, as well as raising the incentive for energy efficiency and puts in place an IRP construct so that we can have longer-term visibility into our generation planning. In fact, we've agreed with the commission that we're going to file our IRP a year early, earlier than required by law, because there's a lot changing and transforming in our generation mix, and that gives both the commission and us more shared visibility into our long-term plan.
We think that is good regulation that creates a good regulatory construct and much less uncertainty and risk in the outcomes of decisions. I would also argue that our commission is the best, highest quality commission that I've seen in my professional career. Chairman Talberg has great depth of policy understanding, and her role at MISO has given her a lot of visibility into resource planning, which is very important. Commissioner Saari has a lot of experience in legislative affairs, you combine those two with then Commissioner Eubanks and her financial experience, that's a pretty high-quality commission. There's no surprise that we have top-tier rankings in our regulatory construct because of the statute nature of the construct combined with a high-quality commission, our outcomes aren't surprising.
In fact, the governor said just this week that his objective, and he appoints the commissioners, his objective is that we have predictable, reliable, visible regulation and government in Michigan, and that's his commitment. He calls us his customers as citizens. We've got a really great momentum in Michigan that we're proud of, and we've got a good regulatory construct within which we can operate and you can trust in the regulatory outcomes. That's the business environment. What really gets us up every day is why we do what we do. The team that you have the privilege of meeting here today believes that we can stand for what we refer to as our triple bottom line. We stand for people, the planet, and profit. All three of those things in equal measure. It's easy to do one of them.
It's a challenge to do all three, but we're able to do all three because they're underpinned by world-class performance. Everything that we do to improve our performance every day enables us to serve people, planet, and profit. When I say people, I'm really talking about our customers, our communities, and our coworkers. Our customers trust us. We're identified as one of the trusted brands. We're proud of that. We work to earn that every single day. We earn that through competitive prices and working to hold down costs and keep the system safe and reliable. Our communities can count on us in many ways, of course, serving and being out there on the job every day, but we do a lot of community giving.
In fact, right now we're in the midst of our United Way campaign in our hometown of Jackson, and our very own Brian Rich is leading the campaign on behalf of the company, and he will stop at nothing to achieve our goals for United Way. My team is starting to snicker because he won't stop even at putting on a hot dog costume to encourage our coworkers during a Coney Dog eating contest to raise money for the United Way. I encourage you to ask for photos because there's photo evidence of this hot dog costume. We are very competitive, and to achieve even a charitable goal, we will work hard and put all of our gusto into achieving it.
We care a lot about serving our communities, I think that's why our coworkers chose our company as the number 1 place to work in Michigan. We have some great companies in Michigan. We have Kellogg, Herman Miller, Steelcase, General Motors, Ford. We have some great companies in Michigan, to be selected by our own coworkers as the number 1 place to work says something about my coworkers. That our hearts of service and that purpose-driven message really matters to them, and it shows up every day. It showed up as we provided resources to support Hurricane Irma. There was actually almost a parade of our bucket trucks leaving Michigan to head down to Florida and Georgia.
There was a lineup of coworkers who were staying behind to hold down the fort and do all the work, everyone back at home is going to do double time while the team's out on the road in Florida. There was actually an exit celebration for the team to go down and serve our friends and families who are down in Florida and Georgia. We take that service very seriously, it runs deep. Again, I think that's why our secret's out that we are the best place to work in Michigan. I also think that both our customers and our coworkers appreciate our commitment to the planet. We're an energy company. We have an impact, and we are taking steps and are proud of the steps that we have already taken to actually have measurable impact on reducing that environmental impact.
In fact, I hear companies talking about their goals for 2040 and 2050. We've already reduced our carbon intensity by 30% since 2005. That was the Clean Power Plan standard. We've already achieved it because of our reduction in coal and replacement with clean, low-cost natural gas. While we're serving the planet, we're still, in fact, able to reduce our customers' costs at the same time. That's how the people, planet, profit thinking happens. You can do all three, and we're proud of being able to do all three, and we're proud of our commitment. Sustainalytics selected us the number 1 U.S. utility for sustainable business practices, both our commitment to the environment but also social and governance. We're proud of that. We think that's where the triple bottom line really proves itself in the reliability and the low risk of our earnings forecast.
We back that with the Consumers Energy Way. The Consumers Energy Way is what I believe is our path for the future. We're early on our lean journey, and you're going to hear from JF how it's taking shape. The Consumers Energy Way starts with that commitment to business results. That's the center of it. What it means is that we believe, and we are putting things in place so that every day can be a safe day. The safety statistics that Sri mentioned, those are sustainable improvements that can continue to be delivered. We're so proud of the safety culture that has been created at the company, and we know it's a platform for this continuous improvement culture journey that we're in the early days.
Every day can be a safe day, that we can get our work done right the first time, that every one of us can see and eliminate waste all around us, and all those little savings add up. They add up to the 2%-3% annual O&M savings, while at the same time improving our customer experience. We can get our work done on time, and that is what then makes our team proud to serve. As I travel the state and I'm in service centers and I'm talking to our crews, they don't like showing up and not getting it done right the first time. They don't like showing up and doing it on the wrong day. They want to deliver on time, first time, every time.
We can build that commitment to serve, leverage that commitment to serve, and deploy these new tools and techniques, and absolutely fulfill on that promise in a daily way. Which is how we deliver this consistent performance. In the people, planet, profit mantra, profit is equally important to that commitment to people, planet, and that underpinning of performance. Here's the campaign I'm on, by the way, on your behalf. I am campaigning with anyone who will listen to reshape for the minds of both my coworkers as well as our communities, who are our investors? Who is it that profits? What are we talking about? Is it big Wall Street fat cats? No, and I think you know this. You represent moms and pops. 94% of our stock is held by moms and pops.
I remind people, those moms and pops have entrusted their life savings to you, and your choosing us is a good choice. You can know that we wake up wanting to keep the promise to them, too. That those people's life savings is worth providing an adequate return. That's why we are committed to the triple bottom line, unapologetically standing for profitability, at the same time, really standing tall for the people that we serve and the planet as well. We can do all three, that's our track record. You can see our track record here. In spite of weather, policy maker changes, regulator changes, leadership of the company changes. We have a DNA about delivering.
What you'll hear from my team, and you'll have a chance to hear the team talk a little bit, you can be sure that that line can continue long into the future. Now I'd like to introduce Garrick and let him talk to you about our customer-focused capital investment strategy.
Good afternoon. Usually that, I usually get a response back that says, "Good afternoon," back. That's kind of how I operate here. It is a pleasure to address the group. I really appreciate the opportunity to discuss what's in our customer investment plan, which really is our capital investment plan. There's a diagram, a little model that I'm sure you're familiar with. You've probably seen in some of our investor-related material in the past. Today I want to unpack that for you, open that up a little bit and expose what's in there from a capital perspective, because we have a very solid capital investment plan. $18 billion over 10 years. There's some key components of that. One, delivers real value to our customers. Two, it works to reduce our operations and maintenance expense. Three, it's aligned with the Public Service Commission.
Fourth, as Patti mentioned, follows the principles of no big bets. You know what? There's more. There's upside, there's runway, there's opportunity. However you want to call that's part of what and who we are. We have more opportunities out there because of our infrastructure and because of the age of that infrastructure. In tune, roughly $7 billion. It shows up in other opportunities, like in terms of replacing more of our gas infrastructure and grid modernization, advancing the controls and automation across our electric grid. In purchase power agreements and some of the replacements that are contract certain have an expiration date and provide an opportunity with backfill with renewables and other sources of energy. Really a strong plan with plenty of upside. I want to remind you, just like Patti did, that we temper that, right?
We want to make sure our customer bills for our residential customers are affordable. For our industrial customers, our rates are competitive. We keep base rates at or about that rate of inflation. Trust me, there's a lot of big infrastructure out there to invest in, which is aging. I want to show that to you today. We'll go through that. That should make you excited. I know as an operator, that makes me excited because we're investing back in the business. Let me talk about our gas system. Our gas system is a real gem. I think many people, they just don't realize how big this system is. You can cut it multiple ways. You can look at the distribution miles, you can look at the transmission miles. Number five in size compared with our peers.
If you look at the compression and storage assets, number one compared to our peers in size. That by itself provides a lot of investment opportunities. If I just start right there with compression and storage, let me just open this up for you a little bit. Michigan is blessed with the geology. About 6,000 feet below the surface, there's a sandstone layer. We bring gas into the state. We inject it in the summertime into this porous sandstone layer with these big reciprocating engines. I got 52 of them across the state at eight plants, 170,000 horsepower. Then I pull that gas out in the winter, I deliver it to our customers. Many utilities don't have this opportunity. They don't have the geology to support it, right?
This is unique to us and positions us in a better spot for investment, frankly, than a lot of other utilities. $1 billion in the plan associated with that over the 10-year plan. We take that gas out of compression and storage, and we move it in transmission lines. Many of you know what that is, but if you don't, large diameter pipe, steel, 36-inch, 24-inch, 20-inch, high pressure, moving across the state. 1,700 miles of pipe within Michigan in the regulated utility, $4 billion investment over the 10-year plan. That's not building a pipeline to Marcellus. That's not building a pipeline to the Bakken. That's in the regulated utility, not new pipe, replacing pipe. I'll give you some more details in another slide.
All that gas then moves into our distribution system, in distribution mains, it's in communities, it's in suburbs, it's in the middle of the street, it's in urban centers, and even extends into some of our rural areas. 28,000 miles of distribution main within the state of Michigan in our service territory, ultimately providing service to 1.7 million customers. You have a T, a service that ultimately goes through the yard to someone's home or through an alley into commercial facilities or maybe into an industrial park. It's certainly a big system, and then I'll also share with you a system that's getting older and an opportunity for investment. Let's break it down even a little further. Let's talk about these. Gas transmission. Just, and again large diameter pipe, high pressure, 36-inch, 24 steel.
If I just take these three projects right here, three projects that are in the 10-year plan, three pipelines that we're working to replace, that's over $1 billion. If I just take that top one, that Saginaw Trail or line 2800 that goes north to south, 94 miles to replace, $636 million. You can do the math of what it costs to replace a mile of transmission. Let me tell you the why on this. What's the story behind this? Just as example to make these investments really tangible for you. This pipe was constructed in 1942. What do we know about 1942? It was World War II, and all the best materials were going to the war effort, right? All the best welders and laborers were in the war effort. We have opportunities with this pipeline, right?
From a customer benefit, it's making it safe. While we're replacing it, we're not just going back with the same pipe, right? We're expanding the capacity, going from a 12/16 inch mix to a 24 inch to be able to support growth in the Mid-Michigan area. A real benefit from our customer standpoint. In addition, I'm reducing my inspection costs with new pipeline, right? That provides for a reduction in my operations and maintenance expense. Finally, from a regulatory standpoint, before I even put the first shovel in the ground, before the first excavator goes on-site, I file an Act 9 with our commission, which is essentially a certificate of necessity. I get pre-approval to build the pipeline. That just adds a whole ton of certainty around recovery when it's in our rate case. We've received that already on Saginaw Trail.
We're in the process of working that through in the plan with our Public Service Commission on the other two pipelines. Good certainty. Let me just frame this up for you, too, in terms of opportunity. This is the runway I'm talking about. Of these three projects that are in the plan, that's 170 miles out of roughly 1,700. 10% of the system. 10%. You guys get there's a lot of opportunity here. There's one key date that I want you to remember, 1970. Yes, the year 1970. That's when all the federal regulations changed. A lot of gas utilities talk in terms of how much of your pipe is below or above 1970, before or after 1970. You'll find if you look in the information, we have 75% of our system that was constructed before 1970. The peer average is 65%.
You can see already that we are positioned well in comparison with other utilities for future investment opportunities for future replacement of transmission pipe. Let's move on. Let's talk about gas distribution. Again, smaller diameter pipe. It's in the urban centers, in the cities, in the suburbs. We started a main replacement or distribution main replacement program in 2012. The idea was to remove vintage services, or I'm sorry, vintage mains, as we call them. Vintage mains are cast iron that was put in the '20s and '30s, and unprotected steel. When I say unprotected, it's not coated and wrapped as required now, so it has a greater degree of corrosion. Threaded and coupled steel. About 2,500 miles we're replacing in all. We're about five years into that program, about 20 years remaining.
We do about 100 miles a year, that is part of the plan. Again, just to frame up opportunity, we're working to replace 2,500 miles out of 28,000 miles. That we're not going to replace it all because some of it's constructed in plastic. There's another 12,000 miles of steel out there that'll be the next tranche that could be feathered in as opportunity or runway for the long future. Let's move on to service line replacements. 185,000. First of all, I have 1.7 million service lines across our system. 185 of those service lines are what we call vintage. When I say vintage in service lines, it's copper and it's unprotected steel. These were put in the '50s and '60s. After the war efforts, there was lots of housing booms.
