0000811156cms:IndustrialUtilityServiceMembercms:ElectricUtilityMembercms:ConsumersEnergyCompanyMemberus-gaap:OperatingSegmentsMember2019-01-012019-12-310000811156srt:ParentCompanyMember2022-01-012022-12-31
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20202022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
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Commission File Number | Registrant; State of Incorporation; Address; and Telephone Number | IRS Employer Identification No. |
1-9513 | CMS ENERGY CORPORATION | 38-2726431 |
(A Michigan Corporation)
One Energy Plaza, Jackson, Michigan 49201
(517) 788‑0550
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1-5611 | CONSUMERS ENERGY COMPANY | 38-0442310 |
(A Michigan Corporation)
One Energy Plaza, Jackson, Michigan 49201
(517) 788‑0550
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
CMS Energy Corporation Common Stock, $0.01 par value | | CMS | | New York Stock Exchange |
CMS Energy Corporation 5.625% Junior Subordinated Notes due 2078 | | CMSA | | New York Stock Exchange |
CMS Energy Corporation 5.875% Junior Subordinated Notes due 2078 | | CMSC | | New York Stock Exchange |
CMS Energy Corporation 5.875% Junior Subordinated Notes due 2079 | | CMSD | | New York Stock Exchange |
CMS Energy Corporation Depositary Shares, each representing a 1/1,000th interest in a share of 4.200% Cumulative Redeemable Perpetual Preferred Stock, Series C | | CMS PRC | | New York Stock Exchange |
Consumers Energy Company Cumulative Preferred Stock, $100 par value: $4.50 Series | | CMS-PB | | New York Stock Exchange |
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Securities registered pursuant to Section 12(g) of the Act: | None | |
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. |
CMS Energy Corporation: | Yes | ☒ | No | ☐ | | Consumers Energy Company: | Yes | ☒ | No | ☐ | |
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. |
CMS Energy Corporation: | Yes | ☐ | No | ☒ | | Consumers Energy Company: | Yes | ☐ | No | ☒ | |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
CMS Energy Corporation: | Yes | ☒ | No | ☐ | | Consumers Energy Company: | Yes | ☒ | No | ☐ | |
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). |
CMS Energy Corporation: | Yes | ☒ | No | ☐ | | Consumers Energy Company: | Yes | ☒ | No | ☐ | |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act. |
CMS Energy Corporation: | | | | | | Consumers Energy Company: | | | | | |
Large accelerated filer | | ☒ | | | | Large accelerated filer | | ☐ | | | |
Non‑accelerated filer | | ☐ | | | | Non‑accelerated filer | | ☒ | | | |
Accelerated filer | | ☐ | | | | Accelerated filer | | ☐ | | | |
Smaller reporting company | | ☐ | | | | Smaller reporting company | | ☐ | | | |
Emerging growth company | | ☐ | | | | Emerging growth company | | ☐ | | | |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |
CMS Energy Corporation: | | ☐ | | | | Consumers Energy Company: | | ☐ | | | |
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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. |
CMS Energy Corporation: | | ☒ | | | | Consumers Energy Company: | | ☒ | | | |
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If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. |
CMS Energy Corporation: | | ☐ | | | | Consumers Energy Company: | | ☐ | | | |
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Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). |
CMS Energy Corporation: | | ☐ | | | | Consumers Energy Company: | | ☐ | | | |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). |
CMS Energy Corporation: | Yes | ☐ | No | ☒ | | Consumers Energy Company: | Yes | ☐ | No | ☒ | |
The aggregate market value of CMS Energy voting and non‑voting common equity held by non‑affiliates was $16.647$19.588 billion for the 284,957,910290,193,601 CMS Energy Corporation Common Stock shares outstanding on June 30, 20202022 based on the closing sale price of $58.42$67.50 for CMS Energy Corporation Common Stock, as reported by the New York Stock Exchange on such date. There were no shares of Consumers common equity held by non‑affiliates as of June 30, 2020.2022.
There were 288,943,354291,264,195 shares of CMS Energy Corporation Common Stock outstanding on January 15, 2021.13, 2023. On January 15, 2021,13, 2023, CMS Energy held all 84,108,789 outstanding shares of common stock of Consumers.
Documents incorporated by reference in Part III: CMS Energy’s and Consumers’ proxy statement relating to their 20212023 Annual Meetings of Shareholders to be held May 7, 2021.
5, 2023.
CMS Energy Corporation
Consumers Energy Company
Annual Reports on Form 10-K to the Securities and Exchange Commission for the Year Ended December 31, 20202022
Table of Contents
Glossary
Certain terms used in the text and financial statements are defined below.
2016 Energy Law
Michigan’s Public Acts 341 and 342 of 2016
ABATE
The Association of Businesses Advocating Tariff Equity
ABO
Accumulated benefit obligation; the liabilities of a pension plan based on service and pay to date, which differs from the PBO in that it does not reflect expected future salary increases
AFUDC
Allowance for borrowed and equity funds used during construction
AOCI
Accumulated other comprehensive income (loss)
ARO
Asset retirement obligation
ASC 715
Financial Accounting Standards Board Accounting Standards Codification Topic 715, Retirement Benefits
ASU
Financial Accounting Standards Board Accounting Standards Update
Aviator Wind
Aviator Wind, LLC, a VIE in which Aviator Wind Equity Holdings holds a Class B membership interest
Aviator Wind Equity Holdings
Aviator Wind Equity Holdings, LLC, a VIE in which Grand River Wind, LLC, a wholly owned subsidiary of CMS Enterprises, has a 51‑percent interest
Bay Harbor
A residential/commercial real estate area located near Petoskey, Michigan, in which CMS Energy sold its interest in 2002
bcf
Billion cubic feet
Cantera Gas Company
Cantera Gas Company LLC, a non‑affiliated company, formerly known as CMS Field Services
Cantera Natural Gas, Inc.
Cantera Natural Gas, Inc., a non‑affiliated company that purchased CMS Field Services
CAO
Chief Accounting Officer
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2016 Energy Law |
Michigan’s Public Acts 341 and 342 of 2016 |
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ABATE |
Association of Businesses Advocating Tariff Equity |
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ABO |
Accumulated benefit obligation; the liabilities of a pension plan based on service and pay to date, which differs from the PBO in that it does not reflect expected future salary increases |
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AFUDC |
Allowance for borrowed and equity funds used during construction |
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AOCI |
Accumulated other comprehensive income (loss) |
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ARO |
Asset retirement obligation |
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ASC 715 |
Financial Accounting Standards Board Accounting Standards Codification Topic 715, Retirement Benefits |
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Aviator Wind |
Aviator Wind Holdings, LLC, a VIE in which Aviator Wind Equity Holdings holds a Class B membership interest |
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Aviator Wind Equity Holdings |
Aviator Wind Equity Holdings, LLC, a VIE in which Grand River Wind has a 51‑percent interest |
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Bay Harbor |
A residential/commercial real estate area located near Petoskey, Michigan, in which CMS Energy sold its interest in 2002 |
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bcf |
Billion cubic feet |
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CAO |
Chief Accounting Officer |
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CARES Act
Coronavirus Aid, Relief, and Economic Security Act of 2020
CCR
Coal combustion residual
CDC
U.S. Centers for Disease Control and Prevention
CEO
Chief Executive Officer
CERCLA
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended
CFO
Chief Financial Officer
city-gate contract
An arrangement made for the point at which a local distribution company physically receives gas from a supplier or pipeline
Clean Air Act
Federal Clean Air Act of 1963, as amended
Clean Energy Plan
Consumers’ long-term strategy for delivering clean, reliable, and affordable energy to its customers through the increased use of energy efficiency and customer demand management programs, additional renewable energy generation, and conservation voltage reduction
Clean Water Act
Federal Water Pollution Control Act of 1972, as amended
CMS Capital
CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy
CMS Energy
CMS Energy Corporation and its consolidated subsidiaries, unless otherwise noted; the parent of Consumers, CMS Enterprises, and EnerBank
CMS Enterprises
CMS Enterprises Company, a wholly owned subsidiary of CMS Energy
CMS ERM
CMS Energy Resource Management Company, formerly known as CMS MST, a wholly owned subsidiary of CMS Enterprises
CMS Field Services
CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission
CMS Gas Transmission
CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises
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CCR |
Coal combustion residual |
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CEO |
Chief Executive Officer |
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CERCLA |
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended |
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CFO |
Chief Financial Officer |
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city-gate contract |
An arrangement made for the point at which a local distribution company physically receives gas from a supplier or pipeline |
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Clean Air Act |
Federal Clean Air Act of 1963, as amended |
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Clean Energy Plan |
Consumers’ long-term strategy for delivering clean, reliable, resilient, and affordable energy to its customers through the increased use of energy efficiency and customer demand management programs, additional renewable energy generation, and conservation voltage reduction |
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Clean Water Act |
Federal Water Pollution Control Act of 1972, as amended |
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CMS Capital |
CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy |
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CMS Energy |
CMS Energy Corporation and its consolidated subsidiaries, unless otherwise noted; the parent of Consumers, NorthStar Clean Energy, and, until October 1, 2021, EnerBank |
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CMS ERM |
CMS Energy Resource Management Company, a wholly owned subsidiary of NorthStar Clean Energy |
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CMS Gas Transmission |
CMS Gas Transmission Company, a wholly owned subsidiary of NorthStar Clean Energy |
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CMS Generation Michigan Power |
CMS Generation Michigan Power L.L.C., a wholly owned subsidiary of HYDRA‑CO |
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CMS Land
CMS Land Company, a wholly owned subsidiary of CMS Capital
CMS MST
CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM in 2004
Consumers
Consumers Energy Company and its consolidated subsidiaries, unless otherwise noted; a wholly owned subsidiary of CMS Energy
Consumers 2014 Securitization Funding
Consumers 2014 Securitization Funding LLC, a wholly owned consolidated bankruptcy-remote subsidiary of Consumers and special-purpose entity organized for the sole purpose of purchasing and owning securitization property, issuing securitization bonds, and pledging its interest in securitization property to a trustee to collateralize the securitization bonds
Craven
Craven County Wood Energy Limited Partnership, a VIE in which HYDRA‑CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises, has a 50-percent interest
COVID‑19
Coronavirus disease 2019, a respiratory illness that was declared a pandemic in March 2020 and to which public and private agencies have responded by instituting social-distancing and other measures designed to slow the spread of the disease
CSAPR
The Cross-State Air Pollution Rule of 2011, as amended
DB Pension Plan A
Defined benefit pension plan of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries, created as of December 31, 2017 for active employees who were covered under the defined benefit pension plan that closed in 2005
DB Pension Plan B
Defined benefit pension plan of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries, amended as of December 31, 2017 to include only retired and former employees who were covered under the defined benefit pension plan that closed in 2005
DB Pension Plans
Defined benefit pension plans of CMS Energy and Consumers, comprising DB Pension Plan A and DB Pension Plan B
DB SERP
Defined Benefit Supplemental Executive Retirement Plan
DCCP
Defined Company Contribution Plan
DC SERP
Defined Contribution Supplemental Executive Retirement Plan
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CMS Land |
CMS Land Company, a wholly owned subsidiary of CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy |
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Consumers |
Consumers Energy Company and its consolidated subsidiaries, unless otherwise noted; a wholly owned subsidiary of CMS Energy |
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Consumers 2014 Securitization Funding |
Consumers 2014 Securitization Funding LLC, a wholly owned consolidated bankruptcy-remote subsidiary of Consumers and special-purpose entity organized for the sole purpose of purchasing and owning securitization property, issuing securitization bonds, and pledging its interest in securitization property to a trustee to collateralize the securitization bonds |
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COVID‑19 |
Coronavirus disease 2019, a respiratory illness that was declared a pandemic in March 2020 and to which public and private agencies initially responded by instituting social-distancing and other measures designed to slow the spread of the disease |
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Craven |
Craven County Wood Energy Limited Partnership, a VIE in which HYDRA‑CO has a 50-percent interest |
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CSAPR |
Cross-State Air Pollution Rule of 2011, as amended |
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DB Pension Plan A |
Defined benefit pension plan of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries, created as of December 31, 2017 for active employees who were covered under the defined benefit pension plan that closed in 2005 |
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DB Pension Plan B |
Defined benefit pension plan of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries, amended as of December 31, 2017 to include only retired and former employees who were covered under the defined benefit pension plan that closed in 2005 |
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DB Pension Plans |
Defined benefit pension plans of CMS Energy and Consumers, comprising DB Pension Plan A and DB Pension Plan B |
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DB SERP |
Defined Benefit Supplemental Executive Retirement Plan |
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DIG
Dearborn Industrial Generation, L.L.C., a wholly owned subsidiary of Dearborn Industrial Energy, L.L.C., a wholly owned subsidiary of CMS Energy
Discount Window
Federal Reserve lending program to depository institutions
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DTE Electric
DTE Electric Company, a non‑affiliated company
EEI
Edison Electric Institute, an association representing all U.S. investor-owned electric companies
EGLE
The Michigan Department of Environment, Great Lakes, and Energy, formerly known as the Michigan Department of Environmental Quality
EnerBank
EnerBank USA, a wholly owned subsidiary of CMS Capital
energy waste reduction
The reduction of energy consumption through energy efficiency and demand-side energy conservation, as established under the 2016 Energy Law
Entergy
Entergy Corporation, a non‑affiliated company
EPA
U.S. Environmental Protection Agency
EPS
Earnings per share
Exchange Act
Securities Exchange Act of 1934
FDIC
Federal Deposit Insurance Corporation
Federal Reserve
Federal Reserve System, the central bank of the U.S.
FERC
The Federal Energy Regulatory Commission
FICO
Fair Isaac Corporation, a non-affiliated company providing data analytic services, with a focus on credit scoring services
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DCCP |
Defined Company Contribution Plan |
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DC SERP |
Defined Contribution Supplemental Executive Retirement Plan |
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DIG |
Dearborn Industrial Generation, L.L.C., a wholly owned subsidiary of Dearborn Industrial Energy, L.L.C., a wholly owned subsidiary of NorthStar Clean Energy |
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Dodd-Frank Act |
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 |
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DTE Electric |
DTE Electric Company, a non‑affiliated company |
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EGLE |
Michigan Department of Environment, Great Lakes, and Energy |
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EnerBank |
EnerBank USA, until October 1, 2021, a wholly owned subsidiary of CMS Capital; on October 1, 2021, EnerBank was acquired by Regions Bank |
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energy waste reduction |
The reduction of energy consumption through energy efficiency and demand-side energy conservation, as established under the 2016 Energy Law |
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EPA |
U.S. Environmental Protection Agency |
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EPS |
Earnings per share |
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ERCOT |
Electric Reliability Council of Texas |
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Exchange Act |
Securities Exchange Act of 1934 |
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FERC |
Federal Energy Regulatory Commission |
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First Mortgage Bond Indenture
The indenture dated as of September 1, 1945 between Consumers and The Bank of New York Mellon, as Trustee, as amended and supplemented
FTR
Financial transmission right
GAAP
U.S. Generally Accepted Accounting Principles
GCC
Gas Customer Choice, which allows gas customers to purchase gas from alternative suppliers
GCR
Gas cost recovery
Genesee
Genesee Power Station Limited Partnership, a VIE in which HYDRA‑CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises, has a 50-percent interest
Grayling
Grayling Generating Station Limited Partnership, a VIE in which HYDRA‑CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises, has a 50-percent interest
GWh
Gigawatt-hour, a unit of energy equal to one billion watt-hours
Internal Revenue Code
Internal Revenue Code of 1986, as amended
IRP
Integrated resource plan
IRS
Internal Revenue Service
IT
Information Technology
kV
Thousand volts, a unit used to measure the difference in electrical pressure along a current
kVA
Thousand volt-amperes, a unit used to reflect the electrical power capacity rating of equipment or a system
kWh
Kilowatt-hour, a unit of energy equal to one thousand watt-hours
LIBOR
The London Interbank Offered Rate
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First Mortgage Bond Indenture |
Indenture dated as of September 1, 1945 between Consumers and The Bank of New York Mellon, as Trustee, as amended and supplemented |
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FTR |
Financial transmission right |
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GAAP |
U.S. Generally Accepted Accounting Principles |
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GCC |
Gas Customer Choice, which allows gas customers to purchase gas from alternative suppliers |
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GCR |
Gas cost recovery |
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Genesee |
Genesee Power Station Limited Partnership, a VIE in which HYDRA‑CO has a 50-percent interest |
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Grand River Wind |
Grand River Wind, LLC, a wholly owned subsidiary of NorthStar Clean Energy |
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Grayling |
Grayling Generating Station Limited Partnership, a VIE in which HYDRA‑CO has a 50-percent interest |
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GWh |
Gigawatt-hour, a unit of energy equal to one billion watt-hours |
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HYDRA‑CO |
HYDRA‑CO Enterprises, Inc., a wholly owned subsidiary of NorthStar Clean Energy |
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Internal Revenue Code |
Internal Revenue Code of 1986, as amended |
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IRP |
Integrated resource plan |
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IRS |
Internal Revenue Service |
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kV |
Thousand volts, a unit used to measure the difference in electrical pressure along a current |
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Ludington
Ludington pumped-storage plant, jointly owned by Consumers and DTE Electric
MATS
Mercury and Air Toxics Standards, which limit mercury, acid gases, and other toxic pollution from coal‑fueled and oil‑fueled power plants
mcf
Thousand cubic feet
MCV Facility
A 1,647 MW natural gas-fueled, combined-cycle cogeneration facility operated by the MCV Partnership
MCV Partnership
Midland Cogeneration Venture Limited Partnership
MCV PPA
PPA between Consumers and the MCV Partnership
METC
Michigan Electric Transmission Company, LLC, a non‑affiliated company
MGP
Manufactured gas plant
Michigan Mercury Rule
Michigan Air Pollution Control Rules of 2009, as amended: Part 15, Emission Limitations and Prohibitions—Mercury
MISO
Midcontinent Independent System Operator, Inc.
mothball
To place a generating unit into a state of extended reserve shutdown in which the unit is inactive and unavailable for service for a specified period, during which the unit can be brought back into service after receiving appropriate notification and completing any necessary maintenance or other work; generation owners in MISO must request approval to mothball a unit, and MISO then evaluates the request for reliability impacts
MPSC
Michigan Public Service Commission
MRV
Market-related value of plan assets
MW
Megawatt, a unit of power equal to one million watts
MWh
Megawatt-hour, a unit of energy equal to one million watt-hours
NAAQS
National Ambient Air Quality Standards
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kVA |
Thousand volt-amperes, a unit used to reflect the electrical power capacity rating of equipment or a system |
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kWh |
Kilowatt-hour, a unit of energy equal to one thousand watt-hours |
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LIBOR |
London Interbank Offered Rate |
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Ludington |
Ludington pumped-storage plant, jointly owned by Consumers and DTE Electric |
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MATS |
Mercury and Air Toxics Standards, which limit mercury, acid gases, and other toxic pollution from coal‑fueled and oil‑fueled power plants |
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MCV Facility |
A 1,647-MW natural gas-fueled, combined-cycle cogeneration facility operated by the MCV Partnership |
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MCV Partnership |
Midland Cogeneration Venture Limited Partnership, a non-affiliated company |
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MCV PPA |
PPA between Consumers and the MCV Partnership |
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METC |
Michigan Electric Transmission Company, LLC, a non‑affiliated company |
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MGP |
Manufactured gas plant |
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MISO |
Midcontinent Independent System Operator, Inc. |
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mothball |
To place a generating unit into a state of extended reserve shutdown in which the unit is inactive and unavailable for service for a specified period, during which the unit can be brought back into service after receiving appropriate notification and completing any necessary maintenance or other work; generation owners in MISO must request approval to mothball a unit, and MISO then evaluates the request for reliability impacts |
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NERC
The North American Electric Reliability Corporation, a non‑affiliated company responsible for developing and enforcing reliability standards, monitoring the bulk power system, and educating and certifying industry personnel
NPDES
National Pollutant Discharge Elimination System, a permit system for regulating point sources of pollution under the Clean Water Act
NREPA
Part 201 of Michigan’s Natural Resources and Environmental Protection Act of 1994, as amended
NSR
New Source Review, a construction-permitting program under the Clean Air Act
OPEB
Other Post-Employment Benefits
OPEB Plan
Postretirement health care and life insurance plans of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries
OSHA
Occupational Safety and Health Administration
Palisades
Palisades nuclear power plant, sold by Consumers to Entergy in 2007
PBO
Projected benefit obligation
PCB
Polychlorinated biphenyl
PFAS
Per- and polyfluoroalkyl substances
PHMSA
The U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration
PISP
Performance Incentive Stock Plan
PPA
Power purchase agreement
PSCR
Power supply cost recovery
PURPA
The Public Utility Regulatory Policies Act of 1978
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MPSC |
Michigan Public Service Commission |
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MRV |
Market-related value of plan assets |
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MW |
Megawatt, a unit of power equal to one million watts |
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MWh |
Megawatt-hour, a unit of energy equal to one million watt-hours |
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NAAQS |
National Ambient Air Quality Standards |
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NERC |
North American Electric Reliability Corporation, a non‑affiliated company responsible for developing and enforcing reliability standards, monitoring the bulk power system, and educating and certifying industry personnel |
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New Covert Generating Facility |
A 1,176-MW natural gas-fueled generating unit that is expected to be acquired by Consumers in May 2023 and is presently operated by New Covert Generating Company, LLC, a non-affiliated company |
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NorthStar Clean Energy |
NorthStar Clean Energy Company, a wholly owned subsidiary of CMS Energy, formerly known as CMS Enterprises Company |
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NPDES |
National Pollutant Discharge Elimination System, a permit system for regulating point sources of pollution under the Clean Water Act |
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NREPA |
Part 201 of Michigan’s Natural Resources and Environmental Protection Act of 1994, as amended |
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NWO Holdco |
NWO Holdco, L.L.C., a VIE in which NWO Holdco I, LLC, a wholly owned subsidiary of Grand River Wind, holds a Class B membership interest |
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OPEB |
Other Post-Employment Benefits |
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RCRA
The Federal Resource Conservation and Recovery Act of 1976
REC
Renewable energy credit
ROA
Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to Michigan’s Public Acts 141 and 142 of 2000, as amended
S&P
Standard & Poor’s Financial Services LLC
SEC
U.S. Securities and Exchange Commission
securitization
A financing method authorized by statute and approved by the MPSC which allows a utility to sell its right to receive a portion of the rate payments received from its customers for the repayment of securitization bonds issued by a special-purpose entity affiliated with such utility
Smart Energy
Consumers’ Smart Energy grid modernization project, which includes the installation of smart meters that transmit and receive data, a two-way communications network, and modifications to Consumers’ existing IT system to manage the data and enable changes to key business processes
TCJA
Tax Cuts and Jobs Act of 2017
T.E.S. Filer City
T.E.S. Filer City Station Limited Partnership, a VIE in which HYDRA‑CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises, has a 50-percent interest
USW
United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO-CLC
UWUA
Utility Workers Union of America, AFL-CIO
VEBA trust
Voluntary employees’ beneficiary association trusts accounts established specifically to set aside employer-contributed assets to pay for future expenses of the OPEB Plan
VIE
Variable interest entity
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OPEB Plan |
Postretirement health care and life insurance plans of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries |
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OSHA |
Occupational Safety and Health Administration |
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PBO |
Projected benefit obligation |
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PCB |
Polychlorinated biphenyl |
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PFAS |
Per- and polyfluoroalkyl substances |
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PISP |
Performance Incentive Stock Plan |
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PJM |
PJM Interconnection Inc. |
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PPA |
Power purchase agreement |
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PSCR |
Power supply cost recovery |
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PURPA |
Public Utility Regulatory Policies Act of 1978 |
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RCRA |
Federal Resource Conservation and Recovery Act of 1976 |
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REC |
Renewable energy credit |
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Regions Bank |
A subsidiary of Regions Financial Corporation, a non-affiliated company |
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ROA |
Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to Michigan’s Public Acts 141 and 142 of 2000, as amended |
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S&P |
Standard & Poor’s Financial Services LLC |
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SEC |
U.S. Securities and Exchange Commission |
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securitization |
A financing method authorized by statute and approved by the MPSC which allows a utility to sell its right to receive a portion of the rate payments received from its customers for the repayment of securitization bonds issued by a special-purpose entity affiliated with such utility |
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Series C preferred stock |
CMS Energy 4.200 percent cumulative redeemable perpetual preferred stock, Series C, with a liquidation value of $25,000 per share |
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SOFR |
Secured overnight financing rate calculated and published by the Federal Reserve Bank of New York and selected as the recommended alternative to replace LIBOR for dollar-denominated financial contracts by the Alternative Reference Rates Committee |
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TAES |
Toshiba America Energy Systems Corporation, a non-affiliated company |
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TCJA |
Tax Cuts and Jobs Act of 2017 |
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Term SOFR |
The rate per annum that is a forward-looking term rate based on SOFR |
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T.E.S. Filer City |
T.E.S. Filer City Station Limited Partnership, a VIE in which HYDRA‑CO has a 50-percent interest |
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USW |
United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO-CLC |
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UWUA |
Utility Workers Union of America, AFL-CIO |
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VEBA trust |
Voluntary employees’ beneficiary association trusts accounts established specifically to set aside employer-contributed assets to pay for future expenses of the OPEB Plan |
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VIE |
Variable interest entity |
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Filing Format
This combined Form 10‑K10-K is separately filed by CMS Energy and Consumers. Information in this combined Form 10‑K10-K relating to each individual registrant is filed by such registrant on its own behalf. Consumers makes no representation regarding information relating to any other companies affiliated with CMS Energy other than its own subsidiaries.
CMS Energy is the parent holding company of several subsidiaries, including Consumers and NorthStar Clean Energy (formerly known as CMS Enterprises Company). None of CMS Energy, CMS Enterprises, EnerBank,NorthStar Clean Energy, nor any of CMS Energy’s other subsidiaries (other than Consumers) has any obligation in respect of Consumers’ debt securities or preferred stock and holders of such securities should not consider the financial resources or results of operations of CMS Energy, CMS Enterprises, EnerBank,NorthStar Clean Energy, nor any of CMS Energy’s other subsidiaries (other than Consumers and its own subsidiaries (in relevant circumstances)) in making a decision with respect to Consumers’ debt securities or preferred stock. Similarly, neither Consumers nor any other subsidiary of CMS Energy has any obligation in respect of securities of CMS Energy.
Forward-Looking Statements and Information
This Form 10‑K10-K and other CMS Energy and Consumers disclosures may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The use of “might,” “may,” “could,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “predicts,” “assumes,” and other similar words is intended to identify forward-looking statements that involve risk and uncertainty. This discussion of potential risks and uncertainties is designed to highlight important factors that may impact CMS Energy’s and Consumers’ businesses and financial outlook. CMS Energy and Consumers have no obligation to update or revise forward-looking statements regardless of whether new information, future events, or any other factors affect the information contained in the statements. These forward-looking statements are subject to various factors that could cause CMS Energy’s and Consumers’ actual results to differ materially from the results anticipated in these statements. These factors include, but are not limited to, the following, all of which are potentially significant:
•the impact and effect of recent events, such as the war in Ukraine, the COVID-19 pandemic, and the responses to these events, and related economic disruption ondisruptions including, but not limited to, labor shortages, inflation, and supply chain disruptions, all of which could impact CMS Energy’s and Consumers’ workforce, operations, revenues, expenses, uncollectible accounts, energy efficiency programs, pensionpostretirement benefits funding, PSCR and GCR costs, capital investment programs, cash flows, liquidity, maintenance of existing assets, and other operating expenses
•the impact of new regulation by the MPSC, FERC, and other applicable governmental proceedings and regulations, including any associated impact on electric or gas rates or rate structures
•potentially adverse regulatory treatment or failure to receive timely regulatory orders affecting Consumers that are or could come before the MPSC, FERC, or other governmental authorities
•changes in the performance of or regulations applicable to MISO, METC, pipelines, railroads, vessels, or other service providers that CMS Energy, Consumers, or any of their affiliates rely on to serve their customers
•the adoption of or challenges to federal or state laws or regulations or changes in applicable laws, rules, regulations, principles, or practices, or in their interpretation, such as those related to energy policy, ROA, PURPA, infrastructure integrity or security, cybersecurity, gas pipeline safety, gas pipeline capacity, energy waste reduction, the environment, regulation or deregulation, reliability, health care reforms (including comprehensive health care reform enacted in 2010), taxes, accounting matters, climate change, air emissions, renewable energy, the Dodd-Frank Act, and other business
issues that could have an impact on CMS Energy’s, Consumers’, or any of their affiliates’ businesses or financial results
•factors affecting operations, such as costs and availability of personnel, equipment, and materials; weather and climate conditions; natural disasters; catastrophic weather-related damage; scheduled or unscheduled equipment outages; maintenance or repairs; contractor performance; environmental incidents; failures of equipment or materials; electric transmission and distribution or gas pipeline system constraints; interconnection requirements; political and social unrest; general strikes; the government and/or paramilitary response to political or social events; and changes in trade policies or regulations
•increased frequency or intensity of storms and other adverse weather events due to climate change that could negatively impact infrastructure owned by CMS Energy or Consumers
•the ability of CMS Energy and Consumers to execute its cost-reduction strategies
•potentially adverse regulatory or legal interpretations or decisions regarding environmental matters, or delayed regulatory treatment or permitting decisions that are or could come before agencies such as EGLE, the EPA, FERC, and/or the U.S. Army Corps of Engineers, and potential environmental remediation costs associated with these interpretations or decisions, including those that may affect Consumers’ coal ash management or routine maintenance, repair, and replacement classification under NSR regulationsNew Source Review, a construction-permitting program under the Clean Air Act
•changes in energy markets, including availability, price, and priceseasonality of electric capacity and the timing and extent of changes in commodity prices and availability and deliverability of coal, natural gas, natural gas liquids, electricity, oil, gasoline, diesel fuel, and certain related products
•the price of CMS Energy common stock, the credit ratings of CMS Energy and Consumers, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ interest costs and access to the capital markets, including availability of financing to CMS Energy, Consumers, or any of their affiliates
•the potential effects on the credit and capital markets of a futurethe transition from LIBOR to an alternative reference interest rate, including SOFR, which may perform differently than LIBOR and could result in the credit and capital marketsincreased interest rate expense
•the investment performance of the assets of CMS Energy’s and Consumers’ pension and benefit plans, the discount rates, mortality assumptions, and future medical costs used in calculating the plans’ obligations, and the resulting impact on future funding requirements
•the impact of the economy, particularly in Michigan, and potential future volatility in the financial and credit markets on CMS Energy’s, Consumers’, or any of their affiliates’ revenues, ability to collect accounts receivable from customers, or cost and availability of capital
•changes in the economic and financial viability of CMS Energy’s and Consumers’ suppliers, customers, and other counterparties and the continued ability of these third parties, including those in bankruptcy, to meet their obligations to CMS Energy and Consumers
•population changes in the geographic areas where CMS Energy and Consumers conduct business
•national, regional, and local economic, competitive, and regulatory policies, conditions, and developments
•loss of customer demand for electric generation supply to alternative electric suppliers, increased use of self-generation including distributed generation, or energy waste reduction, andor energy storage
•loss of customer demand for natural gas due to alternative technologies or fuels
•restricted ability to construct natural gas infrastructure due to environmental regulations or other governmental action
•ability of Consumers to meet increased renewable energy demand due to customers seeking to meet their own sustainability goals in a timely and cost-efficient manner
Table•the reputational or other impact on CMS Energy and Consumers of Contentsthe failure to achieve greenhouse gas reduction goals related to reducing their impact on climate change•adverse consequences of employee, director, or third-party fraud or non‑compliance with codes of conduct or with laws or regulations
•federal regulation of electric sales, including periodic re‑examination by federal regulators of CMS Energy’s and Consumers’ market-based sales authorizations
•any event, change, development, occurrence, or circumstance that could impact the impactimplementation of credit markets, economic conditions, increased competition, andthe 2021 IRP, including any new banking and consumer protection regulations on EnerBankaction by a regulatory authority or other third party to prohibit, delay, or impair the implementation of the 2021 IRP
•the availability, cost, coverage, and terms of insurance, the stability of insurance providers, and the ability of Consumers to recover the costs of any insurance from customers
•the effectiveness of CMS Energy’s and Consumers’ risk management policies, procedures, and strategies, including strategies to hedge risk related to interest rates and future prices of electricity, natural gas, and other energy-related commodities
•factors affecting development of electric generation projects, gas transmission, and gas and electric distribution infrastructure replacement, conversion, and expansion projects, including factors related to project site identification, construction material pricing, schedule delays, availability of qualified construction personnel, permitting, acquisition of property rights, community opposition, and government approvals
•potential disruption to, interruption of, or other impacts on facilities, utility infrastructure, operations, or backup systems due to accidents, explosions, physical disasters, global pandemics, cyber incidents, civil unrest, vandalism, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events
•changes or disruption in fuel supply, including but not limited to supplier bankruptcy and delivery disruptions
•potential costs, lost revenues, reputational harm, or other consequences resulting from misappropriation of assets or sensitive information, corruption of data, or operational disruption in connection with a cyber attackcyberattack or other cyber incident
•potential disruption to, interruption or failure of, or other impacts on ITinformation technology backup or disaster recovery systems
•technological developments in energy production, storage, delivery, usage, and metering
•the ability to implement technology successfully
•the impact of CMS Energy’s and Consumers’ integrated business software system and its effects on their operations, including utility customer billing and collections
•adverse consequences resulting from any past, present, or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including claims resulting from attempts by foreign or domestic governments to assess taxes on or to impose environmental liability associated with past operations or transactions
•the outcome, cost, and other effects of any legal or administrative claims, proceedings, investigations, or settlements
•the reputational impact on CMS Energy and Consumers of operational incidents, violations of corporate policies, regulatory violations, inappropriate use of social media, and other events
•restrictions imposed by various financing arrangements and regulatory requirements on the ability of Consumers and other subsidiaries of CMS Energy to transfer funds to CMS Energy in the form of cash dividends, loans, or advances
•earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts or interest rate contracts
•changes in financial or regulatory accounting principles or policies (e.g., the adoption of the hypothetical liquidation at book value method of accounting for certain non-regulated renewable energy projects)
•other matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other public documents
All forward-looking statements should be considered in the context of the risk and other factors described above and as detailed from time to time in CMS Energy’s and Consumers’ SEC filings. For additional details regarding these and other uncertainties, see Item 1A. Risk Factors; Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook; and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3,2, Regulatory Matters and Note 4,3, Contingencies and Commitments.
Part I
Item 1. Business
General
CMS Energy
CMS Energy was formed as a corporation in Michigan in 1987 and is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility;utility, and NorthStar Clean Energy (formerly known as CMS Enterprises Company), primarily a domestic independent power producer and marketer; and EnerBank, an industrial bank located in Utah.marketer. Consumers serves individuals and businesses operating in the alternative energy, automotive, chemical, food, and metal products industries, as well as a diversified group of other industries. CMS Enterprises,NorthStar Clean Energy, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production. EnerBank provides primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements.
CMS Energy manages its businesses by the nature of services each provides, and operates principally in fourthree business segments: electric utility; gas utility; enterprises,and NorthStar Clean Energy, its non‑utility operations and investments; and EnerBank.investments. Consumers’ consolidated operations account for the substantial majority of CMS Energy’s total assets, income, and operating revenue. CMS Energy’s consolidated operating revenue was $6.7$8.6 billion in 2020, $6.82022, $7.3 billion in 2019,2021, and $6.9$6.4 billion in 2018.2020.
For further information about operating revenue, income, and assets and liabilities attributable to all of CMS Energy’s business segments and operations, see Item 6. Selected Financial Data and Item 8. Financial Statements and Supplementary Data—CMS Energy Consolidated Financial Statements and Notes to the Consolidated Financial Statements.
Consumers
Consumers has served Michigan customers since 1886. Consumers was incorporated in Maine in 1910 and became a Michigan corporation in 1968. Consumers owns and operates electric generation and distribution facilities and gas transmission, storage, and distribution facilities. It provides electricity and/or natural gas to 6.86.7 million of Michigan’s 10 million residents. Consumers’ rates and certain other aspects of its business are subject to the jurisdiction of the MPSC and FERC, as well as to NERC reliability standards, as described in Item 1. Business—CMS Energy and Consumers Regulation.
Consumers’ consolidated operating revenue was $8.2 billion in 2022, $7.0 billion in 2021, and $6.2 billion in 2020, $6.4 billion in 2019, and $6.5 billion in 2018.2020. For further information about operating revenue, income, and assets and liabilities attributable to Consumers’ electric and gas utility operations, see Item 6. Selected Financial Data and Item 8. Financial Statements and Supplementary Data—Consumers Consolidated Financial Statements and Notes to the Consolidated Financial Statements.
Consumers owns its principal properties in fee, except that most electric lines, and gas mains, and renewable generation projects are located below or adjacent to public roads or on land owned by others and are accessed by Consumers through easements, leases, and other rights. Almost all of Consumers’ properties are subject to the lien of its First Mortgage Bond Indenture. For additional information on Consumers’ properties, see Item 1. Business—Business Segments—Consumers Electric Utility—Electric Utility Properties and Business Segments—Consumers Gas Utility—Gas Utility Properties.
In 2020,2022, Consumers served 1.9 million electric customers and 1.8 million gas customers in Michigan’s Lower Peninsula. Presented in the following map are Consumers’ service territories:
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| | Electric Service Territoryservice territory |
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| | Gas Service Territoryservice territory |
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| | Combination Electricelectric and Gas Service Territorygas service territory
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• | | Electric Generation Facilitiesgeneration and batterystorage facilities |
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CMS Energy and Consumers – Consumers—The Triple Bottom Line
For information regarding CMS Energy’s and Consumers’ purpose and impact on the “triple bottom line” of people, planet, and profit, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview.
Business Segments
Consumers Electric Utility
Electric Utility Operations: Consumers’ electric utility operations, which include the generation, purchase, distribution, and sale of electricity, generated operating revenue of $5.4 billion in 2022, $5.0 billion in 2021, and $4.4 billion in 2020 and 2019, and $4.6 billion in 2018.2020. Consumers’ electric utility customer base consists of a mix of primarily residential, commercial, and diversified industrial customers in Michigan’s Lower Peninsula.
Presented in the following illustration is Consumers’ 20202022 electric utility operating revenue of $4.4$5.4 billion by customer class:
Consumers’ electric utility operations are not dependent on a single customer, or even a few customers, and the loss of any one or even a few of Consumers’ largest customers is not reasonably likely to have a material adverse effect on Consumers’ financial condition.
In 2020,2022, Consumers’ electric deliveries were 3537 billion kWh, which included ROA deliveries of three billion kWh, resulting in net bundled sales of 3234 billion kWh. In 2019,2021, Consumers’ electric deliveries were 3736 billion kWh, which included ROA deliveries of fourthree billion kWh, resulting in net bundled sales of 33 billion kWh.
Consumers’ electric utility operations are seasonal. The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment.
Presented in the following illustration are Consumers’ monthly weather-normalized electric deliveries (deliveries adjusted to reflect normal weather conditions) to its customers, including ROA deliveries, during 20202022 and 2019:2021:
Consumers’ 20202022 summer peak demand was 8,2158,061 MW, which included ROA demand of 540532 MW. For the 2019-20202021-2022 winter season, Consumers’ peak demand was 5,6025,559 MW, which included ROA demand of 464447 MW. As required by MISO reserve margin requirements, Consumers owns or controls, through long-term PPAs and short-term capacity purchases, all of the capacity required to supply its projected firm peak load and necessary reserve margin for summer 2021.2023.
Electric Utility Properties: Consumers owns and operates electric generation and distribution facilities. For details about Consumers’ electric generation facilities, see the Electric Utility Generation and Supply Mix section that follows this Electric Utility Properties section. Consumers’ distribution system consists of:
•205212 miles of high-voltage distribution overhead lines operating at 138 kV
•4four miles of high-voltage distribution underground lines operating at 138 kV
•4,4284,430 miles of high-voltage distribution overhead lines operating at 46 kV and 69 kV
•19 miles of high-voltage distribution underground lines operating at 46 kV
•77,83382,326 miles of electric distribution overhead lines
•9,2649,501 miles of underground distribution lines
•1,0961,093 substations with an aggregate transformer capacity of 2627 million kVA
•twothree battery facilities with storage capacity of 2 MWMWh
Consumers is interconnected to the interstate high-voltage electric transmission system owned by METC and operated by MISO. Consumers is also interconnected to neighboring utilities and to other transmission systems.
Electric Utility Generation and Supply Mix: During 2020, Consumers announced aConsumers’ Clean Energy Plan details its strategy to meet customers’ long-term energy needs and provides the foundation for its goal of achievingto achieve net-zero carbon emissions from its electric business by 2040. This goal includes not only emissions from Consumers’ owned generation, but also emissions from the generation of power purchased through long-term PPAs and from the MISO energy market.
In June 2022, Consumers received approval of its 2021 IRP, which updated its Clean Energy Plan. With these updates, Consumers expects to reduce carbon emissionsmeet 90 percent of its owned generation by more than 90 percent from its 2005 levelscustomers’ needs with clean energy sources by 2040 through execution of its Clean Energy Plan,plan, which calls for replacing its coal-fueled generation predominantly with investment in renewable energy. The remaining emissions will beNew technologies and carbon offset through alternative measures including, but not limited to, carbon sequestration, landfill methane emission capture, forest preservation, and large-scale tree planting.reforestation may be used to close the gap to achieving net-zero carbon emissions. Specifically, the Clean Energy Plan provides for the retirement of the D.E. Karn 1 & 2 coal-fueled generating units in 2023 and the potential retirement of the J.H. Campbell 1 & 2 coal-fueled generating units in 2031 or earlier.
2025. For further information on Consumers’ progress towards its net-zero carbon emissions goal, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview.
Presented in the following table are details about Consumers’ 20202022 electric generation and supply mix:
| Name and Location (Michigan) | Name and Location (Michigan) | Number of Units and Year Entered Service | 2020 Generation Capacity (MW) | 1
| 2020 Electric Supply (GWh) | | Name and Location (Michigan) | Number of Units and Year Entered Service | 2022 Generation Capacity (MW) | 1
| 2022 Electric Supply (GWh) | |
Coal steam generation | Coal steam generation | | | | | Coal steam generation | |
J.H. Campbell 1 & 2 – West Olive | 2 Units, 1962-1967 | 540 | | | 1,538 | | | |
J.H. Campbell 3 – West Olive2 | 1 Unit, 1980 | 785 | | | 4,804 | | | |
D.E. Karn 1 & 2 – Essexville3 | 2 Units, 1959-1961 | 460 | | | 1,618 | | | |
J.H. Campbell 1 & 2 – West Olive2 | | J.H. Campbell 1 & 2 – West Olive2 | 2 Units, 1962-1967 | 610 | | | 2,869 | | |
J.H. Campbell 3 – West Olive2,3 | | J.H. Campbell 3 – West Olive2,3 | 1 Unit, 1980 | 785 | | | 4,449 | | |
D.E. Karn 1 & 2 – Essexville4 | | D.E. Karn 1 & 2 – Essexville4 | 2 Units, 1959-1961 | 489 | | | 2,899 | | |
| | | 1,785 | | | 7,960 | | | | 1,884 | | | 10,217 | | |
Oil/Gas steam generation | Oil/Gas steam generation | | | | | Oil/Gas steam generation | |
D.E. Karn 3 & 4 – Essexville | D.E. Karn 3 & 4 – Essexville | 2 Units, 1975-1977 | 1,058 | | | 37 | | | D.E. Karn 3 & 4 – Essexville | 2 Units, 1975-1977 | 1,213 | | | 167 | | |
Hydroelectric | Hydroelectric | | | | | Hydroelectric | |
Ludington – Ludington | Ludington – Ludington | 6 Units, 1973 | 975 | | 4 | (371) | | 5 | Ludington – Ludington | 6 Units, 1973 | 1,109 | | 5 | (370) | | 6 |
Conventional hydro generation – various locations | 35 Units, 1906-1949 | 76 | | | 482 | | | |
Conventional hydro generation | | Conventional hydro generation | 35 Units, 1906-1949 | 78 | | | 381 | | |
| | | 1,051 | | | 111 | | | | 1,187 | | | 11 | | |
Gas combined cycle | Gas combined cycle | | | | | Gas combined cycle | |
Jackson – Jackson | Jackson – Jackson | 1 Unit, 2002 | 547 | | | 1,786 | | | Jackson – Jackson | 1 Unit, 2002 | 535 | | | 2,205 | | |
Zeeland – Zeeland | Zeeland – Zeeland | 3 Units, 2002 | 534 | | | 3,465 | | | Zeeland – Zeeland | 3 Units, 2002 | 533 | | | 3,456 | | |
| | | 1,081 | | | 5,251 | | | | 1,068 | | | 5,661 | | |
Gas combustion turbines | Gas combustion turbines | | | | | Gas combustion turbines | |
Zeeland (simple cycle) – Zeeland | Zeeland (simple cycle) – Zeeland | 2 Units, 2001 | 318 | | | 601 | | | Zeeland (simple cycle) – Zeeland | 2 Units, 2001 | 317 | | | 860 | | |
Wind generation | Wind generation | | | | | Wind generation | |
Cross Winds® Energy Park – Tuscola County | Cross Winds® Energy Park – Tuscola County | 114 Turbines, 2014, 2018, and 2019 | 39 | | | 722 | | | Cross Winds® Energy Park – Tuscola County | 114 Turbines, 2014, 2018, and 2019 | 33 | | | 747 | | |
Lake Winds® Energy Park – Mason County | Lake Winds® Energy Park – Mason County | 56 Turbines, 2012 | 16 | | | 273 | | | Lake Winds® Energy Park – Mason County | 56 Turbines, 2012 | 13 | | | 269 | | |
Gratiot Farms Wind Project – Gratiot County | Gratiot Farms Wind Project – Gratiot County | 60 Turbines, 2020 | — | | | 22 | | | Gratiot Farms Wind Project – Gratiot County | 60 Turbines, 2020 | 10 | | | 421 | | |
Crescent Wind Farm – Hillsdale County | | Crescent Wind Farm – Hillsdale County | 60 Turbines, 2021 | 8 | | | 392 | | |
| | | 55 | | | 1,017 | | | | 64 | | | 1,829 | | |
Solar generation | Solar generation | | | | | Solar generation | |
Solar Gardens – Allendale and Kalamazoo | 15,100 Panels, 2016 | 2 | | | 6 | | | |
Solar Gardens – Allendale, Cadillac, and Kalamazoo | | Solar Gardens – Allendale, Cadillac, and Kalamazoo | 16,852 Panels, 2016-2021 | 3 | | | 7 | | |
Total owned generation | Total owned generation | | 5,350 | | | 14,983 | | | Total owned generation | | 5,736 | | | 18,752 | | |
Purchased power6 | | | | | |
Purchased power7 | | Purchased power7 | |
Coal generation – T.E.S. Filer City | Coal generation – T.E.S. Filer City | | 60 | | | 513 | | | Coal generation – T.E.S. Filer City | | 60 | | | 500 | | |
Gas generation – MCV Facility7 | | 1,240 | | | 6,110 | | | |
Other gas generation – various locations | | 152 | | | 1,236 | | | |
Nuclear generation – Palisades7 | | 813 | | | 6,898 | | | |
Wind generation – various locations | | 64 | | | 1,160 | | | |
Solar generation – various locations | | 4 | | | 8 | | | |
Other renewable generation – various locations | | 244 | | | 1,057 | | | |
Gas generation – MCV Facility8 | | Gas generation – MCV Facility8 | | 1,240 | | | 5,857 | | |
Other gas generation | | Other gas generation | | 155 | | | 1,325 | | |
Nuclear generation9 | | Nuclear generation9 | | — | | | 2,692 | | |
Wind generation | | Wind generation | | 60 | | | 1,017 | | |
Solar generation | | Solar generation | | 71 | | | 227 | | |
Other renewable generation | | Other renewable generation | | 204 | | | 1,197 | | |
| | | 2,577 | | | 16,982 | | | | 1,790 | | | 12,815 | | |
Net interchange power8 | | — | | | 2,655 | | | |
Net interchange power10 | | Net interchange power10 | | — | | | 3,943 | | |
Total purchased and interchange power | Total purchased and interchange power | | 2,577 | | | 19,637 | | | Total purchased and interchange power | | 1,790 | | | 16,758 | | |
Total supply | Total supply | | 7,927 | | | 34,620 | | | Total supply | | 7,526 | | | 35,510 | | |
Less distribution and transmission loss | Less distribution and transmission loss | | | 2,810 | | | Less distribution and transmission loss | | 1,940 | | |
Total net bundled sales | Total net bundled sales | | | 31,810 | | | Total net bundled sales | | 33,570 | | |
1Represents generation capacity during the summer months (planning year 20202022 capacity as reported to MISO and limited by interconnection service limits), except for the Gratiot Farms Wind Project, which
began operation in December 2020.. For wind and solar generation, the amount represents the effective load-carrying capability.
2Consumers plans to retire these generating units in 2025.
3Represents Consumers’ share of the capacity of the J.H. Campbell 3 unit, net of the 6.69-percent6.69‑percent ownership interest of the Michigan Public Power Agency and Wolverine Power Supply Cooperative, Inc.Inc, each a non-affiliated company.
34Consumers plans to retire these coal-fueled generating units in 2023.
45Represents Consumers’ 51-percent51‑percent share of the capacity of Ludington. DTE Electric holds the remaining 49-percent49‑percent ownership interest.
56Represents Consumers’ share of net pumped-storage generation. The pumped-storage facility consumes electricity to pump water during off-peak hours for storage in order to generate electricity later during peak‑demand hours.
67Represents purchases under long-term PPAs.
78For information about Consumers’ long-term PPAsPPA related to the MCV Facility, and Palisades, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4,3, Contingencies and Commitments—Contractual Commitments.
89Represents purchases from a nuclear generating facility that closed in May 2022.
10Represents purchases from the MISO energy market.
Presented in the following table are the sources of Consumers’ electric supply for the last three years:
| GWh | GWh | GWh |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
Owned generation | Owned generation | | Owned generation | |
Coal | Coal | 7,960 | | 9,776 | | 9,804 | | Coal | 10,217 | | 10,861 | | 7,960 | |
Gas | Gas | 5,883 | | 6,289 | | 5,272 | | Gas | 6,684 | | 5,555 | | 5,883 | |
Renewable energy | Renewable energy | 1,505 | | 1,258 | | 1,187 | | Renewable energy | 2,217 | | 1,974 | | 1,505 | |
Oil | Oil | 6 | | 5 | | 5 | | Oil | 4 | | 7 | | 6 | |
Net pumped storage1 | Net pumped storage1 | (371) | | (308) | | (325) | | Net pumped storage1 | (370) | | (321) | | (371) | |
Total owned generation | Total owned generation | 14,983 | | 17,020 | | 15,943 | | Total owned generation | 18,752 | | 18,076 | | 14,983 | |
Purchased power2 | Purchased power2 | | Purchased power2 | |
Gas generation | Gas generation | 7,346 | | 6,812 | | 6,712 | | Gas generation | 7,182 | | 5,862 | | 7,346 | |
Nuclear generation | Nuclear generation | 6,898 | | 6,946 | | 6,749 | | Nuclear generation | 2,692 | | 6,901 | | 6,898 | |
Renewable energy generation | Renewable energy generation | 2,225 | | 2,387 | | 2,379 | | Renewable energy generation | 2,441 | | 2,408 | | 2,225 | |
Coal generation | Coal generation | 513 | | 462 | | 511 | | Coal generation | 500 | | 494 | | 513 | |
Net interchange power3 | Net interchange power3 | 2,655 | | 2,059 | | 4,953 | | Net interchange power3 | 3,943 | | 645 | | 2,655 | |
Total purchased and interchange power | Total purchased and interchange power | 19,637 | | 18,666 | | 21,304 | | Total purchased and interchange power | 16,758 | | 16,310 | | 19,637 | |
Total supply | Total supply | 34,620 | | 35,686 | | 37,247 | | Total supply | 35,510 | | 34,386 | | 34,620 | |
1Represents Consumers’ share of net pumped-storage generation. During 2020,2022, the pumped-storage facility consumed 1,3691,339 GWh of electricity to pump water during off-peak hours for storage in order to generate 998969 GWh of electricity later during peak-demand hours.
2Represents purchases under long-term PPAs.
3Represents purchases from the MISO energy market.
During 2020,2022, Consumers acquired 5747 percent of the electricity it provided to customers through long-term PPAs and the MISO energy market. Consumers offers its generation into the MISO energy market on a day-ahead and real-time basis and bids for power in the market to serve the demand of its customers. Consumers is a net purchaser of power and supplements its generation capability with purchases from the MISO energy market to meet its customers’ needs during peak-demand periods.market.
At December 31, 2020,2022, Consumers had future commitments to purchase capacity and energy under long-term PPAs with various generating plants. These contracts require monthly capacity payments based on the plants’ availability or deliverability. The payments for 20212023 through 20402050 are estimated to total $9.0$8.5 billion and, for each of the next five years, range from $0.7 billion to $1.1$0.8 billion annually. These amounts may vary depending on plant availability and fuel costs. For further information about Consumers’ future capacity and energy purchase obligations, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Contractual ObligationsOther Material Cash Requirements and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4,3, Contingencies and Commitments—Contractual Commitments.
During 2020, 232022, 29 percent of the energy Consumers provided to customers was generated by its coal-fueled generating units, which burned fivesix million tons of coal and produced a combined total of 7,96010,217 GWh of electricity. In order to obtain the coal it needs, Consumers enters into physical coal supply contracts.
At December 31, 2020,2022, Consumers had future commitments to purchase coal through 2022;2024; payment obligations under these contracts totaled $88$104 million. Most of Consumers’ rail-supplied coal contracts have fixed prices, although some contain market-based pricing. Consumers’ vessel-supplied coal contracts have fixed base prices that are adjusted monthly to reflect changes to the fuel cost of vessel transportation. At December 31, 2020,2022, Consumers had 7685 percent of its 20212023 expected coal requirements under contract, as well as a 54-day34-day supply of coal on hand.
In conjunction with its coal supply contracts, Consumers leases a fleet of railcars and has transportation contracts with various companies to provide rail and vessel services for delivery of purchased coal to Consumers’ generating facilities. Consumers’ coal transportation contracts are future commitments and expire on various dates through 2025; payment obligations under these contracts totaled $718$428 million at December 31, 2020.2022.
During 2020, 172022, 19 percent of the energy Consumers provided to customers was generated by its natural gas‑fueled generating units, which burned 4349 bcf of natural gas and produced a combined total of 5,8836,684 GWh of electricity.
In order to obtain the gas it needs for electric generation fuel, Consumers’ electric utility purchases gas from the market near the time of consumption, at prices that allow it to compete in the electric wholesale market. For units 3 & 4 of D.E. Karn and for the Jackson and Zeeland plants, Consumers utilizes an agent that owns firm transportation rights to each plant to purchase gas from the market and transport the gas to the facilities. For units 3 & 4 of D.E. Karn, Consumers holds gas transportation contracts to transport to the plant gas that Consumers or an agent purchase from the market.
Electric Utility Competition: Consumers’ electric utility business is subject to actual and potential competition from many sources, in both the wholesale and retail markets, as well as in electric generation, electric delivery, and retail services.
Michigan law allows electric customers in Consumers’ service territory to buy electric generation service from alternative electric suppliers in an aggregate amount capped at ten percent of Consumers’ sales, with certain exceptions. At December 31, 2020,2022, electric deliveries under the ROA program were at the ten‑percent limit. Of Consumers’ 1.9 million electric customers, fewer than 300, or 0.02 percent, purchased electric generation service under the ROA program. For additional information, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook—Consumers Electric Utility Outlook and Uncertainties.
Consumers also faces competition or potential competition associated with industrial customers relocating all or a portion of their production capacity outside of Consumers’ service territory for economic reasons; municipalities owning or operating competing electric delivery systems; and customer self-generation. Consumers addresses this competition in various ways, including:
•aggressively controlling operating, maintenance, and fuel costs and passing savings on to customers
•providing renewable energy options and energy waste reduction programs
•providing competitive rate-design options, particularly for large energy-intensive customers
•offering tariff-based incentives that support economic development
•monitoring activity in adjacent geographical areas
Consumers Gas Utility
Gas Utility Operations: Consumers’ gas utility operations, which include the purchase, transmission, storage, distribution, and sale of natural gas, generated operating revenue of $2.7 billion in 2022, $2.1 billion in 2021, and $1.8 billion in 2020, and $1.9 billion in 2019 and 2018.2020. Consumers’ gas utility customer base consists of a mix of primarily residential, commercial, and diversified industrial customers in Michigan’s Lower Peninsula.
Presented in the following illustration is Consumers’ 20202022 gas utility operating revenue of $1.8$2.7 billion by customer class:
Consumers’ gas utility operations are not dependent on a single customer, or even a few customers, and the loss of any one or even a few of Consumers’ largest customers is not reasonably likely to have a material adverse effect on Consumers’ financial condition.
In 2020, deliveries of natural gas through Consumers’ pipeline and distribution network, including off-system transportation deliveries, totaled 360 bcf, which included GCC deliveries of 36 bcf. In 2019,2022, deliveries of natural gas through Consumers’ pipeline and distribution network, including off-system transportation deliveries, totaled 391 bcf, which included GCC deliveries of 4134 bcf. In 2021, deliveries of natural gas through Consumers’ pipeline and distribution network, including off-system transportation deliveries, totaled 347 bcf, which included GCC deliveries of 33 bcf. Consumers’ gas utility operations are seasonal. The consumption of natural gas typically increases in the winter, due primarily to colder temperatures and the resulting use of natural gas as heating fuel. Consumers injects natural gas into storage during the summer months for use during the winter months. During 2020, 432022, 48 percent of the natural gas supplied to all customers during the winter months was supplied from storage.
Presented in the following illustration are Consumers’ monthly weather-normalized natural gas deliveries (deliveries adjusted to reflect normal weather conditions) to its customers, including GCC deliveries, during 20202022 and 2019:2021:
Gas Utility Properties: Consumers’ gas transmission, storage, and distribution system consists of:
•2,4102,380 miles of transmission lines
•15 gas storage fields with a total storage capacity of 309 bcf and a working gas volume of 151 bcf
•27,95828,170 miles of distribution mains
•eight compressor stations with a total of 167,017157,893 installed and available horsepower
In 2019, Consumers releasedUnder its Methane Reduction Plan, whichConsumers has set a goal of net-zero methane emissions from its natural gas delivery system by 2030. Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices. The remaining emissions will likely be offset by purchasing and/or producing renewable natural gas.
For further information on Consumers’ progress towards its net-zero methane emissions goal, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview.
Gas Utility Supply: In 2020,2022, Consumers purchased 8486 percent of the gas it delivered from U.S. suppliers. The remaining 1614 percent was purchased from authorized GCC suppliers and delivered by Consumers to customers in the GCC program. Presented in the following illustration are the supply arrangements for the gas Consumers delivered to GCC and GCR customers during 2020:2022:
Firm gas transportation or firm city-gate contracts are those that define a fixed amount, price, and delivery time frame. Consumers’ firm gas transportation contracts are with Panhandle Eastern Pipe Line Company and Trunkline Gas Company, LLC, each a non‑affiliated company. Under these contracts, Consumers purchases and transports gas to Michigan for ultimate delivery to its customers. Consumers’ firm gas transportation contracts expire on various dates through 2023 and provide for the delivery of 312024 with planned contract volumes providing 38 percent of Consumers’ total forecasted gas supply requirements in 2021.for 2023. Consumers purchases the balance of its required gas supply under firm city-gate contracts and through authorized suppliers under the GCC program.
Gas Utility Competition: Competition exists in various aspects of Consumers’ gas utility business. Competition comes from GCC and transportation programs; system bypass opportunities for new and existing customers; and from alternative fuels and energy sources, such as propane, oil, and electricity.
NorthStar Clean Energy—Non-Utility Operations and Investments
CMS Energy’s enterprises segment,NorthStar Clean Energy, through various subsidiaries and certain equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production. The enterprises segment’sNorthStar Clean Energy’s operating revenue was $445 million in 2022, $308 million in 2021, and $229 million in 2020, $248 million in 2019, and $252 million in 2018.2020.
Independent Power Production: Presented in the following table is information about the independent power plants in which CMS Energy had an ownership interest at December 31, 2020:2022:
| Location | Location | Ownership Interest (%) | Primary Fuel Type | Gross Capacity (MW) | 1
| 2020 Net Generation (GWh) | Location | Ownership Interest (%) | Primary Fuel Type | Gross Capacity (MW) | 1
| 2022 Net Generation (GWh) |
Dearborn, Michigan | Dearborn, Michigan | 100 | | Natural gas | 770 | | | 5,029 | | Dearborn, Michigan | 100 | | Natural gas | 770 | | | 4,786 | |
Gaylord, Michigan | Gaylord, Michigan | 100 | | Natural gas | 134 | | | 4 | | Gaylord, Michigan | 100 | | Natural gas | 134 | | | 14 | |
Paulding County, Ohio | Paulding County, Ohio | 100 | | Wind | 105 | | | 286 | | Paulding County, Ohio | 100 | | Wind | 100 | | | 317 | |
Comstock, Michigan | Comstock, Michigan | 100 | | Natural gas | 76 | | | 78 | | Comstock, Michigan | 100 | | Natural gas | 76 | | | 111 | |
Delta Township, Michigan | Delta Township, Michigan | 100 | | Solar | 24 | | | 42 | | Delta Township, Michigan | 100 | | Solar | 24 | | | 40 | |
Phillips, Wisconsin | Phillips, Wisconsin | 100 | | Solar | 3 | | | 5 | | Phillips, Wisconsin | 100 | | Solar | 3 | | | 5 | |
Coke County, Texas2 | 51 | | Wind | 525 | | | 537 | | |
Paulding County, Ohio | | Paulding County, Ohio | 100 | | Solar and storage | 3 | | | 2 | |
Coke County, Texas | | Coke County, Texas | 51 | | Wind | 525 | | | 1,894 | |
Filer City, Michigan | Filer City, Michigan | 50 | | Coal | 73 | | | 510 | | Filer City, Michigan | 50 | | Coal | 73 | | | 498 | |
New Bern, North Carolina | New Bern, North Carolina | 50 | | Wood waste | 50 | | | 229 | | New Bern, North Carolina | 50 | | Wood waste | 50 | | | 291 | |
Flint, Michigan | Flint, Michigan | 50 | | Wood waste | 40 | | | 91 | | Flint, Michigan | 50 | | Wood waste | 40 | | | 163 | |
Grayling, Michigan | Grayling, Michigan | 50 | | Wood waste | 38 | | | 66 | | Grayling, Michigan | 50 | | Wood waste | 38 | | | 219 | |
Total | Total | | 1,838 | | | 6,877 | | Total | | 1,836 | | | 8,340 | |
1Represents the intended full-load sustained output of each plant. The amount of capacity relating to CMS Energy’s ownership interest was 1,4801,478 MW and net generation relating to CMS Energy’s ownership interest was 6,826 GWh at December 31, 2020.
2Began operation in September 2020.2022.
The operating revenue from independent power production was $58 million in 2022, $48 million in 2021, and $32 million in 2020 and 2019, and $19 million in 2018.2020.
Energy Resource Management: CMS ERM purchases and sells energy commodities in support of CMS Energy’s generating facilities with a focus on optimizing CMS Energy’s independent power production portfolio. In 2020,2022, CMS ERM marketed fivetwo bcf of natural gas and 7,0806,494 GWh of electricity. Electricity marketed by CMS ERM was generated by independent power production of the enterprises segmentNorthStar Clean Energy and by unrelated third parties. CMS ERM’s operating revenue was $387 million in 2022, $260 million in 2021, and $197 million in 2020, $216 million in 2019, and $233 million in 2018.2020.
Enterprises SegmentNorthStar Clean Energy Competition: The enterprises segmentNorthStar Clean Energy competes with other independent power producers. The needs of this market are driven by electric demand and the generation available.
EnerBank28
EnerBank Operations: EnerBank is a Utah state-chartered, FDIC-insured industrial bank providing primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements. EnerBank works with strategic business partners and contractors throughout the U.S. to provide homeowners with payment options for home improvements. Strategic business partners include manufacturers, distributors, franchisors, member or trade associations, and major retailers of home improvement, remodeling, and energy-saving products and services.
EnerBank’s operating revenue was $262 million in 2020, $221 million in 2019, and $157 million in 2018. EnerBank’s average loan size is $10,000 and all of the loans originated by EnerBank in 2020 were fixed-rate installment loans. The distribution of borrowers throughout the U.S. is generally consistent with the population distribution by state.
EnerBank Competition: EnerBank competes with FDIC-insured banks, credit unions, consumer finance companies, and financial technology companies. EnerBank addresses this competition by:
•offering competitive loan features and pricing
•maintaining a stable funding model
•providing convenient loan processes for contractors and homeowners
•providing strong marketing support for strategic business partners and authorized contractors
•focusing on customer service
CMS Energy and Consumers Regulation
CMS Energy, Consumers, and their subsidiaries are subject to regulation by various federal, state, and local governmental agencies, including those described in the following sections. If CMS Energy or Consumers failed to comply with applicable laws and regulations, they could become subject to fines, penalties, or disallowed costs, or be required to implement additional compliance, cleanup, or remediation programs, the cost of which could be material. For more information on the potential impacts of government regulation affecting CMS Energy and Consumers, see Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook, and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3,2, Regulatory Matters.
FERC and NERC
FERC has exercised limited jurisdiction over several independent power plants and exempt wholesale generators in which CMS EnterprisesNorthStar Clean Energy has ownership interests, as well as over CMS ERM, CMS Gas Transmission, and DIG. FERC’s jurisdiction includes, among other things, acquisitions, operations, disposals of certain assets and facilities, services provided and rates charged, and conduct among affiliates. FERC also has limited jurisdiction over holding company matters with respect to CMS Energy. FERC, in connection with NERC and with regional reliability organizations, also regulates generation and transmission owners and operators, load serving entities, purchase and sale entities, and others with regard to reliability of the bulk power system.
FERC regulates limited aspects of Consumers’ gas business, principally compliance with FERC capacity release rules, shipping rules, the prohibition against certain buy/sell transactions, and the price-reporting rule.
FERC also regulates certain aspects of Consumers’ electric operations, including compliance with FERC accounting rules, wholesale and transmission rates, operation of licensed hydroelectric generating plants, transfers of certain facilities, corporate mergers, and issuances of securities.
MPSC
Consumers is subject to the jurisdiction of the MPSC, which regulates public utilities in Michigan with respect to retail utility rates, accounting, utility services, certain facilities, certain asset transfers, corporate mergers, and other matters.
The Michigan Attorney General, ABATE, the MPSC Staff, residential customer advocacy groups, environmental organizations, and certain other parties typically participate in MPSC proceedings concerning Consumers. These parties often challenge various aspects of those proceedings, including the prudence of Consumers’ policies and practices, and seek cost disallowances and other relief. The parties also have appealed significant MPSC orders.
Rate Proceedings: For information regarding open rate proceedings, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3,2, Regulatory Matters.
Other Regulation
The U.S. Secretary of Energy regulates imports and exports of natural gas and has delegated various aspects of this jurisdiction to FERC and the U.S. Department of Energy’s Office of Fossil Fuels.
The U.S. Department of Transportation’s Office of Pipeline Safety regulates the safety and security of gas pipelines through the Natural Gas Pipeline Safety Act of 1968 and subsequent laws.
EnerBank is regulated byThe Transportation Security Administration, an agency of the UtahU.S. Department of Financial InstitutionsHomeland Security, regulates certain activities related to the safety and the FDIC.security of natural gas pipelines.
CMS Energy and Consumers Environmental Strategy and Compliance
CMS Energy and Consumers are committed to protecting the environment; this commitment extends beyond compliance with applicable laws and regulations. In February 2020, Consumers announced aConsumers’ Clean Energy Plan details its strategy to meet customers’ long-term energy needs and provides the foundation for its goal of achievingto achieve net-zero carbon emissions from its electric business by 2040. This goal includes not only emissions from Consumers’ owned generation, but also emissions from the generation of power purchased through long-term PPAs and from the MISO energy market.
Consumers expects to reduce carbon emissionsmeet 90 percent of its owned generation by more than 90 percent from its 2005 levelscustomers’ needs with clean energy sources by 2040 through execution of its Clean Energy Plan, which calls for replacing its coal-fueled generation predominantly with investment in renewable energy. The remaining emissions will beNew technologies and carbon offset through alternative measures including, but not limited to, carbon sequestration, landfill methane emission capture, forest preservation, and large-scale tree planting. During 2020,reforestation may be used to close the gap to achieving net-zero carbon emissions.
In June 2022, Consumers provided 11 percentreceived approval of its electricity (self-generated2021 IRP, which updated its Clean Energy Plan. With these updates, Consumers will eliminate the use of coal-fueled generation in 2025 and purchased) fromforecasts renewable sources. Additionally, energy capacity levels of over 60 percent in 2040. For additional information on Consumers’ Clean Energy Plan, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook—Consumers began operation of Gratiot Farms Wind Project, a 150-MW wind generation project, in December 2020Electric Utility Outlook and expects to take full ownership and begin commercial operation of another with capacity of up to 166 MW in early 2021. Furthermore, Consumers has executed agreements to purchase another wind generation project under development, with capacity of up to 201 MW, and a solar generating facility under development, with capacity of up to 150 MW. For each of these projects, Consumers expects to take full ownership and begin commercial operation of the project in 2022.Uncertainties.
In addition to Consumers’ efforts to reduce the electric utility’s carbon footprint, it is also making efforts to reduce the gas utility’s methane footprint. In 2019, Consumers releasedUnder its Methane Reduction Plan, whichConsumers has set a goal of net-zero methane emissions from its natural gas delivery system by 2030. Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices. The remaining emissions will likely be offset by purchasing and/or producing renewable natural gas. For additional information on Consumers’ Methane Reduction Plan, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook—Consumers Gas Utility Outlook and Uncertainties—Gas Environmental Outlook.
CMS Energy, Consumers, and their subsidiaries are subject to various federal, state, and local environmental regulations for solid waste management, air and water quality, solid waste management, and other matters. Consumers expects to recover costs to comply with environmental regulations in customer rates but cannot guarantee this result. For additional information concerning environmental matters, see Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook, and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4,3, Contingencies and Commitments.
CMS Energy has recorded a $45 million liability for its subsidiaries’ obligations associated with Bay Harbor and Consumers has recorded a $56$62 million liability for its obligations at a number of former MGP sites. For additional information, see Item 1A. Risk Factors and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4,3, Contingencies and Commitments.
Solid Waste Disposal:Costs related to the construction, operation, corrective action, and closure of solid waste disposal facilities for coal ash are significant. Consumers’ coal ash disposal areas are regulated under Michigan’s solid waste rules and by the EPA’s rules regulating CCRs. To address some of the requirements of these rules, Consumers has converted all of its fly ash handling systems to dry systems. In addition, Consumers’ ash facilities have programs designed to protect the environment and are subject to quarterly EGLE inspections. Consumers’ estimate of capital and cost of removal expenditures to comply with regulations relating to ash disposal is $156$205 million from 20212023 through 2025.
Water: Consumers uses substantial amounts of water to operate and cool its electric generating plants and gas compression stations. Water discharge quality is regulated and administered by EGLE under the federal NPDES program. To comply with such regulation, Consumers’ facilities have discharge monitoring programs. The EPA issued final regulations for wastewater discharges from electric generating plants in 2015 and amended them in 2017 and 2020. Consumers’ estimate of capital expenditures to comply with these regulations as presently promulgated is $23 million from 2021 through 2025.
In 2014, the EPA finalized its cooling water intake rule for electric generating units, which requires Consumers to evaluate the biological impact of its cooling water intake systems and ensure that it is using the best technology available to minimize adverse environmental impacts. Consumers’ estimate of capital expenditures to comply with these regulations is $38 million from 2021 through 2025.
Air: Consumers is subject to federal and state environmental regulations that require extensive reductions in nitrogen oxides, sulfur dioxides, particulate matter, and mercury emissions. To comply with these regulations, Consumers has invested in emissions control equipment at its electric generating plants. Consumers’ estimate of ongoing capital expenditures to comply with these regulations is $43 million from 2021 through 2025.
2027. Consumers’ future costs to comply with solid waste disposal water, and air environmental regulations may vary depending on future legislation, litigation, executive orders, treaties, or rulemaking.
For further information concerning estimated capital expenditures related to solid waste disposal, water, and air,environmental matters, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook—Consumers Electric Utility Outlook and Uncertainties—Electric Environmental Outlook.
Insurance
CMS Energy and its subsidiaries, including Consumers, maintain insurance coverage generally similar to comparable companies in the same lines of business. The insurance policies are subject to terms, conditions, limitations, and exclusions that might not fully compensate CMS Energy or Consumers for all losses. A portion of each loss is generally assumed by CMS Energy or Consumers in the form of deductibles and self-insured retentions that, in some cases, are substantial. As CMS Energy or Consumers renews its policies, it is possible that some of the present insurance coverage may not be renewed or obtainable on commercially reasonable terms due to restrictive insurance markets.
Human Capital
CMS Energy and Consumers employ a highly trained and skilled workforce comprised of union, non‑non‑union, and seasonal employees, and also uses contractors.employees. Presented in the following table are the number of employees and contractors of CMS Energy and Consumers:
| | | | | | | | | | | |
December 31 | 2020 | 2019 | 2018 |
CMS Energy, including Consumers | | | |
Full-time employees | 8,148 | | 8,128 | | 7,957 | |
Seasonal employees1 | 603 | | 594 | | 603 | |
Part-time employees | 86 | | 67 | | 65 | |
Contractors | 508 | | 509 | | 656 | |
Total workforce | 9,345 | | 9,298 | | 9,281 | |
Consumers | | | |
Full-time employees | 7,617 | | 7,642 | | 7,504 | |
Seasonal employees1 | 603 | | 594 | | 603 | |
Part-time employees | 10 | | 17 | | 14 | |
Contractors | 508 | | 509 | | 656 | |
Total workforce | 8,738 | | 8,762 | | 8,777 | |
| | | | | | | | | | | |
December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | | | |
| | | |
| | | |
Full-time and part-time employees | 8,560 | | 8,509 | | 8,234 | |
Seasonal employees1 | 513 | | 613 | | 603 | |
| | | |
Total employees | 9,073 | | 9,122 | | 8,837 | |
Consumers | | | |
| | | |
| | | |
Full-time and part-time employees | 8,366 | | 8,314 | | 7,627 | |
Seasonal employees1 | 513 | | 613 | | 603 | |
| | | |
Total employees | 8,879 | | 8,927 | | 8,230 | |
1Consumers’ seasonal workforce peaked at 587 employees during 2022, 622 employees during 2021, and 603 employees during 2020, and 614 employees during 2019 and 2018.2020. Seasonal employees work primarily during the construction season.
At December 31, 2020,2022, unions represented 41 percent of CMS Energy’s employees and 4442 percent of Consumers’ employees. The UWUA represents Consumers’ operating, maintenance, construction, and customer contact center employees. The USW represents Zeeland plant employees. For information about CMS Energy’sThe UWUA and Consumers’ collective bargainingUSW agreements see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook—Other Outlook and Uncertainties and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12, Retirement Benefits.expire in 2025.
The safety of employees, customers, and the general public is a priority of CMS Energy and Consumers. Accordingly, CMS Energy and Consumers have worked to integrate a set of safety principles into their business operations and culture. These principles include complying with applicable safety, health, and security regulations and implementing programs and processes aimed at continually improving safety and security conditions. On an annual basis, CMS Energy and Consumers set various safety goals, with their primary measure being the number ofOSHA recordable incidents. There were 101incident rate. The recordable incidentsincident rate was 1.17 in 20202022 and 105 recordable incidents1.54 in 2019.2021. The target recordable incident rate for 20212023 is no more than 81 recordable incidents.1.07. Over the last ten years, Consumers’ OSHA recordable incident rate has decreased by over 53 percent and ranks in the first quartile of its EEI peer group.34 percent.
In response to the COVID-19 pandemic, CMS Energy and Consumers have issued a response plan that is focused on the health, safety, and well-being of their co-workers, customers, and communities. CMS Energy and Consumers have aligned with safety and health guidelines from the CDC, OSHA, and the Michigan Department of Health and Human Services in order to protect their employees, customers, and contractors to ensure the continued delivery of critical energy services. For more information about CMS Energy’s and Consumers’ response to the COVID-19 pandemic, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview.
Within the utility industry, there is strong competition for rare, high-demand talent, including those related to renewable energy generation, technology, and data analytics. In order to address this competition and to be able to meet itstheir human capital needs, CMS Energy and Consumers provide compensation and benefits that are competitive with industry peers. Furthermore, the companiesCMS Energy and Consumers have developed a comprehensive talent strategy, the Talent Roadmap,People Strategy, to attract, develop, and retain highly skilled employees. The strategy focuses on three areas, which are summarized below.
•Cultivating a Purpose-Driven Culture: This goal is aimed at ensuring all co-workers understand how their work drives the companies’CMS Energy’s and Consumers’ key strategic goals. The companies’CMS Energy’s and Consumers’ progress toward a purpose-driven culture is measured through an engagement index and an empowerment index developed from data obtained through an annual employee engagement survey of union and non-union co-workers administered by a third party. For the year ended December 31, 2020,2022, the employee engagement index score, which measures the percentage of employees that feel satisfied with the company, was 8371 percent whichand ranked in the firstsecond quartile of U.S. utilities.general industry companies. The employee empowerment index score, which measures the percentage of employees that feel the workplace promotes empowerment, was 63 percent. Each employee empowerment question was individually benchmarked54 percent and ranked in the secondthird quartile of high-performinggeneral industry companies. The high-performinggeneral industry benchmark was created by the third party who administered the survey through a targeted sampling of working adults within the U.S. who work for firms with widely respected reputations. CMS Energy and Consumers have a goal to achieve a first-quartile empowerment index score by 2024.2030.
•Creating a Breakthrough Employee Experience: A breakthrough employee experience is one that instills pride and ownership in one’s work. To measure progress toward a breakthrough employee experience, the companiesCMS Energy and Consumers measure employees’ satisfaction with people processes, such as performance management and hiring and onboarding new employees. For the year ended December 31, 2020,2022, the employee experience index was 5254 percent; the companiesCMS Energy and Consumers have a goal to achieve a score of 80 percent within the next ten years.by 2030.
•Building Skill Sets at Scale: With an overarching goal of ensuring employees have the right skills to succeed, the companiesCMS Energy and Consumers measure progress in this area through achievement of workforce planning and hiring milestones and through a first-time skill attainment index to evaluate the effectiveness of training. The companiesCMS Energy and Consumers develop skill sets in co-workers through a variety of means, including union apprenticeship programs and yearly trainings for newly required skills. In 2021, the companies will launchCMS Energy and Consumers launched a full-scale development program for leaders to enable robust succession planning and improve employee engagement and empowerment.
This talent strategy allows CMS Energy and Consumers to shape employees’ experience and enable leaders to coach and develop co-workers, source talent, and anticipate and adjust to changing skill sets in the business environment.
Diversity, Equity, and Inclusion
As a part of the companies’ Talent Roadmap,their People Strategy, CMS Energy and Consumers also employ a comprehensive diversity, equity, and inclusion strategy designed to embed diversity, equity, and inclusion into all aspects of their business. This is done through embedding standards for diversity, equity, and inclusion into all company processes and ensuring these standards are incorporated into all employee experiences. To measure their success, the companiesCMS Energy and Consumers utilize select questions in the annual engagement survey to create a diversity, equity, and inclusion index. For the year ended December 31, 2020,2022, the diversity, equity, and inclusion index score was 76 percent;72 percent.
