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 Mantapati. I am Vice President of Investor Relations and the Treasurer of CMS Energy, and I want to welcome everybody to CMS Energy's twenty seventeen 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 sense going be a get a couple of quick thank yous of to the folks at Bluewater who are handling all the AV and the folks at Q4 who are handling the webcast. Also want to thank the university club and the staff for the wonderful lunch we had.
And 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. You know, before we move on, I'm going to introduce the team. You all have heard from Patty and Reggie in the past, but if I can ask the CMS Energy folks to stand up quickly and I'll just do a quick introduction of everybody here. So in the front row, you all know obviously Patty and Reggie.
We've got Gerrick, JF and Brian who will be presenting today and you'll hear a little bit more about them from Patty. D. V. Rao, most of you know who used to run IR and be the Treasurer, is now our Head Strategy and runs the Enterprises business Kathy Reynolds is our General Counsel and Senior Vice President Kathy Hendrian, Senior Vice President of Human Resources Brandon Hofmeister, our Senior Vice President for Government and Regulatory Affairs Glenn Barber, our Vice President and Controller and Tom Webb, our Honorable Vice Chairman in the back there. So now the important part here, the SEC disclosure.
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 ten years ago what our safety record was, we would tell you over 500 people didn't go home safe to their families. It'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.
And that's really tied to a culture of safety and keeping and being prepared. And so what we do before any large meeting is we do a safety tailpour, level set ourselves so that if anything does happen, it doesn't become hectic and you know who's responsible for what. So I'll run through that quickly. At reminder, we're at 1 West 50 Fourth 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 Uphouse on the IR team is going to be in charge of incident command. Sarah, who's outside, will be in charge of 09:11. Nikki will be the Director for First Responders. Alman, 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. And lastly, this
is a pretty packed room. We've got a
lot of bags, cords, so just as you move around, sure you're not tripping. And with that, I will turn the presentation over to Patti Coffey, President and CEO.
Did everyone like our warm up music there? We know our slides are going be so boring, the music had to be good. We last held Investor Day back in 2013, and we shared some things with you. But people have asked us, why are you having an Investor Day? Are you big news?
No big news to everybody. So you can relax. You're going to hear much of what you have heard many times before. But what we really want you to see is why we think there's still sustainability in this business model. So 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. But everybody's in New York, and we're happy to be here together. And I think you will see that this team stacks up well, and I would put them up against any other utility executive team in the industry. And I hope after today you'll see why.
So welcome. We're so glad to be here. Know, Sri did a lot of introductions, but 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, you know, they do all the heavy lifting to make a day like today go smoothly. So 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, and they are high class. So thank you. So our speakers today, I'm going to just go through quickly a little bit more in-depth introduction to our speakers. So I'll do a quick overview. And then Gerrick Rochow, who is our senior operations executive, you'll get a chance to meet him.
Gerrick is a utility veteran. And our team, back in Michigan, loves Garrick. He is a great operating leader. He's demanding and high driving and has high standards of all of us, and, his team lives up to it. And so 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 Garik, you'll hear from Jean Francois Bressoix. We call him JF because Jean Francois is a little more high class than 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. And so I think you'll get an interesting spin on our take on lean for the utility industry. And he'll have some interesting things to share for you, which I think is a key comparative advantage for us going forward and what continues and will allow us to continue to differentiate ourselves from our peers. And then Brian Rich, who is our Chief Information Officer as well as our senior most chief customer experience executive. And I think that's also consistent with our business strategy that customer and technology go together.
And we have combined those organizations on purpose. And you'll hear from Brian. He's got a wealth of experience in the industry and leading technology. So we're really lucky to have this team with you all today. And we are organized in a particular way.
So I just wanna 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, and 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.
And then 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. And those functional teams then lead and support our engineering and operations organization led by Gerrick and JF, and they are then in service of our customers. And that customer feedback organization comes through Brian's group. And then 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. So we would like to say that there's two attributes in 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 and we know our customers. And
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. And you'll hear a little bit of that from the team. So we're flat, and we're focused on the business, and we're organized to deliver. So 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. And so those promises included having a $7,000,000,000 capital plan for 2014 through 2018, that we would be reducing our operating expense about 2% per year. Their 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. And we promised 5% to 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 $5,250,000,000 of that CapEx plan, so we're ahead. Our O and 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 two percent. And 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.
And we take great pride in having the lowest prices our customers have experienced in a decade. So there's a lot good happening in our gas business, which you'll hear a little bit more about. And we've delivered 7%. Everyone familiar with that number? 7%.
We said five to seven and we delivered seven. And it wasn't just those three years. We've delivered 7% for the last fourteen years. So again, I think we're pretty consistent and pretty good at keeping our promises. And 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? And we're going to share with you why we're so bullish on Yes We Can. So 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. And Garrett is going to go in detail about that, but it's really important to recognize the depth of investment, the opportunity that there is, and we're only limited by the ability of our customers to afford to pay for it.
So 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. And so 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 costs, which, in fact, self funds those very same capital projects.
So we'll talk more about that. We expect to continue to have cost savings in the 2% to 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 and 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.
And 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. So build on our track record and strengthen this team. So 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, but we think there's a little more headroom in gas. And so by saying 3% base rate increases for gas still reflects lower cost for customers as a result of the commodity.
So given the age of our infrastructure, we actually think it would be wise not to make 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. And then we've changed our range, as you know, from 5% to 7% to six to 8%, and the dividend growth will follow. But let me be really clear about what we mean when we say six to eight.
Now for many of you in the room, and those of you on the webcast, when you hear us say six to eight, you might think, well, Patty, you've delivered five you've said five to seven all those years, and you delivered seven all those years. Does that mean when you say six to eight, you mean eight? Let me just be perfectly clear with all of us here together. When I say six to eight, what we mean is we have certainty around seven. We have certainty around the midpoint.
We delivered we said five to seven all those years and delivered seven. Five is sort of off the table. Six to eight is our range, and we like the latitude of on a given year when we have favorability, maybe some onetime things going on. 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, $340,000,000 we've plowed back into the business over the last four years.
We do want the Latitude to give some more to you. So that's the balance that we're striking, six to eights the range, certainty around the midpoint, and on a particular individual year, there might be an opportunity for a little upside. And that's how we think about six to eight. Happy to take any questions later about that. So 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. And 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.
Think, in fact, there's a quote that goes that way. Have 6% to 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. So the whole picture is simple but consistent. This model continues to hold, and let me show you how.
We have a large and aging infrastructure. We have older than average key parts of the system. And Gareth'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. But 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. And so smaller bets, smaller bites that enable us to derisk 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, and we have less calls to the call center. Net net, operating costs down in addition to the meter reading itself. It's a lower operating cost because of a capital investment. So much of our capital plan, in fact, does that.
It enables lower operating expense. We also have technology enabled savings. So 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, so 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.
And 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. And 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, and so you'll hear more about that.
We also have structural things like our PPAs. And so it's a good time for me to talk a little bit about the PPA order from the commission on Friday. So the we're not finished. The the commission approved the Palisades PPA securitization. We will wait now for Entergy to determine whether they'll take the lower price.
You know, the important thing for all of you, and we can't speak for Entergy, and so we won't today, and you can respect us for not being able to discuss what Entergy might do. But what the important thing to remember is it's not in our plan. It hasn't been in the plan, and that PPA will expire. So if Entergy opts to not take the lower offer for that termination payment, then we actually get that same upside in the out years of the plan. Our five year plan didn't require it, and so we actually can just defer the benefits to when the PPA expires without a securitization payment.
So we're not concerned about it, and 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, And so they have a time constraint on when they will determine whether they would pay a lower payment. And on behalf of the commission, you know, they're balancing a pretty complex issue for the state in terms of jobs, community impact, base load nuclear. So it was an important decision for the commission, and I think they were working hard to balance resource adequacy for an affordable price. And so we'll see what happens.
We're not finished. And again, the key takeaway, it's not never, it's just not now. If, in fact, it is delayed by four years, and that buys the upside in the plan in the out years. And so 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? It is 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. So just let it know let it be known.
You should put it on your bucket list. It would be worth your time for the trip. But I was up at Mackinac not vacationing, but rather with the governor selling our state. We were really we were with several site I heard somebody mention lobster. No, they don't have lobster on Mackinac Island.
Fresh water up there. But 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. And 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. And the governor told a funny story that when he was first named governor, he went to new governor school. And so this was in 02/2007.