Many suburbs were built, these service lines that feed the home are reaching end of life. In fact, 75% of my leaks that I respond to fall into this category. What do you think about leaks? Are they ever planned? No, they're never planned. They're always emergent, they always cost a lot of expense, they always happen at the wrong time. Someone's always on overtime when we're doing a leak. It's always cold, there's always construction issues. It just happens that way. Here's a real opportunity for us, again, where we can improve deliverability to our customers, we can reduce operational expense, we're working right now, and you can see it in some of our rate cases and filings here, to further align this with the commission, but good support by the Public Service Commission to do this type of work.
Again, frame it up in terms of opportunity, 185,000 services we're working to replace out of 1.7 million in total. Again, we won't do them all. A lot of them are plastic, but I've got 360,000 services that are steel, that are coated or wrapped, that when we finish this tranche, there's more opportunity beyond that. Not just to do it just because capital investments are good, but it's source of leaks on our system. It's a source of customer benefit, right? We evaluate all of this pipe by a risk model and make the right choices for our customers to ensure the safety of our system. That goes throughout, whether it's transmission, distribution main, or services. We've been able to do this work, as Patti mentioned, and maintain really affordable bills for our customers. Go back to 2010.
The average customer paid $90 on their gas bill every month, so $3 a day. Today, because of gas prices and the decline, they're paying roughly $2 a day. Over that same time period, we have really feathered in these capital investments, all the ones we're talking about. In fact, over the last 10 years, our investment in gas or the capital investment in gas has grown by 40%, right? The benefits that we see in terms of delivery to our customers, also the reduction in operations and maintenance costs, all are done while our customers are paying less than they did in the past for natural gas service. As we look forward at some of the NYMEX pricing, we see a slight decline probably over the next few years, but really flat going forward.
A nice environment for investment in the gas business while keeping our bills affordable for our customers. Let's switch gears here and move over to the electric system. There's a couple, if I was to write headlines about the electric system, there's a couple things I would write. It's one, it's certainly significant in size, and I'll talk about the reasons why, also really a story of age, opportunities to invest to modernize that system, not in terms of bells and whistles, but in the basics of our infrastructure. Let me walk through that. The first part, really from an electric distribution system, we're really considered a rural type electric distribution system. You think about Michigan and Detroit being kind of the most recognizable urban area. We don't serve Detroit, but we serve essentially the rest of the state.
In fact, it's a little misnomer because we serve large cities like Grand Rapids, Michigan, that is recognized as one of the fastest-growing cities in the nation. We serve them, but we also serve a number of smaller communities in Northern Michigan. What that means for you, though, as investors, is we have more stuff. We have more infrastructure. We got to run the lines longer, we got to have more substations in different communities. What, as a rural utility, you'll find is we have more infrastructure that we have to maintain, upgrade, and the like, which provides more opportunity for investments. I'll walk through that and then I'll touch on this age piece as well. From a supply side, what's in the plan is $4 billion investment in our supply.
Patti touched on some of the pieces of that, right? I'll go into more details, but renewables is certainly going to be a part of that. Our application of the clean and lean strategy and upgrades in some of our existing facilities to ensure reliability. Those electrons we make flow out, that electricity flows out across the transmission system. We have just a sliver of that transmission system. We are a small transmission provider. The reason we do that is really just to keep a watch on the cost and have a seat at the table at MISO. ITC owns much of that transmission system. They then hand that energy off and those electrons off to us across our high voltage distribution system. We own that. We operate that. That's part of our assets. There's 4,500 miles of high voltage distribution. Some people will call this sub-transmission.
If you might imagine, this is the network that moves electricity anywhere in the state. If you see this out there, that 4,500 miles, these are large poles. These are the big class poles. Some of them are metal, some are certainly wood, but they're tall and they're large. The cross arms are beefy. They have long insulators on them, 138,000 volts to 46,000 volts. A big, robust system. A lot of times we call it our backbone of our electric system. Plenty of opportunities for investment in that. $1 billion over the course of the 10-year plan. That moves and it goes to a substation. That might be an industrial park, it might be in a community center, it might be in your neighborhood. 1,200 in them all.
More than our traditional utility, given our kind of rural and dispersed nature, which provides an investment opportunity. We drop the voltage there, and it goes across the distribution system, ultimately to deliver to our customers. That low-voltage distribution system, we have 56,000 miles of that across the state of Michigan. 56,000. Imagine 56,000 miles of poles, 56,000 miles of crossarms and insulators, wire. Plenty of opportunity. In fact, $4 billion over the 10-year plan. I mentioned this other headline, and it's really about age of that electric distribution system. I think this graph does a nice job of sharing that story. When we look out at other utilities, and we look at their electric distribution system, what we see is we're really in third quartile in terms of age, with first quartile being the best. Right? This is the discussion we have internal.
This is the discussion we have with the Michigan Public Service Commission. We're not talking a lot about bells and whistles or gold plating. It's really about how do we move from third quartile, second to first. How do we invest in the fundamentals of this business, rebuilding substations, rebuilding miles of line, new poles? Those are some of the fundamentals that we talk about with the commission and are part of our investment plans. Discussions like grid modernization, yeah, there's a little bit in the plan, but a lot of that is upside. A lot of that's opportunities that we have for the future. Frankly, and maybe this is a biased view, but it doesn't make sense to put new switching and new controls on top of a pole that's reached end of life. That's just how we think about it.
Let me walk through the $6 billion that we'll invest in our electric distribution system. Much like gas, I can't go through all the $6 billion, but we'll hit some tangible examples and clearly show some of the opportunities for the future. If I was to pick and choose some stuff on this page right here, across our low-voltage distribution system to be able to serve 1.8 million customers, there's 1.5 million poles. Low-voltage distribution poles. The average age of those poles is 39 years. Expected life of a pole is 40 to 60 years. Start to see a little bit of a bow wave occurring here. In our plan, we replace about 5,000 poles a year. Right? You can do the math on what that looks like. In order to replace a good portion of those poles, you're talking about an opportunity of $5 billion.
That's not in the plan, folks. Right? This is an opportunity we have in front of us. More work to be done. As Patti said, there's a lot of competition across resources, electric, gas supply, to do the right things across the business and adjust risk. This is just one of those examples where we have additional upside. 1,200 substations over the plan. We'll do some upgrades to about 900 of those. You can still see more runway there as we invest about $1 billion in substation work. That backbone, that high-voltage distribution system, similar story with poles. About a third of the poles on that system are at 60 years. Again, we're replacing 5,000 to 7,000 poles per year. That's what's in the plan. You can clearly see that there's more opportunity above and beyond the plan. Certainly more runway for the future.
Same with this 4,500 miles. We're working to rebuild that, but only 24% meets our current standards. Again, that's part of the plan as we move forward. Again, you can see clear upside. Just like we had in gas, we work hard on a couple different things. One, to make sure these investments deliver real value to our customers. The value is shown in reliability. We can avoid an interruption to the customer, and if they have interruption, our duration or the duration of that outage can be shorter. Those are the types of investments. That's the benefit for the customer with these type of investments. The additional thing from an operations and maintenance expense, my largest budget item, my largest O&M expense, is service restoration. If you couple that with demand maintenance, that's emergent work to restore customers when the power's out.
Make sound investments in this business, we can work to reduce those operation and maintenance costs. That's clearly what these investments can yield. Then finally, from an alignment perspective with the commission and our Michigan Public Service Commission, there's some good work going on right now. As Patti indicated, a constructive environment. We're working on this five-year electric plan, which really lays this out so we have good alignment, good line of sight between the staff of the Michigan Public Service Commission, with the commissioners, and with the utility on our investments, what the plan is over the next five years for electric infrastructure. Again, a lot of opportunity here across our distribution system. Let's move on now to the supply side of the business. Really application of our clean and lean strategy. A $4 billion investment in the plan.
The first big tranche is $1 billion, and it's squarely focused on renewables and moving from a renewable portfolio standard of 10%-15%. That creates an opportunity for 500 megawatts, an opportunity for us to own, operate, and recover on that investment opportunity. In addition, what's in the plan is maintenance and upgrades at some of our facilities. That's like the work that we're continuing to do at our Ludington Pumped Storage Facility, one of the largest hydro facilities in the world, to expand the capacity and the reliability of those units. It's also investment in natural gas units across our facilities and other environmental controls and modifications. That's what makes up the $3 billion. Probably the bigger story here on the supply side is the opportunity. You can see it on the slide, $3 billion-$4 billion of opportunity here.
Our supply mix, it's really well-known, right? A third of it's these purchase power agreements, which have date certain. We know they're out of market, that provides an opportunity to replace with assets that are clean and lean. Replace with assets that have a lower cost for our customers. In our owned assets, we also know that we have five coal plants. Of those five coal plants, the average age is greater than 50 years. We will be making decisions over the next 10 years in evaluating those plants, and does it make sense to continue to operate those plants? That will be some of the evaluation, math, and science we do over the next 10 years. That's going to create opportunities to backfill, to provide different assets as those units reach shutdown.
I would be remiss if I didn't talk a little bit more about our clean and lean approach, because that's what this strategy is really built on, particularly in the supply area. The way I like to think about it is kind of the traditional utility model, is to build this big, big asset. All kinds of supply, your supply goes way up, and some might call them big bets. Usually these utilities or traditional utilities will hope that the demand starts to match that eventually. It may take some time, and maybe it never matches, and that's a problem. It's a problem for our customers, a problem for cost in terms of operational maintenance expense.
It's a problem from a fuel cost perspective because the unit was designed to run at this load, and you're down here, inefficient from a heat rate perspective and a fuel perspective. Our approach is different. Clean and lean approach. The way I describe it's flexible, modular. It's where we match supply and we match demand in a more close relationship so we can better utilize those assets. That's the best value for the customer. We don't lose anything by doing that. Different, right? It's good. In doing it in such of a renewable way that we're able to do it very modular and flexible. We can add as many wind turbines as we need, right? We can add a gas plant that better suits demands of what might be retiring at any one time. It's a different approach. It's a good approach.
It's a clean and lean approach, which does not sacrifice any investments over the 10-year plan and provides an opportunity for future growth. In conclusion, I've walked you through our $18 billion plan. Let me leave you with these points. One, it delivers real value to our customers. You hear that in a couple examples. Two, it works hard to reduce operations and maintenance expense, and I've also provided some of those examples. I've also gave examples how it's aligned with the Public Service Commission and clearly observes the idea of no big bets. Hopefully you walk away with this idea, too, that not only is it a solid plan, plenty of upside. There's plenty of runway in this plan as we go forward, whether that be in gas or electric distribution or electric supply. Plenty of opportunities. My last comment would really be around clean and lean.
Clean and lean applies, we talk about it a lot in terms of our supply side of our business. As Patti mentioned, the idea of lean in terms of the planet, certainly lean applies in all areas of our business, and how we think about the Consumers Energy Way and how we think about operating, reducing waste across our system, making our operations more efficient. At this time, I'd like to bring JF up to the stage to talk about our application of the Consumers Energy Way.
All right. Thank you, Garrick. Good afternoon, everyone. Same expectation as Garrick's. Before I get started, I just want to thank you for choosing us. Very important. I'm very grateful that you choose us. Again, I'm J.F. Brossoit. Today I'm going to talk about how we're going to utilize the CE Way to continue reducing costs across our enterprise and how lean thinking will be helpful. Just to give you a little bit of background about myself, I think lean in everything I do. I can't help it. My mother chose to name me Jean-François, 12 letters and a hyphen. For people to recognize me, all they need is J.F., right? It applies in my name. As we step back and look into the future, it's important to also reflect on what's been our performance so far.
Obviously, as you all know, we've been relentless in our quest to reduce cost. As we compare ourselves to peers, we see that over the last 10 years, we've been able to deliver 3% cost reduction when most of the industry saw a cost increase of nearly 4.5%. We're really proud of that performance. As we look into the future, you got to reflect on the past and say, "How did we deliver that performance?" Great work was done. We've done that reduction through smart structural cost reductions and also through hard work. Just to name a few of them, defined contribution for new employees, closing coal plants, installing smart meters, have all been things that really allowed us to hone in on the cost reduction. That resulted in a very good performance, once we start looking to the right, in total O&M and cost per customer.
You start seeing our performance in 2016, after that 10-year trend of reducing cost, really moving to the first quartile in our O&M cost per customer. Really, when you think in a continuous improvement way in lean, you celebrate successes, but you always look at the opportunity. If you cut the data a little further, and you start looking at our distribution O&M per customer, you can kind of see that our performance is not nearly as good. Significant opportunity. We're in the second quartile, and when you really look at this visually, I would say that we're kind of mid-pack. Significant opportunity to go look at those costs. Those areas of cost are very labor-intensive, and there's a great opportunity for us in the future. That's really where the CE Way comes in. How do we go about looking at all our opportunities?