CMS Energy and Consumers are committed to building an inclusive workplace that embraces the companies have a goal to achieve a scorediverse makeup of 78 percent in 2021.the communities that they serve. The following table presents the composition of CMS Energy’s and Consumers’ workforce:
| | | | | | | | |
December 31, 2022 | CMS Energy, including Consumers | Consumers |
Percent female employees | 27 | % | 28 | % |
Percent racially or ethnically diverse employees | 12 | | 12 | |
Percent employees with disabilities | 5 | | 5 | |
Percent veteran employees | 11 | | 11 | |
Co-workers are also empowered to engage in employee resource groups and events that encourage candid conversations around diversity, equity, and inclusion. There are seveneight employee resource groups available to all co-workers; these groups are, by date of origin:
•the Women’s Advisory Panel, contributing to the achievement of the corporate strategy by supporting the retention, development, and success of women
•the Minority Advisory Panel, promoting a culture of diversity and inclusion among all racial and ethnic minorities through education, leadership, development, and networking
•the Women’s Engineering Network, connecting and empowering women in the science, technology, engineering, and mathematics fields, while building capabilities to support company objectives
•the Veteran’s Advisory Panel, supporting former and active military personnel and assisting in recruiting and retaining veterans through career development
•GEN-ERGY, a multigenerational group designed to bridge the gap of learning, networking, and mentoring across the generations of the companies’ workforce
•the Pride Alliance of Consumers Energy, promoting an inclusive environment that is safe, supportive, and respectful for lesbian, gay, bi-sexual, and transgender persons and allies
•capABLE, aimed at removing barriers and creating pathways to meaningful work for employees of all abilities
•Interfaith, a space for co-workers of all backgrounds to gather and celebrate their unique beliefs, creating an environment of understanding and respect for all faiths, religions, and spiritual beliefs, including those with no faith affiliation
Information About CMS Energy’s and Consumers’ Executive Officers
Presented in the following table are the company positions held during the last five years for each of CMS Energy’s and Consumers’ executive officers as of February 1, 2021:3, 2023:
| | | | | |
Name, Age, Position(s) | Period |
Garrick J. Rochow (age 46)48) | |
CMS Energy | |
President, CEO, and Director | 12/2020 – Present |
Executive Vice President | 1/2020 – 12/2020 |
Senior Vice President | 7/2016 – 1/2020 |
Vice President | 3/2015 – 7/2016 |
Consumers | |
President, CEO, and Director | 12/2020 – Present |
Executive Vice President | 1/2020 – 12/2020 |
Senior Vice President | 7/2016 – 1/2020 |
Vice President | 10/2010 – 7/2016 |
CMS EnterprisesNorthStar Clean Energy | |
Chairman of the Board, CEO, and Director | 12/2020 – Present |
Rejji P. Hayes (age 46)1 48) | |
CMS Energy | |
Executive Vice President and CFO | 5/2017 – Present |
Consumers | |
Executive Vice President and CFO | 5/2017 – Present |
CMS EnterprisesNorthStar Clean Energy | |
Executive Vice President, CFO, and Director | 5/2017 – Present |
EnerBank | |
Chairman of the Board and Director | 10/2018 – 10/2021 |
Tonya L. Berry (age 50) | |
CMS Energy | |
Senior Vice President | 2/2022 – Present |
Jean-Francois BrossoitConsumers
| |
Senior Vice President | 2/2022 – Present |
Vice President | 11/2018 – 2/2022 |
Executive Director, Quality | 7/2017 – 11/2018 |
Catherine A. Hendrian (age 53)254) | |
CMS Energy | |
Senior Vice President | 4/2017 – Present |
Vice President | 11/2016 – 4/2017 |
Consumers | |
Senior Vice President | 4/2017 – Present |
Vice President | 11/2016 – 4/2017 |
| | | | | |
Name, Age, Position(s) | Period |
Catherine A. Hendrian (age 52) | |
CMS Energy | |
Senior Vice President | 4/2017 – Present |
Vice President | 3/2015 – 4/2017 |
Director of Human Resources | 10/2012 – 3/2015 |
Consumers | |
Senior Vice President | 4/2017 – Present |
Vice President | 3/2015 – 4/2017 |
Director of Human Resources | 10/2012 – 3/2015 |
Brandon J. Hofmeister (age 44)46) | |
CMS Energy | |
Senior Vice President | 7/2017 – Present |
Consumers | |
Senior Vice President | 7/2017 – Present |
Vice President | 7/2016 – 7/2017 |
Executive Director, Policy Research, Analysis, and Public Affairs | 6/2015 – 7/2016 |
Executive Director, Policy Research and Analysis | 9/2013 – 6/2015 |
CMS EnterprisesNorthStar Clean Energy | |
Senior Vice President | 9/2017 – Present |
Shaun M. Johnson (age 42)3 44) | |
CMS Energy | |
Senior Vice President and General Counsel | 5/2019 – Present |
Vice President and Deputy General Counsel | 4/2016 – 5/2019 |
Consumers | |
Senior Vice President and General Counsel | 5/2019 – Present |
Vice President and Deputy General Counsel | 4/2016 – 5/2019 |
CMS EnterprisesNorthStar Clean Energy | |
Senior Vice President, General Counsel, and Director | 4/2019 – Present |
Vice President and General Counsel | 10/2018 – 4/2019 |
EnerBank | |
Senior Vice President and General Counsel | 8/2018 – 6/2020 |
Venkat Dhenuvakonda Rao (age 50)52) | |
CMS Energy | |
Senior Vice President | 9/2016 – Present |
Vice President and Treasurer | 7/2012 – 9/2016 |
Consumers | |
Senior Vice President | 9/2016 – Present |
Vice President and Treasurer | 7/2012 – 9/2016 |
CMS EnterprisesNorthStar Clean Energy | |
Director | 11/2017 – Present |
Senior Vice President | 9/2016 – Present |
Vice President and Treasurer | 7/2012 – 9/2016 |
EnerBank | |
Chairman of the Board | 9/2016 – 5/2017 |
| | | | | |
Name, Age, Position(s) | Period |
Brian F. Rich (age 46)48) | |
CMS Energy | |
Senior Vice President and Chief Customer Officer | 8/2019 – Present |
Senior Vice President and Chief Information Officer | 7/2016 – 8/2019 |
Vice President and Chief Information Officer | 7/2014 – 7/2016 |
Consumers | |
Senior Vice President and Chief Customer Officer | 8/2019 – Present |
Senior Vice President and Chief Information Officer | 7/2016 – 8/2019 |
Vice President and Chief Information Officer | 7/2014 – 7/2016 |
LeeRoy Wells, Jr. (age 42)44) | |
CMS Energy | |
Senior Vice President | 12/2020 – Present |
Consumers | |
Senior Vice President | 12/2020 – Present |
Vice President | 8/2017 – 12/2020 |
Executive Director, Electric Systems Operations and Maintenance | | | | | |
Name, Age, Position(s) | 12/2015 – 8/2017Period |
Glenn P. BarbaScott B. McIntosh (age 55)47) | |
CMS Energy | |
Vice President, Controller, and CAO | 2/20039/2021 – Present |
Vice President and Controller | 6/2021 – 9/2021 |
Vice President | 9/2015 – 6/2021 |
Consumers | |
Vice President, Controller, and CAO | 1/20039/2021 – Present |
CMS EnterprisesVice President and Controller | 6/2021 – 9/2021 |
Vice President | 9/2015 – 6/2021 |
NorthStar Clean Energy | |
Vice President, Controller, and CAO | 11/20079/2021 – Present |
Vice President and Controller | 6/2021 – 9/2021 |
Vice President | 9/2015 – 6/2021 |
1Prior to joining CMS Energy and Consumers, Mr. Hayes was executive vice president and CFO for ITC Holdings Corp., a non‑affiliated company, from May 2014 through November 2016. Mr. Hayes started with ITC Holdings Corp. in 2012 as vice president of finance and treasurer.
2Prior to joining CMS Energy and Consumers, Mr. Brossoit was vice president of manufacturing operations for United Technologies Corp., a non‑affiliated company. Mr. Brossoit started with United Technologies Corp. in 2006.
3Prior to joining CMS Energy and Consumers, Mr. Johnson was a partner with Dykema Gossett PLLC, a non‑affiliated company, from 2012 to 2016. Mr. Johnson started with Dykema Gossett PLLC in 2005.
There are no family relationships among executive officers and directors of CMS Energy or Consumers. The list of directors and their biographies will be included in CMS Energy’s and Consumers’ definitive proxy statement for their 20212023 Annual Meetings of Shareholders to be held May 7, 2021.5, 2023. The term of office of each of the executive officers extends to the first meeting of each of the Boards of Directors of CMS Energy and Consumers after the next annual election of Directors of CMS Energy and Consumers (to be held on May 7, 2021)5, 2023).
Available Information
CMS Energy’s internet address is www.cmsenergy.com. CMS Energy routinely posts important information on its website and considers the Investor Relations section, www.cmsenergy.com/investor-relations, a channel of distribution.distribution for material information. Information contained on CMS Energy’s website is not incorporated
herein. CMS Energy’s and Consumers’ annual reports on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act are accessible free of charge on CMS Energy’s website. These reports are available soon after they are electronically filed with the SEC. Also on CMS Energy’s website are CMS Energy’s and Consumers’:
•Corporate Governance Principles
•Articles of Incorporation
•Bylaws
•Charters and Codes of Conduct (including the Charters of the Audit Committee, Compensation and Human Resources Committee, Finance Committee, and Governance, Sustainability and Public Responsibility Committee, as well as the Employee, Board of Directors, EnerBank, and Third Party Codes of Conduct)
CMS Energy will provide this information in print to any stockholder who requests it.
The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address is www.sec.gov.
Item 1A. Risk Factors
CMS Energy and Consumers are exposed to a variety of factors, often beyond their control, that are difficult to predict and that involve uncertainties that may materially adversely affect CMS Energy’s or Consumers’ business, liquidity, financial condition, or results of operations. Additional risks and uncertainties not presently known or that management believes to be immaterial may also adversely affect CMS Energy or Consumers. The risk factors described in the following sections, as well as the other information included in this report and in other documents filed with the SEC, should be considered carefully before making an investment in securities of CMS Energy or Consumers. Risk factors of Consumers are also risk factors of CMS Energy.
Investment/Financial Risks
CMS Energy depends on dividends from its subsidiaries to meet its debt service obligations.
Due to its holding company structure, CMS Energy depends on dividends from its subsidiaries to meet its debt service and other payment obligations. If sufficient dividends were not paid to CMS Energy by its subsidiaries, CMS Energy might not be able to generate the funds necessary to fulfill its payment obligations.
Consumers’ ability to pay dividends or acquire its own stock from CMS Energy is limited by restrictions contained in Consumers’ preferred stock provisions and potentially by other legal restrictions, such as certain terms in its articles of incorporation and FERC requirements.
CMS Energy has indebtedness that could limit its financial flexibility and its ability to meet its debt service obligations.
The level of CMS Energy’s present and future indebtedness could have several important effects on its future operations, including, among others, that:
•a significant portion of CMS Energy’s cash flow from operations could be dedicated to the payment of principal and interest on its indebtedness and would not be available for other purposes
•covenants contained in CMS Energy’s existing debt arrangements, which require it to meet certain financial tests, could affect its flexibility in planning for, and reacting to, changes in its business
•CMS Energy’s ability to obtain additional financing for working capital, capital expenditures, acquisitions, and general corporate and other purposes could become limited
•CMS Energy could be placed at a competitive disadvantage to its competitors that are less leveraged
•CMS Energy’s vulnerability to adverse economic and industry conditions could increase
•CMS Energy’s future credit ratings could fluctuate
CMS Energy’s ability to meet its debt service obligations and to reduce its total indebtedness will depend on its future performance, which will be subject to general economic conditions, industry cycles, changes in laws or regulatory decisions, and financial, business, and other factors affecting its operations, many of which are beyond its control. CMS Energy cannot make assurances that its businesses will continue to generate sufficient cash flow from operations to service its indebtedness, which could require CMS Energy to sell assets or obtain additional financing.
CMS Energy and Consumers have financing needs and could be unable to obtain bank financing or access the capital markets.
CMS Energy and Consumers rely on the capital markets, as well as on bank syndications, to meet their financial commitments and short-term liquidity needs not otherwise funded internally.
Disruptions in the capital and credit markets, or the inability to obtain required FERC authorization for issuances of securities including debt, could adversely affect CMS Energy’s and Consumers’ access to liquidity needed for their businesses. Any liquidity disruption could require CMS Energy and Consumers to take measures to conserve cash including, but not limited to, deferring capital expenditures, changing commodity purchasing strategies to avoid collateral-posting requirements, and reducing or eliminating future share repurchases, dividend payments, or other discretionary uses of cash.
Entering into new financings is subject in part to capital market receptivity to utility industry securities in general and to CMS Energy’s and Consumers’ securities in particular. CMS Energy and Consumers continue to explore financing opportunities to supplement their respective financial strategies. These potential opportunities include refinancing and/or issuing new debt, issuing CMS Energy preferred stock and/or common equity, or entering into commercial paper, bank financing, and leasing arrangements. CMS Energy and Consumers cannot guarantee the capital markets’ acceptance of their securities. CMS Energy may also, from time to time, repurchase (either in open market transactions or through privately negotiated transactions), redeem, or otherwise retire its outstanding debt. Such activities, if any, will depend on prevailing market conditions, contractual restrictions, and other factors. The amounts involved may or may not be material.
Certain of CMS Energy’s and Consumers’ securities and those of their affiliates are rated by various credit rating agencies. A reduction or withdrawal of one or more of its credit ratings could have a material adverse impact on CMS Energy’s or Consumers’ ability to access capital on acceptable terms and maintain commodity lines of credit, could increase their cost of borrowing, and could cause CMS Energy or Consumers to reduce capital expenditures. If either or both were unable to maintain commodity lines of credit, CMS Energy or Consumers might have to post collateral or make prepayments to certain suppliers under existing contracts. Further, since Consumers provides dividends to CMS Energy, any adverse developments affecting Consumers that result in a lowering of its credit ratings could have an adverse effect on CMS Energy’s credit ratings.
Market performance and other changes could decrease the value of employee benefit plan assets, which then could require substantial funding.
The performance of various markets affects the value of assets that are held in trust to satisfy future obligations under CMS Energy’s and Consumers’ pension and postretirement benefit plans. CMS Energy and Consumers have significant obligations under these plans and hold significant assets in these trusts. These assets are subject to market fluctuations and will yield uncertain returns, which could fall below CMS Energy’s and Consumers’ forecasted return rates. A decline in the market value of the assets or a change in the level of interest rates used to measure the required minimum funding levels could significantly increase the funding requirements of these obligations. Also, changes in demographics, including an increased number of retirements or changes in life expectancy assumptions, could significantly increase the funding requirements of the obligations related to the pension and postretirement benefit plans.
Industry/Regulatory Risks
Changes to ROA could have a material adverse effect on CMS Energy’s and Consumers’ businesses.
Michigan law allows electric customers in Consumers’ service territory to buy electric generation service from alternative electric suppliers in an aggregate amount capped at ten percent of Consumers’ sales, with certain exceptions. The proportion of Consumers’ electric deliveries under the ROA program and on the ROA waiting list is over ten percent. Consumers’ rates are regulated by the MPSC, while alternative electric suppliers charge market-based rates, putting competitive pressure on Consumers’ electric supply. If the ROA limit were increased or if electric generation service in Michigan were deregulated, it could have a material adverse effect on CMS Energy and Consumers.
Distributed energy resources could have a material adverse effect on CMS Energy’s and Consumers’ businesses.
Michigan law allows customers to use distributed energy resources for their electric energy needs. These distributed energy resources are connected to Consumers’ electric grid. The state distributed generation program is currently capped by the 2016 Energy Law at one percent of utilities’ peak loads, but in the settlement of its 2022 electric rate case, Consumers agreed to increase the cap to four percent on its system. Consumers is required to purchase distributed generation customers’ excess generation at rates determined by the MPSC. Recent FERC policy will also soon allow many customer-owned behind-the-meter and grid-connected distributed energy resources to participate in and receive revenue from wholesale electricity markets. Increased customer use of distributed energy resources could result in a reduction of Consumers’ electric sales. Third parties’ operations of distributed energy resources could also potentially have a negative impact on the stability of the grid. An increase in customers’ use of distributed energy resources, and the rate structure for distributed energy resources customers’ use of Consumers’ system and Consumers’ purchases of their excess generation, could have a material adverse effect on CMS Energy and Consumers.
CMS Energy and Consumers are subject to rate regulation, which could have ana material adverse effect on financial results.
CMS Energy and Consumers are subject to rate regulation. Consumers’ electric and gas retail rates are set by the MPSC and cannot be changed without regulatory authorization. If rate regulators fail to provide adequate rate relief, it could have a material adverse effect on Consumers or Consumers’ plans for making significant capital investments. Additionally, increasing rates could result in additional regulatory scrutiny, regulatory or legislative actions, and increased competitive or political pressures, all of which could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.
Orders of the MPSC could limit recovery of costs of providing service. These orders could also result in adverse regulatory treatment of other matters. For example, MPSC orders could prevent or curtail Consumers from shutting off non‑paying customers or could prevent or limit the implementation of a gas revenue mechanism. Regulators could face competitive or political pressures to avoid or limit rate increases for a number of reasons, including economic downturn in the state or decreased customer base, among others.
FERC authorizes certain subsidiaries of CMS Energy to sell wholesale electricity at market-based rates. Failure of these subsidiaries to maintain this FERC authority could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. Transmission rates paid by Consumers and other CMS Energy subsidiaries are also set by FERC.FERC, as are the tariff terms
governing the participation of Consumers and other CMS Energy subsidiaries in FERC-regulated wholesale electricity markets operated by regional transmission organizations and independent system operators such as MISO and PJM.At least one CMS Energy subsidiary participates in the wholesale electricity markets operated by ERCOT, over which FERC has limited control.
The various risks associated with the MPSC and FERC regulation of CMS Energy’s and Consumers’ businesses, which include the risk of adverse decisions in any number of rate or regulatory proceedings before either agency, as well as judicial proceedings challenging any agency decisions, could have a material adverse effect on CMS Energy and Consumers.
Utility regulation, state or federal legislation, and compliance could have a material adverse effect on CMS Energy’s and Consumers’ businesses.
CMS Energy and Consumers are subject to, or affected by, extensive utility regulation and state and federal legislation. If it were determined that CMS Energy or Consumers failed to comply with applicable laws and regulations, they could become subject to fines, penalties, or disallowed costs, or be required to implement additional compliance, cleanup, or remediation programs, the cost of which could be material. CMS Energy and Consumers cannot predict the impact of new laws, rules, regulations, principles, or practices by federal or state agencies or wholesale electricity market operators, or challenges or changes to present laws, rules, regulations, principles, or practices and the interpretation of any adoption or change. Furthermore, any state or federal legislation concerning CMS Energy’s or Consumers’ operations could also have a material adverse effect.
FERC, through NERC and its delegated regional entities, oversees reliability of certain portions of the electric grid. CMS Energy and Consumers cannot predict the impact of FERC orders regardingor actions of NERC and its regional entities on electric system reliability. Additionally, national gas pipeline infrastructure has recently been under scrutiny following disruptions related to extreme weather and cyber incidents. In 2021, the Transportation Security Administration issued two mandatory security directives related to natural gas pipelines that apply to Consumers. Additional regulation in this area could adversely affect Consumers’ gas operations.
CMS Energy and Consumers have announced ambitious plans to reduce their impact on climate change and increase the reliability of their electric distribution system. Achieving these plans depends on numerous factors, many of which are outside of their control.
Consumers has announced a long-term strategy for delivering clean, reliable, resilient, and affordable energy, including a plan to end coal use in 2025 as set forth in the 2021 IRP. The MPSC, FERC, other regulatory authorities, or other third parties may prohibit, delay, or impair the 2021 IRP and some or all of the 2021 IRP-associated acquisitions of owned or purchased electric generation capacity. Consumers may be unable to acquire, site, and/or permit some or all of the generation capacity proposed in the 2021 IRP. Consumers’ ability to implement the 2021 IRP may be affected by global supply chain disruptions and changes in the cost, availability, and supply of generation capacity. While CMS Energy and Consumers continue to advocate for advances in technologies required to reduce or eliminate greenhouse gases on a cost-effective basis, such advances are largely outside of CMS Energy’s and Consumers’ control. Advancements in technology related to items such as battery storage and electric vehicles may not become commercially available or economically feasible as projected in the 2021 IRP. Customer programs such as energy efficiency and demand response may not realize the projected levels of customer participation.
Consumers has also announced its Natural Gas Delivery Plan, a 10-year strategic investment plan to deliver safe, reliable, clean, and affordable natural gas to customers. This plan includes accelerated infrastructure replacements, innovative leak detection technology, and process changes to reduce or eliminate methane emissions. The MPSC, FERC, other regulatory authorities, or other third parties may prohibit, delay, or impair the Natural Gas Delivery Plan and some or all of the associated capital investments. Consumers’ ability to implement its plan may be affected by environmental regulations, global supply chain disruptions, and changes in the cost, availability, and supply of natural gas or the ability to deliver natural gas to customers. Advancements in technology related to items such as renewable natural gas may not become commercially available or economically feasible as projected in Consumers’ plan.
CMS Energy and Consumers could suffer financial loss, reputational damage, litigation, or other negative repercussions if they are unable to achieve their ambitious plans.
Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact CMS Energy and Consumers.
CMS Energy and Consumers are required to make judgments regarding the potential tax effects of various financial transactions and results of operations in order to estimate their obligations to taxing authorities. The tax obligations include income taxes, real estate taxes, sales and use taxes, employment-related taxes, and ongoing issues related to these tax matters. The judgments include determining reserves for potential adverse outcomes regarding tax positions that have been taken and may be subject to challenge by the IRS and/or other taxing authorities. Unfavorable settlements of any of the issues related to these reserves or other tax matters at CMS Energy or Consumers could have a material adverse effect. Additionally, changes in federal, state, or local tax rates or other changes in tax laws could have adverse impacts.
CMS Energy and its subsidiaries, including Consumers, and EnerBank, must comply with the Dodd-Frank Act and its related regulations, which are subject to change and could involve material costs or affect operations.regulations.
Regulations that are intended to implement the Dodd-Frank Act have been and are still being adopted and modified by the appropriate agencies. The Dodd-Frank Act added a new Section 13 to the Bank Holding Company Act. Known, together with its implementing regulations, as the Volcker Rule, it generally restricts certain banking entities (such as EnerBank) and their subsidiaries or affiliates from engaging in proprietary trading activities and from owning equity in or sponsoring any private equity funds or hedge funds (or certain other private issuing entities). The activities of CMS Energy and its subsidiaries (including EnerBank) have not been and are not expected to be materially affected by the Volcker Rule; however, they are restricted from engaging in proprietary trading, investing in third‑party hedge or private equity funds (and certain other private issuing entities), and sponsoring these funds (and entities) in the future unless CMS Energy qualifies for an exemption from the rule. CMS Energy and its subsidiaries are also subject to certain ongoing compliance requirements pursuant to the regulations. CMS Energy cannot predict the full impact of the Volcker Rule, including any impact resulting from changes to implementing regulations, on CMS Energy’s or EnerBank’s operations or financial condition.
All companies that directly or indirectly control an FDIC-insured bank are required to serve as a source of financial strength for that institution. As a result, CMS Energy could be called upon by the FDIC to infuse additional capital into EnerBank to the extent that EnerBank fails to satisfy its capital requirements. In addition, CMS Energy is contractually required (i) to make cash capital contributions to EnerBank in the event that EnerBank does not maintain required minimum capital ratios and (ii) to provide EnerBank
financial support, in an amount and duration as may be necessary for EnerBank to meet the cash needs of its depositors and other operations.
In addition, the Dodd-Frank Act provides for regulation by the Commodity Futures Trading Commission of certain commodity-related contracts. Although CMS Energy, Consumers, EnerBank, and certain subsidiaries of CMS EnterprisesNorthStar Clean Energy qualify for an end-user exception from mandatory clearing of commodity-related swaps, these regulations could affect the ability of these entities to participate in these markets and could add additional regulatory oversight over their contracting activities.
CMS Energy and Consumers could incur substantial costs to comply with environmental requirements.
CMS Energy and Consumers are subject to costly and stringent environmental regulations that will likely require additional significant capital expenditures for CCR disposal and storage, cooling water intake equipment, effluent treatment, and PCB remediation. In addition, regulatory action on PFAS at the state and/or federal level could cause CMS Energy and Consumers to further test and remediate some sites if PFAS is present at certain levels. Present and reasonably anticipated state and federal environmental statutes and regulations will continue to have a material effect on CMS Energy and Consumers.
CMS Energy and Consumers have interests in fossil-fuel-fired power plants, and other types of power plants, and natural gas systems that produceemit greenhouse gases. Federal, state, and statelocal environmental laws and rules, as well as international accords and treaties, could require CMS Energy and Consumers to install additional equipment for emission controls, undertake heat-rate improvement projects, purchase carbon emissions allowances, curtail operations, invest in generating capacity with fewer carbon dioxide emissions, or take other significant steps to manage or lower the emission of greenhouse gases. Similarly,
Consumers could be restricted from constructing natural gas infrastructure due to potential environmental regulations, which could require more costly alternatives.
The following risks related to climate change, emissions, and environmental regulations could also have a material adverse impact on CMS Energy and Consumers:
•a change in regulators’ implementation of policy or litigation originated by third parties against CMS Energy or Consumers due to CMS Energy’s or Consumers’ greenhouse gas or other emissions or CCR disposal and storage
•impairment of CMS Energy’s or Consumers’ reputation due to their greenhouse gas or other emissions and public perception of their response to potential environmental regulations, rules, and legislation
•extreme weather conditions, such as severe storms or flooding, that may affect customer demand, company operations, or assetscompany infrastructure
Consumers retired seven smaller coal-fueled electric generating units in 2016. Consumers may encounter environmental conditions that will need to be addressed in a timely fashion with state and federal environmental regulators as facilities and equipment on these sites are taken out of service.
Consumers expects to collect fully from its customers, through the ratemaking process, expenditures incurred to comply with environmental regulations, but cannot guarantee this outcome. If Consumers were unable to recover these expenditures from customers in rates, CMS Energy or Consumers could be required to seek significant additional financing to fund these expenditures.
For additional information regarding compliance with environmental regulations, see Item 1. Business—CMS Energy and Consumers Environmental Strategy and Compliance and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook—Consumers Electric Utility Outlook and Uncertainties and Consumers Gas Utility Outlook and Uncertainties.Outlook.
CMS Energy’s and Consumers’ businesses could be affected adversely by any delay in meeting environmental requirements.
A delay or failure by CMS Energy or Consumers to obtain or maintain any necessary environmental permits or approvals to satisfy any applicable environmental regulatory requirements or install emission or pollution control equipment could:
•prevent the construction of new facilities
•prevent the continued operation of and sale of energy from existing facilities
•prevent the suspension of operations at existing facilities
•prevent the modification of existing facilities
•result in significant additional costs
CMS Energy and Consumers expect to incur additional substantial costs related to remediation of legacy environmental sites.
Consumers expects to incur additional substantial costs related to the remediation of its former MGP sites and other response activity costs at a number of other sites, including, but not limited to, sites of retired coal-fueled electric generating units, under NREPA and CERCLA. Consumers believes these costs should be recoverable in rates, but cannot guarantee that outcome.
Business/Operations Risks
There are risks associated with Consumers’ substantial capital investment program planned for the next ten years.
Consumers’ planned investments include the construction or acquisition of electric generation, electric and gas infrastructure, conversions and expansions, environmental controls, electric grid modernization
technology, and other electric and gas investments to upgrade delivery systems, as well as decommissioning of older facilities. The success of these capital investments depends on or could be affected by a variety of factors that include, but are not limited to:
•effective pre-acquisition evaluation of asset values, future operating costs, potential environmental and other liabilities, and other factors beyond Consumers’ control
•effective cost and schedule management of new capital projects
•availability of qualified construction personnel, both internal and contracted
•changes in commodity and other prices, applicable tariffs, and/or material and equipment availability
•governmental approvals and permitting
•operational performance
•changes in environmental, legislative, and regulatory requirements
•regulatory cost recovery
•inflation of labor rates
•increases in lead times and disruptions in supply chain distribution
•barriers to accessing key materials for renewable projects (solar, battery, and other key equipment) created by geopolitical relations and U.S. relations with China
It is possible that adverse events associated with these factors could have a material adverse effect on Consumers.
CMS Energy and Consumers could be affected adversely by legacy litigation and retained liabilities.
The agreements that CMS Energy and Consumers enter into for the sale of assets customarily include provisions whereby they are required to:
•retain specified preexisting liabilities, such as for taxes, pensions, or environmental conditions
•indemnify the buyers against specified risks, including the inaccuracy of representations and warranties that CMS Energy and Consumers make
•make payments to the buyers depending on the outcome of post-closing adjustments, litigation, audits, or other reviews, including claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions
Many of these contingent liabilities can remain open for extended periods of time after the sales are closed. Depending on the extent to which the buyers might ultimately seek to enforce their rights under these contractual provisions, and the resolution of any disputes concerning them, there could be a material adverse effect on CMS Energy’s or Consumers’ liquidity, financial condition, and results of operations.
In 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that, in connection with the sale, CMS Energy owes $152 million in taxes, plus substantial penalties and interest that could be up to or exceed the amount of the taxes claimed. In 2015, the matter was proceeding to formal arbitration; however, since then, the government of Equatorial Guinea has stopped communicating. CMS Energy has concluded that the government’s tax claim is without merit and will continue to contest the claim, but cannot predict the financial impact or outcome of the matter.
Consumers is exposed to risks related to general economic conditions in its service territories.
Consumers’ electric and gas utility businesses are affected by the economic conditions impacting the customers they serve. If the Michigan economy becomes sluggish or declines, Consumers could experience reduced demand for electricity or natural gas that could result in decreased earnings and cash flow. In addition, economic conditions in Consumers’ service territory affect its collections of accounts receivable and levels of lost or stolen gas.
Consumers is exposed to changes in customer usage that could impact financial results.
Technology advances, government incentives and subsidies, and recent regulatory decisions could increase the cost effectiveness of customer-owned methods of producing electricity and managing energy use resulting in reduced load, cross subsidization, and increased costs.
Customers could also reduce their consumption through demand-side energy conservation and energy waste reduction programs. Similarly, customers could also reduce their consumption of natural gas through alternative technologies or fuels.
CMS Energy’s and Consumers’ energy sales and operations are affected by seasonal factors and varying weather conditions from year to year.
CMS Energy’s and Consumers’ utility operations are seasonal. The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment, while peak demand for natural gas typically occurs in the winter due to colder temperatures and the resulting use of natural gas as heating fuel. Accordingly, CMS Energy’s and Consumers’ overall results may fluctuate substantially on a seasonal basis. Mild temperatures during the summer cooling season and winter heating season as well as the impact of extreme weather events on Consumers’ system could have a material adverse effect.
CMS Energy and Consumers are subject to information security risks, risks of unauthorized access to their systems, and technology failures.
In the regular course of business, CMS Energy and Consumers handle a range of sensitive confidential security and customer information. In addition, CMS Energy and Consumers operate in a highly regulated industry that requires the continued operation of sophisticated information and control technology systems and network infrastructure. Despite implementation of security measures, technology systems, including disaster recovery and backup systems, are vulnerable to failure, cyber crime, unauthorized access, and being disabled. These events could impact the reliability of electric generation and electric and gas delivery and also subject CMS Energy and Consumers to financial harm. Cyber crime, which includes the use of malware, computer viruses, and other means for disruption or unauthorized access against companies, including CMS Energy and Consumers, is increasing in frequency, scope, and potential impact. While CMS Energy and Consumers have not been subject to cyber crime incidents that have had a material impact on their operations to date, their security measures in place may be insufficient to prevent a major cyber incident in the future. If technology systems, including disaster recovery and backup systems, were to fail or be breached, CMS Energy and Consumers might not be able to fulfill critical business functions, and sensitive confidential and proprietary data could be compromised. In addition, because CMS Energy’s and Consumers’ generation, transmission, and distribution systems are part of an interconnected system, a disruption caused by a cyber incident at another utility, electric generator, system operator, or commodity supplier could also adversely affect CMS Energy or Consumers.
A variety of technological tools and systems, including both company-owned ITinformation technology and technological services provided by outside parties, support critical functions. The failure of these technologies, including backup systems, or the inability of CMS Energy and Consumers to have these technologies supported, updated, expanded, or integrated into other technologies, could hinder their business operations. A breach or failure
CMS Energy’s and Consumers’ businesses have liability risks.
Consumers’ electric and gas delivery systems, power plants, gas infrastructure including storage facilities, wind energy or solar equipment, and energy products, and the independent power plants owned in whole or in part by CMS Energy could be involved in incidents, failures, or accidents that result in injury, loss of life, or property loss to customers, employees, or the public. Although CMS Energy and Consumers have insurance coverage for many potential incidents (subject to deductibles, limitations, and self-insurance amounts that could be material), depending upon the nature or severity of any incident, failure, or accident, CMS Energy or Consumers could suffer financial loss, reputational damage, and negative repercussions from regulatory agencies or other public authorities.
CMS Energy and Consumers are subject to risks that are beyond their control, including but not limited to natural disasters, civil unrest, terrorist attacks and related acts of war, cyber incidents, vandalism, and other catastrophic events.
Natural disasters, severe weather, wars, terrorist acts, civil unrest, vandalism, theft, cyber incidents, pandemics, and other catastrophic events could result in severe damage to CMS Energy’s and Consumers’ assets beyond what could be recovered through insurance policies (which are subject to deductibles, limitations, and limits)self-insurance amounts that could be material), could require CMS Energy and Consumers to incur significant upfront costs, and could severely disrupt operations, resulting in loss of service to customers. There is also a risk that regulators could, after the fact, conclude that Consumers’ preparedness or response to such an event was inadequate and take adverse actions as a result.
Energy risk management strategies might not be effective in managing fuel and electricity pricing risks, which could result in unanticipated liabilities to CMS Energy and Consumers or increased volatility in their earnings.
CMS Energy and Consumers are exposed to changes in market prices for commodities including, but not limited to, natural gas, coal, electric capacity, electric energy, emission allowances, gasoline, diesel fuel, and RECs. CMS Energy and Consumers manage commodity price risk using established policies and procedures, and they may use various contracts to manage this risk, including swaps, options, futures, and forward contracts. No assurance can be made that these strategies will be successful in managing CMS Energy’s and Consumers’ risk or that they will not result in net liabilities to CMS Energy or Consumers as a result of future volatility.
A substantial portion of Consumers’ operating expenses for its electric generating plants and vehicle fleet consists of the costs of obtaining these commodities. The contracts associated with Consumers’ fuel for electric generation and purchased power are executed in conjunction with the PSCR mechanism, which is designed to allow Consumers to recover prudently incurred costs associated with its positions in these commodities. If the MPSC determined that any of these contracts or related contracting policies were imprudent, recovery of these costs could be disallowed.
Natural gas prices in particular have been historically volatile. Consumers routinely enters into contracts for natural gas to mitigate exposure to the risks of demand, market effects of weather, and changes in commodity prices associated with the gas distribution business. These contracts are executed in conjunction with the GCR mechanism, which is designed to allow Consumers to recover prudently incurred costs associated with its natural gas positions. If the MPSC determined that any of these contracts or related contracting policies were imprudent, recovery of these costs could be disallowed.
CMS Energy and Consumers do not always hedge any or all of the exposure of their operations from commodity price volatility. Furthermore, the ability to hedge exposure to commodity price volatility depends on liquid commodity markets. As a result, to the extent the commodity markets are illiquid,
CMS Energy and Consumers might not be able to execute their risk management strategies, which could result in larger unhedged positions than preferred at a given time. To the extent that unhedged positions exist, fluctuating commodity prices could have a negative effect on CMS Energy and Consumers. Changes in laws that limit CMS Energy’s and Consumers’ ability to hedge could also have a negative effect on CMS Energy and Consumers.
Consumers might not be able to obtain an adequate supply of natural gas or coal, which could limit its ability to operate its electric generation facilities or serve its natural gas customers.
Consumers has natural gas and coal supply and transportation contracts in place for the natural gas and coal it requires for its electric generating capacity. Consumers also has interstate transportation and supply agreements in place to facilitate delivery of natural gas to its customers. Apart from the contractual and monetary remedies available to Consumers in the event of a counterparty’s failure to perform under any of these contracts, there can be no assurances that the counterparties to these contracts will fulfill their obligations to provide natural gas or coal to Consumers. The counterparties under the agreements could experience financial or operational problems that inhibit their ability to fulfill their obligations to Consumers. In addition, counterparties under these contracts might not be required to supply natural gas or coal to Consumers under certain circumstances, such as in the event of a natural disaster or severe weather.
If Consumers were unable to obtain its supply requirements, it could be required to purchase natural gas or coal at higher prices, or implement its natural gas curtailment program filed with the MPSC.MPSC, or purchase replacement power at higher prices.
Unplanned outages or maintenance could be costly for CMS Energy or Consumers.
Unforeseen outages or maintenance of the electric and gas delivery systems, power plants, gas infrastructure including storage facilities and compression stations, wind energy or solar equipment, and energy products owned in whole or in part by CMS Energy or Consumers may be required for many reasons. When unplanned outages occur, CMS Energy and Consumers will not only incur unexpected maintenance expenses, but may also have to make spot market purchases of electric and gas commodities that may exceed CMS Energy’s or Consumers’ expected cost of generation or gas supply, be forced to curtail services, or retire a given asset if the cost or timing of the maintenance is not reasonable and prudent. Unplanned generator outages could reduce the capacity credit CMS Energy or Consumers receives from MISO and could cause CMS Energy or Consumers to incur additional capacity costs in future years.
The COVID-19 pandemic could materially and adversely affect each of CMS Energy’s and Consumers’ business, results of operations, financial condition, capital investment program, liquidity, and cash flows.
The COVID‑19 pandemic has had widespread impacts on people, businesses, economies, and financial markets globally, in the U.S., and in markets where CMS Energy and Consumers conduct business. Future impacts of the pandemic could include a prolonged reduction in economic activity, extended disruption to supply chains and operations, and reduced availability of labor and productivity. CMS Energy and Consumers provide essential services, which means that CMS Energy and Consumers must keep employees, who operate facilities or interact with customers, safe and minimize unnecessary risk of exposure to COVID‑19. CMS Energy and Consumers have taken extra precautions in an effort to protect the health of employees working in the field and in CMS Energy’s and Consumers’ facilities. CMS Energy and Consumers have also implemented work-from-home policies where possible. This is an evolving situation; CMS Energy and Consumers will continue to monitor developments and will take additional necessary precautions in order to keep employees, customers, contractors, and communities safe.
The ultimate impact of the COVID‑19 pandemic depends on factors beyond CMS Energy’s and Consumers’ knowledge or control. Consumers has experienced a decline in electric deliveries to commercial and industrial customers and increased uncollectible accounts. Over the long term, the pandemic could have numerous and significant adverse effects on CMS Energy and Consumers. Additionally, EnerBank could experience slower lending growth, higher loan write-offs, and increased loan modifications.
CMS Energy and Consumers cannot predict how the COVID‑19 pandemic will impact CMS Energy and Consumers. The degree to which COVID‑19 will impact CMS Energy and Consumers will depend in part on future developments, including the severity and duration of the outbreak, actions or inactions that may be taken by governmental authorities, and to what extent and when normal economic and operational conditions can resume.
General Risk Factors
The COVID-19 pandemic could materially and adversely affect each of CMS Energy’s and Consumers’ business, results of operations, financial condition, capital investment program, liquidity, and cash flows.
The COVID‑19 pandemic has had widespread impacts on people, businesses, economies, and financial markets globally, in the U.S., and in markets where CMS Energy and Consumers conduct business. These impacts include a reduction in economic activity, disruption to supply chains and operations, increased labor costs, reduced availability of labor, and reduced productivity.
CMS Energy and Consumers are exposed to counterparty risk.
Adverse economic conditions or financial difficulties experienced by counterparties with whom CMS Energy and Consumers do business could impair the ability of these counterparties to pay for
CMS Energy’s and Consumers’ services and/or fulfill their contractual obligations, including performance and payment of damages. CMS Energy and Consumers depend on these counterparties to remit payments and perform contracted services in a timely and adequate fashion. Any delay or default in payment or
performance, including inadequate performance, of contractual obligations could have a material adverse effect on CMS Energy and Consumers.
Volatility and disruptions in capital and credit markets could have a negative impact on CMS Energy’s and Consumers’ lenders, vendors, contractors, suppliers, customers, and other counterparties, causing them to fail to meet their obligations. Adverse economic conditions could also have a negative impact on the loan portfolio of CMS Energy’s banking subsidiary, EnerBank.
CMS Energy and Consumers are exposed to significant reputational risks.
CMS Energy and Consumers could suffer negative impacts to their reputations as a result of operational incidents, violations of corporate policies, regulatory violations, inappropriate use of social media, or other events. Reputational damage could have a material adverse effect and could result in negative customer perception and increased regulatory oversight.
A work interruption or other union actions could adversely affect Consumers.
UnionsAt December 31, 2022, unions represent 4442 percent of Consumers’ employees. Consumers’ union agreements expire in 2025. If these employees were to engage in a strike, work stoppage, or other slowdown, Consumers could experience a significant disruption in its operations and higher ongoing labor costs.
Failure to attract and retain an appropriately qualified workforce could adversely impact CMS Energy’s and Consumers’ results of operations.
In some areas, competition for skilled employees is high and if CMS Energy and Consumers were unable to match skill sets to future needs, they could encounter operating challenges and increased costs. These challenges could include a lack of resources, loss of knowledge, and delays in skill development. Additionally, higher costs could result from the use of contractors to replace employees, loss of productivity, and safety incidents. Failing to train replacement employees adequately and to transfer internal knowledge and expertise could adversely affect CMS Energy’s and Consumers’ ability to manage and operate their businesses.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Descriptions of CMS Energy’s and Consumers’ properties are found in the following sections of Item 1. Business, all of which are incorporated by reference in this Item 2:
•General—CMS Energy
•General—Consumers
•Business Segments—Consumers Electric Utility—Electric Utility Properties
•Business Segments—Consumers Gas Utility—Gas Utility Properties
•Business Segments—Enterprises Segment—NorthStar Clean Energy—Non-Utility Operations and Investments—Independent Power Production
Item 3. Legal Proceedings
For information regarding CMS Energy’s and Consumers’ significant pending administrative and judicial proceedings involving regulatory, operating, transactional, environmental, and other matters, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3,2, Regulatory Matters and Note 4,3, Contingencies and Commitments.
CMS Energy, Consumers, and certain of their affiliates are also parties to routine lawsuits and administrative proceedings incidental to their businesses involving, for example, claims for personal injury and property damage, contractual matters, various taxes, and rates and licensing.
Item 4. Mine Safety Disclosures
Not applicable.
Part II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
CMS Energy
CMS Energy’s common stock is traded on the New York Stock Exchange under the symbol CMS. Market prices for CMS Energy’s common stock and related security holder matters are contained in Item 6. Selected Financial Data, which is incorporated by reference herein. At January 15, 2021,13, 2023, the number of registered holders of CMS Energy’s common stock totaled 28,083,26,227, based on the number of record holders.
For additional information regarding securities authorized for issuance under equity compensation plans, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 13, Stock-Based11, Stock-based Compensation and Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. For additional information regarding dividends and dividend restrictions, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5,4, Financings and Capitalization.
Comparison of Five-year Cumulative Total Return
| | | Five-Year Cumulative Total Return | | Five-Year Cumulative Total Return |
Company/Index | Company/Index | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Company/Index | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
CMS Energy | CMS Energy | | $ | 100 | | | $ | 119 | | | $ | 139 | | | $ | 151 | | | $ | 196 | | | $ | 195 | | CMS Energy | | $ | 100 | | | $ | 108 | | | $ | 141 | | | $ | 140 | | | $ | 154 | | | $ | 154 | |
S&P 500 Index | S&P 500 Index | | 100 | | | 112 | | | 136 | | | 130 | | | 171 | | | 203 | | S&P 500 Index | | 100 | | | 96 | | | 126 | | | 149 | | | 191 | | | 157 | |
Dow Jones Utility Index | | 100 | | | 118 | | | 134 | | | 137 | | | 174 | | | 177 | | |
S&P 400 Utilities Index | S&P 400 Utilities Index | | 100 | | | 127 | | | 141 | | | 151 | | | 173 | | | 149 | | S&P 400 Utilities Index | | 100 | | | 107 | | | 122 | | | 105 | | | 126 | | | 126 | |
These cumulative total returns assume reinvestments of dividends.
Consumers
Consumers’ common stock is privately held by its parent, CMS Energy, and does not trade in the public market.
Issuer Repurchases of Equity Securities
Presented in the following table are CMS Energy’s repurchases of equity securitiescommon stock for the three months ended December 31, 2020:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased1 | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet Be Purchased Under Publicly Announced Plans or Programs |
October 1, 2020 to October 31, 2020 | | 406 | | | $ | 63.78 | | | — | | | — | |
November 1, 2020 to November 30, 2020 | | 235 | | | 63.92 | | | — | | | — | |
December 1, 2020 to December 31, 2020 | | 623 | | | 59.48 | | | — | | | — | |
Total | | 1,264 | | | $ | 61.69 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased1 | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet Be Purchased Under Publicly Announced Plans or Programs |
October 1, 2022 to October 31, 2022 | | 416 | | | $ | 58.26 | | | — | | | — | |
November 1, 2022 to November 30, 2022 | | — | | | — | | | — | | | — | |
December 1, 2022 to December 31, 2022 | | — | | | — | | | — | | | — | |
Total | | 416 | | | $ | 58.26 | | | — | | | — | |
1All of the common shares were repurchased to satisfy the minimum statutory income tax withholding obligation for common shares that have vested under the PISP.Performance Incentive Stock Plan. The value of shares repurchased is based on the market price on the vesting date.
Unregistered Sales of Equity Securities
None.
Item 6. Selected Financial Data
CMS Energy Corporation
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | 2019 | 2018 | 2017 | 2016 |
Operating revenue (in millions) | ($) | 6,680 | | 6,845 | | 6,873 | | 6,583 | | 6,399 | |
Income from equity method investees (in millions) | ($) | 5 | | 10 | | 9 | | 15 | | 13 | |
Net income (in millions) | ($) | 752 | | 682 | | 659 | | 462 | | 553 | |
Income (loss) attributable to noncontrolling interests (in millions) | ($) | (3) | | 2 | | 2 | | 2 | | 2 | |
Net income available to common stockholders (in millions) | ($) | 755 | | 680 | | 657 | | 460 | | 551 | |
Average common shares outstanding (in millions) | | 285.0 | | 283.0 | | 282.2 | | 280.0 | | 277.9 | |
Earnings per average common share | | | | | | |
– Basic | ($) | 2.65 | | 2.40 | | 2.33 | | 1.64 | | 1.99 | |
– Diluted | ($) | 2.64 | | 2.39 | | 2.32 | | 1.64 | | 1.98 | |
Cash provided by operations (in millions) | ($) | 1,276 | | 1,790 | | 1,703 | | 1,705 | | 1,629 | |
Capital expenditures, excluding assets placed under finance lease (in millions) | ($) | 2,317 | | 2,104 | | 2,074 | | 1,665 | | 1,672 | |
Total assets (in millions) | ($) | 29,666 | | 26,837 | | 24,529 | | 23,050 | | 21,622 | |
Long-term debt, excluding current portion (in millions) | ($) | 13,634 | | 11,951 | | 10,615 | | 9,123 | | 8,640 | |
Non‑current portion of finance leases and other financing (in millions) | ($) | 56 | | 76 | | 69 | | 91 | | 110 | |
Cash dividends declared per common share | ($) | 1.63 | | 1.53 | | 1.43 | | 1.33 | | 1.24 | |
Market price of common stock at year-end | ($) | 61.01 | | 62.84 | | 49.65 | | 47.30 | | 41.62 | |
Book value per common share at year-end | ($) | 19.02 | | 17.67 | | 16.78 | | 15.77 | | 15.23 | |
Total employees at year-end | | 8,837 | | 8,789 | | 8,625 | | 7,952 | | 7,800 | |
Electric Utility Statistics | | | | | | |
Sales (billions of kWh) | | 35 | | 37 | | 38 | | 37 | | 38 | |
Customers (in thousands) | | 1,866 | | 1,848 | | 1,831 | | 1,826 | | 1,805 | |
Average sales rate per kWh | (¢) | 11.74 | | 11.64 | | 11.78 | | 11.98 | | 11.63 | |
Gas Utility Statistics | | | | | | |
Sales and transportation deliveries (bcf) | | 360 | | 391 | | 386 | | 352 | | 358 | |
Customers (in thousands)1 | | 1,804 | | 1,793 | | 1,784 | | 1,776 | | 1,772 | |
Average sales rate per mcf | ($) | 7.60 | | 7.44 | | 7.44 | | 7.51 | | 7.31 | |
1Excludes off-system transportation customers.
Consumers Energy Company
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | 2019 | 2018 | 2017 | 2016 |
Operating revenue (in millions) | ($) | 6,189 | | 6,376 | | 6,464 | | 6,222 | | 6,064 | |
Net income (in millions) | ($) | 816 | | 743 | | 705 | | 632 | | 616 | |
Net income available to common stockholder (in millions) | ($) | 814 | | 741 | | 703 | | 630 | | 614 | |
Cash provided by operations (in millions) | ($) | 1,218 | | 1,601 | | 1,449 | | 1,715 | | 1,681 | |
Capital expenditures, excluding assets placed under finance lease (in millions) | ($) | 2,170 | | 2,085 | | 1,822 | | 1,632 | | 1,656 | |
Total assets (in millions) | ($) | 25,399 | | 23,699 | | 22,025 | | 21,099 | | 19,946 | |
Long-term debt, excluding current portion (in millions) | ($) | 7,742 | | 7,048 | | 6,779 | | 5,561 | | 5,253 | |
Non‑current portion of finance leases and other financing (in millions) | ($) | 56 | | 76 | | 69 | | 91 | | 110 | |
Total preferred stock (in millions) | ($) | 37 | | 37 | | 37 | | 37 | | 37 | |
Number of preferred stockholders at year-end | | 922 | | 968 | | 1,017 | | 1,056 | | 1,095 | |
Total employees at year-end | | 8,230 | | 8,253 | | 8,121 | | 7,496 | | 7,366 | |
Electric Utility Statistics | | | | | | |
Sales (billions of kWh) | | 35 | | 37 | | 38 | | 37 | | 38 | |
Customers (in thousands) | | 1,866 | | 1,848 | | 1,831 | | 1,826 | | 1,805 | |
Average sales rate per kWh | (¢) | 11.74 | | 11.64 | | 11.78 | | 11.98 | | 11.63 | |
Gas Utility Statistics | | | | | | |
Sales and transportation deliveries (bcf) | | 360 | | 391 | | 386 | | 352 | | 358 | |
Customers (in thousands)1 | | 1,804 | | 1,793 | | 1,784 | | 1,776 | | 1,772 | |
Average sales rate per mcf | ($) | 7.60 | | 7.44 | | 7.44 | | 7.51 | | 7.31 | |
1Excludes off-system transportation customers.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is a combined report of CMS Energy and Consumers.
Executive Overview
CMS Energy is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility;utility, and NorthStar Clean Energy (formerly known as CMS Enterprises Company), primarily a domestic independent power producer and marketer; and EnerBank, an industrial bank located in Utah.marketer. Consumers’ electric utility operations include the generation, purchase, distribution, and sale of electricity, and Consumers’ gas utility operations include the purchase, transmission, storage, distribution, and sale of natural gas. Consumers’ customer base consists of a mix of primarily residential, commercial, and diversified industrial customers. CMS Enterprises,NorthStar Clean Energy, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production. CMS Energy was also the parent holding company of EnerBank, provides primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements.an industrial bank located in Utah, until October 1, 2021 when EnerBank was acquired by Regions Bank.
CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in fourthree business segments: electric utility; gas utility; enterprises,and NorthStar
Clean Energy, its non‑utility operations and investments; and EnerBank.investments. Consumers operates principally in two business segments: electric utility and gas utility. CMS Energy’s and Consumers’ businesses are affected primarily by:
•regulation and regulatory matters
•state and federal legislation
•economic conditions
•weather
•energy commodity prices
•interest rates
•their securities’ credit ratings
COVID-19 Pandemic
CMS Energy and Consumers continue to respond to the public health emergency caused by the COVID‑19 pandemic by instituting and maintaining measures consistent with guidance provided by local, state, and federal agencies. CMS Energy and Consumers maintain over 60 departmental business continuity plans; these plans were reviewed and enhanced in early 2020 to ensure readiness for the COVID-19 pandemic. CMS Energy and Consumers continue to take steps to protect the safety of employees, customers, and contractors, and have executed their business continuity plans to ensure the continued delivery of critical energy services. Additionally, CMS Energy and Consumers have mitigated the potential impact of the pandemic on their liquidity by completing financing transactions and reducing the need for additional external funding.
The COVID‑19 pandemic is a continually evolving situation. As a result of the pandemic, Consumers has experienced a decline in electric deliveries to commercial and industrial customers, offset partially by an increase in deliveries to residential customers. It has also experienced increased uncollectible accounts and workforce-related expenses, among other cost increases directly attributable to the pandemic. Consumers anticipates that these trends will continue in the near term. In April 2020, the MPSC issued an
order authorizing Consumers to defer incremental uncollectible accounts expense associated with the pandemic.
Additionally, EnerBank anticipates it could experience slower lending growth, higher loan write-offs, and increased loan modifications in the future as a result of the pandemic. The companies cannot predict the long-term impact of the pandemic on their business, results of operations, financial condition, capital investment program, liquidity, and cash flows. More detailed discussion of the near-term impacts of and future uncertainties related to the COVID‑19 pandemic can be found in Item 1A. Risk Factors and throughout this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Triple Bottom Line
CMS Energy’s and Consumers’ purpose is to achieve world class performance while delivering hometown service. In support of this purpose, the companiesCMS Energy and Consumers employ the “Consumers Energy“CE Way,” a lean operating model designed to improve safety, quality, cost, delivery, and employee morale.
CMS Energy and Consumers measure their progress toward the purpose by considering their impact on the “triple bottom line” of people, planet, and profit, which is underpinned by performance; this consideration takes into account not only the economic value that the companiesCMS Energy and Consumers create for customers and investors, but also their responsibility to social and environmental goals. The triple bottom line balances the interests of the companies’ employees, customers, suppliers, regulators, creditors, Michigan’s residents, the investment community, and other stakeholders, and it reflects the broader societal impacts of the companies’CMS Energy’s and Consumers’ activities.
Consumers’CMS Energy’s Environmental, Social, Governance and Sustainability Report, which is available to the public, describes the company’sCMS Energy’s and Consumers’ progress toward world class performance measured in the areas of people, planet, and profit.
People: The people element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to their employees, their customers, the residents of local communities in which the companiesthey do business, and other stakeholders.
The safety of employees, customers, and the general public is a priority of CMS Energy and Consumers. Accordingly, CMS Energy and Consumers have worked to integrate a set of safety principles into their business operations and culture. These principles include complying with applicable safety, health, and security regulations and implementing programs and processes aimed at continually improving safety and security conditions. Over the last ten years, Consumers’ OSHA recordable incident rate has decreased by over 5334 percent.
In response to the COVID-19 pandemic, CMS Energy and Consumers have issued a response plan that is focused on the health, safety, and well-being of their co-workers, customers, and communities. CMS Energy and Consumers have aligned with safety and health guidelines from the CDC, OSHA, and the Michigan Department of Health and Human Services in order to protect their employees, customers,
and contractors to ensure the continued delivery of critical energy services. To align with, and in addition to, these guidelines, CMS Energy and Consumers have:
•secured the supply chain necessary to provide front-line workers with appropriate personal protective equipment and cleaning supplies
•worked with local health departments and hospital systems to begin administering vaccinations to essential front-line employees
•when necessary, sequestered employees with critical roles at generating plants, gas compression facilities, and electric control rooms
•implemented a paid self-quarantine requirement for employees who are exhibiting symptoms of COVID-19 or who have come into contact with a person suspected to have COVID-19
•prohibited business-related international travel and instituted a mandatory ten-day work remote period for employees who return from personal travel to heavily impacted areas
•required employees to work remotely when possible
•when necessary, reduced service at 13 direct payment offices to drop box and drive-through services only
•initially adjusted work to focus on emergent and critical activities such as electric outages, gas leaks, and other public safety and reliability work; as work restrictions have gradually lifted in Michigan, the companies have resumed normal work with safety measures in place
•contracted a chief medical officer to guide the companies’ response and provide rapid support and supplies for the workforce
•limited access to company facilities, enhanced cleaning protocols, and established a mask-wearing policy
•offered additional paid leave to employees to alleviate child care-related burdens and implemented other interim workforce policies to offer flexibility and reduce employee concerns
In response to the pandemic, CMS Energy and Consumers initially suspended shut-offs of service for non-payment and extended payment protection plans for low-income and senior customers. CMS Energy and Consumers slowly began resuming shut-offs of service for non-payment in late July 2020 for commercial and industrial customers and in October 2020 for residential customers. CMS Energy and Consumers remain committed to assisting customers impacted by the pandemic. During 2020, Consumers provided $12 million to help Michigan residents and small businesses who had experienced difficulty paying their energy bill due to the pandemic. Additionally, in December 2020, Consumers donated another $3 million to agencies that provide energy bill assistance to low-income households.
CMS Energy and Consumers also place a high priority on customer value and on providing a hometown customer experience. Consumers’ customer-driven investment program is aimed at improving safety and increasing electric and gas reliability, which has resulted in measurable improvements in customer satisfaction.
Central to Consumers’ commitment to its customers are the initiatives it has undertaken to keep electricity and natural gas affordable, including:
•replacement of coal-fueled generation and PPAs with a cost-efficient mix of renewable energy, less-costly dispatchable generation sources, and energy waste reduction and demand response programs
•targeted infrastructure investment to reduce maintenance costs and improve reliability and safety
•supply chain optimization
•economic development to increase sales and reduce overall rates
•information and control system efficiencies
•employee and retiree health care cost sharing
•workforce productivity enhancements
In addition, Consumers’ gas commodity costs declined by 66 percent from 2010 through 2020, due not onlyWhile CMS Energy and Consumers have experienced some supply chain disruptions and inflationary pressures, they have taken steps to a decrease in market prices but alsomitigate the impact on their ability to Consumers’ improvements to its gas infrastructureprovide safe and optimization of its gas purchasing and storage strategy. These gas commodity savings are passed onreliable service to customers.
Planet: The planet element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to protect the environment. This commitment extends beyond compliance with various state and federal environmental, health, and safety laws and regulations. Management considers climate change and other environmental risks in the companies’ strategy development, business planning, and enterprise risk management processes.
CMS Energy and Consumers continue to focus on opportunities to protect the environment and to reduce their carbon footprint. As a result of actions already taken bythrough 2022, CMS Energy and Consumers the companies have:
•decreased their combined percentage of electric supply (self-generated and purchased) from coal by 2117 percentage points since 2015
•reduced carbon dioxide emissions by over 3530 percent since 2005
•reduced the amount of water used to generate electricity by over 3035 percent since 2012
•reduced landfill waste disposal by over 1.51.7 million tons since 1992
•reduced methane emissions by 17more than 20 percent since 2012
Additionally, over the last 20 years,
Since 2005, Consumers has reduced its sulfur dioxide nitrogen oxide,and particulate matter emissions by over 90 percent and its nitrogen oxides emissions by over 80 percent. Consumers began tracking mercury emissions in 2007; since that time, it has reduced such emissions by overnearly 90 percent. Presented in the following illustration are Consumers’ reductions in these emissions (Consumers began tracking mercury emissions in 2007):emissions:
The 2016 Energy Law:
•raised the renewable energy standard to 12.5 percent in 2019 and 15 percent in 2021; Consumers has met the 12.5-percent15‑percent requirement in 2019 and 2020expects to continue meeting the requirement going forward with a combination of newly generated RECs and previously generated RECs carried over from prior years
•established a goal of 35‑percent combined renewable energy and energy waste reduction by 2025; Consumers has achieved 25 33‑percent combined renewable energy and energy waste reduction through 20202022
•authorized incentives for demand response programs and expanded existing incentives for energy efficiency programs, referring to the combined initiatives as energy waste reduction programs
•established an integrated planning process for new generationcapacity and energy resources
In 2019,Consumers’ Clean Energy Plan details its strategy to meet customers’ long-term energy needs. The Clean Energy Plan was originally outlined in Consumers’ 2018 IRP, which was approved by the MPSC approved the IRP that Consumers filed in 2018, which details its Clean Energy Plan.2019. Under its Clean Energy Plan, Consumers will meet the requirements of the 2016 Energy Law using its clean and lean strategy, which focuses on increasing the generation of renewable energy, helping customers use less energy, and offering demand response programs to reduce demand during critical peak times. Further,
In June 2021, Consumers filed its 2021 IRP with the MPSC, proposing updates to the Clean Energy Plan. In April 2022, Consumers and a broad coalition of key stakeholders, including customer groups, environmental organizations, the MPSC Staff, energy industry representatives, and the Michigan Attorney
General, filed a settlement agreement with the MPSC resolving Consumers’ 2021 IRP. The MPSC approved that settlement agreement in June 2022.
The 2021 IRP outlines Consumers’ long-term strategy for delivering clean, reliable, resilient, and affordable energy to its customers, including plans to replace itsto:
•end the use of coal-fueled generation predominantly within 2025, 15 years sooner than initially planned
•purchase an existing natural gas-fueled generating unit, providing an additional 1,176 MW of nameplate capacity and allowing Consumers to continue providing controllable sources of electricity to customers
•solicit approximately 700 MW of capacity through PPAs from sources able to deliver to Michigan’s Lower Peninsula beginning in 2025
•expand its investment in renewable energy, whichadding nearly 8,000 MW of solar generation by 2040
Under the 2021 IRP, Consumers will enable Consumerscontinue to meet and exceedearn a return equal to its weighted-average cost of capital on payments made under new competitively bid PPAs approved by the 2016 Energy Law renewable energy requirements and fulfill increasing customer demand for renewable energy. MPSC.
The Clean Energy Plan2021 IRP will also allow Consumers to achieve aexceed its breakthrough goal of at least 50‑percent combined renewable energy and energy waste reduction by 2030.
In February 2020, Consumers announced a goal of achieving net-zero carbon emissions from its electric business by 2040. This goal includes not only emissions from Consumers’ owned generation, but also emissions from the generation of power purchased through long-term PPAs and from the MISO energy market. Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040 through execution of its Clean Energy Plan. The remaining emissions will be offset through alternative measures including, but not limited to, carbon sequestration, landfill methane emission capture, and large-scale tree planting.
Presented in the following illustration is Consumers’ 20202021 capacity portfolio and its future capacity portfolio as projected in theunder its 2021 IRP. This illustration includes the effects of purchased capacity and energy waste reduction and uses the nameplate capacity of renewablefor all energy sources:
In September 2020,1 Does not include RECs.
2 These amounts and fuel sources will vary and are dependent on a one-time competitive solicitation to acquire approximately 700 MW of capacity through PPAs from sources able to deliver to Michigan’s Governor signed an executive order creating the Michigan Healthy Climate Plan, which outlines goals for Michigan to achieve economy-wide net-zero greenhouse gas emissions and to be carbon neutral by 2050. The executive order aims for a 28-percent reduction below 2005 levelsLower Peninsula beginning in 2025.
In addition to Consumers’ effortsplan to reduceeliminate its use of coal-fueled generation in 2025, CMS Energy and Consumers have set the electric utility’s carbon footprint, it is also making efforts to reduce the gas utility’s methane footprint. In 2019, Consumers released its Methane Reduction Plan, which set a goal of net-zeronet‑zero emissions goals discussed below.
Net-zero methane emissions from its natural gas delivery system by 2030.2030: Under its Methane Reduction Plan, Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices. The remaining emissions will likely be offset by purchasing and/or producing renewable natural gas.
57Net-zero carbon emissions from electric business by 2040: This goal includes not only emissions from owned generation, but also emissions from the generation of power purchased through long-term PPAs and from the MISO energy market. Consumers expects to meet 90 percent of its customers’ needs with clean energy sources by 2040 through execution of its Clean Energy Plan. New technologies and carbon offset measures including, but not limited to, carbon sequestration, methane emission capture, forest preservation, and reforestation may be used to close the gap to achieving net-zero carbon emissions.
TableNet-zero greenhouse gas emissions target for the entire business by 2050: This goal, announced in March 2022, incorporates greenhouse gas emissions from Consumers’ natural gas delivery system, including suppliers and customers, and has an interim goal of Contentsreducing customer emissions by 20 percent by 2030. Consumers expects to meet this goal through carbon offset measures, renewable natural gas, energy efficiency and demand response programs, and the adoption of cost-effective emerging technologies once proven and commercially available.Additionally, to advance its environmental stewardship in Michigan and to minimize the impact of future regulations, Consumers announced the following five‑year targets during 2018:
•to reduce its water use by one billion gallons; since 2017, Consumers reduced its water usage by over 880 million gallons cumulativelyin 2022:
•to enhance, restore, or protect 5,0006,500 acres of land; since 2017,land by 2026; in 2022, Consumers enhanced, restored, or protected over 4,600700 acres of land cumulatively
•to reduceincrease the amountrate of waste takendiverted from landfills (through waste reduction, recycling, and reuse) to 90 percent from a baseline of 88 percent; in 2022, Consumers’ rate of waste diverted from landfills by 35 percent; compared to 2017, Consumers reduced its waste to landfills by 54was 92 percent in 2020
CMS Energy, through CMS Enterprises, continues to pursue further opportunities for the development of renewable generation projects. In July 2020, CMS Enterprises purchased an ownership interest in Aviator Wind, a 525-MW wind generation project in Coke County, Texas. The project was completed and became operational in September 2020.
CMS Energy and Consumers are monitoring numerous legislative, policy, and regulatory initiatives, including those to regulate and report greenhouse gases, and related litigation. While CMS Energy and Consumers cannot predict the outcome of these matters, which could have a material effect on the companies,affect them materially, they intend to continue to move forward with their clean and lean strategy.
Profit: The profit element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to meeting their financial objectives and providing economic development opportunities and benefits in the communities in which they do business. CMS Energy’s and Consumers’ financial strength allows them to maintain solid investment-grade credit ratings and thereby reduce funding costs for the benefit of customers and investors, to preserve and create jobs, and to reinvest in the communities they serve.
In 2020,2022, CMS Energy’s net income available to common stockholders was $755$827 million, and diluted EPS were $2.64.$2.85. This compares with net income available to common stockholders of $680 million$1.3 billion and diluted EPS of $2.39$4.66 in 2019.2021. In 2020, the2022, higher gas sales due primarily to favorable weather, along with benefits from gas and electric rate increases, and lower operating and maintenance expenses were more than offset partially by higher depreciation and property taxes reflecting higher capital spending, lower gas sales due primarily to unfavorable weather, and higher donations.the absence of the 2021 gain on the sale of EnerBank. A more detailed discussion of the factors affecting CMS Energy’s and Consumers’ performance can be found in the Results of Operations section that follows this Executive Overview.
Consumers has experienced a decline in electric deliveries to commercial and industrial customers as a result
Over the next five years, Consumers expects weather-normalized electric and gas deliveries to remain relatively stable relativecompared to 2020.2022. This outlook reflects the effects of energy waste reduction programs offset largely by modest growth in electric and gas demand.
Performance: Impacting the Triple Bottom Line
CMS Energy and Consumers remain committed to achieving world class performance while delivering hometown service and positively impacting the triple bottom line of people, planet, and profit. During 2020,2022, CMS Energy and Consumers:
•realizedsettled and received approval of Consumers’ 2021 IRP, gas rate case, and electric rate case, demonstrating the constructive nature of Michigan’s regulatory environment
•partnered with state and federal agencies to secure over $100 million in cost reductions by leveraging the Consumers Energy Way and through other initiativesof customer assistance to help keep customer bills affordable
•named a Chief Diversity Officer responsible for setting and monitoring the companies’ diversity, equity, and inclusion strategycommitted to power over 1,200 Michigan public buildings with 100‑percent clean energy
•completedreached an agreement with General Motors Company, a 90-mile gas pipeline construction projectnon-affiliated company, to upgrade gas pipelines and infrastructure throughout three Michigan countiespower all of its auto plants within Consumers’ electric service territory with 100‑percent clean energy
•announced a new parental leave policythe “Clean Air” program for employees, allowing six months of paid leaveresidential and business customers who want to mothersoffset carbon emissions from their natural gas use and four months of paid leave to a nonbirthing parenthelp protect the planet’s atmosphere
•pledgedinstalled five new units at the Freedom Compressor Station, continuing progress toward achieving Consumers’ Natural Gas Delivery Plan, making its gas system even more safe, reliable, affordable, and clean
•participated in the state’s economic development efforts that resulted in Gotion, Inc., a non‑affiliated global battery components producer, committing to join five other energy companiesconstruct a manufacturing facility in facilitatingBig Rapids, Michigan
•received recognition as #1 utility company in the construction of a Midwest electric vehicle charging networkU.S. for America’s Best Employers for Women and America’s Best Employers for Diversity by Forbes®
CMS Energy and Consumers will continue to utilize the Consumers EnergyCE Way to enable them to achieve world class performance and positively impact the triple bottom line. Consumers’ investment plan and the regulatory environment in which it operates also drive its ability to impact the triple bottom line.
Investment Plan: Consumers expects to make capital investments of $25 billion over the next ten years. Over the next five years, Consumers expects to make significant expenditures on infrastructure upgrades, and replacements, and electric supply projects.clean generation. While it has a large number of potential investment opportunities that would add customer value, Consumers has prioritized its spending based on the criteria of enhancing public safety, increasing reliability, maintaining affordability for its customers, and advancing its environmental stewardship. Consumers’ investment program is expected to result in annual rate-base growth of six to eightover seven percent. This rate-base growth, together with cost-control measures, should allow Consumers to maintain affordable customer prices.
Presented in the following illustration are planned capital expenditures of $13.2$15.5 billion that Consumers expects to make from 20212023 through 2025:2027:
Of this amount, Consumers plans to spend $10.0$12.4 billion over the next five years to primarily maintain and upgrade its gas infrastructure and electric distribution systems in order to enhance safety and reliability, improve customer satisfaction, reduce energy waste on those systems, and facilitate its clean energy transition.transformation. The gas infrastructure projects comprise $5.3$6.3 billion to sustain deliverability, enhance pipeline integrity and safety, and reduce methane emissions. The electricElectric distribution and other projects comprise $4.7$6.1 billion to strengthen circuits and substations, replace poles, and interconnect clean energy resources. Consumers also expects to spend $2.4$3.1 billion for newon clean generation, which includes investments in wind, solar, and hydro electric generation resources, and $0.8 billion for other electric supply projects. In response to the COVID‑19 pandemic, Consumers has rescheduled some capital investment projects, but has not made any changes to its long-term capital investment program at this time.resources.
Regulation: Regulatory matters are a key aspect of Consumers’ business, particularly rate cases and regulatory proceedings before the MPSC, which permit recovery of new investments while helping to ensure that customer rates are fair and affordable. Important regulatory events and developments not already discussed are summarized below.
•20192021 Gas Rate Case: In December 2019,2021, Consumers filed an application with the MPSC seeking an annual rate increase of $245$278 million, based on a 10.5 percent10.5-percent authorized return on equity and afor the projected twelve-month period ending September 30, 2021.2023. In May 2020, Consumers reduced its requested annual rate increase to $229 million. In September 2020,July 2022, the MPSCapproved a settlement agreement authorizing an annual rate increase of $144$170 million, based on a 9.9 percent9.9-percent authorized return on equity. As part of that agreement, Consumers agreed not to file a new gas rate case prior to December 2021.equity, effective October 1, 2022. The MPSC also approved the continuation of a revenue decoupling mechanism, which annually reconciles Consumers’ actual weather-normalized non-fuel revenues with the revenues approved by the MPSC.approved.
•2020 Electric2022 Gas Rate Case:In February 2020,December 2022, Consumers filed an application with the MPSC seeking an annual rate increase of $244$212 million, based on a 10.5 percent10.25-percent authorized return on equity for the projected twelve-month period ending September 30, 2024. The filing requests authority to recover new infrastructure investment and related costs that are expected to allow Consumers to improve system safety and reliability and reduce fugitive methane emissions.
2022 Electric Rate Case: In April 2022, Consumers filed an application with the MPSC seeking a rate increase of $272 million, based on a 10.25-percent authorized return on equity for the projected twelve-month period ending December 31, 2021.2023. In July 2020,September 2022, Consumers reducedrevised its requested annual rate increase to $230$292 million. The filing requested authority to recover future investments associated with distribution system reliability, solar generation, environmental compliance, and enhanced technology.
In December 2020,January 2023, the MPSC approved a settlement agreement authorizing an annual rate increase of $90$155 million, based on a 9.9 percent9.9-percent authorized return on equity. This increase reflectsThe MPSC also approved a $36 million refund to customers of regulatory tax liabilities associated with the remeasurement of Consumers’ deferred income taxes as a result of the TCJA; excluding the impacts of this refund, the order resulted in a $126 million increase in annual rates. The order also approvedsurcharge for the recovery of $13$6 million associated with Consumers’ deferral of depreciation, and property tax, and interest expense andrelated to distribution investments made in 2021 that exceeded what was authorized in rates in accordance with the overallDecember 2020 electric rate of return on distribution-related capital investments exceeding certain threshold amounts. Additionally, the order approved the method of recovering amounts earned under the financial compensation mechanism approved by the MPSC in Consumers’ IRP. This mechanism allows Consumers to earn a return on payments made under PPAs approved by the MPSC after January 1, 2019.order.
Looking Forward
CMS Energy and Consumers will continue to consider the impact on the triple bottom line of people, planet, and profit in their daily operations as well as in their long-term strategic decisions. Consumers will continue to seek fair and timely regulatory treatment that will support its customer-driven investment plan, while pursuing cost-control measures that will allow it to maintain sustainable customer base rates. The Consumers EnergyCE Way is an important means of realizing CMS Energy’s and Consumers’ purpose of achieving world class performance while delivering hometown service.
Results of Operations
CMS Energy Consolidated Results of Operations
| In Millions, Except Per Share Amounts | In Millions, Except Per Share Amounts | In Millions, Except Per Share Amounts |
| Years Ended December 31 | Years Ended December 31 | | 2020 | 2019 | 2018 | Years Ended December 31 | | 2022 | 2021 | Change | |
Net Income Available to Common Stockholders | Net Income Available to Common Stockholders | | | $ | 755 | | | $ | 680 | | | $ | 657 | | Net Income Available to Common Stockholders | | | $ | 827 | | | $ | 1,348 | | | $ | (521) | | |
Basic Earnings Per Average Common Share | Basic Earnings Per Average Common Share | | | $ | 2.65 | | | $ | 2.40 | | | $ | 2.33 | | Basic Earnings Per Average Common Share | | | $ | 2.85 | | | $ | 4.66 | | | $ | (1.81) | | |
Diluted Earnings Per Average Common Share | Diluted Earnings Per Average Common Share | | | $ | 2.64 | | | $ | 2.39 | | | $ | 2.32 | | Diluted Earnings Per Average Common Share | | | $ | 2.85 | | | $ | 4.66 | | | $ | (1.81) | | |
| In Millions | In Millions | In Millions |
| Years Ended December 31 | Years Ended December 31 | | 2020 | 2019 | Change | 2019 | 2018 | Change | Years Ended December 31 | | 2022 | 2021 | Change | |
Electric utility | Electric utility | | | $ | 554 | | | $ | 509 | | | $ | 45 | | | $ | 509 | | | $ | 535 | | | $ | (26) | | Electric utility | | | $ | 567 | | | $ | 565 | | | $ | 2 | | |
Gas utility | Gas utility | | | 261 | | | 233 | | | 28 | | | 233 | | | 169 | | | 64 | | Gas utility | | | 378 | | | 302 | | | 76 | | |
Enterprises | | | 36 | | | 33 | | | 3 | | | 33 | | | 34 | | | (1) | | |
EnerBank | | | 58 | | | 49 | | | 9 | | | 49 | | | 38 | | | 11 | | |
NorthStar Clean Energy | | NorthStar Clean Energy | | | 34 | | | 23 | | | 11 | | |
Corporate interest and other | Corporate interest and other | | | (154) | | | (144) | | | (10) | | | (144) | | | (119) | | | (25) | | Corporate interest and other | | | (156) | | | (144) | | | (12) | | |
Discontinued operations | | Discontinued operations | | | 4 | | | 602 | | | (598) | | |
Net Income Available to Common Stockholders | Net Income Available to Common Stockholders | | | $ | 755 | | | $ | 680 | | | $ | 75 | | | $ | 680 | | | $ | 657 | | | $ | 23 | | Net Income Available to Common Stockholders | | | $ | 827 | | | $ | 1,348 | | | $ | (521) | | |
Amounts in the following tables are presented pre-tax, with the exception of income tax changes.
Presented in the following table are specific after-taxis a summary of changes to net income available to common stockholders for 20202022 versus 2019:2021:
| | | | | | | | | | | | | | | | | | | | | |
In Millions |
| | | |
Year Ended December 31, 20192021 | | | | | | | | | $ | 6801,348 | |
Reasons for the change | | | | | | | | | |
Consumers electric utility and gas utility | | | | | | | | | |
Electric sales | | | | | | | $ | 16 (38) | | | |
Gas sales | | | | | | | (39)89 | | | |
Electric rate increase including return on higher renewable capital spending | | | | | | | 1935 | | | |
Gas rate increase | | | | | | | 10554 | | | |
Lower distribution, transmission, generation, and compressionnon-operating retirement benefits expenses | | | | | | | 2140 | | | |
Lower corporate and IT expenses | | 20 income tax expense | | | |
Lower OPEB expenses | | 19 | | | |
Lower service restoration costs | | 16 | | | |
Gain on sale of electric transmission assets in 2020, net of voluntary gain sharingVoluntary revenue refunds, including one-time bill credit commitment1
| | | | | | | 10 (37) | | | |
Higher interest charges | | | | | | | (24) | | | |
Higher property taxes, reflecting higher capital spending | | | | | | | (23) | | | |
Higher depreciation and amortization | | | | | | | (36)(11) | | | |
Higher donations | | (22)other maintenance and operating expenses | | | |
Voluntary revenue refund2
| | | (21)(7) | | | |
Higher property tax, reflecting higher capital spending | | (21)Other | | | |
Absence of 2019 gain on sale of electric transmission assets, net of voluntary gain sharing | | | (13)(16) | | | |
| | | | |
Other | | (1) | | | |
| | | | $ | 7378 | |
EnterprisesNorthStar Clean Energy | | | | 3 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
EnerBank | | | | 911 | |
| | | | |
| | | | |
| | | | |
Corporate interest and other | | | | | | | | | (10)(12) | |
Discontinued operations | | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | (598) | |
Year Ended December 31, 20202022 | | | | | | | | | $ | 755827 | |
1See Note 3, Regulatory Matters and Note 22, Asset Sale and Exit Activities.
2,See Note 3, Regulatory Matters.