He became governor in 02/2008. They he left for break at the session and came back, and there were envelopes on all the governor's chairs. And 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 five zero on it.
Fifty. Fiftieth. And lower is worse in this scenario. That was not good. So 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. And across the country, there's a shortfall in talent. And 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. So 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 seven 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. And Reggie will spend some time talking about some of the economic development wins that the state continues to have. So Michigan is attractive for companies to come and locate and come to do business, but 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, and 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. And 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 gen generation planning. And in fact, we've agreed with the commission that we're gonna 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. And we think that is good regulation. That creates a good regulatory construct and much less uncertainty and risk in the outcomes of decisions. And 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 Sari has a lot of experience in legislative affairs. And so you combine those two with then Commissioner Eubanks and her financial experience, that's a pretty high quality commission. And then 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. And so 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. And so that's the business environment.
But what really gets us up every day is why we do what we do. And 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.
And everything that we do to improve our performance every day enables us to serve people, planet, and profit. And so 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 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 and being out there on the job every day, but we do a lot of community giving. And 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. And my team is starting to snicker because he will stop even 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.
So 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, and I think that's why our coworkers chose our company as the number one 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. And to be selected by our own coworkers as the number one 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. The team had 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.
So everyone back at
home is going to do
double time while the team's out on the road in Florida. And 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, and it runs deep. And again, I think that's why our secret's out that we are the best place to work in Michigan. And 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 our that environmental impact. In fact, I hear companies talking about their goals for 2040 and 02/1950. We've already reduced our carbon intensity by 30% since 02/2005.
That was the clean power plant 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 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 one US utility for sustainable business practices, both our commitment to the environment but also social and governance. And 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. And then we backed 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. But 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's created at our has been created at the company, and we know it's a platform for this continuous improvement culture journey that we're early in the early days. But 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. And they add up to the 2% to 3% annual O and M savings while at the same time improving our customer experience. And 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. And so we can build that commitment to serve, leverage that commitment to serve and deploy these new tools and techniques and absolutely fulfill them 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.
And 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?
Are the 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.
And I remind people, those moms and pops have entrusted their life savings to you, and you're 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. And that's why we are committed to the triple bottom line, unapologetically standing for profitability, but at the same time, standing tall for the people that we serve and the planet as well. We can do all three, and that's our track record. And you can see our track record here in spite of weather, policymaker changes, regulator changes, leadership of the company changes.
We have a DNA about delivering. And 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. And so now I'd like to introduce Gerrick 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, Mac. That's kind of how I operate here. It is 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.
And 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. But 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, 18,000,000,000 over ten years. And there are 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.
And 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, 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. We tune roughly $7,000,000,000 and 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 contracts 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, but I want to remind you, just like Patti did, that we temper that, right?
Because we want to make sure our customer bills for our residential customers are affordable. And for our industrial customers, our rates are competitive. So we keep base rates at or about that rate of inflation. But trust me, there's a lot of big infrastructure out there to invest in, it's 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.
And I think many people don't just 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.
And if you look
at the compression and storage assets, number one compared to our peers, size. That by itself provides a lot of investment opportunities. So 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 poor sandstone layer with these big reciprocating engines. I got 52 of them across the state at eight plants, 170,000 horsepower. And then I pull that gas out in the winter and 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. Dollars 1,000,000,000 in the plan associated with that over the ten 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 inches, 24 inches, 20 inches, high pressure moving across the state.
1,700 miles of pipe within the Michigan in the regulated utility, dollars 4,000,000,000 investment over the ten 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, in communities, in suburbs, in the middle of the street, it's in urban centers, and even extends into some of our rural areas. 28,000, yep, 28,000 miles of distribution main within the state of Michigan in our service territory, ultimately providing service to 1,700,000 customers. You have a T, a service that ultimately goes through the yard, someone's home or through an alley into commercial facilities or maybe into industrial park. But 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 inches, 24 steel. If I just take these three projects right here, three projects that are in the ten year plan, three pipelines that we're working to replace, that's over $1,000,000,000 If
I
just take that top one, that Saginaw Trail or Line 2,800 that goes north to south, 94 miles to replace $636,000,000 You can do the math of what it costs to replace a mile of transmission. And let me tell you the why on this. What's the story behind this? Just as an 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? And all the best welders and laborers were in the war effort. So we have opportunities with this pipeline, right?
And so from a customer benefit, it's making it safe. While we're also 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 inches, 16 inches mix to a 24 inches to be able to support growth in the Mid Michigan area. And so 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. And 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 nine with our commission, is essentially a certificate of necessity. I get preapproval to build the pipeline. That just adds a whole ton of certainty around recovery when it's in our rate case. And so 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 systems.
10%, you guys get there's a lot of opportunity here. And 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.
And 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%. So you can see already that we are positioned well in comparison with other utility for future investment opportunities for future replacement of transmission pipe. Let's move on. Let's talk about gas distribution.
Again, diameter pipe, it's in the urban centers, in the cities, in the suburbs. We started a main replacement, our distribution main replacement program in 2012. And the idea was to remove vintage services or I'm sorry, vintage mains as we called them. And 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 and threaded and coupled steel.
So about 2,500 miles we're replacing in all. And so we're about five years into that program, about twenty years remaining. We do about 100 miles a year. And so 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.
And 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. It will be the next tranche that will could be feathered in as opportunity or runway for the long future. Let's move on to service line replacements. One hundred and eighty five thousand first of all, I have 1,700,000 service lines across our system.
185 of those service lines are what we call vintage. And when I say vintage and 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 boom. Many suburbs were built and 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. And 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 and 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.
And so here's a real opportunity for us, again, where we can improve deliverability to our customers. We can reduce operational expense, and 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. But again, framing up in terms of opportunity, 185,000 services we're working to replace out of 1,700,000 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. When we finish this tranche, there's more opportunity beyond that. And 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're able to do this work, as Patti mentioned, and maintain really affordable bills for our customers. So go back to 2010, the average customer paid $90 on their gas bill every month, so $3 a day. And today, because of gas prices and the decline, they're paying roughly $2 a day. But 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 ten years, our investment in gas or the capital investment in gas has grown by 40, right? So the benefits that we see in terms of delivery to our customers, also the reduced reduction in operations and maintenance costs, all are done while our customers are paying less than did in the past for natural gas service. As we look forward in some of the NYMEX pricing, we see a slight decline probably over the next few years, but really flat going forward. Again, 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.
And there's a couple if I was to write headlines about the electric system, there's a couple of things I would write. It's one, it's certainly significant in size, and I'll talk about the reasons why. And then 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. So let me walk through that. So the first part, really from an electric distribution system, we're really considered a rural type electric distribution system.
And so if you think about Michigan and Detroit being kind of recognizable urban area, we don't serve Detroit, but we serve essentially the rest of the state. And 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. And so what that means for you though as investors is we have more stuff. We have more infrastructure.
We've got to run the lines longer and we've to have more substations in different communities. And so 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. And so I'll walk through that and then I'll touch on this age piece as well. But from a supply side, what's in the plan is $4,000,000,000 investment in our supply. And Patty touched on some of the pieces of that, right?
And I'll go into more details, but renewables is certainly going to be a part of that. Our application of a 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.
And And 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. But if you might imagine, this is the network that moves electricity anywhere in the state. And if you see this out there, that 4,500 miles, these are large poles.
These are 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.
We call a lot of times we call it our backbone of our electric system. So plenty of opportunities for investment in that $1,000,000,000 over the course of the ten 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, dollars 1,200 in a mall, again, more than our traditional utility given our kind of rural and dispersed nature, which provides 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. So imagine 56,000 miles of poles, 56,000 miles of cross arms and insulators, wire, plenty of opportunity. In fact, 4,000,000,000 over the ten year plan.
But I mentioned this other headline and it's really about age of that electric distribution system. And I think this graph does a nice job of sharing that story. Because 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? And this is the discussion we have internal. This is the discussion we have with the Public Service Commission.
So 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 pools. Those are some of the fundamentals that we talk about with the commission and are part of our investment plans. Discussions like grid modernization, yes, 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. Because frankly, and maybe this is a a biased view, but it doesn't make sense to put new switching and new controls on top of a pole reached end of life. And that's just how we think about it. So let me walk through the $6,000,000,000 that we'll invest in our electric distribution system. Much like gas, I can't go through all the $6,000,000,000 but we'll have some tangible examples and clearly show some of the opportunities for the future.