How we do our work, the rework, how we spend our time, find the waste and take it out. Many times we get the question: How do you continue reducing cost? How do you get there? Where's the bottom? Well, we sometimes have to go outside our industry to see that it's been the norm for other mature, competitive industries for a long time. It's a way of life. Expectation to improve productivity is something that they need to deliver every year as a way of life for the past decades and going forward. For some, it's been a matter of survival. According to the Bureau of Labor Statistics, you can see that the automotive business has delivered over the last 10 years, on average, 6% labor productivity every year, over 10 years. Similar performance performed in the aircraft industry.
I've had the chance, give you a little bit of my background, to work for companies in or adjacent to those industries. I spent nearly 20 years with General Motors, so in auto, and 10 years with United Technologies. I've learned a whole lot about how you go about delivering cost reduction, delivering labor productivity year over year over year. I can tell you with confidence that those experience and knowledge is transferable to our industry. Their challenge is pretty simple. Every year, you've got to be able to do the same or more with less resources. How they do that, I would say I'm going to use the 80/20 rule here. 80% of those labor productivity improvements relate to waste elimination. We've talked, Patti talked about waste elimination. Garrick talked about waste elimination.
Really fundamental to be able to see the waste and take it out. The rest of the improvement on productivity comes from investments. They've done some automation. The recipe is pretty simple. Every year, they don't have to think about it. They're seeking 5% or more labor productivity, which will be offset by some level of inflation, and they will deliver cost saving year after year after year. From a utility perspective, we can learn a whole lot from that perspective and experience. Even us at CMS Energy, as you saw in our distribution costs, and there are other areas of opportunity, we have plenty of opportunity to improve and continue to reduce that cost.
Speaking of the utility industry, over the same period, not only did the cost on average go 4.5%, but we've delivered negative productivity, negative 1% productivity over that 10-year period. One could say it might not be a core competency. One could say we might not even be thinking about it. Definitely not something that we can brag about. Our mentality has been, we need to do more, we hire more. What if we change that mindset to saying, we need to do more. We want to do more. Garrick said there's plenty to do. How do we do more with the same resources? What if the question was not who do you need to hire, but where's the waste? Again, the CE Way, lean thinking comes in. I've been around the company now nearly 10 months. Best career move I've ever made.
Love Michigan, love the company, love how we serve, I can tell you that I've been around, met enough people to know that we're nowhere near the muscle and bone. There's plenty of opportunity for us, plenty of runway for us. Actually, in the aerospace industry, they use the runway analogy quite a bit, and they say there's plenty of runway ahead of us. We do have plenty of runway ahead of us. Let me give you a bit of insight about our approach, Patti talked about a unique approach to finding the waste. I'm going to use an analogy. I love analogies. Finding waste, I compare it to finding the bottom of the ocean. Most companies, as they start looking at waste, they'll look at it from the surface. Guess what? You see obvious things.
You've heard things like printing costs, travel, all opportunities that most companies by now have identified and reduced. Many leaders may believe right from that vantage point, the bottom's coming pretty quick. If you can't see, there's uncertainty, you may believe the bottom is near. Continue with that analogy. To see clearly below the surface, you got to get below the surface. You got to snorkel at least, and then your vantage point changes. To snorkel, you got to do two things. Well, you need tools and skills, and you got to get in the water, right? You got to decide, I'm going to go find it. Over time, as you get deeper and deeper, you need greater skills, from snorkeling to scuba diving, right? You can go deeper and deeper.
In my 30 years of experience, nearly 30 years, I'm aging myself here on the stage, I've seen so many leaders believing seriously that the bottom is near. I've heard a million times, and maybe I've been one of them a couple of times in my career, saying, "This is it. This is it. This year's the last year. Next year, we're going to hit bottom." Well, I can tell you, the bottom is never what we think it is. There's always more. You just got to equip yourself to go find it. Our approach to finding waste takes into account our industry. I've compared performance in the auto industry and aircraft industry, and it's important to understand the differences between our industry and their industry. Many of those industries that I've talked about rely heavily on manufacturing, and when you think manufacturing, you think factory.
When we think factory, it's four walls. Some people believe that because most of their activities in the waste lives within four walls, it's easier to see. Well, not necessarily. In our business, it's different. Our factory spans the state of Michigan. Garrick talked about the number of miles of pipeline and wires that we have, the complexity of the infrastructure. We rely heavily on the autonomy of our highly skilled employees to perform the work. As we move forward, and Patti talked about teaching the entire organization about the CE Way, thinking lean, finding the waste, it's critical that we do so. We need people closest to the work to gain the skills. This common language, the CE Way, to go find the waste. It's our job to teach them how to scuba dive and go deeper and deeper into it.
Patti mentioned it, we're in the early stages. We're just learning to snorkel. We haven't even thought of putting on tanks and scuba diving yet. We're just snorkeling, and that's okay. That is absolutely okay. The waste elimination journey is not a race. It's a journey. I would say that our approach is consistent with our ambition. We've committed to 2%, 3% cost reduction every year, and we are in a position to pace ourselves. Not only look at these structural ideas, hard work, looking at retiring coal plants, but also equipping our workforce with the ability to see and eliminate waste. I can tell you with confidence, we're very far from the bottom. The CE Way comes in. Patti's covered it. It's a way for our coworkers to honor our commitment to the triple bottom line. It's about people and the planet and the profit.
As we look at this waste, even though we can point at the distribution and say in operations, there's a lot of labor-intensive. Waste does not discriminate. Waste is everywhere. We got to go look all the way through, from the designs generated by my organization to the distribution or the scheduling and execution in Garrick's shop, all the way to the insights coming from Brian's organization, from our customers. What we're seeing about the CE Way is it's not about the tools. The tools is not the recipe. It's the mindset. It's the culture that really makes a difference. I am seeing a rapid shift in our thinking. We are moving from a culture of firefighting. We're very good. We love to respond. We love to serve. It's a culture where we use lean tools not only to firefight, but to prevent.
We're seeing our behaviors from reacting, jumping, which is very good, but to an enhanced behavior where we pause, we think, then we act with a sense of urgency. Finally, probably the most important portion of all this, and that's where the goodness comes, being able to really understand what the real problem is and solving it once and for all, versus jumping to a symptom, putting a Band-Aid, and moving to the next emergency. All those things become very powerful. Our goal is pretty simple. Our approach is unique. We're going to train 7,500 people how to scuba dive. They're going to be ready not only to serve, but they are going to be able to solve. Think about the opportunity. 7,500 people finding the waste in an ocean of nearly $1 billion. I don't know.
I get excited about it, that's why I'm here at CMS Energy. We're just scratching the surface. We're just learning to snorkel. I want to share a few examples with you. I have three examples I want to share. You may say, "Well, Jean F, these are pretty small in value." I'm going to tell you the power of our approach is there's going to be hundreds and thousands of these small things, and they add up quickly, and they're going to be sustainable for the long term. Let's look at a few. This first one was introduced by Patti at the July earnings call. What I chose to bring forward again, just to highlight how obvious some of the waste still is, and the low-hanging fruit that exists in our business. Some of you may have heard it before. I'll cover it again.
This first one relates to a fuel pilot that we did at one of our service centers. As you think at our highly skilled employees, the work that they do, highly skilled work at a higher cost, you got to look at how they spend their day. When you spend the time observing what they do, you realize there's a significant portion of the day that's used to get ready. We have to load the trucks, put the tools on, put the parts on. We got to go fuel those trucks. All those hours deliver no value for our customers. They don't solve any issues that our customers need. We chose to do a pilot, one of our 43 service centers in Flint, where on the off shift, we have an employee pre-fueling the trucks.
What we saw coming out of that is 15 to 30-minute savings per employee per day. Looks small, but if you expand that across the enterprise, 43 service centers, the possibility annually is to convert 100,000 hours of work into added value work. In our business, there's a lot of overtime. There's a lot of mandatory overtime. We force people to work. We could reduce costs by reducing overtime, or we can do some of that very value-added work that Garrick talked about. As you hear this story, I'm pretty sure you're saying, "Well, Jeff, that's pretty obvious." It sure is. Just like every waste. When you see the waste, you go, "Oh, my goodness." You want to get it out. It becomes obvious. You need to equip yourself with finding it and seeing it. What a great example of using our resources better.
I love this next one. This next one's about software licensing. Waste, as I said, does not discriminate. It doesn't go just in operation. It just is everywhere. Lean is about not going without. If any of you've heard of lean and heard to go without, that's not what lean is. All right? When I think of lean, I think of a lean muscle, right? No fat, flexible, strong, you feed it. Lean is about having what you need when you need it, but nothing more. This one is a great example in Brian's shop with the IT team. They chose to look at our software licensing process, and they focused on four main software, Visio being one of them.
Perhaps it seems obvious now, but what they found is that every time an employee needed access to software, they would request a license, and we would grant a license, pay a fee, and then continue paying an annual fee. Well, guess what? When you look back, you look at the data, some people needed it only once. Some people use it once a year. Pretty expensive proposition. The IT team came up with a wonderful idea. Lean is not, again, I said, what you need when you need it. You got to be fast and nimble. They decided that if, as an example, Jeff is a user, and I use it once a year, after a certain amount of time, my assigned license will go into a pool that can be used by someone else that may need access to the system.
If in six or nine months, because JF is pretty busy, I need access to the system, I log in, and I'm granted a license within 15 minutes. Fast and nimble. Just that one sounds pretty obvious, but you had to see the waste to go address it. This one, just this year, we are on track to save a half million dollars with that project. Imagine all kinds of other opportunities out there. Finally, this last one that I have is about gas leak response. Obviously, something very important in how we protect and serve our customers. I've selected this one because it's a great example of not only reacting to serve, but pausing, thinking before we serve with a sense of urgency. I'm going to share some 2015 numbers here.
In 2015, we sent a truck to go investigate a potential gas leak 92,000 times. You can do the math in your head. How many times a day we take resources, put them on a truck, and we send them. When a customer calls, we're there, we're ready to serve, and we send people. Well, looking back, we realized that significant amount of those truck rolls, there was no gas leak, and that our response to what we thought perhaps could be a gas leak was not appropriate. The team went back and observed, how do we do our work? They've talked, they've observed our call center representatives and realized that when a customer calls, we're so eager to serve that we forget to ask questions. We send a truck. Now, as a solution, we've implemented a process. It's in the logic.
Our call center representative asks simple questions to gain a slightly greater understanding, takes a few seconds, of what exactly the customer's needing, and so we can send the appropriate response. In 2016, we saved $294,000 in truck rolls that were not needed, and so far this year, $170,000 is being saved. Again, when you hear this story, you say, "My goodness, Jeff, these are obvious things." We weren't seeing them. How many more are out there that we're not seeing today? Therefore, 7,500 people getting below the surface every day, finding those opportunities. That's tremendous opportunity. My last slide. There's many more in flight. There's many more opportunities that we haven't yet uncovered.
As we keep going and learning to observe how we do our work, looking for the waste, what we're finding currently, we're seeing a lot of identification of these waste in what I call the vertical value streams. Within a department, within a function. The reason why that's typical, it's usually a little easier to see. It's like this virtual factory, like my area. I have more knowledge. I can observe and find the waste. As we get better at this over time, that's why I say the bottom of the ocean is far. Very far. We're going to start looking at the horizontal value stream.
You can imagine how many people are involved from the supplier all the way to the customer experience, how many people, processes, systems, interactions, and every single one of those activity has an opportunity for error, duplication of efforts, rework, delays, and guess what? All these cost money. We have a unique approach about finding the waste. We have a unique opportunity of reducing cost. As we move forward, we're going to get 7,500 scuba divers in our company finding the waste, and we're going to complement what Garrick said, great capital plan, no big bets, right? A strong opportunity to reduce costs with greater involvement and a mindset that's shifting our culture to find waste. Brian, who I'm going to introduce next, will be talking how we're going to leverage or further leverage technology to reduce cost while improving the customer experience.
We're in great position to maintain for a long time this cost reduction trend. I would say that our expectations are fair and modest. With that, Brian, I'm going to turn it to you.
One of the things we do at the company, because safety is important, is if people have been seated for about an hour and 20 minutes, it's worth everybody just kind of standing up for a second and just kind of letting the blood flow. I'm going to try to get control of the room, but afterwards, but I think I would recommend that you all just stand up and get some blood pumping. I guess for those on the webcast, you can do the same. Okay. The other selfish reason why I did that is because I'm going to try to do what Garrick and J.F. unsuccessfully did. Good afternoon. There we go. That's a little better. Okay.
As we gather back here, really the third leg of our stool and the opportunity and what we see as the differentiated factor for our business is the ability to make our business customer-defined. You heard Patti speak earlier about this consistent model that we've delivered for investors over the last 14 years. I'm going to show you shortly that we've been able to deliver that consistently for the last 14 years, not at the expense of our customers, but with our customer service improving infinitely over the last 14 years. Our reliability is better, our prices are more competitive. Every single one of our customer satisfaction metrics are better, and we'll show you shortly about the fact that our customers' perception of the value of the service they receive has improved at the same time we've been delivering for our customers.