Consumers Electric Utility Results of Operations
Presented in the following table are the detailed changes to the electric utility’s net income available to common stockholders for 20202022 versus 2019 (amounts are presented pre-tax, with the exception of income tax changes):2021:
| | | | | | | | | | | | | | | | | | | | | |
In Millions |
| | | |
Year Ended December 31, 20192021 | | | | | | | | | $ | 509565 | |
Reasons for the change | | | | | | | | | |
Electric deliveries1 and rate increases | | | | | | | | | |
Rate increase, including return on higher renewable capital spending | | $ | 26 | | | |
Higher sales due primarily to favorable weather and sales mix, offset partially by lower deliveries to commercial and industrial customers | | 24$ | 35 | | | |
Higher energy waste reduction program revenues | | | | | | | 1927 | | | |
Voluntary revenue refundrefunds, including one-time bill credit commitment2 | | | | | | | (16)(29) | | | |
Lower revenue due primarily to weather and sales mix | | | | | | | (15) | | | |
Lower other revenues | | | | | | | (6)(23) | | | |
| | | | | | | | | $ | 47 (5) | |
Maintenance and other operating expenses | | | | | | | | | |
Lower service restoration costs | | 21 | | | |
Lower corporate and IT expenses | | 1755 | | | |
Gain on saleAbsence of transmission assets in 2020, net of voluntary gain sharing2021 fleet write-down and other asset impairments32
| | 14 | | | |
Lower distribution, transmission, and generation expenses | | 13 | | | |
Higher mutual insurance distribution | | 734 | | | |
Higher energy waste reduction program costs | | | | | | | (19)(27) | | | |
Absence of 2019 gain on sale of transmission assets, net of voluntary gain sharingHigher vegetation management costs | | | | | | | (17)(15) | | | |
Absence of favorable 2019 litigation settlementHigher distribution, transmission, and generation expenses | | | | | | | (8)(13) | | | |
Retention benefits related to D.E. KarnHigher uncollectible accounts expense4
| | | | | | | (10)(6) | | | |
Higher demand response costs | | | | | | | (7) | | | |
Voluntary separation plan expenses | | | | | | | (6)(7) | | | |
Voluntary assistance to vulnerable customers2 | | | | | | | (5) | | | |
LowerHigher other maintenance and other operating expenses | | | | | | | 13 (19) | | | |
| | | | | | | | | 25 (10) | |
Depreciation and amortization | | | | | | | | | |
Increased plant in service, reflectingLower depreciation rates, offset partially by higher capital spending | | | | | | | | | (26)15 | |
| | | | | | | | | |
General taxes | | | | | | | | | |
Higher property tax,taxes, reflecting higher capital spending, and other | | | | | | | | | (12)(13) | |
| | | | | | | | | |
| | | | | | | | | |
Other income, net of expenses | | | | |
Lower OPEB expenses | | 13 | | | |
Higher donations | | (19)Lower non-operating retirement benefits expenses | | | |
Higher other income, net of expenses | | | 226 | | | |
| | | | | | | | | |
(4)Lower other income, net of expenses | | | | | | | (7) | | | |
| | | | | | | | | 19 | |
Interest charges | | | | | | | | | (4)(12) | |
Income taxes | | | | |
Lower tax expense due primarily to research and development tax credits5
| | 7 | | | | 8 | |
Higher production tax credits attributable primarily to Cross Winds® Energy Park
| | 7 | | | |
Higher electric utility pre-tax earnings | | (7) | | | |
Lower other income taxes | | 12 | | | |
| | | | 19 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Year Ended December 31, 20202022 | | | | | | | | | $ | 554567 | |
1Deliveries to end-use customers were 35.437.3 billion kWh in 20202022 and 36.836.2 billion kWh in 2019.2021.
2See Note 3,2, Regulatory Matters.
3See Note 3, Regulatory Matters and Note 22, Asset Sale and Exit Activities.
4See Note 22, Asset Sale and Exit Activities.
5See Note 14, Income Taxes.
Consumers Gas Utility Results of Operations
Presented in the following table are the detailed changes to the gas utility’s net income available to common stockholders for 20202022 versus 2019 (amounts are presented pre-tax, with the exception of income tax changes):2021:
| | | | | | | | | | | | | | | | | | | | | |
In Millions |
| | | |
Year Ended December 31, 20192021 | | | | | | | | | $ | 233302 | |
Reasons for the change | | | | | | | | | |
Gas deliveries1 and rate increases | | | | | | | | | |
Favorable weather and sales mix | | | | | | | $ | 92 | | | |
Rate increase | | $ | | | | | 14154 | | | |
Lower sales due primarily to unfavorable weatherHigher energy waste reduction program revenues | | | | | | | (73)17 | | | |
Voluntary revenue refund2 | | (12) | | | |
Disallowance of incremental gas purchased during the Ray Compressor Station fire3
| | (7)(8) | | | |
Lower energy waste reduction programother revenues | | (3) | | | |
Higher other revenues | | | 20 (3) | | | |
| | | | | | | | | $ | 66152 | |
Maintenance and other operating expenses | | | | | | | | | |
Lower distribution, transmission,Absence of 2021 fleet write-down and compression expensesother asset impairments2
| | | | | | | 1511 | | | |
Lower corporate and IT expenses | | 10 | | | |
LowerHigher energy waste reduction program costs | | | | | | | (17) | | | |
Higher uncollectible accounts expense | | | | | | | (12) | | | |
Ray Compressor Station impairment3 | | | | | | | (10) | | | |
Voluntary assistance to vulnerable customers2 | | | | | | | (5) | | | |
Voluntary separation plan expenses | | | | | | | (4) | | | |
Lower maintenanceHigher distribution, transmission, and compression expenses, and other operating expenses | | | | | | | 3 (3) | | | |
| | | | | | | | | |
| | | | | | | | | 27 (40) | |
Depreciation and amortization | | | | | | | | | |
Increased plant in service, reflecting higher capital spending | | | | | | | | | (22)(26) | |
General taxes | | | | | | | | | |
Higher property tax,taxes, reflecting higher capital spending | | (16) | | | |
Lower other general taxes | | 2 | | | |
| | | | (14) | |
Other income, net of expenses | | | | |
Lower OPEB expenses | | 12 | | | |
Higher donationsLower non-operating retirement benefits expenses | | | | | | | (11)14 | | | |
Lower other income, net of expenses | | | | | | | (4)(6) | | | |
| | | | | | | | | (3)8 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Interest charges | | | | | | | | | (19)(12) | |
Income taxes | | | | | | | | | |
Lower income tax expense due primarily to accelerated amortization of excess deferred income taxes and tax benefits associated with cost of removal4 | | | | | | | 25 | | | |
| | | | | | | | | |
Higher gas utility pre-tax earnings | | (7) | | | |
Lower tax expense due primarily to research and development tax credits4
| | 1 | | | |
Higher other income taxes | | (1)(17) | | | |
| | | | | | | | | |
| | | | | | | | | (7)8 | |
Year Ended December 31, 20202022 | | | | | | | | | $ | 261378 | |
1Deliveries to end-use customers were 283315 bcf in 20202022 and 313282 bcf in 2019.2021.
2See Note 3,2, Regulatory Matters.
3See Note 3, Contingencies and Commitments.
4See Note 12, Income Taxes.
3See Note 4, Contingencies and Commitments—Consumers Gas Utility Contingencies.
4See Note 14, Income Taxes.
EnterprisesNorthStar Clean Energy Results of Operations
Presented in the following table are the detailed after-tax changes to the enterprises segment’sNorthStar Clean Energy’s net income available to common stockholders for 20202022 versus 2019:2021:
| | | | | | | | | | | | | | | | | | | | | |
In Millions |
| | | |
Year Ended December 31, 20192021 | | | | | | | | | $ | 3323 | |
Reason for the change | | | | |
Higher earnings due primarily to improved receivables management and DIG operations | | | | $ | 11 | |
Income tax benefit due to restoring previously sequestered alternative minimum tax credits1
| | | | 4 | |
Absence of 2019 gain on sale of transmission equipment | | | | (12) | |
| | | | |
Year Ended December 31, 2020Higher earnings from renewable wind projects | | | | $ | 36 | |
1See Note 14, Income Taxes.
EnerBank Results of Operations
Presented in the following table are the detailed after-tax changes to EnerBank’s net income available to common stockholders for 2020 versus 2019:
| | | | | | | | | $ | 10 | |
Higher earnings at DIG, offset partially by lower earnings from equity method investees | | | | | |
In Millions |
Year Ended December 31, 2019 | | | | $ | 496 | |
Reason for the changeHigher income taxes, due primarily to higher earnings | | | | |
Higher earnings due primarily to growth in consumer lending | | | | $ | 25 | |
Implementation of new credit losses standard1
| | | | (16)(5) | |
Year Ended December 31, 20202022 | | | | | | | | | $ | 5834 | |
1See Note 2, New Accounting Standards.
Corporate Interest and Other Results of Operations
Presented in the following table are the detailed after-tax changes to corporate interest and other results for 20202022 versus 2019:2021:
| | | | | | | | | | | | | | | | | | | | | |
In Millions |
| | | |
Year Ended December 31, 20192021 | | | | | | | | | $ | (144) | |
Reasons for the change | | | | | | | | | |
Absence of 2019 accrual for legacy legal obligation2021 reduction in state tax liabilities | | | | | | | | | $ | 22 | |
Income tax benefit due to restoring previously sequestered alternative minimum tax credits1
| | | | 5 (7) | |
Higher fixed charges due to higher debtpreferred stock dividends | | | | | | | | | (16)(5) | |
Loss on early extinguishment of debtLower income tax benefit | | | | (12) | |
Absence of 2019 tax benefits recognized as a result of asset sales | | | | (4)(2) | |
Other | | | | | | | | | (5)2 | |
Year Ended December 31, 20202022 | | | | | | | | | $ | (154)(156) | |
1See Note 14, Income Taxes.
For detailed after-tax changes to corporate interest and other’s net income available to common stockholders for 2019 versus 2018, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—ResultsDiscontinued Operations
Presented in the following table are the detailed changes to discontinued operations for 2022 versus 2021:
| | | | | | | | | | | | | | | | | | | | | |
In Millions |
| | | |
Year Ended December 31, 2021 | | | | | | | | | $ | 602 | |
Reason for the change | | | | | | | | | |
Additional EnerBank sale proceeds, net of tax and transaction costs | | | | | | | | | $ | 4 | |
Absence of 2021 EnerBank sale proceeds, net of tax and transaction costs | | | | | | | | | (514) | |
Absence of 2021 earnings from discontinued operations, net of tax | | | | | | | | | (88) | |
Year Ended December 31, 2022 | | | | | | | | | $ | 4 | |
Cash Position, Investing, and Financing
At December 31, 2020,2022, CMS Energy had $185$182 million of consolidated cash and cash equivalents, which included $18 million of restricted cash and cash equivalents. At December 31, 2022, Consumers had $60 million of consolidated cash and cash equivalents, which included $17 million of restricted cash and cash equivalents. At
For specific components of net cash provided by operating activities, net cash used in investing activities, and net cash provided by (used in) financing activities for 2021 versus 2020, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cash Position, Investing, and Financing, in theForm 10‑K for the fiscal year ended December 31, 2020, Consumers had $35 million of consolidated cash and cash equivalents, which included $15 million of restricted cash and cash equivalents.2021, filed February 10, 2022. Operating Activities
Presented in the following table are specific components of net cash provided by operating activities for 20202022 versus 2019:2021:
| | | | | | | | |
In Millions |
CMS Energy, including Consumers | | |
Year Ended December 31, 20192021 | | $ | 1,7901,819 | |
Reasons for the change | | |
Lower net income | | $ | (517) | |
Non‑cash transactions1 | | (143) | |
| | |
Absence of gain from 2021 sale of EnerBank2 | | 652 | |
Absence of cash used in discontinued operations in 20212 | | 111 | |
Unfavorable impact of changes in core working capital,3 due primarily to gas purchased at higher prices and underrecovery of power supply costs4 | | (1,080) | |
Favorable impact of changes in other assets and liabilities | | 13 | |
Year Ended December 31, 2022 | | $ | 855 | |
Consumers | | |
Year Ended December 31, 2021 | | $ | 1,982 | |
Reasons for the change | | |
Higher net income | | 70$ | 77 | |
Non‑cash transactions1 | | 135 (4) | |
Higher contributions to postretirement benefit plans, primarily to pension plans | | (702) | |
FavorableUnfavorable impact of changes in core working capital,23 due primarily to extended payment terms for vendors in 2020gas purchased at higher prices and higher vendor payments in 2019, offset partially by lower customer receipts due to lower electric and gas deliveriesunderrecovery of power supply costs4
| | 50 (1,063) | |
UnfavorableFavorable impact of changes in other assets and liabilities due primarily to higher property tax payments, a payment to settle litigation, and higher energy waste reduction spending in excess of collections, offset partially by the absence of 2019 refunds to customers related to the TCJA and self-implemented electric rates | | (67)2 | |
Year Ended December 31, 20202022 | | $ | 1,276 | |
Consumers | | |
Year Ended December 31, 2019 | | $ | 1,601 | |
Reasons for the change | | |
Higher net income | | 73 | |
Non‑cash transactions1
| | 194 | |
Higher contributions to postretirement benefit plans, primarily to pension plans | | (683) | |
Favorable impact of changes in core working capital,2 due primarily to extended payment terms for vendors in 2020 and higher vendor payments in 2019, offset partially by lower customer receipts due to lower electric and gas deliveries
| | 40 | |
Unfavorable impact of changes in other assets and liabilities, due primarily to higher property tax payments and higher energy waste reduction spending in excess of collections, offset partially by lower income taxes payments to CMS Energy and the absence of 2019 refunds to customers related to the TCJA and self-implemented electric rates | | (7) | |
Year Ended December 31, 2020 | | $ | 1,218994 | |
1Non‑cash transactions comprise depreciation and amortization, changes in deferred income taxes and investment tax credits, bad debt expense, and other non‑cash operating activities and reconciling adjustments.
2For information regarding the sale of EnerBank, see Note 19, Exit Activities and Discontinued Operations.
3Core working capital comprises accounts receivable, notes receivable, accrued revenue, inventories, accounts payable, and accrued rate refunds.
4For information regarding the underrecovery of power supply costs, see Note 2, Regulatory Matters.
Investing Activities
Presented in the following table are specific components of net cash used in investing activities for 20202022 versus 2019:2021:
| | | | | | | | |
In Millions |
CMS Energy, including Consumers | | |
Year Ended December 31, 20192021 | | $ | (2,816)(1,233) | |
Reasons for the change | | |
Higher capital expenditures | | (213)$ | |
Changes in EnerBank notes receivable, reflecting growth in consumer lending | | (256) | |
Lower purchases of notes receivable by EnerBank | | 326 (298) | |
| | |
| | |
| | |
| | |
HigherAbsence of net proceeds from sale of EnerBank notes receivable in 2020
| | 130 | |
Lower proceeds from sale of transmission equipment in 202020211
| | (39)(893) | |
| | |
Absence of cash provided by discontinued operations in 20211 | | (78) | |
Other investing activities, primarily higher proceeds from the sale of assets, offset partially by higher costs to retire property | | 126 | |
Year Ended December 31, 20202022 | | $ | (2,867)(2,476) | |
Consumers | | |
Year Ended December 31, 20192021 | | $ | (2,137)(2,185) | |
Reasons for the change | | |
Higher capital expenditures | | (85)$ | |
DB SERP investment in note receivable – related party | | (5) | |
Lower proceeds from sale of transmission equipment in 20201
| | (19)(187) | |
| | |
Other investing activities, primarily higher proceeds from the sale of assets, offset partially by higher costs to retire property | | 28 | |
Year Ended December 31, 20202022 | | $ | (2,246)(2,344) | |
1SeeFor information regarding the sale of EnerBank, see Note 22, Asset Sale19, Exit Activities and Exit ActivitiesDiscontinued Operations.
Financing Activities
Presented in the following table are specific components of net cash provided by (used in) financing activities for 20202022 versus 2019:2021:
| | | | | | | | |
In Millions |
CMS Energy, including Consumers | | |
Year Ended December 31, 20192021 | | $ | 1,008 (295) | |
Reasons for the change | | |
Higher debt issuances | | 1,028 $ | |
Higher debt retirements | | (725)1,564 | |
Lower borrowings of certificates of deposit at EnerBankdebt retirements | | (215)129 | |
| | |
Higher repayments under Consumers’ commercial paper programborrowings of notes payable | | (83)20 | |
Higher issuances of common stock primarily the settlement of equity forward sale contracts | | 241 43 | |
Issuance of preferred stock in 2021 | | (224) | |
Higher payments of dividends on common and preferred stock | | (31)(37) | |
Higher debt prepayment costs | | (51) | |
Proceeds from the sale of membership interest in VIE to tax equity investor1 | | 41749 | |
ContributionHigher contributions from noncontrolling interest | | 311 | |
Absence of cash used in discontinued operations in 20212 | | 84 | |
Other financing activities, primarily the payment of a long-term contract liability, offset partially by the collection of customer advances for construction | | (1)(7) | |
Year Ended December 31, 20202022 | | $ | 1,6191,327 | |
Consumers | | |
Year Ended December 31, 20192021 | | $ | 508212 | |
Reasons for the change | | |
Higher debt issuances | | 961$ | 1,464 | |
Higher debt retirements | | (545)(1) | |
Higher borrowings of notes payable | | 20 | |
Higher repayments under Consumers’ commercial paper program | | (83) | |
Borrowingsof borrowings from CMS Energy | | 307 (402) | |
LowerHigher stockholder contribution from CMS Energy | | (25)110 | |
Higher payments of dividends on common stock | | (45)(47) | |
Higher debt prepayment costs | | (35) | |
Other financing activities, primarily higher debt issuance coststhe collection of customer advances for construction | | (8)10 | |
Year Ended December 31, 20202022 | | $ | 1,0351,366 | |
1For specific componentsinformation regarding the sale of net cash provided by financing activities for 2019 versus 2018,a membership interest to a tax equity investor, see Item 7. Management’s DiscussionNote 18, Variable Interest Entities.
Capital Resources and Liquidity
CMS Energy and Consumers expect to have sufficient liquidity to fund their present and future commitments. CMS Energy uses dividends and tax-sharing payments from its subsidiaries and external financing and capital transactions to invest in its utility and non‑utility businesses, retire debt, pay dividends, and fund its other obligations. The ability of CMS Energy’s subsidiaries, including Consumers, to pay dividends to CMS Energy depends upon each subsidiary’s revenues, earnings, cash needs, and other factors. In addition, Consumers’ ability to pay dividends is restricted by certain terms included in its debt covenants and articles of incorporation and potentially by FERC requirements and provisions under the Federal Power
Act and the Natural Gas Act. For additional details on Consumers’ dividend restrictions, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5,4, Financings and Capitalization—Dividend Restrictions. ForDuring the year ended December 31, 2020,2022, Consumers paid $637$769 million in dividends on its common stock to CMS Energy.
Consumers uses cash flows generated from operations and external financing transactions, as well as stockholder contributions from CMS Energy, to fund capital expenditures, retire debt, pay dividends, and fund its other obligations. Consumers also uses these sources of funding to contribute to its employee benefit plans.
CMS EnergyFinancing and Consumers expect to have sufficient liquidity to fund their commitments despite potential material uncertainties that may impact their cash management and financing strategies as a result of the COVID‑19 pandemic.Capital Resources: CMS Energy and Consumers rely on the capital markets to fund their robust capital plan and those markets have faced significant strain. CMS Energy and Consumers have mitigated the potential impact of the pandemic on their liquidity by completing financing transactions and reducing the need for additional external funding. For more information on CMS Energy’s and Consumers’ financing transactions, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5, Financings and Capitalization.
plan. Barring any sustained market dislocations or disruptions, CMS Energy and Consumers expect to continue to have ready access to the financial and capital markets and will continue to explore possibilities to take advantage of market opportunities as they arise with respect to future funding needs. If access to these markets were to diminish or otherwise become restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending.
In January 2023, Consumers entered into a bond purchase agreement to issue an aggregate principal amount of $400 million of first mortgage bonds through a private placement offering. The COVID‑19 pandemic isbonds, which were priced in November 2022, carry a continually evolving situationweighted average interest rate of 5.251 percent and CMS Energymature at varying dates between 2026 and Consumers cannot predict the ultimate impact it will have on their debt covenants, business, results of operations, financial condition, capital investment program, liquidity, and cash flows.
CMS Energy will make a change in method of tax accounting in its 2020 tax return to take advantage of IRS tax guidance that allows certain costs to maintain, replace, or improve electric assets2037. The bonds are expected to be deducted as repairsissued in May 2023. The proceeds of the bonds will be used to finance a portion of the purchase price of the New Covert Generating Facility and for taxgeneral corporate purposes. For more information on the purchase of the New Covert Generating Facility, see Consumers Electric Utility Outlook and Uncertainties — Clean Energy Plan.
Also in January 2023, Consumers issued $425 million of first mortgage bonds that mature in March 2028 and bear interest at a rate of 4.650 percent. The proceeds of the bonds have been used to repay a portion of the $1.0 billion aggregate principal amount outstanding under Consumers’ term loan credit agreement and for general corporate purposes. For more information on Consumers’ recent financing activities, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Financings and Capitalization.
Under this guidance, the costs can be deducted immediately rather than capitalized and depreciated over a 20-year period. This change will allow CMS Energy to claim accelerated one-time federal tax deductions of approximately $975 million upon initial adoption, with favorable ongoing annual deductions thereafter, placing CMS Energy in a net operating loss carryforward position until 2023.
In 2020, CMS Energy entered into an existing equity offering program, under which itCMS Energy may sell shares of its common stock having an aggregate sales price of up to $500 million in privately negotiated transactions, in “at the market” offerings, through forward sales transactions, or otherwise.
CMS Energy has entered into forward sales transactions under this program, which allow CMS Energy to either physically settle the contracts by issuing shares of its common stock at the then-applicable forward sale price specified by the agreement or net settle the contracts through the delivery or receipt of cash or
shares. CMS Energy may settle the contracts at any time through their maturity dates, and presently intends to physically settle the contracts by delivering shares of its common stock.
As of December 31, 2022, these contracts have an aggregate sales price of $439 million, maturing through February 2024. For more information on these forward sale contracts, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5,4, Financings and Capitalization—Issuance of Common Stock.
At December 31, 2020,2022, CMS Energy had $532 million of its revolving credit facility available and Consumers had $1.1$1.3 billion available under its revolving credit facilities. CMS Energy and Consumers use these credit facilities for general working capital purposes and to issue letters of credit. An additional source of liquidity is Consumers’ commercial paper program, which allows Consumers to issue, in one or more placements, up to $500 million in the aggregate inprincipal amount of commercial paper notes with
maturities of up to 365 days at market interest rates. These issuances are supported by Consumers’ revolving credit facilities. While the amount of outstanding commercial paper does not reduce the available capacity of the revolving credit facilities, Consumers does not intend to issue commercial paper in an amount exceeding the available capacity of the facilities. At December 31, 2020,2022, there were no$20 million of commercial paper notes outstanding under this program. For additional details on CMS Energy’s and Consumers’ secured revolving credit facilities and commercial paper program, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5, Financings and Capitalization.
Certain of CMS Energy’s and Consumers’ credit agreements contain covenants that require CMS Energy and Consumers to maintain certain financial ratios, as defined therein. At December 31, 2020,2022, no default had occurred with respect to any financial covenants contained in CMS Energy’s and Consumers’ credit agreements. CMS Energy and Consumers were each in compliance with these covenants as of December 31, 2020,2022, as presented in the following table:
| | | | | | | | |
Credit Agreement | Limit | Actual |
CMS Energy, parent only | | |
Debt to Capital1 | < 0.70 to 1.0 | 0.58 to 1.0 |
Consumers | | |
Debt to Capital2 | < 0.65 to 1.0 | 0.490.50 to 1.0 |
1Applies to CMS Energy’s revolving credit agreement and letter of credit reimbursement agreement, and a term loan credit agreement. In April 2020, amendments to these agreements changed the required financial covenant fromagreement of a leverage ratio to a capitalization ratio.subsidiary of NorthStar Clean Energy.
2Applies to Consumers’ revolving credit agreements and letterterm loan agreement.
Material Cash Requirements: Based on the present investment plan, during 2023, Consumers projects capital expenditures of credit agreement.$3.7 billion. Additionally, CMS Energy’s other material cash requirements for 2023 include $3.2 billion of purchase obligations and $1.7 billion of principal and interest payments on long-term debt. Consumers’ other material cash requirements for 2023 comprise $3.0 billion of purchase obligations and $1.4 billion of principal and interest payments on long-term debt.
Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing and refinancing opportunities. CMS Energy’s and Consumers’ present level of cash and expected cash flows from operating activities, together with access to sources of liquidity, are anticipated to be sufficient to fund the companies’ contractual obligations and other material cash requirements for 20212023 and beyond.
CMS Energy is also required both by law
Capital Expenditures: Over the next five years, Consumers expects to make substantial capital investments. Consumers may revise its forecast of capital expenditures periodically due to a number of factors, including environmental regulations, MPSC approval or disapproval, business opportunities, market volatility, economic trends, and by contractthe ability to provide financial support,access capital. Presented in the following table are Consumers’ estimated capital expenditures, including infusing additional capital, to ensure that EnerBank satisfies mandated capital requirements and has sufficient liquidity to operate. With its self-funding plan, EnerBank has exceeded these requirements historically and exceeded them as of December 31, 2020. In addition, EnerBank has access to contingent funding sources, including the Discount Window and a $50 million uncommitted federal funds line of credit. Each month, EnerBank pledges a subset of its eligible loans to the Federal Reserve to ensure a seamlesslease commitments, for 2023 through 2027:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Billions |
| 2023 | 2024 | 2025 | 2026 | 2027 | Total |
| | | | | | | | | | | | |
Consumers | | | | | | | | | | | | |
Electric utility operations | | $ | 2.5 | | | $ | 1.6 | | | $ | 1.9 | | | $ | 1.6 | | | $ | 1.6 | | | $ | 9.2 | |
Gas utility operations | | 1.2 | | | 1.3 | | | 1.3 | | | 1.3 | | | 1.2 | | | 6.3 | |
Total Consumers | | $ | 3.7 | | | $ | 2.9 | | | $ | 3.2 | | | $ | 2.9 | | | $ | 2.8 | | | $ | 15.5 | |
| | | | | | | | | | | | |
borrowing capability should the need arise. At December 31, 2020, there were no outstanding borrowings under EnerBank’s contingent funding sources.
Contractual Obligations:Other Material Cash Requirements: Presented in the following table are CMS Energy’s and Consumers’ material cash obligations from known contractual obligations. The table excludes all amounts classified as current liabilities on CMS Energy’s and Consumers’ consolidated balance sheets, other than the current portion of long-term debt, leases, and other financing.legal obligations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions |
| Payments Due |
December 31, 2020 | Total | Less Than One Year | One to Three Years | Three to Five Years | More Than Five Years |
CMS Energy, including Consumers | | | | | | | | | | |
Long-term debt | | $ | 15,272 | | | $ | 1,486 | | | $ | 1,748 | | | $ | 1,493 | | | $ | 10,545 | |
Interest payments on long-term debt | | 12,563 | | | 499 | | | 962 | | | 880 | | | 10,222 | |
Finance leases and other financing | | 183 | | | 36 | | | 40 | | | 30 | | | 77 | |
Operating leases | | 52 | | | 10 | | | 6 | | | 2 | | | 34 | |
AROs | | 1,971 | | | 43 | | | 62 | | | 50 | | | 1,816 | |
Deferred investment tax credit | | 115 | | | 5 | | | 10 | | | 10 | | | 90 | |
Environmental liabilities | | 118 | | | 7 | | | 40 | | | 19 | | | 52 | |
Long-term payables | | 37 | | | 6 | | | 23 | | | 3 | | | 5 | |
Purchase obligations | | | | | | | | | | |
Total PPAs | | 8,898 | | | 1,057 | | | 1,522 | | | 1,516 | | | 4,803 | |
Other1 | | 3,179 | | | 1,391 | | | 1,136 | | | 370 | | | 282 | |
Total contractual obligations | | $ | 42,388 | | | $ | 4,540 | | | $ | 5,549 | | | $ | 4,373 | | | $ | 27,926 | |
Consumers | | | | | | | | | | |
Long-term debt | | $ | 8,197 | | | $ | 364 | | | $ | 682 | | | $ | 363 | | | $ | 6,788 | |
Interest payments on long-term debt | | 6,677 | | | 281 | | | 559 | | | 522 | | | 5,315 | |
Finance leases and other financing | | 183 | | | 36 | | | 40 | | | 30 | | | 77 | |
Operating leases | | 43 | | | 8 | | | 6 | | | 2 | | | 27 | |
AROs | | 1,908 | | | 43 | | | 62 | | | 50 | | | 1,753 | |
Deferred investment tax credit | | 115 | | | 5 | | | 10 | | | 10 | | | 90 | |
Environmental liabilities | | 61 | | | 3 | | | 32 | | | 11 | | | 15 | |
Purchase obligations | | | | | | | | | | |
PPAs | | | | | | | | | | |
MCV PPA | | 2,815 | | | 349 | | | 698 | | | 705 | | | 1,063 | |
Palisades PPA | | 517 | | | 398 | | | 119 | | | — | | | — | |
Related-party PPAs2 | | 318 | | | 58 | | | 116 | | | 97 | | | 47 | |
Other PPAs | | 5,248 | | | 252 | | | 589 | | | 714 | | | 3,693 | |
Total PPAs | | $ | 8,898 | | | $ | 1,057 | | | $ | 1,522 | | | $ | 1,516 | | | $ | 4,803 | |
Other1 | | 2,605 | | | 1,333 | | | 984 | | | 284 | | | 4 | |
Total contractual obligations | | $ | 28,687 | | | $ | 3,130 | | | $ | 3,897 | | | $ | 2,788 | | | $ | 18,872 | |
| | | | | | | | | | | | | | |
In Billions |
| Payments Due |
December 31, 2022 | Less Than One Year | Total |
CMS Energy, including Consumers | | | | |
Long-term debt | | $ | 1.1 | | | $ | 14.4 | |
Interest payments on long-term debt | | 0.6 | | | 13.2 | |
Purchase obligations | | 3.2 | | | 12.5 | |
AROs | | — | | | 2.7 | |
Total obligations | | $ | 4.9 | | | $ | 42.8 | |
Consumers | | | | |
Long-term debt | | $ | 1.0 | | | $ | 10.3 | |
Interest payments on long-term debt | | 0.4 | | | 7.8 | |
Purchase obligations | | 3.0 | | | 11.9 | |
AROs | | — | | | 2.6 | |
Total obligations | | $ | 4.4 | | | $ | 32.6 | |
1Long-termPurchase obligations arise from long-term contracts for the purchase of commodities and related services, plant purchase commitments, and construction and service agreements. The commodities and related services include long-term PPAs, natural gas and associated transportation, and coal and associated transportation.
2Long-term PPAs from certain affiliates of For more information on CMS Enterprises.
CMS EnergyEnergy’s and Consumers also have recognized non‑current liabilities for which the timing of payments cannot be reasonably estimated. These items, which are excluded from the table above, include regulatory liabilities, deferred income taxes, workers’ compensation liabilities, accrued liabilities under renewable energy programs, and other liabilities. Retirement benefits are also excluded from the table above. For details related to benefit payments,Consumers’ purchase obligations, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12, Retirement Benefits.3, Contingencies and Commitments—Contractual Commitments.
Off-Balance-Sheet Arrangements:CMS Energy, Consumers, and certain of their subsidiaries enter into various arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include indemnities, surety bonds, letters of credit, and financial and performance guarantees. Additionally, CMS Energy has entered into forward sales contracts to sell its common stock in order to invest in its utility and non-utility businesses; as of December 31, 2020, these contracts have an aggregate sales price of $58 million, maturing through 2022. For additional details on the companies’ indemnity and guarantee arrangements, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4,3, Contingencies and Commitments—Guarantees. For additional details on letters of credit and CMS Energy’s forward sales contracts, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5,4, Financings and Capitalization.
Capital Expenditures: Over the next five years, Consumers expect to make substantial capital investments. Consumers may revise its forecasts of capital expenditures periodically due to a number of factors, including environmental regulations, business opportunities, market volatility, economic trends, and the ability to access capital. Presented in the following table are Consumers’ estimated capital expenditures, including lease commitments, for 2021 through 2025:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Billions |
| 2021 | 2022 | 2023 | 2024 | 2025 | Total |
Consumers | | | | | | | | | | | | |
Electric utility operations | | $ | 1.4 | | | $ | 1.8 | | | $ | 1.6 | | | $ | 1.5 | | | $ | 1.6 | | | $ | 7.9 | |
Gas utility operations | | 1.1 | | | 1.2 | | | 1.1 | | | 1.0 | | | 0.9 | | | 5.3 | |
Total Consumers | | $ | 2.5 | | | $ | 3.0 | | | $ | 2.7 | | | $ | 2.5 | | | $ | 2.5 | | | $ | 13.2 | |
Outlook
Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and results of operations. These trends and uncertainties could have a material impact on CMS Energy’s and Consumers’ consolidated income, cash flows, or financial position. For additional details regarding these and other uncertainties, see Forward-Looking Statements and Information; Item 1A. Risk Factors; and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3,2, Regulatory Matters;Matters and Note 4,3, Contingencies and Commitments.
Consumers Electric Utility Outlook and Uncertainties
Clean Energy Plan: In 2019, the MPSC approved the IRP that Consumers filed in 2018, which details its Clean Energy Plan. Through itsConsumers’ Clean Energy Plan Consumers expectsdetails its strategy to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040meet customers’ long-term energy needs and eliminate the use of coal to generate electricity by 2040. The Clean Energy Plan provides the foundation for Consumers’its goal to achieve net-zero carbon emissions from its electric business by 2040. Under this net-zero goal, Consumers plans to eliminate the impact of carbon
emissions created by the electricity it generates or purchases for customers. Additionally, through its Clean Energy Plan, Consumers is requiredcontinues to file a newmake progress on expanding its customer programs, namely its demand response, energy efficiency, and conservation voltage reduction programs, as well as increasing its renewable energy and pumped storage generation.
The Clean Energy Plan was originally outlined in Consumers’ 2018 IRP, which was approved by the MPSC in 2019. In June 2021.
Specifically,2021, Consumers filed its 2021 IRP with the MPSC, proposing updates to the Clean Energy PlanPlan. In April 2022, Consumers and a broad coalition of key stakeholders, including customer groups, environmental organizations, the MPSC Staff, energy industry representatives, and the Michigan Attorney General, filed a settlement agreement with the MPSC resolving Consumers’ 2021 IRP. The MPSC approved that settlement agreement in June 2022.
Under its 2021 IRP, Consumers will eliminate the use of coal-fueled generation in 2025 and expects to meet 90 percent of its customers’ needs with clean energy sources by 2040. Specifically, the 2021 IRP provides for:
•the retirement of the D.E. Karn 1 & 2 coal-fueled generating units, totaling 460515 MW of nameplate capacity, in 2023
•the potential retirement of the J.H. Campbell 1 & 2 coal-fueled generating units, totaling 5401,407 MW of nameplate capacity, in 2025
•the retirement of the D.E. Karn oil and gas-fueled generating units, totaling 1,219 MW of nameplate capacity, in 2031, or earlierthe units’ original retirement date
The MPSC has authorized Consumers to issue securitization bonds to finance the recovery of and return on the D.E. Karn coal-fueled generating units. Under the 2021 IRP, Consumers will receive regulatory asset treatment to recover the remaining book value of the J.H. Campbell coal-fueled generating units, as well as a 9.0‑percent return on equity, commencing in 2025.
Under the Clean Energy Plan,2021 IRP, Consumers will replacebridge the capacity to be retiredtransition away from coal generation with:
•increased demand response programsthe purchase of the New Covert Generating Facility, a natural gas-fueled generating unit with 1,176 MW of nameplate capacity in Van Buren County, Michigan, for $815 million, subject to certain adjustments, in 2023; the purchase was approved by FERC in November 2022
•increased energy efficiencya one-time competitive solicitation to acquire approximately 700 MW of capacity through PPAs from sources able to deliver to Michigan’s Lower Peninsula beginning in 2025; of this amount, 500 MW would be from dispatchable sources
•increasedThese actions are expected to allow Consumers to continue providing controllable sources of electricity to customers while expanding its investment in renewable energy. The 2021 IRP forecasts renewable energy generationcapacity levels of 30 percent in 2025, 43 percent in 2030, and 61 percent in 2040, including the addition of nearly 8,000 MW of solar generation. Additionally, the 2021 IRP will accelerate Consumers’ deployment of battery storage from 2030 to 2024, with 75 MW of energy storage by 2027 and an additional 475 MW by 2040.
•conservation voltage reduction
•increased pumped storage
Under its 2021 IRP, Consumers will competitivelycontinue to bid new capacity competitively and at leastwill own and operate approximately 50 percent of the new capacity, will bewith the remainder being built and owned by third parties;parties. Additionally, Consumers will continue to earn a return equal to its weighted-average cost of capital on payments made under new competitively bid PPAs approved by the remainder will be owned and operated by Consumers.MPSC.
As a result of the 2019 requestrequests for proposals, in December 2020, Consumers has entered into a 25-year PPA under which it willPPAs to purchase 140 MW of renewable capacity, energy, and RECs from a solar generating facilityfacilities and build transfer agreements to be constructedpurchase solar generating facilities. Presented in Calhoun County, Michigan.the following illustration is the aggregate renewable capacity that Consumers expects to add to its portfolio as a result of these agreements:
In support of its 2021 IRP, Consumers issued a request for proposals in September 2022 to acquire approximately 700 MW of capacity through PPAs from sources able to deliver to Michigan’s Lower Peninsula beginning in 2025. Specifically, Consumers solicited offers to acquire 500 MW of capacity from dispatchable sources and 200 MW of capacity from intermittent resources and dispatchable, non-intermittent clean capacity resources (including battery storage resources).
In March 2022, the U.S. Department of Commerce announced it is opening inquiries into whether manufacturers of solar modules that are produced in certain countries using supplies obtained from China are circumventing antidumping and countervailing duties which apply to Chinese modules. The facilityU.S. Department of Commerce has made an initial determination that four manufacturers have circumvented tariffs. The remainder of this inquiry process is expected to be operationalcontinue through at least the first half of 2023. In June 2022, the Biden Administration paused for two years the imposition of duties that might result from the U.S. Department of Commerce’s pending inquiries. In addition, the Uyghur Forced Labor Prevention Act, which was enacted in 2022. Also,December 2021 and became effective in January 2021, Consumers entered intoJune 2022, along with an agreement to purchaseearlier withhold release order that U.S. Customs and Border Protection issued in mid-2021, restrict the importation of goods sourced from the Xinjiang region of China. Solar modules whose raw materials come from the Xinjiang region are a solar generating facility under development in Michigan, with capacity of up to 150 MW. Consumers expects to take full ownership and begin commercial operation of the project in 2022. Bothkey focus of these agreements are subjectimport laws. Consumers continues to MPSC approval.closely monitor these matters and their potential impacts on availability of solar modules and timing associated with pending and planned solar projects.
Renewable Energy Plan: The 2016 Energy Law raised the renewable energy standard to 15 percent in 2021, with an interim target of 12.5 percent in 2019. Consumers met the interim target for 2019 and demonstrated its compliance in the 2019 renewable energy cost reconciliation that the MPSC approved in February 2021. Consumers is required to submit RECs, which represent proof that the associated electricity was generated from a renewable energy resource, in an amount equal to at least the required percentage15 percent of Consumers’ electric sales volume each year. Under its renewable energy plan, Consumers has met the 15‑percent
requirement and expects to meet its renewable energycontinue meeting the requirement each yeargoing forward with a combination of newly generated RECs and previously generated RECs carried over from prior years.
Under Consumers’ renewable energy plan, the MPSC has approved the acquisition of up to 525 MW of new wind generation projects and authorized Consumers to earn a 10.7‑percent return on equity on any projects approved by the MPSC. Specifically, the MPSC has approved the following:
•purchase and construction of a 150-MW150‑MW wind generation project in Gratiot County, Michigan; the project became operational and Consumers took full ownership in December 2020
•purchase of a 166‑MW wind generation project in Hillsdale, Michigan; the project became operational and Consumers took full ownership in February 2021
•purchase of a wind generation project under development, with capacity of up to 166201 MW, in Hillsdale,Gratiot County, Michigan; Consumers expects to take full ownership and begin commercial operation of the project in early 20212023
In December 2020, Consumers entered into an agreement to purchase a wind generation project under development, with capacity of up to 201 MW, in Gratiot County, Michigan. Consumers expects to take full ownership and begin commercial operation of the project in 2022. The agreement is subject to MPSC approval.
The MPSC also approved the execution of a 20-year PPA under which Consumers will purchase 100 MW of renewable capacity, energy, and RECs from a 149-MW149‑MW solar generating facility to be constructed in Calhoun County, Michigan; the facility is expectedtargeted to be operational in 2022.2024.
Voluntary Large Customer Renewable Energy Program: Consumers provides service under a program that provides large full-service electric customers with the opportunity to advance the development of renewable energy beyond the requirements of the 2016 Energy Law. In September 2021, the MPSC approved Consumers’ request to amend its renewable energy plan to remove the annual subscription limit associated with this program. The MPSC also approved up to 1,000 MW of new wind and solar generation projects between 2024 and 2027 to meet customer demand for the program. Consumers will competitively solicit for additional renewable energy assets based on customer applications and will construct the assets based on customer subscriptions to the program.
Electric Customer Deliveries and Revenue: Consumers’ electric customer deliveries are seasonal and largely dependent on Michigan’s economy. The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment. In addition, Consumers’ electric rates, which follow a seasonal rate design, are higher in the summer months than in the remaining months of the year.
As a result of the COVID-19 pandemic, Consumers has delayed implementation of Each year in June, electric residential customers transition to a summer peak time-of-use rate for electric residential customers, originally planned to begin in June 2020. The summer peak time-of-use rate will allow customersthat allows them to take advantage of lower-cost energy during off-peak times during the summer months. Customers couldThus, customers can reduce their electric bills by shifting their consumption from on‑peak to off‑peak times. The MPSC approved delaying implementation of the summer peak time-of-use rate to 2021, recognizing that more customers may be at home during the pandemic and may not have the same opportunities to manage peak power consumption.
In response to the COVID‑19 pandemic, Michigan’s Governor issued various executive orders requiring all non-essential businesses to close temporarily and Michigan residents to stay home during the period from March 23, 2020 to June 8, 2020. Subsequent executive orders gradually eased restrictions. In October 2020, the Michigan Supreme Court issued an opinion that limits the governor’s authority to issue executive orders relating to the COVID-19 pandemic. Subsequently, the Michigan Department of Health and Human Services issued emergency orders maintaining and then increasing restrictions on indoor gatherings. Most recent orders have resulted in stepped-up enforcement of remote work in lieu of in-person work when possible and restrictions on certain entertainment venues and indoor dining at restaurants. Presently, most businesses are now open at limited capacity and with safety measures in place.
During the period from April 1, 2020 through December 31, 2020, a period covering the majority of the pandemic to date, weather-normalized electric deliveries were approximately five percent lower than deliveries during the same period in 2019, due mainly to a decline in deliveries to commercial and industrial customers of approximately 13 percent. This decline, however, was offset partially by an increase of approximately seven percent in deliveries to residential customers. Consumers cannot predict the long-term impact of the COVID-19 pandemic.
In response to the pandemic, Consumers initially suspended shut-offs of service for non-payment and extended payment protection plans for low-income and senior customers. Consumers slowly began resuming shut-offs of service for non-payment in late July 2020 for commercial and industrial customers and in October 2020 for residential customers. Consumers has experienced and anticipates it will continue to experience increased uncollectible accounts in the near term, but cannot predict the long-term impact of the pandemic on Michigan’s economy or its customers.
Over the next five years, Consumers expects weather-normalized electric deliveries to remain relatively stable relativecompared to 2020.2022. This outlook reflects the effects of energy waste reduction programs and appliance efficiency standards offset largely by modest growth in electric demand. Actual delivery levels will depend on:
•energy conservation measures and results of energy waste reduction programs
•weather fluctuations
•Michigan’s economic conditions, including utilization, expansion, or contraction of manufacturing facilities, population trends, electric vehicle adoption, and housing activity
Electric ROA: Michigan law allows electric customers in Consumers’ service territory to buy electric generation service from alternative electric suppliers in an aggregate amount capped at ten percent of Consumers’ sales, with certain exceptions. At December 31, 2020,2022, electric deliveries under the ROA program were at the ten‑percent limit. Of Consumers’ 1.9 million electric customers, fewer than 300, or 0.02 percent, purchased electric generation service under the ROA program.
The 2016 Energy Law established a path to ensure that forward capacity is secured for all electric customers in Michigan, including customers served by alternative electric suppliers under ROA. The new law also authorized the MPSC to ensure that alternative electric suppliers have procured enough capacity to cover their anticipated capacity requirements for the four-year forward period. In 2017, the MPSC issued an order establishing a state reliability mechanism for Consumers. Under this mechanism, beginning June 2018, if an alternative electric supplier does not demonstrate that it has procured its capacity requirements for the four-year forward period, its customers will pay a set charge to the utility for capacity that is not provided by the alternative electric supplier. All alternative electric suppliers have demonstrated that they have procured their capacity requirements through the MISO planning year beginning June 1, 2023.
During 2017, the MPSC issued orders finding that it has statutory authority to determine and implement a local clearing requirement, which requires all electric suppliers to demonstrate that a portion of the capacity procured to serve customers during peak demand times is located in the MISO footprint in Michigan’s Lower Peninsula. In 2018, the Michigan Court of Appeals issued a decision that the MPSC does not have statutory authority to implement such a requirement for individual alternative electric suppliers. In April 2020, the Michigan Supreme Court issued a unanimous opinion reversingaffirmed the Court of Appeals’ decision and determined that the 2016 Energy Law authorizes the MPSCMPSC’s statutory authority to implement a local clearing requirement on individual alternative electric suppliers. The Michigan Supreme Court remanded the case to the Court of Appeals to consider a procedural challenge previously undecided by the Court of Appeals; this challenge concerns the process that the MPSC used in 2017 to consider a local clearing requirement and does not affect the substance of the MPSC’s authority to implement a local clearing requirement for future planning periods. In April 2020, ABATE filed a motion for rehearing of the Michigan Supreme Court’s decision; the Michigan Supreme Court denied ABATE’s motion in May 2020. In June 2020, the Michigan Court of Appeals issued a letter resubmitting the case for its consideration of the Michigan Supreme Court’s remand of the procedural issue. In December 2020, the Michigan Court of Appeals issued a decision in response to the Michigan Supreme Court’s procedural remand upholding the MPSC’s procedure for determining capacity obligations of electric providers under the 2016 Energy Law. The Michigan Court of Appeals also held that the 2016 Energy Law’s provision for the MPSC to implement a local clearing requirement does not constitute an unlawful delegation of the Michigan Legislature’s authority.providers.
In September 2020, ABATE and another intervenor filed a complaint against the MPSC in the U.S. District Court for the Eastern District of Michigan challenging the constitutionality of a local clearing requirement. The complaint requests the federal court to issue a permanent injunction prohibiting the MPSC from implementing a local clearing requirement on individual electric providers. In
December 2020, Consumers filed a motion to intervene and defend the local clearing requirement in that federal litigation; this motion was granted in January 2021.2021 and the complaint is pending decision by the court after a non-jury trial.
Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. For additional details on rate matters, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3,2, Regulatory Matters and Note 4,3, Contingencies and Commitments.
DepreciationMPSC Reliability Report and Audit: In October 2022, the MPSC ordered the state’s two largest electric utilities, including Consumers, to report on their compliance with regulations and past MPSC orders governing the utilities’ response to outages and downed lines. Also, the MPSC Staff was directed to engage a third-party auditor to review all equipment and operations of the two utilities’ distribution systems.
Consumers has responded to the MPSC’s order and awaits further action by the MPSC. Consumers is committed to working with other state utilities, the third-party auditor, and the MPSC to continue improving electric reliability and safety in Michigan.
2022 Electric Rate Case:In July 2020,April 2022, Consumers filed an application with the MPSC seeking a depreciation case relatedrate increase of $272 million, based on a 10.25-percent authorized return on equity for the projected twelve-month period ending December 31, 2023. In September 2022, Consumers revised its requested increase to Ludington, requesting$292 million. The filing requested authority to increase depreciation expense,recover future investments associated with distribution system reliability, solar generation, environmental compliance, and its recovery of that expense, by $17 million annually. enhanced technology.
In February 2021,January 2023, the MPSC approved a settlement agreement that decreases depreciation expense by $9authorizing an annual rate increase of $155 million, annually based on December 31, 2019 balances.a 9.9-percent authorized return on equity. The newMPSC also approved a surcharge for the recovery of $6 million of depreciation, rates will be reflectedproperty tax, and interest expense related to distribution investments made in rates determined2021 that exceeded what was authorized in Consumers’ next-filed electric rate case.
PSCR Plan: Consumers submitted its 2021 PSCR plan to the MPSC in September 2020 and,rates in accordance with its proposed plan, self-implemented the 2021 PSCR charge beginning in January 2021. In January 2021,December 2020 electric rate order. Additionally, the approved settlement provides for a pension and OPEB tracker that will allow Consumers filed an amendment to its plan withdefer the MPSCfuture recovery or refund of pension and will self-implement a new 2021 PSCR charge beginning in May 2021.
Electric Environmental Outlook: Consumers’ operations are subjectOPEB expenses above or below the amounts used to various state and federal environmental laws and regulations. Consumers estimates that it will incur capital expenditures of $260 million from 2021 through 2025 to continue to comply with RCRA, the Clean Water Act, the Clean Air Act, and numerous state and federal environmental regulations. Consumers expects to recover these costs in customerset existing rates, but cannot guarantee this result. Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters.
Air Quality: Multiple air quality regulations apply, or may apply, to Consumers.
CSAPR, which became effective in 2015, requires Michigan and many other states to improve air quality by reducing power plant emissions that, according to EPA computer models, contribute to ground-level ozone and fine particle pollution in other downwind states. In 2016, the EPA finalized new ozone season standards for CSAPR, which became effective in 2017. In October 2020, in response to a court-ordered remand due to litigation, the EPA proposed a revised CSAPR rule to reflect updated emission reductions from electric generating units in 12 states, including Michigan. The EPA intends to finalize the rule by March 2021, and has made provisions for program implementation by May 2021, with continued emission reductions through 2024. Consumers is evaluating its emission compliance strategy for existing units basedrespectively. For additional details on the proposed number of allowances allocated to Michigan for 2021 through 2024.
In 2012, the EPA published emission standards for electric generating units, known as MATS, based on Section 112 of the Clean Air Act. Under MATS, all of Consumers’ existing coal-fueled electric generating units were required to add additional controls for hazardous air pollutants. Consumers met the deadline for five coal-fueled units and two oil/gas-fueled units it continues to operate and retired its seven remaining coal-fueled units. In addition, in May 2020, the EPA finalized changes to the supporting analysis used to enact MATS, but did not make any changes to the MATS regulations. These changes do not impact Consumers’ MATS compliance strategy because, if the MATS regulations were repealed, Consumers would then be required to comply with the Michigan Mercury Rule, which has similar requirements to MATS. In addition, Consumers must comply with emission limits in its renewable operating permits, which have similar emission requirements to MATS.
In 2015, the EPA lowered the NAAQS for ozone. The 2015 ozone NAAQS made it more difficult to construct or modify power plants and other emission sources in areas of the country that have not met the 2015 ozone standard. In 2018, the EPA designated certain areas of Michigan as not meeting the ozone standard. None of Consumers’ fossil-fuel-fired generating units are located in these areas. Additionally,
the State of Michigan has convened industry workgroups to seek implementation and control strategy ideas for statewide compliance of the 2015 ozone standard. In August 2020, the EPA proposed to retain the 2015 NAAQS for ozone without revision, and finalized this regulatory decision in December 2020. Consumers does not expect that any litigation involving NAAQS for ozone will have a material adverse impact on its generating assets.
Consumers’ strategy to comply with air quality regulations, including CSAPR, NAAQS, and MATS, as well as its legal obligations, involved the installation and operation of emission control equipment at some facilities and the suspension of operations at others; however, Consumers continues to evaluate these rules in conjunction with other EPA and EGLE rulemakings, litigation, executive orders, treaties, and congressional action. This evaluation could result in:
•a change in Consumers’ fuel mix
•changes in the types of generating units Consumers may purchase or build in the future
•changes in how certain units are used
•the retirement, mothballing, or repowering with an alternative fuel of some of Consumers’ generating units
•changes in Consumers’ environmental compliance costs
Greenhouse Gases: There have been numerous legislative and regulatory initiatives at the state, regional, national, and international levels that involve the potential regulation of greenhouse gases. Consumers continues to monitor and comment on these initiatives and to follow litigation involving greenhouse gases.
In 2015, the EPA finalized new rules pursuant to Section 111(b) of the Clean Air Act to limit carbon dioxide emissions from new electric generating units, as well as modified or reconstructed electric generating units. New coal-fueled units would not be able to meet this limit without installing carbon dioxide control equipment using such methods as carbon capture and sequestration.
In 2018, the EPA proposed a revised Section 111(b) regulation to replace the 2015 standard rule limiting carbon dioxide emissions from new electric generating units, citing limited availability and high costs of carbon capture and sequestration equipment as reasons to change the 2015 rule. The revised Section 111(b) regulation would require new coal-fueled generating units to meet a highly efficient steam cycle performance standard. If finalized, Consumers does not expect this proposal to change its existing environmental strategy.
In 2019, the EPA finalized the Affordable Clean Energy rule. The rule requires individual states to evaluate coal‑fueled power plants for heat‑rate improvements that could increase overall plant efficiency. The evaluations to be performed by the State of Michigan may require Consumers to make heat-rate improvements at its J.H. Campbell plant beginning in the mid‑2020s. However, the D.C. Circuit Court of Appeals vacated and remanded this rule to the EPA in January 2021. Consumers cannot evaluate the potential impact of the remand until the EPA acts and any additional appeals are extinguished.
In 2015, a group of 195 countries, including the U.S., finalized the Paris Agreement, which governs carbon dioxide reduction measures beginning in 2020. While the U.S. withdrew from the Paris Agreement, it has taken the necessary steps to rejoin the Paris Agreement in 2021. At this time, Consumers does not expect any adverse changes to its environmental strategy as a result of these events.
In September 2020, Michigan’s Governor signed an executive order creating the Michigan Healthy Climate Plan, which outlines goals for Michigan to achieve economy-wide net-zero greenhouse gas emissions and to be carbon neutral by 2050. The executive order aims for a 28-percent reduction below 2005 levels of greenhouse gas emissions by 2025. Consumers has already surpassed the 28-percent reduction milestone for its owned electric generation and previously announced, in February 2020, a goal
of achieving net-zero carbon emissions from its electric business by 2040. The order directs EGLE to develop and oversee an action plan for achieving these goals. In addition, the Governor established the Council on Climate Solutions, an advisory group of key stakeholders to be appointed by the Governor that will assist EGLE in implementing the plan. These goals are aspirational in nature and any changes in law or regulation to achieve these goals would need to be approved by Michigan Legislature or the relevant regulatory agency. The MPSC has requested comments from utilities and other stakeholders on how the Governor’s goal should be incorporated into future IRP filings. Consumers does not expect any adverse changes to its environmental strategy as a result of these events.
While Consumers cannot predict the outcome of changes in U.S. policy or of other legislative or regulatory initiatives involving the potential regulation of greenhouse gases, it intends to continue to move forward with its Clean Energy Plan, its present net-zero carbon reduction goal, and its emphasis on supply diversity. Consumers will continue to monitor regulatory and legislative activity and related litigation regarding greenhouse gas emissions standards that may affect electric generating units.
Increased frequency of severe weather events, including those due to climate change, could materially impact Consumers’ facilities, energy sales, and results of operations. Consumers is unable to predict these events or their financial impact; however, Consumers evaluates the potential physical impacts of climate change on its operations, including increased storm activity, increased rainfall, and higher lake and river levels. Consumers is taking steps to mitigate these risks as appropriate.
Litigation, international treaties, executive orders, federal laws and regulations (including regulations by the EPA), and state laws and regulations, if enacted or ratified, could ultimately require Consumers to replace equipment, install additional emission control equipment, purchase emission allowances or credits, curtail operations, arrange for alternative sources of supply, mothball or retire facilities that generate certain emissions, pursue energy efficiency or demand response measures more swiftly, or take other steps to manage or lower the emission of greenhouse gases. Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material and cost recovery cannot be assured, Consumers expects to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.
CCRs: In 2015, the EPA published a final rule regulating CCRs under RCRA. The final rule adopts minimum standards for beneficially reusing and disposing of non‑hazardous CCRs. The rule establishes new minimum requirements for site location, groundwater monitoring, flood protection, storm water design, fugitive dust control, and public disclosure of information, including any groundwater protection standard exceedances. The rule also sets out conditions under which CCR units would be forced to cease receiving CCR and non‑CCR wastewater and initiate closure based on the inability to achieve minimum safety standards, meet a location standard, or meet minimum groundwater standards. Consumers has aligned with EGLE on closure plans for each of its unlined ash ponds to ensure coordination between federal and state requirements. The unlined ash ponds have ceased operation and, where applicable, have been replaced with double-lined ash ponds or concrete tanks. Significant closure work has been completed at the remaining ash ponds.
Due to litigation, many aspects of the 2015 CCR rule have been remanded to the EPA, which has resulted in various new rulemakings. These new rulemakings are now in litigation. Continued litigation will add uncertainty around requirements for compliance and state permit programs.
Separately, Congress passed legislation in 2016 allowing participating states to develop permitting programs for CCRs under RCRA. In 2018, the Michigan Legislature adopted a permitting program, which requires the EPA’s authorization. This program should reduce costly, duplicative oversight over CCRs and provide local oversight to CCR issues unique to Michigan. In April 2020, EGLE submitted a regulatory package for Michigan’s permit program to the EPA for its review. Federal rulemaking challenges may delay EPA approval of the Michigan permitting program.
Consumers has aligned with EGLE on closure plans for all of its coal ash disposal sites, including those subject to the EPA’s 2015 CCR rule, and adjusted its recorded ARO accordingly. Consumers has historically been authorized to recover in electric rates costs related to coal ash disposal sites.
Water: Multiple water-related regulations apply, or may apply, to Consumers.
The EPA regulates cooling water intake systems of existing electric generating plants under Section 316(b) of the Clean Water Act and the corresponding rules that were revised in 2014. The rules seek to reduce alleged harmful impacts on aquatic organisms, such as fish. In 2018, Consumers submitted to EGLE for approval all required studies and recommended plans to comply with Section 316(b), but has not yet received final approval.
In 2015, the EPA released its final effluent limitation guidelines for steam electric generating plants. These guidelines, which are presently being litigated, set stringent new requirements for the discharge from electric generating units into surface waters. The EPA published a final rule in October 2020, with an effective date of December 2020, revising the 2015 guidelines related to the discharge of certain wastewater streams from electric generating units. The rule also allows for extension of the compliance deadline from the end of 2023 to the end of 2025, upon approval by EGLE through the NPDES permitting process. Consumers does not expect any adverse changes to its environmental strategy as a result of these revisions to the rule.
In recent years, the EPA and the U.S. Army Corps of Engineers have proposed rules redefining “Waters of the United States,” which defines the scope of federal jurisdiction under the Clean Water Act, and other changes to the Clean Water Act regulations. For example, the EPA recently finalized a rule repealing the 2015 definition of “Waters of the United States” and, in January 2020, released a rule with its new definition. The new definition narrows the scope of federal jurisdiction and reduces the frequency of dual jurisdiction in states with authority to regulate the same waters; Michigan is one such state. Consumers does not expect adverse changes to its environmental strategy as a result of the new definition, which is presently being litigated in multiple jurisdictions.
Many of Consumers’ facilities maintain NPDES permits, which are renewed every five years and are vital to the facilities’ operations. Failure of EGLE to renew any NPDES permit, a successful appeal against a permit, a change in the interpretation or scope of NPDES permitting, or onerous terms contained in a permit could have a significant detrimental effect on the operations of a facility.
Other Matters: Other electric environmental matters could have a material impact on Consumers’ outlook. For additional details on other electric environmental matters,settlement agreement, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Contingencies2, Regulatory Matters.
PSCR Plan: Consumers submitted its 2023 PSCR plan to the MPSC in September 2022. As a result of higher-than-normal power supply costs during 2022, Consumers included a projection of its full-year 2022 underrecovery in its 2023 PSCR plan. In accordance with its proposed plan, Consumers self-implemented the 2023 PSCR charge beginning in January 2023.
In January 2023, Consumers filed a motion for a temporary order in its 2023 PSCR plan, requesting that the MPSC approve only a third of the 2022 underrecovery amount for recovery in 2023, with the remaining amount to be recovered equally during 2024 and Commitments—Consumers Electric Utility Contingencies—Electric Environmental2025. Recovering the 2022 underrecovery over three years will provide immediate relief to electric customers, and the financial impact will be neutral to Consumers’ earnings. For additional details, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters.
Retention Incentive Program: Under its Clean Energy Plan, Consumers will retire the D.E. Karn coal-fueled electric generating units in 2023. In October 2019, Consumers announced a retention incentive program to ensure necessary staffing at the D.E. Karn generating complex through the anticipated retirement of the coal-fueled generating units. Based on the number of employees that have chosen to participate, the aggregate cost of the program through 2023 is estimated to be $35 million. Consumers expects to recognize $8 million of retention benefit costs in 2021; this expense will be deferred as a regulatory asset. In its order in Consumers’ 2020 electric rate case, the MPSC approved deferred accounting treatment for these costs. Consumers expects to recognize $2 million of retention benefit costs in 2023; this expense will be deferred as a regulatory asset.
Under the 2021 IRP, Consumers will retire the J.H. Campbell coal-fueled generating units in 2025. Similar to the D.E. Karn program, Consumers is providing a retention incentive program to ensure necessary staffing at the J.H. Campbell generating complex through retirement. Based on the number of employees that have chosen to participate, the aggregate cost of the program through 2025 is estimated to be $50 million. Consumers expects to recognize $16 million of retention benefit costs in 2023. The 2021 IRP provides deferred accounting treatment for retention costs recognized during 2022; deferral of costs beyond 2022 was approved as part of the 2022 electric rate case settlement. For additional details on these programs, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 19, Exit Activities and Discontinued Operations.
Electric Environmental Outlook: Consumers’ electric operations are subject to various federal, state, and local environmental laws and regulations. Consumers estimates that it will incur capital expenditures of $210 million from 2023 through 2027 to continue to comply with RCRA, the Clean Air Act, and numerous other environmental regulations. Consumers expects to recover these costs in customer rates, but cannot guarantee this program, see Note 22, Asset Saleresult. Multiple environmental laws and Exit Activities.regulations are subject to litigation. Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters.
Air Quality: Multiple air quality regulations apply, or may apply, to Consumers’ electric utility.
In 2012, the EPA published emission standards for electric generating units, known as MATS, based on Section 112 of the Clean Air Act. Consumers has complied, and continues to comply, with the MATS regulation, and does not expect MATS to materially impact its environmental strategy.
CSAPR requires Michigan and many other states to improve air quality by reducing power plant emissions that, according to EPA modeling, contribute to ground-level ozone in other downwind states. Since its 2015 effective date, CSAPR has been revised several times. One such revision made in 2021
provided updated emission reductions through 2024 from electric generating units in 12 states, including Michigan. Consumers believes the impact of this rule on its generation operations should be minimal.
In March 2022, the EPA proposed another revision to CSAPR that affects Michigan. If finalized as proposed, this revision would reduce nitrogen oxides allowance budgets beginning in 2023 and would change the mechanism for allocating such allowances on a year-over-year basis. While prior CSAPR regulations have primarily focused on electric generating units, this latest proposal also includes other sources of nitrogen oxides emissions. If the EPA finalizes the proposed CSAPR revision in its current form, Consumers may incur significant costs in allowance purchases and/or equipment retrofits. Consumers will continue to monitor this rulemaking and its impact on Consumers’ electric operations.
In 2015, the EPA lowered the NAAQS for ozone and made it more difficult to construct or modify power plants and other emission sources in areas of the country that do not meet the ozone standard. In 2018, the EPA designated certain areas of Michigan as not meeting the ozone standard. None of Consumers’ fossil-fuel-fired generating units are located in these areas. Additionally, in January 2023, the EPA proposed lowering the NAAQS for particulate matter. Consumers will continue to monitor NAAQS rulemakings and evaluate potential impacts to its generating assets.
Consumers’ strategy to comply with air quality statutes and regulations involved the installation and operation of emission control equipment at some facilities and the suspension of operations at others; however, Consumers continues to evaluate these rules in conjunction with other EPA and EGLE rulemakings, litigation, executive orders, treaties, and congressional actions. This evaluation could result in:
•a change in Consumers’ fuel mix
•changes in the types of generating units Consumers may purchase or build in the future
•changes in how certain units are operated
•the retirement, mothballing, or repowering with an alternative fuel of some of Consumers’ generating units
•changes in Consumers’ environmental compliance costs
•the purchase or sale of allowances
Greenhouse Gases: There have been numerous legislative and regulatory initiatives at the state, regional, national, and international levels that involve the potential regulation and reporting of greenhouse gases. Consumers continues to monitor and comment on these initiatives, as appropriate.
In June 2022, the EPA announced its plan to propose a new rule to address greenhouse gas emissions from existing fossil-fuel-fired electric generating units. Under its 2021 IRP, Consumers will eliminate the use of coal-fueled generation in 2025. Therefore, it is unlikely that the proposed rule will materially impact Consumers over the remaining operating lives of these coal-fueled facilities. However, Consumers cannot predict the form and extent of such potential regulation on its natural gas-fueled generation until this rule is released.
Under the Paris Agreement, an international agreement addressing greenhouse gas emissions, the U.S. has committed to reduce greenhouse gas emissions by 50 to 52 percent from 2005 levels by 2030. Under its 2021 IRP, Consumers plans to reduce carbon emissions from its electric business by 60 percent from 2005 levels in 2025. At this time, Consumers does not expect any adverse changes to its environmental strategy as a result of these events, as its plans exceed the nationally committed reduction. The commitment made by the U.S. is not binding without new Congressional legislation.
In 2020, Michigan’s Governor signed an executive order creating the Michigan Healthy Climate Plan, which outlines goals for Michigan to achieve economy-wide net-zero greenhouse gas emissions and to be
carbon neutral by 2050. The executive order aims for a 28‑percent reduction below 2005 levels of greenhouse gas emissions by 2025. These goals are aspirational in nature and any changes in law or regulation to achieve these goals would need to be approved by the Michigan Legislature or the relevant regulatory agency. Additionally, Consumers has already surpassed the 28‑percent reduction milestone for its owned electric generation and previously announced a goal of achieving net-zero carbon emissions from its electric business by 2040. Consumers does not expect any adverse changes to its environmental strategy as a result of these events.
Increased frequency or intensity of severe or extreme weather events, including those due to climate change, could materially impact Consumers’ facilities, energy sales, and results of operations. Consumers is unable to predict these events or their financial impact; however, Consumers evaluates the potential physical impacts of climate change on its operations, including increased frequency or intensity of storm activity; increased precipitation; increased temperature; and changes in lake and river levels. Consumers released a report addressing the physical risks of climate change on its infrastructure in February 2022. Consumers is taking steps to mitigate these risks as appropriate.
While Consumers cannot predict the outcome of changes in U.S. policy or of other legislative, executive, or regulatory initiatives involving the potential regulation or reporting of greenhouse gases, it intends to move forward with its Clean Energy Plan, its present net-zero goals, and its emphasis on reliable and resilient supply. Litigation, international treaties, executive orders, federal laws and regulations (including regulations by the EPA), and state laws and regulations, if enacted or ratified, could ultimately impact Consumers. Consumers may be required to:
•replace equipment
•install additional emission control equipment
•purchase emission allowances or credits (including potential greenhouse gas offset credits)
•curtail operations
•arrange for alternative sources of supply
•purchase facilities that generate fewer emissions
•mothball or retire facilities that generate certain emissions
•pursue energy efficiency or demand response measures more swiftly
•take other steps to manage or lower the emission of greenhouse gases
Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material and cost recovery cannot be assured, Consumers expects to recover these costs in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.
CCRs: In 2015, the EPA published a rule regulating CCRs under RCRA. This rule adopts minimum standards for beneficially using and disposing of non‑hazardous CCRs and establishes technical requirements for CCR landfills and surface impoundments. The rule also sets out conditions under which some CCR units would be forced to cease receiving CCR wastewater and initiate closure. Due to litigation, many aspects of the rule have been remanded to the EPA, resulting in more proposed and final rules. Anticipated litigation related to remanded aspects will add uncertainty around requirements for compliance and state permit programs.
In 2020, the EPA amended the conditions of forced closure and required all unlined surface impoundments to initiate closure by mid-2021, unless conditions that satisfied an alternate closure schedule were approved by the EPA. Consumers, with agreement from EGLE, completed the work necessary to initiate closure by excavating CCRs or placing a final cover over each of its relevant CCR units prior to the closure initiation deadline.
Separately, Congress passed legislation in 2016 allowing participating states to develop permitting programs for CCRs under RCRA Subtitle D. In 2018, the Michigan Legislature adopted standards for a permitting program, which requires the EPA’s authorization. In 2020, EGLE submitted a regulatory package for Michigan’s permit program to the EPA for its review, which is still pending. Federal rulemaking challenges may delay EPA approval of the Michigan permitting program.
Consumers has historically been authorized to recover in electric rates costs related to coal ash disposal sites.
Water: Multiple water-related regulations apply, or may apply, to Consumers.
The EPA regulates cooling water intake systems of existing electric generating plants under Section 316(b) of the Clean Water Act. The rules seek to reduce alleged harmful impacts on aquatic organisms, such as fish. In 2018, Consumers submitted to EGLE for approval all required studies and recommended plans to comply with Section 316(b), but has not yet received final approval.
The EPA also regulates the discharge of wastewater through its effluent limitation guidelines for steam electric generating plants. In 2020, the EPA revised previous guidelines related to the discharge of certain wastewater, but allowed for extension of the compliance deadline from the end of 2023 to the end of 2025, upon approval by EGLE through the NPDES permitting process. Consumers received such an extension to 2025 for its J.H. Campbell generating facility, which it plans to retire in 2025. Consumers does not expect any adverse changes to its environmental strategy as a result of these revisions or any litigation of the guidelines.
In recent years, the EPA and the U.S. Army Corps of Engineers have proposed changes to the scope of federal jurisdiction over bodies of water and to the frequency of dual jurisdiction in states with authority to regulate the same waters; Michigan is one such state. Additionally, a final 2022 rulemaking changed the definition of “Waters of the United States.” Consumers does not expect adverse changes to its environmental strategy as a result of the current interpretations.
Many of Consumers’ facilities maintain NPDES permits, which are vital to the facilities’ operations. Consumers applies for renewal of these permits every five years. Failure of EGLE to renew any NPDES permit, a successful appeal against a permit, a change in the interpretation or scope of NPDES permitting, or onerous terms contained in a permit could have a significant detrimental effect on the operations of a facility.
Protected Wildlife: Multiple regulations apply, or may apply, to Consumers relating to protected species and habitats.
Statutes like the federal Endangered Species Act, the Migratory Bird Treaty Act, and the Bald and Golden Eagle Protection Act may impact operations at Consumers’ facilities. In 2021, the U.S. Fish and Wildlife Service announced its intent to regulate incidental take under the Migratory Bird Treaty Act. Any resulting permitting and monitoring fees and/or restrictions on operations could impact Consumers’ existing and future operations, including wind and solar generation facilities.
Additionally, Consumers is monitoring proposed changes to the listing status of several species within its operational area due to an increase in wildlife-related regulatory activity at federal and state levels. A change in species listed under the Endangered Species Act may impact Consumers’ costs to mitigate its impact on protected species and habitats at certain existing facilities as well as siting choices for new facilities.
Other Matters: Other electric environmental matters could have a material impact on Consumers’ outlook. For additional details on other electric environmental matters, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Contingencies and Commitments—Consumers Electric Utility Contingencies—Electric Environmental Matters.
Consumers Gas Utility Outlook and Uncertainties
Gas Deliveries: Consumers’ gas customer deliveries are seasonal. The peak demand for natural gas typically occurs in the winter due to colder temperatures and the resulting use of natural gas as heating fuel.
The impact of the COVID-19 pandemic on weather-normalized gas deliveries during 2020 was not material. Consumers has experienced and anticipates it will continue to experience increased uncollectible accounts in the near term, but cannot predict the long-term impact of the pandemic on Michigan’s economy or its customers.
Over the next five years, Consumers expects weather-normalized gas deliveries to remain stable relative to 2020.2022. This outlook reflects the effects of energy waste reduction programs offset largely by modest growth in gas demand offset by the predicted effects of energy efficiency and conservation.demand. Actual delivery levels from year to year may vary from this expectation as a result of:will depend on:
•weather fluctuations
•use by power producers
•availability and development of renewable energy sources
•gas price changes
•MichiganMichigan’s economic conditions, including population trends and housing activity
•the price or demand of competing energy sources or fuels
•energy efficiency and conservation impacts
Gas Rate Matters: Rate matters are critical to Consumers’ gas utility business. For additional details on rate matters, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3,2, Regulatory Matters and Note 4,3, Contingencies and Commitments.
2022 Gas Rate Case: In December 2022, Consumers filed an application with the MPSC seeking an annual rate increase of $212 million, based on a 10.25-percent authorized return on equity for the projected twelve-month period ending September 30, 2024. The filing requests authority to recover new infrastructure investment and related costs that are expected to allow Consumers to improve system safety and reliability and reduce fugitive methane emissions. Presented in the following table are the components of the requested increase in revenue:
| | | | | | | | |
Projected Twelve-Month Period Ending September 30 | | 2024 |
Components of the requested rate increase | | |
Investment in rate base | | $ | 80 | |
Operating and maintenance costs | | 47 | |
Cost of capital | | 63 | |
Sales and other revenue | | 22 | |
Total | | $ | 212 | |
The filing also seeks approval of a pension and OPEB tracker that will allow Consumers to defer for future recovery or refund pension and OPEB expense above the amounts used to set existing rates and an uncollectible deferral/refund mechanism.
Postretirement Benefits Expense Accounting Application: In January 2023, Consumers filed an application with the MPSC, requesting authority to defer the future recovery or refund of pension and OPEB expenses above or below the amounts used to set existing rates, respectively. Consumers requested this accounting treatment to begin in 2023 and to continue until rates are reset in the 2022 gas rate case.
Depreciation Rate Case: In December 2021, Consumers filed a depreciation case related to its gas utility plant property. In this case, Consumers requested a decrease in depreciation expense of $1 million annually based on December 31, 2020 balances. In September 2022, the MPSC approved a settlement agreement authorizing a decrease in depreciation expense of $29 million annually. The decrease in depreciation expense will become effective concurrent with Consumers’ 2022 gas rate case.
GCR Plan:Consumers submitted its 2021-20222023-2024 GCR plan to the MPSC in December 20202022 and, in accordance with its proposed plan, expects to self-implement the 2021-20222023-2024 GCR charge beginning in April 2021.2023.
Gas Pipeline and Storage Integrity and Safety: In October 2019, PHMSAThe U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration has published a final rulevarious rules that expandsexpand federal safety standards for gas transmission pipelines.pipelines and underground storage facilities. Initial requirements took effect in 2020, with future regulation phases to be released over numerous years. To comply with the rule,these rules, Consumers will incur increased capital and operating and maintenance costs to install and remediate pipelines as well as increased operating and maintenance costs to expand inspections, maintenance, and monitoring of its existing pipelines. The requirements in the regulation took effect July 1, 2020, with various implementation phases over numerous years.
In February 2020, PHMSA finalized an interim rule it had published in 2016; this rule established minimum federal safety standards for underground natural gaspipelines and storage facilities. To comply with the rule, Consumers incurred increased capital and operating and maintenance costs to expand inspections, maintenance, and monitoring of its underground gas storage facilities.
Although associated capital or operating and maintenance costs relating to these regulations could be material and cost recovery cannot be assured, Consumers expects to recover such costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with laws and regulations. Consumers will continue to monitor gas safety regulations and continue implementation of the American Petroleum Institute’s Recommended Practice 1173, Pipeline Safety Management Systems. This program minimizes gas system asset- and performance-related risks by ensuring that there are policies, procedures, work instructions, forms, and records in place to streamline adoption and deployment of any existing or future regulations.
Gas Environmental Outlook:Consumers expects to incur response activity costs at a number of sites, including 23 former MGP sites. For additional details, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4,3, Contingencies and Commitments—Consumers Gas Utility Contingencies—Gas Environmental Matters.
Consumers’ gas operations are subject to various federal, state, and local environmental laws and regulations. Multiple environmental laws and regulations are subject to litigation. Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters.
Air Quality: Multiple air quality regulations apply, or may apply, to Consumers’ gas utility.
In 2015, the EPA lowered the NAAQS for ozone and made it more difficult to construct or modify natural gas compressor stations and other emission sources in areas of the country that do not meet the ozone standard. In 2018, the EPA designated certain areas of Michigan as not meeting the ozone standard. Seven counties in southeastern Michigan were not in attainment with the ozone standard by a 2021 regulatory deadline, and thus may have their ozone nonattainment designations increased from marginal to moderate. The EPA also recently elevated the nonattainment status of three counties in western Michigan from marginal to moderate. Some of Consumers’ compressor stations are located in these areas. Consumers expects to incur costs to retrofit equipment to lower emissions at some of its compressor stations located in the nonattainment areas.
In March 2022, the EPA proposed a revision to CSAPR that affects Michigan. This proposed rule seeks to reduce interstate air pollution transport issues that EPA modeling suggests contribute to downwind states attaining or maintaining compliance with the NAAQS for ozone. While prior CSAPR regulations have primarily focused on electric generating units, the proposed rule includes other emission sources, including engines at natural gas compressor stations. If the EPA finalizes the proposed CSAPR revision in its current form, Consumers may incur costs to retrofit or replace equipment at some compressor stations.
Greenhouse Gases: ConsumersThere is making voluntary effortsincreasing interest at the federal, state, and local levels in potential regulation of greenhouse gases or their sources. Such regulation, if adopted, may involve requirements to reduce its gas utility’s methane emissions. In 2019, Consumers released its Methane Reduction Plan, which set a goal
methane emissions from its naturalConsumers’ gas delivery system by 2030. Under its Methane Reduction Plan, Consumers plans to reduce methaneutility operations and carbon dioxide emissions from its system by about 80 percent by accelerating the replacementcustomer use of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices. The remaining emissions will be offset by purchasing and/or producing renewable natural gas. No such measures apply to Consumers at this time.
In September 2020, Michigan’s Governor signed an executive order creating the Michigan Healthy Climate Plan, which outlines goals for Michigan to achieve economy-wide net-zero greenhouse gas emissions and to be carbon neutral by 2050. The executive order aims for a 28-percent28‑percent reduction below 2005 levels of greenhouse gas emissions by 2025. These new goals could have an impact on Consumers’ gas business over the long term. For additional details on the executive order, see Consumers Electric Utility Outlook and Uncertainties—Electric Environmental Outlook.
There is increasing interest atUnder the federal, state, and local levels involving potential regulation ofParis Agreement, an international agreement addressing greenhouse gases or its sources. Such regulation, if adopted, may involve requirementsgas emissions, the U.S. has committed to reduce methanegreenhouse gas emissions by 50 to 52 percent from Consumers’ gas utility operations and carbon dioxide emissions from natural gas customer use. No such measures apply to Consumers at this time.2005 levels by 2030. The commitment made by the U.S. is not binding without new Congressional legislation. Consumers continues to monitor these initiatives and comment as appropriate. Consumers cannot predict the impact of any potential future legislation or regulation on its gas utility.
Consumers is making voluntary efforts to reduce its gas utility’s methane emissions. Under its Methane Reduction Plan, Consumers has set a goal of net-zero methane emissions from its natural gas delivery system by 2030. Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices. The remaining emissions will likely be offset by purchasing and/or producing renewable natural gas. To date, Consumers has reduced methane emissions by more than 20 percent from a 2012 baseline.
In March 2022, Consumers Electric Utilityalso announced a net-zero greenhouse gas emissions target for its entire natural gas system by 2050. This includes suppliers and customers, and has an interim goal of reducing customer emissions by 20 percent by 2030. Consumers’ Natural Gas Utility OutlookDelivery Plan, a 10-year strategic investment plan to deliver safe, reliable, clean, and Uncertainties
Energy Waste Reduction Plan: The 2016 Energy Law authorized incentives for demand response programs and expanded existing incentives for energy efficiency programs, referringaffordable natural gas to the combined initiatives ascustomers, outlines ways in which Consumers can make early progress toward these goals in a cost-effective manner, including energy waste reduction programs. The 2016 Energy Law:
•extended the requirement to achieve annual reductions of 1.0 percent in customers’ electricity use through 2021or energy efficiency, carbon offsets, and 0.75 percent in customers’renewable natural gas use indefinitelysupply.