So 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 1,800,000 customers, there's 1,500,000 poles, low voltage distribution poles. The average age of those poles is thirty nine years. Expected life of a pole is forty to sixty 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?
And you can do the math on what that looks like. But in order to replace a good portion of those poles, you're talking about an opportunity of $5,000,000,000 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, about 900 of those. So you can still see more run rate there as we invest about $1,000,000,000 in substation work. And that backbone, that high voltage distribution system, similar story with poles. About a third of the poles on that system are at sixty years.
Again, we're replacing 5,000 to 7,000 poles per year. That's what's in the plan. But 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, but again, you can see clear upside.
And just like we had in gas, we work hard on a couple of different things. One, to make sure these investments deliver real value to our customers. And so the value is shown in reliability. We can avoid 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 and M expense is service restoration. And if you couple that with demand maintenance, that's emergent work to restore customers when the power is out. Make sound investments in this business, we can work to reduce those operational and maintenance costs.
And that's clearly what these investments can yield. And then finally, from an alignment perspective with the commission and our Public Service Commission, there's some good work going on right now. As Patty indicated, a constructive environment. And we're working on this five year electric plan, which really lays us out so we have good alignment, good line of sight between the staff of the Public Service Commission and 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 $4,000,000,000 investment in the plan. And the first big tranche is $1,000,000,000 and it's squarely focused on renewables and moving from a renewable portfolio standard of 10% to 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.
So that's like the work that we're continuing to do at our Ludington pump storage facility, one of the largest hydro facilities in the world to expand the capacity and reliability of those units. It's also investment in natural gas units across our facilities and other environmental controls and modifications is what makes up the $3,000,000,000 But probably the bigger story here on the supply side is the opportunity. You can see it on the slide, 3,000,000,000 to $4,000,000,000 of opportunity here. Because our supply mix, it's really well known, right? And onethree of it is these purchase power agreements, which have dates certain.
And we know they're out of market. And so 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 fifty years. We will be making decisions over the next ten 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 ten years. And 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. And the way I like to think about it is kind of the traditional utility model, is to build this big, big asset.
And all kinds of supply, the supply goes way up. And some might call them big bets. But usually these utilities or traditional utilities will hope that, you know, 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, 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. And so our approach is different. Lean and lean approach. The way I describe it is flexible, modular.
It's where we match supply and we match demand and more close relationships so we can better utilize those assets. That's the best value for the customer. But we don't lose anything by doing that. It's different, right? And it's good.
And 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 ten year plan and provides an opportunity for future growth.
In conclusion, I walked you through our $18,000,000,000 plan. But let me leave you with these points. One, it delivers real value to our customers. Here are that in a couple of 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. Public Service Commission clearly observes the idea of no big bets. And 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.
So clean and lean applies, we talk about it a lot in terms of our supply side of our business. As Patty mentioned, the idea of lean, 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.
Alright. Thank you, Gerrick. Good afternoon, everyone. Same expectation as Gerrick's. You know, before I get started, I just want to thank you for choosing us.
Very important, and I'm very grateful that you choose us. Again, I'm JF Brousoi, and 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. And 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 Francois, 12 letters and a hyphen. For people to recognize me, all they need is JF, right?
So it applies it applies in my name. So 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. And as we compare ourselves to peers, we see that over the last ten 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.
And 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, right, defined contribution for new employees, closing coal plants, installing smart meters, evolving things that really allowed us to hone in on the cost reduction. And that resulted in a very good performance once we start looking to the right in total O and M and cost per customer.
You start seeing our performance in 2016 after that ten year trend of reducing cost really moving in the first quartile in our O and M cost per customer. But really, when you think in a continuous improvement way and lean, you celebrate successes, but you always look at the opportunity. And if you cut the data a little further and you start looking at our distribution O and M, right, 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.
So significant opportunity to go look at those costs. Those areas of costs are very labor intensive, and there's a great opportunity for us in the future. And 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 ways, and take it out. And many times, we get the question, how do you continue reducing cost?
How do you get there? Where's the bottom? Well, we don't have to go 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.
And for some, it's been a matter of survival. So according to the Bureau of Labor Statistics, you can see that the automotive business has delivered over the last ten years, on average, 6% labor productivity every year over ten years. Similar performance has been performed in the aircraft industry. And 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 twenty years with General Motors, so in auto, and ten years with United Technologies.
And I've learned a whole lot about how you go about delivering cost reduction, delivering labor productivity year over year over year. And I can tell you with confidence that those experience and knowledge is transferable to our industry. Third challenge is pretty simple. Every year, you've got to be able to do the same or more with less resources. And how they do that, I would say I'm going to use the eightytwenty rule here, 80% of those labor productivity improvements relate to waste elimination.
And we've talked Patty talked about waste elimination. Garrett talked about waste elimination. Really fundamental, to be able to see the waste and take it out. And the rest of the improvement on productivity comes from investments. They've done some automation.
And 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. And from a utility perspective, we can learn a whole lot from that perspective and experience. And 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.
So 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 ten 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, right, something that we can brag about. So our mentality has been we need to do more, we hire more.
So what if we change that mindset to saying we need to do more, we want to do more. Gerrick said there's plenty to do. How do we do more with the same resources? What if the question was not how do you who do you need to hire, but where's the waste? And again, the CE way, lean thinking comes in.
I've been around the company now nearly ten months. Best career move I've ever made. Love Michigan. Love the company. Love how we serve.
And 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. And so we do have plenty of runway ahead of us. So let me give you a little bit of insight about our approach.
And Patty talked about a unique approach to finding the waste. So I'm going to use an analogy. I love analogies. And 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.
So guess what? You see obvious things. And you've heard things like printing costs, travel, all opportunities that most companies by now have identified and reduced. But many leaders may believe, right from that vantage point, the bottom's coming pretty quick. Because if you can't see, there's uncertainty, you may believe the bottom is near.
So continue with that analogy, to see clearly below the surface, you gotta get below the surface. So you gotta snorkel at least. And then your vantage point changes. And to snorkel, you gotta do two things. Well, you need tools and skills, and you gotta get in the water.
Right? You got to decide, I'm gonna go find it. And over time, as you get deeper and deeper, you need greater skills from snorkeling to scuba diving, right, and you can go deeper and deeper. In my thirty years of experience, nearly thirty 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 is 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. So our approach to finding waste takes into account our industry. And, you know, I've compared performance in the auto industry and aircraft industry. It's important to understand the differences between our industry and their industry. Many of those industries that I talked about rely heavily on manufacturing.
And when you think manufacturing, you think factory. And when we think factory, it's four walls. And 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. Eric talked about the number of miles of pipeline and wires that we have, the complexity of the infrastructure. So we rely heavily on the autonomy of our highly skilled employees to perform the work. So as we move forward, and Patty 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 of this common language, the CE Way, to go find the waste.
It's our job to teach them, teach them how to scuba dive, and go deeper and deeper into it. And Patty 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. And I would say that our approach is consistent with our ambition. We've committed to 23% 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.
And I can tell you with confidence, we're very far from the bottom. So the CUA comes in. Patty has 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.
And 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. And 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 Garik's shop, all the way to the insights coming from Brian's organization from our customers. And what we're seeing about the CUA 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, and 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. The 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, and then we act with a sense of urgency. And finally, by 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, very powerful.
So our goal is pretty simple. Our approach is unique. We're going to train 7,500 people how to scuba dive. And they're going be ready not only to serve, but they are going to be able to solve. So think about the opportunity.
7,500 people finding the waste in an ocean of nearly $1,000,000,000. I don't know. I get excited about it, and that's why I'm here at CMS Energy. We're just scratching the surface. We're just learning to snorkel.
But I want to share a few examples with you. I have three examples I want to share. And you may say, well, Jeff, these are pretty small in value. I'm going tell you the power of our approach is there's gonna be hundreds and thousands of these small things, and they add up quickly, and they're gonna be sustainable for the long term. So let's look at a few.
This first one was introduced by Patty at the July earnings call. What I chose to bring in forward again just to highlight how obvious some of the waste still is and the low hanging fruit that exists in our business. So 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.
So as you think, at our highly skilled employees, the work that they do, highly skilled work, at a higher cost, you gotta look at how they spend their day. And 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. So we chose to do a pilot, one of our 43 service centers in Flint, where on the offshift, we have an employee pre fueling the trucks. And what we saw coming out of that is fifteen to thirty 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 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 Gerrick talked about. So 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 wanna get it out. It becomes obvious.