As the customer person for the company, coming around is a little present for all of you to get a little sugar going as we kind of get through the home stretch here. The real opportunity is being more customer-defined. Patti talked about this consistency. She also talked about, Rejji's going to speak shortly about the investments we're making in developing Michigan, making Michigan a stronger place. We don't just do it to be able to be a tool to be able to manage the top line of our business. We do it because we see it as a great vehicle for our customers to have more investment in the state, more job opportunities for our business customers to be able to see opportunities for expansion.
Economic development is important to us, not just because of the end benefit to the state, but because more importantly, the people component of our bottom line is empowered through it. When Garrick talks about the capital investment plan of the company, I mean, how many operators in our business talk about it, not as a CapEx plan, but as a customer investment portfolio? We have the opportunity here as we think about investing in the reliability of our system, the integrity of our gas system, where our generation fleet goes in the future to make that customer-defined, to use the customer insights we know and the objectives of our customers going forward and drive that into our capital plan. As J.F.
speaks about the muscle we're building to build more efficiencies into the business, we don't just do it because we know that O&M reductions create the headroom for us to be able to make more capital investments on behalf of our customers. We do it because we know that showing up at jobs and delivering for our customers better, faster, cheaper every day is a good thing to do. I have the luxury of the company of really sitting at the intersection of the win-win, where we can invest capital into customer service, be able to take O&M out of the business, and be able to deliver at a lower cost to serve with better metrics, and we'll share that with you throughout it. Let's take a step back at our journey when you look at our customer experience. J.D.
Power is the greatest linchpin we use in our sector to be able to measure how are you performing. Remember, at that same consistent, predictable number that Patti shared with you that we've been able to deliver for our owners, we've been also delivering for our customers. On the residential segment, our performance has been extraordinary over the last seven years, and it's been consistently inclining every single year. This is a combined both electric and gas surveys. You can see not just on an absolute basis on our score with J.D. Power about how we've performed, but also as you look at the gap to first quartile companies on a national basis. We're not just looking at other Midwest performers, but on a national basis, the gap on a relative basis continues to close.
In some cases, for example, residential gas, we are a first quartile national provider when it comes to J.D. Power customer satisfaction. On the business side, it's a very similar story. We've had the same 24% growth over the last seven years in J.D. Power when it comes to our employees, our customers' perception of the service. This is the price they receive. This is the power quality and reliability on the electric side, the safety and reliability on the gas side. This is their perception of our corporate citizenship, and this is their perception of our customer service. All of those dimensions you can see we have on an absolute basis improved with our customers and in their eyes. Again, relative to our peers, first quartile performers, we have also closed the gap, both from an absolute perspective and from a relative perspective.
Here's the exciting thing. Every time we think about how well we've performed, we raise the bar. Whether you want to use the analogy of the best-looking horse in the glue factory, utilities have not been great at serving customers historically. We have not been great at serving customers. This is a scale of 1,000. Just like we think about the fact that we can go deeper on our reductions and we can drive even further investments into our system, we have more opportunity to better serve our customers. We know that the story you just heard over the last hour and a half about continuing to invest in our core utility, continuing to be more efficient in the way we deliver our service, we know that our customers are telling us that that's resonating with them. Therefore, we're excited to do more.
One of the key vehicles we've been really using to be able to drive greater customer service is by investing in digital technologies. We have a couple of different platforms that we really are high on. When I talk about digital, it's very similar to how Garrick spoke about the distribution system. We're talking meat and potatoes here. I'm not going to talk to you today about some sort of digital program that has maybe some loosely defined benefits or some technologies that haven't really been proven in the sector, or what we think of different kind of new technologies that are very emergent and unproven. This is the core meat and potatoes of our business, of where we invest digital. The digital customer experience, moving more of our customers' transactions from live or in person into digital channels.
Not just because that's a lower cost to serve, because our customers are overwhelmingly telling us that's where they want to serve. We have the luxury of really working to be able to serve them in the channel of their choosing. I'll share some metrics about how our customers are pulling us in that direction. Field mobility. Every day, Garrick's crews are running out across the state. They're now starting to get their work packages electronically. Where are they supposed to be? What's the route they're supposed to take there? What's the most efficient way to do it? Loading their materials up through digital platforms. We're pushing more and more from a mobile perspective out to the fields. We're just starting. Right now, they're getting their work packages. They're getting where the best route optimization is to go.
What about when they start getting their methods and procedures of how to conduct the work? What about as you think about knowledge transfer, working through some of those platforms? As we start thinking about the back offices we have to do a lot of the clerical work to close out field work, more and more of that opportunity exists in these mobile platforms. Lastly, the smart grid. We have been unapologetically a laggard when it comes to the smart grid because we've seen in our sector that the longer you wait for the technology to prove out, the greater benefit you can get.
We'll talk a little bit about the benefits we've gotten from our smart meter program. Garrick spoke a little bit about the opportunities that exist on the distribution system to be able to drive more and more digital technologies into our infrastructure, into the heart of our infrastructure. On the digital customer experience in particular, our customers are pulling us here. Okay, let me break the misnomer. This is not a millennial thing. Our customers want to serve in digital channels faster than we can actually put capabilities out there. When we had a major windstorm in March, I think Patti shared the numbers before, 300 to 400 times per second. We were getting hits on our outage map online.
We have over 1 million customers subscribed to proactive outage alerts so that we can text them and say, "We're aware your power's out, crews are on the way." That is an extraordinary pull from our customers telling us that that's the way they want to be served, and those are the channels that they want to be reached in. We have the obligation to get their insights and drive capabilities out there very rapidly. Again, what a great intersection to be in. We invest capital into these platforms, and we're able to extract O&M out of the business. We're able to lower our cost to serve, and we're able to delight our customers. It's a great place to be. Take you through a little bit of some of what we call the moments that matter. Again, I go back to the meat and potatoes of our business.
The three real moments that matter to our business is when they're moving in or moving out of a premise, when they're paying their bill, and when they're experiencing an outage. Those are three very important moments for either a residential customer or a business, and we have to be there for them in those moments. Moving. We experience about 60,000 moves per month. Historically, we've taken all of those through live channels. Very stressful time for our customers. They're calling into the call centers. They're waiting on hold. They don't always have all the information that we need. We've moved much of that transaction to a self-service. The most important thing that's been exciting about being able to digitize and make this more of a self-service transaction is it's our first impression on our customer. It's our opportunity to enroll them in programs.
Maybe they need low-income assistance programs. Maybe they want to be on auto pay. Maybe they want to be on e-bill. Maybe they want more proactive alerts. We get an opportunity to speak to our customer in a way that helps them set up their service with us differently for the future. Again, all through digital means. Billing and payment, again, another stressful time for a lot of our customers, whether it be our business customers who are looking for more flexibility in how they actually manage their billing services and their payments, or our residential customers, who many of them are making very difficult decisions to make sure that they can keep the electricity and gas flowing.
To move more of these transactions into places that they want to be, give them simple ways to be able to use different means to pay, select their due date on different dates, have different channels of how they want to pay, be able to authenticate with guest pay. We are even working in gift of energy and guest pay and prepaid technologies to be able to make this process a lot more easier for our customers. I can share with you that the billing and payment process is now less than three clicks in our digital channel. It used to be 14. Because historically, whatever worked for our meter-to-cash department was how we actually presented it to customers. How could we best process something in the back office?
Today, we bring in customer panels, and they design these flows with us, and we're able to make them faster and easier to use, and the adoption has been pretty significant. We went live with billing and payment in January this year, and again, our customers are pulling in this direction. The one we're most excited about is really in the outage. This is a very pivotal moment with our customers. You don't have to read much of the news right now to understand what customers feel when they're without the essential service that we provide. It's not just residential customers, but business customers are wondering, should they bring in the evening shift? Should they delay the shift? What should they do? Residential customers, what's going to happen to my refrigerator? Should we go out to dinner?
All kinds of decisions that customers have to make when their power's out. We have 4.3 million outage-related views in our digital channel every year. Now, I'm not going to sit in a room of New Yorkers and try to convince them of what the best pizza is, but I can tell you that Domino's has really set the tone for how customers experience the delivery of a service. They've become a digital company. Whether you think the quality of the pizza is to your satisfaction or not, I'll leave that to the New Yorkers, but the actual process of experiencing that delivery process in a digital means is great.
This is that muscle that we're building about looking outside our sector because we thought to ourselves, "Well, couldn't we do the same thing with our customers when they're either requesting service or they're wondering about a power outage?" We're about to go live very shortly with a very similar model that customers get proactive notifications that says, "We are aware your power is out." Remember, for the first 130 years of our business, we couldn't tell them that. They needed to call us. Now all of a sudden, we have this great information coming in through the smart meters that allows us to tell them, "We are aware your power is out." That's great. Now they know we're on the job.
As we continue through Garrick's organization to get more and more specificity and certainty about where the fault is, where the cause is, and when we think we can get that customer back up, we're able to communicate them throughout the process. We're analyzing the outage. Crews are on their way. Four crews are in your area. Your power is restored. From the Domino's example, we're able to take that back, and we're going to be rolling that out later this year about being able to make commitments to our customers through a digital channel. We can do the same thing on field services. It's when customers call in, and they smell gas at their home. Wouldn't it be nice if we can digitize that process so they can watch crews on their way?
We're continuing to use this channel, and what's great is our customers are designing it with us. We're designing it with them in mind. Great opportunity for us. Let's talk about all of these great things we deliver for our customer, how we're actually extracting benefit into the company. From a live call volume perspective, in 2015, we were getting about 5.5 million calls per customer. We know from a benchmarking perspective, that's very poor. We're probably not going to get to the 3.5 million that you see at the end of the forecast this year because of the storms that we've had in Michigan and the amount of calls that we've been taking into the center. Over the last, since 2015, we've been able to extract $2.5 million O&M savings out of the business.
What's so great about that is not only have we reduced the O&M and our cost to serve, but our customer satisfaction is going up because customers are not waiting to speak to us during these moments. We're answering the phone faster, 72% faster. Resolving calls the first time, 11% better. As I mentioned, we now have these proactive alerts where we're being more proactive with our customers. We're aware your power's out. Crews are on their way. Your bill is due. Your payment is due. Texting them whatever channel they wish. We've got over 1 million subscriptions in that over 3.5 million customers. It's great. Here's the exciting thing. The benchmark, whether you get to 4 million calls per customer or 3.5 million customers, we're still above benchmark. We still have more opportunity to take more calls out of our call center.
Best-in-class companies are usually at about three-quarters of a call per customer per year, so we're still well over one call per customer. We still see more opportunity as we get these platforms up to be able to go after those moments that matter and move customers into the channels they want to serve and reduce our cost to serve. Great example of an opportunity we've been able to do. Physical bills. Patti mentioned our smart meter program, how that's really perfected how much better we're getting at actually getting bills out the door. By actually digitizing the move-in experience, we're able to get more and more customers enrolled in e-bill, more and more customers enrolled in auto-pay, and in doing so, we're delighting the customers primarily, but we're also continuing to take more and more cost out of the business.
Lower printing costs and lower resources as amount of having to print so many bills on an annual basis. You can see we've taken $1 million in printing costs out of the business just by moving more and more customers to electronic bill. Guess what? If I sound like a broken record, we're still above benchmark in customers that are adopting these digital channels. We still have more opportunity to market these programs to customers, get more and more of them on electronic billing and electronic payment. The opportunity is still rich here. As I mentioned, our customers are pulling us in that direction. Finally, another example, meter read rate.
Through not just the deployment of smart meters, which have obviously played a big role in being able to read meters more accurately, whether we can't get into a premise or bad weather is preventing us from doing it or some other reason, some other priority moves resources in a different place. Just through smart meters alone, we've been able to more accurately read meters with our customers. In addition, through the hard work in Garrick's organization, they've optimized meter reading routes as we're down to a sparse amount of analog electronic meters left, and we're still starting our gas-only territory for AMR investment. We're more efficiently reading meters, we know that this has a better cycle with our customers. Our J.D.
Power research tells us that if we can keep the power flowing and we can get customers an accurate bill, we have capacity to have much different conversations with them about the things that they want from us. By better reading meter rates, we're getting better bills out the door, more accurate, more timely, and less calls into our call center as a result. You can see the $1.3 million in savings. I would suggest that's light because it also should be connecting back to the calls that we're reducing by getting more accurate bills into the center and the fact that we're not using as much overtime and the fact that we're better resourcing our organization. We've made great progress in being able to meter read, and as I mentioned, we've still got a little tail left on our AMI deployment.
It'll happen through the end of this year, we're just getting our AMR deployment for our gas-only service territory up in the back end of this year, which will only raise these numbers and continue to drive more cost out and delight our customers. Another great example. Finally, our smart meter program. I know Patti and Tom and Rejji have shared this program successfully with you in the past. This is a great investment. Patti kind of pointed to it earlier in her remarks as the cornerstone of where you can invest capital into our business and extract O&M out. This is a $750 million customer investment. You've seen the benefits in my previous slides, whether it be more accurate and timely bills, the ability to serve customers better, the ability to kind of zone in on where we should go during outages.