•removed limits on investments under the program and provided for a higher return on those investments; together, these provisions effectively doubled the financial incentives Consumers may earn for exceeding the statutory targets
•established a goal of 35 percent combined renewable energy and energy waste reduction by 2025; Consumers has achieved 25 percent combined renewable energy and energy waste reduction through 2020
Additionally, the MPSC has approved the recovery of demand response costs and an associated financial incentive based on demand response target performance.
Underalready initiated work in these key areas, continuing to expand its energy waste reduction plan,targets, launching a program allowing gas customers to purchase carbon offset credits on a voluntary basis, and announcing plans to begin development of a renewable natural gas facility that will capture methane from manure generated at a Michigan-based farm and convert it into renewable natural gas. Consumers provides its customers with incentivesis evaluating and monitoring newer technologies to reduce usage by offering energy audits, rebatesdetermine their role in achieving Consumers’ interim and discounts on purchases of highly efficient appliances,long-term net-zero goals, including hydrogen, biofuels, and synthetic methane; carbon capture sequestration systems; and other innovative technologies.
Over the long term, Consumers will incorporate technological advances, policy-driven incentives, and programs. The COVID‑19 pandemic may impact Consumers’ abilityother influencing factors into its compliance, investment planning, and decarbonization strategy in order to execute energy efficiency programs effectivelyachieve these net-zero methane and accordingly, could affect Consumers’ ability to exceed its statutory savings targets and earn the maximum energy waste reduction incentive for 2021. Consumers cannot predict the ultimate financial impact of the pandemic on its 2021 energy waste reduction incentive.
greenhouse gas emissions goals.
EnterprisesNorthStar Clean Energy Outlook and Uncertainties
CMS Energy’s primary focus with respect to its enterprisesNorthStar Clean Energy businesses is to maximize the value of generating assets, its share of which represents 1,4801,478 MW of capacity, and to pursue opportunities for the development of renewable generation projects.
In July 2020, CMS Enterprises purchased an ownership interest in Aviator Wind, a 525-MW wind generation project in Coke County, Texas. The project was completed and became operational in September 2020. Of the project’s 525-MW nameplate capacity, 420 MW has been committed under long-term PPAs. For additional details, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 21, Variable Interest Entities.
The enterprises segment’s assetsNorthStar Clean Energy’s operations may be affected bysubject to various federal, state, and local environmental laws and regulations. TheMultiple environmental laws and regulations are subject to litigation. NorthStar Clean Energy’s primary environmental compliance focus includes, but is not limited to, the following matters.
In 2015, the EPA lowered the NAAQS for ozone NAAQSand made it more difficult to construct or modify power plants and other emission sources in areas of the country that havedo not metmeet the 2015 ozone standard. In 2018, the EPA designated certain areas of Michigan as not meeting the ozone standard. Seven counties in southeastern Michigan were not in attainment with the ozone standard by a 2021 regulatory deadline, and thus may have their ozone nonattainment designations increased from marginal to moderate. The enterprises segment’s DIG plant located in Dearborn, Michigan is inwithin one such areaof these counties and, as a result, wouldmay be subject to additional permitting restrictions in the event of any future modifications. increase in the nonattainment designation.
In March 2022, the EPA proposed a revision to CSAPR that affects Michigan. This proposed rule seeks to reduce interstate air pollution transport issues that EPA modeling suggests contribute to downwind states attaining or maintaining compliance with the NAAQS for ozone. If the EPA finalizes the proposed CSAPR revision in its current form, NorthStar Clean Energy may incur significant costs in allowance purchases and equipment retrofits. NorthStar Clean Energy will continue to monitor this rulemaking and its impact on its emission sources.
Many of NorthStar Clean Energy’s facilities maintain NPDES permits, which are vital to the facilities’ operations. NorthStar Clean Energy applies for renewal of these permits every five years. Failure of EGLE to renew any NPDES permit, a successful appeal against a permit, a change in the interpretation or scope of NPDES permitting, or onerous terms contained in a permit could have a significant detrimental effect on the operations of a facility.
For additional details regarding the new ozone NAAQS or CSAPR rule, see Consumers Electric Utility Outlook and Uncertainties—Electric Environmental Outlook.
Trends, uncertainties, and other matters related to the enterprises segmentNorthStar Clean Energy that could have a material impact on CMS Energy’s consolidated income, cash flows, or financial position include:
•investment in and financial benefits received from renewable energy and energy storage projects
•changes in energy and capacity prices
•severe weather events and climate change associated with increasing levels of greenhouse gases
•changes in commodity prices and interest rates on certain derivative contracts that do not qualify for hedge accounting and must be marked to market through earnings
•changes in various environmental laws, regulations, principles, or practices, or in their interpretation
•indemnity and environmental remediation obligations at Bay Harbor, including an inability to renew an NPDES permit
•obligations related to aassumed in connection with ownership interests in facilities that involve tax claim from the government of Equatorial Guineaequity financing
•representations, warranties, and indemnities provided by CMS Energy in connection with previous sales of assets
•delays or difficulties in obtaining environmental permits for facilities located in areas associated with environmental justice concerns
In March 2022, the U.S. Department of Commerce announced it is opening inquiries into whether manufacturers of solar modules that are produced in certain countries using supplies obtained from China are circumventing antidumping and countervailing duties which apply to Chinese modules. The U.S. Department of Commerce has made an initial determination that four manufacturers have circumvented tariffs. The remainder of this inquiry process is expected to continue through at least the first half of 2023. In June 2022, the Biden Administration paused for two years the imposition of duties that might result from the U.S. Department of Commerce’s pending inquiries. In addition, the Uyghur Forced Labor Prevention Act, which was enacted in December 2021 and became effective in June 2022, along with an earlier withhold release order that U.S. Customs and Border Protection issued in mid-2021, restrict the importation of goods sourced from the Xinjiang region of China. Solar modules whose raw materials come from the Xinjiang region are a key focus of these import laws. CMS Energy continues to closely monitor these matters and their potential impacts on availability of solar modules and timing associated with pending and planned solar projects.
For additional details regarding the enterprises segment’sNorthStar Clean Energy’s uncertainties, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4,3, Contingencies and Commitments.Commitments—Guarantees.
EnerBank Outlook and Uncertainties
EnerBank is a Utah state-chartered, FDIC-insured industrial bank providing primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements. The carrying value of EnerBank’s loan portfolio was $2.9 billion at December 31, 2020. The 12-month rolling average net default rate on loans held by EnerBank was 1.1 percent at December 31, 2020. For additional details regarding EnerBank’s loan portfolio, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 8, Notes Receivable.
EnerBank’s loan portfolio was funded primarily by certificates of deposit of $2.8 billion at December 31, 2020. With its loan portfolio funded by certificates of deposit, EnerBank has not had to rely
on access to the financial and capital markets in order to fund loan growth during the COVID-19 pandemic. As a result, EnerBank has experienced market share gains as new customers have transitioned from less financially stable competitors. Accordingly, EnerBank has experienced increased lending growth in recent months and expects this trend to continue during 2021. Over the next five years, EnerBank expects lending growth of approximately seven percent annually. For additional details regarding EnerBank’s capital and liquidity, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity
In response to the COVID-19 pandemic, and consistent with FDIC guidance, EnerBank offered new payment accommodations for current qualifying customers. EnerBank cannot predict the longer-term impacts of the pandemic, but could experience slower lending growth, higher loan write-offs, and increased loan modifications.
Other Outlook and Uncertainties
Employee Separation Program: In December 2019, CMS Energy and Consumers announced a voluntary separation program for non-union employees. For the year ended December 31, 2020, CMS Energy and Consumers recorded an after-tax charge of $9 million related to the program, under which 140 employees accepted and were approved for early separation. As a result of the program, CMS Energy and Consumers expect to benefit from future cost savings, as employee staffing levels will be better matched to workload demand, which reflects the companies’ ongoing workforce productivity improvements.
Union Contracts: The UWUA represents Consumers’ operating, maintenance, construction, and customer contact center employees. The USW represents Zeeland plant employees. The UWUA and USW agreements expired and new agreements were ratified in 2020. The new agreements ratified in 2020 provide the following:
•three-percent pay increases to operating, maintenance, and construction employees and the same annual increase through 2024
•three-and-a-half-percent pay increases to customer contact center employees
•three-percent pay increases to Zeeland Plant employees and the same annual increase through 2024
Litigation: CMS Energy, Consumers, and certain of their subsidiaries are named as parties in various litigation matters, as well as in administrative proceedings before various courts and governmental agencies, arising in the ordinary course of business. For additional details regarding these and other legal matters, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3,2, Regulatory Matters and Note 4,3, Contingencies and Commitments.
Employee Separation Program: In April 2022, CMS Energy and Consumers announced a voluntary separation program for salaried non-union employees. For the year ended December 31, 2022, CMS Energy and Consumers recorded an after-tax charge of $8 million related to the program, under which more than 170 employees accepted and were approved for early separation. As a result of the program, CMS Energy and Consumers expect to benefit from future cost savings, as employee staffing levels will be better matched to workload demand, which reflects the companies’ ongoing workforce productivity improvements.
Tax Legislation: CMS Energy and Consumers are subject to changing tax laws. In August 2022, President Biden signed the Inflation Reduction Act. Among other things, this Act expands production tax credits and investment tax credits, allows for the transferability of such credits, and implements a 15‑percent corporate alternative minimum tax on companies with an average adjusted financial statement income of more than $1.0 billion. While CMS Energy and Consumers are still assessing the overall impacts of the bill, they have determined they will not be subject to the corporate alternative minimum tax in 2023, and do not believe the corporate alternative minimum tax will have a material impact on their business.
Critical Accounting Policies and Estimates
The following information is important to understand CMS Energy’s and Consumers’ results of operations and financial condition. For additional accounting policies, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 1, Significant Accounting Policies.
In the preparation of CMS Energy’s and Consumers’ consolidated financial statements, estimates and assumptions are used that may affect reported amounts and disclosures. CMS Energy and Consumers use accounting estimates for asset valuations, unbilled revenue, depreciation, amortization, financial and derivative instruments, employee benefits, stock-based compensation, the effects of regulation, indemnities, contingencies, and AROs. Actual results may differ from estimated results due to changes in the regulatory environment, regulatory decisions, lawsuits, competition, and other factors. CMS Energy and Consumers consider all relevant factors in making these assessments.
Accounting for the Effects of Industry Regulation: Because Consumers has regulated operations, it uses regulatory accounting to recognize the effects of the regulators’ decisions on its financial statements. Consumers continually assesses whether future recovery of its regulatory assets is probable by considering communications and experience with its regulators and changes in the regulatory environment. If Consumers determined that recovery of a regulatory asset were not probable, Consumers would be required to write off the asset and immediately recognize the expense in earnings.
Contingencies: CMS Energy and Consumers make judgments regarding the future outcome of various matters that give rise to contingent liabilities. For such matters, they record liabilities when they are considered probable and reasonably estimable, based on all available information. In particular, CMS Energy and Consumers are participating in various environmental remediation projects for which they have recorded liabilities. The recorded amounts represent estimates that may take into account such considerations as the number of sites, the anticipated scope, cost, and timing of remediation work, the available technology, applicable regulations, and the requirements of governmental authorities. For remediation projects in which the timing of estimated expenditures is considered reliably determinable, CMS Energy and Consumers record the liability at its net present value, using a discount rate equal to the interest rate on monetary assets that are essentially risk-free and have maturities comparable to that of the environmental liability. The amount recorded for any contingency may differ from actual costs incurred when the contingency is resolved. For additional details, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4,3, Contingencies and Commitments.
Derivative Instruments: CMS Energy and Consumers account for certain contracts as derivative instruments. If a contract is a derivative and does not qualify for the normal purchases and sales exception, it is recorded on the consolidated balance sheets at its fair value. At CMS Energy, if the derivative is accounted for as a cash flow hedge, unrealized gains and losses from changes in the fair value of the derivative are recognized in AOCI and subsequently recognized in earnings when the hedged transactions impact earnings. If the derivative is accounted for as a fair value hedge, changes in the fair value of the derivative and changes in the fair value of the hedged item due to the hedged risk are recognized in earnings. For the FTRs at Consumers, changes in fair value are deferred as regulatory assets or liabilities.
The criteria used to determine if an instrument qualifies for derivative accounting or for an exception from derivative accounting are complex and often require judgment in application. Changes in business strategies or market conditions, as well as a requirement to apply different interpretations of the derivative accounting literature, could result in changes in accounting for a single contract or groups of contracts,
which could have a material impact on CMS Energy’s and Consumers’ financial statements. For additional details on CMS Energy’s and Consumers’ derivatives and how the fair values of derivatives are determined, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 6,5, Fair Value Measurements.
Income Taxes: The amount of income taxes paid by CMS Energy is subject to ongoing audits by federal, state, and foreign tax authorities, which can result in proposed assessments. An estimate of the potential outcome of any uncertain tax issue is highly judgmental. CMS Energy believes adequate reserves have been provided for these exposures; however, future results may include favorable or unfavorable adjustments to the estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, CMS Energy’s judgment as to the ability to recover its deferred tax assets may change. CMS Energy believes the valuation allowances related to its deferred tax assets are adequate, but future results may include favorable or unfavorable adjustments. As a result, CMS Energy’s effective tax rate may fluctuate significantly over time. For additional details, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 14,12, Income Taxes.
Pension and OPEB: CMS Energy and Consumers provide retirement pension benefits to certain employees under non‑contributory DB Pension Plans, and they provide postretirement health and life benefits to qualifying retired employees under an OPEB Plan.
CMS Energy and Consumers record liabilities for pension and OPEB on their consolidated balance sheets at the present value of the future obligations, net of any plan assets. The calculation of the liabilities and associated expenses requires the expertise of actuaries, and requires many assumptions, including:
•life expectancies
•discount rates
•expected long-term rate of return on plan assets
•rate of compensation increases
•expected health care costs
A change in these assumptions could change significantly CMS Energy’s and Consumers’ recorded liabilities and associated expenses.
Presented in the following table are estimates of costs (credits)credits and cash contributions through 20232025 for the DB Pension Plans and OPEB Plan.Plan. Actual future costs, credits, and contributions will depend on future investment performance, discount rates, and various factors related to the participants of the DB Pension
Plans and OPEB Plan. CMS Energy and Consumers will, at a minimum, contribute to the plans as needed to comply with federal funding requirements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions |
| DB Pension Plans | | OPEB Plan |
| Cost (Credit) | Contribution | | Cost (Credit) | Contribution |
CMS Energy, including Consumers | | | | | | | | | |
2021 | | $ | 17 | | | $ | — | | | | $ | (113) | | | $ | — | |
2022 | | 7 | | | — | | | | (113) | | | — | |
2023 | | (8) | | | — | | | | (107) | | | — | |
Consumers1 | | | | | | | | | |
2021 | | $ | 19 | | | $ | — | | | | $ | (105) | | | $ | — | |
2022 | | 10 | | | — | | | | (105) | | | — | |
2023 | | (5) | | | — | | | | (99) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions |
| DB Pension Plans | | OPEB Plan |
| Credit | Contribution | | Credit | Contribution |
CMS Energy, including Consumers | | | | | | | | | |
2023 | | $ | (58) | | | $ | — | | | | $ | (76) | | | $ | — | |
2024 | | (64) | | | — | | | | (71) | | | — | |
2025 | | (63) | | | — | | | | (75) | | | — | |
Consumers1 | | | | | | | | | |
2023 | | $ | (54) | | | $ | — | | | | $ | (70) | | | $ | — | |
2024 | | (59) | | | — | | | | (65) | | | — | |
2025 | | (59) | | | — | | | | (69) | | | — | |
1Consumers’ pension and OPEB costs are recoverable through its general ratemaking process.
Lowering the expected long-term rate of return on the assets of the DB Pension Plans by 25 basis points would increase estimated pension cost for 20212023 by $7$8 million for both CMS Energy and Consumers. Lowering the PBO discount rates by 25 basis points would increasedecrease estimated pension cost for 20212023 by $5$1 million for both CMS Energy and Consumers.
Pension and OPEB plan assets are accounted for and disclosed at fair value. Fair value measurements incorporate assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Development of these assumptions may require judgment.
For additional details on postretirement benefits, including the fair value measurements for the assets of the DB Pension Plans and OPEB Plan, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12,10, Retirement Benefits.
Unbilled Revenues: Consumers’ customers are billed monthly in cycles having billing dates that do not generally coincide with the end of a calendar month. This results in customers having received electricity or natural gas that they have not been billed for as of the month-end. Consumers estimates its unbilled revenues by applying an average billed rate to total unbilled deliveries for each customer class. Consumers records unbilled revenues as accounts receivable and accrued revenue on its consolidated balance sheet. For additional information on unbilled revenues, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 16,14, Revenue.
New Accounting Standards
There are no new accounting standards issued but not yet effective that are expected to have a material impact on CMS Energy’s or Consumers’ consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
CMS Energy and Consumers are exposed to market risks including, but not limited to, changes in interest rates, commodity prices, and investment security prices. They may enter into various risk management contracts to mitigate exposure to these risks, including swaps, options, futures, and forward contracts. CMS Energy and Consumers enter into these contracts using established policies and procedures, under
the direction of an executive oversight committee consisting of certain officers and a risk committee consisting of those and other officers and business managers.
The following risk sensitivities illustrate the potential loss in fair value, cash flows, or future earnings from financial instruments, assuming a hypothetical adverse change in market rates or prices of ten percent. Potential losses could exceed the amounts shown in the sensitivity analyses if changes in market rates or prices were to exceed ten percent.
Long-Term Debt: CMS Energy and Consumers are exposed to interest-rate risk resulting from issuing fixed-rate and variable-rate debt instruments. CMS Energy and Consumers use a combination of these instruments, and may also enter into interest-rate swap agreements, in order to manage this risk and to achieve a reasonable cost of capital.
Presented in the following table is a sensitivity analysis of interest-rate risk on CMS Energy’s and Consumers’ debt instruments which includes the effects of interest-rate swaps (assuming an adverse change in market interest rates of ten percent):
| In Millions | In Millions | In Millions |
December 31 | December 31 | 2020 | 2019 | December 31 | 2022 | 2021 |
Fixed-rate financing—potential loss in fair value | Fixed-rate financing—potential loss in fair value | | Fixed-rate financing—potential loss in fair value | |
CMS Energy, including Consumers | CMS Energy, including Consumers | | $ | 634 | | | $ | 558 | | CMS Energy, including Consumers | | $ | 711 | | | $ | 639 | |
Consumers | Consumers | | 372 | | | 355 | | Consumers | | 482 | | | 402 | |
The fair value losses in the above table could be realized only if CMS Energy and Consumers transferred all of their fixed-rate financing to other creditors. The annual earnings exposure related to variable-rate financing was immaterial for both CMS Energy and Consumers at December 31, 20202022 and 2019,2021, assuming an adverse change in market interest rates of ten percent.
Notes Receivable: CMS Energy is exposed to interest-rate risk resulting from EnerBank’s fixed-rate installment loans. EnerBank provides primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements.
Presented in the following table is a sensitivity analysis of interest-rate risk on EnerBank’s notes receivable, which includes the effects of interest-rate swaps (assuming an adverse change in market interest rates of ten percent):
| | | | | | | | | | | | | | |
In Millions |
December 31 | 2020 | 2019 |
Notes receivable—potential loss in fair value | | $ | 77 | | | $ | 61 | |
The fair value losses for CMS Energy in the above table could be realized only if EnerBank’s loans were sold to other parties. The annual earnings exposure related to variable-rate interest receipts at EnerBank was immaterial at December 31, 2020 and 2019. For additional details on financial instruments see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 7,6, Financial Instruments.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
CMS Energy Corporation
Consolidated Statements of Income
| | | | | | | | | | | | | | | | | | | | |
In Millions, Except Per Share Amounts |
Years Ended December 31 | 2020 | 2019 | 2018 |
Operating Revenue | | $ | 6,680 | | | $ | 6,845 | | | $ | 6,873 | |
| | | | | | |
Operating Expenses | | | | | | |
Fuel for electric generation | | 375 | | | 493 | | | 528 | |
Purchased and interchange power | | 1,492 | | | 1,496 | | | 1,613 | |
Purchased power – related parties | | 64 | | | 75 | | | 81 | |
Cost of gas sold | | 577 | | | 769 | | | 836 | |
Maintenance and other operating expenses | | 1,403 | | | 1,448 | | | 1,417 | |
Depreciation and amortization | | 1,048 | | | 992 | | | 933 | |
General taxes | | 359 | | | 333 | | | 303 | |
Total operating expenses | | 5,318 | |
| 5,606 | |
| 5,711 | |
| | | | | | |
Operating Income | | 1,362 | |
| 1,239 | |
| 1,162 | |
| | | | | | |
Other Income (Expense) | | | | | | |
Interest income | | 4 | | | 7 | | | 11 | |
Interest income – related parties | | 7 | | | 0 | | | 0 | |
Allowance for equity funds used during construction | | 6 | | | 10 | | | 6 | |
Income from equity method investees | | 5 | | | 10 | | | 9 | |
Nonoperating retirement benefits, net | | 118 | | | 91 | | | 90 | |
Other income | | 6 | | | 4 | | | 2 | |
Other expense | | (62) | | | (13) | | | (48) | |
Total other income | | 84 | |
| 109 | |
| 70 | |
| | | | | | |
Interest Charges | | | | | | |
Interest on long-term debt | | 483 | | | 439 | | | 412 | |
Interest expense – related parties | | 12 | | | 9 | | | 0 | |
Other interest expense | | 68 | | | 75 | | | 49 | |
Allowance for borrowed funds used during construction | | (2) | | | (4) | | | (3) | |
Total interest charges | | 561 | |
| 519 | |
| 458 | |
| | | | | | |
Income Before Income Taxes | | 885 | | | 829 | | | 774 | |
Income Tax Expense | | 133 | | | 147 | | | 115 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net Income | | 752 | | | 682 | | | 659 | |
Income (Loss) Attributable to Noncontrolling Interests | | (3) | | | 2 | | | 2 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net Income Available to Common Stockholders | | $ | 755 | | | $ | 680 | | | $ | 657 | |
| | | | | | |
Basic Earnings Per Average Common Share | | $ | 2.65 | | | $ | 2.40 | | | $ | 2.33 | |
Diluted Earnings Per Average Common Share | | 2.64 | | | 2.39 | | | 2.32 | |
The accompanying notes are an integral part of these statements.
CMS Energy Corporation
Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2020 | 2019 | 2018 |
Net Income | | $ | 752 | | | $ | 682 | | | $ | 659 | |
| | | | | | |
Retirement Benefits Liability | | | | | | |
Net loss arising during the period, net of tax of $(4), $(3), and $(1) | | (15) | | | (7) | | | (4) | |
Settlement arising during the period, net of tax of $0 for all periods | | 1 | | | 0 | | | 0 | |
Prior service credit adjustment, net of tax of $0 for all periods | | (1) | | | 0 | | | (1) | |
Amortization of net actuarial loss, net of tax of $1 for all periods | | 5 | | | 3 | | | 4 | |
Amortization of prior service credit, net of tax of $0, $0, and $(1) | | (1) | | | (2) | | | (1) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Derivatives | | | | | | |
Unrealized loss on derivative instruments, net of tax of $(2), $(1), and $0 | | (4) | | | (3) | | | (2) | |
Reclassification adjustments included in net income, net of tax of $0 for all periods | | 2 | | | 1 | | | 0 | |
| | | | | | |
Other Comprehensive Loss | | (13) | | | (8) | | | (4) | |
| | | | | | |
Comprehensive Income | | 739 | | | 674 | | | 655 | |
| | | | | | |
Comprehensive Income (Loss) Attributable to Noncontrolling Interests | | (3) | | | 2 | | | 2 | |
| | | | | | |
Comprehensive Income Attributable to CMS Energy | | $ | 742 | | | $ | 672 | | | $ | 653 | |
The accompanying notes are an integral part of these statements.
CMS Energy Corporation
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2020 | 2019 | 2018 |
Cash Flows from Operating Activities | | | | | | |
Net income | | $ | 752 | | | $ | 682 | | | $ | 659 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | |
Depreciation and amortization | | 1,048 | | | 992 | | | 933 | |
Deferred income taxes and investment tax credits | | 170 | | | 150 | | | 182 | |
Bad debt expense | | 90 | | | 67 | | | 54 | |
Other non‑cash operating activities and reconciling adjustments | | (22) | | | (58) | | | 22 | |
Postretirement benefits contributions | | (712) | | | (10) | | | (252) | |
Cash provided by (used in) changes in assets and liabilities | | | | | | |
Accounts and notes receivable and accrued revenue | | (12) | | | 45 | | | 15 | |
Inventories | | 28 | | | 44 | | | 14 | |
Accounts payable and accrued rate refunds | | 54 | | | (69) | | | 22 | |
Other current and non‑current assets and liabilities | | (120) | | | (53) | | | 54 | |
Net cash provided by operating activities | | 1,276 | |
| 1,790 | |
| 1,703 | |
| | | | | | |
Cash Flows from Investing Activities | | | | | | |
Capital expenditures (excludes assets placed under finance lease) | | (2,317) | | | (2,104) | | | (2,074) | |
Increase in EnerBank notes receivable | | (657) | | | (401) | | | (307) | |
Purchase of notes receivable by EnerBank | | (17) | | | (343) | | | (225) | |
Proceeds from DB SERP investments | | 0 | | | 0 | | | 146 | |
Proceeds from sale of EnerBank notes receivable | | 197 | | | 67 | | | 0 | |
Proceeds from sale of transmission equipment | | 58 | | | 97 | | | 0 | |
Cost to retire property and other investing activities | | (131) | | | (132) | | | (146) | |
Net cash used in investing activities | | (2,867) | |
| (2,816) | |
| (2,606) | |
| | | | | | |
Cash Flows from Financing Activities | | | | | | |
Proceeds from issuance of debt | | 3,179 | | | 2,151 | | | 2,767 | |
Retirement of debt | | (2,010) | | | (1,285) | | | (1,870) | |
Increase in EnerBank certificates of deposit | | 416 | | | 631 | | | 513 | |
Decrease in notes payable | | (90) | | | (7) | | | (73) | |
Issuance of common stock, net of issuance costs | | 253 | | | 12 | | | 41 | |
Payment of dividends on common and preferred stock | | (467) | | | (436) | | | (407) | |
Debt prepayment costs | | (59) | | | (8) | | | (36) | |
Proceeds from the sale of membership interest in VIE to tax equity investor | | 417 | | | 0 | | | 0 | |
Contribution from noncontrolling interest | | 31 | | | 0 | | | 0 | |
Other financing costs | | (51) | | | (50) | | | (61) | |
Net cash provided by financing activities | | 1,619 | |
| 1,008 | |
| 874 | |
| | | | | | |
Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts | | 28 | | | (18) | | | (29) | |
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period | | 157 | | | 175 | | | 204 | |
| | | | | | |
Cash and Cash Equivalents, Including Restricted Amounts, End of Period | | $ | 185 | |
| $ | 157 | |
| $ | 175 | |
| | | | | | | | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2020 | 2019 | 2018 |
Other Cash Flow Activities and Non‑cash Investing and Financing Activities |
| | | | | | |
Cash transactions | | | | | | |
Interest paid (net of amounts capitalized) | | $ | 549 | | | $ | 498 | | | $ | 458 | |
Income taxes paid (refunds received), net | | (58) | | | (58) | | | (123) | |
| | | | | | |
Non‑cash transactions | | | | | | |
Capital expenditures not paid | | 141 | | | 170 | | | 158 | |
| | | | | | |
The accompanying notes are an integral part of these statements.
CMS Energy Corporation
Consolidated Balance Sheets
| | | | | | | | | | | | | | |
ASSETS |
In Millions |
December 31 | 2020 | 2019 |
Current Assets | | | | |
Cash and cash equivalents | | $ | 168 | | | $ | 140 | |
Restricted cash and cash equivalents | | 17 | | | 17 | |
Accounts receivable and accrued revenue, less allowance of $29 in 2020 and $20 in 2019 | | 863 | | | 886 | |
Notes receivable, less allowance of $32 in 2020 and $33 in 2019 | | 275 | | | 242 | |
| | | | |
Accounts receivable – related parties | | 19 | | | 17 | |
| | | | |
Inventories at average cost | | | | |
Gas in underground storage | | 353 | | | 399 | |
Materials and supplies | | 155 | | | 140 | |
Generating plant fuel stock | | 68 | | | 66 | |
Deferred property taxes | | 332 | | | 305 | |
Regulatory assets | | 42 | | | 33 | |
Prepayments and other current assets | | 112 | | | 86 | |
Total current assets | | 2,404 | |
| 2,331 | |
| | | | |
Plant, Property, and Equipment | | | | |
Plant, property, and equipment, gross | | 27,907 | | | 25,390 | |
Less accumulated depreciation and amortization | | 7,953 | | | 7,360 | |
Plant, property, and equipment, net | | 19,954 | |
| 18,030 | |
Construction work in progress | | 1,085 | | | 896 | |
Total plant, property, and equipment | | 21,039 | |
| 18,926 | |
| | | | |
Other Non‑current Assets | | | | |
Regulatory assets | | 2,653 | | | 2,489 | |
Accounts and notes receivable, less allowance of $91 in 2020 and $0 in 2019 | | 2,631 | | | 2,281 | |
Investments | | 70 | | | 71 | |
Other | | 869 | | | 739 | |
Total other non‑current assets | | 6,223 | |
| 5,580 | |
| | | | |
Total Assets | | $ | 29,666 | |
| $ | 26,837 | |
| | | | | | | | | | | | | | |
LIABILITIES AND EQUITY |
In Millions |
December 31 | 2020 | 2019 |
Current Liabilities | | | | |
Current portion of long-term debt, finance leases, and other financing | | $ | 1,506 | | | $ | 1,130 | |
Notes payable | | 0 | | | 90 | |
Accounts payable | | 671 | | | 622 | |
Accounts payable – related parties | | 7 | | | 13 | |
Accrued rate refunds | | 20 | | | 35 | |
Accrued interest | | 106 | | | 104 | |
Accrued taxes | | 457 | | | 437 | |
Regulatory liabilities | | 151 | | | 87 | |
Other current liabilities | | 156 | | | 186 | |
Total current liabilities | | 3,074 | |
| 2,704 | |
| | | | |
Non‑current Liabilities | | | | |
Long-term debt | | 13,634 | | | 11,951 | |
Non-current portion of finance leases and other financing | | 56 | | | 76 | |
Regulatory liabilities | | 3,744 | | | 3,742 | |
Postretirement benefits | | 152 | | | 674 | |
Asset retirement obligations | | 553 | | | 477 | |
Deferred investment tax credit | | 115 | | | 120 | |
Deferred income taxes | | 1,863 | | | 1,655 | |
Other non‑current liabilities | | 398 | | | 383 | |
Total non‑current liabilities | | 20,515 | |
| 19,078 | |
| | | | |
Commitments and Contingencies (Notes 3 and 4) | | 0 | | 0 |
| | | | |
Equity | | | | |
Common stockholders’ equity | | | | |
Common stock, authorized 350.0 shares; outstanding 288.9 shares in 2020 and 283.9 shares in 2019 | | 3 | | | 3 | |
Other paid-in capital | | 5,365 | | | 5,113 | |
Accumulated other comprehensive loss | | (86) | | | (73) | |
Retained earnings (accumulated deficit) | | 214 | | | (25) | |
Total common stockholders’ equity | | 5,496 | | | 5,018 | |
Noncontrolling interests | | 581 | | | 37 | |
Total equity | | 6,077 | |
| 5,055 | |
| | | | |
Total Liabilities and Equity | | $ | 29,666 | |
| $ | 26,837 | |
The accompanying notes are an integral part of these statements.
CMS Energy Corporation
Consolidated Statements of Changes in Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions, Except Number of Shares in Thousands and Per Share Amounts |
| Number of Shares | | | | | | |
Years Ended December 31 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 |
Total Equity at Beginning of Period | | $ | 5,055 | | | $ | 4,792 | | | $ | 4,478 | |
| | | | | | |
Common Stock | | | | | | |
| | | | | | |
| | | | | | |
At beginning and end of period | | 3 | | | 3 | | | 3 | |
| | | | | | | | | |
Other Paid-in Capital | | | | | | | | | |
At beginning of period | 283,864 | | 283,374 | | 281,647 | | | 5,113 | | | 5,088 | | | 5,019 | |
Common stock issued | 5,609 | | 710 | | 1,554 | | | 265 | | | 35 | | | 59 | |
Common stock repurchased | (216) | | (181) | | (224) | | | (13) | | | (10) | | | (10) | |
Common stock reissued | 12 | | 8 | | 423 | | | 1 | | | 0 | | | 20 | |
Common stock reacquired | (329) | | (47) | | (26) | | | (1) | | | 0 | | | 0 | |
At end of period | 288,940 | | 283,864 | | 283,374 | | | 5,365 | | | 5,113 | | | 5,088 | |
| | | | | | |
Accumulated Other Comprehensive Loss | | | | | | |
At beginning of period | | (73) | | | (65) | | | (50) | |
Retirement benefits liability | | | | | | |
At beginning of period | | (69) | | | (63) | | | (50) | |
Cumulative effect of change in accounting principle | | 0 | | | 0 | | | (11) | |
Net loss arising during the period | | (15) | | | (7) | | | (4) | |
Settlement arising during the period | | 1 | | | 0 | | | 0 | |
Prior service credit adjustment | | (1) | | | 0 | | | (1) | |
Amortization of net actuarial loss | | 5 | | | 3 | | | 4 | |
Amortization of prior service credit | | (1) | | | (2) | | | (1) | |
At end of period | | (80) | | | (69) | | | (63) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Derivative instruments |
|
|
|
|
|
|
At beginning of period |
| (4) | | | (2) | | | 0 | |
| | | | | | |
Unrealized loss on derivative instruments |
| (4) | | | (3) | | | (2) | |
Reclassification adjustments included in net income | | 2 | | | 1 | | | 0 | |
At end of period |
| (6) | | | (4) | | | (2) | |
At end of period | | (86) | | | (73) | | | (65) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions, Except Number of Shares in Thousands and Per Share Amounts |
| Number of Shares | | | | | | |
Years Ended December 31 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 |
| | | | | | |
Retained Earnings (Accumulated Deficit) | | | | | | |
At beginning of period | | (25) | | | (271) | | | (531) | |
Cumulative effect of change in accounting principle | | (51) | | | 0 | | | 8 | |
Net income attributable to CMS Energy | | 755 | | | 680 | | | 657 | |
Dividends declared on common stock | | (465) | | | (434) | | | (405) | |
| | | | | | |
At end of period | | 214 | | | (25) | | | (271) | |
| | | | | | |
Noncontrolling Interests | | | | | | |
At beginning of period | | 37 | | | 37 | | | 37 | |
Impact of purchase and consolidation of VIE | | 101 | | | 0 | | | 0 | |
Sale of membership interest in VIE to tax equity investor | | 417 | | | 0 | | | 0 | |
Contribution from noncontrolling interest | | 31 | | | 0 | | | 0 | |
Income (loss) attributable to noncontrolling interests | | (3) | | | 2 | | | 2 | |
Distributions and other changes in noncontrolling interests | | (2) | | | (2) | | | (2) | |
At end of period | | 581 | | | 37 | | | 37 | |
| | | | | | |
Total Equity at End of Period | | $ | 6,077 | | | $ | 5,055 | | | $ | 4,792 | |
| | | | | | |
Dividends declared per common share | | $ | 1.63 | | | $ | 1.53 | | | $ | 1.43 | |
The accompanying notes are an integral part of these statements.
Consumers Energy Company
Consolidated Statements of Income
| In Millions | |
In Millions, Except Per Share Amounts | | In Millions, Except Per Share Amounts |
| Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | | | 2022 | 2021 | 2020 |
Operating Revenue | Operating Revenue | | $ | 6,189 | | | $ | 6,376 | | | $ | 6,464 | | Operating Revenue | | | $ | 8,596 | | | $ | 7,329 | | | $ | 6,418 | |
| Operating Expenses | Operating Expenses | | Operating Expenses | | |
Fuel for electric generation | Fuel for electric generation | | 286 | | | 375 | | | 407 | | Fuel for electric generation | | | 905 | | | 593 | | | 375 | |
Purchased and interchange power | Purchased and interchange power | | 1,454 | | | 1,470 | | | 1,587 | | Purchased and interchange power | | | 1,928 | | | 1,665 | | | 1,492 | |
Purchased power – related parties | Purchased power – related parties | | 64 | | | 75 | | | 83 | | Purchased power – related parties | | | 76 | | | 77 | | | 64 | |
Cost of gas sold | Cost of gas sold | | 568 | | | 754 | | | 819 | | Cost of gas sold | | | 1,256 | | | 735 | | | 577 | |
Maintenance and other operating expenses | Maintenance and other operating expenses | | 1,224 | | | 1,275 | | | 1,287 | | Maintenance and other operating expenses | | | 1,669 | | | 1,610 | | | 1,280 | |
Depreciation and amortization | Depreciation and amortization | | 1,023 | | | 975 | | | 921 | | Depreciation and amortization | | | 1,126 | | | 1,114 | | | 1,043 | |
General taxes | General taxes | | 349 | | | 322 | | | 295 | | General taxes | | | 412 | | | 389 | | | 357 | |
Total operating expenses | Total operating expenses | | 4,968 | |
| 5,246 | |
| 5,399 | | Total operating expenses | | | 7,372 | |
| 6,183 | |
| 5,188 | |
| Operating Income | Operating Income | | 1,221 | |
| 1,130 | |
| 1,065 | | Operating Income | | | 1,224 | |
| 1,146 | |
| 1,230 | |
| Other Income (Expense) | Other Income (Expense) | | | | | | | Other Income (Expense) | | |
Interest income | | 3 | | | 5 | | | 8 | | |
Interest and dividend income – related parties | | 5 | | | 5 | | | 2 | | |
Allowance for equity funds used during construction | | 6 | | | 10 | | | 6 | | |
Nonoperating retirement benefits, net | | 112 | | | 85 | | | 83 | | |
| Non-operating retirement benefits, net | | Non-operating retirement benefits, net | | | 205 | | | 165 | | | 118 | |
Other income | Other income | | 5 | | | 3 | | | 2 | | Other income | | | 19 | | | 30 | | | 28 | |
Other expense | Other expense | | (43) | | | (13) | | | (30) | | Other expense | | | (27) | | | (18) | | | (62) | |
Total other income | Total other income | | 88 | |
| 95 | |
| 71 | | Total other income | | | 197 | |
| 177 | |
| 84 | |
| Interest Charges | Interest Charges | | | | | | | Interest Charges | | |
Interest on long-term debt | Interest on long-term debt | | 299 | | | 277 | | | 276 | | Interest on long-term debt | | | 509 | | | 481 | | | 483 | |
Interest expense – related parties | Interest expense – related parties | | 12 | | | 9 | | | 0 | | Interest expense – related parties | | | 12 | | | 12 | | | 12 | |
Other interest expense | Other interest expense | | 11 | | | 15 | | | 16 | | Other interest expense | | | — | | | 10 | | | 12 | |
Allowance for borrowed funds used during construction | Allowance for borrowed funds used during construction | | (2) | | | (4) | | | (3) | | Allowance for borrowed funds used during construction | | | (2) | | | (3) | | | (2) | |
Total interest charges | Total interest charges | | 320 | |
| 297 | |
| 289 | | Total interest charges | | | 519 | |
| 500 | |
| 505 | |
| Income Before Income Taxes | Income Before Income Taxes | | 989 | | | 928 | | | 847 | | Income Before Income Taxes | | | 902 | | | 823 | | | 809 | |
Income Tax Expense | Income Tax Expense | | 173 | | | 185 | | | 142 | | Income Tax Expense | | | 93 | | | 95 | | | 115 | |
| Income From Continuing Operations | | Income From Continuing Operations | | | 809 | | | 728 | | | 694 | |
Income From Discontinued Operations, Net of Tax of $1, $170, and $18 | | Income From Discontinued Operations, Net of Tax of $1, $170, and $18 | | | 4 | | | 602 | | | 58 | |
| Net Income | Net Income | | 816 | |
| 743 | |
| 705 | | Net Income | | | 813 | | | 1,330 | | | 752 | |
Loss Attributable to Noncontrolling Interests | | Loss Attributable to Noncontrolling Interests | | | (24) | | | (23) | | | (3) | |
| Net Income Attributable to CMS Energy | | Net Income Attributable to CMS Energy | | | 837 | | | 1,353 | | | 755 | |
Preferred Stock Dividends | Preferred Stock Dividends | | 2 | | | 2 | | | 2 | | Preferred Stock Dividends | | | 10 | | | 5 | | | — | |
| Net Income Available to Common Stockholder | | $ | 814 | | | $ | 741 | | | $ | 703 | | |
Net Income Available to Common Stockholders | | Net Income Available to Common Stockholders | | | $ | 827 | | | $ | 1,348 | | | $ | 755 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions, Except Per Share Amounts |
| | | |
Years Ended December 31 | | | | 2022 | 2021 | 2020 |
| | | | | | | | | | | |
Basic Earnings Per Average Common Share | | | | | | | | | | | |
Income from continuing operations per average common share available to common stockholders | | | | | | | $ | 2.84 | | | $ | 2.58 | | | $ | 2.45 | |
Income from discontinued operations per average common share available to common stockholders | | | | | | | 0.01 | | | 2.08 | | | 0.20 | |
Basic earnings per average common share | | | | | | | $ | 2.85 | | | $ | 4.66 | | | $ | 2.65 | |
| | | | | | | | | | | |
Diluted Earnings Per Average Common Share | | | | | | | | | | | |
Income from continuing operations per average common share available to common stockholders | | | | | | | $ | 2.84 | | | $ | 2.58 | | | $ | 2.44 | |
Income from discontinued operations per average common share available to common stockholders | | | | | | | 0.01 | | | 2.08 | | | 0.20 | |
Diluted earnings per average common share | | | | | | | $ | 2.85 | | | $ | 4.66 | | | $ | 2.64 | |
The accompanying notes are an integral part of these statements.
ConsumersCMS Energy CompanyCorporation
Consolidated Statements of Comprehensive Income
| In Millions | In Millions | In Millions |
| Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | | | 2022 | 2021 | 2020 |
Net Income | Net Income | | $ | 816 | | | $ | 743 | | | $ | 705 | | Net Income | | | $ | 813 | | | $ | 1,330 | | | $ | 752 | |
| Retirement Benefits Liability | Retirement Benefits Liability | | | | | Retirement Benefits Liability | | |
Net gain (loss) arising during the period, net of tax of $(3), $(3), and $2 | | (9) | | | (8) | | | 6 | | |
Amortization of net actuarial loss, net of tax of $1, $0, and $0 | | 1 | | | 1 | | | 2 | | |
Net gain (loss) arising during the period, net of tax of $—, $6, and $(4) | | Net gain (loss) arising during the period, net of tax of $—, $6, and $(4) | | | 1 | | | 19 | | | (15) | |
Settlement arising during the period, net of tax of $— for all periods | | Settlement arising during the period, net of tax of $— for all periods | | | — | | | 1 | | | 1 | |
Prior service credit adjustment, net of tax of $— for all periods | | Prior service credit adjustment, net of tax of $— for all periods | | | — | | | — | | | (1) | |
Amortization of net actuarial loss, net of tax of $1, $2, and $1 | | Amortization of net actuarial loss, net of tax of $1, $2, and $1 | | | 4 | | | 5 | | | 5 | |
Amortization of prior service credit, net of tax of $— for all periods | | Amortization of prior service credit, net of tax of $— for all periods | | | (1) | | | (1) | | | (1) | |
| Investments | | |
Unrealized loss on investments, net of tax of $0 for all periods | | 0 | | | 0 | | | (1) | | |
Reclassification adjustments included in net income, net of tax of $0 for all periods | | 0 | | | 0 | | | 1 | | |
| | Derivatives | | Derivatives | | |
Unrealized gain (loss) on derivative instruments, net of tax of $1, $—, and $(2) | | Unrealized gain (loss) on derivative instruments, net of tax of $1, $—, and $(2) | | | 2 | | | 2 | | | (4) | |
Reclassification adjustments included in net income, net of tax of $—, $1, and $— | | Reclassification adjustments included in net income, net of tax of $—, $1, and $— | | | 1 | | | 1 | | | 2 | |
| Other Comprehensive Income (Loss) | Other Comprehensive Income (Loss) | | (8) | | | (7) | | | 8 | | Other Comprehensive Income (Loss) | | | 7 | | | 27 | | | (13) | |
| Comprehensive Income | Comprehensive Income | | $ | 808 | | | $ | 736 | | | $ | 713 | | Comprehensive Income | | | 820 | | | 1,357 | | | 739 | |
Comprehensive Loss Attributable to Noncontrolling Interests | | Comprehensive Loss Attributable to Noncontrolling Interests | | | (24) | | | (23) | | | (3) | |
| Comprehensive Income Attributable to CMS Energy | | Comprehensive Income Attributable to CMS Energy | | | $ | 844 | | | $ | 1,380 | | | $ | 742 | |
The accompanying notes are an integral part of these statements.
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ConsumersCMS Energy CompanyCorporation
Consolidated Statements of Cash Flows
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
Cash Flows from Operating Activities | Cash Flows from Operating Activities | | Cash Flows from Operating Activities | |
Net income | Net income | | $ | 816 | | | $ | 743 | | | $ | 705 | | Net income | | $ | 813 | | | $ | 1,330 | | | $ | 752 | |
Adjustments to reconcile net income to net cash provided by operating activities | Adjustments to reconcile net income to net cash provided by operating activities | | Adjustments to reconcile net income to net cash provided by operating activities | |
Depreciation and amortization | Depreciation and amortization | | 1,023 | | | 975 | | | 921 | | Depreciation and amortization | | 1,126 | | | 1,114 | | | 1,043 | |
Deferred income taxes and investment tax credits | Deferred income taxes and investment tax credits | | 177 | | | 37 | | | 123 | | Deferred income taxes and investment tax credits | | 89 | | | 249 | | | 170 | |
Bad debt expense | Bad debt expense | | 33 | | | 29 | | | 29 | | Bad debt expense | | 50 | | | 22 | | | 30 | |
Postretirement benefits contributions | | Postretirement benefits contributions | | (12) | | | (12) | | | (712) | |
Gain from sale of EnerBank | | Gain from sale of EnerBank | | (5) | | | (657) | | | — | |
Other non‑cash operating activities and reconciling adjustments | Other non‑cash operating activities and reconciling adjustments | | (30) | | | (32) | | | 13 | | Other non‑cash operating activities and reconciling adjustments | | (93) | | | (70) | | | (15) | |
Postretirement benefits contributions | | (690) | | | (7) | | | (242) | | |
Cash provided by (used in) changes in assets and liabilities | | |
Accounts and notes receivable and accrued revenue | | (46) | | | 8 | | | (26) | | |
Net cash provided by (used in) discontinued operations | | Net cash provided by (used in) discontinued operations | | — | | | (111) | | | 33 | |
Changes in assets and liabilities | | Changes in assets and liabilities | |
Accounts receivable and accrued revenue | | Accounts receivable and accrued revenue | | (677) | | | (103) | | | (5) | |
Inventories | Inventories | | 26 | | | 40 | | | 15 | | Inventories | | (450) | | | (93) | | | 28 | |
Accounts payable and accrued rate refunds | Accounts payable and accrued rate refunds | | 45 | | | (63) | | | 12 | | Accounts payable and accrued rate refunds | | 4 | | | 153 | | | 56 | |
Other current and non-current assets and liabilities | | (136) | | | (129) | | | (101) | | |
Other current assets and liabilities | | Other current assets and liabilities | | 14 | | | 13 | | | (68) | |
Other non‑current assets and liabilities | | Other non‑current assets and liabilities | | (4) | | | (16) | | | (36) | |
Net cash provided by operating activities | Net cash provided by operating activities | | 1,218 | |
| 1,601 | |
| 1,449 | | Net cash provided by operating activities | | 855 | |
| 1,819 | | | 1,276 | |
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | | Cash Flows from Investing Activities | |
Capital expenditures (excludes assets placed under finance lease) | Capital expenditures (excludes assets placed under finance lease) | | (2,170) | | | (2,085) | | | (1,822) | | Capital expenditures (excludes assets placed under finance lease) | | (2,374) | | | (2,076) | | | (2,311) | |
Proceeds from DB SERP investments | | 0 | | | 0 | | | 106 | | |
DB SERP investment in note receivable – related party | | (5) | | | 0 | | | (106) | | |
| Net proceeds from sale of EnerBank | | Net proceeds from sale of EnerBank | | 5 | | | 898 | | | — | |
Proceeds from sale of transmission equipment | Proceeds from sale of transmission equipment | | 58 | | | 77 | | | 0 | | Proceeds from sale of transmission equipment | | — | | | — | | | 58 | |
Net cash provided by (used in) discontinued operations | | Net cash provided by (used in) discontinued operations | | — | | | 78 | | | (485) | |
Cost to retire property and other investing activities | Cost to retire property and other investing activities | | (129) | | | (129) | | | (149) | | Cost to retire property and other investing activities | | (107) | | | (133) | | | (129) | |
Net cash used in investing activities | Net cash used in investing activities | | (2,246) | |
| (2,137) | |
| (1,971) | | Net cash used in investing activities | | (2,476) | |
| (1,233) | | | (2,867) | |
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | | Cash Flows from Financing Activities | |
Proceeds from issuance of debt | Proceeds from issuance of debt | | 1,954 | | | 993 | | | 2,106 | | Proceeds from issuance of debt | | 1,899 | | | 335 | | | 3,179 | |
Retirement of debt | Retirement of debt | | (1,086) | | | (541) | | | (1,193) | | Retirement of debt | | (106) | | | (235) | | | (2,010) | |
Decrease in notes payable | | (90) | | | (7) | | | (73) | | |
Increase in notes payable – related parties | | 307 | | | 0 | | | 0 | | |
Stockholder contribution | | 650 | | | 675 | | | 250 | | |
| Increase (decrease) in notes payable | | Increase (decrease) in notes payable | | 20 | | | — | | | (90) | |
Issuance of common stock | | Issuance of common stock | | 69 | | | 26 | | | 253 | |
Issuance of preferred stock, net of issuance costs | | Issuance of preferred stock, net of issuance costs | | — | | | 224 | | | — | |
Payment of dividends on common and preferred stock | Payment of dividends on common and preferred stock | | (639) | | | (594) | | | (533) | | Payment of dividends on common and preferred stock | | (546) | | | (509) | | | (467) | |
Debt prepayment costs | Debt prepayment costs | | (43) | | | (8) | | | (20) | | Debt prepayment costs | | — | | | — | | | (59) | |
Proceeds from the sale of membership interest in VIE to tax equity investor | | Proceeds from the sale of membership interest in VIE to tax equity investor | | 49 | | | — | | | 417 | |
Contribution from noncontrolling interest | | Contribution from noncontrolling interest | | 2 | | | 1 | | | 31 | |
Net cash provided by (used in) discontinued operations | | Net cash provided by (used in) discontinued operations | | — | | | (84) | | | 416 | |
Other financing costs | Other financing costs | | (18) | | | (10) | | | (24) | | Other financing costs | | (60) | | | (53) | | | (51) | |
Net cash provided by financing activities | | 1,035 | |
| 508 | |
| 513 | | |
| Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts | | 7 | | | (28) | | | (9) | | |
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period | | 28 | | | 56 | | | 65 | | |
| Cash and Cash Equivalents, Including Restricted Amounts, End of Period | | $ | 35 | |
| $ | 28 | |
| $ | 56 | | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | | 1,327 | |
| (295) | | | 1,619 | |
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
| Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts | | Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts | | (294) | | | 291 | | | 28 | |
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period | | Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period | | 476 | | | 185 | | | 157 | |
| Cash and Cash Equivalents, Including Restricted Amounts, End of Period | | Cash and Cash Equivalents, Including Restricted Amounts, End of Period | | $ | 182 | |
| $ | 476 | | | $ | 185 | |
| Other Cash Flow Activities and Non‑cash Investing and Financing Activities | Other Cash Flow Activities and Non‑cash Investing and Financing Activities | Other Cash Flow Activities and Non‑cash Investing and Financing Activities |
| Cash transactions | Cash transactions | | Cash transactions | |
Interest paid (net of amounts capitalized) | Interest paid (net of amounts capitalized) | | $ | 305 | | | $ | 279 | | | $ | 287 | | Interest paid (net of amounts capitalized) | | $ | 490 | | | $ | 489 | | | $ | 549 | |
Income taxes paid | | 51 | | | 132 | | | 156 | | |
| Income taxes paid (refunds received), net | | Income taxes paid (refunds received), net | | 1 | | | 16 | | | (58) | |
Non‑cash transactions | Non‑cash transactions | | | | | | | Non‑cash transactions | |
Capital expenditures not paid | Capital expenditures not paid | | 130 | | | 160 | | | 143 | | Capital expenditures not paid | | $ | 228 | | | $ | 196 | | | $ | 141 | |
| |
The accompanying notes are an integral part of these statements.
ConsumersCMS Energy CompanyCorporation
Consolidated Balance Sheets
| ASSETS | ASSETS | ASSETS |
In Millions | In Millions | In Millions |
December 31 | December 31 | 2020 | 2019 | December 31 | 2022 | 2021 |
Current Assets | Current Assets | | | | | Current Assets | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 20 | | | $ | 11 | | Cash and cash equivalents | | $ | 164 | | | $ | 452 | |
Restricted cash and cash equivalents | Restricted cash and cash equivalents | | 15 | | | 17 | | Restricted cash and cash equivalents | | 18 | | | 24 | |
Accounts receivable and accrued revenue, less allowance of $29 in 2020 and $20 in 2019 | | 828 | | | 827 | | |
Accounts receivable and accrued revenue, less allowance of $27 in 2022 and $20 in 2021 | | Accounts receivable and accrued revenue, less allowance of $27 in 2022 and $20 in 2021 | | 1,564 | | | 931 | |
| Accounts and notes receivable – related parties | | 18 | | | 9 | | |
| Accounts receivable – related parties | | Accounts receivable – related parties | | 16 | | | 12 | |
| Inventories at average cost | Inventories at average cost | | | | | Inventories at average cost | |
Gas in underground storage | Gas in underground storage | | 353 | | | 399 | | Gas in underground storage | | 840 | | | 462 | |
Materials and supplies | Materials and supplies | | 149 | | | 135 | | Materials and supplies | | 212 | | | 168 | |
Generating plant fuel stock | Generating plant fuel stock | | 67 | | | 63 | | Generating plant fuel stock | | 65 | | | 37 | |
Deferred property taxes | Deferred property taxes | | 332 | | | 305 | | Deferred property taxes | | 384 | | | 356 | |
Regulatory assets | Regulatory assets | | 42 | | | 33 | | Regulatory assets | | 57 | | | 46 | |
| Prepayments and other current assets | Prepayments and other current assets | | 68 | | | 73 | | Prepayments and other current assets | | 113 | | | 139 | |
Total current assets | Total current assets | | 1,892 | |
| 1,872 | | Total current assets | | 3,433 | |
| 2,627 | |
| Plant, Property, and Equipment | Plant, Property, and Equipment | | | | | Plant, Property, and Equipment | |
Plant, property, and equipment, gross | Plant, property, and equipment, gross | | 26,757 | | | 24,963 | | Plant, property, and equipment, gross | | 30,491 | | | 29,893 | |
Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | | 7,844 | | | 7,272 | | Less accumulated depreciation and amortization | | 8,960 | | | 8,502 | |
Plant, property, and equipment, net | Plant, property, and equipment, net | | 18,913 | |
| 17,691 | | Plant, property, and equipment, net | | 21,531 | |
| 21,391 | |
Construction work in progress | Construction work in progress | | 1,058 | | | 879 | | Construction work in progress | | 1,182 | | | 961 | |
Total plant, property, and equipment | Total plant, property, and equipment | | 19,971 | |
| 18,570 | | Total plant, property, and equipment | | 22,713 | |
| 22,352 | |
| Other Non-current Assets | | | | | |
Other Non‑current Assets | | Other Non‑current Assets | |
Regulatory assets | Regulatory assets | | 2,653 | | | 2,489 | | Regulatory assets | | 3,595 | | | 2,259 | |
Accounts receivable | Accounts receivable | | 25 | | | 29 | | Accounts receivable | | 23 | | | 30 | |
Accounts and notes receivable – related parties | | 105 | | | 102 | | |
Investments | | Investments | | 71 | | | 71 | |
Postretirement benefits | | Postretirement benefits | | 1,208 | | | 1,150 | |
| Other | Other | | 753 | | | 637 | | Other | | 310 | | | 264 | |
Total other non-current assets | | 3,536 | |
| 3,257 | | |
Total other non‑current assets | | Total other non‑current assets | | 5,207 | |
| 3,774 | |
| Total Assets | Total Assets | | $ | 25,399 | |
| $ | 23,699 | | Total Assets | | $ | 31,353 | |
| $ | 28,753 | |
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | LIABILITIES AND EQUITY |
In Millions | In Millions | In Millions |
December 31 | December 31 | 2020 | 2019 | December 31 | 2022 | 2021 |
Current Liabilities | Current Liabilities | | Current Liabilities | |
Current portion of long-term debt, finance leases, and other financing | | $ | 384 | | | $ | 221 | | |
Current portion of long-term debt and finance leases | | Current portion of long-term debt and finance leases | | $ | 1,099 | | | $ | 382 | |
Notes payable | Notes payable | | 0 | | | 90 | | Notes payable | | 20 | | | — | |
Notes payable – related parties | | 307 | | | 0 | | |
Accounts payable | Accounts payable | | 636 | | | 593 | | Accounts payable | | 928 | | | 875 | |
Accounts payable – related parties | Accounts payable – related parties | | 7 | | | 20 | | Accounts payable – related parties | | 8 | | | 11 | |
Accrued rate refunds | Accrued rate refunds | | 20 | | | 35 | | Accrued rate refunds | | — | | | 12 | |
Accrued interest | Accrued interest | | 72 | | | 67 | | Accrued interest | | 122 | | | 107 | |
Accrued taxes | Accrued taxes | | 458 | | | 481 | | Accrued taxes | | 538 | | | 515 | |
Regulatory liabilities | Regulatory liabilities | | 151 | | | 87 | | Regulatory liabilities | | 104 | | | 146 | |
| Other current liabilities | Other current liabilities | | 104 | | | 118 | | Other current liabilities | | 166 | | | 156 | |
Total current liabilities | Total current liabilities | | 2,139 | |
| 1,712 | | Total current liabilities | | 2,985 | |
| 2,204 | |
| Non-current Liabilities | | |
Non‑current Liabilities | | Non‑current Liabilities | |
Long-term debt | Long-term debt | | 7,742 | | | 7,048 | | Long-term debt | | 13,122 | | | 12,046 | |
Non-current portion of finance leases and other financing | | 56 | | | 76 | | |
Non-current portion of finance leases | | Non-current portion of finance leases | | 68 | | | 46 | |
Regulatory liabilities | Regulatory liabilities | | 3,744 | | | 3,742 | | Regulatory liabilities | | 3,796 | | | 3,802 | |
Postretirement benefits | Postretirement benefits | | 112 | | | 622 | | Postretirement benefits | | 108 | | | 142 | |
Asset retirement obligations | Asset retirement obligations | | 530 | | | 474 | | Asset retirement obligations | | 746 | | | 628 | |
Deferred investment tax credit | Deferred investment tax credit | | 115 | | | 120 | | Deferred investment tax credit | | 129 | | | 112 | |
Deferred income taxes | Deferred income taxes | | 2,094 | | | 1,864 | | Deferred income taxes | | 2,407 | | | 2,210 | |
Other non-current liabilities | | 311 | | | 304 | | |
Total non-current liabilities | | 14,704 | |
| 14,250 | | |
| Commitments and Contingencies (Notes 3 and 4) | | 0 | | 0 | |
Other non‑current liabilities | | Other non‑current liabilities | | 397 | | | 375 | |
Total non‑current liabilities | | Total non‑current liabilities | | 20,773 | |
| 19,361 | |
| Commitments and Contingencies (Notes 2, 3, and 19) | | Commitments and Contingencies (Notes 2, 3, and 19) | |
| Equity | Equity | | Equity | |
Common stockholder’s equity | | |
Common stock, authorized 125.0 shares; outstanding 84.1 shares in both periods | | 841 | | | 841 | | |
Common stockholders’ equity | | Common stockholders’ equity | |
Common stock, authorized 350.0 shares; outstanding 291.3 shares in 2022 and 289.8 shares in 2021 | | Common stock, authorized 350.0 shares; outstanding 291.3 shares in 2022 and 289.8 shares in 2021 | | 3 | | | 3 | |
Other paid-in capital | Other paid-in capital | | 6,024 | | | 5,374 | | Other paid-in capital | | 5,490 | | | 5,406 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (36) | | | (28) | | Accumulated other comprehensive loss | | (52) | | | (59) | |
Retained earnings | Retained earnings | | 1,690 | | | 1,513 | | Retained earnings | | 1,350 | | | 1,057 | |
Total common stockholder’s equity | | 8,519 | |
| 7,700 | | |
Cumulative preferred stock, $4.50 series | | 37 | | | 37 | | |
Total common stockholders’ equity | | Total common stockholders’ equity | | 6,791 | | | 6,407 | |
Cumulative redeemable perpetual preferred stock, Series C, authorized 9.2 depositary shares; outstanding 9.2 depositary shares in both periods | | Cumulative redeemable perpetual preferred stock, Series C, authorized 9.2 depositary shares; outstanding 9.2 depositary shares in both periods | | 224 | | | 224 | |
Total stockholders’ equity | | Total stockholders’ equity | | 7,015 | | | 6,631 | |
Noncontrolling interests | | Noncontrolling interests | | 580 | | | 557 | |
Total equity | Total equity | | 8,556 | |
| 7,737 | | Total equity | | 7,595 | |
| 7,188 | |
| Total Liabilities and Equity | Total Liabilities and Equity | | $ | 25,399 | |
| $ | 23,699 | | Total Liabilities and Equity | | $ | 31,353 | |
| $ | 28,753 | |
The accompanying notes are an integral part of these statements.
ConsumersCMS Energy CompanyCorporation
Consolidated Statements of Changes in Equity
| In Millions | |
In Millions, Except Number of Shares in Thousands and Per Share Amounts | | In Millions, Except Number of Shares in Thousands and Per Share Amounts |
| | | | Number of Shares | | |
Years Ended December 31 | Years Ended December 31 | | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 | | 2022 | 2021 | 2020 |
Total Equity at Beginning of Period | Total Equity at Beginning of Period | | | $ | 7,737 | | | $ | 6,920 | | | $ | 6,488 | | Total Equity at Beginning of Period | | | $ | 7,188 | | | $ | 6,077 | | | $ | 5,055 | |
| Common Stock | Common Stock | | | Common Stock | | |
| At beginning and end of period | At beginning and end of period | | | 841 | | | 841 | | | 841 | | At beginning and end of period | | | 3 | | | 3 | | | 3 | |
| Other Paid-in Capital | Other Paid-in Capital | | | Other Paid-in Capital | | | |
At beginning of period | At beginning of period | | | 5,374 | | | 4,699 | | | 4,449 | | At beginning of period | 289,758 | | 288,940 | | 283,864 | | | | 5,406 | | | 5,365 | | | 5,113 | |
Stockholder contribution | | | 650 | | | 675 | | | 250 | | |
| Common stock issued | | Common stock issued | 1,704 | | 997 | | 5,609 | | | | 93 | | | 50 | | | 265 | |
Common stock repurchased | | Common stock repurchased | (151) | | (157) | | (216) | | | | (9) | | | (9) | | | (13) | |
Common stock reissued | | Common stock reissued | — | | — | | 12 | | | | — | | | — | | | 1 | |
Common stock reacquired | | Common stock reacquired | (43) | | (22) | | (329) | | | | — | | | — | | | (1) | |
At end of period | At end of period | | | 6,024 | | | 5,374 | | | 4,699 | | At end of period | 291,268 | | 289,758 | | 288,940 | | | | 5,490 | | | 5,406 | | | 5,365 | |
| Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss | | | Accumulated Other Comprehensive Loss | | |
At beginning of period | At beginning of period | | | (28) | | | (21) | | | (12) | | At beginning of period | | | (59) | | | (86) | | | (73) | |
Retirement benefits liability | Retirement benefits liability | | | | | | | | Retirement benefits liability | | |
At beginning of period | At beginning of period | | | (28) | | | (21) | | | (24) | | At beginning of period | | | (56) | | | (80) | | | (69) | |
Cumulative effect of change in accounting principle | | | 0 | | | 0 | | | (5) | | |
| Net gain (loss) arising during the period | Net gain (loss) arising during the period | | | (9) | | | (8) | | | 6 | | Net gain (loss) arising during the period | | | 1 | | | 19 | | | (15) | |
Settlement arising during the period | | Settlement arising during the period | | | — | | | 1 | | | 1 | |
Prior service credit adjustment | | Prior service credit adjustment | | | — | | | — | | | (1) | |
Amortization of net actuarial loss | Amortization of net actuarial loss | | | 1 | | | 1 | | | 2 | | Amortization of net actuarial loss | | | 4 | | | 5 | | | 5 | |
Amortization of prior service credit | | Amortization of prior service credit | | | (1) | | | (1) | | | (1) | |
At end of period | At end of period | | | (36) | | | (28) | | | (21) | | At end of period | | | (52) | | | (56) | | | (80) | |
Investments | | | |
| | Derivative instruments | | Derivative instruments | |
|
At beginning of period | At beginning of period | | | 0 | | | 0 | | | 12 | | At beginning of period | |
| (3) | | | (6) | | | (4) | |
Cumulative effect of change in accounting principle | | | 0 | | | 0 | | | (12) | | |
Unrealized loss on investments | | | 0 | | | 0 | | | (1) | | |
| Unrealized gain (loss) on derivative instruments | | Unrealized gain (loss) on derivative instruments | |
| 2 | | | 2 | | | (4) | |
Reclassification adjustments included in net income | Reclassification adjustments included in net income | | | 0 | | | 0 | | | 1 | | Reclassification adjustments included in net income | | | 1 | | | 1 | | | 2 | |
At end of period | | At end of period | |
| — | | | (3) | | | (6) | |
| At end of period | | | 0 | | | 0 | | | 0 | | |
At end of period | At end of period | | | (36) | | | (28) | | | (21) | | At end of period | | | (52) | | | (59) | | | (86) | |
| Retained Earnings | Retained Earnings | | | Retained Earnings | | |
At beginning of period | At beginning of period | | | 1,513 | | | 1,364 | | | 1,173 | | At beginning of period | | | 1,057 | | | 214 | | | (25) | |
Cumulative effect of change in accounting principle | Cumulative effect of change in accounting principle | | | 0 | | | 0 | | | 19 | | Cumulative effect of change in accounting principle | | | — | | | — | | | (51) | |
Net income | | | 816 | | | 743 | | | 705 | | |
Net income attributable to CMS Energy | | Net income attributable to CMS Energy | | | 837 | | | 1,353 | | | 755 | |
Dividends declared on common stock | Dividends declared on common stock | | | (637) | | | (592) | | | (531) | | Dividends declared on common stock | | | (534) | | | (505) | | | (465) | |
Dividends declared on preferred stock | Dividends declared on preferred stock | | | (2) | | | (2) | | | (2) | | Dividends declared on preferred stock | | | (10) | | | (5) | | | — | |
At end of period | At end of period | | | 1,690 | | | 1,513 | | | 1,364 | | At end of period | | | 1,350 | | | 1,057 | | | 214 | |
| Cumulative Preferred Stock | | | |
| At beginning and end of period | | | 37 | | | 37 | | | 37 | | |
| Total Equity at End of Period | | | $ | 8,556 | | | $ | 7,737 | | | $ | 6,920 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions, Except Number of Shares in Thousands and Per Share Amounts |
| | | | | | |
| Number of Shares | | | | | | | | | | | |
Years Ended December 31 | 2022 | 2021 | 2020 | | | | 2022 | 2021 | 2020 |
Cumulative Redeemable Perpetual Preferred Stock, Series C | | | | | | | | | | | |
At beginning of period | | | | | | | 224 | | | — | | | — | |
Preferred stock issued, net of issuance costs | | | | | | | — | | | 224 | | | — | |
At end of period | | | | | | | 224 | | | 224 | | | — | |
| | | | | | | | | | | |
Noncontrolling Interests | | | | | | | | | | | |
At beginning of period | | | | | | | 557 | | | 581 | | | 37 | |
Impact of purchase and consolidation of VIE | | | | | | | — | | | — | | | 101 | |
Sale of membership interest in VIE to tax equity investor | | | | | | | 49 | | | — | | | 417 | |
Contribution from noncontrolling interest | | | | | | | 2 | | | 1 | | | 31 | |
Loss attributable to noncontrolling interests | | | | | | | (24) | | | (23) | | | (3) | |
Distributions and other changes in noncontrolling interests | | | | | | | (4) | | | (2) | | | (2) | |
At end of period | | | | | | | 580 | | | 557 | | | 581 | |
| | | | | | | | | | | |
Total Equity at End of Period | | | | | | | $ | 7,595 | | | $ | 7,188 | | | $ | 6,077 | |
| | | | | | | | | | | |
Dividends declared per common share | | | | | | | $ | 1.8400 | | | $ | 1.7400 | | | $ | 1.6300 | |
Dividends declared per preferred stock Series C depositary share | | | | | | | $ | 1.0500 | | | $ | 0.5688 | | | $ | — | |
The accompanying notes are an integral part of these statements.
Consumers Energy Company
Consolidated Statements of Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions |
| | | |
Years Ended December 31 | | | | 2022 | 2021 | 2020 |
Operating Revenue | | | | | | | $ | 8,151 | | | $ | 7,021 | | | $ | 6,189 | |
| | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | |
Fuel for electric generation | | | | | | | 662�� | | | 463 | | | 286 | |
Purchased and interchange power | | | | | | | 1,867 | | | 1,599 | | | 1,454 | |
Purchased power – related parties | | | | | | | 76 | | | 77 | | | 64 | |
Cost of gas sold | | | | | | | 1,243 | | | 726 | | | 568 | |
Maintenance and other operating expenses | | | | | | | 1,582 | | | 1,531 | | | 1,224 | |
Depreciation and amortization | | | | | | | 1,088 | | | 1,077 | | | 1,023 | |
General taxes | | | | | | | 400 | | | 373 | | | 349 | |
Total operating expenses | | | | | | | 6,918 | |
| 5,846 | |
| 4,968 | |
| | | | | | | | | | | |
Operating Income | | | | | | | 1,233 | |
| 1,175 | |
| 1,221 | |
| | | | | | | | | | | |
Other Income (Expense) | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Non-operating retirement benefits, net | | | | | | | 195 | | | 155 | | | 112 | |
Other income | | | | | | | 17 | | | 23 | | | 19 | |
Other expense | | | | | | | (25) | | | (18) | | | (43) | |
Total other income | | | | | | | 187 | |
| 160 | |
| 88 | |
| | | | | | | | | | | |
Interest Charges | | | | | | | | | | | |
Interest on long-term debt | | | | | | | 325 | | | 294 | | | 299 | |
Interest expense – related parties | | | | | | | 12 | | | 12 | | | 12 | |
Other interest expense | | | | | | | — | | | 8 | | | 11 | |
Allowance for borrowed funds used during construction | | | | | | | (2) | | | (3) | | | (2) | |
Total interest charges | | | | | | | 335 | |
| 311 | |
| 320 | |
| | | | | | | | | | | |
Income Before Income Taxes | | | | | | | 1,085 | | | 1,024 | | | 989 | |
Income Tax Expense | | | | | | | 140 | | | 156 | | | 173 | |
| | | | | | | | | | | |
Net Income | | | | | | | 945 | |
| 868 | |
| 816 | |
Preferred Stock Dividends | | | | | | | 2 | | | 2 | | | 2 | |
| | | | | | | | | | | |
Net Income Available to Common Stockholder | | | | | | | $ | 943 | | | $ | 866 | | | $ | 814 | |
The accompanying notes are an integral part of these statements.
Consumers Energy Company
Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions |
| | | |
Years Ended December 31 | | | | 2022 | 2021 | 2020 |
Net Income | | | | | | | $ | 945 | | | $ | 868 | | | $ | 816 | |
| | | | | | | | | | | |
Retirement Benefits Liability | | | | | | | | | | | |
Net gain (loss) arising during the period, net of tax of $5, $1, and $(3) | | | | | | | 15 | | | 2 | | | (9) | |
Amortization of net actuarial loss, net of tax of $—, $1, and $1 | | | | | | | 2 | | | 2 | | | 1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other Comprehensive Income (Loss) | | | | | | | 17 | | | 4 | | | (8) | |
| | | | | | | | | | | |
Comprehensive Income | | | | | | | $ | 962 | | | $ | 872 | | | $ | 808 | |
The accompanying notes are an integral part of these statements.
Consumers Energy Company
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2022 | 2021 | 2020 |
Cash Flows from Operating Activities | | | | | | |
Net income | | $ | 945 | | | $ | 868 | | | $ | 816 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | |
Depreciation and amortization | | 1,088 | | | 1,077 | | | 1,023 | |
Deferred income taxes and investment tax credits | | 134 | | | 154 | | | 177 | |
Bad debt expense | | 50 | | | 22 | | | 33 | |
Postretirement benefits contributions | | (9) | | | (9) | | | (690) | |
Other non‑cash operating activities and reconciling adjustments | | (87) | | | (64) | | | (30) | |
Changes in assets and liabilities | | | | | | |
Accounts and notes receivable and accrued revenue | | (660) | | | (103) | | | (46) | |
Inventories | | (447) | | | (90) | | | 26 | |
Accounts payable and accrued rate refunds | | (9) | | | 140 | | | 45 | |
Other current assets and liabilities | | 18 | | | 27 | | | (78) | |
Other non-current assets and liabilities | | (29) | | | (40) | | | (58) | |
Net cash provided by operating activities | | 994 | |
| 1,982 | |
| 1,218 | |
| | | | | | |
Cash Flows from Investing Activities | | | | | | |
Capital expenditures (excludes assets placed under finance lease) | | (2,239) | | | (2,052) | | | (2,170) | |
| | | | | | |
DB SERP investment in note receivable – related party | | — | | | — | | | (5) | |
Proceeds from sale of transmission equipment | | — | | | — | | | 58 | |
Cost to retire property and other investing activities | | (105) | | | (133) | | | (129) | |
Net cash used in investing activities | | (2,344) | |
| (2,185) | |
| (2,246) | |
| | | | | | |
Cash Flows from Financing Activities | | | | | | |
Proceeds from issuance of debt | | 1,799 | | | 335 | | | 1,954 | |
Retirement of debt | | (28) | | | (27) | | | (1,086) | |
Increase (decrease) in notes payable | | 20 | | | — | | | (90) | |
Increase (decrease) in notes payable – related parties | | (317) | | | 85 | | | 307 | |
Stockholder contribution | | 685 | | | 575 | | | 650 | |
Payment of dividends on common and preferred stock | | (771) | | | (724) | | | (639) | |
Debt prepayment costs | | — | | | — | | | (43) | |
Other financing costs | | (22) | | | (32) | | | (18) | |
Net cash provided by financing activities | | 1,366 | |
| 212 | |
| 1,035 | |
| | | | | | |
Net Increase in Cash and Cash Equivalents, Including Restricted Amounts | | 16 | | | 9 | | | 7 | |
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period | | 44 | | | 35 | | | 28 | |
| | | | | | |
Cash and Cash Equivalents, Including Restricted Amounts, End of Period | | $ | 60 | |
| $ | 44 | |
| $ | 35 | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2022 | 2021 | 2020 |
Other Cash Flow Activities and Non‑cash Investing and Financing Activities |
Cash transactions | | | | | | |
Interest paid (net of amounts capitalized) | | $ | 309 | | | $ | 298 | | | $ | 305 | |
Income taxes paid (refunds received), net | | (2) | | | (10) | | | 51 | |
Non‑cash transactions | | | | | | |
Capital expenditures not paid | | $ | 210 | | | $ | 192 | | | $ | 130 | |
| | | | | | |
The accompanying notes are an integral part of these statements.
Consumers Energy Company
Consolidated Balance Sheets
| | | | | | | | | | | | | | |
ASSETS |
In Millions |
December 31 | 2022 | 2021 |
Current Assets | | | | |
Cash and cash equivalents | | $ | 43 | | | $ | 22 | |
Restricted cash and cash equivalents | | 17 | | | 22 | |
Accounts receivable and accrued revenue, less allowance of $27 in 2022 and $20 in 2021 | | 1,524 | | | 905 | |
| | | | |
| | | | |
Accounts and notes receivable – related parties | | 10 | | | 9 | |
| | | | |
Inventories at average cost | | | | |
Gas in underground storage | | 840 | | | 462 | |
Materials and supplies | | 206 | | | 163 | |
Generating plant fuel stock | | 59 | | | 33 | |
Deferred property taxes | | 384 | | | 356 | |
Regulatory assets | | 57 | | | 46 | |
Prepayments and other current assets | | 96 | | | 103 | |
Total current assets | | 3,236 | |
| 2,121 | |
| | | | |
Plant, Property, and Equipment | | | | |
Plant, property, and equipment, gross | | 29,342 | | | 28,771 | |
Less accumulated depreciation and amortization | | 8,791 | | | 8,371 | |
Plant, property, and equipment, net | | 20,551 | |
| 20,400 | |
Construction work in progress | | 994 | | | 915 | |
Total plant, property, and equipment | | 21,545 | |
| 21,315 | |
| | | | |
Other Non-current Assets | | | | |
Regulatory assets | | 3,595 | | | 2,259 | |
Accounts receivable | | 29 | | | 36 | |
Accounts and notes receivable – related parties | | 99 | | | 102 | |
Postretirement benefits | | 1,126 | | | 1,056 | |
Other | | 286 | | | 251 | |
Total other non-current assets | | 5,135 | |
| 3,704 | |
| | | | |
Total Assets | | $ | 29,916 | |
| $ | 27,140 | |
| | | | | | | | | | | | | | |
LIABILITIES AND EQUITY |
In Millions |
December 31 | 2022 | 2021 |
Current Liabilities | | | | |
Current portion of long-term debt and finance leases | | $ | 1,000 | | | $ | 374 | |
Notes payable | | 20 | | | — | |
Notes payable – related parties | | 75 | | | 392 | |
Accounts payable | | 864 | | | 835 | |
Accounts payable – related parties | | 15 | | | 16 | |
Accrued rate refunds | | — | | | 12 | |
Accrued interest | | 90 | | | 75 | |
Accrued taxes | | 556 | | | 529 | |
Regulatory liabilities | | 104 | | | 146 | |
Other current liabilities | | 147 | | | 109 | |
Total current liabilities | | 2,871 | |
| 2,488 | |
| | | | |
Non-current Liabilities | | | | |
Long-term debt | | 9,192 | | | 8,050 | |
Non-current portion of finance leases | | 45 | | | 46 | |
Regulatory liabilities | | 3,796 | | | 3,802 | |
Postretirement benefits | | 79 | | | 104 | |
Asset retirement obligations | | 722 | | | 605 | |
Deferred investment tax credit | | 129 | | | 112 | |
Deferred income taxes | | 2,585 | | | 2,340 | |
Other non-current liabilities | | 342 | | | 314 | |
Total non-current liabilities | | 16,890 | |
| 15,373 | |
| | | | |
Commitments and Contingencies (Notes 2 and 3) | | | | |
| | | | |
Equity | | | | |
Common stockholder’s equity | | | | |
Common stock, authorized 125.0 shares; outstanding 84.1 shares in both periods | | 841 | | | 841 | |
Other paid-in capital | | 7,284 | | | 6,599 | |
Accumulated other comprehensive loss | | (15) | | | (32) | |
Retained earnings | | 2,008 | | | 1,834 | |
Total common stockholder’s equity | | 10,118 | |
| 9,242 | |
Cumulative preferred stock, $4.50 series, authorized 7.5 shares; outstanding 0.4 shares in both periods | | 37 | | | 37 | |
Total equity | | 10,155 | |
| 9,279 | |
| | | | |
Total Liabilities and Equity | | $ | 29,916 | |
| $ | 27,140 | |
The accompanying notes are an integral part of these statements.