You need to equip yourself with finding it and seeing it. So what a great example of using our resources better. I love this next one. This next one is about software licensing. And, you know, waste, as I said, does not discriminate.
It doesn't go just in operation. It just is everywhere. And lean is about not going without. If any of you have heard of lean and heard to go without, that's not what lean is. Alright?
We when I think of lean, I think of a lean muscle. Right? No fat, flexible, strong. You feed it. The lean is about having what you need when you need it, but nothing more.
So this one is a great example in Brian's shop with the IT team. So they chose to look at our software licensing process. And they focus on four main software, Visio being one of them. And 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. So the IT team came up with a wonderful idea.
And lean is not again, I said, what you need when you need it. You gotta be fast and nimble. So 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. And 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 fifteen minutes. Fast and nimble.
And just that one sounds pretty obvious, but you had to see the ways to go address it. This one, just this year, we are on track to save a half million dollars for that project. Imagine all kinds of other opportunities out there. And finally, this last one that I have is about gas response leaks gas gas leak response. Obviously, something very important in how we protect and serve our customers.
And 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 share some 2015 numbers here. In 2015, we sent a truck to go investigate potential gas leak 92,000 times. So 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 gasoline. And that our response, right, to what we thought perhaps could be a gas leak was not appropriate. So 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. So 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 is 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 sold. Again, when you hear this story, you say, my goodness, Jeff, these are obvious things. But we weren't seeing them.
And 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, tremendous opportunity. So 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. So within a department, within a function. And 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, very far. We're gonna start looking at the horizontal value stream. And 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. So we have a unique approach about finding the waste. We have a unique opportunity of reducing cost. As we move forward, we're going get 7,500 scuba divers in our company finding the waste. And we're going to complement what Gerrick 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 ways.
And then Brian, who I'm going to introduce next, will be talking how we're going to leverage or further leverage technology to reduce costs while improving the customer experience. So we're in great position to maintain for a long time this cost reduction trend. And 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 twenty minutes, it's worth everybody just kind of stepping up, standing up for a second and just kind of letting the blood flow. So I'm going 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. And I guess for those on the webcast, you can do the same. Okay. So the other selfish reason why I did that is because I'm going try to do what Gerrick and JF unsuccessfully did.
Good afternoon. There we go. That's a little better. Okay, so as we gather back here, really the third leg of our stool and the opportunity and what we see as a differentiated factor for our business is the ability to make our business customer defined. So you heard Patty speak earlier about this consistent model that we've delivered for investors over the last fourteen years.
I'm going show you shortly that we've been able to deliver that consistently for the last fourteen years, not at the expense of our customers, but with our customer service improving infinitely over the last fourteen 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 perception of the value of the service they receive has improved at the same time we've been delivering for our customers.
And 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. So the real opportunity is being more customer defined. Patty talked about this consistency. She also talked about, and Reggie is going 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 benefits of the state, but because more importantly, the people component of our bottom line is empowered through it. When Garrett talks about the capital investment plan of the company, I mean, many operators in our business talk about it not as a CapEx plan, but as a customer investment portfolio. And 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. And as JF 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 and 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. So 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 and 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. So 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. And 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. And you can see not just on an absolute basis on our score with J.
D. Power about how we performed, but also as you look at the gap to first quartile companies on a national basis, so we're not just looking at other Midwest performers, but on a national basis, the gap on a relative basis continues to close. And 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. And again, relative to our peers, first quartile performers, we have also closed the gap, both from an absolute perspective and from a relative perspective. But here's the exciting thing.
Every time we think about how well we've performed, we raise the bar. Because 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. So this is a scale of 1,000. So 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.
And we know that the story you just heard over the last one hours point 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. And 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. And when I talk about digital, it's very similar to how Garik 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's on a 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 because not just because that's a lower cost to serve, but because our customers are overwhelmingly telling us that's where they want to serve. And we have the luxury of really working to be able to serve them in the channel of their choosing. And I'll share some metrics about how our customers are pulling us in that direction.
Field mobility. Every day, Gerrick'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. But we're just starting. Right now, they're getting their work packages.
They're getting where the best route optimization is to go. But 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? And 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. And then 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, and Garik 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 other the heart of our infrastructure. But 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 Patty shared the numbers before, 300 to 400 times per second, we were getting hits on our outage map online. We have over 1,000,000 customers subscribed to proactive outage alerts so that we can text them and say, we're aware your power is 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 and M out of the business. We're able to lower cost to serve and we'll be able to delight our customers. It's a great place to be. So I'll take you through a little bit of some of what we call the moments that matter.
And 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. So moving, we experienced about 60,000 moves per month.
And 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. And 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.
And 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, 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 its 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're live with billing and payment in January and again our customers are pulling us direction.
The one we're most excited about is really in the outage. This is a very, very pivotal moment with our customers. You don't have to read the news of the news right now to understand what customers feel when they're without the essential service that we provide. And 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 is out. We have 4,300,000 outage related views in our digital channel every year.
Now I'm not going to sit in the 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. And 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. And 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? So 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 one hundred and thirty years of our business, we couldn't tell them that. They needed to call us. Now all of 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.
Then as we continue through Garrett'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 be rolling that out later this year about being able to make commitments to our customers through a digital channel.
And 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. So from a live call volume perspective, in 2015 we were getting about 5,500,000 calls per customer. We know from a benchmarking perspective that's very poor. We're probably not going to get to the 3,500,000 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.
But over the last since 2015, we've been able to extract $2,500,000 O and M savings out of the business. What's so great about that is not only has we reduced the O and 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. We're resolving calls the first time 11% better. And as I mentioned, we now have these proactive alerts where we're being more proactive with our customers.
We're aware your power is out, crews are on their way, your bill is due, your payment is due, texting them, whatever channel they wish, we've got over a million subscriptions in that over 3,500,000 customers. It's great. But here's the exciting thing. The benchmark, whether you get to 4,000,000 calls per customer or 3,500,000 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 opportunities 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 of service. Great example of an opportunity we've been able to do. Physical bills, Patty mentioned our smart meter program, how that's really perfected, how much better we're getting at actually getting bills out the door.
In addition, 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. And you can see we've taken $1,000,000 in printing costs out of the business just by moving more and more customers to electronic bill. And 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, has 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 electronic analog electronic meters left and we're still starting our gas only territory for AMR investment. We're more efficiently reading meters. And we know that this has a better cycle with our customers. Our J. D.
Power research tells us that 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. So 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. So you can see the $1,300,000 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 done 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 will happen through the end of this year. And 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. And then finally, our Smart Meter program.
I know Patty and Tom and Reggie have shared this program successfully with you in the past. This is a great investment. Patty kind of pointed to it earlier in her remarks as a cornerstone of where you can invest capital into our business and extract O and M out. This is a $750,000,000 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. But 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.
And Gerrick mentioned a little bit, the same opportunity exists on the distribution system to really smartfully and thoughtfully invest technology into our infrastructure on the distribution system that will improve reliability and reduce cost. And we'll manage that through the sequencing of his CapEx plan to make sure that we foundationally got the right time to go at but there's huge technology benefit that we see as we continue to put more and more technology onto our system. And you can see our smart meters left us with a run rate of O and M reductions of about $5,000,000 a year, plus all of that is customer benefit. 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, very high on the bench marketable number. Patty talked about our crews.
She's out with them. When Gerrick'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.
And 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 it 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.
And 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 that's 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's more renewables that are created.
We're able to give them a tariff that worked for them. We have all kinds of other different ways we can personalize service through segmentation, through marketing to make sure that they're enrolled in the programs that they want and feel that our customers are spoken to in a segment of one. And then 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're seeing increasingly, both. And that's the journey that we have ahead of us. And we feel really well positioned, whether it be through our digital platforms that we're standing up, through the coworkers that we have that every day want to serve and through the insights we're 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've had in delivering for our owners, we've been able to bring our customer value along with us during that time. So I'm now going turn it over to Reggie, who's going to close, and then we'll turn it over to Q and A after that. Reggie?
Good
afternoon, everyone. Afternoon, everyone. So actually, I feel like the golfer who has been waiting to get on the tee box and all of the people you're playing with are already in the middle of the fairway and two sixty yards out. So I'll try not to grip the clubs too tight. But hopefully, you've had a chance to really get a deep dive and closer look at all of the opportunities within the walls of this company.