We're just starting to use the smart meter data to be able to really manage our outages so we can know where the source of the fault is, how to dispatch crews, and much more effectively and proactively communicate with our customers and our crews during an outage because the meters are talking to us. As importantly, we're also starting to use the meters as a supply resource. The amount of customers that are beginning to enroll in our energy efficiency programs through the data we're able to present to them through smart meters, the amount of customers that we're able to enroll in time of use pricing or demand response programs because we're now able to use those smart meters to either cycle air conditioners at home or present them data that they can feel that they have choice and control of their energy consumption.
Smart meters have been a great benefit to reduce customer energy costs, but also as a reliability asset for days like last week where we had high heat in Michigan and actually had some peak events. Our smart meter program has been great. Garrick mentioned a little bit, the same opportunity exists on the distribution system. To really smartly and thoughtfully invest technology into our infrastructure on the distribution system that'll improve reliability and reduce cost. We'll manage that through the sequencing of his CapEx plan to make sure that we've foundationally got the right time to go at it. There's huge technology benefit that we see as we continue to put more and more technology onto our system. You can see our smart meters left us with a run rate of O&M reductions of about $5 million a year, plus all those added customer benefits.
Let me close with how we kind of see our future with our customers. We're deeply committed to making sure that our customers are feeling satisfied about the service that we deliver every day, and we see it as a journey. You see, we start with a customer culture. At Consumers Energy, over 90% of our employees feel that they are empowered to do anything they can to solve a customer's problems. That is an extraordinary number and very high on the benchmarkable number. Patti talked about our crews. She's out with them. When Garrick's out with them, they want to do right for our customers. When they show up at jobs, they want the materials on time. They want to serve them because these are people that live in their communities with them. Our employees want to serve.
We've got a great group of coworkers back in Michigan that every day wake up in the morning to serve for our customers. Sell at the basics. We talked about it. Keeping our reliability going, keeping our price competitive, making sure that we're getting good, accurate, timely bills out the door. Everything to the right is insufficient if we can't get these two things right. We're fortunate at Consumers that we either have coworkers that are already with us or basics that continue to get fundamentally better every year, and you saw it in our J.D. Power. Fast and simple, the ability to digitize more transactions so that our customers can get a service from us in the channel of their choosing quickly because they're either making business decisions Or because they'd rather spend their time doing something else, and we have to honor that. Personalized experience.
Many of you might have seen last week, we were successful in Michigan about getting our large customer renewable tariff approved with our commission. This is a great start. We have customers that are asking us for a greater source of renewables. They want to see additionality built. They want to make sure that when they come to Michigan, that there is more renewables that are created. We are able to give them a tariff that works for them. We have all kinds of other different ways we can personalize service, through segmentation, through marketing, to make sure that they are enrolled in the programs that they want, and to feel that our customers are spoken to in a segment of one.
In doing so, that allows us to create capacity to have conversations with our customers about helping them meet their energy goals of the future, whether it be around affordability or sustainability, or what we are seeing increasingly, both. That is the journey that we have ahead of us, and we feel really well-positioned, whether it be through our digital platforms that we are standing up, through the coworkers that we have that every day want to serve, and through the insights we are getting through our J.D. Power surveys around where we are with our customers and our opportunity going forward. Really gratifying to me to know that this great success we have had in delivering for our owners, we have been able to bring our customer value along with us during that time.
I am now going to turn it over to Rejji, who is going to close, and then we will turn it over to Q&A after that. Rejji?
Good afternoon, everyone. Good afternoon, everyone. Actually, I feel like the golfer who has been waiting to get on the tee box, and all the people you are playing with are already in the middle of the fairway and 260 yards out. I will try not to grip the clubs too tight. Hopefully you have had a chance to really get a deep dive and closer look at all of the opportunities within the walls of this company. Patti and I, Sri, Tom, we have hit the road on several occasions and have walked you through the very high level, the capital investment opportunity, the cost-cutting opportunity, and what we are doing to make sure we do not compromise the customer experience.
What I've been so excited about this day and why I'm happy to be here is that we now have the people who do the work, the operators, the Garricks of the world, the JFs, the Brians, to tell that story in great detail. Because I recall, I think I was chatting with Dan offline at our Kohler conference or maybe at South Haven, and you hear enough utilities spend time talking about the value proposition, and admittedly, we're all starting to sound the same. A lot of CapEx opportunities, big backlog. We're all cutting costs. We're all trying to maintain or minimize rate inflation. That's all well and good, but we, I think, are somewhat differentiated because I feel like we have the track record. We've done it before. We've executed on $1.8 billion of capital investment every year.
We've delivered the cost savings to the tune of 2%-3% per year. Last year, 6.5%. We've done it without compromising compensation or investment in the business for the benefit of customers. I feel like it's a differentiated story. If nothing else, take away from this narrative, this story, that we can prolong this for several years to come. That's the biggest takeaway as I see it today. Stepping forward, Patti went through this slide. You've seen this model before. Funny, when I saw a lot of you my second week with the company when we did our U.S. tour, everyone remembers me in the ITC seat, and they said, "Okay, you tried to do the Entergy deal, traded yourself. You're a deal guy. You like doing the big bet type stuff.
You're not going to bring that attitude, that persona, and that mindset here." A lot of you said quite bluntly, people in this room, "Don't go and fudge this thing up. It's a nice model. Don't mess it up." They didn't say fudge. No, they didn't say fudge. What I love about this business model is you look at the customer investment backlog, and Garrick walked through this in great detail. There are no big bets embedded in this. We have, I think in our five-year plan, we've got about four projects that represent $1.5 billion-$2 billion, less than that, of aggregate spend. Those are the only big projects. You got the couple of transmission pipeline projects, a little bit of environmental spend, and then we's got also some clean investments. Sorry, no, AMR.
Those four projects represent the only projects within our five- and 10-year plan that are in excess of $200 million. It's a really low-beta capital plan as I see it. We spend a lot of time on cost reductions. I'll touch upon a few items there. Then sales growth, we'll talk about the business opportunities. Needless to say, because of good tax planning, I don't know if Nathan's here, but we've talked about that tax shield portfolio that we have due to our wayward past and other good tax planning decisions. We will not be a full federal taxpayer until 2022. That obviates the need for block equity issues. It's a very sustainable story as we see it, that self-funded five to six points, that funds 70% of our growth here. With that, it minimizes the rate increases at or below inflation.
We believe we can be on this path for several years to come. Stepping into that again, as highlighted, we've got a modular customer investment plan. We looked over the last 10 years historically what we spent, $13 billion in aggregate, driven a lot of growth. 75% of the portfolio was under $200 million, about 25% over $200 million. Not lumpy on a relative basis. That's a pretty good spend plan. We are expecting to be at $18 billion, as we've talked about in the past, for the next 10 years, and less than 10% of that spend, as highlighted, is under $200 million. Implicit in that is that there are no big bets.
Actually, to peel the onion a little bit more, the four projects I talked about, whether it's AMR, Mid-Michigan, Saginaw or some of our environmental spend, all that concludes within the next five years. Over years six through 10, if you look at that glide path, there are actually no big bets embedded in that. A very nice capital plan in the years to come. You can see it's skewing a bit more towards gas, in this new vintage, and we may see a bit more of that. It's risk-prioritized, and gas makes the most sense this time. We also want to, as Garrick highlighted, capitalize on this low commodity cost environment. On the cost cuts, I think JF did really good justice to this.
Again, we try not to do too much comparisons relative to our peers, you can see we have actually delivered on cost cuts year-over-year, 3%. There are really no utilities, I believe in the nation, who have done that over a sustained period. In fact, most of them are up 4.5%. JF talked about some of the examples that we've done historically and what we're looking to do going forward to stay on this path. The one I would submit, which I view as to me, at least in the near term, the most measurable and most intuitive for people who don't sit in our seats on a day-to-day basis, is around attrition management. We've talked about this in the past. We have around 350 to 400 FTEs who retire every year. It's very seasoned, I think that's the most euphemistic word I can use.
A very seasoned employee base that turns over naturally. Well, most of those employees were on defined benefit plans, quite costly. We have obviously like most utilities, we have frozen our defined benefit plan. Now most of our new employees, in fact, all of them, come in on defined contribution plans. The savings with that turnover is about $40,000 per FTE. You can do that math pretty easily. If you're having 400 FTEs turnover every year and you're saving 40k per employee, that equates to about $16 million per year in savings and a very nice annuity. When you think about the cost structure, about $1 billion, about 1.5%, just over that. That gets you a good portion of the way there when you're trying to deliver 2%-3%.
What we're trying to do with the CE Way is be as thoughtful as possible about that turnover. The math I just shared with you, that presupposed that you're backfilling one for one for all those employees who turnover. Our average cost per employee is about $100,000. Imagine if you only have to backfill for half of those employees, two-thirds, three-quarters, it increases that average saving per employee. $40,000 becomes $50,000, $60,000, and that drives savings. We're spending a lot of time right now thinking about how we can effectuate not backfilling for those employees. For those of you who worked at corporation, well, actually anyone who's worked anywhere, it's a lot easier to cut empty seats than full seats. More cost effective, and it has a better impact on morale than when you have to cut full seats.
We feel like there's a lot of runway. Let me touch upon a couple more points before I leave this. Let's see if this has a pointer. It's like a self-disrupt, but is there a pointer? I always feel more professorial when I have these things. Also productivity, you guys have seen, we've been turning over the coal fleet over the last several years. We took 950 MW of coal out of the system in 2016. Replaced a lot of that with CCGT. A lot of companies are doing that. I think we had the biggest reduction in the coal fleet of any utility in the country last year, our coal intensity has reduced materially. There's a lot of productivity in that.
In addition to it being, as I call it, planet accretive, there's also a lot of productivity inherent in that because those of you who spend time on coal plants a lot, no judgment, it's actually the fuel handling costs are significant. You have a number of FTEs who have to transport the fuel from A to B, and at CCGT plants, you just don't see that. There are very few bodies, and all you hear is the silent humming of turbines spinning. Our unregulated guys call that the sound of money. It's much more cost effective. What also impressed me, I'm not going to go through each of these, but if you look at the bottom here, when we get to this slide, most people look at the cost reduction opportunities. We obviously feel good about that.
We also like, as I mentioned earlier, Brian got into this as well, as you see this here down at the bottom, we're spending money. That's a presupposition in all of this, is that we're not choking the business, cutting into that muscle and bone. We're still paying employees market. We're still investing to improve the customer experience, the benefit of our customers and employees. We're actually still spending here. When you think about this 2% of savings per year, that's net. We're still investing in the business. If you think about what the team did last year at a 6.5% reduction, that was net of still paying people markets on a gross basis, almost an 8.5% or so of cost savings. Extraordinary. Hopefully, if nothing else, you gleaned from JF's wonderful presentation that we're scratching the surface here.
Just scratching the surface. From a cash flow perspective, the business continues to generate a good deal of cash flow. We did just over $1.6 billion last year. We're forecasting $1.65 billion this year. We see nice cash flow accretion on an annual basis driven by net income, and very good management on the working capital side. We expect that to grow $100 million per year. We've been saying that for some time. If you look at the bottom here at the NOLs and credits, we still have, like I said, a lot of runway here, to avoid being a federal taxpayer for some time.
Tom has challenged me in the past. He said, "Look, in my time here as CFO, I never paid federal taxes." I put this on you to further that. That's the challenge that I have upon me. Like any good executive, I pushed that down into my head of tax and said, "You have the job to not pay federal taxes again, or otherwise, that'll be the end of you." We have a lot more runway here. Shouldn't be fully taxable till 2022. That changes in the context- Tax reform. In isolation, outside of tax reform, there's still some discussion around what will happen with bonus depreciation. Will that be continued on beyond 2019? We'll see. A very nice bit of tax planning here, which again, obviates the need for block equity issuance.
That actually funds about 1% of this plan, just the tax planning alone. A very nice runway here. What has that done for us? That has given us a very nice balance sheet. As we see it, a very high credit quality to fund this plan effectively to the benefit of our investors and our customers. We're issuing debt at very good rates. We have a very nice, smooth maturity profile. You can see the ascensions we've had from a credit rating perspective. We just recently got upgraded by Moody's. Disappointed it was April 17th, right before I joined. I was just hoping to get one bit of good news after I joined, but it happened a little too soon. You can see that the credit quality of the business has improved time and time again.
There may be an inclination in this room, given the composition of people who are here. This looks like you get room to be a little bit aggressive on, say, the M&A or on the capital side. Maybe you've got some cushion here, maybe take a ratings downgrade to benefit of shareholders through either organic growth and pushing the accelerator on that or through other means. I will just tell you right now, we worked very hard to get the credit ratings we have today. We are not of the mindset that it makes sense to go really aggressive here. We'd like to stay right where we're at. We don't think we need to be a 4A credit at the parent in this environment. There's not a lot of upside and savings on the coupon side to do that.