Consumers Energy Company
Consolidated Statements of Changes in Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions |
| | | |
Years Ended December 31 | | | | 2022 | 2021 | 2020 |
Total Equity at Beginning of Period | | | | | | | $ | 9,279 | | | $ | 8,556 | | | $ | 7,737 | |
| | | | | | | | | | | |
Common Stock | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
At beginning and end of period | | | | | | | 841 | | | 841 | | | 841 | |
| | | | | | | | | | | |
Other Paid-in Capital | | | | | | | | | | | |
At beginning of period | | | | | | | 6,599 | | | 6,024 | | | 5,374 | |
Stockholder contribution | | | | | | | 685 | | | 575 | | | 650 | |
| | | | | | | | | | | |
At end of period | | | | | | | 7,284 | | | 6,599 | | | 6,024 | |
| | | | | | | | | | | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | |
At beginning of period | | | | | | | (32) | | | (36) | | | (28) | |
Retirement benefits liability | | | | | | | | | | | |
At beginning of period | | | | | | | (32) | | | (36) | | | (28) | |
| | | | | | | | | | | |
Net gain (loss) arising during the period | | | | | | | 15 | | | 2 | | | (9) | |
Amortization of net actuarial loss | | | | | | | 2 | | | 2 | | | 1 | |
At end of period | | | | | | | (15) | | | (32) | | | (36) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
At end of period | | | | | | | (15) | | | (32) | | | (36) | |
| | | | | | | | | | | |
Retained Earnings | | | | | | | | | | | |
At beginning of period | | | | | | | 1,834 | | | 1,690 | | | 1,513 | |
| | | | | | | | | | | |
Net income | | | | | | | 945 | | | 868 | | | 816 | |
Dividends declared on common stock | | | | | | | (769) | | | (722) | | | (637) | |
Dividends declared on preferred stock | | | | | | | (2) | | | (2) | | | (2) | |
At end of period | | | | | | | 2,008 | | | 1,834 | | | 1,690 | |
| | | | | | | | | | | |
Cumulative Preferred Stock | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
At beginning and end of period | | | | | | | 37 | | | 37 | | | 37 | |
| | | | | | | | | | | |
Total Equity at End of Period | | | | | | | $ | 10,155 | | | $ | 9,279 | | | $ | 8,556 | |
The accompanying notes are an integral part of these statements.
CMS Energy Corporation
Consumers Energy Company
Notes to the Consolidated Financial Statements
1: Significant Accounting Policies
Principles of Consolidation: CMS Energy and Consumers prepare their consolidated financial statements in conformity with GAAP. CMS Energy’s consolidated financial statements comprise CMS Energy, Consumers, CMS Enterprises, EnerBank,NorthStar Clean Energy, and all other entities in which CMS Energy has a controlling financial interest or is the primary beneficiary. Consumers’ consolidated financial statements comprise Consumers and all other entities in which it has a controlling financial interest or is the primary beneficiary.interest. CMS Energy uses the equity method of accounting for investments in companies and partnerships that are not consolidated, where they have significant influence over operations and financial policies but are not the primary beneficiary. CMS Energy and Consumers eliminate intercompany transactions and balances.
Use of Estimates: CMS Energy and Consumers are required to make estimates using assumptions that may affect reported amounts and disclosures. Actual results could differ from those estimates.
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents: Cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less. Restricted cash and cash equivalents are held primarily for the repayment of securitization bonds and funds held in escrow. Cash and cash equivalents may also be restricted to pay other contractual obligations such as leasing of coal railcars. These amounts are classified as current assets since they relate to payments that could or will occur within one year.
Contingencies: CMS Energy and Consumers record estimated liabilities forloss contingencies on their consolidated financial statements when it is probable that a liabilityloss has been incurred and when the amount of loss can be reasonably estimated. For environmental remediation projects in which the timing of estimated expenditures is considered reliably determinable, CMS Energy and Consumers record the liability at its net present value, using a discount rate equal to the interest rate on monetary assets that are essentially risk-free and have maturities comparable to that of the environmental liability. CMS Energy and Consumers expense legal fees as incurred; fees incurred but not yet billed are accrued based on estimates of work performed.
Debt Issuance Costs, Discounts, Premiums, and Refinancing Costs: Upon the issuance of long-term debt, CMS Energy and Consumers defer issuance costs, discounts, and premiums and amortize those amounts over the terms of the associated debt. Debt issuance costs are presented as a direct deduction from the carrying amount of long-term debt on the balance sheet. Upon the refinancing of long-term debt, Consumers, as a regulated entity, defers any remaining unamortized issuance costs, discounts, and premiums associated with the refinanced debt and amortizes those amounts over the term of the newly issued debt. For the non‑regulated portions of CMS Energy’s business, any remaining unamortized issuance costs, discounts, and premiums associated with extinguished debt are charged to earnings.
Derivative Instruments: In order to support ongoing operations, CMS Energy and Consumers enter into contracts for the future purchase and sale of various commodities, such as electricity, natural gas, and coal. These forward contracts are generally long-term in nature and result in physical delivery of the
commodity at a contracted price. Most of these contracts are not subject to derivative accounting for one or more of the following reasons:
•they do not have a notional amount (that is, a number of units specified in a derivative instrument, such as MWh of electricity or bcf of natural gas)
•they qualify for the normal purchases and sales exception
•they cannot be net settled due in part to the absence of an active market for the commodity
Consumers also uses FTRs to manage price risk related to electricity transmission congestion. An FTR is a financial instrument that entitles its holder to receive compensation or requires its holder to remit payment for congestion-related transmission charges. Consumers accounts for FTRs as derivatives.
Additionally, CMS Energy uses interest rate swaps to manage its interest rate risk on certain long-term debt and notes receivable transactions.
CMS Energy and Consumers record derivative contracts that do not qualify for the normal purchases and sales exception at fair value on their consolidated balance sheets. At CMS Energy, if the derivative is accounted for as a cash flow hedge, unrealized gains and losses from changes in the fair value of the derivative are recognized in AOCI and subsequently recognized in earnings when the hedged transactions impact earnings. If the derivative is accounted for as a fair value hedge, changes in the fair value of the derivative and changes in the fair value of the hedged item due to the hedged risk are recognized in earnings. For the FTRs at Consumers, changes in fair value are deferred as regulatory assets or liabilities. For details regarding CMS Energy’s and Consumers’ derivative instruments recorded at fair value, see Note 6,5, Fair Value Measurements.
EPS: CMS Energy calculates basic and diluted EPS using the weighted-average number of shares of common stock and dilutive potential common stock outstanding during the period. Potential common stock, for purposes of determining diluted EPS, includes the effects of nonvested stock awards and forward equity sales. CMS Energy computes the effect on potential common stock using the treasury stock method. Diluted EPS excludes the impact of antidilutive securities, which are those securities resulting in an increase in EPS or a decrease in loss per share. For EPS computations, see Note 15,13, Earnings Per Share—CMS Energy.
Impairment of Long-Lived Assets and Equity Method Investments: CMS Energy and Consumers perform tests of impairment if certain triggering events occur that indicate the carrying amount of an asset may not be recoverable or ifthat there has been a decline in value that may be other than temporary.
CMS Energy and Consumers evaluate long-lived assets held in use for impairment by calculating the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the undiscounted future cash flows are less than the carrying amount, CMS Energy and Consumers recognize an impairment loss equal to the amount by which the carrying amount exceeds the fair value. CMS Energy and Consumers estimate the fair value of the asset using quoted market prices, market prices of similar assets, or discounted future cash flow analyses.
CMS Energy also assesses equity method investments for impairment whenever there has been a decline in value that is other than temporary. This assessment requires CMS Energy to determine the fair value of the equity method investment. CMS Energy determines fair value using valuation methodologies, including discounted cash flows, and assesses the ability of the investee to sustain an earnings capacity that justifies the carrying amount of the investment. CMS Energy records an impairment if the fair value is less than the carrying amount and the decline in value is considered to be other than temporary.
Investment Tax Credits: Consumers amortizes its investment tax credits over the life of the related property in accordance with regulatory treatment. CMS Energy’s non‑regulated businesses use the deferral method of accounting for investment tax credits. Under the deferral method, the book basis of the associated assets is reduced by the amount of the credit, resulting in lower depreciation expense over the life of the assets. Furthermore, the tax basis of the assets is reduced by 50 percent of the related credit, resulting in a net deferred tax asset. CMS Energy recognizes the tax benefit of this basis difference as a reduction to income tax expense in the year in which the plant reaches commercial operation.
Inventory: CMS Energy and Consumers use the weighted-average cost method for valuing working gas, recoverable base gas in underground storage facilities, and materials and supplies inventory. CMS Energy and Consumers also use this method for valuing coal inventory, and they classify these amounts as generating plant fuel stock on their consolidated balance sheets.
CMS Energy and Consumers account for RECs and emission allowances as inventory and use the weighted-average cost method to remove amounts from inventory. RECs and emission allowances are used to satisfy compliance obligations related to the generation of power. CMS Energy and Consumers classify these amounts within other assets on their consolidated balance sheets.
CMS Energy and Consumers evaluate inventory for impairment as required to ensure that its carrying value does not exceed the lower of cost or net realizable value.
MISO Transactions: MISO requires the submission of hourly day-ahead and real-time bids and offers for energy at locations across the MISO region. CMS Energy and Consumers account for MISO transactions on a net hourly basis in each of the real-time and day-ahead markets, netted across all MISO energy market locations. CMS Energy and Consumers record net hourly purchases in purchased and interchange power and net hourly sales in operating revenue on their consolidated statements of income. They record net billing adjustments upon receipt of settlement statements, record accruals for future net purchases and sales adjustments based on historical experience, and reconcile accruals to actual expenses and sales upon receipt of settlement statements.
Property Taxes: Property taxes are based on the taxable value of CMS Energy’s and Consumers’ real and personal property assessed by local taxing authorities. CMS Energy and Consumers recordsrecord property tax expense over the fiscal year of the taxing authority for which the taxes are levied. The deferred property tax balance represents the amount of CMS Energy’s and Consumers’ accrued property tax that will be recognized over future governmental fiscal periods.
Reclassifications: CMS Energy and Consumers have reclassified certain prior period amounts to conform to the presentation in the present period. The most significant of these reclassifications is related to CMS Energy’s sale of EnerBank to Regions Bank in October 2021. EnerBank’s results of operations through the date of the sale are presented as income from discontinued operations on CMS Energy’s consolidated statements of income for the years ended December 31, 2021 and 2020. For information regarding the sale of EnerBank, see Note 19, Exit Activities and Discontinued Operations.
CMS Energy and Consumers also reclassified certain prior period amounts relating to postretirement benefits. The asset balances for postretirement benefits are presented discretely within other non-current assets on CMS Energy’s and Consumers’ consolidated balance sheets for the years ended December 31, 2022 and 2021.
Renewable Energy Grant: In 2013, Consumers received a renewable energy cash grant for Lake Winds® Energy Park under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009. Upon receipt of the grant, Consumers recorded a regulatory liability, which Consumers is amortizing over the life of Lake Winds®Energy Park. Consumers presents the amortization as a reduction to maintenance
and other operating expenses on its consolidated statements of income. Consumers recorded the deferred income taxes related to the grant as a reduction of the book basis of Lake Winds® Energy Park.
Other: For additional accounting policies, see:
•Note 8, Notes Receivable
•Note 9,7, Plant, Property, and Equipment
•Note 11,8, Leases
•Note 9, Asset Retirement Obligations
•Note 12,10, Retirement Benefits
•Note 14,12, Income Taxes
•Note 15,13, Earnings Per Share—CMS Energy
•Note 16,14, Revenue
•Note 18, Cash and Cash Equivalents
•Note 21, Variable Interest Entities
2: New Accounting Standards
Implementation of New Accounting Standards
ASU 2016‑13, Measurement of Credit Losses on Financial Instruments: This standard, which was effective on January 1, 2020 for CMS Energy and Consumers, provides new guidance for measuring and recognizing credit losses on financial instruments. The standard applies to financial assets that are not measured at fair value through net income as well as to certain off‑balance-sheet credit exposures. CMS Energy and Consumers were required to apply the standard using a modified retrospective approach, under which the initial impacts of the standard are recorded through a cumulative-effect adjustment to beginning retained earnings on the effective date.
The standard required an increase to the allowance for loan losses at EnerBank. Prior to the standard, the allowance reflected expected credit losses over a 12‑month period, but the new guidance requires the allowance to reflect expected credit losses over the entire life of the loans. As a result, CMS Energy recorded a $65 million increase to its expected credit loss reserves on January 1, 2020, with the offsetting adjustment recorded to retained earnings, net of taxes of $14 million. The standard also requires an increase in the initial provision for loan losses recognized in net income for new loans originated in 2020 and beyond. The adoption of this standard resulted in a $21 million reduction to CMS Energy’s income before income taxes for the year ended December 31, 2020. For further information on EnerBank’s loans and the related allowance for loan losses see Note 8, Notes Receivable. At Consumers, the standard applies to the allowance for uncollectible accounts, but did not result in any significant changes to the allowance methodology and did not have a material impact on Consumers’ consolidated financial statements.
ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting: This standard, which was effective as of March 12, 2020 for CMS Energy and Consumers, provides optional guidance intended to ease the potential burden in accounting for the expected discontinuation of LIBOR as a reference rate in the financial markets. The guidance can be applied to modifications made to certain contracts to replace LIBOR with a new reference rate. The guidance, if elected, will permit entities to treat such modifications as the continuation of the original contract, without any required accounting reassessments or remeasurements. The guidance will also facilitate the continuation of hedge accounting for derivatives that may have to be modified to incorporate a new rate. The guidance is effective through December 31, 2022. CMS Energy and Consumers presently have various contracts that reference LIBOR and they are assessing how this standard may be applied to specific contract modifications.
3: Regulatory Matters
Regulatory matters are critical to Consumers. The Michigan Attorney General, ABATE, the MPSC Staff, residential customer advocacy groups, environmental organizations, and certain other parties typically participate in MPSC proceedings concerning Consumers, such as Consumers’ rate cases and PSCR and GCR processes. These parties often challenge various aspects of those proceedings, including the prudence of Consumers’ policies and practices, and seek cost disallowances and other relief. The parties also have appealed significant MPSC orders. Depending upon the specific issues, the outcomes of rate cases and proceedings, including judicial proceedings challenging MPSC orders or other actions, could negatively affect CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. Consumers cannot predict the outcome of these proceedings.
There are multiple appeals pending that involve various issues concerning cost recovery from customers, the adequacy of the record of evidence supporting the recovery of Smart Energy investments,MPSC’s authority to approve voluntary revenue refunds, and other matters. Consumers is unable to predict the outcome of these appeals.
Regulatory Assets and Liabilities
Consumers is subject to the actions of the MPSC and FERC and therefore prepares its consolidated financial statements in accordance with the provisions of regulatory accounting. A utility must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated services. Under regulatory accounting, Consumers records regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue by non‑regulated businesses.
Presented in the following table are the regulatory assets and liabilities on Consumers’ consolidated balance sheets:
| In Millions | In Millions | In Millions |
December 31 | December 31 | End of Recovery or Refund Period | 2020 | 2019 | December 31 | End of Recovery or Refund Period | 2022 | 2021 |
Regulatory assets | Regulatory assets | | | | Regulatory assets | |
Current | Current | | | | Current | |
Energy waste reduction plan incentive1 | Energy waste reduction plan incentive1 | | 2021 | | $ | 34 | | | $ | 33 | | Energy waste reduction plan incentive1 | | 2023 | | $ | 47 | | | $ | 42 | |
Deferred capital spending2 | | 2021 | | 6 | | | 0 | | |
| Other | Other | | 2021 | | 2 | | | 0 | | Other | | 2023 | | 10 | | | 4 | |
Total current regulatory assets | Total current regulatory assets | | | $ | 42 | | | $ | 33 | | Total current regulatory assets | | $ | 57 | | | $ | 46 | |
Non-current | Non-current | | | Non-current | |
Costs of coal-fueled electric generating units to be retired2 | | Costs of coal-fueled electric generating units to be retired2 | | various | | $ | 1,960 | | | $ | 678 | |
Postretirement benefits3 | Postretirement benefits3 | | various | | $ | 1,231 | | | $ | 1,130 | | Postretirement benefits3 | | various | | 856 | | | 837 | |
Costs of coal-fueled electric generating units to be retired2 | | various | | 678 | | | 667 | | |
ARO4 | | ARO4 | | various | | 281 | | | 247 | |
Securitized costs2 | Securitized costs2 | | 2029 | | 221 | | | 247 | | Securitized costs2 | | 2029 | | 165 | | | 193 | |
ARO4 | | various | | 216 | | | 191 | | |
MGP sites4 | MGP sites4 | | various | | 120 | | | 130 | | MGP sites4 | | various | | 108 | | | 112 | |
Unamortized loss on reacquired debt4 | Unamortized loss on reacquired debt4 | | various | | 108 | | | 70 | | Unamortized loss on reacquired debt4 | | various | | 100 | | | 104 | |
Energy waste reduction plan incentive1 | Energy waste reduction plan incentive1 | | 2022 | | 42 | | | 34 | | Energy waste reduction plan incentive1 | | 2024 | | 55 | | | 46 | |
Retention incentive program4 | | Retention incentive program4 | | various | | 31 | | | 7 | |
Demand response program4 | | Demand response program4 | | various | | 12 | | | 10 | |
Energy waste reduction plan4 | Energy waste reduction plan4 | | various | | 16 | | | 10 | | Energy waste reduction plan4 | | various | | 10 | | | 13 | |
Demand response program4 | | various | | 10 | | | 1 | | |
COVID-19 costs accounting deferral4 | | various | | 4 | | | 0 | | |
Other | Other | | various | | 7 | | | 9 | | Other | | various | | 17 | | | 12 | |
Total non-current regulatory assets | Total non-current regulatory assets | | | $ | 2,653 | | | $ | 2,489 | | Total non-current regulatory assets | | $ | 3,595 | | | $ | 2,259 | |
Total regulatory assets | Total regulatory assets | | | $ | 2,695 | | | $ | 2,522 | | Total regulatory assets | | $ | 3,652 | | | $ | 2,305 | |
Regulatory liabilities | Regulatory liabilities | | | | Regulatory liabilities | |
Current | Current | | | | Current | |
Income taxes, net | Income taxes, net | | 2021 | | $ | 105 | | | $ | 65 | | Income taxes, net | | 2023 | | $ | 48 | | | $ | 138 | |
Reserve for customer refunds | Reserve for customer refunds | | 2021 | | 28 | | | 2 | | Reserve for customer refunds | | 2023 | | 47 | | | 2 | |
Voluntary transmission asset sale gain share | | 2021 | | 14 | | | 17 | | |
| Other | Other | | 2021 | | 4 | | | 3 | | Other | | 2023 | | 9 | | | 6 | |
Total current regulatory liabilities | Total current regulatory liabilities | | | | $ | 151 | | | $ | 87 | | Total current regulatory liabilities | | $ | 104 | | | $ | 146 | |
Non-current | Non-current | | | | | | | Non-current | |
Cost of removal | Cost of removal | | various | | $ | 2,245 | | | $ | 2,126 | | Cost of removal | | various | | $ | 2,426 | | | $ | 2,375 | |
Income taxes, net | Income taxes, net | | various | | 1,419 | | | 1,510 | | Income taxes, net | | various | | 1,267 | | | 1,297 | |
Renewable energy grant | Renewable energy grant | | 2043 | | 49 | | | 52 | | Renewable energy grant | | 2043 | | 45 | | | 47 | |
ARO | | various | | 11 | | | 26 | | |
Renewable energy plan | Renewable energy plan | | 2028 | | 9 | | | 17 | | Renewable energy plan | | 2028 | | 32 | | | 13 | |
Demand response program | | Demand response program | | various | | 12 | | | 7 | |
Energy waste reduction plan | | Energy waste reduction plan | | various | | 6 | | | — | |
Postretirement benefits | | Postretirement benefits | | various | | — | | | 54 | |
| Other | Other | | various | | 11 | | | 11 | | Other | | various | | 8 | | | 9 | |
Total non-current regulatory liabilities | Total non-current regulatory liabilities | | | | $ | 3,744 | | | $ | 3,742 | | Total non-current regulatory liabilities | | $ | 3,796 | | | $ | 3,802 | |
Total regulatory liabilities | Total regulatory liabilities | | | | $ | 3,895 | | | $ | 3,829 | | Total regulatory liabilities | | $ | 3,900 | | | $ | 3,948 | |
1These regulatory assets have arisen from an alternative revenue program and are not associated with incurred costs or capital investments. Therefore, the MPSC has provided for recovery without a return.
2The MPSC has historically authorized and Consumers expects the MPSC to authorizeprovided a specific return on these regulatory assets.
3This regulatory asset is included in rate base, thereby providing a return.
4These regulatory assets represent incurred costs for which the MPSC has provided or Consumers expects, recovery without a return on investment.
Regulatory Assets
Energy Waste Reduction Plan Incentive: The energy waste reduction incentive mechanism provides a financial incentive if the energy savings of Consumers’ customers exceed annual targets established by the MPSC. Consumers accounts for this program as an alternative-revenue program that meets the criteria for recognizing revenue related to the incentive as soon as energy savings exceed the annual targets established by the MPSC.
In November 2020,October 2022, the MPSC approved a settlement agreement authorizing Consumers to collect $34$46 million during 20212023 as an incentive for exceeding its statutory savings targets in 2019.2021. Consumers recognized incentive revenue under this program of $34$46 million in 2019.2021.
Consumers also exceeded its statutory savings targets in 2020,2022, achieved certain other goals, and will request the MPSC’s approval to collect $42$55 million, the maximum performance incentive, in the energy waste reduction reconciliation to be filed in 2021.May 2023. Consumers recognized incentive revenue under this program of $42$55 million in 2020.2022.
Deferred Capital Spending:Costs of Coal-fueled Electric Generating Units to be Retired: In January 2019, the MPSC approved athe settlement agreement reached in Consumers’ 2018 IRP, under which Consumers will retire the D.E. Karn coal-fueled electric generating units in 2023. Under Michigan law, electric utilities have been permitted to use highly rated, low-cost securitization bonds to finance the recovery of qualified costs. In 2019, Consumers removed from total plant, property, and equipment an amount representing the projected remaining book value of the two coal-fueled electric generating units upon their retirement, and recorded it as a regulatory asset. In 2020, the MPSC issued a securitization financing order authorizing Consumers to issue securitization bonds in order to finance the recovery of the remaining book value of the two coal-fueled electric generating units upon their retirement. Until securitization, the book value of the generating units will remain in rate case, which provided deferred accounting treatment for distribution-related capital investments exceeding certain threshold amounts. Thus, for actual capital spending abovebase and receive full regulatory returns in general rate cases.
In June 2022, the threshold amounts detailed inMPSC approved the settlement agreement reached in Consumers’ 2021 IRP, under which Consumers has deferred as aplans to retire the J.H. Campbell coal-fueled generating units in 2025. Under the 2021 IRP, upon the units’ retirement, Consumers will receive regulatory asset the associated depreciation and property tax expensetreatment to recover their remaining book value, as well as a 9.0‑percent return on equity, over their original design lives. Until retirement, the debt componentbook value of the overallgenerating units will remain in rate base and receive full regulatory returns in general rate cases.
In June 2022, Consumers removed from total plant, property, and equipment an amount of return$1.3 billion, representing the projected remaining book value of the electric generating units upon their retirement, and recorded it as a non-current regulatory asset on such spending.its consolidated balance sheets.
Postretirement Benefits: As part of the ratemaking process, the MPSC allows Consumers to recover the costs of postretirement benefits. Accordingly, Consumers defers the net impact of actuarial losses and gains, prior service costs and credits, and settlements associated with postretirement benefits as a regulatory asset or liability. The asset or liability will decrease as the deferred items are amortized and recognized as components of net periodic benefit cost. For details about settlements and the amortization periods, see Note 12,10, Retirement Benefits.
Costs of Coal-fueled Electric Generating Units to be Retired: In June 2019, the MPSC approved the settlement agreement reached in Consumers’ IRP, under which Consumers plans to retire the D.E. Karn 1 & 2 coal-fueled electric generating units in 2023. Under Michigan law, electric utilities have been permitted to use highly rated, low-cost securitization bonds to finance the recovery of qualified costs. In 2019, Consumers removed from total plant, property, and equipment an amount representing the projected remaining book value of the 2 coal-fueled electric generating units upon their retirement, and recorded it as a regulatory asset. Until securitization, the book value of the generating units will remain in rate base and receive full regulatory returns in general rate cases.
In December 2020, the MPSC issued a securitization financing order authorizing Consumers to issue securitization bonds in order to finance the recovery of the remaining book value of the 2 coal-fueled electric generating units upon their retirement. An intervenor has appealed the order, contending that it should not have to pay the securitization surcharge.
Securitized Costs: In 2013, the MPSC issued a securitization financing order authorizing Consumers to issue securitization bonds in order to finance the recovery of the remaining book value of 7 smaller
coal-fueled electric generating units that Consumers retired in 2016 and 3 smaller natural gas-fueled electric generating units that Consumers retired in 2015. Upon receipt of the MPSC’s order, Consumers removed the book value of the 10 units from plant, property, and equipment and recorded this amount as a regulatory asset. Consumers is amortizing the regulatory asset over the life of the related securitization bonds, which it issued through a subsidiary in 2014. For additional details regarding the securitization bonds, see Note 5, Financings and Capitalization.
ARO: The recovery of the underlying asset investments and related removal and monitoring costs of recorded AROs is approved by the MPSC in depreciation rate cases. Consumers records a regulatory asset and a regulatory liability for timing differences between the recognition of AROs for financial reporting purposes and the recovery of these costs from customers. The recovery period approximates the useful life of the assets to be removed.
Securitized Costs: In 2013, the MPSC issued a securitization financing order authorizing Consumers to issue securitization bonds in order to finance the recovery of the remaining book value of seven smaller coal-fueled electric generating units that Consumers retired in 2016 and three smaller natural gas-fueled electric generating units that Consumers retired in 2015. Upon receipt of the MPSC’s order, Consumers removed the book value of the ten units from plant, property, and equipment and recorded this amount as a regulatory asset. Consumers is amortizing the regulatory asset over the life of the related securitization bonds, which it issued through a subsidiary in 2014. For additional details regarding the securitization bonds, see Note 4, Financings and Capitalization.
MGP Sites: Consumers is incurring environmental remediation and other response activity costs at 23 former MGP facilities. The MPSC allows Consumers to recover from its natural gas customers over a ten-year period the costs incurred to remediate the MGP sites.
Unamortized Loss on Reacquired Debt: Under regulatory accounting, any unamortized discount, premium, or expense related to debt redeemed with the proceeds of new debt is capitalized and amortized over the life of the new debt.
Retention Incentive Program: To ensure necessary staffing at the D.E. Karn and J.H. Campbell generating complexes through the anticipated retirement of the coal-fueled generating units, Consumers has established retention incentive programs. In 2020, the MPSC approved deferred accounting treatment for the retention and severance costs incurred under the D.E. Karn program, and Consumers began deferring these costs as a regulatory asset in 2021. In addition, under the 2021 IRP, the MPSC approved deferred accounting treatment for the retention and severance costs incurred under the J.H. Campbell program during 2022; deferral of costs beyond 2022 was approved as part of the 2022 electric rate case settlement. For additional details regarding the retention incentive program, see Note 19, Exit Activities and Discontinued Operations.
Demand Response Program: In Consumers’ 2018 IRP and general rate cases, the MPSC has approved the recovery of demand response costs. Consumers annually files a reconciliation with the MPSC to review actual demand response costs against amounts approved. The amount of spending incurred in excess of amounts included in rates for recovery is recorded as a regulatory asset and amortized when it is collected from customers. The amount included in rates for recovery in excess of spending incurred is recorded as a regulatory liability to be refunded to customers.
Energy Waste Reduction Plan: The MPSC allows Consumers to collect surcharges from customers to fund its energy waste reduction plan. The amount of spending incurred in excess of surcharges collected is recorded as a regulatory asset and amortized as surcharges are collected from customers over the plan period. The amount of surcharges collected in excess of spending incurred is recorded as a regulatory liability and amortized as costs are incurred.
Demand Response Program: In the IRP and in general electric rate cases, the MPSC has approved the recovery of demand response costs. Consumers annually files a reconciliation with the MPSC to review actual demand response costs against amounts approved. The method of recovery of demand response costs will be determined in a future rate case.
COVID‑19 Costs Accounting Deferral: In April 2020, the MPSC issued an order authorizing Consumers to defer uncollectible accounts expense incurred beginning March 24, 2020 that are in excess of the amount used to set existing rates.
Regulatory Liabilities
Income Taxes, Net: Consumers records regulatory assets and liabilities to reflect the difference between deferred income taxes recognized for financial reporting purposes and amounts previously reflected in Consumers’ rates. This net balance will decrease over the remaining life of the related temporary differences and flow through income tax expense. The majority of the net regulatory liability recorded
related to income taxes is associated with plant assets that are subject to normalization, which is governed by the Internal Revenue Code, and will be returned to customers over the remaining book life of the related plant assets, the average of which is 44 years for gas plant assets and 27 years for electric plant assets. For additional details on deferred income taxes, see Note 14,12, Income Taxes.
Reserve for Customer Refunds:In December 2020,2022, the MPSC issued an order authorizing Consumers to refund $28$22 million voluntarily to utility customers. In January 2023, Consumers is requiredsubmitted a filing proposing that the refund take the form of incremental funding to submit another filing bycover the endcost of, February 2021 proposing an appropriate method for making this refund.and return on, certain distribution capital investments above amounts included in rates and contributions to programs that assist vulnerable customers.
Voluntary Transmission Asset Sale Gain Share: In October 2020,its 2022 electric rate case, Consumers completed a saleagreed to refund voluntarily $15 million of the electric utility’s remaining transmission equipment2022 revenues to METC. In December 2020, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with electric utility customers; this application was approved by the MPSC in February 2021. Consumers will share the gain through an offset to additional spending in 2021 orcustomers through a one-time bill credit and to electricfund $10 million in contributions to programs that directly assist vulnerable customers with utility customers in 2022. As a result, Consumers deferred $14 million of the gain in December 2020.
In September 2019, Consumers completed a sale of a portion of its electric utility’s substation transmission equipment to METC. In December 2019, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with customers; this application was approved by the MPSC in April 2020. As a result, Consumers deferred $17 million of the gain in December 2019 and shared that gain with customers in 2020.bills.
Cost of Removal: The MPSC allows Consumers to collect amounts from customers to fund future asset removal activities. This regulatory liability is reduced as costs of removal are incurred. The refund period of this regulatory liability approximates the useful life ofincurred to remove the assets to be removed.at the end of their useful lives.
Renewable Energy Grant: In 2013, Consumers received a $69 million renewable energy grant for Lake Winds® Energy Park, which began operations in 2012. This grant reduces Consumers’ cost of complying with Michigan’s renewable portfolio standard and, accordingly, reduces the overall renewable energy surcharge to be collected from customers. The regulatory liability recorded for the grant will be amortized over the life of Lake Winds® Energy Park.
Renewable Energy Plan: Consumers has collected surcharges to fund its renewable energy plan. Amounts not yet spent under the plan are recorded as a regulatory liability, which is amortized as incremental costs are incurred to operate and depreciate Consumers’ renewable generation facilities and to purchase RECs under renewable energy purchase agreements. Incremental costs represent costs incurred in excess of amounts recovered through the PSCR process.
Consumers Electric Utility
20202021 Electric Rate Case: In December 2021, the MPSC issued a final order in Consumers’ 2021 electric rate case, disallowing cost recovery for fleet assets and certain other categories of recently completed capital expenditures incurred by Consumers. As a result, Consumers impaired certain of these capital expenditures, a portion of which were held by the gas utility, and recorded impairment charges totaling $45 million within maintenance and other operating expenses on its consolidated statements of income for the year ended December 31, 2021.
2022 Electric Rate Case: In FebruaryApril 2022, Consumers filed an application with the MPSC seeking a rate increase of $272 million, based on a 10.25-percent authorized return on equity for the projected twelve-month period ending December 31, 2023. In September 2022, Consumers revised its requested increase to $292 million. The filing requested authority to recover future investments associated with distribution system reliability, solar generation, environmental compliance, and enhanced technology.
In January 2023, the MPSC approved a settlement agreement authorizing an annual rate increase of $155 million, based on a 9.9-percent authorized return on equity. The MPSC also approved a surcharge for the recovery of $6 million of depreciation, property tax, and interest expense related to distribution investments made in 2021 that exceeded what was authorized in rates in accordance with the December 2020 electric rate order. Additionally, the approved settlement provides for the following:
•a pension and OPEB tracker that will allow Consumers to defer the future recovery or refund of pension and OPEB expenses above or below the amounts used to set existing rates, respectively
•a refund of $15 million of 2022 revenues to utility customers through a one-time bill credit
•a commitment to fund $10 million in contributions to programs that directly assist vulnerable customers with utility bills
•deferred accounting treatment for depreciation and property tax expense as well as the debt component of the overall rate of return for distribution-related capital investments exceeding a certain threshold amount
•an increase to the distributed generation cap from two percent to four percent on Consumers’ system
There were no direct disallowances of historical capital expenditures within the approved settlement agreement. The new rates became effective January 20, 2023.
Voluntary Radio Tower Asset Sale Gain Share: In May 2022, Consumers completed a sale of various radio tower assets. In June 2022, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with its electric and gas utility customers; this application was approved by the MPSC in October 2022. During 2022, Consumers shared two-thirds with electric customers through additional spending for tree trimming and one-third with gas customers through a donation to nonprofit agencies that provide customer energy bill assistance.
Consumers Gas Utility
2021 Gas Rate Case:In December 2021, Consumers filed an application with the MPSC seeking an annual rate increase of $244$278 million, based on a 10.5 percent10.5-percent authorized return on equity and afor the projected twelve-month period ending December 31, 2021.September 30, 2023. In July 2020,April 2022, Consumers reduced its requested annual rate increase to $230 million. In December 2020, the MPSC approved an annual rate increase of $90$233 million, based on a 9.9 percent10.25-percent authorized return on equity. This increase reflects a $36 million refund to customers of regulatory tax liabilities associated withIn July 2022, the remeasurement of Consumers’ deferred income taxes as a result of the TCJA; excluding the impacts of this refund, the order resulted in a $126 million increase in annual rates.
The order also approved the recovery of $13 million associated with Consumers’ deferral of depreciation and property tax expense and the overall rate of return on distribution-related capital investments exceeding certain threshold amounts.
Additionally, the order approved the method of recovering amounts earned under the financial compensation mechanism approved by the MPSC in Consumers’ IRP. This mechanism allows Consumers to earn a return equal to Consumer’s weighted-average cost of capital on payments made under PPAs approved by the MPSC after January 1, 2019. The order authorizes Consumers to recover $3 million, beginning in January 2021, for incentives earned and to be earned on PPA payments during 2019 through 2021. Consumers accounts for this program as an alternative-revenue program that meets the criteria for recognizing revenue related to the mechanism as payments are made on MPSC-approved PPAs. Consumers recognized revenue under this mechanism of $1 million in 2020.
Consumers is also authorized in the order to replace the current net metering tariff with a new distributed generation tariff, pursuant to the 2016 Energy Law. The new distributed generation tariff is consistent with other distributed generation tariffs already approved by the MPSC and will reduce the subsidies paid by non-distributed generation customers under the current net metering program.
Consumers Gas Utility
2019 Gas Rate Case: In December 2019, Consumers filed an application with the MPSC seeking an annual rate increase of $245 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending September 30, 2021. In May 2020, Consumers reduced its requested annual rate increase to $229 million. In September 2020, the MPSC approved a settlement agreement authorizing an annual rate increase of $144$170 million, based on a 9.9 percent9.9-percent authorized return on equity, effective October 1, 2020. As part of that agreement, Consumers agreed not to file a new gas rate case prior to December 2021.2022. The MPSC also approved the continuation of a revenue decoupling mechanism, which annually reconciles Consumers’ actual weather-normalized non-fuel revenues with the revenues approved by the MPSC. This reconciliation would start in October 2021 and continue until the MPSC resets rates in a subsequent rate case.approved.
Additionally, the MPSC authorized Consumers to accelerate:
•the refund of a regulatory liability associated with the unprotected, non‑property-related excess deferred income taxes resulting from the TCJA; Consumers was previously authorized to refund this through 2029
•the flow-through of certain income tax benefits associated primarily with the cost of removal of gas plant assets placed in service before 1993; Consumers was previously authorized to refund this through 2025
Under the settlement agreement approved by the MPSC, these benefits, which total $84 million, will now be passed through to customers by September 2022. For additional details, see Note 14, Income Taxes.
Power Supply Cost Recovery and Gas Cost Recovery
The PSCR and GCR ratemaking processes are designed to allow Consumers to recover all of its power supply and purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and reconciliation proceedings. Consumers adjusts its PSCR and GCR billing charges monthly, subject to ceiling factor limitations, in order to minimize the underrecovery or overrecovery amount in the annual reconciliations. Underrecoveries represent probable future revenues that will be recovered from customers; overrecoveries represent previously collected revenues that will be refunded to customers.
Presented in the following table are the assets and liabilities for PSCR and GCR underrecoveries and overrecoveries reflected on Consumers’ consolidated balance sheets:
| In Millions | In Millions | In Millions |
December 31 | December 31 | 2020 | 2019 | December 31 | 2022 | 2021 |
| Assets | | Assets | |
PSCR underrecoveries | | PSCR underrecoveries | | $ | 401 | | | $ | — | |
GCR underrecoveries | | GCR underrecoveries | | 8 | | | 25 | |
Accounts receivable and accrued revenue | | Accounts receivable and accrued revenue | | $ | 409 | | | $ | 25 | |
Liabilities | Liabilities | | | | | Liabilities | |
PSCR overrecoveries | PSCR overrecoveries | | $ | 5 | | | $ | 33 | | PSCR overrecoveries | | $ | — | | | $ | 12 | |
GCR overrecoveries | | 15 | | | 2 | | |
| Accrued rate refunds | Accrued rate refunds | | $ | 20 | | | $ | 35 | | Accrued rate refunds | | $ | — | | | $ | 12 | |
TableDue to spikes in fuel prices during 2022, the cost of Contentselectric generation increased, resulting in higher market prices for electricity. Accordingly, Consumers’ power supply costs for 2022 were significantly higher than those projected in its 2022 PSCR plan. Consumers included a projection of its full-year 2022 underrecovery in the 2023 PSCR plan filed with the MPSC in September 2022. In January 2023, Consumers filed a motion for a temporary order in its 2023 PSCR plan, requesting that the MPSC approve only a third of the 2022 underrecovery amount for recovery in 2023, with the remaining amount to be recovered equally during 2024 and 2025. Recovering the 2022 underrecovery over three years will provide immediate relief to electric customers, and the financial impact will be neutral to Consumers’ earnings.PSCR Plans and Reconciliations: In October 2020,August 2022, the MPSC issued an order in Consumers’ 20182020 PSCR reconciliation, authorizing recovery of $2.0$1.8 billion of power costs and authorizing Consumers to reflect in its 20192021 PSCR reconciliation the underrecovery of $28$1 million. In its order, the MPSC disallowed the recovery of $1 million of replacement power costs associated with an extended outage at Ludington. Consumers filed an appeal of the MPSC’s order with the Michigan Court of Appeals in September 2022.
In April 2020, the MPSC issued an order in Consumers’ 2019 PSCR plan authorizing the 2019 PSCR charge that Consumers self-implemented beginning in January 2019. In March 2020,2022, Consumers filed its 20192021 PSCR reconciliation, requesting full recovery of $1.9$2.1 billion of power costs and authorization to reflect in its 20202022 PSCR reconciliation the overrecovery of $21$8 million.
Consumers submitted its 20202022 PSCR plan to the MPSC in September 20192021 and in accordance withself-implemented its proposed plan, self-implemented the 20202022 PSCR charge beginning in January 2020.2022.
GCR Plans and Reconciliations: In September 2020,April 2022, the MPSC issued an orderapproved a settlement agreement in Consumers’ 2018-20192020-2021 GCR reconciliation, authorizing recovery of $0.6$0.4 billion of gas costs and authorizing Consumers to reflect in its 2019-20202021-2022 GCR reconciliation the underrecoveryoverrecovery of $11$2 million. The MPSC disallowed the recovery of $7 million in incremental gas purchases related to the Ray Compressor Station fire. For additional details, see Note 4, Contingencies and Commitments—Consumers Gas Utility Contingencies.
In June 2020,2022, Consumers filed its 2019-20202021-2022 GCR reconciliation, requesting full recovery of $0.5$0.7 billion of gas costs and authorization to reflect in its 2020-20212022-2023 GCR reconciliation the underrecovery of $1$9 million.
In September 2020,Consumers submitted its 2022-2023 GCR plan to the MPSC approvedin December 2021 and self-implemented its proposed 2022-2023 GCR charge in April 2022. In June 2022, Consumers filed with the MPSC a settlement agreement in Consumers’ 2020-2021revised GCR plan authorizingrequesting an increase to the 2020-2021 GCR charge thatfactor due to rising natural gas prices. Consumers self-implemented beginningthat increased factor in April 2020.October 2022.
3: Contingencies and Commitments
CMS Energy and Consumers are involved in various matters that give rise to contingent liabilities. Depending on the specific issues, the resolution of these contingencies could negatively affect CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. In their disclosures of these matters, CMS Energy and Consumers provide an estimate of the possible loss or range of loss when such an estimate can be made. Disclosures that statestating that CMS Energy or Consumers cannot predict the outcome of a matter indicate that they are unable to estimate a possible loss or range of loss for the matter.
CMS Energy Contingencies
Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, were named as defendants in 4 class action lawsuits filed in Kansas, Missouri, and Wisconsin and 1 individual lawsuit filed in Kansas; these lawsuits arose as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations included price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices. In 2016, CMS Energy entities reached a settlement with the plaintiffs in the Kansas and Missouri class action cases for an amount that was not material to CMS Energy. In 2017, the federal district court approved the settlement.
In 2019, CMS Energy and the plaintiffs in the remaining Kansas individual lawsuit and the Wisconsin class action lawsuit engaged in settlement discussions and CMS Energy recorded a $30 million liability at December 31, 2019 as the probable estimate to settle the two cases. The parties executed a settlement
agreement in the Kansas case in February 2020, and that case is now complete. In the Wisconsin case, a settlement agreement was approved in August 2020 and that case is now complete.
Bay Harbor: CMS Land retained environmental remediation obligations for the collection and treatment of leachate at Bay Harbor after selling its interests in the development in 2002. Leachate is produced when water enters into cement kiln dust piles left over from former cement plant operations at the site. In 2012, CMS Land and EGLE finalized an agreement that establishedestablishing the final remedies and the future water quality criteria at the site. CMS Land completed all construction necessary to implement the remedies required by the agreement and will continue to maintain and operate a system to discharge treated leachate into Little Traverse Bay under an NPDES permit, which was renewed in January 2022 and is valid through September 2020. CMS Land submitted a renewal request for the permit in April 2020. CMS Land is allowed to continue operating under the previous NPDES permit until a response is received from EGLE.2025.
At December 31, 2020,2022, CMS Energy had a recorded liability of $45 million for its remaining obligations for environmental remediation. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.34 percent and an inflation rate of 1one percent on annual operating and maintenance costs. The undiscounted amount of the remaining obligation is $57 million. CMS Energy expects to pay the following amounts for long-term leachate disposal and operating and maintenance costs in each of the next five years:
| In Millions | In Millions | In Millions |
| | 2021 | 2022 | 2023 | 2024 | 2025 | | | 2023 | 2024 | 2025 | 2026 | 2027 |
CMS Energy | CMS Energy | | | | | | | | | | | CMS Energy | | |
Long-term leachate disposal and operating and maintenance costs | Long-term leachate disposal and operating and maintenance costs | | $ | 4 | | | $ | 4 | | | $ | 4 | | | $ | 4 | | | $ | 4 | | Long-term leachate disposal and operating and maintenance costs | | | $ | 4 | | | $ | 4 | | | $ | 4 | | | $ | 4 | | | $ | 4 | |
CMS Energy’s estimate of response activity costs and the timing of expenditures could change if there are changes in circumstances or assumptions used in calculating the liability. Although a liability for its present estimate of remaining response activity costs has been recorded, CMS Energy cannot predict the ultimate financial impact or outcome of this matter.
Equatorial Guinea Tax Claim: In 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that, in connection with the sale, CMS Energy owes $152 million in taxes, plus substantial penalties and interest that could be up to or exceed the amount of the taxes claimed. In 2015, the matter was proceeding to formal arbitration; however, since then, the government of Equatorial Guinea has stopped communicating. CMS Energy has concluded that the government’s tax claim is without merit and will continue to contest the claim, but cannot predict the financial impact or outcome of the matter. An unfavorable outcome could have a material adverse effect on CMS Energy’s liquidity, financial condition, and results of operations.
Consumers Electric Utility Contingencies
Electric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Historically, Consumers has generally been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations.
Cleanup and Solid Waste: Consumers expects to incur remediation and other response activity costs at a number of sites under NREPA. Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome. Consumers estimates that its liability for NREPA sites for which it can estimate a range of loss willto be between $2 million and $4 million. At December 31, 2020,2022, Consumers had
a recorded liability of $2 million, the minimum amount in the range of its estimated probable NREPA liability, as no amount in the range was considered a better estimate than any other amount.
Consumers is a potentially responsible party at a number of contaminated sites administered under CERCLA. CERCLA liability is joint and several. In 2010, Consumers received official notification from the EPA that identified Consumers as a potentially responsible party for cleanup of PCBs at the Kalamazoo River CERCLA site. The notification claimed that the EPA hashad reason to believe that Consumers disposed of PCBs and arranged for the disposal and treatment of PCB-containing materials at portions of the site. In 2011, Consumers received a follow-up letter from the EPA requesting that Consumers agree to participate in a removal action plan along with several other companies for an area of lower Portage Creek, which is connected to the Kalamazoo River. All parties including Consumers, that were asked to participate in the removal action plan, including Consumers, declined to accept liability. Until further information is received from the EPA, Consumers is unable to estimate a range of potential liability for cleanup of the river.
Based on its experience, Consumers estimates that its share of the total liability for known CERCLA sites willto be between $3 million and $8 million. Various factors, including the number and creditworthiness of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At December 31, 2020,2022, Consumers had a recorded liability of $3 million for its share of the total liability at these sites, the minimum amount in the range of its estimated probable CERCLA liability, as no amount in the range was considered a better estimate than any other amount.
The timing of payments related to Consumers’ remediation and other response activities at its CERCLA and NREPA sites is uncertain. Consumers periodically reviews these cost estimates. A change in the underlying assumptions, such as an increase in the number of sites, different remediation techniques, the nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and CERCLA liability.
Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout, and sealant materials at Ludington. Consumers removed part of the PCB material and replaced it with non‑PCB material. Consumers has had several communications with the EPA regarding this matter, but cannot predict the financial impact or outcome.
MCV PPA:Ludington Plant Overhaul Contract Dispute: Consumers and DTE Electric, co-owners of Ludington, are parties to a 2010 engineering, procurement, and construction contract with TAES, under which TAES is charged with performing a major overhaul and upgrade of Ludington. TAES’ performance has been unsatisfactory and resulted in overhaul project delays. Consumers and DTE Electric have demanded that TAES provide a comprehensive plan to resolve quality control concerns, including adherence to its warranty commitments and other contractual obligations. Consumers and DTE Electric have taken extensive efforts to resolve these issues with TAES, including a formal demand to TAES’ parent, Toshiba Corporation, a non-affiliated company, under a parent guaranty it provided in the contract. TAES has not provided a comprehensive plan or otherwise met its performance obligations.
In 2017,order to enforce the MCV Partnership initiated arbitrationcontract, Consumers and DTE Electric filed a complaint against Consumers, assertingTAES and Toshiba Corporation in the U.S. District Court for the Eastern District of Michigan in April 2022. In June 2022, TAES and Toshiba Corporation filed a breach of contract associatedmotion to dismiss the complaint, along with the MCV PPA. Under this PPA, Consumers pays the MCV Partnership a fixed energy charge based on Consumers’ annual average baseload coal generating plant operatingan answer and maintenance cost, fuel inventory, and administrative and general expenses. The MCV Partnership asserts that,counterclaims seeking approximately $15 million in damages related to payments allegedly owed under the Clean Air Act,parties’ contract. As a co-owner of Ludington, Consumers should have installed pollution control equipment on coal-fueled electric generating units years before they were retired. The MCV Partnership also asserts that Consumers should have installed pollution control equipment earlier on its remaining coal-fueled electric generating units. Additionally,would be liable for 51 percent of any such damages. In September 2022, the MCV Partnership claims that Consumers improperly characterized certain costs included incourt denied the calculation of the fixed energy charge.
In January 2019, an arbitration panel issued an order concluding that the MCV Partnership is not entitledmotion to any damages associated with its claim against Consumers related to the Clean Air Act; the majority of the MCV Partnership’s claim, which estimated damagesdismiss filed by TAES and interest in excess of $270 million, was related to this dismissed claim. In November 2020, the MCV Partnership and Consumers signed a settlement agreement resolving all outstanding disputes between the parties, and filed the settlement and associated agreements with the MPSC for approval. Once those are approved, the parties will dismiss this matter with prejudice. If settlement is not approved, the arbitration panel will issue an order.Toshiba Corporation. Consumers believes that the MCV Partnership’s claimscounterclaims are without merit, but cannot predict the financial impact or outcome of thethis matter.
Underwater Cables in Straits An unfavorable outcome could have a material adverse effect on CMS Energy’s and Consumers’ financial condition, results of Mackinac: Consumers owns certain underwater electric cables in the Straits of Mackinac, which were de-energized and retired in 1990. Consumers was notified that some of
operations, or liquidity.
these cables were damagedIn November 2022, Consumers and DTE Electric jointly filed an application with the MPSC, requesting authority to defer as a result of vessel activity in 2018. Followingregulatory asset the notification,costs associated with repairing or replacing the defective work performed by TAES while the litigation with TAES and Toshiba Corporation moves forward; such costs would be offset by potential future litigation proceeds received from TAES or Toshiba Corporation. If this application is approved by the MPSC, Consumers located, inspected, sampled, capped, and returnedDTE Electric will have the damaged retired cablesopportunity to their original location on the lake bottom,seek appropriate recovery and did not find any substantive evidence of environmental contamination. After collaborating with the State of Michigan, local Native American tribes, and other stakeholders, Consumers submitted a permit application and removal work plan with EGLE and the U.S. Army Corps of Engineers in December 2019ratemaking treatment for partial removal of all Consumers-owned cables. In March 2020, EGLE issued a permit for the removal work and,amounts recorded as a result,regulatory asset following resolution of the litigation.
J.H. Campbell 3 Plant Retirement Contract Dispute: In May 2022, Consumers recordedfiled a complaint against Wolverine Power Supply Cooperative, Inc. in the Ottawa County Circuit Court and requested a ruling that Consumers has sole authority to decide to retire the J.H. Campbell 3 coal-fueled generating unit under the unit’s Joint Ownership and Operating Agreement. In July 2022, Wolverine Power Supply Cooperative, Inc. filed an ARO liabilityanswer, affirmative defenses, and a counterclaim seeking approximately $37 million in damages allegedly caused by Consumers’ decision to retire the unit before the end of $5 millionits useful life. In July 2022, Consumers filed a motion for summary disposition, which was heard in August 2022. In October 2022, the coststate circuit court judge found that Consumers may, in its sole discretion, retire the J.H. Campbell 3 coal-fueled generating unit, provided that Consumers continues to remove partially its cables. Removal work was completed in September 2020.operate and make necessary improvements to the unit while the litigation concerning Wolverine Power Supply Cooperative, Inc.’s claim for damages is pending. Consumers recoversbelieves Wolverine Power Supply Cooperative, Inc.’s claim has no merit, but cannot predict the costfinal impact or outcome on this matter. An unfavorable outcome could have a material adverse effect on CMS Energy’s and Consumers’ financial condition, results of recorded AROs through MPSC-approved depreciation rates.operations, or liquidity.
Consumers Gas Utility Contingencies
Gas Environmental Matters: Consumers expects to incur remediation and other response activity costs at a number of sites under NREPA. These sites include 23 former MGP facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, Consumers has no present ownership interest or may own only a portion of the original site.
At December 31, 2020,2022, Consumers had a recorded liability of $56$62 million for its remaining obligations for these sites. This amount represents the present value of long-term projected costs, using a discount rate of 2.57 percent and an inflation rate of 2.5 percent. The undiscounted amount of the remaining obligation is $61$67 million. Consumers expects to pay the following amounts for remediation and other response activity costs in each of the next five years:
| In Millions | In Millions | In Millions |
| | 2021 | 2022 | 2023 | 2024 | 2025 | | | 2023 | 2024 | 2025 | 2026 | 2027 |
Consumers | Consumers | | | | | | | | | | | Consumers | | |
Remediation and other response activity costs | Remediation and other response activity costs | | $ | 3 | | | $ | 9 | | | $ | 23 | | | $ | 10 | | | $ | 1 | | Remediation and other response activity costs | | | $ | 5 | | | $ | 11 | | | $ | 31 | | | $ | 6 | | | $ | 1 | |
Consumers periodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, changes in remediation techniques, or legal and regulatory requirements, could affect Consumers’ estimates of annual response activity costs and the MGP liability.
Pursuant to orders issued by the MPSC, Consumers defers its MGP-related remediation costs and recovers them from its customers over a ten-year period. At December 31, 2020,2022, Consumers had a regulatory asset of $120$108 million related to the MGP sites.
Consumers estimates that its liability to perform remediation and other response activities at NREPA sites other than the MGP sites could reach $3 million. At December 31, 2020,2022, Consumers had a recorded liability of less than $1 million, the minimum amount in the range of its estimated probable liability, as no amount in the range was considered a better estimate than any other amount.
Ray Compressor Station: On January 30, 2019, Consumers experienced a fire at the Ray Compressor Station, which resulted in the Ray Storage Field being off‑line or operating at significantly reduced capacity, which negatively affected Consumers’ natural gas supply and delivery capacity. This incident, which occurred during the extreme polar vortex weather condition, required Consumers to request voluntary reductions in customer load, to implement contingency gas supply purchases, and to implement a curtailment of natural gas deliveries for industrial and large commercial customers pursuant to Consumers’ MPSC curtailment tariff. The curtailment and request for voluntary reductions of customer loads were canceled as of midnight, February 1, 2019. Consumers investigated the cause of the incident, and filed a report on the incident with the MPSC in April 2019. In response, the MPSC issued an order in
July 2019, directing Consumers to file additional reports regarding the incident and to include detail of the resulting costs in a future rate proceeding. The compressor station is presently operating at full capacity.
In September 2020, the MPSC disallowed the recovery of $7 million in incremental gas purchases related to the fire. In JanuaryFebruary 2021, after the MPSC denied Consumers’ petition for a rehearing challenging this disallowance.disallowance, Consumers will filefiled an appeal of the MPSC’s denial with the Michigan Court of Appeals. In December 2022, the Michigan Court of Appeals issued a decision rejecting Consumers’ appeal. Consumers could also be subjectplans to disallowances of costs associatedfile an application for leave to appeal with the repair and modificationMichigan Supreme Court in February 2023.
In December 2021, Consumers filed a gas rate case with the MPSC that included a request for recovery of the Ray Compressor Station. At December 31, 2020,capital expenditures incurred to restore and modify the compressor station. Consumers had incurred capital expenditures of $17 million during 2020 and 2021 to restore and modify the compressor station.
During 2022, Consumers received insurance proceeds of $13 million, representing recovery of costs incurred to restore the compressor station and incremental gas purchases related to the fire. Consumers had recognized the insurance recovery during 2021.
In May 2020,June 2022, Consumers, the MPSC Staff, and other intervenors reached a settlement of the gas rate case and the MPSC approved an administrativeit in July 2022. As a part of the settlement agreement, between Consumers and the MPSC Staff, which resulted in a $10,000 civil penalty in connection with the fire. Consumers may also be subject to various claims from impacted customers and claims for damages. Atagreed, at this time, to not seek recovery of the capital expenditures, net of insurance proceeds, related to restoring and modifying the Ray Compressor Station. As a result, Consumers cannot predict the outcomerecorded an impairment charge of these matters or$10 million within maintenance and other gas-related incidents and a reasonable estimateoperating expenses on its consolidated statements of a total loss cannot be made, but they could have a material adverse effect on Consumers’ resultsincome in 2022.
Guarantees
Presented in the following table are CMS Energy’s and Consumers’ guarantees at December 31, 2020:2022:
| In Millions | In Millions | In Millions |
Guarantee Description | Guarantee Description | Issue Date | Expiration Date | Maximum Obligation | Carrying Amount | Guarantee Description | Issue Date | Expiration Date | Maximum Obligation | Carrying Amount |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | CMS Energy, including Consumers | |
Indemnity obligations from purchase of VIE1 | September 2020 | indefinite | | $ | 349 | | | $ | 0 | | |
Indemnity obligations from sale of membership interests in VIEs1 | | Indemnity obligations from sale of membership interests in VIEs1 | various | indefinite | | $ | 325 | | | $ | — | |
Indemnity obligations from stock and asset sale agreements2 | Indemnity obligations from stock and asset sale agreements2 | various | indefinite | | 153 | | | 2 | | Indemnity obligations from stock and asset sale agreements2 | various | indefinite | | 226 | | | 3 | |
Guarantee3 | Guarantee3 | July 2011 | indefinite | | 30 | | | 0 | | Guarantee3 | 2011 | indefinite | | 30 | | | — | |
Consumers | Consumers | | | | | | Consumers | |
Guarantee3 | Guarantee3 | July 2011 | indefinite | | $ | 30 | | | $ | 0 | | Guarantee3 | 2011 | indefinite | | $ | 30 | | | $ | — | |
1In conjunction withThese obligations arose from the purchasesale of its interestmembership interests in NWO Holdco and Aviator Wind Equity Holdings, CMS Enterprises assumedto tax equity investors. NorthStar Clean Energy provided certain indemnity obligations that protect the associated tax equity investorinvestors against losses incurred as a result of breaches of representations and warranties provided by Aviator Wind Equity Holdings and its subsidiaries.under the associated limited liability company agreements. These obligations are generally capped at an amount equal to the tax equity investor’s capital contributions plus a specified return, less any distributions and tax benefits it receives, in connection with its membership interest ininterest. For any indemnity obligations related to Aviator Wind. CMS EnterprisesWind, NorthStar Clean Energy would recover 49 percent of any amounts paid to the tax equity investor from the other owner of Aviator Wind Equity Holdings. Additionally, Aviator Wind holds insurance coverage that would partially protect against losses incurred as a result of certain failures to qualify for production tax credits. For further details on CMS Enterprises’NorthStar Clean Energy’s ownership interest in NWO Holdco and Aviator Wind, Equity Holdings, see Note 21,18, Variable Interest Entities.
2These obligations arose from stock and asset sale agreements under which CMS Energy or a subsidiary of CMS Energy indemnified the purchaser for losses resulting from various matters, primarilyincluding claims related to taxes.taxes and breaches of representations and warranties. The maximum obligation amount is mostly related to thean Equatorial Guinea tax claim discussedand an indemnity provided in connection with the CMS Energy Contingencies sectionsale of this Note. CMS Energy believesEnerBank to Regions Bank. For further details on the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.sale, see Note 19, Exit Activities and Discontinued Operations.
3This obligation comprises a guarantee provided by Consumers to the U.S. Department of Energy in connection with a settlement agreement regarding damages resulting from the department’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers.
Additionally, in the normal course of business, CMS Energy, Consumers, and certain other subsidiaries of CMS Energy have entered into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. The carrying value of these indemnity obligations is $1 million. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities and those disclosed in the table to be remote.
Other Contingencies
In addition to the matters disclosed in this Note and Note 3,2, Regulatory Matters, there are certain other lawsuits and administrative proceedings before various courts and governmental agencies, as well as unasserted claims that may result in such proceedings, arising in the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These other lawsuits, proceedings, and unasserted claims may involve personal injury, property damage, contracts, environmental matters, federal and state taxes, rates, licensing, employment, and other matters. Further,
CMS Energy and Consumers occasionally self-report certain regulatory non‑compliance matters that may or may not eventually result in administrative proceedings. CMS Energy and Consumers believe that the outcome of any one of these proceedings and potential claims will not have a material negative effect on their consolidated results of operations, financial condition, or liquidity.
Contractual Commitments
Purchase Obligations:Purchase obligations arise from long-term contracts for the purchase of commodities and related services, plant purchase commitments, and construction and service agreements. The commodities and related services include long-term PPAs, natural gas and associated transportation, and coal and associated transportation. Related-party PPAs are between Consumers and certain affiliates of CMS Enterprises.NorthStar Clean Energy. Presented in the following table are CMS Energy’s and Consumers’ contractual purchase obligations at December 31, 20202022 for each of the periods shown:
| In Millions | In Millions | In Millions |
| | Payments Due | | Payments Due |
| | Total | 2021 | 2022 | 2023 | 2024 | 2025 | Beyond 2025 | | Total | 2023 | 2024 | 2025 | 2026 | 2027 | Beyond 2027 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | | | | | CMS Energy, including Consumers | |
Total PPAs | Total PPAs | | $ | 8,898 | | | $ | 1,057 | | | $ | 791 | | | $ | 731 | | | $ | 784 | | | $ | 732 | | | $ | 4,803 | | Total PPAs | | $ | 8,479 | | | $ | 652 | | | $ | 792 | | | $ | 809 | | | $ | 812 | | | $ | 847 | | | $ | 4,567 | |
Other | Other | | 3,179 | | | 1,391 | | | 871 | | | 265 | | | 199 | | | 171 | | | 282 | | Other | | 4,042 | | | 2,513 | | | 903 | | | 335 | | | 41 | | | 31 | | | 219 | |
Total purchase obligations | | Total purchase obligations | | $ | 12,521 | | | $ | 3,165 | | | $ | 1,695 | | | $ | 1,144 | | | $ | 853 | | | $ | 878 | | | $ | 4,786 | |
Consumers | Consumers | | | | | | | | | | | | | | | Consumers | |
PPAs | PPAs | | | | | | | | | | | | | | | PPAs | |
MCV PPA | MCV PPA | | $ | 2,815 | | | $ | 349 | | | $ | 340 | | | $ | 358 | | | $ | 376 | | | $ | 329 | | | $ | 1,063 | | MCV PPA | | $ | 2,317 | | | $ | 286 | | | $ | 369 | | | $ | 357 | | | $ | 384 | | | $ | 406 | | | $ | 515 | |
Palisades PPA | | 517 | | | 398 | | | 119 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Related-party PPAs | Related-party PPAs | | 318 | | | 58 | | | 58 | | | 58 | | | 58 | | | 39 | | | 47 | | Related-party PPAs | | 320 | | | 76 | | | 76 | | | 53 | | | 35 | | | 38 | | | 42 | |
Other PPAs | Other PPAs | | 5,248 | | | 252 | | | 274 | | | 315 | | | 350 | | | 364 | | | 3,693 | | Other PPAs | | 5,842 | | | 290 | | | 347 | | | 399 | | | 393 | | | 403 | | | 4,010 | |
Total PPAs | Total PPAs | | $ | 8,898 | | | $ | 1,057 | | | $ | 791 | | | $ | 731 | | | $ | 784 | | | $ | 732 | | | $ | 4,803 | | Total PPAs | | $ | 8,479 | | | $ | 652 | | | $ | 792 | | | $ | 809 | | | $ | 812 | | | $ | 847 | | | $ | 4,567 | |
Other | Other | | 2,605 | | | 1,333 | | | 777 | | | 207 | | | 154 | | | 130 | | | 4 | | Other | | 3,422 | | | 2,394 | | | 836 | | | 177 | | | 11 | | | 1 | | | 3 | |
Total purchase obligations | | Total purchase obligations | | $ | 11,901 | | | $ | 3,046 | | | $ | 1,628 | | | $ | 986 | | | $ | 823 | | | $ | 848 | | | $ | 4,570 | |
MCV PPA: Consumers has a PPA with the MCV Partnership giving Consumers the right to purchase up to 1,240 MW of capacity and energy produced by the MCV Facility.Facility through May 2030. The PPA was amended during 2020 and is pending MPSC approval. The amended and restated MCV PPA provides for:
•an extension of the termination date from March 2025 to May 2030
•a capacity charge of $10.14 per MWh of available capacity through March 2025 and $5.00 per MWh of available capacity from March 2025 through the termination date of the PPA
•a fixed energy charge of $6.30 per MWh for on-peak hours and $6.00 for off-peak hours
•a variable energy charge based on the MCV Partnership’s cost of production for energy delivered to Consumers
•a $5 million annual contribution by the MCV Partnership to a renewable resources program through March 2025
Capacity and energy charges under the MCV PPA were $519 million in 2022, $348 million in 2021, and $298 million in 2020, $318 million in 2019, and $353 million in 2018.
Palisades PPA: Consumers has a PPA expiring in 2022 with Entergy to purchase virtually all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW. For all delivered energy, the Palisades PPA has escalating capacity and variable energy charges. Total capacity and energy charges under the Palisades PPA were $403 millionin 2020, $395 million in 2019, and $375 million in 2018. For further details about Palisades, see Note 10, Leases and Palisades Financing.2020.
Other PPAs: Consumers has PPAs expiring through 20402050 with various counterparties. The majority of the PPAs have capacity and energy charges for delivered energy. Capacity and energy charges under these PPAs were $510 million in 2022, $338 million in 2021, and $327 million in 2020. In addition,
CMS Energy and Consumers account for several of their PPAs as leases. Capacity and energy charges under these PPAs were $327 million in 2020, $336 million in 2019, and $350 million in 2018. See Note 10,8, Leases and Palisades Financing for more information about CMS Energy’s and Consumers’ lease obligations.
5:4: Financings and Capitalization
Presented in the following table is CMS Energy’s long-term debt at December 31:
| In Millions | In Millions | In Millions |
| | Interest Rate (%) | Maturity | 2020 | 2019 | | Interest Rate (%) | Maturity | 2022 | 2021 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | CMS Energy, including Consumers | |
CMS Energy, parent only | CMS Energy, parent only | | CMS Energy, parent only | |
Senior notes | Senior notes | 5.050 | | | 2022 | | $ | 0 | | | $ | 300 | | Senior notes | 3.875 | | | 2024 | | $ | 250 | | | $ | 250 | |
| | 3.875 | | | 2024 | | 250 | | | 250 | | | 3.600 | | | 2025 | | 250 | | | 250 | |
| | 3.600 | | | 2025 | | 250 | | | 250 | | | 3.000 | | | 2026 | | 300 | | | 300 | |
| | 3.000 | | | 2026 | | 300 | | | 300 | | | 2.950 | | | 2027 | | 275 | | | 275 | |
| | 2.950 | | | 2027 | | 275 | | | 275 | | | 3.450 | | | 2027 | | 350 | | | 350 | |
| | 3.450 | | | 2027 | | 350 | | | 350 | | | 4.700 | | | 2043 | | 250 | | | 250 | |
| | 4.700 | | | 2043 | | 250 | | | 250 | | | 4.875 | | | 2044 | | 300 | | | 300 | |
| | 4.875 | | | 2044 | | 300 | | | 300 | | |
| | | | | $ | 1,975 | | | $ | 1,975 | |
| | | | | | | $ | 1,975 | | | $ | 2,275 | | |
| Term loan facility | variable | 1 | 2021 | | 200 | | | 0 | | |
| | Junior subordinated notes2 | 4.750 | | | 2050 | | 500 | | | 0 | | |
Junior subordinated notes1 | | Junior subordinated notes1 | 4.750 | | 2 | 2050 | | 500 | | | 500 | |
| | 3.750 | | | 2050 | | 400 | | | 0 | | | 3.750 | | 3 | 2050 | | 400 | | | 400 | |
| | 5.625 | | | 2078 | | 200 | | | 200 | | | 5.625 | | | 2078 | | 200 | | | 200 | |
| | 5.875 | | | 2078 | | 280 | | | 280 | | | 5.875 | | | 2078 | | 280 | | | 280 | |
| | 5.875 | | | 2079 | | 630 | | | 630 | | | 5.875 | | | 2079 | | 630 | | | 630 | |
| | | | | | | | $ | 2,010 | | | $ | 1,110 | | | | $ | 2,010 | | | $ | 2,010 | |
Total CMS Energy, parent only | Total CMS Energy, parent only | | | | | $ | 4,185 | | | $ | 3,385 | | Total CMS Energy, parent only | | $ | 3,985 | | | $ | 3,985 | |
Consumers | Consumers | | 8,197 | | | 7,322 | | Consumers | | 10,277 | | | 8,505 | |
CMS Enterprises, including subsidiaries | | |
NorthStar Clean Energy, including subsidiaries | | NorthStar Clean Energy, including subsidiaries | |
Term loan facility | Term loan facility | variable | 3 | 2025 | | 85 | | | 92 | | Term loan facility | variable | | 2025 | | — | | | 78 | |
EnerBank | | |
Certificates of deposit | 1.621 | | 4 | 2021-2028 | | 2,805 | | | 2,389 | | |
Term loan facility | | Term loan facility | variable | 4 | 2023 | | 100 | | | — | |
| Total principal amount outstanding | Total principal amount outstanding | | $ | 15,272 | | | $ | 13,188 | | Total principal amount outstanding | | $ | 14,362 | | | $ | 12,568 | |
Current amounts | Current amounts | | (1,486) | | | (1,111) | | Current amounts | | (1,090) | | | (373) | |
Unamortized discounts | Unamortized discounts | | (33) | | | (27) | | Unamortized discounts | | (30) | | | (31) | |
Unamortized issuance costs | Unamortized issuance costs | | (119) | | | (99) | | Unamortized issuance costs | | (120) | | | (118) | |
Total long-term debt | Total long-term debt | | $ | 13,634 | | | $ | 11,951 | | Total long-term debt | | $ | 13,122 | | | $ | 12,046 | |
1At December 31, 2020, the interest rate on the balance of this term loan facility was 0.600 percent, based on an interest rate of one-week LIBOR plus 0.500 percent.
2These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness.
2On June 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 4.116 percent.
3A subsidiaryOn December 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 2.900 percent
4Funds borrowed under this facility have an interest rate of CMS Enterprises issued non‑recourse debt to financeone-month Term SOFR plus a spread of one percent. At December 31, 2022, the acquisition of a wind generation project in Northwest Ohio. The interest rate for the debt is three-month LIBOR plus 1.500 percent through October 2022 and three-month LIBOR plus 1.750 percent thereafter. At December 31, 2020 and 2019, the interest rateloan issued under this facility was 1.754 percent and 3.445 percent, respectively.5.423 percent.
4The weighted-average interest rate for EnerBank’s certificates of deposit was 1.621 percent at December 31, 2020 and 2.445 percent at December 31, 2019. EnerBank’s primary deposit product consists of brokered certificates of deposit with varying maturities and having a face value of $1,000.
Presented in the following table is Consumers’ long-term debt at December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions |
| Interest Rate (%) | Maturity | 2022 | 2021 |
Consumers | | | | | | | | |
First mortgage bonds | | | | | | | | |
| 0.350 | | | 2023 | | | $ | 300 | | | $ | 300 | |
| 3.375 | | | 2023 | | | 325 | | | 325 | |
| 3.125 | | | 2024 | | | 250 | | | 250 | |
| 3.190 | | | 2024 | | | 52 | | | 52 | |
| 3.680 | | | 2027 | | | 100 | | | 100 | |
| 3.390 | | | 2027 | | | 35 | | | 35 | |
| 3.800 | | | 2028 | | | 300 | | | 300 | |
| 3.600 | | | 2032 | | | 350 | | | — | |
| 3.180 | | | 2032 | | | 100 | | | 100 | |
| 5.800 | | | 2035 | | | 175 | | | 175 | |
| 3.520 | | | 2037 | | | 335 | | | 335 | |
| 4.010 | | | 2038 | | | 215 | | | 215 | |
| 6.170 | | | 2040 | | | 50 | | | 50 | |
| 4.970 | | | 2040 | | | 50 | | | 50 | |
| 4.310 | | | 2042 | | | 263 | | | 263 | |
| 3.950 | | | 2043 | | | 425 | | | 425 | |
| 4.100 | | | 2045 | | | 250 | | | 250 | |
| 3.250 | | | 2046 | | | 450 | | | 450 | |
| 3.950 | | | 2047 | | | 350 | | | 350 | |
| 4.050 | | | 2048 | | | 550 | | | 550 | |
| 4.350 | | | 2049 | | | 550 | | | 550 | |
| 3.750 | | | 2050 | | | 300 | | | 300 | |
| 3.100 | | | 2050 | | | 550 | | | 550 | |
| 3.500 | | | 2051 | | | 575 | | | 575 | |
| 2.650 | | | 2052 | | | 300 | | | 300 | |
| 4.200 | | | 2052 | | | 450 | | | — | |
| 3.860 | | | 2052 | | | 50 | | | 50 | |
| 4.280 | | | 2057 | | | 185 | | | 185 | |
| 2.500 | | | 2060 | | | 525 | | | 525 | |
| 4.350 | | | 2064 | | | 250 | | | 250 | |
| variable | 1 | 2069 | | | 76 | | | 76 | |
| variable | 1 | 2070 | | | 134 | | | 134 | |
| variable | 1 | 2070 | | | 127 | | | 127 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | $ | 8,997 | | | $ | 8,197 | |
| | | | | | | | |
Tax-exempt revenue bonds | 0.875 | | 2 | 2035 | | | 35 | | | 35 | |
| 1.800 | | 3 | 2049 | | | 75 | | | 75 | |
| | | | | | $ | 110 | | | $ | 110 | |
| | | | | | | | |
Securitization bonds | 3.343 | | 4 | 2025-2029 | 5 | | 170 | | | 198 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Term loan facility | variable | 6 | 2024 | | | 1,000 | | | — | |
Total principal amount outstanding | | | | | | $ | 10,277 | | | $ | 8,505 | |
Current amounts | | | | | | (991) | | | (365) | |
Unamortized discounts | | | | | | (27) | | | (28) | |
Unamortized issuance costs | | | | | | (67) | | | (62) | |
Total long-term debt | | | | | | $ | 9,192 | | | $ | 8,050 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions |
| Interest Rate (%) | Maturity | 2020 | 2019 |
Consumers | | | | | | | | |
First mortgage bonds | 3.770 | | | 2020 | | | $ | 0 | | | $ | 100 | |
| 2.850 | | | 2022 | | | 0 | | | 375 | |
| 5.300 | | | 2022 | | | 0 | | | 250 | |
| 0.350 | | | 2023 | | | 300 | | | 0 | |
| 3.375 | | | 2023 | | | 325 | | | 325 | |
| 3.125 | | | 2024 | | | 250 | | | 250 | |
| 3.190 | | | 2024 | | | 52 | | | 52 | |
| 3.680 | | | 2027 | | | 100 | | | 100 | |
| 3.390 | | | 2027 | | | 35 | | | 35 | |
| 3.800 | | | 2028 | | | 300 | | | 300 | |
| 3.180 | | | 2032 | | | 100 | | | 100 | |
| 5.800 | | | 2035 | | | 175 | | | 175 | |
| 3.520 | | | 2037 | | | 335 | | | 335 | |
| 4.010 | | | 2038 | | | 215 | | | 215 | |
| 6.170 | | | 2040 | | | 50 | | | 50 | |
| 4.970 | | | 2040 | | | 50 | | | 50 | |
| 4.310 | | | 2042 | | | 263 | | | 263 | |
| 3.950 | | | 2043 | | | 425 | | | 425 | |
| 4.100 | | | 2045 | | | 250 | | | 250 | |
| 3.250 | | | 2046 | | | 450 | | | 450 | |
| 3.950 | | | 2047 | | | 350 | | | 350 | |
| 4.050 | | | 2048 | | | 550 | | | 550 | |
| 4.350 | | | 2049 | | | 550 | | | 550 | |
| 3.750 | | | 2050 | | | 300 | | | 300 | |
| 3.100 | | | 2050 | | | 550 | | | 550 | |
| 3.500 | | | 2051 | | | 575 | | | 0 | |
| 3.860 | | | 2052 | | | 50 | | | 50 | |
| 4.280 | | | 2057 | | | 185 | | | 185 | |
| 2.500 | | | 2060 | | | 525 | | | 0 | |
| 4.350 | | | 2064 | | | 250 | | | 250 | |
| variable | 1 | 2069 | | | 76 | | | 76 | |
| variable | 1 | 2070 | | | 134 | | | 0 | |
| variable | 1 | 2070 | | | 127 | | | 0 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | $ | 7,897 | | | $ | 6,961 | |
| | | | | | | | |
Tax-exempt revenue bonds | variable | | 2035 | | | 0 | | | 35 | |
| 1.800 | | 2 | 2049 | | | 75 | | | 75 | |
| | | | | | $ | 75 | | | $ | 110 | |
| | | | | | | | |
Securitization bonds | 3.250 | | 3 | 2025-2029 | 4 | | 225 | | | 251 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total principal amount outstanding | | | | | | $ | 8,197 | | | $ | 7,322 | |
Current amounts | | | | | | (364) | | | (202) | |
Unamortized discounts | | | | | | (29) | | | (23) | |
Unamortized issuance costs | | | | | | (62) | | | (49) | |
Total long-term debt | | | | | | $ | 7,742 | | | $ | 7,048 | |
1The variable-rate bonds bear interest quarterly at a rate of three-month LIBOR minus 0.300 percent, subject to a zero-percent floor (0floor. At December 31, 2022, the interest rates were 4.469 percent for bonds due
September 2069, 4.375 percent for bonds due May 2070, and 3.484 percent for bonds due October 2070. The interest rate for all variable-rate bonds at December 31, 2020).2021 was zero percent. The holders of these variable-rate bonds may put them to Consumers for redemption on certain dates prior to their stated maturity, including dates within one year of December 31, 2020.2022.
2The interest rate on these tax-exempt revenue bonds will reset on October 8, 2026.
23The interest rate on these tax‑exempt revenue bonds will reset on October 1, 2024.
34The weighted-average interest rate for Consumers’ securitization bonds issued through its subsidiary, Consumers 2014 Securitization Funding, was 3.2503.343 percent at December 31, 20202022 and 3.2203.290 percent at December 31, 2019.2021.
45Principal and interest payments are made semiannually.
6Loans under this facility have an interest rate of one-month Term SOFR plus 0.650 percent. At December 31, 2022, the weighted-average interest rate for the loans issued under this facility was 4.975 percent at December 31, 2022.
Financings: Presented in the following table is a summary of major long-term debt issuances during the year ended December 31, 2020:2022:
| | | Principal (In Millions) | Interest Rate | Issuance Date | Maturity Date | | | Principal (In Millions) | Interest Rate | Issuance Date | Maturity Date |
CMS Energy, parent only | | | |
NorthStar Clean Energy, including subsidiaries | | NorthStar Clean Energy, including subsidiaries | |
Term loan facility1 | Term loan facility1 | | $ | 300 | | variable | February | February 2021 | | Term loan facility1 | | $ | 100 | | variable | December 2022 | September 2023 |
Junior subordinated notes2 | | 500 | | 4.750 | % | May | June 2050 | | |
Junior subordinated notes3 | | 400 | | 3.750 | % | November | December 2050 | | |
| Total CMS Energy, parent only | | $ | 1,200 | | | | |
| Total NorthStar Clean Energy, including subsidiaries | | Total NorthStar Clean Energy, including subsidiaries | | $ | 100 | | |
Consumers | Consumers | | | Consumers | |
Term loan facility | | $ | 300 | | variable | January | January 2021 | | |
First mortgage bonds | | 575 | | 3.500 | % | March | August 2051 | | |
First mortgage bonds | | 525 | | 2.500 | % | May | May 2060 | | |
First mortgage bonds | | 134 | | variable | May | May 2070 | | |
Term loan facility2 | | Term loan facility2 | | $ | 1,000 | | variable | July 2022 | January 2024 |
First mortgage bonds | First mortgage bonds | | 127 | | variable | October | October 2070 | | First mortgage bonds | | 350 | | 3.600 | % | August 2022 | August 2032 |
First mortgage bonds | First mortgage bonds | | 300 | | 0.350 | % | December | June 2023 | | First mortgage bonds | | 450 | | 4.200 | % | August 2022 | September 2052 |
| | Total Consumers | Total Consumers | | $ | 1,961 | | | | | Total Consumers | | $ | 1,800 | | |
Total CMS Energy | Total CMS Energy | | $ | 3,161 | | | | Total CMS Energy | | $ | 1,900 | | |
1In December 2020, CMS2022, a subsidiary of NorthStar Clean Energy repaidentered into a $185 million unsecured term loan credit agreement. Under this credit agreement, $100 million of this facility and, in February 2021, amendedloans have been issued as of December 31, 2022. In January 2023, an additional $30 million was borrowed under the facility by extending its maturity date to November 2021.unsecured term loan credit agreement.