So Patty and I, three, Tom, we've hit the road on several occasions and have walked you through, at a very high level, the capital investment opportunity, the cost cutting opportunity and what we're doing to make sure we don't compromise the customer experience. And 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 Garrix of the world, the JFs, the Bryants, who tell that story in great detail. As I recall, I think I was chatting with Dan offline at our COLA 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.
And 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 $1,000,000,000 of capital investment every year. We've delivered the cost savings to the tune of 2% to 3% per year. Last year, 6.5%, and we've done it without compromising compensation or investment in the business for the benefit of customers.
And so I feel like it's a differentiated story. And if nothing else, take away from this narrative, this story that we can prolong this for several years to come. And that's the biggest takeaway as I see it today. So stepping forward, Patty 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 Entity deal, traded yourself, you're a deal guy. You like doing the big bad type stuff. You're not going to bring that attitude, that persona and that mindset here.
And 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 they? And they didn't say fudge. No, no, they didn't say fudge. And so what I love about this business model, as you look at the customer investment backlog, and Gareth 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 $1,000,000,000 to $2,000,000,000 less than that of aggregate spend. Those are the only big projects. And so you've got the couple of transmission pipeline projects, a little bit of environmental spend, and then we've got some also some clean investments sorry, no, AMR. Those four projects represent the only projects within our five ten year plan that are in excess of $200,000,000 So it's a really, really low beta capital plan as I see it. We spent a lot of time on cost reductions.
I'll touch upon a few items there. And then sales growth, we'll talk about the business opportunities. And needless to say, because of good tax planning, I don't if Nathan is 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. And that obviates the need for block equity issuance. So it's a very sustainable story as we see it.
And so that self funded five to six points, that funds 70% of our growth here. And with that, it minimizes the rate increases at or below inflation. We believe we can be on this path for several years to come. So stepping into that again, as highlighted, we've got a modular customer investment plan. We looked over the last ten years historically what we spent, dollars 13,000,000,000 in aggregate, driven a lot of growth.
75% of the portfolio was under $200,000,000 or yes, under $200,000,000 and so about 25% over $200,000,000 So not lumpy on a relative basis. That's a pretty good spend plan. We are expecting to be at $18,000,000,000 as we've talked about in the past for the next ten years, and less than 10% of that spend, as highlighted, is under $200,000,000 So implicit in that is that there are no big bets. And actually to peel the onion a little bit more, the four projects I talked about, whether it's AMR, MidMichigan, Saginaw or some of our environmental spend, all that concludes within the next five years. So over years six through 10, if you look at that glide path, there are actually no big bets embedded in that.
So a very nice capital plan in years to come. And 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 prioritizing gas, makes the most sense at time. And we also want to, as Gerrick highlighted, capitalize on this low commodity cost environment. So on the cost cuts, think JF did really good justice to this.
Again, we try not to do too much comparisons relative to our peers, but you can see we have actually delivered on cost cuts year over year 3%. There aren't really no utilities, I believe, in the nation who have done that over a sustained period. In fact, most of them are 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 in this path. And the one I would submit, which I view is 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.
So we've talked about this in the past. We have around three fifty to 400 FTEs who retire every year. It's a very seasoned I guess 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 plan, quite costly. And so we have obviously, like most utilities, we have frozen our defined benefit plan.
And now most of our new employees, in fact, all of them come in on defined contribution plans. The savings with that turnover is at $40,000 per FTE. So you can do that math pretty easily. If you're having 400 FTEs turnover every year and you're saving $40,000 per employee, that equates to about $16,000,000 per year in savings and a very nice annuity. When you think about the cost structure, about $1,000,000,000 about 1.5%, just over that.
And so that gets you a good portion of the way there when you're trying to deliver 2% to 3%. Now what we're trying to do with the CE Way is be as thoughtful as possible about that turnover. And so the math I just shared with you, that presuppose that you're backfilling one for one for all those employees who turn over. And so our average cost per employee is about $100,000 So imagine, if you only have to backfill for half of those employees, two thirds, three quarters, it increases that average saving per employee. So $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. And 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. So we feel like there's lot of runway. Let me touch upon a couple more points before I leave this.
Let's see if this is a pointer.
It's like a self destruct, but is there a pointer?
Okay. I always feel more professorial when I have these things. All right. So also productivity, and so you guys have seen we've been turning over the coal fleet over the last several years. So we took nine fifty megawatts 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 countries last year. And so 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 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. So it's much more cost effective.
And then what also impressed me, I'm not going 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. But we also like, as I mentioned earlier, and 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. And so we're actually still spending here. So when you think about this 2% of savings per year, that's net. We're still investing in the business. And if you think about what the team did last year at a 6.5% reduction, that was net of still playing people markets on a gross basis, less than 8.5% or so of cost savings, so extraordinary.
And hopefully, if nothing else, you gleaned from JF's wonderful presentation that we're scratching the surface here,
just scratching the surface. So
from
a cash flow perspective, the business continues to generate a good deal of cash flow. We did just over $1.6 last year. We're forecasting $1,650,000,000 this year. And so we see nice cash flow accretion on an annual basis driven by net income and very good management on the working capital side. And so we expect that to grow $100,000,000 per year.
We've been saying that for some time. And 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. Now Tom has challenged me in the past, and he said, look, in my time here as CFO, I never paid federal taxes. So I put this on you to further that. And so that's the challenge that I have upon me.
And like any good executive, I push that down into my head of tax and said, you have the job to not pay federal taxes again or otherwise because that will be the end of you. So we have a lot more runway here. And again, shouldn't be fully taxable until 2022. And obviously, that changes in the context of 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? So we'll see. But again, a very nice bit of tax planning here, which again obviates the need for block equity issuance. And that actually funds about 1% of this plan, just the federal sorry, the tax planning alone. So a very nice runway here.
And so what has that done for us? That has given us a very nice balance sheet and, as we see it, a very high credit quality to fund this plan effectively to the benefit of our investors and our customers. And so we're issuing debt at very good rates, and 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, was April 17 right before I joined. And so I was just hoping to get one bit of good news after I joined, but it happened a little too soon. But you can see that the credit quality of the business has improved time and time again. Now there may be an inclination in this room given the composition of people who are here. Well, boy, this looks like you get room to be a little bit aggressive on, say, the M and A or on the capital side.
And 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. And we I will just tell you right now, we worked very hard to get the credit ratings we have today, and we are not of the mindset that makes sense to be overly aggressive here. And so 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.
And so we like right where we are, and that's where we intend to be. Now you'll see there that we have some opportunities in the balance sheet. And so what we've done historically, in addition to the operational cost reduction 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. And you can see we still have some high coupon bonds portfolio here. So we've got some eight handles, some six handles.
And these are bond financings that we like to do. We do them prematurely, and we take cost out of the system that way. So the ones at the parent, obviously, those impact and benefit shareholders. Those go right to the bottom line. And you can see that we've got opportunity at the OpCo as well to the benefit of customers.
So a lot of opportunities here. And I think it's worth noting that if you look at the portfolio over time, consumers, OpCo and then CMS to 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. So a significant amount of cost reduction, while at the same time increasing tenor, the weighted average portfolio. And so you can see seven years of extension of tenor at consumers, this is on a weighted average basis as well as at the parent. And so I think if Sri were under oath, he would tell you it's because of the brilliant treasurer that we hired a few years ago.
But you have to give credit where credit is due. And so I think in part, it's due to how the markets have been. And 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. And then 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. And we feel very good about the performance historical and future performance of our service territory.
So most people equate the state of Michigan, if they haven't spent time there, to two things, Detroit and the auto sector. And just assume how goes Detroit, how goes the auto sector, how is how the state goes. And that's not true in our service territory. So 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. And you can see Grand Rapids, 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.
So building permits up, GDP up, population up, unemployment down. And so 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. And so we've done a lot of work with industrial customers in our service territory to try to find opportunities for them. And 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.
So how can we stay on this path of sustained growth? Because we've identified the cost, production opportunities, more to do there. We have a robust CapEx backlog. But 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. And so we keep a close eye 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. But we have more work to do is on the industrial side. So you can see we've had great improvement here. I think we've been down I think it's the actual decrease about 26%, but we're still 8% above the peer group. And that's where we need the most work.
And so when we come up with opportunities such as Palisades, we'll see what happens with MCV a few years down the line, but those are cost reduction opportunities on the supply side where there's a disproportionate benefit to our industrial customers. And so 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. And so we have it our Parnell service center that looks at our industrial cost and what we can do to be more competitive on our industrial prices. And so 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. And also, think there are other aspects with 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 we're there are certain things beyond just structurally that we can do to improve this story. So 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. And it's really the fuel and the operation and maintenance costs that drive the spending. So you can see here a good portion, call it about 60% of the cost components consist of fuel and power costs and O and M.