We like right where we are, and that's where we intend to be. You'll see there that we have some opportunities in the balance sheet. What we've done historically, in addition to the operational cost reduction opportunities that we've identified and executed on the past, we've also done a little bit of financial engineering to also reduce costs. You can see we still have some high coupon bonds in our portfolio here. We've got some eight handles, some six handles. These are bond financings that we like to do. We do them prematurely, and we take cost out of the system that way. The ones at the parent, obviously those impact and benefit shareholders. Those go right to the bottom line. You can see that we've got opportunity at the opco as well to the benefit of customers.
A lot of opportunities here. I think it's worth noting that if you look at the portfolio over time, Consumers, the opco, and then CMS, the parent, we have reduced our weighted average interest cost by 70 basis points at Consumers over the past five years, and at the parent, over 100 basis points or just under 115 basis points. A significant amount of cost reduction, while at the same time increasing tenor, the weighted average portfolio. You can see seven years of extension of tenor at Consumers, and this is on a weighted average basis, as well as at the parent. I think if Sri were under oath, he would tell you it's because the brilliant treasurer that we hired a few years ago. You have to give credit where credit is due.
I think in part it's due to how the markets have been. I think you see a lot of this type of story at utilities, but we're pleased with that, and that's been to the benefit, again, of customers and investors. With respect to our service territory, I mentioned in the business model slide that 1% of that cost funding strategy or one point of the five to six points where we self-fund the business, has been driven by economic development in our service territory. We feel very good about the historical and future performance of our service territory. Most people equate the state of Michigan, if they haven't spent time there, through two things: Detroit and the auto sector, and just assume how goes Detroit, how goes the auto sector, is how the state goes.
That's not true in our service territory. Most of our service territory for the electric business is on the western side of the state, and that's about three-quarters of our business. You can see Grand Rapids, which is in the heart of our service territory, has outperformed the state of Michigan and the country across a number of substantial and important macroeconomic factors here. Building permits up, GDP up, population up, unemployment down. You can see it's trended well, which has led to very strong residential and commercial and industrial performance. We've also tried to be proactive and not just reactive as it pertains to that economic upside. We've done a lot of work with industrial customers in our service territory to try to find opportunities for them.
That has obviously ancillary benefits to us because in addition to it increasing industrial load, there are also collateral benefits in the form of increased employment, which leads to potentially more residential load and other, again, ancillary benefits in our service territory. How can we stay on this path of sustained growth? Because we've identified the cost reduction opportunities, more to do there. We have a robust CapEx backlog. Where we need to be mindful to stay on this very nice path and keep this growth sustainable is we have to be mindful of our bills and our electric prices. We keep a close eye on our residential bills, and we think we've been trending well there.
You can see we've been about 12%-13% below the national average, and a lot of that's been funded by those cost cuts and being very disciplined with the self-funding strategy and minimizing the rate relief to fund our growth. Where we have more work to do is on the industrial side. You can see we've had great improvement here. I think we've been down, I think it's the actual decrease by 26%, but we're still 8% above the peer group, and that's where we need the most work. When we come up with opportunities such as Palisades, we'll see what happens with MCV a few years down the line. Those are cost reduction opportunities on the supply side where there's a disproportionate benefit to our industrial customers.
We actually have a room dedicated in our Parnell service center that looks at our industrial cost and what we can do to be more competitive on our industrial prices. We have it in our Parnell service center that looks at our industrial cost and what we can do to be more competitive on our industrial prices. We have more work to do there. We're spending a lot of time talking to our key constituents, commissioners, and the staff about this, and we think that there's more work to be done here, but we're going to keep working on this.
Also, I think there are other aspects outside of our control around what I'll say, disparate rate design in our service territory that we need to peel the onion on as well to see if there are certain things beyond just structurally that we can do to improve this story. As I highlighted before, and this is one that we share a lot with legislators and regulators, I think people who are not necessarily in this room, but outside of this room, don't have an appreciation for what drives cost in the system. It's really the fuel and the operation and maintenance costs that drive the spend. You can see here a good portion of call it about 60% of the cost components consist of fuel and power costs and O&M. That's what we've been acutely focused on over the last several years.
You know what we've done on the O&M side. We've been very focused on that. That's largely within our control. Where we're going next is the PPA and fuel costs. Palisades, as we saw it, was a very nice opportunity to introduce significant savings to customers, one, to about 1.5% of reduction in cost through just taking an off-market PPA and finding, as we see it, a very nice buyout replacement plan that could have saved customers quite a bit of money in reduction in fuel and other costs. What we're also looking at too is clean and lean, as Patti, Garrick, and others have highlighted.
That's, again, our opportunities to take out of place, either off-market PPAs, off-market costs on that side, as well as opportunities to reduce aging facilities, whether it's the coal mix or other portions of the fleet with lower cost savings opportunities. One good example of this is when we retired the Classic 7 plants, when we took 950 megawatts out of circulation or out of service. We replaced it with an underutilized gas plant. This predates me, so I'm telling this story secondhand, but we had authorization to spend $700 million on a gas plant to build one from scratch. We actually found a lemon not far from us in Jackson at a song. It was in a distressed situation, but JPMorgan was getting out of that business, and they sold us that gas plant in Jackson, which was underutilized for $155 million.
We saved customers over half a billion dollars, redeployed it on the gas side, and it led to significant savings. It was also planet accretive, as I've highlighted before. More opportunities there. As it pertains to our regulatory backlog, we've got quite a few things in play. There's a new energy law, a lot of aspects of that. I think what's most pertinent in the near term is that we are looking at this point at solving the problem around, I won't say the problem, but we have alternative electric suppliers who historically have basically gotten a free ride and have not had to provide or demonstrate that they have requisite capacity to serve choice load. The commission, state as well as DTE, us, and the AESs have spent a lot of time on the new energy law to solve this problem.
The first beachhead or the next beachhead that's relevant is on December 1st, the charge will be confirmed from the MPSC for how much DTE, CMS, and then the alternative electric suppliers who serve choice load will have to pay in the event they can't prove that they have the requisite capacity to serve choice load. That is a big data point coming up. We've been spending a lot of time there, fingers crossed. Gas case, you saw the outcome end of July, $29 million. We also got the IRM, Investment Recovery Mechanism, $18 million per year. Very pleased with that. A double-digit ROE, 10.1%. We view that as, I wouldn't say it was the optimal outcome, but quite good, and we felt good about that. We are planning our new gas case. We're spending time with the commission and the staff on that.
Likely to file within the next month or so. With respect to the electric rate case, we're at this point, we requested $130 million as part of self-implementation. That was in the month of August. We will conclude that process on October 1st. There's a bit more of the adjudicated process remaining. We have the case will close after cross-examination, which concludes on October 4th. A bit more work to go there, but so far so good. You can see the underlying assumption there. We model the business very conservatively, we have not presupposed that it's $130 million in our hip pocket, but ideally, we'll see how that goes. Palisades, we spent some time on that. The one last thing I'll mention there is that this should not be eulogized yet.
We have to spend time with Entergy and see where they'll come out. I think we've been, and we've said this very candidly for some time, we are as emotionally hedged as one could be on this. If Entergy chooses to go down this path, it introduces more savings for customers at about call it $136 million. That's lower than the $172 million that we wanted to pay them. If they do not, it was not baked into our plan. We had no assumption at any point that this would help our earnings, help our funding strategy, or lead to CapEx. As Patti highlighted earlier, and rightfully, it is in the upside opportunities, the $7 billion that we highlighted, at some point, we will have to find a longer-term replacement plan because this PPA matures in 2022. Opportunities there.
On DIG, again, similar to the point around Palisades, we still have this business has done very well. The one bit of, I think, news that is noteworthy, this is public information, but as part of the replacement plan for Palisades, we had near term or we put in place a reverse auction looking for capacity just to solve in the short term in the event that Palisades was taken out. We bought or did a contract between DIG and the utility for about 425 MW. That is a contingent position that DIG has with the utility, which may be undone in the event the Palisades transaction doesn't move forward. What I will say is, when you think about planning years versus calendar years, very little economic exposure over the course of 2018.
For the interest of full disclosure, we will be looking to find additional opportunities to execute bilateral transactions, again, in the event that Palisades doesn't. You can see here, we're emotionally hedged because this is a good business. It's done very well. We're sold forward on the energy side through 2023, on the capacity side, we've got some exposure in 2018 and 2019 and beyond, we feel like the market looks quite good. Again, it's a bilateral market, we're not relying on the reserve auctions to fill out the sales portfolio. With respect to 2017, this page just illustrates, as we have in the past, just the uncertainty that goes in this business.
Every year, you have these EPS curves that highlight the gives and takes and the ins and outs of how our performance is, whether it is service restoration, whether it is O&M, whether it is policy, regulatory outcomes, you have a lot of variability every year. Last year was a particularly good year. Started out a bit slow, but had a very good Q3 from an O&M cost savings perspective and also from a weather perspective. In the back half of the year, we had a very high-class problem where we get to reinvest in the business in the fourth quarter to basically get back to that 6%, 8%, or 7% growth that we delivered last year. We say all that to say, as we think about the back half of 2017, like every year, different.
We got off to a very good start in Q1, as you may recall, $0.12 ahead of the prior year, Q1 of 2016. Second half, we are effectively down about $0.12, so ended up year-to-date even. We feel very good, as we said on our Q2 call, about the glide path going forward. We feel very good about hitting our $2.14. We feel $2.18 because, again, we had a very heavy fourth quarter of spend in 2016. We had a lot of discretionary activities that we do not have to execute on in Q4 of this year if we do not want to. Debt prefunding, foundation, low income, other, those are political donations. $0.14 of discretionary spend in the fourth quarter of 2016 that we do not need to replicate.
When you think of the year-over-year comparison, there is a lot of upside as we see it in the fourth quarter of this year and the back half of this year. We also should mention that even though we were flat for the first half of this year relative to the first half of last year, we are actually $0.04 ahead of plan. We think the business is performing quite well. I was looking at the numbers and saying, "Well, what are the pieces that led to that $0.04 of overachievement versus plan?" It has a lot to do with what we talked about today. Just starting through that bridge, we were $0.16 behind in terms of weather and service restoration or storms.
$0.16 of hurt relative to plan as far as this year goes or the first half of this year. Another $0.01 hurt us, so $0.17 of pain, and that was related to our gas self-limitation decision in Q1 of this year. $0.17 of hurt. What has gotten us to that $0.04 ahead? Well, it is a few things. $0.10 of non-weather sales. I have talked about economic conditions in Michigan, economic conditions in our service territory, residential, commercial, and what we call other industrial, non-choice, and excluding one very large, low-margin customer. All of that has performed well over the course of this year. We have gotten $0.10 of non-weather sales. On the cost side, we have gotten $0.04 through very good tax planning. We had the Zeeland property tax decision, which was very good in Q1.
Enterprises has done well to the tune of $0.03. You can see the recovery here. $0.17 of bad news. That's $0.17 of good news. What's gotten us over the top, we're $0.04 ahead. This is every CFO's favorite term, $0.04 of other. A combination of other tax reduction savings opportunities. We've had a very nice first half of the year. If you look at the spend pattern for 2016 and how we ended up and all the opportunities we took advantage of, discretionary opportunities in Q4 of last year, we feel very good about our ability to achieve $2.14, $2.18 in the year. Needless to say, I'll remind you again, every year is different.
We go through this every year and have this uncertainty, volatility, and you think about the nature of this business. You've got storms. You've got forestry, preventative maintenance. You've got O&M costs that can inflate very quickly. You've got regulatory outcomes that can be unexpected. There are so many sources of volatility and uncertainty, but every year, the one thing you can hang your hat on is that top-quartile, consistent, industry-leading performance. That's what we will do this year as we've done in the past. He's leaving now, but I want him to stay this. I will say to him, please grab him, Travis. I look at this as someone who's been a CFO now, this is three years in aggregate, so about two and a half years at ITC and about a half year now at CMS.
You look at the volatility on a quarterly basis, you look at the performance every year. It's been a wonderful management team that's achieved this, but there has been one common thread that has touched every year of this for the last decade and a half, and that's Tom Webb. I would just be remiss if I didn't acknowledge his efforts because it's incredibly impressive, and I couldn't imagine a better person to succeed because he's been just an extraordinary CFO. Please join me in acknowledging Tom Webb. I'll just close with this, I'll give it back to Patti. God, I almost got emotional then. Somebody asked me, I think it was Kevin Walenta at Fidelity at Dan Ford's conference in Kohler. He said, "What do you aspire to do stepping into this role as CFO?