2These In July 2022, Consumers entered into a delayed-draw $1.0 billion unsecured obligations rank subordinateterm loan credit agreement. Under this credit agreement, Consumers issued loans of $550 million in September 2022 and junior$450 million in rightNovember 2022. In January 2023, Consumers repaid $500 million of payment to all of CMS Energy’s existing and future senior indebtedness. On June 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 4.116 percent.term loan credit agreement.
3These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness. On December 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 2.900 percent.
In January 2023, Consumers entered into a bond purchase agreement to issue an aggregate principal amount of $400 million of first mortgage bonds through a private placement offering. The bonds, which were priced in November 2022, carry a weighted average interest rate of 5.251 percent and mature at varying dates between 2026 and 2037. The bonds are expected to be issued in May 2023. The proceeds of the bonds will be used to finance a portion of the purchase price of the New Covert Generating Facility and for general corporate purposes.
Also in January 2023, Consumers issued $425 million of first mortgage bonds that mature in March 2028 and bear interest at a rate of 4.650 percent. The proceeds of the bonds have been used to repay a portion of the $1.0 billion aggregate principal amount outstanding under Consumers’ term loan credit agreement and for general corporate purposes.
Presented in the following table is a summary of major long-term debt retirements during the year ended December 31, 2020:2022:
| | | | | | | | | | | | | | | | | |
| Principal (In Millions) | Interest Rate | Retirement Date | Maturity Date |
CMS Energy, parent only | | | | | |
Senior notes1 | | $ | 300 | | 5.050 | % | December | March 2022 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total CMS Energy, parent only | | $ | 300 | | | | |
Consumers | | | | | |
First mortgage bonds | | $ | 100 | | 3.770 | % | April | October 2020 |
First mortgage bonds | | 250 | | 5.300 | % | June | September 2022 |
First mortgage bonds | | 375 | | 2.850 | % | September | May 2022 |
Term loan facility | | 300 | | variable | December | January 2021 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total Consumers | | $ | 1,025 | | | | |
Total CMS Energy | | $ | 1,325 | | | | |
1CMS Energy retired these senior notes at a premium and recorded a loss on extinguishment of $16 million in other expense on its consolidated statements of income. | | | | | | | | | | | | | | | | | |
| Principal (In Millions) | Interest Rate | Retirement Date | Maturity Date |
NorthStar Clean Energy, including subsidiaries | | | | | |
Term loan facility | | $ | 76 | | variable | June 2022 | October 2025 |
In July 2020, Consumers purchased, in lieu of redemption, $35 million of variable-rate tax-exempt revenue bonds due April 2035. At December 31, 2020, Consumers held the variable-rate tax-exempt revenue bonds and may remarket the bonds or replace them with debt instruments of an equivalent value.
In September 2020, proceeds from the sale ofJune 2022, NorthStar Clean Energy sold a Class A membership interest in Aviator WindNWO Holdco to a tax equity investor and additional contributionsfor $49 million. Proceeds from the Class B membership interest (of which CMS Enterprises owns 51 percent)sale were used to retire $492 millionthe non-recourse debt held by a subsidiary of debt assumed through the purchase of the VIE.NorthStar Clean Energy. For more information, see Note 21,18, Variable Interest Entities.
First Mortgage Bonds: Consumers secures its first mortgage bonds by a mortgage and lien on substantially all of its property. Consumers’ ability to issue first mortgage bonds is restricted by certain provisions in the First Mortgage Bond Indenture and the need for regulatory approvals under federal law. Restrictive issuance provisions in the First Mortgage Bond Indenture include achieving a 2-timestwo-times interest coverage ratio and having sufficient unfunded net property additions.
Regulatory Authorization for Financings: Consumers is required to maintain FERC authorization for financings. Its current authorization terminatesexpires on JulyMarch 31, 2022.2024. Any long-term issuances during the authorization period are exempt from FERC’s competitive bidding and negotiated placement requirements. In December 2022, Consumers filed an application for authority to issue securities between April 1, 2023 and March 31 2025.
Securitization Bonds: Certain regulatory assets held by Consumers’ subsidiary, Consumers 2014 Securitization Funding, collateralize Consumers’ securitization bonds. The bondholders have no recourse to Consumers’ assets except for those held by the subsidiary that issued the bonds. Consumers collects securitization surcharges to cover the principal and interest on the bonds as well as certain other qualified costs. The surcharges collected are remitted to a trustee and are not available to creditors of Consumers or creditors of Consumers’ affiliates other than the subsidiary that issued the bonds.
Debt Maturities: At December 31, 2020,2022, the aggregate annual maturities for long-term debt for the next five years, based on stated maturities or earlier put dates, were:
| In Millions | In Millions | In Millions |
| | 2021 | 2022 | 2023 | 2024 | 2025 | | 2023 | 2024 | 2025 | 2026 | 2027 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | | | | | CMS Energy, including Consumers | |
Long-term debt | Long-term debt | | | | | | | | | | | Long-term debt | |
CMS Energy, parent only | CMS Energy, parent only | | $ | 200 | | | $ | 0 | | | $ | 0 | | | $ | 250 | | | $ | 250 | | CMS Energy, parent only | | $ | — | | | $ | 250 | | | $ | 250 | | | $ | 300 | | | $ | 625 | |
Consumers | Consumers | | 364 | | | 28 | | | 654 | | | 332 | | | 31 | | Consumers | | 991 | | | 1,332 | | | 31 | | | 32 | | | 168 | |
CMS Enterprises, including subsidiaries | | 7 | | | 8 | | | 9 | | | 10 | | | 51 | | |
EnerBank | | 915 | | | 572 | | | 477 | | | 325 | | | 244 | | |
Total CMS Energy | | $ | 1,486 | | | $ | 608 | | | $ | 1,140 | | | $ | 917 | | | $ | 576 | | |
NorthStar Clean Energy, including subsidiaries | | NorthStar Clean Energy, including subsidiaries | | 100 | | | — | | | — | | | — | | | — | |
| Total CMS Energy1 | | Total CMS Energy1 | | $ | 1,091 | | | $ | 1,582 | | | $ | 281 | | | $ | 332 | | | $ | 793 | |
Consumers | Consumers | | Consumers | |
Long-term debt | Long-term debt | | $ | 364 | | | $ | 28 | | | $ | 654 | | | $ | 332 | | | $ | 31 | | Long-term debt | | $ | 991 | | | $ | 1,332 | | | $ | 31 | | | $ | 32 | | | $ | 168 | |
1 This amount excludes debt issuance costs, related to the term loan agreement of a subsidiary of NorthStar Clean Energy, of less than $1 million.
Credit Facilities: The following credit facilities with banks were available at December 31, 2020:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions | |
Expiration Date | Amount of Facility | Amount Borrowed | Letters of Credit Outstanding | Amount Available | |
CMS Energy, parent only | | | | | | | | | |
June 5, 20231 | | $ | 550 | | | $ | 0 | | | $ | 18 | | | $ | 532 | | |
CMS Enterprises, including subsidiaries | | | | | | | | | |
September 25, 20252 | | $ | 39 | | | $ | 0 | | | $ | 39 | | | $ | 0 | | |
September 30, 20253 | | 18 | | | 0 | | | 8 | | | 10 | | |
Consumers4 | | | | | | | | | |
June 5, 2023 | | $ | 850 | | | $ | 0 | | | $ | 7 | | | $ | 843 | | |
November 19, 2022 | | 250 | | | 0 | | | 1 | | | 249 | | |
April 18, 2022 | | 30 | | | 0 | | | 30 | | | 0 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions |
Expiration Date | Amount of Facility | Amount Borrowed | Letters of Credit Outstanding | Amount Available |
CMS Energy, parent only | | | | | | | | |
December 14, 20271 | | $ | 550 | | | $ | — | | | $ | 18 | | | $ | 532 | |
September 22, 2024 | | 50 | | | — | | | 50 | | | — | |
NorthStar Clean Energy, including subsidiaries | | | | | | | | |
September 25, 20252 | | $ | 37 | | | $ | — | | | $ | 37 | | | $ | — | |
Consumers3 | | | | | | | | |
December 14, 2027 | | $ | 1,100 | | | $ | — | | | $ | 29 | | | $ | 1,071 | |
November 18, 2024 | | 250 | | | — | | | 27 | | | 223 | |
| | | | | | | | |
1DuringThere were no borrowings under this facility during the year ended December 31, 2020, CMS Energy’s average borrowings totaled $1 million with a weighted-average interest rate of 1.888 percent.2022.
2This letter of credit facility is available to Aviator Wind Equity Holdings. For more information regarding the acquisition of Aviator Wind Equity Holdings, see Note 21,18, Variable Interest Entities.
3Under this facility, $8 million is available solely for the purpose of issuing letters of credit. Obligations under this facility are secured by the collateral accounts with the lending bank. There were 0 borrowings under this facility during the year ended December 31, 2020.
4Obligations under these facilities are secured by first mortgage bonds of Consumers. DuringThere were no borrowings under these facilities during the year ended December 31, 2020, Consumers’ average borrowings totaled less than $1 million with a weighted-average interest rate of 1.425 percent.2022.
Short-term Borrowings: Under Consumers’ commercial paper program, Consumers may issue, in one or more placements, investment-grade commercial paper notes with maturities of up to 365 days at market interest rates. These issuances are supported by Consumers’ revolving credit facilities and may have an aggregate principal amount outstanding of up to $500 million. While the amount of outstanding commercial paper does not reduce the available capacity of the revolving credit facilities, Consumers
does not intend to issue commercial paper in an amount exceeding the available capacity of the facilities. At December 31, 2020,2022, there were 0$20 million of commercial paper notes outstanding under this program.program at an annual interest rate of 4.710 percent, recorded as current notes payable on the consolidated balance sheets of CMS Energy and Consumers.
In December 2020,2022, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $350$500 million. For more information onAt December 31, 2022, outstanding borrowings under the intercompanyagreement were $75 million bearing the maximum interest rate authorized by FERC for this short-term credit agreement between CMS Energy and Consumers, see Note 20, Related-Party Transactions—Consumers.of 3.500 percent.
Dividend Restrictions: At December 31, 2020,2022, payment of dividends by CMS Energy on its common stock was limited to $5.5$6.8 billion under provisions of the Michigan Business Corporation Act of 1972.
Under the provisions of its articles of incorporation, at December 31, 2020,2022, Consumers had $1.6$1.9 billion of unrestricted retained earnings available to pay dividends on its common stock to CMS Energy. Provisions of the Federal Power Act and the Natural Gas Act appear to restrict dividends payable by Consumers to the amount of Consumers’ retained earnings. Several decisions from FERC suggest that, under a variety of circumstances, dividends from Consumers on its common stock would not be limited to amounts in Consumers’ retained earnings. Any decision by Consumers to pay dividends on its common stock in excess of retained earnings would be based on specific facts and circumstances and would be subject to a formal regulatory filing process.
ForDuring the year ended December 31, 2020,2022, Consumers paid $637$769 million in dividends on its common stock to CMS Energy.
Capitalization: The authorized capital stock of CMS Energy consists of:
•350 million shares of CMS Energy Common Stock, par value $0.01 per share
•10 million shares of CMS Energy Preferred Stock, par value $0.01 per share
Issuance of Common Stock: In 2018 and 2020, CMS Energy entered intoUnder an existing equity offering programs under which it may sell, from time to time, shares of CMS Energy common stock. Under both programs, CMS Energy may sell its common stock in privately negotiated transactions, in “at the market” offerings, through forward sales transactions, or otherwise.
During 2018 and 2019, CMS Energy entered into forward sales contracts having an aggregate sales price of $250 million, the maximum allowed under the 2018 program. In 2020, CMS Energy settled the forward contracts under this program by issuing 4,879,022 shares of common stock at a weighted-average price of $48.86 per share, resulting in net proceeds of $238 million.
Under the 2020 program, CMS Energy may sell shares of its common stock having an aggregate sales price of up to $500 million in privately negotiated transactions, in “at the market” offerings, through forward sales transactions, or otherwise. In 2022, CMS Energy settled forward contracts under this program by issuing 962,354 shares of common stock at a weighted-average price of $57.36 per share, resulting in net proceeds of $55 million.
Presented in the following table are details of CMS Energy’s forward sales contracts under this program at December 31, 2020:2022:
| | | | | | | | | | | | | | | | | | | | |
| | | Forward Price Per Share |
Contract Date | Maturity Date | Number of Shares | Initial | December 31, 2020 |
September 15, 2020 | December 31, 2021 | 846,759 | | $ | 61.04 | | | $ | 60.53 | |
December 22, 2020 | June 22, 2022 | 115,595 | | 61.81 | | | 61.81 | |
| | | | | | | | | | | | | | | | | | | | |
| | | Forward Price Per Share |
Contract Date | Maturity Date | Number of Shares | Initial | December 31, 2022 |
August 3, 2022 | February 1, 2024 | 2,944,207 | | 67.59 | | | 67.83 | |
August 24, 2022 | February 26, 2024 | 1,677,938 | | 69.46 | | | 69.69 | |
August 29, 2022 | February 26, 2024 | 1,783,388 | | 68.18 | | | 68.38 | |
These contracts allow CMS Energy to either physically settle the contracts by issuing shares of its common stock at the then-applicable forward sale price specified by the agreement or net settle the contracts through the delivery or receipt of cash or shares. CMS Energy may settle the contracts at any time through their maturity dates, and presently intends to physically settle the contracts by delivering shares of its common stock.
The initial forward price in the forward equity sale contracts includes a deduction for commissions and will be adjusted on a daily basis over the term based on an interest rate factor and decreased on certain dates by certain predetermined amounts to reflect expected dividend payments. No amounts are recorded on CMS Energy’s consolidated balance sheets until settlements of the forward equity sale contracts occur.
If CMS Energy had elected to net share settle or net cash settle the contracts as of December 31, 2020,2022, CMS Energy would not have been required to deliver 6,666 shares.shares or pay cash.
Preferred Stock: CMS Energy’s Series C preferred stock is traded on the New York Stock Exchange under the symbol CMS PRC. Depositary shares represent a 1/1000th interest in a share of its Series C preferred stock. The Series C preferred stock has no maturity or mandatory redemption date and is not redeemable at the option of the holders. CMS Energy may, at its option, redeem the Series C preferred stock, in whole or in part, at any time on or after July 15, 2026. The Series C preferred stock ranks senior to CMS Energy’s common stock with respect to dividend rights and distribution rights upon liquidation. Presented in the following table are details of CMS Energy’s Series C preferred stock at December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | |
| Depositary Share Par Value | Depositary Share Optional Redemption Price | Number of Depositary Shares Authorized | Number of Depositary Shares Outstanding |
Cumulative, redeemable perpetual | | $ | 25 | | | $ | 25 | | 9,200,000 | | 9,200,000 | |
Preferred Stock of Subsidiary: Consumers’ preferred stock is traded on the New York Stock Exchange under the symbol CMS-PB. Presented in the following table are details of Consumers’ preferred stock at December 31, 20202022 and 2019:2021:
| | | | | | | | | | | | | | | | | | | | |
| Par Value | Optional Redemption Price | Number of Shares Authorized | Number of Shares Outstanding |
Cumulative, with no mandatory redemption | | $ | 100 | | | $ | 110 | | 7,500,000 | | 373,148 | |
6:5: Fair Value Measurements
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. When measuring fair value, CMS Energy and Consumers are required to incorporate all assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. A fair value hierarchy prioritizes inputs used to measure fair value according to their observability in the market. The three levels of the fair value hierarchy are as follows:
•Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2 inputs are observable, market-based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, and inputs derived from or corroborated by observable market data.
•Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities.
CMS Energy and Consumers classify fair value measurements within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement in its entirety.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Presented in the following table are CMS Energy’s and Consumers’ assets and liabilities recorded at fair value on a recurring basis:
| In Millions | In Millions | In Millions |
| | CMS Energy, including Consumers | | Consumers | | CMS Energy, including Consumers | | Consumers |
December 31 | December 31 | 2020 | 2019 | | 2020 | 2019 | December 31 | 2022 | 2021 | | 2022 | 2021 |
Assets1 | Assets1 | | | | | | | | | Assets1 | |
| Restricted cash equivalents | Restricted cash equivalents | | $ | 17 | | | $ | 17 | | | $ | 15 | | | $ | 17 | | Restricted cash equivalents | | $ | 18 | | | $ | 24 | | | $ | 17 | | | $ | 22 | |
CMS Energy common stock | | — | | | — | | | 0 | | | 1 | | |
Nonqualified deferred compensation plan assets | Nonqualified deferred compensation plan assets | | 23 | | | 18 | | | 18 | | | 14 | | Nonqualified deferred compensation plan assets | | 24 | | | 27 | | | 18 | | | 21 | |
| Derivative instruments | Derivative instruments | | 1 | | | 1 | | | 1 | | | 1 | | Derivative instruments | | 2 | | | 2 | | | 2 | | | 2 | |
Total assets | Total assets | | $ | 41 | | | $ | 36 | | | $ | 34 | | | $ | 33 | | Total assets | | $ | 44 | | | $ | 53 | | | $ | 37 | | | $ | 45 | |
Liabilities1 | Liabilities1 | | | | | | | | | Liabilities1 | |
Nonqualified deferred compensation plan liabilities | Nonqualified deferred compensation plan liabilities | | $ | 23 | | | $ | 18 | | | $ | 18 | | | $ | 14 | | Nonqualified deferred compensation plan liabilities | | $ | 24 | | | $ | 27 | | | $ | 18 | | | $ | 21 | |
Derivative instruments | Derivative instruments | | 17 | | | 8 | | | 0 | | | 0 | | Derivative instruments | | — | | | 7 | | | — | | | — | |
Total liabilities | Total liabilities | | $ | 40 | | | $ | 26 | | | $ | 18 | | | $ | 14 | | Total liabilities | | $ | 24 | | | $ | 34 | | | $ | 18 | | | $ | 21 | |
1All assets and liabilities were classified as Level 1 with the exception of derivative contracts, which were classified as Level 2 or Level 3.
Restricted Cash Equivalents: Restricted cash equivalents consist of money market funds with daily liquidity. For further details, see Note 18, Cash and Cash Equivalents.1, Significant Accounting Policies.
Nonqualified Deferred Compensation Plan Assets and Liabilities: The nonqualified deferred compensation plan assets consist of mutual funds, which are valued using the daily quoted net asset values. CMS Energy and Consumers value their nonqualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect the amount owed to the plan participants in accordance with their investment elections. CMS Energy and Consumers report the assets in other non‑current assets and the liabilities in other non‑current liabilities on their consolidated balance sheets.
Derivative Instruments: CMS Energy and Consumers value their derivative instruments using either a market approach that incorporates information from market transactions, or an income approach that discounts future expected cash flows to a present value amount. CMS Energy’s and Consumers’ derivatives are classified as Level 2 or Level 3.
The derivatives classified as Level 2 arewere interest rate swaps at CMS Energy, which arewere valued using market-based inputs. CMS Energy usesused interest rate swaps to manage its interest rate risk on certain long‑term debt obligations and certain notes receivable at EnerBank.obligations.
A subsidiary of CMS Enterprises usesNorthStar Clean Energy used floating-to-fixed interest rate swaps to reduce the impact of interest rate fluctuations associated with future interest payments on certain long‑term variable-rate debt. The interest rate swaps arewere accounted for as cash flow hedges of the future variability of interest payments on the debt. In June 2022, NorthStar Clean Energy repaid the hedged debt withand terminated the related interest rate swaps. As a notional amount of $85 million at December 31, 2020. Gains orresult, the associated unrecognized losses on these swaps are initially reportedrecorded in other comprehensive income (loss) and then, as interest payments are made on the hedged debt, arewere recognized in earnings within other interest expenseon long-term debt on CMS Energy’s consolidated statements of income. Theincome; this amount of losses recorded in other comprehensive loss was $6 million for the
year ended December 31, 2020, $4 million for the year ended December 31, 2019 and $2 million for the year ended December 31, 2018. There were no material impacts on other interest expense associated with these swaps during the years presented. The fair value of these swaps recorded in other liabilities on CMS Energy’s consolidated balance sheets totaled $9 million at December 31, 2020 and $5 million at December 31, 2019. CMSimmaterial. NorthStar Clean Energy also hashad other interest rate swaps that economically hedgehedged interest rate risk on debt, but that dodid not qualify for cash flow hedge accounting;
accounting. These swaps were also terminated in June 2022; the amounts associated with these swaps were not material for the yearsperiods presented.
EnerBank uses fixed-to-floating interest rate swaps to manage interest rate risk exposure associated with changes in the fair value of certain long‑term fixed‑rate loans. The interest rate swaps qualify as fair value hedges of long‑term, fixed‑rate notes receivable with a notional amount of $134 million at December 31, 2020 and 2019. The fair value of these interest rate swaps recorded in other liabilities was $6 million at December 31, 2020 and $1 million at December 31, 2019. CMS Energy is adjusting the carrying value of the hedged notes receivable for the change in their fair value due to the hedged risk. For the year ended December 31, 2020, CMS Energy recorded a $5 million loss within operating revenue for the change in the fair value of the interest rate swaps and a $5 million gain within operating revenue for the change in the carrying value of the hedged notes receivable notes. Amounts recognized within operating revenue for the year ended December 31, 2019 were immaterial.
The majority of derivatives classified as Level 3 are FTRs held by Consumers. Due to the lack of quoted pricing information, Consumers determines the fair value of its FTRs based on Consumers’ average historical settlements. There was no material activity within the Level 3 categories of assets and liabilities during the yearsperiods presented.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Presented in the following table are Consumers’ assets, by level within the fair value hierarchy, reported at fair value on a nonrecurring basis during the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions |
| Level 1 | Level 2 | Level 3 | | Gains (Losses) |
Assets held for sale | | $ | — | | | $ | 15 | | | $ | — | | | $ | (4) | |
In 2021, Consumers wrote down fleet assets held for sale from their carrying amount of $19 million to their fair value, less selling costs, of $15 million, resulting in an impairment charge of $4 million, which was recorded within maintenance and other operating expenses on its consolidated statements of income for the year ended December 31, 2021. The fair value was determined based on the market prices of similar fleet vehicles at the time of measurement. These vehicles were subsequently sold at an amount exceeding their recorded fair value in 2022. For additional information, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters.
7:6: Financial Instruments
Presented in the following table are the carrying amounts and fair values, by level within the fair value hierarchy, of CMS Energy’s and Consumers’ financial instruments that are not recorded at fair value. The table excludes cash, cash equivalents, short-term financial instruments, and trade accounts receivable and payable whose carrying amounts approximate their fair values. For information about assets and liabilities recorded at fair value and for additional details regarding the fair value hierarchy, see Note 6,5, Fair Value Measurements.
| In Millions | In Millions | In Millions |
| | December 31, 2020 | | December 31, 2019 | | December 31, 2022 | | December 31, 2021 |
| | Carrying Amount | Fair Value | | Carrying Amount | Fair Value | | Carrying Amount | Fair Value | | Carrying Amount | Fair Value |
| | Total | Level | | Total | Level | | Total | Level | | Total | Level |
| | 1 | | 2 | | 3 | | | Carrying Amount | 2 | | 3 | | | 1 | 2 | 3 | | Carrying Amount | 2 | 3 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | CMS Energy, including Consumers | |
Assets | Assets | | | | | | | | | | | | | | | | | | | Assets | |
Long-term receivables1 | Long-term receivables1 | | $ | 17 | | | $ | 17 | | | $ | 0 | | | $ | 0 | | | $ | 17 | | | $ | 20 | | | $ | 20 | | | $ | 0 | | | $ | 0 | | | $ | 20 | | Long-term receivables1 | | $ | 14 | | | $ | 14 | | | $ | — | | | $ | — | | | $ | 14 | | | $ | 14 | | | $ | 14 | | | $ | — | | | $ | — | | | $ | 14 | |
Notes receivable2 | | 2,887 | | | 3,248 | | | 0 | | | 0 | | | 3,248 | | | 2,500 | | | 2,652 | | | 0 | | | 0 | | | 2,652 | | |
Securities held to maturity3 | | 28 | | | 29 | | | 0 | | | 29 | | | 0 | | | 26 | | | 26 | | | 0 | | | 26 | | | 0 | | |
| Liabilities | Liabilities | | | | | | | | | | | | | | | | | | | | | Liabilities | |
Long-term debt4 | | 15,120 | | | 17,512 | | | 1,249 | | | 14,178 | | | 2,085 | | | 13,062 | | | 14,185 | | | 1,197 | | | 11,048 | | | 1,940 | | |
Long-term payables5 | | 33 | | | 35 | | | 0 | | | 0 | | | 35 | | | 30 | | | 32 | | | 0 | | | 0 | | | 32 | | |
Long-term debt2 | | Long-term debt2 | | 14,212 | | | 12,384 | | | 987 | | | 8,741 | | | 2,656 | | | 12,419 | | | 13,800 | | | 1,189 | | | 10,656 | | | 1,955 | |
Long-term payables3 | | Long-term payables3 | | 9 | | | 7 | | | — | | | — | | | 7 | | | 31 | | | 32 | | | — | | | — | | | 32 | |
Consumers | Consumers | | | | | | | | | | | | | | | | | | | | | Consumers | |
Assets | Assets | | | | | | | | | | | | | | | | | | | | | Assets | |
Long-term receivables1 | Long-term receivables1 | | $ | 17 | | | $ | 17 | | | $ | 0 | | | $ | 0 | | | $ | 17 | | | $ | 20 | | | $ | 20 | | | $ | 0 | | | $ | 0 | | | $ | 20 | | Long-term receivables1 | | $ | 14 | | | $ | 14 | | | $ | — | | | $ | — | | | $ | 14 | | | $ | 14 | | | $ | 14 | | | $ | — | | | $ | — | | | $ | 14 | |
| Notes receivable – related party6 | | 107 | | | 107 | | | 0 | | | 0 | | | 107 | | | 103 | | | 103 | | | 0 | | | 0 | | | 103 | | |
Notes receivable – related party4 | | Notes receivable – related party4 | | 101 | | | 101 | | | — | | | — | | | 101 | | | 104 | | | 104 | | | — | | | — | | | 104 | |
Liabilities | Liabilities | | | | | | | | | | | | | | | | | | | | | Liabilities | |
Long-term debt7 | | 8,106 | | | 9,801 | | | 0 | | | 7,716 | | | 2,085 | | | 7,250 | | | 8,010 | | | 0 | | | 6,070 | | | 1,940 | | |
Long-term debt5 | | Long-term debt5 | | 10,183 | | | 8,728 | | | — | | | 6,172 | | | 2,556 | | | 8,415 | | | 9,410 | | | — | | | 7,455 | | | 1,955 | |
1Includes current portion of long-term accounts receivable and notes receivable of $12$7 million at December 31, 20202022 and $13$9 million at December 31, 2019.2021.
2Includes current portion of notes receivable of $275 million at December 31, 2020 and $242 million at December 31, 2019. For further details, see Note 8, Notes Receivable.
3These investment securities consist primarily of mortgage-backed securities and Utah Housing Corporation bonds held by EnerBank. There were $1 million of unrealized gains in 2020 and 0 unrealized gains or losses in 2019.
4Includes current portion of long-term debt of $1.5 billion$1,090 million at December 31, 20202022 and $1.1 billion$373 million at December 31, 2019.2021.
53Includes current portion of long-term payables of $6$2 million at December 31, 20202022 and $1$23 million at December 31, 2019.2021.
64Includes current portion of notes receivable – related party of $7 million at December 31, 20202022 and 2019. For further details on this note receivable, see Note 8, Notes Receivable.2021.
75Includes current portion of long-term debt of $364$991 million at December 31, 20202022 and $202$365 million at December 31, 2019.2021.
The effects of third-party credit enhancements were excluded from the fair value measurements of long-term debt. The principal amount of CMS Energy’s long-term debt supported by third-party credit enhancements was $35 million at December 31, 2019. The entirety of this amount was at Consumers.
DB SERP Securities: In 2018, CMS Energy and Consumers sold available-for-sale investment securities held within the DB SERP, receiving proceeds of $142 million, $103 million of which was related to Consumers.
8: Notes Receivable
Presented in the following table are details of CMS Energy’s and Consumers’ notes receivable:
| | | | | | | | | | | | | | |
In Millions |
December 31 | 2020 | 2019 |
CMS Energy, including Consumers | | | | |
Current | | | | |
EnerBank notes receivable, net of allowance for loan losses | | $ | 275 | | | $ | 242 | |
| | | | |
Non‑current | | | | |
EnerBank notes receivable, net of allowance for loan losses | | 2,612 | | | 2,258 | |
Total notes receivable | | $ | 2,887 | | | $ | 2,500 | |
Consumers | | | | |
Current | | | | |
DB SERP note receivable – related party | | $ | 7 | | | $ | 7 | |
Non‑current | | | | |
DB SERP note receivable – related party | | 100 | | | 96 | |
Total notes receivable | | $ | 107 | | | $ | 103 | |
EnerBank Notes Receivable
EnerBank notes receivable are primarily unsecured, fixed-rate installment loans provided throughout the U.S. to finance home improvements. EnerBank records its notes receivable at cost, less an allowance for loan losses.
Authorized contractors pay fees to EnerBank to provide borrowers with same-as-cash, zero interest, or reduced interest loans. Unearned income associated with the loan fees, which is recorded as a reduction to notes receivable on CMS Energy’s consolidated balance sheets, was $128 million at December 31, 2020 and $134 million at December 31, 2019.
During 2020, EnerBank purchased portfolios of secured and unsecured consumer installment loans with a principal value of $90 million. During 2020, EnerBank completed sales of notes receivable with a principal value of $246 million and recorded gains of $6 million.
EnerBank utilizes FICO scores as a key credit quality indicator when underwriting new loans and in assessing the credit exposures in its loan portfolio. The score is determined at the time of a borrower’s application and is generally not updated since the average duration of loans is about two years. At December 31, 2020, 86 percent of EnerBank’s loans had a FICO score rating between good and excellent. At December 31, 2020, 97 percent of EnerBank’s loan portfolio was originated within the past five years.
The allowance for loan losses at December 31, 2020 reflects expected credit losses over the entire lifetime of the loan portfolio. EnerBank estimates the allowance by using the “weighted-average remaining maturity” methodology for their term loans, and the “probability of default and loss given default” methodology for their same-as-cash loans. These methodologies consider historical loan loss experience, prepayment expectations, and credit quality indicators. EnerBank considers current and projected economic conditions, and other reasonable and supportable forecast information to determine if adjustments to the allowance are necessary. The allowance is increased by the provision for loan losses and decreased by loan charge‑offs net of recoveries. Loan losses are charged against the allowance when the loss is confirmed, but no later than the point at which a loan becomes 120 days past due.
Presented in the following table are the changes in the allowance for loan losses:
| | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2020 | 2019 |
Balance at beginning of period | | $ | 33 | | | $ | 24 | |
Effects of new accounting standard1 | | 62 | | | 0 | |
Provision for loan losses | | 60 | | | 38 | |
Charge-offs | | (39) | | | (35) | |
Recoveries | | 7 | | | 6 | |
Balance at end of period | | $ | 123 | | | $ | 33 | |
1The allowance for loan losses at December 31, 2019 reflected expected credit losses over a 12-month period. On January 1, 2020, in accordance with ASU 2016-13, Measurement of Credit Losses on Financial Instruments, the allowance for loan losses was adjusted to reflect expected credit losses over the life of the loan. Additionally, EnerBank recorded $3 million for expected credit losses related to unfunded loan commitments. For further details, see Note 2, New Accounting Standards.
Loans that are 30 days or more past due are considered delinquent. The balance of EnerBank’s delinquent loans was $32 million at December 31, 2020 and $33 million at December 31, 2019. At December 31, 2020 and 2019, EnerBank’s loans that had been modified as troubled debt restructurings were immaterial.
In response to the COVID-19 pandemic, and consistent with FDIC guidance, EnerBank offered new payment accommodations for current qualifying customers. At December 31, 2020, EnerBank had not experienced increased delinquent loans, charge-offs, or increased loan modifications due to the COVID-19 pandemic. EnerBank did not make any material adjustments to their allowance for loan losses at December 31, 2020 due to the COVID-19 pandemic. EnerBank cannot predict the longer-term impacts of the pandemic, but could experience slower lending growth, higher loan write-offs, and increased loan modifications.
EnerBank issues loan commitments to meet customer-financing needs. These commitments are agreements to provide credit as long as certain conditions are met and expire after 120 days. EnerBank uses the same credit policies in making these commitments as it uses for loans. EnerBank had $348 million of off-balance-sheet unfunded loan commitments at December 31, 2020, and had recorded a liability of $6 million for expected credit losses on those commitments.
EnerBank has entered into interest rate swaps on $134 million of its loans (notes receivable). For information about interest rate swaps, see Note 6, Fair Value Measurements.
DB SERP Note Receivable – Related Party
The DB SERP note receivable – related party is Consumers’ portion of a demand note payable issued by CMS Energy to the DB SERP rabbi trust. The demand note bears interest at an annual rate of 4.10 percent and has a maturity date of 2028.
9:7: Plant, Property, and Equipment
Presented in the following table are details of CMS Energy’s and Consumers’ plant, property, and equipment:
| In Millions | In Millions | In Millions |
December 31 | December 31 | Estimated Depreciable Life in Years | 2020 | 2019 | December 31 | Estimated Depreciable Life in Years | 2022 | 2021 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | CMS Energy, including Consumers | |
Plant, property, and equipment, gross | Plant, property, and equipment, gross | | | | | | Plant, property, and equipment, gross | |
Consumers | Consumers | 3 - 125 | | $ | 26,757 | | | $ | 24,963 | | Consumers | 3 - 125 | | $ | 29,342 | | | $ | 28,771 | |
Enterprises | | | | | | |
NorthStar Clean Energy | | NorthStar Clean Energy | |
Independent power production1 | Independent power production1 | 3 - 40 | | 1,112 | | | 403 | | Independent power production1 | 3 - 40 | | 1,124 | | | 1,121 | |
Assets under finance leases2 | | Assets under finance leases2 | | 24 | | | — | |
Other | Other | 3 - 5 | | 1 | | | 2 | | Other | 3 - 5 | | 1 | | | 1 | |
EnerBank | 1 - 7 | | 37 | | | 22 | | |
Plant, property, and equipment, gross | Plant, property, and equipment, gross | | | $ | 27,907 | | | $ | 25,390 | | Plant, property, and equipment, gross | | $ | 30,491 | | | $ | 29,893 | |
Construction work in progress | Construction work in progress | | | 1,085 | | | 896 | | Construction work in progress | | 1,182 | | | 961 | |
Accumulated depreciation and amortization | Accumulated depreciation and amortization | | | (7,953) | | | (7,360) | | Accumulated depreciation and amortization | | (8,960) | | | (8,502) | |
Total plant, property, and equipment2 | | | $ | 21,039 | | | $ | 18,926 | | |
Total plant, property, and equipment3 | | Total plant, property, and equipment3 | | $ | 22,713 | | | $ | 22,352 | |
Consumers | Consumers | | | | | | Consumers | |
Plant, property, and equipment, gross | Plant, property, and equipment, gross | | | | | | Plant, property, and equipment, gross | |
Electric | Electric | | | | | | Electric | |
Generation | Generation | 22 - 125 | | $ | 6,376 | | | $ | 5,942 | | Generation | 15 - 125 | | $ | 5,780 | | | $ | 6,704 | |
Distribution | Distribution | 20 - 75 | | 9,130 | | | 8,519 | | Distribution | 15 - 75 | | 10,590 | | | 9,815 | |
Transmission | 46 - 75 | | 0 | | | 113 | | |
Other | Other | 5 - 50 | | 1,326 | | | 1,258 | | Other | 5 - 55 | | 1,374 | | | 1,309 | |
Assets under finance leases and other financing3 | | | 323 | | | 326 | | |
Assets under finance leases2 | | Assets under finance leases2 | | 126 | | | 319 | |
Gas | Gas | | | | | | Gas | |
Distribution | Distribution | 20 - 85 | | 5,702 | | | 5,235 | | Distribution | 20 - 85 | | 6,951 | | | 6,338 | |
Transmission | Transmission | 17 - 75 | | 2,003 | | | 1,752 | | Transmission | 17 - 75 | | 2,440 | | | 2,319 | |
Underground storage facilities4 | Underground storage facilities4 | 27 - 75 | | 1,046 | | | 987 | | Underground storage facilities4 | 27 - 75 | | 1,197 | | | 1,117 | |
Other | Other | 5 - 50 | | 817 | | | 797 | | Other | 5 - 55 | | 835 | | | 814 | |
Assets under finance leases3 | | | 13 | | | 14 | | |
Assets under finance leases2 | | Assets under finance leases2 | | 20 | | | 13 | |
Other non-utility property | Other non-utility property | 3 - 51 | | 21 | | | 20 | | Other non-utility property | 3 - 51 | | 29 | | | 23 | |
Plant, property, and equipment, gross | Plant, property, and equipment, gross | | | $ | 26,757 | | | $ | 24,963 | | Plant, property, and equipment, gross | | $ | 29,342 | | | $ | 28,771 | |
Construction work in progress | Construction work in progress | | | 1,058 | | | 879 | | Construction work in progress | | 994 | | | 915 | |
Accumulated depreciation and amortization | Accumulated depreciation and amortization | | | (7,844) | | | (7,272) | | Accumulated depreciation and amortization | | (8,791) | | | (8,371) | |
Total plant, property, and equipment2 | Total plant, property, and equipment2 | | | $ | 19,971 | | | $ | 18,570 | | Total plant, property, and equipment2 | | $ | 21,545 | | | $ | 21,315 | |
1A significant portion of independent power production assets are leased to others under operating leases. For information regarding CMS Energy’s operating leases of owned assets, see Note 10, Leases and Palisades Financing.8, Leases.
2For information regarding the amortization terms of CMS Energy’s and Consumers’ assets under finance leases, see Note 8, Leases.
3Consumers’ plant additions were $2.0$2.3 billion for the yearsyear ended December 31, 20202022 and 2019.$2.4 billion for the year ended December 31, 2021. Consumers’ plant retirements, which include the impact of disallowances and transfers to held for sale, were $220$290 million for the year ended December 31, 20202022 and $380$361 million
for the year ended December 31, 2019.2021. Consumers plans to retire the D.E. KarnJ.H. Campbell 1, 2, & 23 coal-fueled electric generating units in 2023.2025. Accordingly, in 2019,2022, Consumers removed from total plant, property, and
equipment $667 million,$1.3 billion, representing the projected remaining book value of the 2three units upon their retirement, and recorded it as a regulatory asset. For additional details, see Note 3,2, Regulatory Matters.
3For information regarding the amortization terms of Consumers’ assets under finance leases and other financing, see Note 10, Leases and Palisades Financing.
4Underground storage includes base natural gas of $26 million at December 31, 20202022 and 2019.2021. Base natural gas is not subject to depreciation.
Intangible Assets: Included in net plant, property, and equipment are intangible assets. Presented in the following table are details about CMS Energy’s and Consumers’ intangible assets:
| In Millions | In Millions | In Millions |
Description | Description | Amortization Life in Years | December 31, 2020 | | December 31, 2019 | Description | Amortization Life in Years | December 31, 2022 | | December 31, 2021 |
Gross Cost1 | Accumulated Amortization | | Gross Cost1 | Accumulated Amortization | Gross Cost1 | Accumulated Amortization | | Gross Cost1 | Accumulated Amortization |
CMS Energy, including Consumers | | | | | | | | | | | |
Software development | 1 - 15 | | $ | 883 | | | $ | 577 | | | | $ | 882 | | | $ | 529 | | |
Rights of way | 50 - 85 | | 197 | | | 57 | | | | 180 | | | 55 | | |
Franchises and consents | 5 - 50 | | 16 | | | 10 | | | | 16 | | | 9 | | |
Leasehold improvements | various2 | | 10 | | | 7 | | | | 9 | | | 7 | | |
Other intangibles | various | | 28 | | | 16 | | | | 27 | | | 15 | | |
Total | | | $ | 1,134 | | | $ | 667 | | | | $ | 1,114 | | | $ | 615 | | |
| Consumers | Consumers | | | | | | | | | | | Consumers | |
Software development | Software development | 3 - 15 | | $ | 856 | | | $ | 568 | | | | $ | 869 | | | $ | 521 | | Software development | 3 - 15 | | $ | 846 | | | $ | 593 | | | $ | 840 | | | $ | 592 | |
Rights of way | Rights of way | 50 - 85 | | 197 | | | 57 | | | | 180 | | | 55 | | Rights of way | 50 - 85 | | 218 | | | 61 | | | 211 | | | 60 | |
Franchises and consents | Franchises and consents | 5 - 50 | | 16 | | | 10 | | | | 16 | | | 9 | | Franchises and consents | 5 - 50 | | 16 | | | 10 | | | 16 | | | 10 | |
Leasehold improvements | Leasehold improvements | various2 | | 10 | | | 7 | | | | 9 | | | 7 | | Leasehold improvements | various2 | | 9 | | | 6 | | | 9 | | | 6 | |
Other intangibles | Other intangibles | various | | 25 | | | 16 | | | | 26 | | | 15 | | Other intangibles | various | | 25 | | | 16 | | | 26 | | | 16 | |
Total | Total | | | $ | 1,104 | | | $ | 658 | | | | $ | 1,100 | | | $ | 607 | | Total | | $ | 1,114 | | | $ | 686 | | | $ | 1,102 | | | $ | 684 | |
1Consumers’ intangible asset additions were $69$116 million for the year ended December 31, 20202022 and $67$88 million for the year ended December 31, 2019.2021. Consumers’ intangible asset retirements were $65$104 million for the year ended December 31, 20202022 and $193$91 million for the year ended December 31, 2019.2021.
2Leasehold improvements are amortized over the life of the lease, which may change whenever the lease is renewed or extended.
Capitalization: CMS Energy and Consumers record plant, property, and equipment at original cost when placed into service. The cost includes labor, material, applicable taxes, overhead such as pension and other benefits, and AFUDC, if applicable. Consumers’ plant, property, and equipment is generally recoverable through its general ratemaking process.
With the exception of utility property for which the remaining book value has been securitized, mothballed utility property stays in rate base and continues to be depreciated at the same rate as before the mothball period. When utility property is retired or otherwise disposed of in the ordinary course of business, Consumers records the original cost to accumulated depreciation, along with associated cost of removal, net of salvage. CMS Energy and Consumers recognize gains or losses on the retirement or disposal of non‑regulated assets in income. Consumers records cost of removal collected from customers, but not spent, as a regulatory liability.
Software: CMS Energy and Consumers capitalize the costs to purchase and develop internal-use computer software. These costs are expensed evenly over the estimated useful life of the internal-use computer software. If computer software is integral to computer hardware, then its cost is capitalized and depreciated with the hardware.
AFUDC: Consumers capitalizes AFUDC on regulated major construction projects, except pollution control facilities on its fossil-fuel-fired power plants.projects. AFUDC represents the estimated cost of debt and authorized return-on-equity funds used to finance construction additions. Consumers records the offsetting credit as a reduction of interest for the amount representing the borrowed funds component and as other income for the equity funds component on the consolidated
statements of income. When construction is completed and the property is placed in service, Consumers depreciates and recovers the capitalized AFUDC from customers over the life of the related asset. Presented in the following table are Consumers’ average AFUDC capitalization rates:
| Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
Electric | Electric | 6.9 | % | 6.4 | % | 6.9 | % | Electric | 6.2 | % | 6.2 | % | 6.9 | % |
Gas | Gas | 5.7 | | 5.8 | | 5.9 | | Gas | 5.6 | | 5.6 | | 5.7 | |
Assets Under Finance Leases and Other Financing:Leases: Presented in the following table are further details about changes in CMS Energy’s and Consumers’ assets under finance leases and other financing:leases:
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | Years Ended December 31 | 2022 | 2021 |
CMS Energy, including Consumers | | CMS Energy, including Consumers | |
Balance at beginning of period | | Balance at beginning of period | | $ | 332 | | | $ | 336 | |
Additions | | Additions | | 44 | | | — | |
Net retirements and other adjustments | | Net retirements and other adjustments | | (206) | | | (4) | |
Balance at end of period | | Balance at end of period | | $ | 170 | | | $ | 332 | |
Consumers | Consumers | | | | | Consumers | |
Balance at beginning of period | Balance at beginning of period | | $ | 340 | | | $ | 309 | | Balance at beginning of period | | $ | 332 | | | $ | 336 | |
Additions | Additions | | 0 | | | 26 | | Additions | | 20 | | | — | |
Net retirements and other adjustments | Net retirements and other adjustments | | (4) | | | 5 | | Net retirements and other adjustments | | (206) | | | (4) | |
Balance at end of period | Balance at end of period | | $ | 336 | | | $ | 340 | | Balance at end of period | | $ | 146 | | | $ | 332 | |
Assets under finance leases and other financing are presented as gross amounts. CMS Energy and Consumers’ accumulated amortization of assets under finance leases and other financing was $254$88 million at December 31, 20202022 and $239$272 million at December 31, 2019.2021.
Depreciation and Amortization: Presented in the following table are further details about CMS Energy’s and Consumers’ accumulated depreciation and amortization:
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | Years Ended December 31 | 2022 | 2021 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | CMS Energy, including Consumers | |
Utility plant assets | Utility plant assets | | $ | 7,841 | | | $ | 7,269 | | Utility plant assets | | $ | 8,785 | | | $ | 8,366 | |
Non-utility plant assets | Non-utility plant assets | | 112 | | | 91 | | Non-utility plant assets | | 175 | | | 136 | |
Consumers | Consumers | | | | | Consumers | |
Utility plant assets | Utility plant assets | | $ | 7,841 | | | $ | 7,269 | | Utility plant assets | | $ | 8,785 | | | $ | 8,366 | |
Non-utility plant assets | Non-utility plant assets | | 3 | | | 3 | | Non-utility plant assets | | 6 | | | 5 | |
Consumers depreciates utility property on an asset-group basis, in which it applies a single MPSC-approved depreciation rate to the gross investment in a particular class of property within the electric and
gas segments. Consumers performs depreciation studies periodically to determine appropriate group lives. Presented in the following table are the composite depreciation rates for Consumers’ segment properties:
| Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
Electric utility property | Electric utility property | 3.9 | % | 3.9 | % | 3.9 | % | Electric utility property | 3.7 | % | 3.9 | % | 3.9 | % |
Gas utility property | Gas utility property | 2.9 | | 2.9 | | 2.9 | | Gas utility property | 2.9 | | 2.9 | | 2.9 | |
Other property | Other property | 9.8 | | 10.0 | | 10.1 | | Other property | 8.9 | | 9.4 | | 9.8 | |
CMS Energy and Consumers record property repairs and minor property replacement as maintenance expense. CMS Energy and Consumers record planned major maintenance activities as operating expense unless the cost represents the acquisition of additional long-lived assets or the replacement of an existing long-lived asset.
Presented in the following table are the components of CMS Energy’s and Consumers’ depreciation and amortization expense:
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | CMS Energy, including Consumers | |
Depreciation expense – plant, property, and equipment | Depreciation expense – plant, property, and equipment | | $ | 902 | | | $ | 842 | | | $ | 778 | | Depreciation expense – plant, property, and equipment | | $ | 990 | | | $ | 975 | | | $ | 901 | |
Amortization expense | Amortization expense | | | | | Amortization expense | |
Software | Software | | 116 | | | 121 | | | 127 | | Software | | 103 | | | 108 | | | 112 | |
Other intangible assets | Other intangible assets | | 4 | | | 3 | | | 3 | | Other intangible assets | | 5 | | | 4 | | | 4 | |
Securitized regulatory assets | Securitized regulatory assets | | 26 | | | 26 | | | 25 | | Securitized regulatory assets | | 28 | | | 27 | | | 26 | |
Total depreciation and amortization expense | Total depreciation and amortization expense | | $ | 1,048 | | | $ | 992 | | | $ | 933 | | Total depreciation and amortization expense | | $ | 1,126 | | | $ | 1,114 | | | $ | 1,043 | |
Consumers | Consumers | | | | | | | Consumers | |
Depreciation expense – plant, property, and equipment | Depreciation expense – plant, property, and equipment | | $ | 881 | | | $ | 827 | | | $ | 768 | | Depreciation expense – plant, property, and equipment | | $ | 952 | | | $ | 938 | | | $ | 881 | |
Amortization expense | Amortization expense | | | | | Amortization expense | |
Software | Software | | 112 | | | 119 | | | 125 | | Software | | 103 | | | 108 | | | 112 | |
Other intangible assets | Other intangible assets | | 4 | | | 3 | | | 3 | | Other intangible assets | | 5 | | | 4 | | | 4 | |
Securitized regulatory assets | Securitized regulatory assets | | 26 | | | 26 | | | 25 | | Securitized regulatory assets | | 28 | | | 27 | | | 26 | |
Total depreciation and amortization expense | Total depreciation and amortization expense | | $ | 1,023 | | | $ | 975 | | | $ | 921 | | Total depreciation and amortization expense | | $ | 1,088 | | | $ | 1,077 | | | $ | 1,023 | |
Presented in the following table is CMS Energy’s and Consumers’ estimated amortization expense on intangible assets for each of the next five years:
| In Millions | In Millions | In Millions |
| | 2021 | 2022 | 2023 | 2024 | 2025 | | 2023 | 2024 | 2025 | 2026 | 2027 |
CMS Energy, including Consumers | | | | | | | | | | | |
Intangible asset amortization expense | | $ | 120 | | | $ | 115 | | | $ | 100 | | | $ | 89 | | | $ | 86 | | |
| Consumers | Consumers | | | | | | | | | | | Consumers | |
Intangible asset amortization expense | Intangible asset amortization expense | | $ | 115 | | | $ | 111 | | | $ | 97 | | | $ | 86 | | | $ | 85 | | Intangible asset amortization expense | | $ | 96 | | | $ | 82 | | | $ | 80 | | | $ | 76 | | | $ | 64 | |
Jointly Owned Regulated Utility Facilities
Presented in the following table are Consumers’ investments in jointly owned regulated utility facilities at December 31, 2020:2022:
| In Millions, Except Ownership Share | In Millions, Except Ownership Share | In Millions, Except Ownership Share |
| | J.H. Campbell Unit 3 | Ludington | Other | | J.H. Campbell Unit 3 | Ludington | Other |
Ownership share | Ownership share | | 93.3 | % | | 51.0 | % | | various | Ownership share | | 93.3 | % | | 51.0 | % | | various |
Utility plant in service | Utility plant in service | | $ | 1,743 | | | $ | 489 | | | $ | 381 | | Utility plant in service | | $ | 1,767 | | | $ | 591 | | | $ | 412 | |
Accumulated depreciation | Accumulated depreciation | | (822) | | | (188) | | | (107) | | Accumulated depreciation | | (816) | | | (210) | | | (93) | |
Construction work in progress | Construction work in progress | | 12 | | | 78 | | | 12 | | Construction work in progress | | 10 | | | 21 | | | 21 | |
Net investment | Net investment | | $ | 933 | | | $ | 379 | | | $ | 286 | | Net investment | | $ | 961 | | | $ | 402 | | | $ | 340 | |
Consumers includes its share of the direct expenses of the jointly owned plants in operating expenses. Consumers shares operation, maintenance, and other expenses of these jointly owned utility facilities in proportion to each participant’s undivided ownership interest. Consumers is required to provide only its share of financing for the jointly owned utility facilities.
10:8: Leases and Palisades Financing
Lessee
CMS Energy and Consumers lease various assets from third parties, including coal-carrying railcars, real estate, service vehicles, and gas pipeline capacity. In addition, CMS Energy and Consumers account for several of their PPAs as leases.
CMS Energy and Consumers do not record right-of-use assets or lease liabilities on their consolidated balance sheets for rentals with lease terms of 12 months or less, most of which are for the lease of real estate and service vehicles. Lease expense for these rentals is recognized on a straight-line basis over the lease term.
CMS Energy and Consumers include future payments for all renewal options, fair market value extensions, and buyout provisions reasonably certain of exercise in their measurement of lease right-of-use assets and lease liabilities. In addition, certain leases for service vehicles contain end-of-lease adjustment clauses based on proceeds received from the sale or disposition of the vehicles. CMS Energy and Consumers also include executory costs in the measurement of their right-of-use assets and lease liabilities, except for maintenance costs related to their coal-carrying railcar leases.
Most of Consumers’ PPAs contain provisions at the end of the initial contract terms to renew the agreements annually under mutually agreed‑upon terms at the time of renewal. Energy and capacity payments that vary depending on quantities delivered are recognized as variable lease costs when incurred. Consumers accounts for a PPA with one of CMS Energy’s equity method subsidiaries as a finance lease.
Presented in the following table is information about CMS Energy’s and Consumers’ lease right-of-use assets and lease liabilities:
| In Millions, Except as Noted | In Millions, Except as Noted | In Millions, Except as Noted |
| | CMS Energy, including Consumers | | Consumers | | CMS Energy, including Consumers | | Consumers |
December 31 | December 31 | 2020 | 2019 | | 2020 | 2019 | December 31 | 2022 | 2021 | | 2022 | 2021 |
Operating leases | Operating leases | | Operating leases | |
Right-of-use assets1 | Right-of-use assets1 | | $ | 34 | | $ | 47 | | $ | 28 | | $ | 40 | Right-of-use assets1 | | $ | 31 | | $ | 26 | | $ | 27 | | $ | 22 |
Lease liabilities | Lease liabilities | | | | | | | | | Lease liabilities | |
Current lease liabilities2 | Current lease liabilities2 | | 9 | | 9 | | 7 | | 8 | Current lease liabilities2 | | 4 | | 3 | | 4 | | 3 |
Non-current lease liabilities3 | Non-current lease liabilities3 | | 25 | | 37 | | 21 | | 32 | Non-current lease liabilities3 | | 27 | | 25 | | 23 | | 19 |
Finance leases | Finance leases | | | | | | Finance leases | |
Right-of-use assets | Right-of-use assets | | $ | 65 | | $ | 71 | | $ | 65 | | $ | 71 | Right-of-use assets | | 82 | | 57 | | 58 | | 57 |
Lease liabilities4 | Lease liabilities4 | | | | | | | | Lease liabilities4 | |
Current lease liabilities | Current lease liabilities | | 7 | | 6 | | 7 | | 6 | Current lease liabilities | | 9 | | 6 | | 9 | | 6 |
Non-current lease liabilities | Non-current lease liabilities | | 53 | | 60 | | 53 | | 60 | Non-current lease liabilities | | 68 | | 46 | | 45 | | 46 |
Weighted-average remaining lease term (in years) | Weighted-average remaining lease term (in years) | | Weighted-average remaining lease term (in years) | |
Operating leases | Operating leases | | 19 | | 17 | | 18 | | 14 | Operating leases | | 20 | | 23 | | 18 | | 21 |
Finance leases | Finance leases | | 12 | | 12 | | 12 | | 12 | Finance leases | | 18 | | 12 | | 10 | | 12 |
Weighted-average discount rate | Weighted-average discount rate | | Weighted-average discount rate | |
Operating leases | Operating leases | | 3.9 | % | | 3.8 | % | | 3.8 | % | | 3.7 | % | Operating leases | | 4.0 | % | | 4.0 | % | | 3.9 | % | | 3.9 | % |
Finance leases5 | Finance leases5 | | 1.8 | % | | 1.9 | % | | 1.8 | % | | 1.9 | % | Finance leases5 | | 5.2 | | | 1.7 | | | 1.6 | | | 1.7 | |
1CMS Energy’s and Consumers’ operating right-of-use lease assets are reported as other non‑current assets on their consolidated balance sheets.
2The current portion of CMS Energy’s and Consumers’ operating lease liabilities are reported as other current liabilities on their consolidated balance sheets.
3The non‑current portion of CMS Energy’s and Consumers’ operating lease liabilities are reported as other non‑current liabilities on their consolidated balance sheets.
4Includes related-party lease liabilities of $25 million, of which less than $1 million was current, at December 31, 20202022 and December 31, 2019.2021.
5This rate excludes the impact of Consumers’ pipeline agreements and long-term PPAs accounted for as finance leases. The required capacity payments under these agreements, when compared to the underlying fair value of the leased assets, result in effective interest rates that exceed market rates for leases with similar terms.
CMS Energy and Consumers report operating, variable, and short-term lease costs as operating expenses on their consolidated statements of income, except for certain amounts that may be capitalized to other assets. Presented in the following table is a summary of CMS Energy’s and Consumers’ total lease costs:
| In Millions | In Millions | | In Millions | |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | | Years Ended December 31 | 2022 | 2021 | |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | CMS Energy, including Consumers | | |
Operating lease costs | Operating lease costs | | $ | 10 | | | $ | 11 | | | Operating lease costs | | $ | 6 | | | $ | 8 | | |
Finance lease costs | Finance lease costs | | | | | | Finance lease costs | | |
Amortization of right-of-use assets | Amortization of right-of-use assets | | 6 | | | 6 | | | Amortization of right-of-use assets | | 12 | | | 7 | | |
Interest on lease liabilities | Interest on lease liabilities | | 17 | | | 18 | | | Interest on lease liabilities | | 14 | | | 16 | | |
Variable lease costs | Variable lease costs | | 94 | | | 95 | | | Variable lease costs | | 93 | | | 90 | | |
Short-term lease costs | Short-term lease costs | | 17 | | | 16 | | | Short-term lease costs | | 23 | | | 22 | | |
Total lease costs | Total lease costs | | $ | 144 | | | $ | 146 | | | Total lease costs | | $ | 148 | | | $ | 143 | | |
Consumers | Consumers | | | Consumers | | |
Operating lease costs | Operating lease costs | | $ | 9 | | | $ | 9 | | | Operating lease costs | | $ | 6 | | | $ | 8 | | |
Finance lease costs | Finance lease costs | | | | | | Finance lease costs | | |
Amortization of right-of-use assets | Amortization of right-of-use assets | | 6 | | | 6 | | | Amortization of right-of-use assets | | 12 | | | 7 | | |
Interest on lease liabilities | Interest on lease liabilities | | 17 | | | 18 | | | Interest on lease liabilities | | 14 | | | 16 | | |
Variable lease costs | Variable lease costs | | 94 | | | 95 | | | Variable lease costs | | 93 | | | 90 | | |
Short-term lease costs | Short-term lease costs | | 16 | | | 16 | | | Short-term lease costs | | 22 | | | 21 | | |
Total lease costs | Total lease costs | | $ | 142 | | | $ | 144 | | | Total lease costs | | $ | 147 | | | $ | 142 | | |
Presented in the following table is supplemental cash flow information related to amounts paid on CMS Energy’s and Consumers’ lease liabilities:
| In Millions | In Millions | | In Millions | |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | | Years Ended December 31 | 2022 | 2021 | |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | CMS Energy, including Consumers | | |
Cash paid for amounts included in the measurement of lease liabilities | Cash paid for amounts included in the measurement of lease liabilities | | | Cash paid for amounts included in the measurement of lease liabilities | | |
Cash used in operating activities for operating leases | Cash used in operating activities for operating leases | | $ | 11 | | | $ | 11 | | | Cash used in operating activities for operating leases | | $ | 6 | | | $ | 8 | | |
Cash used in operating activities for finance leases | Cash used in operating activities for finance leases | | 17 | | | 18 | | | Cash used in operating activities for finance leases | | 14 | | | 16 | | |
Cash used in financing activities for finance leases | Cash used in financing activities for finance leases | | 6 | | | 7 | | | Cash used in financing activities for finance leases | | 13 | | | 7 | | |
| Lease liabilities arising from obtaining right-of-use assets | | Lease liabilities arising from obtaining right-of-use assets | | |
Operating leases | | Operating leases | | 10 | | | 2 | | |
Finance leases | | Finance leases | | 36 | | | — | | |
Consumers | Consumers | | | Consumers | | |
Cash paid for amounts included in the measurement of lease liabilities | Cash paid for amounts included in the measurement of lease liabilities | | | Cash paid for amounts included in the measurement of lease liabilities | | |
Cash used in operating activities for operating leases | Cash used in operating activities for operating leases | | $ | 9 | | | $ | 9 | | | Cash used in operating activities for operating leases | | $ | 6 | | | $ | 8 | | |
Cash used in operating activities for finance leases | Cash used in operating activities for finance leases | | 17 | | | 18 | | | Cash used in operating activities for finance leases | | 14 | | | 16 | | |
Cash used in financing activities for finance leases | Cash used in financing activities for finance leases | | 6 | | | 7 | | | Cash used in financing activities for finance leases | | 12 | | | 7 | | |
| Lease liabilities arising from obtaining right-of-use assets | | Lease liabilities arising from obtaining right-of-use assets | | |
Operating leases | | Operating leases | | 10 | | | 2 | | |
Finance leases | | Finance leases | | 12 | | | — | | |
Presented in the following table are the minimum rental commitments under CMS Energy’s and Consumers’ non-cancelable leases:
| In Millions | In Millions | In Millions |
| | Finance Leases | | Finance Leases |
December 31, 2020 | Operating Leases | Pipelines and PPAs | Other | Total | |
December 31, 2022 | | December 31, 2022 | Operating Leases | Pipelines and PPAs | Other | Total |
CMS Energy, including Consumers | CMS Energy, including Consumers | | CMS Energy, including Consumers | |
2021 | | $ | 10 | | | $ | 17 | | | $ | 5 | | | $ | 22 | | |
2022 | | 4 | | | 14 | | | 5 | | | 19 | | |
2023 | 2023 | | 2 | | | 13 | | | 5 | | | 18 | | 2023 | | $ | 5 | | | $ | 15 | | | $ | 8 | | | $ | 23 | |
2024 | 2024 | | 1 | | | 13 | | | 3 | | | 16 | | 2024 | | 5 | | | 13 | | | 6 | | | 19 | |
2025 | 2025 | | 1 | | | 13 | | | 1 | | | 14 | | 2025 | | 3 | | | 13 | | | 3 | | | 16 | |
2026 and thereafter | | 34 | | | 66 | | | 11 | | | 77 | | |
2026 | | 2026 | | 2 | | | 13 | | | 4 | | | 17 | |
2027 | | 2027 | | 2 | | | 13 | | | 2 | | | 15 | |
2028 and thereafter | | 2028 and thereafter | | 31 | | | 39 | | | 67 | | | 106 | |
Total minimum lease payments | Total minimum lease payments | | $ | 52 | | | $ | 136 | | | $ | 30 | | | $ | 166 | | Total minimum lease payments | | $ | 48 | | | $ | 106 | | | $ | 90 | | | $ | 196 | |
Less discount | Less discount | | 18 | | | 103 | | | 3 | | | 106 | | Less discount | | 17 | | | 75 | | | 44 | | | 119 | |
Present value of minimum lease payments | Present value of minimum lease payments | | $ | 34 | | | $ | 33 | | | $ | 27 | | | $ | 60 | | Present value of minimum lease payments | | $ | 31 | | | $ | 31 | | | $ | 46 | | | $ | 77 | |
Consumers | Consumers | | Consumers | |
2021 | | $ | 8 | | | $ | 17 | | | $ | 5 | | | $ | 22 | | |
2022 | | 4 | | | 14 | | | 5 | | | 19 | | |
2023 | 2023 | | 2 | | | 13 | | | 5 | | | 18 | | 2023 | | $ | 5 | | | $ | 15 | | | $ | 7 | | | $ | 22 | |
2024 | 2024 | | 1 | | | 13 | | | 3 | | | 16 | | 2024 | | 4 | | | 13 | | | 5 | | | 18 | |
2025 | 2025 | | 1 | | | 13 | | | 1 | | | 14 | | 2025 | | 3 | | | 13 | | | 2 | | | 15 | |
2026 and thereafter | | 27 | | | 66 | | | 11 | | | 77 | | |
2026 | | 2026 | | 2 | | | 13 | | | 2 | | | 15 | |
2027 | | 2027 | | 1 | | | 13 | | | 1 | | | 14 | |
2028 and thereafter | | 2028 and thereafter | | 26 | | | 39 | | | 8 | | | 47 | |
Total minimum lease payments | Total minimum lease payments | | $ | 43 | | | $ | 136 | | | $ | 30 | | | $ | 166 | | Total minimum lease payments | | $ | 41 | | | $ | 106 | | | $ | 25 | | | $ | 131 | |
Less discount | Less discount | | 15 | | | 103 | | | 3 | | | 106 | | Less discount | | 14 | | | 75 | | | 2 | | | 77 | |
Present value of minimum lease payments | Present value of minimum lease payments | | $ | 28 | | | $ | 33 | | | $ | 27 | | | $ | 60 | | Present value of minimum lease payments | | $ | 27 | | | $ | 31 | | | $ | 23 | | | $ | 54 | |
Lessor
CMS Energy and Consumers are the lessor under power sales and natural gas delivery agreements that are accounted for as leases.
CMS Energy has power sales agreements that are accounted for as operating leases. In addition to fixed payments, these agreements have variable payments based on energy delivered. For the year ended December 31, 2020,2022, lease revenue from these power sales agreements was $148$240 million, which included variable lease payments of $93$191 million. For the year ended December 31, 2019,2021, lease revenue from these power sales agreements was $174$194 million, which included variable lease payments of $119$138 million.
Presented in the following table are the minimum rental payments to be received under CMS Energy’s non‑cancelable operating leases:
| In Millions | In Millions | In Millions |
December 31, 2020 | | |
2021 | | $ | 54 | | |
2022 | | 48 | | |
December 31, 2022 | | December 31, 2022 | |
2023 | 2023 | | 43 | | 2023 | | $ | 43 | |
2024 | 2024 | | 43 | | 2024 | | 43 | |
2025 | 2025 | | 44 | | 2025 | | 44 | |
2026 and thereafter | | 18 | | |
2026 | | 2026 | | 18 | |
| Total minimum lease payments | Total minimum lease payments | | $ | 250 | | Total minimum lease payments | | $ | 148 | |
Consumers has an agreement to build, own, operate, and maintain a compressed natural gas fueling station through December 2038. Thistransportation agreement is accounted for as a direct finance lease, under which the lessee has the option to purchase the natural gas fueling station at the end of the lease term. Fixed monthly payments escalate annually with inflation.
In December 2018, Consumers and a subsidiary of CMS Energy executed a 20‑year natural gas transportation agreement,that extends through 2038, related to a pipeline owned by Consumers. This agreement is accounted for as a direct finance lease and will automatically extend annually unless terminated by either party. The effects of the lease are eliminated on CMS Energy’s consolidated financial statements.
Minimum rental payments to be received under Consumers’ direct financing leases are $1 million for each of the next five years and $18 million for the years thereafter. The lease receivable was $10 million as of December 31, 2020, which does not include unearned income of $13 million.
Minimum rental payments to be received under CMS Energy’s direct finance lease are less than $1 million for each of the next five years and $10$8 million for the years thereafter. The lease receivable was $5$6 million as of December 31, 2020,2022, which does not include unearned income of $5$7 million.
Palisades Financing
In 2007, Consumers sold Palisades to Entergy and entered into a 15-year PPA to purchase virtually all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW. Consumers accounted for this transaction as a financing because of its continuing involvement with Palisades through security provided to Entergy for the PPA obligation and other arrangements. Palisades has therefore remained on Consumers’ consolidated balance sheets and Consumers has continued to depreciate it. At the time of the sale, Consumers recorded the sales proceeds as a financing obligation, and has subsequently recorded a portion of the payments under the PPA as interest expense and as a reduction of the financing obligation.
Total amortization and interest charges under the financing were $14 million for the year ended December 31, 2020, $15 million for the year ended December 31, 2019, and $16 million for the year ended December 31, 2018. At December 31, 2020, the Palisades asset and financing obligation both had a balance of $16 million.
Presented in the following table are the minimum Palisades PPA payments included in the financing obligation:
| | | | | | | | |
In Millions |
December 31, 2020 | | |
2021 | | $ | 14 | |
2022 | | 3 | |
| | |
| | |
| | |
| | |
Total minimum payments | | $ | 17 | |
Less discount | | 1 | |
Financing obligation | | $ | 16 | |
Less current portion | | 13 | |
Non-current portion | | $ | 3 | |
11:9: Asset Retirement Obligations
CMS Energy and Consumers record the fair value of the cost to remove assets at the end of their useful lives, if there is a legal obligation to remove them. If a reasonable estimate of fair value cannot be made in the period in which the ARO is incurred, such as for assets with indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made. CMS Energy and Consumers have not recorded liabilities associated with the closure of certain gas wells that have an indeterminate life. CMS Energy and Consumers have not recorded liabilities for assets that have immaterial cumulative disposal costs, such as substation batteries.
CMS Energy and Consumers calculate the fair value of ARO liabilities using an expected present-value technique that reflects assumptions about costs and inflation, and uses a credit-adjusted risk-free rate to discount the expected cash flows. CMS Energy’s ARO liabilities are primarily at Consumers.
Presented below are the categories of assets that CMS Energy and Consumers have legal obligations to remove at the end of their useful lives and for which they have an ARO liability recorded:
| | | | | | | | |
Company and ARO Description | In-Service Date | Long-Lived Assets |
CMS Energy, including Consumers | | |
Closure of coal ash disposal areas | various | Generating plants coal ash areas |
Gas distribution cut, purge, and cap | various | Gas distribution mains and services |
Asbestos abatement | 1973 | Electric and gas utility plant |
Closure of renewable generation assets | various | Wind and solar generation facilities |
Gas wells plug and abandon | various | Gas transmission and storage |
Consumers | | |
Closure of coal ash disposal areas | various | Generating plants coal ash areas |
Gas distribution cut, purge, and cap | various | Gas distribution mains and services |
Asbestos abatement | 1973 | Electric and gas utility plant |
Closure of renewable generation assets | various | Wind and solar generation facilities |
Gas wells plug and abandon | various | Gas transmission and storage |
No assets have been restricted for purposes of settling AROs.
Presented in the following tables are the changes in CMS Energy’s and Consumers’ ARO liabilities:
| In Millions | In Millions | In Millions |
Company and ARO Description | Company and ARO Description | ARO Liability 12/31/2019 | Incurred | Settled | Accretion | Cash Flow Revisions | ARO Liability 12/31/2020 | Company and ARO Description | ARO Liability 12/31/2021 | Incurred | Settled | Accretion | Cash Flow Revisions1 | ARO Liability 12/31/2022 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | CMS Energy, including Consumers | |
Consumers | Consumers | | $ | 474 | | | $ | 46 | | | $ | (41) | | | $ | 23 | | | $ | 28 | | | $ | 530 | | Consumers | | $ | 605 | | | $ | 1 | | | $ | (39) | | | $ | 27 | | | $ | 128 | | | $ | 722 | |
Renewable generation assets | Renewable generation assets | | 3 | | | 19 | | | 0 | | | 1 | | | 0 | | | 23 | | Renewable generation assets | | 23 | | | — | | | — | | | 1 | | | — | | | 24 | |
Total CMS Energy | Total CMS Energy | | $ | 477 | | | $ | 65 | | | $ | (41) | | | $ | 24 | | | $ | 28 | | | $ | 553 | | Total CMS Energy | | $ | 628 | | | $ | 1 | | | $ | (39) | | | $ | 28 | | | $ | 128 | | | $ | 746 | |
Consumers | Consumers | | | | | | | | | | | | | Consumers | |
Coal ash disposal areas | Coal ash disposal areas | | $ | 166 | | | $ | 0 | | | $ | (24) | | | $ | 6 | | | $ | 0 | | | $ | 148 | | Coal ash disposal areas | | $ | 157 | | | $ | — | | | $ | (20) | | | $ | 7 | | | $ | 128 | | | $ | 272 | |
Gas distribution cut, purge, and cap | Gas distribution cut, purge, and cap | | 231 | | | 1 | | | (5) | | | 13 | | | 0 | | | 240 | | Gas distribution cut, purge, and cap | | 282 | | | 1 | | | (11) | | | 15 | | | — | | | 287 | |
Asbestos abatement | Asbestos abatement | | 34 | | | 0 | | | 0 | | | 2 | | | 0 | | | 36 | | Asbestos abatement | | 38 | | | — | | | (1) | | | 2 | | | — | | | 39 | |
Renewable generation assets | Renewable generation assets | | 21 | | | 24 | | | 0 | | | 1 | | | 28 | | | 74 | | Renewable generation assets | | 93 | | | — | | | — | | | 2 | | | — | | | 95 | |
Gas wells plug and abandon | Gas wells plug and abandon | | 22 | | | 16 | | | (7) | | | 1 | | | 0 | | | 32 | | Gas wells plug and abandon | | 35 | | | — | | | (7) | | | 1 | | | — | | | 29 | |
Cable under Straits of Mackinac1 | | 0 | | | 5 | | | (5) | | | 0 | | | 0 | | | 0 | | |
Total Consumers | Total Consumers | | $ | 474 | | | $ | 46 | | | $ | (41) | | | $ | 23 | | | $ | 28 | | | $ | 530 | | Total Consumers | | $ | 605 | | | $ | 1 | | | $ | (39) | | | $ | 27 | | | $ | 128 | | | $ | 722 | |
1For further details, see Note 4, ContingenciesIncrease was attributable to a proposed change for closure work at the J.H. Campbell 3 ash disposal landfill and Commitments—Consumers Electric Utility Contingencies.an updated cost estimate for other coal ash disposal areas.
| In Millions | In Millions | In Millions |
Company and ARO Description | Company and ARO Description | ARO Liability 12/31/2018 | Incurred | Settled | Accretion | Cash Flow Revisions | ARO Liability 12/31/2019 | Company and ARO Description | ARO Liability 12/31/2020 | Incurred | Settled | Accretion | Cash Flow Revisions | ARO Liability 12/31/2021 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | CMS Energy, including Consumers | |
Consumers | Consumers | | $ | 428 | | | $ | 55 | | | $ | (37) | | | $ | 21 | | | $ | 7 | | | $ | 474 | | Consumers | | $ | 530 | | | $ | 71 | | | $ | (53) | | | $ | 24 | | | $ | 33 | | | $ | 605 | |
Gas treating plant and gas wells | | 1 | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | |
Renewable generation assets | Renewable generation assets | | 3 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | Renewable generation assets | | 23 | | | — | | | — | | | — | | | — | | | 23 | |
Total CMS Energy | Total CMS Energy | | $ | 432 | | | $ | 55 | | | $ | (38) | | | $ | 21 | | | $ | 7 | | | $ | 477 | | Total CMS Energy | | $ | 553 | | | $ | 71 | | | $ | (53) | | | $ | 24 | | | $ | 33 | | | $ | 628 | |
Consumers | Consumers | | | | | | | | | | | | | Consumers | |
Coal ash disposal areas | Coal ash disposal areas | | $ | 179 | | | $ | 0 | | | $ | (27) | | | $ | 7 | | | $ | 7 | | | $ | 166 | | Coal ash disposal areas | | $ | 148 | | | $ | — | | | $ | (34) | | | $ | 5 | | | $ | 38 | | | $ | 157 | |
Gas distribution cut, purge, and cap | Gas distribution cut, purge, and cap | | 205 | | | 22 | | | (8) | | | 12 | | | 0 | | | 231 | | Gas distribution cut, purge, and cap | | 240 | | | 39 | | | (10) | | | 13 | | | — | | | 282 | |
Asbestos abatement | Asbestos abatement | | 33 | | | 0 | | | (1) | | | 2 | | | 0 | | | 34 | | Asbestos abatement | | 36 | | | — | | | — | | | 2 | | | — | | | 38 | |
Renewable generation assets | Renewable generation assets | | 11 | | | 10 | | | 0 | | | 0 | | | 0 | | | 21 | | Renewable generation assets | | 74 | | | 16 | | | — | | | 3 | | | — | | | 93 | |
Gas wells plug and abandon | Gas wells plug and abandon | | 0 | | | 23 | | | (1) | | | 0 | | | 0 | | | 22 | | Gas wells plug and abandon | | 32 | | | 16 | | | (9) | | | 1 | | | (5) | | | 35 | |
Total Consumers | Total Consumers | | $ | 428 | | | $ | 55 | | | $ | (37) | | | $ | 21 | | | $ | 7 | | | $ | 474 | | Total Consumers | | $ | 530 | | | $ | 71 | | | $ | (53) | | | $ | 24 | | | $ | 33 | | | $ | 605 | |
12:10: Retirement Benefits
Benefit Plans: CMS Energy and Consumers provide pension, OPEB, and other retirement benefits to employees under a number of different plans. These plans include:
•non‑contributory, qualified DB Pension Plans (closed to new non‑union participants as of July 1, 2003 and closed to new union participants as of September 1, 2005)
•a non‑contributory, qualified DCCP for employees hired on or after July 1, 2003
•benefits to certain management employees under a non‑contributory, nonqualified DB SERP (closed to new participants as of March 31, 2006)
•a non‑contributory, nonqualified DC SERP for certain management employees hired or promoted on or after April 1, 2006
•a contributory, qualified defined contribution 401(k) plan
•health care and life insurance benefits under an OPEB Plan
DB Pension Plans: Participants in the pension plans include present and former employees of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries. Pension plan trust assets are not distinguishable by company. Effective December 31, 2017, CMS Energy’s and Consumers’ then-existing pension plan was amended to include only retired and former employees already covered; this amended plan is referred to as DB Pension Plan B. Also effective December 31, 2017, active employees were moved to a newly created pension plan, referred to as DB Pension Plan A, whose benefits mirror those provided under DB Pension Plan B. Maintaining separate plans for the two groups allows CMS Energy and Consumers to employ a more targeted investment strategy and provides additional opportunities to mitigate risk and volatility.
In September 2020,March 2022, CMS Energy and Consumers determined it was probable that 20202022 lump-sum payments to retired employees under DB Pension Plan A would exceed the plan’s service cost and interest cost components of net periodic cost for the year. These lump-sum payments constitute pension plan liability settlements; once such settlements meet the service and interest cost threshold, recognition in earnings is required. As a result, in accordance with GAAP, CMS Energy, including Consumers, performed a remeasurement of DB Pension Plan A asat the end of Augusteach quarter in 2022. For the year ended December 31, 2020 and2022, CMS Energy, including Consumers, recognized a settlement loss of $36$22 million; $35$21 million of this amount was recognized by Consumers and deferred as a regulatory asset. At December 31, 2020, CMS Energy, including Consumers recognized an additionala settlement loss of $10$21 million, for the period September 1, 2020 to December 31, 2020; $10 millionall of this amountwhich was recognized by Consumers and deferred as a regulatory asset. CMS Energy and Consumers will amortize the regulatory asset over nineeight years.
DCCP: CMS Energy and Consumers provide an employer contribution to the DCCP 401(k) plan for employees hired on or after July 1, 2003. The contribution ranges from 5five percent to 7ten percent of base pay, depending on years of service.service and employee class. Employees are not required to contribute in order to receive the plan’s employer contribution. DCCP expense for CMS Energy, including Consumers, was $33$48 million for the year ended December 31, 2020, $302022, $41 million for the year ended December 31, 2019,2021, and $26 million for the year ended December 31, 2018. DCCP expense for Consumers was $31 million for the year ended December 31, 2020, $282020. DCCP expense for Consumers was $48 million for the year ended December 31, 2019, and $252022, $41 million for the year ended December 31, 2018.2021, and $31 million for the year ended December 31, 2020.
