Michigan's $16B Debt-Fueled Monopoly: What CMS Energy Teaches About Regulatory Capture

Today we're looking at CMS Energy, the utility that powers most of Michigan. While it's not the most interesting business to me (I pick these companies at random), it's a good case study in how regulatory monopolies work.

Here's what caught my eye:

• They've pulled off 22 consecutive years of earnings growth (impressive for any company, let alone a utility)

• They've secured 6 rate hikes in 6 years - basically asking for more money every 12 months like clockwork

• Michigan's Attorney General calls it a "never-ending cycle" of rate increases

The real kicker: Their interest expense hit $709 million last year. That's 70 cents in interest for every dollar of profit they make. With $16.2B in debt funding their infrastructure plans, they're essentially running a debt-fueled monopoly where customers have no choice but to pay up.

Other notable findings:

• 93% of customers get power restored within 24 hours (up from 87% so let's give credit where it's due)

• Planning $17 billion in capital spending through 2028

• Their "hometown service" marketing can't hide the fact that they're requesting another rate hike 7 days after the last one was approved

I can't say it's a business for me but it's a good lesson in looking at the financials of a CapEx heavy business. And they have turned infrastructure into predictable profits. With plenty of debt and public criticism along the way.

Let me know what you think of this one. Tomorrow we'll look at something with a bit less regulatory baggage.

Nick

TL;DR

• Michigan's electric/gas monopoly serving 3.7M customers with 22 straight years of earnings growth

• Mastered the regulatory game. Roughly one rate hike each year since 2019 while promising "hometown service"

• Key lesson: Monopolistic positioning + systematic infrastructure investment = predictable cash flows

• Watch out: Reputational risks multiply when customers have no alternatives

The 30,000-Foot View

CMS Energy Corporation operates as an energy company primarily in Michigan. The company operates through three segments: Electric Utility; Gas Utility; and NorthStar Clean Energy. Through its main subsidiary Consumers Energy, it serves 1.9 million electric and 1.8 million gas customers across Michigan's Lower Peninsula.

Business Model:

• 95%+ regulated utility revenue from electric/gas distribution

• Market Cap: $21.51B

• TTM Revenue: $7.79B

• Net Income: $1.01B

• Employees: 8,324

• Industry: Electric & Gas Utilities

Company History

• 1886: Founded when William Augustine Foote and Samuel Jarvis initially approached Jackson, Michigan officials to illuminate downtown

• 1907: Built world's first 110,000-volt transmission project

• 1961-1971: Entered nuclear power with Big Rock Point and Palisades plants

• 1987: CMS Energy, a holding company with its principal subsidiaries as Consumers Power and CMS Enterprises was formed

• 1990s: One of the first companies to introduce an online billing system

• 2014-2025: Transition from coal to renewables, announces $17B infrastructure plan

Show Me the Money

Stand-out financial features:

• 95%+ regulated revenue

• 6-8% targeted EPS growth

• $17B capex plan 2024-2028

• Interest expense has increased from $519M in 2021 to $$709M in 2024 (which is 70% of profit)

Financial Data

The N.O.O.B. Nine — Competitive Powers

Average Score: 3.6/5 - Competitive moat stems from regulatory monopoly and physical infrastructure, not innovation.

Memorable Marketing

CMS Energy's marketing centers on "world class performance while delivering hometown service" - promising both corporate competence and local care.

"Reliability Roadmap" (2024) - Rebranded infrastructure spending as customer investment, shifting narrative from "rate hike" to "community investment." Result: MPSC approval for ambitious plan including more buried power lines, infrastructure upgrades and grid automation

Tactical Takeaways:

• Localize your monopoly with community stories

• Rebrand price increases as customer investments

• Over-communicate during crises to reduce backlash

• Make infrastructure sound innovative ("Grid of the Future")

AI Uses & Opportunities

Current AI deployment appears limited. Recent IT leadership changes with Aaron Rajda joining the company as Vice President, Applications and Analytics and Chief Digital Officer suggest digital transformation is beginning.

Immediate opportunities:

• Predictive maintenance using weather and sensor data

• Customer service automation for routine inquiries

• Vegetation management via AI-powered imagery ($125M+ annual spend)

• Dynamic load balancing to defer infrastructure investments

Bumps in the Road

• Rate Hike Fatigue: 6 requests in 6 years. Attorney General calls it "never-ending cycle"

• 2022 Storm Failures: Led to 75-recommendation audit after extended outages

• Coal Plant Drama: DOE forced delay of plant closure due to grid reliability

• Tax Controversy: Criticized for spending $3.48 million on lobbying and not paying any taxes during 2008-2010

• Debt Burden: $16.2B debt vs. $0.47B cash raises solvency concerns

Your Swipe File

• Lock in recurring revenue through regulatory capture - Focus on regulators when customers can't leave (this really isn't a take-home lessen for 99% of us but it's the reality of this company)

• Frame infrastructure as innovation - "Reliability Roadmap" makes poles sound cutting-edge

• Build community goodwill before you need it - Local stories create rate-case supporters

• Turn operational metrics into marketing - "93% restored in 24 hours" builds trust

• Make the boring seem bold - Vision-driven messaging works even for commodities