And so that's what we've been acutely focused on over the last several years. You know what we've done on the O and M side, and so we've been very focused on that. That's largely within our control. And where we're going next is the PPA and fuel costs. So Palisades, as we saw, was a very nice opportunity to introduce significant savings to customers, 1% to about 1.5% of reduction in costs through just taking an off market PPA and finding, as we sit, a very nice buyout replacement plan that could have saved customers quite a bit of money in reduction in fuel and other costs.
And so what we're also looking at, too, is Clean and Lean, as Patti, Gerrick and others have highlighted, and 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. So one good example of this is when we retired the Classic seven plants and we took nine fifty megawatts out of circulation or out of service, we replaced it with an underutilized gas plant. So this predates me, so I'm telling this story second hand, but we had authorization to spend $700,000,000 on a gas plant to build one from scratch. We actually found a lemon not far from us in Jackson at a song. It wasn't a distressed situation, but JPMorgan was getting out of that business and they sold us that gas plant in Jackson, which was underutilized for $155,000,000 So we saved customers over $05,000,000,000 redeployed it on the gas side and it led to significant savings.
And it was also planet accretive, as I've highlighted before. So more opportunities there.
And so as it pertains to
our regulatory backlog, we've got quite a few things in play. So 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. So 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. So the first beachhead or the next beachhead that's relevant is on December 1, 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.
So 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 July, dollars 29,000,000. We also got the IRM, investment recovery mechanism, 18,000,000 per year, very pleased with that, and a double digit ROE, 10.1%. So we view that as it wasn't I wouldn't say it was the optimal outcome, but quite good and we felt good about that.
And 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 are at this point, we requested 130,000,000 as part of self implementation. That was in the month of August. And so we will conclude that process on October 1.
There's a bit more of the adjudicated process remaining. So we have the case will close after cross examination, which concludes on October 4.
So a bit more work to go there, but so
far so good. And you can see the underlying assumption there. Now we model the business very conservatively. And so we have not presupposed that it's $130,000,000 in our hip pocket, but ideally, we'll see how that goes. And then Palisades, we spent some time on that.
And so 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. But 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. So if Entergy chooses to go down this path, it introduces more savings for customers at about, call it, dollars 136,000,000, so that's lower than the 172,000,000 that we wanted to pay them. If they do not, it was not baked into our plan.
And so we had no assumption at any point that this would help our earnings, help our funding strategy or lead to CapEx. And as Patti highlighted earlier and rightfully, it is in the upside opportunities, the $7,000,000,000 that we highlighted. And at some point, we will have to find a longer term replacement plan because this PPA matures in 2020 so opportunities there. On DIG, so 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 scenario in the event that Palisades was taken out.
And so we bought or did a contract between DIG and the utility for about four twenty five megawatts. So that is a contingent position that DIG has with the utility, which may be undone in the event the Palisades transaction is moving forward. Now what I will say is when you think about planning years versus calendar years, very little economic exposure over the course of 2018. But in the interest of full disclosure, we will be looking to find additional opportunities to execute bilateral transactions again in the event that Palisades is. And you can see here, we're emotionally hedged because this is a good business.
It's done very well. We are sold forward on the energy side through 2023. And on the capacity side, we've got some exposure in 2018 and 2019 and beyond, but we feel like the market looks quite good. And again, it's a bilateral market, so we're not relying on the reserve auctions to fill out these sales portfolio. And then with respect to 2017, this page just illustrates, as we have in the past, just the uncertainty that goes in this business.
And every year, you have these EPS curves that highlight the gives and takes and the ins and outs of how our performance is and whether it's service restoration, it's O and M, whether it's 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 and M cost savings perspective and also from a weather perspective. And so 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% to eight or 7% growth that we delivered last year. We say all that to say, as we think about the 2017, like every year different. And so we got off to a very good start in Q1, as you may recall, dollars $0.01 2 ahead of the prior year, 2016.
Second half, we're effectively down about $0.12 so ended up year to date even. And we feel very good, as we said on our Q2 call, about the glide path going forward. So we feel very good about hitting our $2.14 still up $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 don't need if we don't want to. So debt prefunding, foundation low income, other those are political donations, dollars $0.01 4 of discretionary spend in the 2016 that we do not need to replicate.
And so when you think of the year over year comparison, there's a lot of upside as we see it in the fourth quarter of this year and the back half of this year. And 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're actually $04 ahead of plan. So we think the business is performing quite well. And I was looking at the numbers and say, well, what are the pieces that led to that $04 of overachievement versus plan? It has a lot to do with what we talked about today. And so just starting through that bridge,
we were $0.16
behind in terms of weather and service restoration or storm. So $0.16 have hurt relative to plan as far as this year goes in the first half of this year. Another penny hurt us, and so $0.17 of pain, and that was related to our gas implementation decision in Q1 of this year. Dollars $0.01 7 have hurt. And what has gotten us to that $04 ahead?
Well, it's a few things. $0.01 0 of non weather sales. So I've 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. So we've gotten $0.10 of non weather sales. On the cost side, we've gotten $04 through very good tax planning with the Zealand property tax decision, which is very good in Q1.
And then enterprises has done well to the 2 to $03 And so you can see the recovery here. So $0.17 of bad news, that's $0.17 of good news. And what's gotten us over the top, we're $04 ahead. This is every CFO's favorite term, dollars $0.04 of other. And so a combination of other tax reduction savings opportunities.
So we've had a very nice first half of the year. And again, if you look at the spend pattern for 2016 and how we end up and all the opportunities we took advantage of, discretionary opportunities in Q4 last year, we feel very good about our ability to achieve $2.14 to $2.18 in the year. And needless to say, I'll remind you again, every year is different. And so we go through this every year and have this uncertainty, volatility.
And you think about the nature
of this business, again, you've got storms, you've got forestry, preventative maintenance, You've got O and M costs that can get 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. And that's what we will do this year as we've done in the past, and he's leaping out, but I want to say this.
So I will say to him, please grab him, Travis. Yes, so I look at this as someone who's been a CFO now. This is three years in aggregate, so about two point five years at ITC and about a half year now at CMS. And you look at the volatility on a quarterly basis and then you look at the performance every year. And 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.
And so 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. So please join me in acknowledging Tom Wright. So I'll just close with this and then I'll give it
back to
Patti. God, almost got emotional a bit. But somebody asked me, think it was Kevin Molenta at Fidelity at Dan Ford's conference in Kohler. He said, well, what do you aspire to do stepping into this role as CFO? Are you going to be the Tom Webb two point zero?
Or are you going just put your own stamp of the mark on this organization? And I said, well, if you're telling me that delivering six to 8% growth for the next five one decades 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 fourteen years, that's a trade I'll do all day long. So to me, Tom Webb two point zero is a wonderful company. I would love to do a fraction of what he's done. So with that, I'll hand it back to Patty.
Don't
go far. Okay. So obviously, we think it's a compelling thesis, and I think you probably do too, and 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, and I hope you got a real feeling for this mindset of daily waste elimination that can deliver then sustainable, sustainable cost performance. They can self fund all that CapEx that Gerrick's team is anxiously trying to they wanna spend more and more and more. We can spend more as we reduce costs and self fund it. And that leads to a healthy company, healthy cash flows and balance sheet.
This is a compelling thesis, and 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, and we hope today you have heard 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, and 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.
So thank you for that. We look forward now to taking some Q and A from the crowd. But I did hear a rumor. Steve Fleishman, is he still in the house? Steve's step up.
Oh. Well, if you see him later, it's his birthday. So wish him happy birthday, '29 again. All right. With that, would love for Gerrick and JF and Brian and Reggie to join me on the stage.
We'll take some questions. Because we don't get these guys out on the road very often, I've challenged them to answer all the questions. So I'm going to be the orchestra conductor here, but 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. And we have roaming mics as well.
We have a question right here. Oh, Jonathan, hi.
Hi, good afternoon, and thank you for what a very enlightening presentation of some of the power of what you're accomplishing is being done. I feel very interesting. One thing on the circle slide that shows the CapEx, dollars 18,000,000,000 and 25,000,000,000 as opportunities. A couple of weeks ago, that slide used to show 21,000,000,000 to $25,000,000,000 had 21,000,000,000 on it twice. Are you more confident that we're talking about the upper end?