DB SERP: The DB SERP is a nonqualified plan as defined by the Internal Revenue Code. DB SERP benefits are paid from a rabbi trust established in 1988. The trust assets are not considered plan assets under ASC 715. DB SERP rabbi trust earnings are taxable. Presented in the following table are the fair values of trust assets ABO, and contributionsABO for CMS Energy’s and Consumers’ DB SERP:
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | Years Ended December 31 | 2022 | 2021 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | CMS Energy, including Consumers | |
Trust assets | Trust assets | | $ | 146 | | | $ | 143 | | Trust assets | | $ | 137 | | | $ | 142 | |
ABO | ABO | | 159 | | | 149 | | ABO | | 118 | | | 149 | |
Contributions | | 8 | | | 0 | | |
| Consumers | Consumers | | | | | Consumers | |
Trust assets | Trust assets | | $ | 107 | | | $ | 104 | | Trust assets | | $ | 101 | | | $ | 104 | |
ABO | ABO | | 115 | | | 107 | | ABO | | 85 | | | 108 | |
Contributions | | 5 | | | 0 | | |
|
Neither CMS Energy nor Consumers made any contributions to the DB SERP in 2022 or 2021.
DC SERP: On April 1, 2006, CMS Energy and Consumers implemented a DC SERP and froze further new participation in the DB SERP. The DC SERP provides participants benefits ranging from 5five percent to 15 percent of total compensation. The DC SERP requires a minimum of five years of participation before vesting. CMS Energy’s and Consumers’ contributions to the plan, if any, are placed in a grantor trust. For CMS Energy and Consumers, trust assets were $11$12 million at December 31, 20202022 and $8$13 million at December 31, 2019.2021. DC SERP assets are included in other non‑current assets on CMS Energy’s and Consumers’ consolidated balance sheets. CMS Energy’s and Consumers’ DC SERP expense was $1 million for the year ended December 31, 2022, and $2 million for the years ended December 31, 20202021 and 2019, and $1 million for the year ended December 31, 2018.2020.
401(k) Plan: The 401(k) plan employer match equals 100four to six percent of employee eligible contributions up to the first 3 percent ofbased on an employee’s wages and 50 percent of eligible contributions up to the next 2 percent of an employee’s wages.class. The total 401(k) plan cost for CMS Energy, including Consumers, was $30$44 million for the year ended December 31, 2020, $282022, $31 million for the year ended December 31, 2019,2021, and $27$29 million for the year ended December 31, 2018.2020. The total 401(k) plan cost for Consumers was $43 million for the year ended December 31, 2022, $31 million for the year ended December 31, 2021, and $29 million for the year ended December 31, 2020, $27 million for the year ended December 31, 2019, and $26 million for the year ended December 31, 2018.2020.
OPEB Plan: Participants in the OPEB Plan include all regular full-time employees covered by the employee health care plan on the day before retirement from either CMS Energy or Consumers at age 55 or older with at least ten full years of applicable continuous service. Regular full-time employees who qualify for disability retirement under the DB Pension Plans or are disabled and covered by the DCCP and who have 15 years of applicable continuous service may also participate in the OPEB Plan. Retiree health care costs were based on the assumption that costs would increase 6.50 percent in 20212023 and 6.756.25 percent in 20202022 for those under 65 and would increase 7.006.75 percent in 20212023 and 7.25 percent in 20202022 for those over 65. The rate of increase was assumed to decline to 4.75 percent by 20272032 and thereafter for all retirees.
Assumptions: Presented in the following table are the weighted-average assumptions used in CMS Energy’s and Consumers’ retirement benefitsbenefit plans to determine benefit obligations and net periodic benefit cost:
| December 31 | December 31 | 2020 | 2019 | 2018 | December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | CMS Energy, including Consumers | |
Weighted average for benefit obligations1 | Weighted average for benefit obligations1 | | Weighted average for benefit obligations1 | |
Discount rate2 | Discount rate2 | | Discount rate2 | |
DB Pension Plan A | DB Pension Plan A | 2.73 | % | 3.37 | % | 4.48 | % | DB Pension Plan A | 5.24 | % | 3.02 | % | 2.73 | % |
DB Pension Plan B | DB Pension Plan B | 2.41 | | 3.17 | | 4.32 | | DB Pension Plan B | 5.14 | | 2.79 | | 2.41 | |
DB SERP | DB SERP | 2.40 | | 3.15 | | 4.32 | | DB SERP | 5.13 | | 2.78 | | 2.40 | |
OPEB Plan | OPEB Plan | 2.69 | | 3.32 | | 4.42 | | OPEB Plan | 5.21 | | 2.99 | | 2.69 | |
Rate of compensation increase | Rate of compensation increase | | Rate of compensation increase | |
DB Pension Plan A | DB Pension Plan A | 3.70 | | 3.50 | | 3.50 | | DB Pension Plan A | 3.60 | | 3.60 | | 3.70 | |
DB SERP | DB SERP | 5.50 | | 5.50 | | 5.50 | | DB SERP | 5.50 | | 5.50 | | 5.50 | |
Weighted average for net periodic benefit cost1 | Weighted average for net periodic benefit cost1 | | Weighted average for net periodic benefit cost1 | |
Service cost discount rate2,3 | Service cost discount rate2,3 | | Service cost discount rate2,3 | |
DB Pension Plan A | DB Pension Plan A | 3.44 | % | 4.55 | % | 3.85 | % | DB Pension Plan A | 3.09 | % | 2.83 | % | 3.44 | % |
DB SERP | DB SERP | 3.46 | | 4.58 | | 3.83 | | DB SERP | 3.09 | | 2.84 | | 3.46 | |
OPEB Plan | OPEB Plan | 3.57 | | 4.63 | | 3.93 | | OPEB Plan | 3.23 | | 3.03 | | 3.57 | |
Interest cost discount rate2,3 | Interest cost discount rate2,3 | | Interest cost discount rate2,3 | |
DB Pension Plan A | DB Pension Plan A | 2.92 | | 4.08 | | 3.39 | | DB Pension Plan A | 2.44 | | 1.97 | | 2.92 | |
DB Pension Plan B | DB Pension Plan B | 2.74 | | 3.93 | | 3.24 | | DB Pension Plan B | 2.21 | | 1.70 | | 2.74 | |
DB SERP | DB SERP | 2.74 | | 3.94 | | 3.26 | | DB SERP | 2.21 | | 1.72 | | 2.74 | |
OPEB Plan | OPEB Plan | 2.88 | | 4.03 | | 3.35 | | OPEB Plan | 2.45 | | 1.99 | | 2.88 | |
Expected long-term rate of return on plan assets4 | Expected long-term rate of return on plan assets4 | | Expected long-term rate of return on plan assets4 | |
DB Pension Plans | DB Pension Plans | 6.75 | | 7.00 | | 7.00 | | DB Pension Plans | 6.50 | | 6.75 | | 6.75 | |
OPEB Plan | OPEB Plan | 6.75 | | 7.00 | | 7.00 | | OPEB Plan | 6.50 | | 6.75 | | 6.75 | |
Rate of compensation increase | Rate of compensation increase | | Rate of compensation increase | |
DB Pension Plan A | DB Pension Plan A | 3.50 | | 3.50 | | 3.50 | | DB Pension Plan A | 3.60 | | 3.70 | | 3.50 | |
DB SERP | DB SERP | 5.50 | | 5.50 | | 5.50 | | DB SERP | 5.50 | | 5.50 | | 5.50 | |
1The mortality assumption for benefit obligations was based on the Pri-2012 Mortality Table, for 2020 and 2019 and the RP-2014 Mortality Table for 2018, with improvement scalesscale MP-2021 for 2022 and 2021 and improvement scale MP-2020 for 2020, MP-2019 for 2019, and MP-2018 for 2018.2020. The mortality assumption for net periodic benefit cost was based on the Pri-2012 Mortality Table, for 2020 and the RP-2014 Mortality Table for 2019 and 2018, with improvement scales MP-2021 for 2022, MP-2020 for 2021, and MP-2019 for 2020, MP-2018 for 2019, and MP-2017 for 2018.2020.
2The discount rate reflects the rate at which benefits could be effectively settled and is equal to the equivalent single rate resulting from a yield-curve analysis. This analysis incorporated the projected benefit payments specific to CMS Energy’s and Consumers’ DB Pension Plans and OPEB Plan and the yields on high-quality corporate bonds rated Aa or better.
3CMS Energy and Consumers have elected to use a full-yield-curve approach in the estimation of service cost and interest cost; this approach applies individual spot rates along the yield curve to future projected benefit payments based on the time of payment.
4CMS Energy and Consumers determined the long-term rate of return using historical market returns, the present and expected future economic environment, the capital market principles of risk and return, and the
expert opinions of individuals and firms with financial market knowledge. CMS Energy and Consumers
considered the asset allocation of the portfolio in forecasting the future expected total return of the portfolio. The goal was to determine a long-term rate of return that could be incorporated into the planning of future cash flow requirements in conjunction with the change in the liability. Annually, CMS Energy and Consumers review for reasonableness and appropriateness the forecasted returns for various classes of assets used to construct an expected return model. CMS Energy’s and Consumers’ expected long-term rate of return on the assets of the DB Pension Plans was 6.756.50 percent in 2020.2022. The actual return (loss) on the assets of the DB Pension Plans was (15.9) percent in 2022, 12.0 percent in 2021, and 13.6 percent in 2020, 21.0 percent in 2019, and (6.7) percent in 2018.2020.
Costs: Presented in the following table are the costs (credits) and other changes in plan assets and benefit obligations incurred in CMS Energy’s and Consumers’ retirement benefitsbenefit plans:
| In Millions | In Millions | In Millions |
| | | | DB Pension Plans and DB SERP | | | OPEB Plan |
| | DB Pension Plans and DB SERP | | OPEB Plan | |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | | 2020 | 2019 | 2018 | Years Ended December 31 | | 2022 | 2021 | 2020 | | | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | | | | | | | | CMS Energy, including Consumers | |
Net periodic cost (credit) | Net periodic cost (credit) | | | | | | | | | | | | | | Net periodic cost (credit) | |
Service cost | Service cost | | $ | 50 | | | $ | 41 | | | $ | 48 | | | | $ | 16 | | | $ | 14 | | | $ | 17 | | Service cost | | | $ | 41 | | | $ | 53 | | | $ | 50 | | | | | $ | 17 | | | $ | 18 | | | $ | 16 | |
Interest cost | Interest cost | | 83 | | | 103 | | | 95 | | | | 33 | | | 41 | | | 34 | | Interest cost | | | 84 | | | 63 | | | 83 | | | | | 28 | | | 23 | | | 33 | |
Settlement loss | Settlement loss | | 1 | | | 0 | | | 0 | | | | 0 | | | 0 | | | 0 | | Settlement loss | | | 1 | | | 1 | | | 1 | | | | | — | | | — | | | — | |
Expected return on plan assets | Expected return on plan assets | | (191) | | | (162) | | | (149) | | | | (100) | | | (88) | | | (97) | | Expected return on plan assets | | | (206) | | | (208) | | | (191) | | | | | (115) | | | (109) | | | (100) | |
Amortization of: | Amortization of: | | | | | | | | | | | | | | Amortization of: | | | | |
Net loss | Net loss | | 95 | | | 50 | | | 76 | | | | 15 | | | 26 | | | 15 | | Net loss | | | 40 | | | 100 | | | 95 | | | | | 1 | | | 8 | | | 15 | |
Prior service cost (credit) | Prior service cost (credit) | | 1 | | | 1 | | | 3 | | | | (56) | | | (62) | | | (67) | | Prior service cost (credit) | | | 4 | | | 4 | | | 1 | | | | | (51) | | | (53) | | | (56) | |
Settlement loss | Settlement loss | | 2 | | | 0 | | | 0 | | | | 0 | | | 0 | | | 0 | | Settlement loss | | | 9 | | | 6 | | | 2 | | | | | — | | | — | | | — | |
Net periodic cost (credit) | Net periodic cost (credit) | | $ | 41 | | | $ | 33 | | | $ | 73 | | | | $ | (92) | | | $ | (69) | | | $ | (98) | | Net periodic cost (credit) | | | $ | (27) | | | $ | 19 | | | $ | 41 | | | | | $ | (120) | | | $ | (113) | | | $ | (92) | |
Consumers | Consumers | | | | | | | | | | | | | | Consumers | | | | |
Net periodic cost (credit) | Net periodic cost (credit) | | | | | | | | | | | | | | Net periodic cost (credit) | |
Service cost | Service cost | | $ | 49 | | | $ | 40 | | | $ | 47 | | | | $ | 15 | | | $ | 13 | | | $ | 16 | | Service cost | | | $ | 39 | | | $ | 51 | | | $ | 49 | | | | | $ | 17 | | | $ | 17 | | | $ | 15 | |
Interest cost | Interest cost | | 78 | | | 97 | | | 88 | | | | 31 | | | 40 | | | 33 | | Interest cost | | | 79 | | | 59 | | | 78 | | | | | 27 | | | 23 | | | 31 | |
Expected return on plan assets | Expected return on plan assets | | (181) | | | (153) | | | (139) | | | | (93) | | | (82) | | | (91) | | Expected return on plan assets | | | (194) | | | (197) | | | (181) | | | | | (107) | | | (102) | | | (93) | |
Amortization of: | Amortization of: | | | | | | | | | | | | | | Amortization of: | | | | |
Net loss | Net loss | | 90 | | | 47 | | | 73 | | | | 15 | | | 26 | | | 16 | | Net loss | | | 37 | | | 96 | | | 90 | | | | | — | | | 8 | | | 15 | |
Prior service cost (credit) | Prior service cost (credit) | | 1 | | | 1 | | | 3 | | | | (54) | | | (61) | | | (65) | | Prior service cost (credit) | | | 4 | | | 4 | | | 1 | | | | | (50) | | | (51) | | | (54) | |
Settlement loss | Settlement loss | | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Settlement loss | | | 9 | | | 6 | | | 2 | | | | | — | | | — | | | — | |
Net periodic cost (credit) | Net periodic cost (credit) | | $ | 39 | | | $ | 32 | | | $ | 72 | | | | $ | (86) | | | $ | (64) | | | $ | (91) | | Net periodic cost (credit) | | | $ | (26) | | | $ | 19 | | | $ | 39 | | | | | $ | (113) | | | $ | (105) | | | $ | (86) | |
CMS Energy and Consumers amortize net gains and losses in excess of 10ten percent of the greater of the PBO or the MRV over the average remaining service period for DB Pension Plan A and the OPEB Plan and over the average remaining life expectancy of participants for DB Pension Plan B. For DB Pension Plan A, the estimated period of amortization of gains and losses was eight years for the year ended December 31, 2020, and nine years for the years ended December 31, 20192022, 2021, and 2018.2020. For DB Pension Plan B, the estimated period of amortization of gains and losses was 18 years for the years ended December 31, 2022 and 2021, and 19 years for the year ended December 31, 2020, and 20 years for the years ended December 31, 2019 and 2018.2020. For the OPEB Plan, the estimated amortization period was nine years for the year ended December 31, 2020, and ten years for the years ended December 31, 20192022, 2021, and 2018.2020.
Prior service cost (credit) amortization is established in the year in which the prior service cost (credit) first occurred, and is based on the same amortization period for all future years until the prior service cost
(credit) is fully amortized. CMS Energy and Consumers had new prior service costs for DB Pension Plan A in 2020. The estimated period of amortization of these new prior service costs is eight years. CMS Energy and Consumers had new prior service credits for OPEB in 2018. The estimated period
CMS Energy and Consumers determine the MRV for the assets of the DB Pension Plans as the fair value of plan assets on the measurement date, adjusted by the gains or losses that will not be admitted into the MRV until future years. CMS Energy and Consumers reflect each year’s gain or loss in the MRV in equal amounts over a five-year period beginning on the date the original amount was determined. CMS Energy and Consumers determine the MRV for OPEB Plan assets as the fair value of assets on the measurement date.
Reconciliations: Presented in the following table are reconciliations of the funded status of CMS Energy’s and Consumers’ retirement benefitsbenefit plans with their retirement benefitsbenefit plans’ liabilities:
| In Millions | In Millions | In Millions |
| | DB Pension Plans | | DB SERP | | OPEB Plan | | DB Pension Plans | | DB SERP | | OPEB Plan |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | Years Ended December 31 | 2022 | 2021 | | 2022 | 2021 | | 2022 | 2021 | |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | | | | CMS Energy, including Consumers | |
Benefit obligation at beginning of period | Benefit obligation at beginning of period | | $ | 2,973 | | | $ | 2,512 | | | $ | 150 | | | $ | 140 | | | $ | 1,165 | | | $ | 1,045 | | | Benefit obligation at beginning of period | | $ | 3,070 | | | $ | 3,266 | | | $ | 149 | | | $ | 160 | | | $ | 1,166 | | | $ | 1,205 | | |
Service cost | Service cost | | 50 | | | 41 | | | 0 | | | 0 | | | 16 | | | 14 | | | Service cost | | 41 | | | 53 | | | — | | | — | | | 17 | | | 18 | | |
Interest cost | Interest cost | | 79 | | | 98 | | | 4 | | | 5 | | | 33 | | | 41 | | | Interest cost | | 81 | | | 60 | | | 3 | | | 3 | | | 28 | | | 23 | | |
Plan amendments | Plan amendments | | 24 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | Plan amendments | | — | | | — | | | — | | | — | | | — | | | 5 | | |
Actuarial loss | | 355 | | 1 | 476 | | 1 | | 16 | | | 15 | | | 39 | | 1 | 110 | | 1 | |
Actuarial gain | | Actuarial gain | | (811) | | 1 | (108) | | 1 | | (25) | | | (4) | | | (274) | | 1 | (32) | | 1 |
Benefits paid | Benefits paid | | (215) | | | (154) | | | (10) | | | (10) | | | (48) | | | (45) | | | Benefits paid | | (212) | | | (201) | | | (10) | | | (10) | | | (48) | | | (53) | | |
Benefit obligation at end of period | Benefit obligation at end of period | | $ | 3,266 | | | $ | 2,973 | | | $ | 160 | | | $ | 150 | | | $ | 1,205 | | | $ | 1,165 | | | Benefit obligation at end of period | | $ | 2,169 | | | $ | 3,070 | | | $ | 117 | | | $ | 149 | | | $ | 889 | | | $ | 1,166 | | |
Plan assets at fair value at beginning of period | Plan assets at fair value at beginning of period | | $ | 2,546 | | | $ | 2,247 | | | $ | 0 | | | $ | 0 | | | $ | 1,509 | | | $ | 1,280 | | | Plan assets at fair value at beginning of period | | $ | 3,599 | | | $ | 3,402 | | | $ | — | | | $ | — | | | $ | 1,787 | | | $ | 1,645 | | |
Actual return on plan assets | Actual return on plan assets | | 371 | | | 453 | | | 0 | | | 0 | | | 182 | | | 273 | | | Actual return on plan assets | | (567) | | | 398 | | | — | | | — | | | (294) | | | 194 | | |
Company contribution | Company contribution | | 700 | | | 0 | | | 10 | | | 10 | | | 1 | | | 0 | | | Company contribution | | — | | | — | | | 10 | | | 10 | | | — | | | — | | |
Actual benefits paid | Actual benefits paid | | (215) | | | (154) | | | (10) | | | (10) | | | (47) | | | (44) | | | Actual benefits paid | | (212) | | | (201) | | | (10) | | | (10) | | | (47) | | | (52) | | |
Plan assets at fair value at end of period | Plan assets at fair value at end of period | | $ | 3,402 | | | $ | 2,546 | | | $ | 0 | | | $ | 0 | | | $ | 1,645 | | | $ | 1,509 | | | Plan assets at fair value at end of period | | $ | 2,820 | | | $ | 3,599 | | | $ | — | | | $ | — | | | $ | 1,446 | | | $ | 1,787 | | |
Funded status | Funded status | | $ | 136 | | 2 | $ | (427) | | 2 | | $ | (160) | | | $ | (150) | | | $ | 440 | | | $ | 344 | | | Funded status | | $ | 651 | | 2 | $ | 529 | | 2 | | $ | (117) | | | $ | (149) | | | $ | 557 | | | $ | 621 | | |
Consumers | Consumers | | | | | | | | | | | | | | Consumers | |
Benefit obligation at beginning of period | Benefit obligation at beginning of period | | | | | | $ | 109 | | | $ | 101 | | | $ | 1,120 | | | $ | 1,004 | | | Benefit obligation at beginning of period | | $ | 109 | | | $ | 117 | | | $ | 1,122 | | | $ | 1,158 | | |
Service cost | Service cost | | | | | | 0 | | | 0 | | | 15 | | | 13 | | | Service cost | | — | | | — | | | 17 | | | 17 | | |
Interest cost | Interest cost | | | | | | 3 | | | 4 | | | 31 | | | 40 | | | Interest cost | | 2 | | | 2 | | | 27 | | | 23 | | |
| Actuarial loss | | | | | | 12 | | | 11 | | | 37 | | 1 | 106 | | 1 | |
Plan amendments | | Plan amendments | | — | | | — | | | — | | | 5 | | |
Actuarial gain | | Actuarial gain | | (19) | | | (3) | | | (265) | | 1 | (30) | | 1 |
Benefits paid | Benefits paid | | | | | | (7) | | | (7) | | | (45) | | | (43) | | | Benefits paid | | (7) | | | (7) | | | (45) | | | (51) | | |
Benefit obligation at end of period | Benefit obligation at end of period | | | | | | $ | 117 | | | $ | 109 | | | $ | 1,158 | | | $ | 1,120 | | | Benefit obligation at end of period | | $ | 85 | | | $ | 109 | | | $ | 856 | | | $ | 1,122 | | |
Plan assets at fair value at beginning of period | Plan assets at fair value at beginning of period | | | | | | $ | 0 | | | $ | 0 | | | $ | 1,410 | | | $ | 1,197 | | | Plan assets at fair value at beginning of period | | $ | — | | | $ | — | | | $ | 1,668 | | | $ | 1,535 | | |
Actual return on plan assets | Actual return on plan assets | | | | | | 0 | | | 0 | | | 169 | | | 255 | | | Actual return on plan assets | | — | | | — | | | (273) | | | 182 | | |
Company contribution | Company contribution | | | | | | 7 | | | 7 | | | 1 | | | 0 | | | Company contribution | | 7 | | | 7 | | | — | | | — | | |
Actual benefits paid | Actual benefits paid | | | | | | (7) | | | (7) | | | (45) | | | (42) | | | Actual benefits paid | | (7) | | | (7) | | | (45) | | | (49) | | |
Plan assets at fair value at end of period | Plan assets at fair value at end of period | | | | | | $ | 0 | | | $ | 0 | | | $ | 1,535 | | | $ | 1,410 | | | Plan assets at fair value at end of period | | $ | — | | | $ | — | | | $ | 1,350 | | | $ | 1,668 | | |
Funded status | Funded status | | | | | | $ | (117) | | | $ | (109) | | | $ | 377 | | | $ | 290 | | | Funded status | | $ | (85) | | | $ | (109) | | | $ | 494 | | | $ | 546 | | |
1The actuarial lossgains for 20202022 and 20192021 for the DB Pension Plans wasand OPEB Plan were primarily the result of lower discount rates and lower interest rates used to calculate the value of lump-sum payments. The actuarial loss for 2020 and 2019 for the OPEB Plan was primarily the result of lowerhigher discount rates.
2The total funded status of the DB Pension Plans attributable to Consumers, based on an allocation of expenses, was $138$632 million at December 31, 20202022 and $(408)$510 million at December 31, 2019.2021.
Presented in the following table is the classification of CMS Energy’s and Consumers’ retirement benefit plans’ assets and liabilities:
| In Millions | In Millions | In Millions |
December 31 | December 31 | 2020 | 2019 | December 31 | 2022 | 2021 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | CMS Energy, including Consumers | |
Non-current assets | Non-current assets | | | Non-current assets | |
DB Pension Plans | DB Pension Plans | | $ | 136 | | | $ | 104 | | DB Pension Plans | | $ | 651 | | | $ | 529 | |
OPEB Plan | OPEB Plan | | 440 | | | 344 | | OPEB Plan | | 557 | | | 621 | |
Current liabilities | Current liabilities | | | | | Current liabilities | |
DB SERP | DB SERP | | 10 | | | 10 | | DB SERP | | 10 | | | 10 | |
Non-current liabilities | Non-current liabilities | | | | | Non-current liabilities | |
DB Pension Plans | | 0 | | | 531 | | |
| DB SERP | DB SERP | | 150 | | | 140 | | DB SERP | | 107 | | | 139 | |
| Consumers | Consumers | | Consumers | |
Non-current assets | Non-current assets | | Non-current assets | |
DB Pension Plans | DB Pension Plans | | $ | 138 | | | $ | 109 | | DB Pension Plans | | $ | 632 | | | $ | 510 | |
OPEB Plan | OPEB Plan | | 377 | | | 290 | | OPEB Plan | | 494 | | | 546 | |
Current liabilities | Current liabilities | | | | | Current liabilities | |
DB SERP | DB SERP | | 7 | | | 7 | | DB SERP | | 7 | | | 7 | |
Non-current liabilities | Non-current liabilities | | | | | Non-current liabilities | |
DB Pension Plans | | 0 | | | 517 | | |
| DB SERP | DB SERP | | 110 | | | 102 | | DB SERP | | 78 | | | 102 | |
|
The ABO for the DB Pension Plans was $2.9$2.0 billion at December 31, 20202022 and $2.6$2.7 billion at December 31, 2019.2021. At December 31, 2019,2022 and 2021, the PBO and ABO did not exceed plan assets for oneany of the defined benefit pension plans exceeded plan assets; presented in the following table is information related to that plan:
| | | | | | | | |
In Millions |
December 31 | 2019 |
CMS Energy, including Consumers | | |
PBO | | $ | 1,736 | |
ABO | | 1,398 | |
Fair value of plan assets | | 1,205 | |
plans.
Items Not Yet Recognized as a Component of Net Periodic Benefit Cost: Presented in the following table are the amounts recognized in regulatory assets, regulatory liabilities, and AOCI that have not been recognized as components of net periodic benefit cost. For additional details on regulatory assets and regulatory liabilities, see Note 3,2, Regulatory Matters.
| In Millions | In Millions | In Millions |
| | DB Pension Plans and DB SERP | | OPEB Plan | | DB Pension Plans and DB SERP | | OPEB Plan |
December 31 | December 31 | 2020 | 2019 | | 2020 | 2019 | December 31 | 2022 | 2021 | | 2022 | 2021 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | | | CMS Energy, including Consumers | |
Regulatory assets | | | | | | | | | |
Regulatory assets (liabilities) | | Regulatory assets (liabilities) | |
Net loss | Net loss | | $ | 1,194 | | | $ | 1,114 | | | $ | 254 | | | $ | 308 | | Net loss | | $ | 724 | | | $ | 812 | | | $ | 251 | | | $ | 136 | |
Prior service cost (credit) | Prior service cost (credit) | | 29 | | | 8 | | | (246) | | | (300) | | Prior service cost (credit) | | 21 | | | 25 | | | (140) | | | (190) | |
Regulatory assets | | $ | 1,223 | | | $ | 1,122 | | | | $ | 8 | | | $ | 8 | | |
Regulatory assets (liabilities) | | Regulatory assets (liabilities) | | $ | 745 | | | $ | 837 | | | $ | 111 | | | $ | (54) | |
AOCI | AOCI | | | | | | | | | AOCI | |
Net loss (gain) | Net loss (gain) | | 120 | | | 105 | | | (10) | | | (6) | | Net loss (gain) | | 69 | | | 94 | | | 2 | | | (17) | |
Prior service cost (credit) | Prior service cost (credit) | | 1 | | | 0 | | | (6) | | | (8) | | Prior service cost (credit) | | 1 | | | — | | | (3) | | | (5) | |
Total amounts recognized in regulatory assets and AOCI | | $ | 1,344 | | | $ | 1,227 | | | | $ | (8) | | | $ | (6) | | |
Total amounts recognized in regulatory assets (liabilities) and AOCI | | Total amounts recognized in regulatory assets (liabilities) and AOCI | | $ | 815 | | | $ | 931 | | | $ | 110 | | | $ | (76) | |
Consumers | Consumers | | | | | | | | | Consumers | |
Regulatory assets | | | | | | | | | |
Regulatory assets (liabilities) | | Regulatory assets (liabilities) | |
Net loss | Net loss | | $ | 1,194 | | | $ | 1,114 | | | $ | 254 | | | $ | 308 | | Net loss | | $ | 724 | | | $ | 812 | | | $ | 251 | | | $ | 136 | |
Prior service cost (credit) | Prior service cost (credit) | | 29 | | | 8 | | | (246) | | | (300) | | Prior service cost (credit) | | 21 | | | 25 | | | (140) | | | (190) | |
Regulatory assets | | $ | 1,223 | | | $ | 1,122 | | | | $ | 8 | | | $ | 8 | | |
Regulatory assets (liabilities) | | Regulatory assets (liabilities) | | $ | 745 | | | $ | 837 | | | $ | 111 | | | $ | (54) | |
AOCI | AOCI | | | | | | | | | AOCI | |
Net loss | Net loss | | 47 | | | 36 | | | 0 | | | 0 | | Net loss | | 20 | | | 41 | | | — | | | — | |
Total amounts recognized in regulatory assets and AOCI | | $ | 1,270 | | | $ | 1,158 | | | | $ | 8 | | | $ | 8 | | |
Total amounts recognized in regulatory assets (liabilities) and AOCI | | Total amounts recognized in regulatory assets (liabilities) and AOCI | | $ | 765 | | | $ | 878 | | | $ | 111 | | | $ | (54) | |
Plan Assets: Presented in the following tables are the fair values of the assets of CMS Energy’s DB Pension Plans and OPEB Plan, by asset category and by level within the fair value hierarchy. For additional details regarding the fair value hierarchy, see Note 6,5, Fair Value Measurements.
| In Millions | In Millions | In Millions |
| | DB Pension Plans | | DB Pension Plans |
| | December 31, 2020 | | December 31, 2019 | | December 31, 2022 | | December 31, 2021 |
| | Total | Level 1 | Level 2 | | Total | Level 1 | Level 2 | | Total | Level 1 | | | Total | Level 1 | Level 2 |
CMS Energy, including Consumers | CMS Energy, including Consumers | CMS Energy, including Consumers |
Cash and short-term investments | Cash and short-term investments | | $ | 115 | | | $ | 115 | | | $ | — | | | $ | 44 | | | $ | 44 | | | $ | — | | Cash and short-term investments | | $ | 122 | | | $ | 122 | | | | $ | 30 | | | $ | 30 | | | $ | — | |
U.S. government and agencies securities | U.S. government and agencies securities | | 150 | | | — | | | 150 | | | 66 | | | — | | | 66 | | U.S. government and agencies securities | | — | | | — | | | | 209 | | | — | | | 209 | |
Corporate debt | Corporate debt | | 540 | | | — | | | 540 | | | 493 | | | — | | | 493 | | Corporate debt | | — | | | — | | | | 595 | | | — | | | 595 | |
State and municipal bonds | State and municipal bonds | | 11 | | | — | | | 11 | | | 17 | | | — | | | 17 | | State and municipal bonds | | — | | | — | | | | 13 | | | — | | | 13 | |
Foreign corporate bonds | Foreign corporate bonds | | 41 | | | — | | | 41 | | | 33 | | | — | | | 33 | | Foreign corporate bonds | | — | | | — | | | | 66 | | | — | | | 66 | |
Mutual funds | Mutual funds | | 971 | | | 971 | | | — | | | 640 | | | 640 | | | — | | Mutual funds | | 263 | | | 263 | | | | 785 | | | 785 | | | — | |
| | $ | 1,828 | | | $ | 1,086 | | | $ | 742 | | | $ | 1,293 | | | $ | 684 | | | $ | 609 | | | $ | 385 | | | $ | 385 | | | | $ | 1,698 | | | $ | 815 | | | $ | 883 | |
Pooled funds | Pooled funds | | 1,574 | | | | | | | 1,253 | | | | | | Pooled funds | | 2,435 | | | | | 1,901 | | |
Total | Total | | $ | 3,402 | | | | | | | $ | 2,546 | | | | | | Total | | $ | 2,820 | | | | | $ | 3,599 | | |
| In Millions | In Millions | In Millions |
| | OPEB Plan | | OPEB Plan |
| | December 31, 2020 | | December 31, 2019 | | December 31, 2022 | | December 31, 2021 |
| | Total | Level 1 | Level 2 | | Total | Level 1 | Level 2 | | Total | Level 1 | | | Total | Level 1 | Level 2 |
CMS Energy, including Consumers | CMS Energy, including Consumers | CMS Energy, including Consumers |
Cash and short-term investments | Cash and short-term investments | | $ | 33 | | | $ | 33 | | | $ | — | | | $ | 9 | | | $ | 9 | | | $ | — | | Cash and short-term investments | | $ | 28 | | | $ | 28 | | | | $ | 21 | | | $ | 21 | | | $ | — | |
U.S. government and agencies securities | U.S. government and agencies securities | | 18 | | | — | | | 18 | | | 10 | | | — | | | 10 | | U.S. government and agencies securities | | — | | | — | | | | 25 | | | — | | | 25 | |
Corporate debt | Corporate debt | | 64 | | | — | | | 64 | | | 71 | | | — | | | 71 | | Corporate debt | | — | | | — | | | | 73 | | | — | | | 73 | |
State and municipal bonds | State and municipal bonds | | 2 | | | — | | | 2 | | | 2 | | | — | | | 2 | | State and municipal bonds | | — | | | — | | | | 2 | | | — | | | 2 | |
Foreign corporate bonds | Foreign corporate bonds | | 5 | | | — | | | 5 | | | 5 | | | — | | | 5 | | Foreign corporate bonds | | — | | | — | | | | 8 | | | — | | | 8 | |
Common stocks | Common stocks | | 66 | | | 66 | | | — | | | 55 | | | 55 | | | — | | Common stocks | | 69 | | | 69 | | | | 85 | | | 85 | | | — | |
Mutual funds | Mutual funds | | 807 | | | 807 | | | — | | | 713 | | | 713 | | | — | | Mutual funds | | 754 | | | 754 | | | | 941 | | | 941 | | | — | |
| | $ | 995 | | | $ | 906 | | | $ | 89 | | | $ | 865 | | | $ | 777 | | | $ | 88 | | | $ | 851 | | | $ | 851 | | | | $ | 1,155 | | | $ | 1,047 | | | $ | 108 | |
Pooled funds | Pooled funds | | 650 | | | | | | | 644 | | | | | | Pooled funds | | 595 | | | | | 632 | | |
Total | Total | | $ | 1,645 | | | | | | | $ | 1,509 | | | | | | Total | | $ | 1,446 | | | | | $ | 1,787 | | |
Cash and Short-Term Investments: Cash and short-term investments consist of money market funds with daily liquidity.
U.S. Government and Agencies Securities: U.S. government and agencies securities consist of U.S. Treasury notes and other debt securities backed by the U.S. government and related agencies. These securities are valued based on quoted market prices.
Corporate Debt: Corporate debt investments consist of investment grade bonds of U.S. issuers from diverse industries. These securities are valued based on quoted market prices, when available, or yields available on comparable securities of issuers with similar credit ratings.
State and Municipal Bonds: State and municipal bonds are valued using a matrix-pricing model that incorporates Level 2 market-based information. The fair value of the bonds is derived from various observable inputs, including benchmark yields, reported securities trades, broker/dealer quotes, bond ratings, and general information on market movements for investment grade state and municipal securities normally considered by market participants when pricing such debt securities.
Foreign Corporate Bonds: Foreign corporate debt securities are valued based on quoted market prices, when available, or on yields available on comparable securities of issuers with similar credit ratings.
Common Stocks: Common stocks in the OPEB Plan consist of equity securities that are actively managed and tracked to the S&P 500 Index. These securities are valued at their quoted closing prices.
Mutual Funds: Mutual funds represent shares in registered investment companies that are priced based on the daily quoted net asset values that are publicly available and are the basis for transactions to buy or sell shares in the funds.
Pooled Funds: Pooled funds include both common and collective trust funds as well as special funds that contain only employee benefit plan assets from two or more unrelated benefit plans. These funds primarily consist of U.S. and foreign equity securities, but also include U.S. and foreign fixed-income securities and multi-asset investments. Since these investments are valued at their net asset value as a practical expedient, they are not classified in the fair value hierarchy.
Asset Allocations: Presented in the following table are the investment components of the assets of CMS Energy’s DB Pension Plans and OPEB Plan as of December 31, 2020:2022:
| | | DB Pension Plans | OPEB Plan | | DB Pension Plans | OPEB Plan |
Equity securities | Equity securities | | 55.0 | % | | 50.0 | % | Equity securities | | 38.0 | % | | 55.0 | % |
Fixed-income securities | Fixed-income securities | | 34.0 | | | 30.0 | | Fixed-income securities | | 47.0 | | | 38.0 | |
Real asset investments | | Real asset investments | | 11.0 | | | 5.0 | |
| Multi-asset investments | | 11.0 | | | 20.0 | | |
Cash and cash equivalents | | Cash and cash equivalents | | 4.0 | | | 2.0 | |
| | 100.0 | % | | 100.0 | % | | | 100.0 | % | | 100.0 | % |
CMS Energy’s target 20202022 asset allocation for the assets of the DB Pension Plans was 53 50‑percent equity, 35 40‑percent fixed income, and 12 ten‑percent multi-asset investments. The goal of this target asset allocation was to maximize the long-term return on plan assets, while maintaining a prudent level of risk. The level of acceptable risk is a function of the liabilities of the plan. Equity investments are diversified mostly across the S&P 500 Index, with lesser allocations to the S&P MidCap and SmallCap Indexes and Foreign Equity Funds. Fixed-income investments are diversified across investment grade instruments of government and corporate issuers as well as high-yield and global bond funds. Multi-assets are diversified across absolute return investment approaches and global tactical asset allocation, such as inflation protected securities, real estate investment trusts, commodities, currency, and preferred stock. CMS Energy uses annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocation.assets.
CMS Energy established union and non‑union VEBA trusts to fund future retiree health and life insurance benefits. These trusts are funded through the ratemaking process for Consumers and through direct contributions from the non‑utility subsidiaries. CMS Energy’s target 20202022 asset allocation for the health trusts was 50 51‑percent equity, 30 39‑percent fixed income, and 20 ten‑percent multi-asset investments.real assets. CMS Energy’s target asset allocation for the life trusts was 42 53‑percent equity, 28 32‑percent fixed income, and 30 15‑percent multi-asset investments.
The goal of these target allocations was to maximize the long-term return on plan assets, while maintaining a prudent level of risk. The level of acceptable risk is a function of the liabilities of the plans. Equity investments are diversified mostly across the S&P 500 Index, with lesser allocations to the S&P MidCap and SmallCap IndexIndexes and Foreign Equity Funds. Fixed-income investments are diversified across investment grade instruments of government and corporate issuers. Multi-assetsissuers, as well as high-yield and global bond funds. Real asset investments are diversified across absolute return investment approaches and global tactical asset allocation, such as inflation protected securities, real estate investment trusts, commodities, currencypublic infrastructure, and preferred stock.public resource equity. Multi-asset investments are global tactical asset allocations. CMS Energy uses annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocation.allocations.
Contributions: Presented in the following table are the contributions to CMS Energy’s and Consumers’ DB Pension Plans and OPEB Plan:
| | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2020 | 2019 |
CMS Energy, including Consumers | | | | |
DB Pension Plans | | $ | 700 | | | $ | 0 | |
OPEB Plan | | 1 | | | 0 | |
Consumers | | | | |
DB Pension Plans | | $ | 682 | | | $ | 0 | |
OPEB Plan | | 1 | | | 0 | |
Contributions comprise required amounts and discretionary contributions. Neither CMS Energy nor Consumers made any contributions in 2022 or 2021, or plans to contribute to the DB Pension Plans or OPEB Plan in 2021.2023. Actual future
contributions will depend on future investment performance, discount rates, and various factors related to the participants of the DB Pension Plans and OPEB Plan. CMS Energy and Consumers will, at a minimum, contribute to the plans as needed to comply with federal funding requirements.
Benefit Payments: Presented in the following table are the expected benefit payments for each of the next five years and the five-yearfive‑year period thereafter:
| In Millions | In Millions | In Millions |
| | DB Pension Plans | DB SERP | OPEB Plan | | DB Pension Plans | DB SERP | OPEB Plan |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | CMS Energy, including Consumers | |
2021 | | $ | 191 | | | $ | 10 | | | $ | 52 | | |
2022 | | 188 | | | 10 | | | 54 | | |
2023 | 2023 | | 184 | | | 10 | | | 56 | | 2023 | | $ | 160 | | | $ | 10 | | | $ | 55 | |
2024 | 2024 | | 182 | | | 10 | | | 57 | | 2024 | | 158 | | | 10 | | | 57 | |
2025 | 2025 | | 182 | | | 10 | | | 58 | | 2025 | | 161 | | | 10 | | | 58 | |
2026-2030 | | 890 | | | 46 | | | 299 | | |
2026 | | 2026 | | 160 | | | 10 | | | 59 | |
2027 | | 2027 | | 159 | | | 10 | | | 60 | |
2028-2032 | | 2028-2032 | | 790 | | | 45 | | | 312 | |
Consumers | Consumers | | | | | | | Consumers | |
2021 | | $ | 181 | | | $ | 7 | | | $ | 50 | | |
2022 | | 178 | | | 7 | | | 52 | | |
2023 | 2023 | | 175 | | | 7 | | | 53 | | 2023 | | $ | 150 | | | $ | 7 | | | $ | 52 | |
2024 | 2024 | | 173 | | | 7 | | | 55 | | 2024 | | 149 | | | 7 | | | 54 | |
2025 | 2025 | | 172 | | | 7 | | | 56 | | 2025 | | 151 | | | 7 | | | 55 | |
2026-2030 | | 845 | | | 32 | | | 286 | | |
2026 | | 2026 | | 151 | | | 7 | | | 56 | |
2027 | | 2027 | | 150 | | | 7 | | | 58 | |
2028-2032 | | 2028-2032 | | 745 | | | 30 | | | 298 | |
Collective Bargaining Agreements: At December 31, 2020,2022, unions represented 41 percent of CMS Energy’s employees and 4442 percent of Consumers’ employees. The UWUA represents Consumers’ operating, maintenance, construction, and customer contact center employees. The USW represents Zeeland plant employees. The UWUA and USW agreements expired and new agreements were ratified in 2020. These union contracts expire in 2025.
13: Stock-Based11: Stock-based Compensation
CMS Energy and Consumers provide a PISP to officers, employees, and non‑employee directors based on their contributions to the successful management of the company. The PISP has a ten-yearten‑year term, expiring in May 2030.
In 2020,2022, all awards were in the form of restricted stock or restricted stock units. The PISP also allows for unrestricted common stock, stock options, stock appreciation rights, phantom shares, performance units, and incentive options, none of which was granted in 2020, 2019,2022, 2021, or 2018.2020.
Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6.5 million shares from June 2020 through May 2030. CMS Energy and Consumers may issue awards of up to 6,477,5795,417,727 shares of common stock under the PISP as of December 31, 2020.2022. Shares for which payment or exercise is in cash, as well as shares that expire, terminate, or are canceled or forfeited, may be awarded or granted again under the PISP.
All awards under the PISP vest fully upon death. Upon a change of control of CMS Energy or termination under an officer separation agreement, the awards will vest in accordance with specific officer
agreements. If stated in the award, for restricted stock recipients who terminate employment due to retirement or disability, a pro-rata portion of the award will vest upon termination, with any market-based award also contingent upon the outcome of the market condition and any performance-based award contingent upon the outcome of the performance condition. The pro-rata portion is equal to the portion of the service period served between the award grant date and the employee’s termination date. The remaining portion of the awards will be forfeited. All awards for directors vest fully upon retirement. Restricted shares may be forfeited if employment terminates for any other reason or if the minimum service requirements are not met, as described in the award document.
Restricted Stock Awards: Restricted stock awards for employees under the PISP are in the form of performance-based, market-based, and time-lapse restricted stock. Award recipients receive shares of CMS Energy common stock that have dividend and voting rights. The dividends on time-lapse restricted stock are paid in cash or in CMS Energy common stock. The dividends on performance-based and market-based restricted stock are paid in restricted shares equal to the value of the dividends. These additional restricted shares are subject to the same vesting conditions as the underlying restricted stock shares.
Performance-based restricted stock vesting is contingent on meeting at least a 36-month36‑month service requirement and a performance condition. The performance condition is based on an adjusted measure of CMS Energy’s EPS growth relative to a peer group over a three-yearthree‑year period. The awards granted in 2020, 2019,2022, 2021, and 20182020 require a 38-month38‑month service period. Market-based restricted stock vesting is generally contingent on meeting a three-year service requirement and a market condition. The market condition is based on a comparison of CMS Energy’s total shareholder return with the median total shareholder return of a peer group over the same three-yearthree‑year period. Depending on the outcome of the performance condition or the market condition, a recipient may earn a total award ranging from 0zero to 200 percent of the initial grant. Time-lapse restricted stock generally vests after a service period of three years.
Restricted Stock Units: In 2020, 2019,2022, 2021, and 2018,2020, CMS Energy and Consumers granted restricted stock units to certain non‑employee directors who elected to defer their restricted stock awards. The restricted stock units generally vest after a service period of one year or, if earlier, at the next annual meeting. The restricted stock units will be distributed to the recipients as shares in accordance with the directors’ deferral agreements. Restricted stock units do not have voting rights, but do have dividend rights. In lieu of cash dividend payments, the dividends on restricted stock units are paid in additional units equal to the value of the dividends. These additional restricted stock units are subject to the same vesting and distribution conditions as the underlying restricted stock units. NaNNo restricted stock units were forfeited during 2020.2022.
Presented in the following tables is the activity for restricted stock and restricted stock units under the PISP:
| | | CMS Energy, including Consumers | | Consumers | | CMS Energy, including Consumers | | Consumers |
Year Ended December 31, 2020 | Number of Shares | Weighted-Average Grant Date Fair Value per Share | | Number of Shares | Weighted-Average Grant Date Fair Value per Share | |
Year Ended December 31, 2022 | | Year Ended December 31, 2022 | Number of Shares | Weighted-Average Grant Date Fair Value per Share | | Number of Shares | Weighted-Average Grant Date Fair Value per Share |
Nonvested at beginning of period | Nonvested at beginning of period | 1,186,962 | | | $ | 44.56 | | | 1,138,182 | | | $ | 44.57 | | Nonvested at beginning of period | 932,573 | | | $ | 56.56 | | | 887,085 | | | $ | 56.56 | |
Granted | Granted | | | | | | | | Granted | |
Restricted stock | Restricted stock | 512,326 | | | 45.56 | | | 490,346 | | | 45.53 | | Restricted stock | 534,386 | | | 48.69 | | | 506,911 | | | 48.57 | |
Restricted stock units | Restricted stock units | 15,074 | | | 49.76 | | | 14,409 | | | 49.70 | | Restricted stock units | 14,255 | | | 56.13 | | | 13,611 | | | 56.07 | |
Vested | Vested | | | | | | | | Vested | |
Restricted stock | Restricted stock | (551,897) | | | 30.98 | | | (532,833) | | | 31.04 | | Restricted stock | (395,069) | | | 36.27 | | | (378,759) | | | 36.28 | |
Restricted stock units | Restricted stock units | (15,234) | | | 49.24 | | | (14,517) | | | 49.50 | | Restricted stock units | (14,170) | | | 52.95 | | | (13,377) | | | 52.79 | |
Forfeited – restricted stock | Forfeited – restricted stock | (329,874) | | | 51.22 | | | (314,056) | | | 51.22 | | Forfeited – restricted stock | (42,452) | | | 60.75 | | | (37,325) | | | 60.87 | |
Nonvested at end of period | Nonvested at end of period | 817,357 | | | $ | 51.68 | | | 781,531 | | | $ | 51.73 | | Nonvested at end of period | 1,029,523 | | | $ | 60.13 | | | 978,146 | | | $ | 60.15 | |
| Year Ended December 31, 2020 | CMS Energy, including Consumers | Consumers | |
Year Ended December 31, 2022 | | Year Ended December 31, 2022 | CMS Energy, including Consumers | Consumers |
Granted | Granted | | Granted | |
Time-lapse awards | Time-lapse awards | 106,520 | | 101,439 | | Time-lapse awards | 123,067 | | 116,881 | |
Market-based awards | Market-based awards | 123,246 | | 118,011 | | Market-based awards | 141,287 | | 133,450 | |
Performance-based awards | Performance-based awards | 123,246 | | 118,011 | | Performance-based awards | 141,287 | | 133,450 | |
Restricted stock units | Restricted stock units | 13,405 | | 12,800 | | Restricted stock units | 11,810 | | 11,265 | |
Dividends on market-based awards | Dividends on market-based awards | 17,937 | | 17,152 | | Dividends on market-based awards | 15,864 | | 15,085 | |
Dividends on performance-based awards | Dividends on performance-based awards | 17,505 | | 16,736 | | Dividends on performance-based awards | 16,216 | | 15,423 | |
Dividends on restricted stock units | Dividends on restricted stock units | 1,669 | | 1,609 | | Dividends on restricted stock units | 2,445 | | 2,346 | |
Additional market-based shares based on achievement of condition | Additional market-based shares based on achievement of condition | 71,678 | | 68,857 | | Additional market-based shares based on achievement of condition | 52,627 | | 50,428 | |
Additional performance-based shares based on achievement of condition | Additional performance-based shares based on achievement of condition | 52,194 | | 50,140 | | Additional performance-based shares based on achievement of condition | 44,038 | | 42,194 | |
Total granted | Total granted | 527,400 | | 504,755 | | Total granted | 548,641 | | 520,522 | |
CMS Energy and Consumers charge the fair value of the restricted stock awards to expense over the required service period and charge the fair value of the restricted stock units to expense immediately. For performance-based awards, CMS Energy and Consumers estimate the number of shares expected to vest at the end of the performance period based on the probable achievement of the performance objective. Performance-based and market-based restricted stock awards have graded vesting features for retirement-eligible employees, and CMS Energy and Consumers recognize expense for those awards on a graded vesting schedule over the required service period. Expense for performance-based and market-based restricted stock awards for non‑retirement-eligible employees and time-lapse awards is recognized on a straight-line basis over the required service period.
The fair value of performance-based and time-lapse restricted stock and restricted stock units is based on the price of CMS Energy’s common stock on the grant date. The fair value of market-based restricted stock awards is calculated on the grant date using a Monte Carlo simulation. CMS Energy and Consumers base expected volatilities on the historical volatility of the price of CMS Energy common stock. The risk-free rate for valuation of the market-based restricted stock awards was based on the three-yearthree‑year U.S. Treasury yield at the award grant date.
Presented in the following table are the most significant assumptions used to estimate the fair value of the market-based restricted stock awards:
| Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
Expected volatility | Expected volatility | 14.2 | % | 14.9 | % | 16.7 | % | Expected volatility | 27.3 | % | 27.6 | % | 14.2 | % |
Expected dividend yield | Expected dividend yield | 2.4 | | 2.8 | | 2.8 | | Expected dividend yield | 2.8 | | 2.8 | | 2.4 | |
Risk-free rate | Risk-free rate | 1.6 | | 2.5 | | 2.1 | | Risk-free rate | 1.4 | | 0.2 | | 1.6 | |
Presented in the following table is the weighted-average grant-date fair value of all awards under the PISP:
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | CMS Energy, including Consumers | |
Weighted-average grant-date fair value per share | Weighted-average grant-date fair value per share | | | | | Weighted-average grant-date fair value per share | |
Restricted stock granted | Restricted stock granted | | $ | 45.56 | | | $ | 43.57 | | | $ | 26.49 | | Restricted stock granted | | $ | 48.69 | | | $ | 43.52 | | | $ | 45.56 | |
Restricted stock units granted | Restricted stock units granted | | 49.76 | | | 50.35 | | | 41.77 | | Restricted stock units granted | | 56.13 | | | 54.11 | | | 49.76 | |
Consumers | Consumers | | | | | | | Consumers | |
Weighted-average grant-date fair value per share | Weighted-average grant-date fair value per share | | | | | | | Weighted-average grant-date fair value per share | |
Restricted stock granted | Restricted stock granted | | $ | 45.53 | | | $ | 43.57 | | | $ | 26.51 | | Restricted stock granted | | $ | 48.57 | | | $ | 42.85 | | | $ | 45.53 | |
Restricted stock units granted | Restricted stock units granted | | 49.70 | | | 51.15 | | | 42.01 | | Restricted stock units granted | | 56.07 | | | 53.93 | | | 49.70 | |
Presented in the following table are amounts related to restricted stock awards and restricted stock units:
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | CMS Energy, including Consumers | |
Fair value of shares that vested during the year | Fair value of shares that vested during the year | | $ | 22 | | | $ | 26 | | | $ | 27 | | Fair value of shares that vested during the year | | $ | 27 | | | $ | 25 | | | $ | 22 | |
Compensation expense recognized | Compensation expense recognized | | 11 | | | 22 | | | 17 | | Compensation expense recognized | | 26 | | | 22 | | | 11 | |
Income tax benefit recognized | Income tax benefit recognized | | 3 | | | 1 | | | 1 | | Income tax benefit recognized | | — | | | 1 | | | 3 | |
Consumers | Consumers | | | | | | | Consumers | |
Fair value of shares that vested during the year | Fair value of shares that vested during the year | | $ | 21 | | | $ | 25 | | | $ | 26 | | Fair value of shares that vested during the year | | $ | 25 | | | $ | 24 | | | $ | 21 | |
Compensation expense recognized | Compensation expense recognized | | 10 | | | 21 | | | 16 | | Compensation expense recognized | | 25 | | | 21 | | | 10 | |
Income tax benefit recognized | Income tax benefit recognized | | 3 | | | 1 | | | 1 | | Income tax benefit recognized | | — | | | 1 | | | 3 | |
At December 31, 2020, $18.52022, $28 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $17.7$27 million of total unrecognized compensation cost was related to restricted stock for Consumers. CMS Energy and Consumers expect to recognize this cost over a weighted-average period of two years.
14:12: Income Taxes
CMS Energy and its subsidiaries file a consolidated U.S. federal income tax return as well as a Michigan Corporate Income Tax return for the unitary business group and various other state unitary group combined income tax returns. Income taxes are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing agreement.
Presented in the following table is the difference between actual income tax expense on continuing operations and income tax expense computed by applying the statutory U.S. federal income tax rate:
| In Millions, Except Tax Rate | In Millions, Except Tax Rate | In Millions, Except Tax Rate |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | | 2022 | | 2021 | 2020 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | CMS Energy, including Consumers | | | | |
Income from continuing operations before income taxes | Income from continuing operations before income taxes | | $ | 885 | | | $ | 829 | | | $ | 774 | | Income from continuing operations before income taxes | | | $ | 902 | | | | $ | 823 | | | $ | 809 | |
| Income tax expense at statutory rate | Income tax expense at statutory rate | | 186 | | | 174 | | | 163 | | Income tax expense at statutory rate | | | 189 | | | | 173 | | | 170 | |
Increase (decrease) in income taxes from: | Increase (decrease) in income taxes from: | | | | | | | Increase (decrease) in income taxes from: | | | | |
State and local income taxes, net of federal effect | State and local income taxes, net of federal effect | | 46 | | | 48 | | | 46 | | State and local income taxes, net of federal effect | | | 51 | | | | 39 | | | 44 | |
TCJA excess deferred taxes1 | TCJA excess deferred taxes1 | | (35) | | | (31) | | | (26) | | TCJA excess deferred taxes1 | | | (65) | | | | (50) | | | (35) | |
Production tax credits | Production tax credits | | (28) | | | (20) | | | (14) | | Production tax credits | | | (45) | | | | (40) | | | (28) | |
Accelerated flow-through of regulatory tax benefits2 | Accelerated flow-through of regulatory tax benefits2 | | (13) | | | (13) | | | (39) | | Accelerated flow-through of regulatory tax benefits2 | | | (39) | | | | (28) | | | (13) | |
Research and development tax credits, net3 | Research and development tax credits, net3 | | (11) | | | (2) | | | (11) | | Research and development tax credits, net3 | | | (2) | | | | (3) | | | (11) | |
Refund of alternative minimum tax sequestration4 | Refund of alternative minimum tax sequestration4 | | (9) | | | 0 | | | 0 | | Refund of alternative minimum tax sequestration4 | | | — | | | | — | | | (9) | |
Other, net | Other, net | | (3) | | | (9) | | | (4) | | Other, net | | | 4 | | | | 4 | | | (3) | |
Income tax expense | Income tax expense | | $ | 133 | | | $ | 147 | | | $ | 115 | | Income tax expense | | | $ | 93 | | | | $ | 95 | | | $ | 115 | |
Effective tax rate | Effective tax rate | | 15.0 | % | | 17.7 | % | | 14.9 | % | Effective tax rate | | | 10.3 | % | | | 11.5 | % | | 14.2 | % |
Consumers | Consumers | | | | | | | Consumers | | | | |
Income from continuing operations before income taxes | Income from continuing operations before income taxes | | $ | 989 | | | $ | 928 | | | $ | 847 | | Income from continuing operations before income taxes | | | $ | 1,085 | | | | $ | 1,024 | | | $ | 989 | |
| Income tax expense at statutory rate | Income tax expense at statutory rate | | 208 | | | 195 | | | 178 | | Income tax expense at statutory rate | | | 228 | | | | 215 | | | 208 | |
Increase (decrease) in income taxes from: | Increase (decrease) in income taxes from: | | | | | | | Increase (decrease) in income taxes from: | | | | |
State and local income taxes, net of federal effect | State and local income taxes, net of federal effect | | 47 | | | 53 | | | 51 | | State and local income taxes, net of federal effect | | | 59 | | | | 54 | | | 47 | |
TCJA excess deferred taxes1 | TCJA excess deferred taxes1 | | (35) | | | (31) | | | (26) | | TCJA excess deferred taxes1 | | | (65) | | | | (50) | | | (35) | |
| Accelerated flow-through of regulatory tax benefits2 | Accelerated flow-through of regulatory tax benefits2 | | (13) | | | (13) | | | (39) | | Accelerated flow-through of regulatory tax benefits2 | | | (39) | | | | (28) | | | (13) | |
Production tax credits | Production tax credits | | (19) | | | (12) | | | (12) | | Production tax credits | | | (40) | | | | (33) | | | (19) | |
Research and development tax credits, net3 | Research and development tax credits, net3 | | (11) | | | (2) | | | (11) | | Research and development tax credits, net3 | | | (1) | | | | (3) | | | (11) | |
Other, net | Other, net | | (4) | | | (5) | | | 1 | | Other, net | | | (2) | | | | 1 | | | (4) | |
Income tax expense | Income tax expense | | $ | 173 | | | $ | 185 | | | $ | 142 | | Income tax expense | | | $ | 140 | | | | $ | 156 | | | $ | 173 | |
Effective tax rate | Effective tax rate | | 17.5 | % | | 19.9 | % | | 16.8 | % | Effective tax rate | | | 12.9 | % | | | 15.2 | % | | 17.5 | % |
1In December 2017, Consumers remeasured its deferred tax assets and liabilities at the new federal tax rate enacted by the TCJA and recorded a net $1.6 billion regulatory liability. As a result of an order received in September 2019, Consumers began refunding these excess deferred taxes to customers. In September 2020, the MPSC approved a settlement agreement in Consumers’ 2019 gas rate case including Consumers’ requestauthorized Consumers to accelerate the amortization of itsa gas regulatory liability associated with the unprotected, non‑property-related excess deferred income taxes resulting from the TCJA. Consumers will increase its TCJA amortization to fully refund thisThe regulatory liability, during the period October 2021which was previously scheduled to be amortized through September 2022 instead of the previous amortization schedule through 2029.2029, has now been fully amortized.
2In 2013,2020, the MPSC issued an order authorizingauthorized Consumers to accelerate the flow-through to electric and gas customersamortization of certain income tax benefits associated primarily with the cost of removal ofto remove gas plant placedassets. These tax benefits, which were previously scheduled to be amortized through 2025, have now been fully amortized.
in service before 1993. Consumers implemented this regulatory treatment beginning in 2014, with the electric portion ending in 2018 and the gas portion expected to continue through 2025. In September 2020, the MPSC approved a settlement agreement in Consumers’ 2019 gas rate case including Consumers’ request to accelerate the amortization of this income tax benefit to fully amortize the balance during the period October 2021 through September 2022 instead of the previous amortization schedule through 2025.
3In March2022, CMS Energy finalized a study of research and development tax credits for tax years 2019 through 2021. As a result, Consumers recognized a $1 million decrease in the credit, net of reserves for uncertain tax positions. There was no impact at the consolidated level. In 2020, CMS Energy finalized a study of research and development tax credits for tax years 2012 through 2018. As a result, in 2020, CMS Energy, including Consumers, recognized a $9 million increase in the credit, net of reserves for uncertain tax positions. Of this amount, $8 million was recognized at Consumers. Also, in March 2018, Consumers finalized a study of research and development tax credits for the tax years 2012 through 2016. As a result, CMS Energy and Consumers recognized an $8 million increase in the credit, net of reserves for uncertain tax positions, at that time.
4In January 2020, the IRS issued a decision restoring alternative minimum tax credit refunds sequestered in years prior to 2018. As a result, in 2020, CMS Energy recognized a $9 million income tax benefit for sequestered amounts related to its 2017 tax return. CMS Energy received the refund in April 2020.
Presented in the following table are the significant components of income tax expense on continuing operations:
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | CMS Energy, including Consumers | |
Current income taxes | Current income taxes | | | | | | | Current income taxes | |
Federal | Federal | | $ | (35) | | | $ | (31) | | | $ | (67) | | Federal | | $ | 6 | | | $ | (1) | | | $ | (35) | |
State and local | State and local | | (2) | | | 28 | | | 0 | | State and local | | — | | | 1 | | | (2) | |
| | | $ | (37) | | | $ | (3) | | | $ | (67) | | | | $ | 6 | | | $ | — | | | $ | (37) | |
Deferred income taxes | Deferred income taxes | | | | | | | Deferred income taxes | |
Federal | Federal | | 115 | | | 97 | | | 112 | | Federal | | 4 | | | 49 | | | 100 | |
State and local | State and local | | 60 | | | 32 | | | 58 | | State and local | | 65 | | | 49 | | | 57 | |
| | | $ | 175 | | | $ | 129 | | | $ | 170 | | | | $ | 69 | | | $ | 98 | | | $ | 157 | |
Deferred income tax credit | Deferred income tax credit | | (5) | | | 21 | | | 12 | | Deferred income tax credit | | 18 | | | (3) | | | (5) | |
Tax expense | Tax expense | | $ | 133 | | | $ | 147 | | | $ | 115 | | Tax expense | | $ | 93 | | | $ | 95 | | | $ | 115 | |
Consumers | Consumers | | | | | | | Consumers | |
Current income taxes | Current income taxes | | | | | | | Current income taxes | |
Federal | Federal | | $ | 3 | | | $ | 107 | | | $ | 6 | | Federal | | $ | (2) | | | $ | (13) | | | $ | 3 | |
State and local | State and local | | (7) | | | 41 | | | 13 | | State and local | | 8 | | | 15 | | | (7) | |
| | | $ | (4) | | | $ | 148 | | | $ | 19 | | | | $ | 6 | | | $ | 2 | | | $ | (4) | |
Deferred income taxes | Deferred income taxes | | | | | | | Deferred income taxes | |
Federal | Federal | | 115 | | | (10) | | | 60 | | Federal | | 50 | | | 103 | | | 115 | |
State and local | State and local | | 67 | | | 26 | | | 51 | | State and local | | 66 | | | 54 | | | 67 | |
| | | $ | 182 | | | $ | 16 | | | $ | 111 | | | | $ | 116 | | | $ | 157 | | | $ | 182 | |
Deferred income tax credit | Deferred income tax credit | | (5) | | | 21 | | | 12 | | Deferred income tax credit | | 18 | | | (3) | | | (5) | |
Tax expense | Tax expense | | $ | 173 | | | $ | 185 | | | $ | 142 | | Tax expense | | $ | 140 | | | $ | 156 | | | $ | 173 | |
Presented in the following table are the principal components of deferred income tax assets (liabilities) recognized:
| In Millions | In Millions | In Millions |
December 31 | December 31 | 2020 | 2019 | December 31 | 2022 | 2021 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | CMS Energy, including Consumers | |
Deferred income tax assets | Deferred income tax assets | | | | | Deferred income tax assets | |
Tax loss and credit carryforwards | Tax loss and credit carryforwards | | $ | 483 | | | $ | 239 | | Tax loss and credit carryforwards | | $ | 385 | | | $ | 332 | |
Net regulatory tax liability | Net regulatory tax liability | | 372 | | | 385 | | Net regulatory tax liability | | 318 | | | 349 | |
Reserves and accruals | Reserves and accruals | | 62 | | | 43 | | Reserves and accruals | | 35 | | | 32 | |
Total deferred income tax assets | Total deferred income tax assets | | $ | 917 | | | $ | 667 | | Total deferred income tax assets | | $ | 738 | | | $ | 713 | |
Valuation allowance | Valuation allowance | | (1) | | | (2) | | Valuation allowance | | (2) | | | (2) | |
Total deferred income tax assets, net of valuation allowance | Total deferred income tax assets, net of valuation allowance | | $ | 916 | | | $ | 665 | | Total deferred income tax assets, net of valuation allowance | | $ | 736 | | | $ | 711 | |
Deferred income tax liabilities | Deferred income tax liabilities | | | | | Deferred income tax liabilities | |
Plant, property, and equipment | Plant, property, and equipment | | $ | (2,287) | | | $ | (2,033) | | Plant, property, and equipment | | $ | (2,515) | | | $ | (2,395) | |
Employee benefits | Employee benefits | | (364) | | | (172) | | Employee benefits | | (433) | | | (399) | |
Gas inventory | | Gas inventory | | (53) | | | (22) | |
Securitized costs | Securitized costs | | (53) | | | (59) | | Securitized costs | | (39) | | | (46) | |
Gas inventory | | (24) | | | (32) | | |
Other | Other | | (51) | | | (24) | | Other | | (103) | | | (59) | |
Total deferred income tax liabilities | Total deferred income tax liabilities | | $ | (2,779) | | | $ | (2,320) | | Total deferred income tax liabilities | | $ | (3,143) | | | $ | (2,921) | |
Total net deferred income tax liabilities | Total net deferred income tax liabilities | | $ | (1,863) | | | $ | (1,655) | | Total net deferred income tax liabilities | | $ | (2,407) | | | $ | (2,210) | |
Consumers | Consumers | | | | | Consumers | |
Deferred income tax assets | Deferred income tax assets | | | | | Deferred income tax assets | |
Net regulatory tax liability | Net regulatory tax liability | | $ | 372 | | | $ | 385 | | Net regulatory tax liability | | $ | 318 | | | $ | 349 | |
Tax loss and credit carryforwards | Tax loss and credit carryforwards | | 216 | | | 20 | | Tax loss and credit carryforwards | | 145 | | | 134 | |
Reserves and accruals | Reserves and accruals | | 24 | | | 24 | | Reserves and accruals | | 28 | | | 24 | |
| Total deferred income tax assets | Total deferred income tax assets | | $ | 612 | | | $ | 429 | | Total deferred income tax assets | | $ | 491 | | | $ | 507 | |
Deferred income tax liabilities | Deferred income tax liabilities | | | | | Deferred income tax liabilities | |
Plant, property, and equipment | Plant, property, and equipment | | $ | (2,230) | | | $ | (1,995) | | Plant, property, and equipment | | $ | (2,458) | | | $ | (2,341) | |
Employee benefits | Employee benefits | | (365) | | | (178) | | Employee benefits | | (423) | | | (388) | |
Gas inventory | | Gas inventory | | (53) | | | (22) | |
Securitized costs | Securitized costs | | (53) | | | (59) | | Securitized costs | | (39) | | | (46) | |
Gas inventory | | (24) | | | (32) | | |
Other | Other | | (34) | | | (29) | | Other | | (103) | | | (50) | |
Total deferred income tax liabilities | Total deferred income tax liabilities | | $ | (2,706) | | | $ | (2,293) | | Total deferred income tax liabilities | | $ | (3,076) | | | $ | (2,847) | |
Total net deferred income tax liabilities | Total net deferred income tax liabilities | | $ | (2,094) | | | $ | (1,864) | | Total net deferred income tax liabilities | | $ | (2,585) | | | $ | (2,340) | |
Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts on CMS Energy’s and Consumers’ consolidated financial statements.
Presented in the following table are the tax loss and credit carryforwards at December 31, 2020:2022:
| In Millions | In Millions | In Millions |
| | Gross Amount | Tax Attribute | Expiration | | | Tax Attribute | Expiration |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | CMS Energy, including Consumers | | |
Federal net operating loss carryforwards | | $ | 747 | | | $ | 157 | | None | |
| State net operating loss carryforwards | State net operating loss carryforwards | | 1,241 | | | 78 | | 2030 | State net operating loss carryforwards | | | $ | 60 | | 2030 – 2032 |
Local net operating loss carryforwards | Local net operating loss carryforwards | | 346 | | | 3 | | 2024 – 2040 | Local net operating loss carryforwards | | | 3 | | 2024 – 2040 |
General business credits | General business credits | | 245 | | | 245 | | 2026 – 2040 | General business credits | | | 320 | | 2035 – 2042 |
| Federal charitable contribution carryforwards | | Federal charitable contribution carryforwards | | | 2 | | 2025 |
| Total tax attributes | Total tax attributes | | | | $ | 483 | | | Total tax attributes | | | $ | 385 | | |
Consumers | Consumers | | | | | Consumers | | |
Federal net operating loss carryforwards | | $ | 505 | | | $ | 106 | | None | |
| State net operating loss carryforwards | State net operating loss carryforwards | | 1,026 | | | 61 | | 2030 | State net operating loss carryforwards | | | $ | 46 | | 2030 |
| General business credits | General business credits | | 49 | | | 49 | | 2027 – 2040 | General business credits | | | 99 | | 2035 – 2042 |
| Total tax attributes | Total tax attributes | | | | $ | 216 | | | Total tax attributes | | | $ | 145 | | |
CMS Energy has provided a valuation allowance of $1$2 million for the local tax loss carryforward. CMS Energy and Consumers expect to utilize fully their tax loss and credit carryforwards for which no valuation allowance has been provided. It is reasonably possible that further adjustments will be made to the valuation allowances within one year.
As a result of a provision in the TCJA, as amended by the CARES Act, CMS Energy recovered all of its remaining alternative minimum tax credits in 2020. CMS Energy utilized $7 million of these credits on its 2019 consolidated tax return, and received the remaining $69 million through a cash refund.
Presented in the following table is a reconciliation of the beginning and ending amount of uncertain tax benefits:
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | | | | | | CMS Energy, including Consumers | |
Balance at beginning of period | Balance at beginning of period | | $ | 23 | | | $ | 19 | | | $ | 14 | | Balance at beginning of period | | $ | 27 | | | $ | 25 | | | $ | 23 | |
Additions for current-year tax positions | Additions for current-year tax positions | | 1 | | | 1 | | | 1 | | Additions for current-year tax positions | | 1 | | | 2 | | | 1 | |
Additions for prior-year tax positions | Additions for prior-year tax positions | | 3 | | | 3 | | | 4 | | Additions for prior-year tax positions | | 1 | | | — | | | 3 | |
Reductions for prior-year tax positions | Reductions for prior-year tax positions | | (2) | | | 0 | | | 0 | | Reductions for prior-year tax positions | | (1) | | | — | | | (2) | |
| Balance at end of period | Balance at end of period | | $ | 25 | | | $ | 23 | | | $ | 19 | | Balance at end of period | | $ | 28 | | | $ | 27 | | | $ | 25 | |
Consumers | Consumers | | | | | | | Consumers | |
Balance at beginning of period | Balance at beginning of period | | $ | 34 | | | $ | 28 | | | $ | 21 | | Balance at beginning of period | | $ | 34 | | | $ | 31 | | | $ | 34 | |
Additions for current-year tax positions | Additions for current-year tax positions | | 1 | | | 1 | | | 2 | | Additions for current-year tax positions | | 3 | | | 3 | | | 1 | |
Additions for prior-year tax positions | Additions for prior-year tax positions | | 4 | | | 5 | | | 5 | | Additions for prior-year tax positions | | 1 | | | — | | | 4 | |
Reductions for prior-year tax positions | Reductions for prior-year tax positions | | (8) | | | 0 | | | 0 | | Reductions for prior-year tax positions | | (2) | | | — | | | (8) | |
| Balance at end of period | Balance at end of period | | $ | 31 | | | $ | 34 | | | $ | 28 | | Balance at end of period | | $ | 36 | | | $ | 34 | | | $ | 31 | |
If recognized, all of these uncertain tax benefits would affect CMS Energy’s and Consumers’ annual effective tax rates in future years. A trial is anticipated in 2021 with the Michigan Tax Tribunal relatedOne uncertain tax benefit relates to the methodology of state apportionment for Consumers’ electricity sales to MISO. The Michigan Tax Tribunal heard oral arguments on this methodology during 2022. A favorable outcome
of the court case or a potential settlement could result in a tax benefit of up to $9 millionfinal conclusion is not anticipated in the next 12 months.
CMS Energy and Consumers recognize accrued interest and penalties, where applicable, as part of income tax expense. CMS Energy, including Consumers, recognized 0no interest or penalties for each of the years ended December 31, 2020, 2019,2022, 2021, or 2018.2020.
The amount of income taxes paid is subject to ongoing audits by federal, state, local, and foreign tax authorities, which can result in proposed assessments. CMS Energy’s federal income tax returns for 20172019 and subsequent years remain subject to examination by the IRS. CMS Energy’s Michigan Corporate Income Tax returns for 2013 and subsequent years remain subject to examination by the State of Michigan. CMS Energy’s and Consumers’ estimate of the potential outcome for any uncertain tax issue is highly judgmental. CMS Energy and Consumers believe that their accrued tax liabilities at December 31, 20202022 were adequate for all years.
15:13: Earnings Per Share—CMS Energy
Presented in the following table are CMS Energy’s basic and diluted EPS computations based on net income:income from continuing operations:
| In Millions, Except Per Share Amounts | In Millions, Except Per Share Amounts | In Millions, Except Per Share Amounts |
| Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | | 2022 | 2021 | 2020 |
Income available to common stockholders | Income available to common stockholders | | Income available to common stockholders | | |
Net income | | $ | 752 | | | $ | 682 | | | $ | 659 | | |
Less income (loss) attributable to noncontrolling interests | | (3) | | | 2 | | | 2 | | |
Net income available to common stockholders – basic and diluted | | $ | 755 | | | $ | 680 | | | $ | 657 | | |
Income from continuing operations | | Income from continuing operations | | | $ | 809 | | | $ | 728 | | | $ | 694 | |
Less loss attributable to noncontrolling interests | | Less loss attributable to noncontrolling interests | | | (24) | | | (23) | | | (3) | |
Less preferred stock dividends | | Less preferred stock dividends | | | 10 | | | 5 | | | — | |
Income from continuing operations available to common stockholders – basic and diluted | | Income from continuing operations available to common stockholders – basic and diluted | | | $ | 823 | | | $ | 746 | | | $ | 697 | |
Average common shares outstanding | Average common shares outstanding | | Average common shares outstanding | | |
Weighted-average shares – basic | Weighted-average shares – basic | | 285.0 | | | 283.0 | | | 282.2 | | Weighted-average shares – basic | | | 289.5 | | | 289.0 | | | 285.0 | |
Add dilutive nonvested stock awards | Add dilutive nonvested stock awards | | 0.7 | | | 0.7 | | | 0.7 | | Add dilutive nonvested stock awards | | | 0.3 | | | 0.5 | | | 0.7 | |
Add dilutive forward equity sale contracts | Add dilutive forward equity sale contracts | | 0.6 | | | 0.6 | | | 0 | | Add dilutive forward equity sale contracts | | | 0.2 | | | — | | | 0.6 | |
Weighted-average shares – diluted | Weighted-average shares – diluted | | 286.3 | | | 284.3 | | | 282.9 | | Weighted-average shares – diluted | | | 290.0 | | | 289.5 | | | 286.3 | |
Net income per average common share available to common stockholders | | |
Income from continuing operations per average common share available to common stockholders | | Income from continuing operations per average common share available to common stockholders | | |
Basic | Basic | | $ | 2.65 | | | $ | 2.40 | | | $ | 2.33 | | Basic | | | $ | 2.84 | | | $ | 2.58 | | | $ | 2.45 | |
Diluted | Diluted | | 2.64 | | | 2.39 | | | 2.32 | | Diluted | | | 2.84 | | | 2.58 | | | 2.44 | |
Nonvested Stock Awards
CMS Energy’s nonvested stock awards are composed of participating and non‑participating securities. The participating securities accrue cash dividends when common stockholders receive dividends. Since the recipient is not required to return the dividends to CMS Energy if the recipient forfeits the award, the nonvested stock awards are considered participating securities. As such, the participating nonvested stock awards were included in the computation of basic EPS. The non‑participating securities accrue stock dividends that vest concurrently with the stock award. If the recipient forfeits the award, the stock dividends accrued on the non‑participating securities are also forfeited. Accordingly, the non‑participating awards and stock dividends were included in the computation of diluted EPS, but not in the computation of basic EPS.
Forward Equity Sale Contracts
CMS Energy has entered into forward equity sale contracts. These forward equity sale contracts are non‑participating securities. While the forward sale price in the forward equity sale contract is decreased on certain dates by certain predetermined amounts to reflect expected dividend payments, these price
adjustments were set upon inception of the agreement and the forward contract does not give the owner the right to participate in undistributed earnings. Accordingly, the forward equity sale contracts were included in the computation of diluted EPS, but not in the computation of basic EPS. For further details on the forward equity sale contracts, see Note 5,4, Financings and Capitalization.