Are you going to be the Tom Webb 2.0, or are you going to just put your own stamp and mark on this organization?" I said, "If you're telling me that delivering 6%-8% growth for the next decade and a half and driving it through cost savings, tax planning, sales, where you're not introducing above-average rate inflation is what I'm going to do for the next 14 years, that's a trade I'll do all day long." To me, Tom Webb 2.0 is a wonderful compliment. I would love to do a fraction of what he's done. With that, I'll hand it back to Patti. Don't go far. Okay.
Obviously, we think it's a compelling thesis, I think you probably do too. Many of you have won on this thesis. We have obviously lots of customer-driven value to be invested in this business. We have a growing state and an exciting place to do business and an important place to invest. We have a strong regulatory construct that provides repeatable, predictable outcomes. We have a track record of cost savings and a mindset, I hope you got a real feeling for this mindset of daily waste elimination that can deliver, then, sustainable cost performance that can self-fund all that CapEx that Garrick's team is anxiously trying to. They want to spend more and more and more. We can spend more as we reduce costs and self-fund it. That leads to a healthy company, healthy cash flows, and balance sheet.
This is a compelling thesis, we're proud to represent all of our coworkers back in Michigan who deliver this model every single day. We know that you've come to count on us, we hope today you have heard what we're trying to reiterate is that we're bullish on us. We hope you are, too. We have confidence in the sustainability of this plan. We've delivered consistent performance, it's sustainable into the future because of the simple but unique business model and our core competence to be able to flex in changing conditions and continue to eliminate waste and deliver value for customers. Beginning and end, always with customers in a way that can also serve you, our owners and our investors. Thank you for that. We look forward now to taking some Q&A from the crowd. I did hear a rumor.
Steve Fleishman, is he still in the house? Steve. If you see him later, it's his birthday. Wish him happy birthday. 29 again. With that, I would love for Garrick and JF and Brian and Regjji to join me on the stage. We'll take some questions. We don't get these guys out on the road very often, I've challenged them to answer all the questions. I'm going to be the orchestra conductor here, we'll have you maybe scooch down just one so I don't stand in front of you. I'll direct the questions then to the appropriate panelists. We have roaming mics as well. We have a question right here. Travis? Jonathan. Hi.
Hi. Good afternoon, and thank you for what is a very enlightening presentation of some of the how of what you're accomplishing is being done. Very interesting. One thing on the circle slide that shows the CapEx, the $18 billion and 25 as opportunities. A couple of weeks ago, that slide used to show 21 to 25. Had 21 on it twice. Are you more confident that we're talking about the upper end? Otherwise, where's the 21 gone?
Yeah, go ahead, Rejji.
I'll say that-
Maybe the guys can pull up that slide if you could.
Yeah, it's just the-
It's the circle slide of the CapEx. Thanks.
I'll say at this point, the composition of that spend has not changed a great deal. When you think about the pieces of that $7 billion, you've got call it about $2.25 billion of gas infrastructure. These are, again, opportunities not in our base plan. You've got, I'll say, a combination of about three-quarters of a billion, which is grid modernization and a potential Palisades solution, which doesn't go away irrespective of where we end up this week because we have to have a solution for that by 2022. Then you've got basically a solution on the side of MCV. That PPA matures in 2025. We've assumed for illustrative purposes that that could be about $3 billion of wind spend. You'd have to back that up with about half a billion or thereabouts of gas CT.
That's the composition of the plan. It hasn't changed. The reason why we wanted to back off of the 2021 to 2025 is we didn't want to be too prescriptive about a 10-year plan where you've got some real signposts that need to take place over the next four or five years before you can get very specific about the spend. We wanted to give ourselves a little wiggle room and not be too prescriptive about the components of that plan because that mix could change. We still feel very bullish about the volume and depth and breadth of the capital investment opportunities. What I'll also submit is, I know a lot of people in this room are quantitatively inclined.
Take a moment when you get home or later this week to look at some of the slides in Garrick's section, lay out some of that math because the volume of opportunities are well in excess of $25 billion. Historically, as always, the constraints are, can we afford to do it? Our customers.
Yeah, I think that is the critical closing point.
Yeah.
Garrick really made it in his presentation that we're not limited by how much CapEx there is to be done. We're limited by how much our customers can afford to pay, which is why we work so hard on self-funding, that customer-driven investment plan. We found the slide? Oh, that is the slide. It's here, not there. That CapEx plan is a customer investment strategy, and we do have the internal competitions all the time for which projects get picked, not do we have enough to fill out the plan.
Yeah. I think what Garrick would also tell you is that there's also a feasibility side. To speak for Garrick.
I'm sorry. Yeah, Garrick, maybe you
We can sit in this room and tell you mathematically, oh yeah, we could do $1 billion, we could do $2.5 billion, sure. There's an execution side to it. There's an operational feasibility. You try to do certain volumes of CapEx in a particular year, you could kill half your team. Being a bit facetious here, but there's an operational feasibility aspect to it as well.
You hit the nail on the head there.
Okay. Here, back here. Yes, please.
Part of your expectations are based on 1% sales growth. If 1% sales growth doesn't show up, does that mean rates go up? What changes in your calculation we get lower sales? That's the first question. Second question has to do with O&M savings for non-GAAP. The GAAP numbers are different because of spend on energy efficiency, which I think you guys have a tracker for. Is that right?
There's a surcharge.
Did you guys take that out of the other years when you did the comparison? Just to look at that chart, is that apples to apples? Or did you
That's the FERC Form 1 O&M cost savings that defines the peers. We didn't take anything out of it.
We didn't take out the air traffic.
Yeah.
We didn't take any liberties. It was apples to apples out of FERC Form 1. You can correct me if I'm wrong. That's all it is.
Just the 1%, if the 1% means a lot lower growth.
With respect to the sales, we generally have modeled the business pretty conservatively. We've said 1% on that page, but to be clear, that represents one point of the 5 to 6 points. We've actually assumed electric about half of fully 1%. We've been surprised every year, at least the last couple of years, at how well we've done on the non-industrial side. Both residential and commercial have done in excess of our expectations. It's certainly been the case the first half of the year and last year. What I'll say is, when you think about the three legs of the stool of the self-funding strategy, whether it's O&M cost cuts, sales, or the other bucket that just obviates the need for block equity issuance, those work independently.
We try to make sure that, and if there's a year in which we are short on the sales side, let's say we get 25, 50 basis points of growth and not the 1%, that means we've got more work to do on the cost side. Instead of delivering 2%, it means we have to deliver two and a half cost reductions. We've been very thoughtful about how we've managed the work and managed the business where if the sales are short, we've built in enough risk mitigation and financial insurance policies to make sure we offset for that we're only funding the capital investment and rate base growth with just about, I'd say, 30% coming. We try to make sure that those three legs of the stools work together.
We actually, in our five-year plan, internally are working toward about a half % sales growth. It's very conservative, and that cost then is the buffer. Not customer prices. We still commit to our customer prices and our EPS growth. It's the other levers that we have control over that we work.
For the Fed, yeah.
We use it just as a bogey. We say about 2%. We can't predict inflation. No one can. Yeah. It would. Your O&M is made up, and I think JF did a good job describing, that we overdo the productivity, assuming there is some cost inflation that we have to absorb. That's how we work the math, and we work it every single day. I would say there's no perfect prediction, and that's why we love that chart that shows every year is different, but every year we deliver it. The EPS growth is reliably delivered.
Oh, sorry.
Yeah, let's go. Go ahead. Get a few more questions.
Good afternoon. I wondered your thoughts in the gas rate case decision that came out earlier this summer. The Commission took a big stab in reducing the O&M that you had asked for. Maybe that $22 million was what they decided. Then again, in the electric case that is on file currently, the staff actually took a wide breadth. Is that a sign to be kind of concerned about that the Commission, How do we feel, get a little bit lower O&M in the electric case over it?
Yeah, I'll take part of it, then Regjji, you can add in. First of all, I'll just say that the staff positions on the cases in process have a wide variation, and the end outcome does not always match the staff position. For example, on the electric rate case staff position on the O&M reductions. I will say that probably two compelling things to recognize is, one, our self-implementation amount of $130 million is underway. October 1st, we will implement $130 million self-implementation. We didn't have objection from staff or Commission on that. That's, I think, maybe a more accurate litmus test than perhaps staff filing.
The other thing I would say is Chairman Talberg and I kicked off a performance-based regulation working session that's part of the new law that was passed in 2016, and we talked a lot about the future of rate-making and the future of regulation. She mentioned in that opening that she acknowledged the performance of both ourselves and DTE to some degree, they're the second bar on our cost chart, that we have absolute O&M reductions and are the only utilities who have done that. I think there's real recognition, in fact, on the part of the Commission that we have this track record for cost savings.
In the course of a rate-making procedure or a regulatory filing on a rate case, it plays obviously a piece in the puzzle, but in the long run, our commitment to self-funding the CapEx that serves the customers and does the investment strategy is really what is looked at in total. The total dollars flow through.
The only thing I would add to that in terms of the specific, I guess, items that the commission called out in the gas case, because again, just to be grounded on the facts, we asked for $80 million, ended up at $29 million. A big component of that was the O&M cost reduction. There were really two components that drove that. I believe it was about a $22 million O&M reduction. One of the big pieces of that was IT-related spend that we had earmarked, and another component was around incentive-related compensation. Those are the two big drivers there. The commission's position was twofold. As it pertained to IT, they did not feel there was enough cost benefit-related work around that that we had submitted in the case. In the case of incentive compensation, again, this is a real philosophical difference here.
They did not deem that two of our targets around stock compensation or EPS or cash flow-related metrics were in alignment with customer interest. I would beg to differ, but that's for another day. I'm saying all that.
Says the CFO in Regjji.
I'm saying all that to say, you need liquidity to fund a business which helps customers, but that's for another day. I'm saying all that to say, we took heed and really spent a moment digesting that order, which again, I view it as suboptimal, even though we've budgeted very conservatively for that. We have spent a lot of time with the commission, both in the context of electric rebuttal and also in the context of our pending and looming gas case, which we'll file, as I said, in the next month or so. Making sure that we spend time with them, walking them through the justification for all the capital investment components and the cost components to make sure that we don't have outcomes that are a little bit less than as we had anticipated.
We're spending time to make sure that we understand the staff and the commission's position on this. I'd say we're taking heed. Is that helpful?
Other questions? Yes, Sunil.
Two questions. One, if I recall correctly, the $18 billion CapEx, the base plan, translates into about a 6% CAGR on the rate base side. You are generally earning your authorized ROE in both gas and electric. For EPS growth to be greater than rate base growth, should we assume that you're over-earning your authorized over that five, 10-year period? Or how does EPS grow faster than rate base growth? That's question one.
Rejji. We'll look forward to some other questions for the rest of the team here in a minute, go ahead, Rejji, one more.
I'll say that. Needless to say, in addition to the rate base growth which drives about 6%, as you accurately note, through that 10-year period, we also have these supplemental earnings from the enterprises business as well as EnerBank. That helps get you a portion of the way to that 7%. Also there is a little bit of lag on some cost-cutting initiatives. When we've been able to identify and realize 2%-3% growth, there is a bit of a lag before we do roll those in, it's just based on timing more than anything. I'd say to your question around earning your ROEs, for gas, we've actually under-earned a little bit because of the loss of self-implementation.
Electric, we've over-earned slightly again because of that lag, that is what bridges the gap between that 6% rate base growth and getting to 7%. Is that helpful?
I just out of 6%, probably a small piece, just to keep-
EnerBank, as you all know, is non-core. It is an industrial loan company that we have that is based in Utah. For it to stick around, I will be very blunt about this, it would have to give us performance in excess of the broader business. People do not hold this company because they have exposure to a bank. They hold it because they want regulated utility exposure. We have found that to be a nice bit of supplemental earnings. ROEs are really quite good, in excess of what we are doing in the broader business. It is a self-sufficient organization, so we are not infusing equity down into it. They have grown at very attractive double-digit levels.
Regjji, my second question, again, as you profiled this 10-year period, obviously long time to look at. Do you envision any scenario in which CMS or Consumers' footprint would be outside of Michigan? Is that a scenario that comes up as you are looking out?
We do not see a reason to. In fact, we think that introduces a lot of consolidation that occurs, assumes some additional synergies or is required to make the model work, our model works independently. Within our own current service territory, all of the CapEx that Garrick outlined, all of the cost savings that J.F. described, and all the technology and customer enhancements fuel this model. It fuels it five to 10 years. We can see all of that. Given that, there is no reason to take on that additional risk. I would say this.
In the, let us say, the second half of a 10-year plan, when our CE Way is fully deployed and has taken root, we have a demonstrable characteristic of, and a culture of cost savings through the culture of continuous improvement and lean, there could be an opportunity that we could deploy that somewhere else and actually achieve the synergies that people talk about in M&A, we do not need it in the plan. We have enough organic growth potential with our own plan and our own strategy. That is definitely our focus right now.
All right. Greg Gordon from Evercore ISI.
Hi, Greg.
I have a question for Garrick.
Thank you, Greg Gordon.
