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Morningstar | Regulatory support for renewable energy key to CMS' long-term growth.

CMS has improved its financial and strategic position dramatically during the past decade by working with Michigan regulators and politicians to turn the state into a constructive place for utility investment.The state's regulatory and political support gives CMS a transparent runway of earnings growth in its natural gas and electric businesses. CMS' integrated resource plan, or IRP, filing in June 2018 supports our 6% long-term growth rate as long as regulators approve the bulk of CMS' proposed investments. The IRP supports CMS' five-year, $10 billion investment plan, which is in line with our outlook.Michigan's regulatory environment has made great progress since the transformative 2008 energy legislation passed. A string of generally positive rate cases and the state's 2016 Energy Law have made Michigan one of the most constructive regulatory jurisdictions in the country and an attractive area for investment.CMS' growth plans include upgrades to its electric and gas distribution infrastructure, system reliability improvements, and new generation to replace an aging coal fleet. We expect regulatory support for these projects, given Michigan's energy needs and strong political support. Even though the retirement of the Palisades nuclear plant has been pushed back to 2022, we still see plenty of investment opportunities.A key growth area for CMS is renewable energy to meet Michigan's 15% renewable portfolio standard by 2021 and reduce carbon emissions from coal generation. We think CMS can exceed that 15% standard and approach 25% in the coming years with regulatory support.Most recently, CMS received a constructive electric rate case outcome with a 10% allowed return on equity, higher than many other U.S. utilities have been receiving. If CMS can keep rate increases modest by controlling operating costs, the prospect of regulatory pushback will be less daunting.We think CMS' utilities subsidiaries are in good shape, but the parent carries an unusually large amount of debt relative to peers. Parent leverage has helped produce impressive consolidated returns on equity, but investors should consider the refinancing risk if credit markets tighten.