And otherwise, where's the 21,000,000,000 gone?
Yes. Go ahead, So I'll say that Maybe the guys can pull up that slide if you could. It's just the circle slide of the CapEx.
Thanks. But I'll say at this
point, the composition of that spend has not changed a great deal. And so when you think about the piece of that $7,000,000,000 you've got, call it, about 2,250,000,000 of gas infrastructure. So these are, again, opportunities not in our base plan. And you've got, I'll say, a combination of about $0.07 $5,000,000,000 which is grid modernization and a potential Palisade 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. And then you've got basically a solution on the side of MCV, and that PPA matures in 2025.
And so we've assumed, for illustrative purposes, that could be about $3,000,000,000 of wind spend and then you'd have to back that up with about $05,000,000,000 or thereabouts of gas CT. And so that's the composition of plan. It hasn't changed. But the reason why we wanted to back off of the twenty one to twenty five is we didn't want to be too prescriptive about a ten year plan where you've got some real signposts that need to take place for the next four or five years before you can get very specific about the spend. We want to give ourselves a little wiggle room and not be too prescriptive about the components of that plan because that mix could change, but we still feel very bullish about the volume and depth and breadth of the capital investment opportunities.
But 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 Gerrick's section, play out some of that math because the volume of opportunities are well in excess of $25,000,000,000 But historically, as always, the constraints are, can we afford to do it? Our customers
Yes. I think that is the critical closing point, and Gerrick 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, But not that CapEx plan is 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. Yes.
And think what Gerrick would also tell you is that there's also a feasibility side. Just speak for Gerrick. Yes, Gerrick, maybe you will. Can sit in this room and tell you mathematically, oh, yes, we could do 1,000,000,000 point dollars We could do $2,500,000,000 sure, but then there's an execution side to it. There's an operational feasibility.
And you try to do certain volumes of CapEx in a particular year, you
can kill half your Being
a bit facetious here, but it's there's an operational feasibility aspect to it as well.
You hit the nail on 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? I mean, what changes in your calculation we get lower sales growth? That's the first question. Second question has to do with O and 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
Just look
at that chart, is that apples to apples? Or did you
so that's true?
That's the FERC form one O and M cost savings that defines the peers. That's we didn't take any anything out
of We didn't take any liberties. It was apples to apples out of FERC form 100 but you can correct me if I'm wrong. That's all it is.
Then just the 1%, if the 1% means a lot lower growth?
Yes. So with respect to the sales, we generally have modeled business pretty conservatively. And so we've said 1% on that page, but to be clear, that represents one point of the five to six points. And so we've actually assumed electric about half of that, fully 1%. And we've been surprised every year, at least the last couple of years, at how well we've done on the non industrial side.
So both residential and commercial have done in excess of our expectations. It's certainly been the case in the first half of year and last year. But what I'll say is when you think about the three legs of the stool of the self funding strategy, whether it's O and M cost cuts, sales or the other bucket that just obviates the need to block equity issuance, those work independently. And so we try to make sure that and there's if there's a
year in which we are short on
the sales side, so let's say we get 25, 50 basis points of growth and not the percent, then that
means we've got more work
to do on the cost side. So instead of delivering 2%, it means we have
to deliver 2.5%
cost reductions. And so we've been very thoughtful about how we've managed the work and managed the business where if sales are short, we've built in enough risk mitigation of plant insurance policies to make sure we offset for that so that we're only funding the business with or funding the capital investment and rate based growth with just about, I'd say, 30% coming. So we try to make sure that those three legs of the stools work together.
So we actually, in our five year plan, internally are working toward about 05% sales growth. And so it's very conservative and that cost then is the buffer, not customer prices. 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, yes.
Use it just as a bulky. We say about 2%. We can't predict inflation. Like, no, I can't. Yeah.
It would. It would. Because your O and M is made up of and I think JF did a good job describing that we over that we invest we overdo the productivity assuming there is some cost inflation that we have to absorb. So that's how we work the math, and we work it every single day. So 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.
The EPS growth is reliably Yes, let's go ahead. We have a few more questions.
Afternoon. I wondered your thoughts in the gas rate case decision that came out earlier this summer. The commission took a big step in reducing the O and M that they asked for, it netted at $22,000,000 was what they discussed. And then again, in the electric case that is on file currently, the start took a while back. That is a sign to be kind of concerned about that commission offer going forward.
How do we if we get a little bit lower O and M and electric Yes.
I'll take part of this, and then Reggie, you can add in. So 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. So for example, on the electric rate case staff position on the O and M reductions, I will say that probably two compelling things to recognize is, one, our self implementation amount of $130,000,000 is underway. So October 1, we will implement $130,000,000 self implementation. So and we didn't have objection from staff or commission on that.
So 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. And she mentioned in that opening that we, in fact, she acknowledged the performance of both ourselves and DTE to some degree to the second bar on our cost chart, that we have absolute O and M reductions and are the only utilities who have done that. And so I think there's real recognition, in fact, on part of the commission that we have this track record for cost savings.
And so 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 or does the investment strategy is really what is looked at in total. And so 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, asked for 80,000,000 up to 29,000,000 A big component of that was the O and M cost reduction. There were really two components that drove that. I believe it was about a $22,000,000 O and 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. And so those are the two big drivers there.
And the commission's position was twofold. So 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. And then in the case of incentive compensation, again, there's a real different 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 engagement. I would beg to differ, but that's for another day.
So I'm saying all that say, you need liquidity to fund the business, which helps customers. That's for another day. But 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 budgeted very conservatively for that. And we have spent a lot of time with the commission, both in the context of electric rebuttal and then 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. And so we are spending time to make sure that we understand the stat and the commission's position on them.
I'd say we're taking heed. Is that helpful?
Other questions? Yes, here, Hal.
Two questions. One, if I recall correctly, the $18,000,000,000 CapEx, the base plan, translates into about a 6% CAGR on the rate base side. And you are generally earning your authorized ROE in both gas and electric. So for EPS growth to be greater than rate base growth, should we assume that you're over earning your authorized over that five, ten year period? Or how does EPS growth grow faster than rate based growth?
Reggie. So we'll look forward to some other questions for the rest of the team here in a minute. But go ahead, Reggie. One more.
Yes. But I'll say so needless to say, in addition to the rate based growth to get to the 7% in addition to the rate base growth, which drives about 6%, as you accurately know, that ten year period, we also have supplemental earnings from the Enterprises business as well as EnerBank. And so that helps get you a portion of the way to that 7%. And then also, there is a little bit of lag on some of the cost cutting initiatives. So when we've been able to identify and realize 2% to 3% growth, there is a bit of lag before we do roll those in, and it's just based on timing more than So I'd say to your question around earning your ROEs, for gas, we've actually underearned a little bit because of the loss of self implementation.
Electric, we've overearned slightly again because of that lag, and that is what bridges the gap between that 6% rate base growth and getting
to 7%. Is that helpful?
But just to keep
Yes. So EnerBank, as you all know, is noncore. The industrial loan company that we have is based in Utah. And for it to stick around, 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, but we have found that to be a nice bit of supplemental earnings.
ROEs are really quite good in excess of what we're doing It's a self sufficient organization, so we're not infusing equity down into it. And they have grown at very attractive double digit levels.
Mehdi, my second question, again, as you profile this ten year period, obviously, long time to look at. Vision, 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?
Yes. We don't see a reason to. We have in fact, we think that introduces a lot of consolidation that occurs assumes some additional synergies or is required to make the model work and our model works independently. So within our own current service territory, all of the CapEx that Gerrick outlined and all of the cost savings that JF described and all the technology and customer enhancements fuel this model. It fuels it five to ten years.
We can see all of that. So given that, there's no reason to take on that additional risk. I do I would say this. In the let's say the second half of a ten year plan, when our CE Way is fully deployed and has taken root and we have a demonstrable characteristic of and a culture of cost savings through the culture of continuous improvement and lean, if there could be an opportunity that we could deploy that somewhere else and actually achieve the synergies that people talk about in M and A, but we don't need it in the plan. We have enough organic growth potential with our own plan and our own strategy.
That's definitely our focus right now. Yes.
Right. Greg Gordon from So I have a question for Gerrick.
Thank you, Greg I'm looking at Page thirty one and thirty two. And you indicated that you've got five coal plants, average age of greater than 15, shutting them down and placing them as part of your opportunity. And then you show Slide 32, you show how when you put online, they cost couplets. Well, 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 you've heard some of the other recent developments. There have been very big lumpy reductions in oil and gas.