I'm looking at page 31 and 32, and you indicated that you've got five coal plants, average age of greater than 50. Shutting them down and replacing them is part of your opportunity. On slide 32, you show how when you put online the cost offsets grow. We've seen a lot of, a few of your competitors are a bit ahead of you in terms of retiring coal plants or announcing different, some with other very big lumpy reductions in O&M. There's also a big disruption for. Can you quantify, theoretically, if those five plants go away tomorrow, how much? Or some sort of metric about absolute savings before.
I would put it this way. We've retired seven coal plants already, and we consistently hit our performance numbers there. We managed through that with three different communities, seven different plants, and without a blip in terms of our operational performance. Our expectations, what we demand of ourselves as we evaluate over the next 10 years what we do with those plants, would be to have a similar performance. Really, again, to the degree we can see consistent performance of 6%-8%, we'd look to do that. There are a number of levers that we'd be able to do to be able to structure that so it wouldn't have that kind of lumpy O&M that some utilities have went through. Got a proven record of being able to from a standpoint.
That you would plan to use. What were we to pull that, given the how many?
We're in a vacuum. I'm going to look at Rejji here, I think it's around $50 million-$100 million.
Yeah
in terms to operate those from an operations and maintenance perspective.
For the remaining five?
Yeah. For the remaining five.
Yeah. We took out about 29 or 30 from those seven that we retired. Again, that O&M, it fits into the O&M reduction. Some of it's redeployed in the form of O&M, and some of it is used to offset the capital investments required, in fact then, to replace that capacity.
It just strikes me as one of the bigger. There's a lot of O&M there.
There is. Don't forget the PPA structures in the out years of the plan. That's another big source of customer savings that can fuel the business model.
Okay, thank you. For Garrick. Garrick, on slide 30, you lay out a couple of areas of incremental opportunity in terms of number of poles that you have versus the number replacing per year. There's a lot of upside spend here. I'm struggling to think about what would be the catalyst for you to rethink the replacement schedules, or just as we think about the way to translate this into, specifically here, thinking about the pole replacement. The others see several buckets. Number of poles versus gigantic life, which probably wouldn't really play out that way. I'm trying to think about how to quantify that or what is the trigger for?
As Patti indicated, we have a, I'd call it a robust process to look at a variety of different capital investment opportunities. There's no shortage of those across gas, electric, or across our supply side business. There's also risk elements that go into that. There's also risk analysis that goes into that to make sure we're making the right choices in safety of the public, in terms of deliverability of the customer. We evaluate a number of those choices.
Right now, most of our, I would say, a little bit more bias to the gas side of the business from an investment standpoint, certainly from the integrity of the gas system. A lot of utilities, including ourselves, have learned a lot from others across the industry and what the impact can be if you have a significant event on that. With the way gas prices have went, that's an opportunity to make those investments, as I've indicated, without having us backed on. As you pointed out, there's still a lot more opportunity there, and we're certainly concerned about electrical reliability and the resiliency of the state. Some of these trade-off decisions that we make on a regular basis across the business as things change, as we gather more information, as we look at best practices across the industry.
We're going to be, frankly, doing a lot of study of what came out of Hurricane Irma. Follow Florida Power & Light. That's one of the things I study. I watch hurricanes. We don't see that kind of devastation in Michigan. Certainly, there's a lot of lessons learned from how they built their system. We try to apply some of those best practices that make sense in Michigan so that we can learn how to improve our system.
I think when you step way back on how to think about that, the way to think about that is we have choices, no big bets in our capital allocation plan. We can bias to customer value. We can bias to customer safety, reliability. We can de-risk our capital plan. As Regjji indicated in his slides, 95% of the plan is less than $200 million projects. That is a de-risked, customer-driven capital plan. That's how you should think about it. We have choices, and that's the bottom line. That provides certainty for the sustainability of this business model. Julian, hi.
Julien Dumoulin-Smith. Thank you.
Welcome back.
Yeah, welcome back. We said his email's been silent. We're all waiting with bated breath for him to start typing again.
Coming back to the numbers, just real quickly, and again, apologies, Rejji. I think I'm principally looking at you here. In terms of the Palisades, I know it's a tricky issue as well.
Yep.
Can you talk to the relative customer impact of expanding the size of the PPA today from DIG or any other existing Zone 7 resource relative to potentially moving DIG or an equivalent in rate base? How do you think about the commission's ability-
Go ahead. Go ahead, Rejji.
We looked at, to quantify the savings initially, at just doing a contracted opportunity. Looking at a market repricing the PPA. We deemed that Palisades status quo capacity plus energy, high 50s, low 60s or thereabout, and we determined that there were about a four-year basis present value about $344 million of savings in aggregate just by doing a contracted solution relative to the status quo. We did look at that on a contracted basis, and we thought in looking through the buyout replacement plan, that it was actually more prudent, particularly given the resource adequacy need of the state of Michigan, to come up with a short-term solution as well as a longer-term solution, incorporated gas acquisition as well as we have our Filer City plant that we're converting from coal to gas. We thought that those two offered very good longer-term.
The initial math was predicated on just looking at contracted solutions. What can you get for four years of energy? What can you get for four years of capacity versus where Palisades is? Again, that equated to that nice, healthy quantum of savings, which we actually felt was pretty conservative at $344 million. The economics, we basically cut it in half and said, "Entergy, if we're going to prematurely get out of this contract, you're going to get $172 million, then we'll give the rest to our customers." That equated to about $40 million-$45 million of savings per year, which we thought was a very compelling proposition for all parties involved.
Just to come back to the concept of capacity too. If DIG is ultimately not brought into rate, how much increment capacity would you be out to market? I.e., you've got 450 already allocated back between DIG and utility. Would you be basically effectively fully contracting the plant?
Get a noodle on that.
I don't think we would. Here's the choice on DIG. We could potentially still consider bringing it in with other future retirements, bring it into the utility as a low cost, much like the Jackson plant, a low cost gas asset that's utilized at varying levels. DIG is more utilized than Jackson was, but we could consider bringing that into the utility with the other retirements or in 2022 when the PPA does expire. In the interim, the energy is sold at DIG, that continues to be true today, and it will be in the future. DIG has value both inside and outside the utility. We'll continue to, based on our long-term IRP, and this is, again, I think, the benefit of some of the work that was done in the energy law itself.
The energy law provides for this Integrated Resource Plan, and we've agreed with the Commission to do that a year early. We'll file our IRP in the spring of 2018 so that we have more visibility and certainty in that long-term capacity and energy planning for the state of Michigan so that the energy law can be fully implemented. We have options. DIG will be considered in that IRP and the role that it plays. We did the reverse auction that was handled by a third party, so we know what the value of that is, and we'll go ahead and factor that into the long-term planning.
As I think about, so I'm noodling on this, but as I think about the available capacity we have at DIG, Julien, I believe that we would not. You're saying we have to go outside of DIG to procure capacity to settle the needs for consumers-
I was thinking, would that plant be effectively fully
If we did the trade with
Back to the utility.
Yeah. It would be pretty close as far as because right now we've got open capacity 2019 and beyond, sufficient to satisfy the needs of the utility. Now, what you don't know is there are variables around choice load. If some of those folks come back, that changes the equation a little bit. Status quo, I believe you'd effectively have DIG pretty full in terms of maybe energy they're already sold through 2023, but capacity too. We would probably be fully sold out with less availability on a capacity perspective beyond 2018. DV, if I'm misspeaking on any of this, please weigh in.
Sorry.
I had to noodle on that one, thank you.
Sorry. This is DV. Quick clarification on the rate base CAGR we talked about a moment ago with the 6%.
Yep.
I thought with the legislation there were some energy efficiency components.
Yes
The demand component, maybe even a large-scale tariff. How much of that is outside of for potential?
Yeah. The energy efficiency incentive goes from $17 million to $34 million potential. We'll factor that into our plan for 2018. Again, we never plan, and this is true when the energy efficiency incentive was $17 million. We never planned for the whole thing in the year because it's only predicated on delivering full performance. Even though at the end of the year, every year, we always delivered it, we always planned conservatively for 50% to 75% of it in our own internal plan. It goes up to $34 million in 2018.
Same on DR?
DR is more treated like a resource.
All right.
It doesn't have its own individual incentive. Yeah.
Yeah. It is a source of supplemental earnings that supports that 7% EPS. I think we've withheld, we view it as about $0.01 of upside based on the decision where it's going to be a prorated source of earnings in 2017 because the new energy law was implemented. It's about $31 million pre-tax, $0.01 of upside.
In 2017. Yeah.
Thank you.
Hi. I'm Greg with
Sure.
Just following on Julien's question a little bit. Could you share your thought on if the postponement of the Ohio state's retirement presents an opportunity for replacing with on the upside case?
Which PPA? Are you talking about the MCV PPA?
No, the Ohio state.
If it's delayed, or if it's-
As a delayed retirement.
In 2022, can we do a clean solution?
I think that will always be in the consideration. You know what's interesting about our clean energy approach, and we're finding this from our large business customers, and you hear a lot about it, and you're hearing more about it. The large industrial business customers are setting their own sustainability goals and being very public about them and wanting to be either carbon neutral or reduce their carbon footprint. They're asking for us to deliver more renewables. Now, the new energy law provided for an increase in RPS in 2021 of 15%, but we expect we'll actually have more renewables than beyond just the RPS standard. We continue to have cost-competitive wind in Michigan and more applications of solar, and we're watching those solar cost curves.
I would suspect, and Garrick, maybe you could even chime in a little bit about the clean and lean and how renewables fits into that longer-term generation mix.
Yeah, absolutely. I'm looking at it this way. The first big chunk of it's going to be the RPS standard. We've got commitments in the 10-year plan for Cross Winds 2 and Cross Winds 3, which is in, I'm going to use my hand here to show you where that is in Michigan, but it's really in what we call the thumb area of Michigan here, county. That's a big piece of it. But just with the clean and lean approach, it could be very modular in nature. Wind turbines, 1.5 megawatts, 2.5 megawatts, we could put these in a modular format. That's what I mean by lining up the supply and demand. A better utilization of the asset. The other piece, to Patti's point, and Brian may want to touch in on this as well, is these companies.
We're working with a number of companies in Michigan through a renewable energy tariff that we've created in the state, which is a direct line of sight additionality into generation, green generation in the state. That also provides incremental type supply type benefits, which you'll see customers committing to, and then we'll.
Those customers that are signing up for those are now looking at what we're incrementally added to meet RPS. They're wanting to ensure that to meet their objectives, putting more steel in the ground. That was a tariff that we just help them be able to point to renewable for causation. It's incremental to the RPS.
Yeah. Additionality is very important to them. They won't accept any kind of standard that's defined by the state. It only counts for their own objective if it's additionality, and they prefer locality. That's what makes it so neat. We've learned a lot with our relationship with Switch, data center, as well as General Motors. They've been very important strategic partners for us, and they both have stated 100% renewable objectives, and they're working with us. In fact, we had both Switch and GM at our board meeting explaining to our board members the importance of renewables and their rationale on why they're committed to working with us and how important this renewable tariff is to their ability to deliver and to continue to expand their businesses in Michigan. We're pretty excited about the partnerships that we're establishing so that we can meet their needs. Other Questions?
Moving on. Oh, one more. Julien.
Quick follow-up on that, actually.
Yeah.
Potential legislation in. I think there was some talk about doing renewable.
In 2016, when we passed the energy law, we bumped it from 10% RPS by 2015 to 15% by 2021. That happened.
No talk of tweaking?
Not right now. There's always talk. There's always a large contingent within the legislature, not a large, but a portion of the legislature who would encourage us to continue to raise our standards. Here's what we think about that. It's sort of like the Clean Power Plan. We don't need to wait for regulation or legislation to tell us what we can do for the planet, the modularity of renewables that is so powerful. We're coming to the terms with the fact that it's a mature industry. We have to reduce our fundamental cost structure, we have to match, just as Garrick described, our clean and lean model for generation. We have to match load with supply. Load and supply is hard to predict.
The modularity of renewable lets you add two megawatts at a time, if we didn't have this rich CapEx backlog, maybe we would be more interested in taking a big generation bet. When you look at the poles and you look at all of the other aspects of Garrick's plan, you do the math, it's a lot more than $25 million. It's not a question of do we have places to put the capital? The question is how do we make the best choices to optimize the total capital spend by doing incremental modular renewables that helps us match our supply and demand and deploy that capital in other critical areas of the business, particularly the grid and our gas systems. We're grateful that the technology continues to evolve and that our customers want it.
It matches up nicely, but it provides the modularity for us that we need in the future because we have a lot of work to get done. Our customers are expecting high reliability, high safety for gas and electric delivery, and we have an aging system, as Garrick adequately described. We have lots of places to invest and upgrade and replace. Our job is to figure out how to optimize that and make sure that we don't have to put it all into one big bet of one big plan, something like that. Great. That's a great place to end. Thanks so much for coming out, everybody. It's been a pleasure being with you.