There's also a big disruption for you
quantify and you quantify theoretically if those five plants go away tomorrow, how much or some sort of metric about average absolute savings before?
So I would put it this way. We've retired Southern coal plants already and we consistently our performance and we managed through that with seven different community or three different communities, seven different plants and without a blip in terms of our operational performance. So our expectations, what we demand of ourselves as we consider those as we evaluate over the next ten 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% to 8%, we look to do that. There are a number of levers that we'd be able to do to be able to structure that.
So we wouldn't have that kind of lumpy O and M that some utilities have went through. Got a proven record of being I'm going look at Reggie here, but I think it's around 50,000,000 to $100,000,000 in terms of operating those from an operations and maintenance perspective. For the remaining five? Yes, For remaining And
we took out about 29,000,000 or 30,000,000 from those seven that we retired. And so but again, that O and M was it fits into the O and M reduction. Some of it's redeployed in the form of O and M and some of it is used to offset the capital investments required, in fact, then to replace that capacity in the
It just strikes me as one of the bigger There
is. And 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.
For Gerrick. Gerrick, on Slide 30, you lay out
a couple of areas of incremental opportunity and in terms of number of poles that you have versus the number placement per year. There's a lot of upside spend here. I'm struggling to kind of think about what will be the catalyst for you to rethink the replacement schedules or just how should we think about the way to translate this into the gigantic life, which probably wouldn't really play out that way. So I'm trying
to think about how to
quantify that or what is the trigger for
Well, as Patty indicated, we have a, I'd call it a robust process to look at 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. So there's a heavy robust. There's also risk analysis that goes into that to make sure we're making the right choices and safety of the public in terms of deliverability of the customer.
And so we evaluate a number of those choices. And right now most of our I would say a little bit more biased 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. And with the way gas prices have went that's an opportunity make those investments, as I've indicated, without having to impact on the But as you pointed out, there's still a lot more opportunity there. And we're certainly concerned about electric reliability resiliency of the state.
And so 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. So I mean we're going to be doing a lot frankly doing a lot of study what came out of Hurricane Irma. While Florida Power and Light, we that's one of the things I study. I watch hurricanes. We don't see that kind of devastation in Michigan.
But certainly there's a lot of lessons learned from how they built their system. And so we try to apply some of those best practices that make sense in Michigan so that we can learn how to improve our system.
And I think when you step way back in how to think about that, the way to think about that is we have choices, no big bets in our capital allocation plan. And so we can bias to customer value. We can bias to customer safety reliability. We can derisk our capital plan. As Reggie indicated in his slides, 95% of the plan is less than $200,000,000 project.
That is a derisked 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. Julian Boltzmann, Bank of America. Welcome back.
Yes, welcome back. We said his e mail has been silent. We're always waiting with bated breath for him to start typing again.
Coming back to the numbers, just real quickly,
and again, apologies Reggie. Think I'm principally looking at you here. In terms of the Palisades, and I know it's a tricky issue as well. 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 the rate base? How do you think about the commission's ability
Yes, to do go ahead, Redi.
So we looked at to quantify the savings initially at just doing a contracted opportunity. So looking at a market repricing the PPA. And so we deemed that Palisade's status quo capacity plus energy, high 50s, low 60s or thereabout. And we determined that there were about four year basis, present value, about $344,000,000 of savings in Aggregates just by doing a contracted solution relative to the status quo. Did look at that on a contracted basis, and we thought in looking through the or the buyout replacement plan that it was actually more prudent, particularly given the resource adequacy 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.
And so we thought that those two would offer very good longer term. But the initial math is predicated on just looking at contracted solutions. So what can you get for four years of energy, what can you get
for four years of capacity
versus where Palisades is. And again, that equated to that nice healthy quantum of savings, which we actually thought was pretty conservative at $344,000,000 So the economics, we basically cut it in half and said Entergy prematurely get out of this contract, you're going to get $172,000,000 then we'll give the rest to our customers. And that equated to about 45,000,040 million $45,000,000 of savings per It's a very compelling proposition for all parties involved.
Just to come back to the kind of stuff, if it did big is ultimately not brought into how much incremental
capacity would you be able get
out to market, I. E, you've got $450,000,000 already allocated back between DIG and utility, would you be basically effectively fully contracting the plant
Yes, don't think we would. But we will here's the choice on DIG. We can either 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. But in the interim, we'll the energy is sold at DIG, And so that continues to be true today, and it will be in the future.
So DIG has value both inside and outside the utility. And so 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 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. So 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
to be able you to
think Would that plant be effectively fully If
we did the trade yes, if it went in 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. So 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 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. And DV, if I'm misspeaking on any of this, weigh in.
I had to noodle on that one, so thank you.
Sorry, it's a a bit.
Quick clarification on the rate base CAGR we talked about a moment ago with
6%.
Probably I thought with the legislation there were some energy efficiency components and the components, maybe even a large scale tariff. How much of that is outside of
So the energy efficiency incentive goes from $17,000,000 to $34,000,000 potential. And so we'll factor that into our plan for 2018. But again, we never planned and we this is true when the energy efficiency incentive was $17,000,000 We never planned for the whole thing in the year because it's only predicated on delivering full performance. So 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. But it goes up to $34,000,000 in 2018.
Same on
Doctor is more treated like a resource. It doesn't have its own individual incentive.
So it is a source of supplemental earnings. It supports that 7% EPS. And I think we've withheld we view it as about $0 of upside based on the decision where it's a prorated source of earnings in 2017 due to the new energy law that was implemented. So it's about $31,000,000 pretax, a zero of upside.
In 'seventeen. Thank you.
Just following on to Jo Anne's question a little bit, you share your thoughts on if the postponement of the state's retirement present an opportunity for replacing
with on the upside case?
Which PPA? Are you talking about the MCV PPA that If it's delayed or if it's As a delayed retirement.
So in 2022, can we do a clean solution?
Yes. 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. And so they're asking for us to deliver more renewables. Now the new renew or 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.
And we continue to have cost competitive wind in Michigan and more applications of solar, and we're watching those solar cost curves. So I would suspect and Gareth, maybe you could even chime in a little bit about the clean and lean and how renewables fits into that longer term generation mix.
Yes, absolutely. So I'm looking at it this way. So the first big chunk of it is going be the RPS standard. So we've got commitments in the ten year plan for Crosswinds two and Crosswinds three, which is in is I'll use my hand here to say where that is in Michigan, but it's really in the what we call the thumb area of Michigan here in counties. That's a big piece of it.
But just with the clean and lean approach, it could be very modular in nature. Wind turbines, one point five two point five megawatts, we could put these in a module format.
That's
what I mean by lining up the supply and demand. So a better utilization of
the app.
The other piece to Patty's point and I think Brian may want to touch in on this as well is these companies. We're working with a number
of companies in Michigan to
do renewable energy tariff that we've created in the state, which is a direct line of sight and additionality into generation green generation in the state. So that also provides incremental type supply type benefits that you'll see customers committing to and then we'll
those customers that are signing up for those are now looking at what were 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 meet their and be able
to point to renewable for causation.
So it's incremental to the RPS.
Yes. Additionality is very important to them. So they won't accept any kind of standard that's defined by the state. It only counts for their own objectives if it's additionality, and they prefer locality. So 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 renewable and their renewables and their rationale and 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. So we're pretty excited about the partnerships that we're establishing so that we can meet their needs. Other
questions? One more, Julian. Potential legislation in you I think there was some talk about doing renewable.
So in 2016, when we passed the energy law, we bumped it from 10% RPS by 2015 to 15% by 2021. So that happened.
But no talk of tweaking?
Not right now. I mean, there's always talk. There's always a large contingent within the not a large, but a portion of the legislature who would encourage us to continue to raise our standards. And 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 and the modularity of renewables that is so powerful, we're coming to terms with the fact that it's a mature industry. We have to reduce our fundamental cost structure, And we have to match just as Gerrick described, our clean and lean model for renewable for generation, we have to match load with supply. Load and supply is hard to predict. So the modularity of renewable lets you add two megawatts at a time. And if we didn't have this rich CapEx backlog, maybe we would be more interested in taking a big generation bet.
But when you look at the polls and you look at all of the other aspects of Gerrick's plan, you do the math, it's a lot more than $25,000,000 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. So 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 Gerrick 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 bed or one big plant, 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.