16:14: Revenue
Presented in the following tables are the components of operating revenue:
| In Millions | In Millions | In Millions |
Year Ended December 31, 2020 | Electric Utility | Gas Utility | Enterprises1 | EnerBank | | Consolidated | |
Year Ended December 31, 2022 | | Year Ended December 31, 2022 | Electric Utility | Gas Utility | NorthStar Clean Energy1 | | Consolidated |
CMS Energy, including Consumers | CMS Energy, including Consumers | CMS Energy, including Consumers |
Consumers utility revenue | Consumers utility revenue | | $ | 4,348 | | | $ | 1,809 | | | $ | — | | | $ | — | | | | $ | 6,157 | | Consumers utility revenue | | $ | 5,395 | | | $ | 2,720 | | | $ | — | | | | $ | 8,115 | |
Other | Other | | — | | | — | | | 81 | | | — | | | | 81 | | Other | | — | | | — | | | 205 | | | | 205 | |
Revenue recognized from contracts with customers | Revenue recognized from contracts with customers | | $ | 4,348 | | | $ | 1,809 | | | $ | 81 | | | $ | — | | | | $ | 6,238 | | Revenue recognized from contracts with customers | | $ | 5,395 | | | $ | 2,720 | | | $ | 205 | | | | $ | 8,320 | |
Leasing income | Leasing income | | — | | | — | | | 148 | | | — | | | | 148 | | Leasing income | | — | | | — | | | 240 | | | | 240 | |
Financing income | Financing income | | 11 | | | 6 | | | — | | | 262 | | | | 279 | | Financing income | | 10 | | | 6 | | | — | | | | 16 | |
Consumers alternative-revenue programs | Consumers alternative-revenue programs | | 29 | | | 14 | | | — | | | — | | | | 43 | | Consumers alternative-revenue programs | | 43 | | | 14 | | | — | | | | 57 | |
Consumers revenues to be refunded | Consumers revenues to be refunded | | (16) | | | (12) | | | — | | | — | | | | (28) | | Consumers revenues to be refunded | | (29) | | | (8) | | | — | | | | (37) | |
Total operating revenue – CMS Energy | Total operating revenue – CMS Energy | | $ | 4,372 | | | $ | 1,817 | | | $ | 229 | | | $ | 262 | | | | $ | 6,680 | | Total operating revenue – CMS Energy | | $ | 5,419 | | | $ | 2,732 | | | $ | 445 | | | | $ | 8,596 | |
Consumers | Consumers | Consumers |
Consumers utility revenue | Consumers utility revenue | | | | | | | | | | | | Consumers utility revenue | | | |
Residential | Residential | | $ | 2,109 | | | $ | 1,232 | | | | | | | | $ | 3,341 | | Residential | | $ | 2,523 | | | $ | 1,879 | | | | | $ | 4,402 | |
Commercial | Commercial | | 1,444 | | | 337 | | | | | | | | 1,781 | | Commercial | | 1,733 | | | 559 | | | | | 2,292 | |
Industrial | Industrial | | 570 | | | 46 | | | | | | | | 616 | | Industrial | | 792 | | | 75 | | | | | 867 | |
Other | Other | | 225 | | | 194 | | | | | | | | 419 | | Other | | 347 | | | 207 | | | | | 554 | |
Revenue recognized from contracts with customers | Revenue recognized from contracts with customers | | $ | 4,348 | | | $ | 1,809 | | | | | | | | $ | 6,157 | | Revenue recognized from contracts with customers | | $ | 5,395 | | | $ | 2,720 | | | | | $ | 8,115 | |
| Financing income | Financing income | | 11 | | | 6 | | | | | | | | 17 | | Financing income | | 10 | | | 6 | | | | | 16 | |
Alternative-revenue programs | Alternative-revenue programs | | 29 | | | 14 | | | | | | | | 43 | | Alternative-revenue programs | | 43 | | | 14 | | | | | 57 | |
Revenues to be refunded | Revenues to be refunded | | (16) | | | (12) | | | | | | | | (28) | | Revenues to be refunded | | (29) | | | (8) | | | | | (37) | |
Total operating revenue – Consumers | Total operating revenue – Consumers | | $ | 4,372 | | | $ | 1,817 | | | | | | | | $ | 6,189 | | Total operating revenue – Consumers | | $ | 5,419 | | | $ | 2,732 | | | | | $ | 8,151 | |
1Amounts represent the enterprises segment’sNorthStar Clean Energy’s operating revenue from independent power production and its sales of energy commodities.
| In Millions | In Millions | In Millions |
Year Ended December 31, 2019 | Electric Utility | Gas Utility | Enterprises1 | EnerBank | | Consolidated | |
Year Ended December 31, 2021 | | Year Ended December 31, 2021 | Electric Utility | Gas Utility | NorthStar Clean Energy1 | | Consolidated |
CMS Energy, including Consumers | CMS Energy, including Consumers | CMS Energy, including Consumers |
Consumers utility revenue | Consumers utility revenue | | $ | 4,407 | | | $ | 1,922 | | | $ | — | | | $ | — | | | | $ | 6,329 | | Consumers utility revenue | | $ | 4,915 | | | $ | 2,046 | | | $ | — | | | | $ | 6,961 | |
Other | Other | | — | | | — | | | 74 | | | — | | | | 74 | | Other | | — | | | — | | | 114 | | | | 114 | |
Revenue recognized from contracts with customers | Revenue recognized from contracts with customers | | $ | 4,407 | | | $ | 1,922 | | | $ | 74 | | | $ | — | | | | $ | 6,403 | | Revenue recognized from contracts with customers | | $ | 4,915 | | | $ | 2,046 | | | $ | 114 | | | | $ | 7,075 | |
Leasing income | Leasing income | | — | | | — | | | 174 | | | — | | | | 174 | | Leasing income | | — | | | — | | | 194 | | | | 194 | |
Financing income | Financing income | | 9 | | | 5 | | | — | | | 221 | | | | 235 | | Financing income | | 10 | | | 5 | | | — | | | | 15 | |
Consumers alternative-revenue programs | Consumers alternative-revenue programs | | 23 | | | 10 | | | — | | | — | | | | 33 | | Consumers alternative-revenue programs | | 33 | | | 12 | | | — | | | | 45 | |
| Total operating revenue – CMS Energy | Total operating revenue – CMS Energy | | $ | 4,439 | | | $ | 1,937 | | | $ | 248 | | | $ | 221 | | | | $ | 6,845 | | Total operating revenue – CMS Energy | | $ | 4,958 | | | $ | 2,063 | | | $ | 308 | | | | $ | 7,329 | |
Consumers | Consumers | Consumers |
Consumers utility revenue | Consumers utility revenue | | | | | | | | | | | | Consumers utility revenue | | | |
Residential | Residential | | $ | 1,988 | | | $ | 1,316 | | | | | | | | $ | 3,304 | | Residential | | $ | 2,402 | | | $ | 1,396 | | | | | $ | 3,798 | |
Commercial | Commercial | | 1,502 | | | 372 | | | | | | | | 1,874 | | Commercial | | 1,573 | | | 396 | | | | | 1,969 | |
Industrial | Industrial | | 669 | | | 51 | | | | | | | | 720 | | Industrial | | 624 | | | 54 | | | | | 678 | |
Other | Other | | 248 | | | 183 | | | | | | | | 431 | | Other | | 316 | | | 200 | | | | | 516 | |
Revenue recognized from contracts with customers | Revenue recognized from contracts with customers | | $ | 4,407 | | | $ | 1,922 | | | | | | | | $ | 6,329 | | Revenue recognized from contracts with customers | | $ | 4,915 | | | $ | 2,046 | | | | | $ | 6,961 | |
| Financing income | Financing income | | 9 | | | 5 | | | | | | | | 14 | | Financing income | | 10 | | | 5 | | | | | 15 | |
Alternative-revenue programs | Alternative-revenue programs | | 23 | | | 10 | | | | | | | | 33 | | Alternative-revenue programs | | 33 | | | 12 | | | | | 45 | |
| Total operating revenue – Consumers | Total operating revenue – Consumers | | $ | 4,439 | | | $ | 1,937 | | | | | | | | $ | 6,376 | | Total operating revenue – Consumers | | $ | 4,958 | | | $ | 2,063 | | | | | $ | 7,021 | |
1Amounts represent the enterprises segment’sNorthStar Clean Energy’s operating revenue from independent power production and its sales of energy commodities.
| In Millions | In Millions | In Millions |
Year Ended December 31, 2018 | Electric Utility | Gas Utility | Enterprises1 | EnerBank | | Consolidated | |
Year Ended December 31, 2020 | | Year Ended December 31, 2020 | Electric Utility | Gas Utility | NorthStar Clean Energy1 | | Consolidated |
CMS Energy, including Consumers | CMS Energy, including Consumers | CMS Energy, including Consumers |
Consumers utility revenue | Consumers utility revenue | | $ | 4,528 | | | $ | 1,882 | | | $ | — | | | $ | — | | | | $ | 6,410 | | Consumers utility revenue | | $ | 4,348 | | | $ | 1,809 | | | $ | — | | | | $ | 6,157 | |
Other | Other | | — | | | — | | | 92 | | | — | | | | 92 | | Other | | — | | | — | | | 81 | | | | 81 | |
Revenue recognized from contracts with customers | Revenue recognized from contracts with customers | | $ | 4,528 | | | $ | 1,882 | | | $ | 92 | | | $ | — | | | | $ | 6,502 | | Revenue recognized from contracts with customers | | $ | 4,348 | | | $ | 1,809 | | | $ | 81 | | | | $ | 6,238 | |
Leasing income | Leasing income | | — | | | — | | | 160 | | | — | | | | 160 | | Leasing income | | — | | | — | | | 148 | | | | 148 | |
Financing income | Financing income | | 10 | | | 5 | | | — | | | 157 | | | | 172 | | Financing income | | 11 | | | 6 | | | — | | | | 17 | |
Consumers alternative-revenue programs | Consumers alternative-revenue programs | | 23 | | | 16 | | | — | | | — | | | | 39 | | Consumers alternative-revenue programs | | 29 | | | 14 | | | — | | | | 43 | |
Consumers revenues to be refunded | | Consumers revenues to be refunded | | (16) | | | (12) | | | — | | | | (28) | |
Total operating revenue – CMS Energy | Total operating revenue – CMS Energy | | $ | 4,561 | | | $ | 1,903 | | | $ | 252 | | | $ | 157 | | | | $ | 6,873 | | Total operating revenue – CMS Energy | | $ | 4,372 | | | $ | 1,817 | | | $ | 229 | | | | $ | 6,418 | |
Consumers | Consumers | Consumers |
Consumers utility revenue | Consumers utility revenue | | | | | | | | | | | | Consumers utility revenue | | | |
Residential | Residential | | $ | 2,049 | | | $ | 1,284 | | | | | | | | $ | 3,333 | | Residential | | $ | 2,109 | | | $ | 1,232 | | | | | $ | 3,341 | |
Commercial | Commercial | | 1,545 | | | 367 | | | | | | | | 1,912 | | Commercial | | 1,444 | | | 337 | | | | | 1,781 | |
Industrial | Industrial | | 674 | | | 55 | | | | | | | | 729 | | Industrial | | 570 | | | 46 | | | | | 616 | |
Other | Other | | 260 | | | 176 | | | | | | | | 436 | | Other | | 225 | | | 194 | | | | | 419 | |
Revenue recognized from contracts with customers | Revenue recognized from contracts with customers | | $ | 4,528 | | | $ | 1,882 | | | | | | | | $ | 6,410 | | Revenue recognized from contracts with customers | | $ | 4,348 | | | $ | 1,809 | | | | | $ | 6,157 | |
| Financing income | Financing income | | 10 | | | 5 | | | | | | | | 15 | | Financing income | | 11 | | | 6 | | | | | 17 | |
Alternative-revenue programs | Alternative-revenue programs | | 23 | | | 16 | | | | | | | | 39 | | Alternative-revenue programs | | 29 | | | 14 | | | | | 43 | |
Revenues to be refunded | | Revenues to be refunded | | (16) | | | (12) | | | | | (28) | |
Total operating revenue – Consumers | Total operating revenue – Consumers | | $ | 4,561 | | | $ | 1,903 | | | | | | | | $ | 6,464 | | Total operating revenue – Consumers | | $ | 4,372 | | | $ | 1,817 | | | | | $ | 6,189 | |
1Amounts represent the enterprises segment’sNorthStar Clean Energy’s operating revenue from independent power production and its sales of energy commodities.
Electric and Gas Utilities
Consumers Utility Revenue: Consumers recognizes revenue primarily from the sale of electric and gas utility services at tariff-based rates regulated by the MPSC. Consumers’ customer base consists of a mix of residential, commercial, and diversified industrial customers. Consumers’ tariff-based sales performance obligations are described below.
•Consumers has performance obligations for the service of standing ready to deliver electricity or natural gas to customers, and it satisfies these performance obligations over time. Consumers recognizes revenue at a fixed rate as it provides these services. These arrangements generally do not have fixed terms and remain in effect as long as the customer consumes the utility service. The rates are set by the MPSC through the rate-making process and represent the stand-alone selling price of Consumers’ service to stand ready to deliver.
•Consumers has performance obligations for the service of delivering the commodity of electricity or natural gas to customers, and it satisfies these performance obligations upon delivery. Consumers recognizes revenue at a price per unit of electricity or natural gas delivered, based on the tariffs established by the MPSC. These arrangements generally do not have fixed terms and remain in effect as long as the customer consumes the utility service. The rates are set by the MPSC through the rate-making process and represent the stand-alone selling price of a bundled
product comprising the commodity, electricity or natural gas, and the service of delivering such commodity.
In some instances, Consumers has specific fixed-term contracts with large commercial and industrial customers to provide electricity or gas at certain tariff rates or to provide gas transportation services at contracted rates. The amount of electricity and gas to be delivered under these contracts and the associated future revenue to be received are generally dependent on the customers’ needs. Accordingly, Consumers recognizes revenues at the tariff or contracted rate as electricity or gas is delivered to the customer. Consumers also has other miscellaneous contracts with customers related to pole and other property rentals, appliance service plans, and utility contract work. Generally, these contracts are short term or evergreen in nature.
Accounts Receivable and Unbilled Revenues: Accounts receivable comprise trade receivables and unbilled receivables. CMS Energy and Consumers record their accounts receivable at cost less an allowance for uncollectible accounts. The allowance is increased for uncollectible accounts expense and decreased for account write-offs net of recoveries. CMS Energy and Consumers establish the allowance based on historical losses, management’s assessment of existing economic conditions, customer payment trends, and reasonable and supported forecast information. CMS Energy and Consumers assess late payment fees on trade receivables based on contractual past-due terms established with customers. Accounts are written off when deemed uncollectible, which is generally when they become six months past due.
For the year ended December 31, 2022, CMS Energy and Consumers recorded uncollectible accounts expense of $50 million, which included a commitment to contribute $10 million to directly assist vulnerable customers with utility bills. CMS Energy and Consumers recorded uncollectible accounts expense of $22 million for the year ended December 31, 2021 and $33 million for the year ended December 31, 2020, and $29 million for the years ended December 31, 2019 and 2018. At December 31, 2020, Consumers had deferred $4 million of uncollectible accounts expense as a non-current regulatory asset. For additional information, see Note 3, Regulatory Matters.2020.
Consumers’ customers are billed monthly in cycles having billing dates that do not generally coincide with the end of a calendar month. This results in customers having received electricity or natural gas that they have not been billed for as of the month-end. Consumers estimates its unbilled revenues by applying an average billed rate to total unbilled deliveries for each customer class. Unbilled revenues, which are recorded as accounts receivable and accrued revenue on CMS Energy’s and Consumers’ consolidated balance sheets, were $437$663 million at December 31, 20202022 and $426$486 million at December 31, 2019.2021.
Alternative‑Revenue Programs: Consumers accounts for its energy waste reduction incentive mechanism and financial compensation mechanism as alternative-revenue programs. Consumers recognizes revenue related to the energy waste reduction incentive as soon as energy savings exceed the annual targets established by the MPSC and recognizes revenue related to the financial compensation mechanism as payments are made on MPSC-approved PPAs. For additional information on these mechanisms, see Note 3,2, Regulatory Matters.
Under a gas revenue decoupling mechanism authorized by the MPSC, Consumers is allowed to adjust future gas rates for differences between Consumers’ actual weather‑normalized, non‑fuel revenues and the revenues approved by the MPSC. Consumers accounts for this program as an alternative‑revenue program that meets the criteria for recognizing the effects of decoupling adjustments on revenue as gas is delivered.
Consumers does not reclassify revenue from its alternative-revenue program to revenue from contracts with customers at the time the amounts are collected from customers.
Revenues to Be Refunded: In December 2020, the MPSC issued an order authorizing Consumers to refund $28 million voluntarily to utility customers. This amount was refunded to customers during 2021 and 2022 in the form of incremental spending above amounts included in rates on various programs.
In December 2022, the MPSC issued an order authorizing Consumers to refund $22 million voluntarily to utility customers. Additionally, in the settlement of its 2022 electric rate case, Consumers agreed to refund voluntarily $15 million of 2022 revenues to utility customers through a one-time bill credit. For additional information, see Note 3,2, Regulatory Matters.
17:15: Other Income and Other Expense
Other income was not significant for any of the periods presented. Presented in the following table are the components of other income and other expense at CMS Energy and Consumers:
| | | | | | | | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2020 | 2019 | 2018 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
CMS Energy, including Consumers | | | | | | |
Other expense | | | | | | |
Donations | | $ | (35) | | | $ | (3) | | | $ | (13) | |
Civic and political expenditures | | (5) | | | (6) | | | (6) | |
Loss on reacquired and extinguished debt | | (16) | | | 0 | | | (16) | |
| | | | | | |
All other | | (6) | | | (4) | | | (13) | |
Total other expense – CMS Energy | | $ | (62) | | | $ | (13) | | | $ | (48) | |
Consumers | | | | | | |
Other expense | | | | | | |
Donations | | $ | (33) | | | $ | (3) | | | $ | (13) | |
Civic and political expenditures | | (5) | | | (6) | | | (6) | |
| | | | | | |
All other | | (5) | | | (4) | | | (11) | |
Total other expense – Consumers | | $ | (43) | | | $ | (13) | | | $ | (30) | |
18: Cash and Cash Equivalents
Presented in the following table are the components of total cash and cash equivalents, including restricted amounts, and their location on CMS Energy’s and Consumers’ consolidated balance sheets:
| | | | | | | | | | | | | | |
In Millions |
December 31 | 2020 | 2019 |
CMS Energy, including Consumers | | | | |
Cash and cash equivalents | | $ | 168 | | | $ | 140 | |
Restricted cash and cash equivalents | | 17 | | | 17 | |
| | | | |
Cash and cash equivalents, including restricted amounts | | $ | 185 | | | $ | 157 | |
Consumers | | | | |
Cash and cash equivalents | | $ | 20 | | | $ | 11 | |
Restricted cash and cash equivalents | | 15 | | | 17 | |
Cash and cash equivalents, including restricted amounts | | $ | 35 | | | $ | 28 | |
Cash and Cash Equivalents: Cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less.
Restricted Cash and Cash Equivalents: Restricted cash and cash equivalents are held primarily for the repayment of securitization bonds and funds held in escrow. Cash and cash equivalents may also be restricted to pay other contractual obligations such as leasing of coal railcars. These amounts are classified as current assets since they relate to payments that could or will occur within one year.
| | | | | | | | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | | | | | | |
Other income | | | | | | |
| | | | | | |
Interest income | | $ | 5 | | | $ | 3 | | | $ | 4 | |
Interest income - related parties | | — | | | — | | | 7 | |
Allowance for equity funds used during construction | | 6 | | | 8 | | | 6 | |
Income from equity method investees | | 3 | | | 10 | | | 5 | |
| | | | | | |
All other | | 5 | | | 9 | | | 6 | |
Total other income – CMS Energy | | $ | 19 | | | $ | 30 | | | $ | 28 | |
Consumers | | | | | | |
Other income | | | | | | |
| | | | | | |
Interest income | | $ | 2 | | | $ | 2 | | | $ | 3 | |
Interest income - related parties | | 5 | | | 5 | | | 5 | |
Allowance for equity funds used during construction | | 6 | | | 8 | | | 6 | |
| | | | | | |
All other | | 4 | | | 8 | | | 5 | |
Total other income – Consumers | | $ | 17 | | | $ | 23 | | | $ | 19 | |
CMS Energy, including Consumers | | | | | | |
Other expense | | | | | | |
Donations | | $ | (9) | | | $ | (6) | | | $ | (35) | |
Civic and political expenditures | | (6) | | | (5) | | | (5) | |
Loss on reacquired and extinguished debt | | — | | | — | | | (16) | |
| | | | | | |
All other | | (12) | | | (7) | | | (6) | |
Total other expense – CMS Energy | | $ | (27) | | | $ | (18) | | | $ | (62) | |
Consumers | | | | | | |
Other expense | | | | | | |
Donations | | $ | (9) | | | $ | (6) | | | $ | (33) | |
Civic and political expenditures | | (6) | | | (5) | | | (5) | |
| | | | | | |
All other | | (10) | | | (7) | | | (5) | |
Total other expense – Consumers | | $ | (25) | | | $ | (18) | | | $ | (43) | |
19:16: Reportable Segments
Reportable segments consist of business units defined by the products and services they offer. CMS Energy and Consumers evaluate the performance of each segment based on its contribution to net income available to CMS Energy’s common stockholders.
Accounting policies for CMS Energy’s and Consumers’ segments are as described in Note 1, Significant Accounting Policies. The consolidated financial statements reflect the assets, liabilities, revenues, and expenses of the individual segments when appropriate. Accounts are allocated among the segments when common accounts are attributable to more than one segment. The allocations are based on certain measures of business activities, such as revenue, labor dollars, customers, other operating and maintenance expense, construction expense, leased property, taxes, or functional surveys. For example, customer receivables are allocated based on revenue, and pension provisions are allocated based on labor dollars.
Inter-segment sales and transfers are accounted for at current market prices and are eliminated in consolidated net income available to common stockholders by segment. Inter-segment sales and transfers were immaterial for all periods presented.
CMS Energy
The segments reported for CMS Energy are:
•electric utility, consisting of regulated activities associated with the generation, purchase, distribution, and sale of electricity in Michigan
•gas utility, consisting of regulated activities associated with the purchase, transmission, storage, distribution, and sale of natural gas in Michigan
•NorthStar Clean Energy (formerly known as the enterprises segment), consisting of various subsidiaries engaging in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production
•In August 2022, CMS Enterprises Company changed its legal name to NorthStar Clean Energy Company. To align the segment reporting with the legal organizational structure and the internal reporting of CMS Energy, the enterprises segment will now be referred to as NorthStar Clean Energy. There were no changes to CMS Energy’s reportable segment composition as a result of this name change.
In October 2021, EnerBank was acquired by Regions Bank. As a Utah state-chartered, FDIC-insured industrial bank providing primarily unsecured, fixed-rate installment loans throughoutresult, EnerBank was removed from the U.S. to finance home improvementscomposition of CMS Energy’s reportable segments. EnerBank’s results of operations through the date of the sale are presented as income from discontinued operations on CMS Energy’s consolidated statements of income. For information regarding the sale of EnerBank, see Note 19, Exit Activities and Discontinued Operations.
CMS Energy presents corporate interest and other expenses, discontinued operations, and Consumers’ other consolidated entities within other reconciling items.
Consumers
The segments reported for Consumers are:
•electric utility, consisting of regulated activities associated with the generation, purchase, distribution, and sale of electricity in Michigan
•gas utility, consisting of regulated activities associated with the purchase, transmission, storage, distribution, and sale of natural gas in Michigan
Consumers’ other consolidated entities are presented within other reconciling items.
Presented in the following tables is financial information by segment:
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | | 2019 | | 2018 | | Years Ended December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | CMS Energy, including Consumers | | CMS Energy, including Consumers | |
Operating revenue | Operating revenue | | Operating revenue | |
Electric utility | Electric utility | | $ | 4,372 | | | $ | 4,439 | | | $ | 4,561 | | Electric utility | | $ | 5,419 | | | $ | 4,958 | | | $ | 4,372 | |
Gas utility | Gas utility | | 1,817 | | | 1,937 | | | 1,903 | | Gas utility | | 2,732 | | | 2,063 | | | 1,817 | |
Enterprises | | 229 | | | 248 | | | 252 | | |
EnerBank | | 262 | | | 221 | | | 157 | | |
NorthStar Clean Energy | | NorthStar Clean Energy | | 445 | | | 308 | | | 229 | |
| | Total operating revenue – CMS Energy | Total operating revenue – CMS Energy | | $ | 6,680 | | | $ | 6,845 | | | $ | 6,873 | | Total operating revenue – CMS Energy | | $ | 8,596 | | | $ | 7,329 | | | $ | 6,418 | |
Consumers | Consumers | | Consumers | |
Operating revenue | Operating revenue | | Operating revenue | |
Electric utility | Electric utility | | $ | 4,372 | | | $ | 4,439 | | | $ | 4,561 | | Electric utility | | $ | 5,419 | | | $ | 4,958 | | | $ | 4,372 | |
Gas utility | Gas utility | | 1,817 | | | 1,937 | | | 1,903 | | Gas utility | | 2,732 | | | 2,063 | | | 1,817 | |
| Total operating revenue – Consumers | Total operating revenue – Consumers | | $ | 6,189 | | | $ | 6,376 | | | $ | 6,464 | | Total operating revenue – Consumers | | $ | 8,151 | | | $ | 7,021 | | | $ | 6,189 | |
CMS Energy, including Consumers | CMS Energy, including Consumers | | CMS Energy, including Consumers | |
Depreciation and amortization | Depreciation and amortization | | Depreciation and amortization | |
Electric utility | Electric utility | | $ | 739 | | | $ | 713 | | | $ | 682 | | Electric utility | | $ | 757 | | | $ | 772 | | | $ | 739 | |
Gas utility | Gas utility | | 283 | | | 261 | | | 239 | | Gas utility | | 330 | | | 304 | | | 283 | |
Enterprises | | 20 | | | 14 | | | 8 | | |
EnerBank | | 5 | | | 3 | | | 4 | | |
NorthStar Clean Energy | | NorthStar Clean Energy | | 38 | | | 37 | | | 20 | |
| Other reconciling items | Other reconciling items | | 1 | | | 1 | | | 0 | | Other reconciling items | | 1 | | | 1 | | | 1 | |
Total depreciation and amortization – CMS Energy | Total depreciation and amortization – CMS Energy | | $ | 1,048 | | | $ | 992 | | | $ | 933 | | Total depreciation and amortization – CMS Energy | | $ | 1,126 | | | $ | 1,114 | | | $ | 1,043 | |
Consumers | Consumers | | Consumers | |
Depreciation and amortization | Depreciation and amortization | | Depreciation and amortization | |
Electric utility | Electric utility | | $ | 739 | | | $ | 713 | | | $ | 682 | | Electric utility | | $ | 757 | | | $ | 772 | | | $ | 739 | |
Gas utility | Gas utility | | 283 | | | 261 | | | 239 | | Gas utility | | 330 | | | 304 | | | 283 | |
Other reconciling items | Other reconciling items | | 1 | | | 1 | | | 0 | | Other reconciling items | | 1 | | | 1 | | | 1 | |
Total depreciation and amortization – Consumers | Total depreciation and amortization – Consumers | | $ | 1,023 | | | $ | 975 | | | $ | 921 | | Total depreciation and amortization – Consumers | | $ | 1,088 | | | $ | 1,077 | | | $ | 1,023 | |
CMS Energy, including Consumers | | |
Income from equity method investees1 | | |
Enterprises | | $ | 5 | | | $ | 10 | | | $ | 9 | | |
| Total income from equity method investees – CMS Energy | | $ | 5 | | | $ | 10 | | | $ | 9 | | |
CMS Energy, including Consumers | | |
Interest charges | | |
Electric utility | | $ | 217 | | | $ | 213 | | | $ | 209 | | |
Gas utility | | 102 | | | 83 | | | 79 | | |
Enterprises | | 7 | | | 7 | | | 2 | | |
EnerBank | | 56 | | | 59 | | | 32 | | |
Other reconciling items | | 179 | | | 157 | | | 136 | | |
Total interest charges – CMS Energy | | $ | 561 | | | $ | 519 | | | $ | 458 | | |
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | | 2019 | | 2018 | | Years Ended December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | | CMS Energy, including Consumers | |
Income from equity method investees1 | | Income from equity method investees1 | |
NorthStar Clean Energy | | NorthStar Clean Energy | | $ | 3 | | | $ | 10 | | | $ | 5 | |
| Total income from equity method investees – CMS Energy | | Total income from equity method investees – CMS Energy | | $ | 3 | | | $ | 10 | | | $ | 5 | |
CMS Energy, including Consumers | | CMS Energy, including Consumers | |
Interest charges | | Interest charges | |
Electric utility | | Electric utility | | $ | 218 | | | $ | 207 | | | $ | 217 | |
Gas utility | | Gas utility | | 116 | | | 104 | | | 102 | |
NorthStar Clean Energy | | NorthStar Clean Energy | | 3 | | | 6 | | | 7 | |
| Other reconciling items | | Other reconciling items | | 182 | | | 183 | | | 179 | |
Total interest charges – CMS Energy | | Total interest charges – CMS Energy | | $ | 519 | | | $ | 500 | | | $ | 505 | |
Consumers | Consumers | | Consumers | |
Interest charges | Interest charges | | Interest charges | |
Electric utility | Electric utility | | $ | 217 | | | $ | 213 | | | $ | 209 | | Electric utility | | $ | 218 | | | $ | 207 | | | $ | 217 | |
Gas utility | Gas utility | | 102 | | | 83 | | | 79 | | Gas utility | | 116 | | | 104 | | | 102 | |
Other reconciling items | Other reconciling items | | 1 | | | 1 | | | 1 | | Other reconciling items | | 1 | | | — | | | 1 | |
Total interest charges – Consumers | Total interest charges – Consumers | | $ | 320 | | | $ | 297 | | | $ | 289 | | Total interest charges – Consumers | | $ | 335 | | | $ | 311 | | | $ | 320 | |
CMS Energy, including Consumers | CMS Energy, including Consumers | | CMS Energy, including Consumers | |
Income tax expense (benefit) | Income tax expense (benefit) | | Income tax expense (benefit) | |
Electric utility | Electric utility | | $ | 115 | | | $ | 134 | | | $ | 109 | | Electric utility | | $ | 109 | | | $ | 117 | | | $ | 115 | |
Gas utility | Gas utility | | 58 | | | 51 | | | 33 | | Gas utility | | 32 | | | 39 | | | 58 | |
Enterprises | | (4) | | | 2 | | | 2 | | |
EnerBank | | 17 | | | 16 | | | 12 | | |
NorthStar Clean Energy | | NorthStar Clean Energy | | 3 | | | (2) | | | (4) | |
| Other reconciling items | Other reconciling items | | (53) | | | (56) | | | (41) | | Other reconciling items | | (51) | | | (59) | | | (54) | |
Total income tax expense – CMS Energy | Total income tax expense – CMS Energy | | $ | 133 | | | $ | 147 | | | $ | 115 | | Total income tax expense – CMS Energy | | $ | 93 | | | $ | 95 | | | $ | 115 | |
Consumers | Consumers | | Consumers | |
Income tax expense | | |
Electric utility | | $ | 115 | | | $ | 134 | | | $ | 109 | | |
Gas utility | | 58 | | | 51 | | | 33 | | |
| Total income tax expense – Consumers | | $ | 173 | | | $ | 185 | | | $ | 142 | | |
CMS Energy, including Consumers | | |
Net income (loss) available to common stockholders | | |
Electric utility | | $ | 554 | | | $ | 509 | | | $ | 535 | | |
Gas utility | | 261 | | | 233 | | | 169 | | |
Enterprises | | 36 | | | 33 | | | 34 | | |
EnerBank | | 58 | | | 49 | | | 38 | | |
Other reconciling items | | (154) | | | (144) | | | (119) | | |
Total net income available to common stockholders – CMS Energy | | $ | 755 | | | $ | 680 | | | $ | 657 | | |
Consumers | | |
Net income (loss) available to common stockholder | | |
Income tax expense (benefit) | | Income tax expense (benefit) | |
Electric utility | Electric utility | | $ | 554 | | | $ | 509 | | | $ | 535 | | Electric utility | | $ | 109 | | | $ | 117 | | | $ | 115 | |
Gas utility | Gas utility | | 261 | | | 233 | | | 169 | | Gas utility | | 32 | | | 39 | | | 58 | |
Other reconciling items | Other reconciling items | | (1) | | | (1) | | | (1) | | Other reconciling items | | (1) | | | — | | | — | |
Total net income available to common stockholder – Consumers | | $ | 814 | | | $ | 741 | | | $ | 703 | | |
CMS Energy, including Consumers | | |
Plant, property, and equipment, gross | | |
Electric utility2,3 | | $ | 17,155 | | | $ | 16,158 | | | $ | 16,027 | | |
Gas utility2 | | 9,581 | | | 8,785 | | | 7,919 | | |
Enterprises | | 1,113 | | | 405 | | | 412 | | |
EnerBank | | 37 | | | 22 | | | 25 | | |
Other reconciling items | | 21 | | | 20 | | | 17 | | |
Total plant, property, and equipment, gross – CMS Energy | | $ | 27,907 | | | $ | 25,390 | | | $ | 24,400 | | |
Total income tax expense – Consumers | | Total income tax expense – Consumers | | $ | 140 | | | $ | 156 | | | $ | 173 | |
| | | | | | | | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | | | | | | |
Net income (loss) available to common stockholders | | | | | | |
Electric utility | | $ | 567 | | | $ | 565 | | | $ | 554 | |
Gas utility | | 378 | | | 302 | | | 261 | |
NorthStar Clean Energy | | 34 | | | 23 | | | 36 | |
| | | | | | |
Other reconciling items | | (152) | | | 458 | | | (96) | |
Total net income available to common stockholders – CMS Energy | | $ | 827 | | | $ | 1,348 | | | $ | 755 | |
Consumers | | | | | | |
Net income (loss) available to common stockholder | | | | | | |
Electric utility | | $ | 567 | | | $ | 565 | | | $ | 554 | |
Gas utility | | 378 | | | 302 | | | 261 | |
Other reconciling items | | (2) | | | (1) | | | (1) | |
Total net income available to common stockholder – Consumers | | $ | 943 | | | $ | 866 | | | $ | 814 | |
CMS Energy, including Consumers | | | | | | |
Plant, property, and equipment, gross | | | | | | |
Electric utility2 | | $ | 17,870 | | | $ | 18,147 | | | $ | 17,155 | |
Gas utility2 | | 11,443 | | | 10,601 | | | 9,581 | |
NorthStar Clean Energy | | 1,148 | | | 1,122 | | | 1,113 | |
| | | | | | |
Other reconciling items | | 30 | | | 23 | | | 21 | |
Total plant, property, and equipment, gross – CMS Energy | | $ | 30,491 | | | $ | 29,893 | | | $ | 27,870 | |
Consumers | | | | | | |
Plant, property, and equipment, gross | | | | | | |
Electric utility2 | | $ | 17,870 | | | $ | 18,147 | | | $ | 17,155 | |
Gas utility2 | | 11,443 | | | 10,601 | | | 9,581 | |
Other reconciling items | | 29 | | | 23 | | | 21 | |
Total plant, property, and equipment, gross – Consumers | | $ | 29,342 | | | $ | 28,771 | | | $ | 26,757 | |
CMS Energy, including Consumers | | | | | | |
Investments in equity method investees1 | | | | | | |
NorthStar Clean Energy | | $ | 71 | | | $ | 71 | | | $ | 70 | |
| | | | | | |
Total investments in equity method investees – CMS Energy | | $ | 71 | | | $ | 71 | | | $ | 70 | |
| | | | | | | | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2020 | | 2019 | | 2018 | |
Consumers | | | | | | |
Plant, property, and equipment, gross | | | | | | |
Electric utility2,3 | | $ | 17,155 | | | $ | 16,158 | | | $ | 16,027 | |
Gas utility2 | | 9,581 | | | 8,785 | | | 7,919 | |
Other reconciling items | | 21 | | | 20 | | | 17 | |
Total plant, property, and equipment, gross – Consumers | | $ | 26,757 | | | $ | 24,963 | | | $ | 23,963 | |
CMS Energy, including Consumers | | | | | | |
Investments in equity method investees1 | | | | | | |
Enterprises | | $ | 70 | | | $ | 71 | | | $ | 69 | |
| | | | | | |
Total investments in equity method investees – CMS Energy | | $ | 70 | | | $ | 71 | | | $ | 69 | |
CMS Energy, including Consumers | | | | | | |
Total assets | | | | | | |
Electric utility2 | | $ | 15,829 | | | $ | 14,911 | | | $ | 14,079 | |
Gas utility2 | | 9,429 | | | 8,659 | | | 7,806 | |
Enterprises | | 1,276 | | | 527 | | | 540 | |
EnerBank | | 3,109 | | | 2,692 | | | 2,006 | |
Other reconciling items | | 23 | | | 48 | | | 98 | |
Total assets – CMS Energy | | $ | 29,666 | | | $ | 26,837 | | | $ | 24,529 | |
Consumers | | | | | | |
Total assets | | | | | | |
Electric utility2 | | $ | 15,893 | | | $ | 14,973 | | | $ | 14,143 | |
Gas utility2 | | 9,477 | | | 8,706 | | | 7,853 | |
Other reconciling items | | 29 | | | 20 | | | 29 | |
Total assets – Consumers | | $ | 25,399 | | | $ | 23,699 | | | $ | 22,025 | |
CMS Energy, including Consumers | | | | | | |
Capital expenditures4 | | | | | | |
Electric utility5 | | $ | 1,281 | | | $ | 1,162 | | | $ | 865 | |
Gas utility5 | | 885 | | | 971 | | | 958 | |
Enterprises | | 108 | | | 5 | | | 246 | |
EnerBank | | 5 | | | 8 | | | 10 | |
Other reconciling items | | 1 | | | 1 | | | 2 | |
Total capital expenditures – CMS Energy | | $ | 2,280 | | | $ | 2,147 | | | $ | 2,081 | |
Consumers | | | | | | |
Capital expenditures4 | | | | | | |
Electric utility5 | | $ | 1,281 | | | $ | 1,162 | | | $ | 865 | |
Gas utility5 | | 885 | | | 971 | | | 958 | |
Other reconciling items | | 1 | | | 1 | | | 2 | |
Total capital expenditures – Consumers | | $ | 2,167 | | | $ | 2,134 | | | $ | 1,825 | |
| | | | | | | | | | | | | | | | | | | | |
In Millions |
Years Ended December 31 | 2022 | 2021 | 2020 |
CMS Energy, including Consumers | | | | | | |
Total assets | | | | | | |
Electric utility2 | | $ | 17,907 | | | $ | 16,493 | | | $ | 15,829 | |
Gas utility2 | | 11,873 | | | 10,517 | | | 9,429 | |
NorthStar Clean Energy | | 1,464 | | | 1,312 | | | 1,276 | |
| | | | | | |
Other reconciling items | | 109 | | | 431 | | | 3,132 | |
Total assets – CMS Energy | | $ | 31,353 | | | $ | 28,753 | | | $ | 29,666 | |
Consumers | | | | | | |
Total assets | | | | | | |
Electric utility2 | | $ | 17,968 | | | $ | 16,555 | | | $ | 15,893 | |
Gas utility2 | | 11,918 | | | 10,564 | | | 9,477 | |
Other reconciling items | | 30 | | | 21 | | | 29 | |
Total assets – Consumers | | $ | 29,916 | | | $ | 27,140 | | | $ | 25,399 | |
CMS Energy, including Consumers | | | | | | |
Capital expenditures3 | | | | | | |
Electric utility4 | | $ | 1,265 | | | $ | 1,153 | | | $ | 1,281 | |
Gas utility4 | | 1,008 | | | 989 | | | 885 | |
NorthStar Clean Energy | | 113 | | | 17 | | | 108 | |
| | | | | | |
Other reconciling items | | 7 | | | 2 | | | 1 | |
Total capital expenditures – CMS Energy | | $ | 2,393 | | | $ | 2,161 | | | $ | 2,275 | |
Consumers | | | | | | |
Capital expenditures3 | | | | | | |
Electric utility4 | | $ | 1,265 | | | $ | 1,153 | | | $ | 1,281 | |
Gas utility4 | | 1,008 | | | 989 | | | 885 | |
Other reconciling items | | 7 | | | 2 | | | 1 | |
Total capital expenditures – Consumers | | $ | 2,280 | | | $ | 2,144 | | | $ | 2,167 | |
1Consumers had no significant equity method investments.
2Amounts include a portion of Consumers’ other common assets attributable to both the electric and gas utility businesses.
3Costs related to coal-fueled electric generating units to be retired in 2023 were removed and recorded as a regulatory asset in June 2019. For additional details, see Note 3, Regulatory Matters.
4Amounts include assets placed under finance lease.
54Amounts include a portion of Consumers’ capital expenditures for plant and equipment attributable to both the electric and gas utility businesses.
20:
17: Related-Party Transactions—Consumers
Consumers enters into a number of transactions with related parties in the normal course of business. These transactions include but are not limited to:
•purchases of electricity from affiliates of CMS EnterprisesNorthStar Clean Energy
•payments to and from CMS Energy related to parent company overhead costs
Transactions involving power supply purchases from certain affiliates of CMS EnterprisesNorthStar Clean Energy are based on avoided costs under PURPA, state law, and competitive bidding. The payment of parent company overhead costs is based on the use of accepted industry allocation methodologies. These payments are for costs that occur in the normal course of business.
Presented in the following table is Consumers’ expense recorded from related-party transactions for the years ended December 31:
| In Millions | In Millions | In Millions |
Description | Description | Related Party | 2020 | 2019 | 2018 | Description | Related Party | 2022 | 2021 | 2020 |
Purchases of capacity and energy | Purchases of capacity and energy | Affiliates of CMS Enterprises | | $ | 64 | | | $ | 75 | | | $ | 83 | | Purchases of capacity and energy | Affiliates of NorthStar Clean Energy | | $ | 76 | | | $ | 77 | | | $ | 64 | |
Amounts payable to related parties for purchased power and other services were $13$20 million at December 31, 20202022 and $26$22 million at December 31, 2019.2021. Accounts receivable from related parties were $16 million at December 31, 2020 and $8 million at December 31, 2019.2022 and $7 million at December 31, 2021.
In 2018, CMS Energy and Consumers sold the DB SERP debt securities and CMS Energy issuedhas a demand note payable to the DB SERP rabbi trust. The demand note bears interest at an annual rate of 4.10 percent and has a maturity date of 2028. The portion of the demand note attributable to Consumers was recorded as a note receivable – related party on Consumers’ consolidated balance sheets at December 31, 20202022 and December 31, 2019. For additional details about the note receivable – related party, see Note 8, Notes Receivable.2021.
In December 2018, Consumers andhas a natural gas transportation agreement with a subsidiary of CMS Energy executed a 20‑year natural gas transportation agreement,that extends through 2038, related to a pipeline owned by Consumers. For additional details about the agreement, see Note 10, Leases and Palisades Financing.8, Leases.
In June 2021, Consumers owned no shares ofentered into an agreement with DIG, CMS Energy common stock at December 31, 2020Generation Michigan Power, and CMS Energy common stockERM to purchase NorthStar Clean Energy’s three natural gas-fueled generating units for $515 million, subject to certain adjustments. Consumers had proposed purchasing these generating units as part of its 2021 IRP. However, in accordance with a fair valuethe terms of $1 million at December 31, 2019.the settlement agreement of its 2021 IRP, which was approved by the MPSC in June 2022, Consumers will not purchase these generating units.
In December 2020,2022, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $350$500 million. As of December 31, 2020, $307 million was outstanding underFor additional details about the agreement, with an interest rate of 0.042 percent.
see Note 4, Financings and Capitalization.
21:18: Variable Interest Entities
In July 2020, CMS Enterprises purchased a 51-percent ownership interest in Aviator Wind Equity Holdings. At that time, Aviator Wind Equity Holdings owned 100 percent of Aviator Wind, a 525-MW wind generation project being developed and constructed in Coke County, Texas. Of Aviator Wind’s 525-MW nameplate capacity, 420 MW has been committed under long-term PPAs.
Aviator Wind became operational in September 2020 and, at that time, Aviator Wind Equity HoldingsJune 2022, NorthStar Clean Energy sold a Class A membership interest in Aviator WindNWO Holdco to a tax equity investor BHE Renewables,for $49 million. NWO Holdco owns 100 percent of Northwest Ohio Wind, LLC, a subsidiary of Berkshire Hathaway100‑MW wind generation project in Paulding County, Ohio. NorthStar Clean Energy Company. Aviator Wind Equity Holdings retained a Class B membership interest in NWO Holdco.
NorthStar Clean Energy has a 51‑percent ownership interest in Aviator Wind. Wind Equity Holdings, which holds a Class B membership interest in Aviator Wind, the holding company of a 525‑MW wind generation project in Coke County, Texas. The Class A membership interest in Aviator Wind is held by a tax equity investor.
Earnings, tax attributes, and cash flows generated by NWO Holdco and Aviator Wind are allocated among and distributed to the membership classes in accordance with the ratios specified in the associated limited liability company operating agreement;agreements; these ratios change over time and are not representative of the ownership interest percentages of each membership class.
Since NWO Holdco’s and Aviator Wind’s income and cash flows are not distributed among itstheir investors based on ownership interest percentages, CMS EnterprisesNorthStar Clean Energy allocates Aviator Wind’sthe entities’ income (loss) among itsthe investors by applying the hypothetical liquidation at book value method. This method calculates each investor’s earnings based on a hypothetical liquidation of Aviator Windthe entities at the net book value of its underlying net assets as of the balance sheet date. The liquidation tax gain (loss) is allocated to each investor’s capital account, resulting in income (loss) equal to the period change in the investor’s capital account balance. CMS Enterprises then receives 51 percent of the earnings, tax attributes, and cash flows that were allocated to Aviator Wind Equity Holdings.
NWO Holdco, Aviator Wind Equity Holdings, and Aviator Wind representare VIEs. In accordance with the associated limited liability company operating agreement,agreements, the tax equity investor isinvestors are guaranteed preferred returns from NWO Holdco and Aviator Wind. However, CMS EnterprisesNorthStar Clean Energy manages and controls the operating activities of NWO Holdco and Aviator Wind Equity Holdings and, ultimately,(and, thereby, Aviator Wind.Wind). As a result, CMS EnterprisesNorthStar Clean Energy is the primary beneficiary, of Aviator Wind Equity Holdings and Aviator Wind, as it has the power to direct the activities that most significantly impact the economic performance of the companies, as well as the obligation to absorb losses or the right to receive benefits from the companies. CMS EnterprisesNorthStar Clean Energy consolidates NWO Holdco, Aviator Wind Equity Holdings, and Aviator Wind and presents the Class A membership interestinterests and 49 percent of the Class B membership interest in Aviator Wind as noncontrolling interests. NaN gain or loss was recognized upon initial consolidation of Aviator Wind Equity Holdings and Aviator Wind.
Presented in the following table are the carrying values of the VIEs’ assets and liabilities included inon CMS Energy’s consolidated balance sheets:
| | | | | | | | | | |
In Millions | | |
December 31 | 2020 | |
Current | | | | |
Cash and cash equivalents | | $ | 7 | | | |
| | | | |
Accounts receivable | | 5 | | | |
Prepayments and other current assets | | 1 | | | |
Non-current | | | | |
Plant, property, and equipment, net | | 692 | | | |
Total assets1
| | $ | 705 | | | |
Current | | | | |
Accounts payable | | $ | 3 | | | |
Non-current | | | | |
Asset retirement obligations | | 19 | | | |
Total liabilities | | $ | 22 | | | |
| | | | | | | | | | | | | | |
In Millions |
December 31 | 2022 | 2021 |
Current | | | | |
Cash and cash equivalents | | $ | 28 | | | $ | 21 | |
Restricted cash and cash equivalents | | — | | | 1 | |
Accounts receivable | | 7 | | | 3 | |
Prepayments and other current assets | | 3 | | | 2 | |
Non-current | | | | |
Plant, property, and equipment, net | | 825 | | | 856 | |
Total assets1 | | $ | 863 | | | $ | 883 | |
Current | | | | |
Accounts payable | | $ | 15 | | | $ | 17 | |
Other current liabilities | | — | | | 2 | |
Non-current | | | | |
Asset retirement obligations | | 24 | | | 23 | |
Other non-current liabilities | | — | | | 4 | |
Total liabilities | | $ | 39 | | | $ | 46 | |
1Assets may be used only to meet VIEs’ obligations and commitments.
NorthStar Clean Energy is obligated under certain indemnities that protect the tax equity investors against losses incurred as a result of breaches of representations and warranties under the associated limited liability company agreements. For additional details on these indemnity obligations, see Note 3, Contingencies and Commitments—Guarantees.
Other VIEsVIEs:: CMS Energy has variable interests in T.E.S. Filer City, Grayling, Genesee, and Craven. While CMS Energy owns 50 percent of each partnership, it is not the primary beneficiary of any of these partnerships because decision making is shared among unrelated parties, and no one party has the ability to direct the activities that most significantly impact the entities’ economic performance, such as operations and maintenance, plant dispatch, and fuel strategy. The partners must agree on all major decisions for each of the partnerships.
Presented in the following table is information about these partnerships:
| | | | | | | | |
Name | Nature of the Entity | Nature of CMS Energy’s Involvement |
T.E.S. Filer City | Coal-fueled power generator | Long-term PPA between partnership and Consumers |
Employee assignment agreement |
|
Grayling | Wood waste-fueled power generator | Long-term PPA between partnership and Consumers |
Reduced dispatch agreement with Consumers1 |
Operating and management contract |
|
Genesee | Wood waste-fueled power generator | Long-term PPA between partnership and Consumers |
Reduced dispatch agreement with Consumers1 |
Operating and management contract |
|
Craven | Wood waste-fueled power generator | Operating and management contract |
|
1Reduced dispatch agreements allow the facilities to be dispatched based on the market price of power compared with the cost of production of the plants. This results in fuel cost savings that each partnership shares with Consumers’ customers.
The creditors of these partnerships do not have recourse to the general credit of CMS Energy or Consumers. Consumers has not provided any financial or other support during the periods presented that was not previously contractually required.
CMS Energy’s maximum risk exposure to these partnerships is generally limited to its investment in thesethe partnerships, which is included in investments on its consolidated balance sheets in the amount of $70$71 million as ofat December 31, 20202022 and $71 million as of December 31, 2019.2021.
22: Asset Sale19: Exit Activities and Exit Activities
Asset Sale: In October 2020, Consumers completed a sale of the electric utility’s remaining transmission equipment to METC. In December 2020, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with electric utility customers; this application was approved by the MPSC in February 2021. As a result, during 2020, Consumers recorded a regulatory liability of $14 million and recognized a pre-tax gain of $14 million within maintenance and other operating expenses on its consolidated statements of income. For additional details on the sharing of the gain with customers, see Note 3, Regulatory Matters.Discontinued Operations
Exit Activities: Under its Clean Energy Plan, Consumers plans towill retire the D.E. Karn 1 & 2 coal-fueled electric generating units in 2023. For additional details on Consumers’ plans to recover the remaining book value of the two units upon their retirement, see Note 3, Regulatory Matters.
In October 2019, Consumers announced a retention incentive program to ensure necessary staffing at the D.E. Karn generating complex through the anticipated retirement of the coal-fueled generating units. Based on the number of employees that have chosen to participate, the aggregate cost of the program through 2023 is estimated to be $35 million. In its order in Consumers’ 2020 electric rate case, the MPSC approved deferred accounting treatment for these costs; Consumers will beginbegan deferring these costs as a regulatory asset in 2021.
Under the 2021 IRP, Consumers will retire the J.H. Campbell coal-fueled generating units in 2025. Similar to the D.E. Karn program, Consumers is providing a retention incentive program to ensure necessary staffing at the J.H. Campbell generating complex through retirement. Based on the number of employees that have chosen to participate, the aggregate cost of the program through 2025 is estimated to be $50 million. Additionally, Consumers recognized $4 million related to severance benefits during the year ended December 31, 2022. This amount was recorded in other non-current liabilities on its consolidated balance sheets at December 31, 2022. The 2021 IRP provides deferred accounting treatment for the retention and severance costs recognized during 2022; deferral of costs beyond 2022 was approved as part of the 2022 electric rate case settlement.
As of December 31, 2020,2022, the cumulative cost incurred and charged to expense related to thisthe D.E. Karn retention incentive program was $16 million;million. Additionally, an amount of $3$4 million has been capitalized as a cost of plant, property, and equipment. equipment and an amount of $11 million has been deferred as a regulatory asset. The cumulative cost incurred and deferred as a regulatory asset related to the J.H. Campbell retention incentive program was $20 million.
Presented in the following table is a reconciliation of the retention benefit liability recorded in other liabilities on Consumers’ consolidated balance sheets:
| In Millions | In Millions | In Millions |
| Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | Years Ended December 31 | | 2022 | 2021 |
Retention benefit liability at beginning of period | Retention benefit liability at beginning of period | | $ | 4 | | | $ | 0 | | Retention benefit liability at beginning of period | | | $ | 14 | | | $ | 11 | |
Costs incurred and charged to maintenance and other operating expenses | | 13 | | | 3 | | |
| Costs deferred as a regulatory asset | | Costs deferred as a regulatory asset | | | 24 | | | 7 | |
Costs incurred and capitalized | Costs incurred and capitalized | | 2 | | | 1 | | Costs incurred and capitalized | | | — | | | 1 | |
Costs paid or settled | Costs paid or settled | | (8) | | | 0 | | Costs paid or settled | | | (17) | | | (5) | |
Retention benefit liability at the end of the period1 | Retention benefit liability at the end of the period1 | | $ | 11 | | | $ | 4 | | Retention benefit liability at the end of the period1 | | | $ | 21 | | | $ | 14 | |
1Includes current portion of other liabilities of $3$13 million at December 31, 20202022 and $2$5 million at December 31, 2019.2021.
Discontinued Operations: In October 2021, EnerBank was acquired by Regions Bank. CMS Energy received proceeds of over $1.0 billion from the transaction and recognized a pre-tax gain of $657 million in 2021. In March 2022, CMS Energy received $6 million of additional proceeds as the result of a post-closing adjustment. Net of related transaction costs, CMS Energy recognized a pre-tax gain of $5 million during 2022.
In December 2021, CMS Energy submitted a notice of disagreement to Regions Bank relating to a $36 million negative post-closing purchase price adjustment that it believed was inconsistent with the merger agreement. In accordance with the merger agreement, the disputed adjustment was submitted to a mutually agreed upon independent accounting firm for final determination. In June 2022, the accounting firm rendered a determination on the disputed items entirely in favor of CMS Energy. As a result, no further adjustment was required in 2022.
EnerBank’s results of operations through the date of the sale are presented as income from discontinued operations on CMS Energy’s consolidated statements of income for the year ended December 31, 2021. The table below presents the financial results of EnerBank included in income from discontinued operations:
| | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions |
| | | |
Years Ended December 31 | | | | 2022 | 2021 | 2020 |
Operating revenue | | | | | | | $ | — | | | $ | 209 | | | $ | 262 | |
Expenses | | | | | | | | | | | |
Operating expenses | | | | | | | — | | | 60 | | | 130 | |
| | | | | | | | | | | |
Interest expense | | | | | | | — | | | 34 | | | 56 | |
Income before income taxes | | | | | | | $ | — | | | $ | 115 | | | $ | 76 | |
Gain on sale | | | | | | | 5 | | | 657 | | | — | |
Income from discontinued operations before income taxes | | | | | | | $ | 5 | | | $ | 772 | | | $ | 76 | |
Income tax expense | | | | | | | 1 | | | 170 | | | 18 | |
Income from discontinued operations, net of tax | | | | | | | $ | 4 | | | $ | 602 | | | $ | 58 | |
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23: Quarterly Financial and Common Stock Information (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions, Except Per Share Amounts |
| 2020 |
Three Months Ended | March 31 | June 30 | September 30 | December 31 |
CMS Energy, including Consumers | | | | | | | | |
Operating revenue | | $ | 1,864 | | | $ | 1,443 | | | $ | 1,575 | | | $ | 1,798 | |
Operating income | | 368 | | | 273 | | | 369 | | | 352 | |
Net income | | 243 | | | 137 | | | 210 | | | 162 | |
Income (loss) attributable to noncontrolling interests | | 0 | | | 1 | | | (8) | | | 4 | |
Net income available to common stockholders | | 243 | | | 136 | | | 218 | | | 158 | |
Basic earnings per average common share1 | | 0.86 | | | 0.48 | | | 0.76 | | | 0.55 | |
Diluted earnings per average common share1 | | 0.85 | | | 0.48 | | | 0.76 | | | 0.55 | |
Consumers | | | | | | | | |
Operating revenue | | $ | 1,744 | | | $ | 1,330 | | | $ | 1,450 | | | $ | 1,665 | |
Operating income | | 329 | | | 246 | | | 338 | | | 308 | |
Net income | | 235 | | | 160 | | | 230 | | | 191 | |
Preferred stock dividends | | 0 | | | 1 | | | 0 | | | 1 | |
Net income available to common stockholder | | 235 | | | 159 | | | 230 | | | 190 | |
1The sum of the quarters may not equal annual EPS due to changes in the number of shares outstanding.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions, Except Per Share Amounts |
| 2019 |
Three Months Ended | March 31 | June 30 | September 30 | December 31 |
CMS Energy, including Consumers | | | | | | | | |
Operating revenue | | $ | 2,059 | | | $ | 1,445 | | | $ | 1,546 | | | $ | 1,795 | |
Operating income | | 359 | | | 218 | | | 351 | | | 311 | |
Net income | | 213 | | | 94 | | | 207 | | | 168 | |
Income attributable to noncontrolling interests | | 0 | | | 1 | | | 0 | | | 1 | |
Net income available to common stockholders | | 213 | | | 93 | | | 207 | | | 167 | |
Basic earnings per average common share1 | | 0.75 | | | 0.33 | | | 0.73 | | | 0.59 | |
Diluted earnings per average common share1 | | 0.75 | | | 0.33 | | | 0.73 | | | 0.58 | |
Consumers | | | | | | | | |
Operating revenue | | $ | 1,943 | | | $ | 1,334 | | | $ | 1,429 | | | $ | 1,670 | |
Operating income | | 328 | | | 175 | | | 319 | | | 308 | |
Net income | | 226 | | | 98 | | | 213 | | | 206 | |
Preferred stock dividends | | 0 | | | 1 | | | 0 | | | 1 | |
Net income available to common stockholder | | 226 | | | 97 | | | 213 | | | 205 | |
1The sum of the quarters may not equal annual EPS due to changes in the number of shares outstanding.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of CMS Energy Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of CMS Energy Corporation and its subsidiaries (the “Company”) as of December 31, 20202022 and 2019,2021, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2020,2022, including the related notes and financial statement schedules listed in the index appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control —- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20202022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control —- Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of New Regulatory Matters
As described in Note 32 to the consolidated financial statements, the Company is a utility and must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated services. Under regulatory accounting, the Company records regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue by a non-regulated business. As of December 31, 2020,2022, the Company has recognized a total of $2,695$3,652 million of regulatory assets, and $3,895$3,900 million of regulatory liabilities.liabilities, and $409 million of accrued revenue. As described by management, there are multiple participants to rate case proceedings who often challenge various aspects of those proceedings, including the prudence of the Company’s policies and practices. These participants often seek cost disallowances and other relief and have appealed significant decisions reached by the regulators. The recovery of regulatory assets and the settlement of regulatory liabilities are contingent upon the outcomes of rate cases and regulatory proceedings.
The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of new regulatory matters is a critical audit matter are (i) the high degree of auditor judgment and subjectivity applied to evaluate management’s assessment of the potential outcomes and related accounting impacts associated with pending rate case proceedings, (ii) in some cases, the significant audit effort necessary to assess contrary evidence from various parties involved in rate case proceedings, and (iii) the significant audit effort necessary to evaluate audit evidence related to the recovery of regulatory assets and the settlement of regulatory liabilities.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of regulatory proceedings, including the probability of recovering incurred costs and the related accounting and disclosure impacts. These procedures also included, among others, obtaining and evaluating the Company’s correspondence with regulators, evaluating the reasonableness of management’s assessment regarding whether recovery of regulatory assets and settlement of regulatory liabilities is probable and evaluating the sufficiency of the disclosures in the consolidated financial statements. Procedures were performed to evaluate the regulatory assets and liabilities, including those subject to pending rate cases, based on provisions and formulas outlined in rate orders, other regulatory correspondence, or application of relevant regulatory precedents.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 11, 20219, 2023
We have served as the Company’s auditor since 2007.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholder of Consumers Energy Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Consumers Energy Company and its subsidiaries (the “Company”) as of December 31, 20202022 and 2019,2021, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2020,2022, including the related notes and financial statement schedule listed in the index appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control —- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20202022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control —- Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of New Regulatory Matters
As described in Note 32 to the consolidated financial statements, the Company is a utility and must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated services. Under regulatory accounting, the Company records regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue by a non-regulated business. As of December 31, 2020,2022, the Company has recognized a total of $2,695$3,652 million of regulatory assets, and $3,895$3,900 million of regulatory liabilities.liabilities, and $409 million of accrued revenue. As described by management, there are multiple participants to rate case proceedings who often challenge various aspects of those proceedings, including the prudence of the Company’s policies and practices. These participants often seek cost disallowances and other relief and have appealed significant decisions reached by the regulators. The recovery of regulatory assets and the settlement of regulatory liabilities are contingent upon the outcomes of rate cases and regulatory proceedings.
The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of new regulatory matters is a critical audit matter are (i) the high degree of auditor judgment and subjectivity applied to evaluate management’s assessment of the potential outcomes and related accounting impacts associated with pending rate case proceedings, (ii) in some cases, the significant audit effort necessary to assess contrary evidence from various parties involved in rate case proceedings, and (iii) the significant audit effort necessary to evaluate audit evidence related to the recovery of regulatory assets and the settlement of regulatory liabilities.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of regulatory proceedings, including the probability of recovering incurred costs and the related accounting and disclosure impacts. These procedures also included, among others, obtaining and evaluating the Company’s correspondence with regulators, evaluating the reasonableness of management’s assessment regarding whether recovery of regulatory assets and settlement of regulatory liabilities is probable and evaluating the sufficiency of the disclosures in the consolidated financial statements. Procedures were performed to evaluate the regulatory assets and liabilities, including those subject to pending rate cases, based on provisions and formulas outlined in rate orders, other regulatory correspondence, or application of relevant regulatory precedents.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 11, 20219, 2023
We have served as the Company’s auditor since 2007.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
CMS Energy
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: Under the supervision and with the participation of management, including its CEO and CFO, CMS Energy conducted an evaluation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on such evaluation, CMS Energy’s CEO and CFO have concluded that its disclosure controls and procedures were effective as of December 31, 2020.2022.
Management’s Annual Report on Internal Control Over Financial Reporting: CMS Energy’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). CMS Energy’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of CMS Energy
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of CMS Energy are being made only in accordance with authorizations of management and directors of CMS Energy
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of CMS Energy’s assets that could have a material effect on its financial statements
Management, including its CEO and CFO, does not expect that its internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. In addition, any evaluation of the effectiveness of controls is subject to risks that those internal controls may become inadequate in future periods because of changes in business conditions, or that the degree of compliance with the policies or procedures deteriorates.
Under the supervision and with the participation of management, including its CEO and CFO, CMS Energy conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2020.2022. In making this evaluation, management used the criteria set forth in the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, CMS Energy’s management concluded that its internal control over financial reporting was effective as of December 31, 2020.2022. The effectiveness of CMS Energy’s internal control over financial reporting as of December 31, 20202022 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears under Item 8. Financial Statements and Supplementary Data.
Changes in Internal Control overOver Financial Reporting: There have not been noany changes in CMS Energy’s internal control over financial reporting during the most recently completedlast fiscal quarter that have materially affected, or are reasonably likely to affect materially, its internal control over financial reporting.
Consumers
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: Under the supervision and with the participation of management, including its CEO and CFO, Consumers conducted an evaluation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on such evaluation, Consumers’ CEO and CFO have concluded that its disclosure controls and procedures were effective as of December 31, 2020.2022.
Management’s Annual Report on Internal Control Over Financial Reporting: Consumers’ management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Consumers’ internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Consumers
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of Consumers are being made only in accordance with authorizations of management and directors of Consumers
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Consumers’ assets that could have a material effect on its financial statements
Management, including its CEO and CFO, does not expect that its internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. In addition, any evaluation of the effectiveness of controls is subject to risks that those internal controls may become inadequate in future periods because of changes in business conditions, or that the degree of compliance with the policies or procedures deteriorates.
Under the supervision and with the participation of management, including its CEO and CFO, Consumers conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2020.2022. In making this evaluation, management used the criteria set forth in the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, Consumers’ management concluded that its internal control over financial reporting was effective as of December 31, 2020.2022. The effectiveness of Consumers’ internal control over financial reporting as of December 31, 20202022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears under Item 8. Financial Statements and Supplementary Data.
Changes in Internal Control overOver Financial Reporting: There have not been noany changes in Consumers’ internal control over financial reporting during the most recently completedlast fiscal quarter that have materially affected, or are reasonably likely to affect materially, its internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
CMS Energy
Information that is required in Item 10 of this Form 10‑K regarding executive officers is included in the Item 1. Business—Information About CMS Energy’s and Consumers’ Executive Officers section, which is incorporated by reference herein.
Information that is required in Item 10 of this Form 10‑K regarding directors, executive officers, and corporate governance is incorporated by reference from CMS Energy’s and Consumers’ definitive proxy statement for their 20212023 Annual Meetings of Shareholders to be held May 7, 2021.5, 2023. The proxy statement will be filed with the SEC, pursuant to Regulation 14A under the Exchange Act, within 120 days after the end of the fiscal year covered by this Form 10‑K, all of which information is hereby incorporated by reference in, and made part of, this Form 10‑K.
Code of Ethics
CMS Energy has adopted an employee code of ethics, entitled “CMS Energy 20212023 Code of Conduct” (“Employee Code”)Conduct and Guide to Ethical Business Behavior” (Employee Code) that applies to its CEO, CFO, and CAO, as well as all other officers and employees of CMS Energy and its affiliates, except for EnerBank, which has its own code of conduct.affiliates. The Employee Code is administered by the Chief Compliance Officer of CMS Energy, who reports directly to the Audit Committee of the Board of Directors of CMS Energy. CMS Energy has also adopted a director code of ethics entitled “2021“2023 Board of Directors Code of Conduct” (“Director Code”)Conduct and Guide to Ethical Business Behavior” (Director Code) that applies to its directors. The Director Code is administered by the Audit Committee of the Board of Directors of CMS Energy. Any alleged violation of the Director Code by a director will be investigated by disinterested members of the Audit Committee of the Board of Directors of CMS Energy, or if none, by disinterested members of the entire Board of Directors of CMS Energy. The Employee Code and Director Code and any waivers of, or amendments or exceptions to, a provision of the Employee Code that applies to CMS Energy’s CEO, CFO, CAO or persons performing similar functions and any waivers of, or amendments or exceptions to, a provision of CMS Energy’s Director Code will be disclosed on CMS Energy’s website at www.cmsenergy.com/corporate-governance/compliance-and-ethics.
Consumers
Information that is required in Item 10 of this Form 10‑K regarding executive officers is included in the Item 1. Business—Information About CMS Energy’s and Consumers’ Executive Officers section, which is incorporated by reference herein.
Information that is required in Item 10 of this Form 10‑K regarding directors, executive officers, and corporate governance is incorporated by reference from CMS Energy’s and Consumers’ definitive proxy statement for their 20212023 Annual Meetings of Shareholders to be held May 7, 2021.5, 2023. The proxy statement will be filed with the SEC, pursuant to Regulation 14A under the Exchange Act, within 120 days after the end of the fiscal year covered by this Form 10‑K, all of which information is hereby incorporated by reference in, and made part of, this Form 10‑K.
Code of Ethics
Consumers has adopted an employee code of ethics, entitled “CMS Energy 20212023 Code of Conduct” (“Employee Code”)Conduct and Guide to Ethical Business Behavior” (Employee Code) that applies to its CEO, CFO, and CAO, as well as all other officers and employees of Consumers and its affiliates, except for EnerBank, which has its own code of conduct.affiliates. The Employee Code is administered by the Chief Compliance Officer of Consumers, who reports directly to the Audit Committee of the Board of Directors of Consumers. Consumers has also adopted a director code of ethics entitled “2021“2023 Board of Directors Code of Conduct” (“Director Code”)Conduct and Guide to Ethical Business Behavior” (Director Code) that applies to its directors. The Director Code is administered by the Audit Committee of the Board of Directors of Consumers. Any alleged violation of the Director Code by a director will be investigated by disinterested members of the Audit Committee of the Board of Directors of Consumers, or if none, by disinterested members of the entire Board of Directors of Consumers. The Employee Code and Director Code and any waivers of, or amendments or exceptions to, a provision of the Employee Code that applies to Consumers’ CEO, CFO, CAO or persons performing similar functions and any waivers of, or amendments or exceptions to, a provision of Consumers’ Director Code will be disclosed on Consumers’ website at www.cmsenergy.com/corporate-governance/compliance-and-ethics.
Item 11. Executive Compensation
See the note below.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities Authorized for Issuance Under Equity Compensation Plans
Presented in the following table is information regarding CMS Energy’s equity compensation plans as of December 31, 2020:2022:
| | | | | | | | | | | | | | |
| (a) | (b) | (c) |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants, and rights | Weighted-average exercise price of outstanding options, warrants, and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
Equity compensation plan approved by shareholders | — | | | $ | — | | 6,477,5795,417,727 | |
Also see the note below.
Item 13. Certain Relationships and Related Transactions, and Director Independence
See the note below.
Item 14. Principal Accountant Fees and Services
See the note below.
NOTE: Information that is required by Part III—Items 11, 12, 13, and 14 of this Form 10‑K is incorporated by reference from CMS Energy’s and Consumers’ definitive proxy statement for their 20212023 Annual Meetings of Shareholders to be held May 7, 2021.5, 2023. The proxy statement will be filed with the SEC, pursuant to Regulation 14A under the Exchange Act, within 120 days after the end of the fiscal year covered by this Form 10‑K, all of which information is hereby incorporated by reference in, and made part of, this Form 10‑K.
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Part IV
Item 15. Exhibits and Financial Statement Schedules
The following financial statements are filed as part of this report under Item 8. Financial Statements and Supplementary Data:
•Consolidated Statements of Income of CMS Energy for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
•Consolidated Statements of Comprehensive Income of CMS Energy for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
•Consolidated Statements of Cash Flows of CMS Energy for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
•Consolidated Balance Sheets of CMS Energy at December 31, 20202022 and 20192021
•Consolidated Statements of Changes in Equity of CMS Energy for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
•Consolidated Statements of Income of Consumers for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
•Consolidated Statements of Comprehensive Income of Consumers for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
•Consolidated Statements of Cash Flows of Consumers for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
•Consolidated Balance Sheets of Consumers at December 31, 20202022 and 20192021
•Consolidated Statements of Changes in Equity of Consumers for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
•Notes to the Consolidated Financial Statements
•Report of Independent Registered Public Accounting Firm for CMS Energy
•Report of Independent Registered Public Accounting Firm for Consumers
The following financial statement schedules are included below:
•Schedule I — Condensed Financial Information of Registrant, CMS Energy—Parent Company at December 31, 20202022 and 20192021 and for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
•Schedule II — Valuation and Qualifying Accounts and Reserves of CMS Energy for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
•Schedule II — Valuation and Qualifying Accounts and Reserves of Consumers for the years ended December 31, 2020, 2019,2022, 2021, and 20182020
Schedule I — Condensed Financial Information of Registrant
CMS Energy—Parent Company
Condensed Statements of Income
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
| | Operating Expenses | Operating Expenses | | Operating Expenses | |
Other operating expenses | Other operating expenses | | $ | (6) | | | $ | (38) | | | $ | (7) | | Other operating expenses | | $ | (7) | | | $ | (7) | | | $ | (6) | |
Total operating expenses | Total operating expenses | | (6) | | | (38) | | | (7) | | Total operating expenses | | (7) | | | (7) | | | (6) | |
| Operating Loss | Operating Loss | | (6) | | | (38) | | | (7) | | Operating Loss | | (7) | | | (7) | | | (6) | |
| Other Income (Expense) | Other Income (Expense) | | Other Income (Expense) | |
Equity earnings of subsidiaries | Equity earnings of subsidiaries | | 909 | | | 826 | | | 780 | | Equity earnings of subsidiaries | | 980 | | | 1,482 | | | 909 | |
Nonoperating retirement benefits, net | Nonoperating retirement benefits, net | | (1) | | | (1) | | | (1) | | Nonoperating retirement benefits, net | | (1) | | | (1) | | | (1) | |
Interest income | Interest income | | 1 | | | 1 | | | 2 | | Interest income | | 2 | | | — | | | — | |
Interest income - intercompany | | Interest income - intercompany | | 2 | | | 1 | | | 1 | |
Other income | Other income | | 1 | | | 1 | | | 0 | | Other income | | 1 | | | 1 | | | 1 | |
Other expense | Other expense | | (19) | | | 0 | | | (17) | | Other expense | | (1) | | | — | | | (19) | |
Total other income | Total other income | | 891 | | | 827 | | | 764 | | Total other income | | 983 | | | 1,483 | | | 891 | |
| Interest Charges | Interest Charges | | Interest Charges | |
Interest on long-term debt | Interest on long-term debt | | 178 | | | 156 | | | 135 | | Interest on long-term debt | | 181 | | | 183 | | | 178 | |
Intercompany interest expense and other | Intercompany interest expense and other | | 7 | | | 10 | | | 7 | | Intercompany interest expense and other | | 8 | | | 7 | | | 7 | |
Total interest charges | Total interest charges | | 185 | | | 166 | | | 142 | | Total interest charges | | 189 | | | 190 | | | 185 | |
| Income Before Income Taxes | Income Before Income Taxes | | 700 | | | 623 | | | 615 | | Income Before Income Taxes | | 787 | | | 1,286 | | | 700 | |
Income Tax Benefit | Income Tax Benefit | | (55) | | | (57) | | | (42) | | Income Tax Benefit | | (50) | | | (60) | | | (55) | |
| Income From Continuing Operations | | Income From Continuing Operations | | 837 | | | 1,346 | | | 755 | |
Income From Discontinued Operations, Net of Tax of $—, $(5), and $— | | Income From Discontinued Operations, Net of Tax of $—, $(5), and $— | | — | | | 7 | | | — | |
| Net Income Attributable to CMS Energy | | Net Income Attributable to CMS Energy | | 837 | | | 1,353 | | | 755 | |
Preferred Stock Dividends | | Preferred Stock Dividends | | 10 | | | 5 | | | — | |
| Net Income Available to Common Stockholders | Net Income Available to Common Stockholders | | $ | 755 | | | $ | 680 | | | $ | 657 | | Net Income Available to Common Stockholders | | $ | 827 | | | $ | 1,348 | | | $ | 755 | |
The accompanying notes are an integral part of these statements.
Schedule I — Condensed Financial Information of Registrant (Continued)
CMS Energy—Parent Company
Condensed Statements of Cash Flows
| In Millions | In Millions | In Millions |
Years Ended December 31 | Years Ended December 31 | 2020 | 2019 | 2018 | Years Ended December 31 | 2022 | 2021 | 2020 |
| Cash Flows from Operating Activities | Cash Flows from Operating Activities | | Cash Flows from Operating Activities | |
Net cash provided by operating activities | Net cash provided by operating activities | | $ | 507 | | | $ | 697 | | | $ | 702 | | Net cash provided by operating activities | | $ | 565 | | | $ | 1,549 | | | $ | 507 | |
| Cash Flows from Investing Activities | Cash Flows from Investing Activities | | Cash Flows from Investing Activities | |
Investment in subsidiaries | Investment in subsidiaries | | (657) | | | (683) | | | (363) | | Investment in subsidiaries | | (796) | | | (581) | | | (657) | |
Increase in notes receivable – intercompany | | (307) | | | 0 | | | 0 | | |
Proceeds from DB SERP investments | | 0 | | | 0 | | | 22 | | |
Decrease (increase) in notes receivable – intercompany | | Decrease (increase) in notes receivable – intercompany | | 286 | | | (83) | | | (307) | |
| Net cash used in investing activities | Net cash used in investing activities | | (964) | | | (683) | | | (341) | | Net cash used in investing activities | | (510) | | | (664) | | | (964) | |
| Cash Flows from Financing Activities | Cash Flows from Financing Activities | | Cash Flows from Financing Activities | |
Proceeds from issuance of debt | Proceeds from issuance of debt | | 1,225 | | | 1,158 | | | 560 | | Proceeds from issuance of debt | | — | | | — | | | 1,225 | |
Issuance of common stock | Issuance of common stock | | 253 | | | 12 | | | 41 | | Issuance of common stock | | 69 | | | 26 | | | 253 | |
Issuance of preferred stock | | Issuance of preferred stock | | — | | | 224 | | | — | |
Retirement of long-term debt | Retirement of long-term debt | | (425) | | | (738) | | | (675) | | Retirement of long-term debt | | — | | | (200) | | | (425) | |
Debt prepayment costs | Debt prepayment costs | | (16) | | | 0 | | | (16) | | Debt prepayment costs | | — | | | — | | | (16) | |
Payment of dividends on common stock | | (465) | | | (434) | | | (405) | | |
Payment of dividends on common and preferred stock | | Payment of dividends on common and preferred stock | | (544) | | | (507) | | | (465) | |
Debt issuance costs and financing fees | Debt issuance costs and financing fees | | (10) | | | (18) | | | (8) | | Debt issuance costs and financing fees | | (11) | | | (10) | | | (10) | |
Change in notes payable – intercompany | Change in notes payable – intercompany | | (105) | | | 6 | | | 142 | | Change in notes payable – intercompany | | 77 | | | (28) | | | (105) | |
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | | 457 | | | (14) | | | (361) | | Net cash provided by (used in) financing activities | | (409) | | | (495) | | | 457 | |
| Net Increase in Cash and Cash Equivalents, Including Restricted Amounts | | 0 | | | 0 | | | 0 | | |
Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts | | Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts | | (354) | | | 390 | | | — | |
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period | Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period | | 0 | | | 0 | | | 0 | | Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period | | 390 | | | — | | | — | |
| Cash and Cash Equivalents, Including Restricted Amounts, End of Period | Cash and Cash Equivalents, Including Restricted Amounts, End of Period | | $ | 0 | | | $ | 0 | | | $ | 0 | | Cash and Cash Equivalents, Including Restricted Amounts, End of Period | | $ | 36 | | | $ | 390 | | | $ | — | |
The accompanying notes are an integral part of these statements.
Schedule I — Condensed Financial Information of Registrant (Continued)
CMS Energy—Parent Company
Condensed Balance Sheets
| ASSETS | ASSETS | ASSETS |
In Millions | In Millions | In Millions |
December 31 | December 31 | 2020 | 2019 | December 31 | 2022 | 2021 |
| Current Assets | Current Assets | | Current Assets | |
Cash and cash equivalents | | Cash and cash equivalents | | $ | 36 | | | $ | 390 | |
Notes and accrued interest receivable – intercompany | Notes and accrued interest receivable – intercompany | | $ | 358 | | | $ | 2 | | Notes and accrued interest receivable – intercompany | | 107 | | | 463 | |
Accounts receivable – intercompany and related parties | Accounts receivable – intercompany and related parties | | 3 | | | 9 | | Accounts receivable – intercompany and related parties | | 8 | | | 5 | |
Federal income tax receivable | | 0 | | | 18 | | |
| Accrued taxes | Accrued taxes | | 48 | | | 0 | | Accrued taxes | | 45 | | | — | |
Prepayments and other current assets | Prepayments and other current assets | | 1 | | | 1 | | Prepayments and other current assets | | 1 | | | 1 | |
Total current assets | Total current assets | | 410 | | | 30 | | Total current assets | | 197 | | | 859 | |
| Other Non‑current Assets | Other Non‑current Assets | | Other Non‑current Assets | |
| Deferred income taxes | Deferred income taxes | | 91 | | | 126 | | Deferred income taxes | | 105 | | | 147 | |
Investments in subsidiaries | Investments in subsidiaries | | 9,372 | | | 8,526 | | Investments in subsidiaries | | 10,881 | | | 9,870 | |
Other investments | Other investments | | 5 | | | 4 | | Other investments | | 6 | | | 6 | |
Other | Other | | 5 | | | 16 | | Other | | 11 | | | 8 | |
Total other non‑current assets | Total other non‑current assets | | 9,473 | | | 8,672 | | Total other non‑current assets | | 11,003 | | | 10,031 | |
| Total Assets | Total Assets | | $ | 9,883 | | | $ | 8,702 | | Total Assets | | $ | 11,200 | | | $ | 10,890 | |
| | | | | | | | | | | | | | |
LIABILITIES AND EQUITY |
In Millions |
December 31 | 2020 | 2019 |
| | | | |
Current Liabilities | | | | |
Current portion of long-term debt | | $ | 200 | | | $ | 0 | |
Accounts and notes payable – intercompany | | 69 | | | 123 | |
Accrued interest, including intercompany | | 33 | | | 34 | |
Accrued taxes | | 0 | | | 5 | |
Other current liabilities | | 9 | | | 38 | |
Total current liabilities | | 311 | | | 200 | |
| | | | |
Non‑current Liabilities | | | | |
Long-term debt | | 3,926 | | | 3,334 | |
Notes payable – intercompany | | 116 | | | 112 | |
Postretirement benefits | | 21 | | | 21 | |
Other non‑current liabilities | | 13 | | | 17 | |
Total non‑current liabilities | | 4,076 | | | 3,484 | |
| | | | |
Equity | | | | |
Common stockholders’ equity | | 5,496 | | | 5,018 | |
| | | | |
Total Liabilities and Equity | | $ | 9,883 | | | $ | 8,702 | |
| | | | | | | | | | | | | | |
LIABILITIES AND EQUITY |
In Millions |
December 31 | 2022 | 2021 |
Current Liabilities | | | | |
| | | | |
Accounts and notes payable – intercompany | | $ | 74 | | | $ | 61 | |
Accrued interest, including intercompany | | 33 | | | 33 | |
Accrued taxes | | — | | | 83 | |
Other current liabilities | | 9 | | | 8 | |
Total current liabilities | | 116 | | | 185 | |
| | | | |
Non‑current Liabilities | | | | |
Long-term debt | | 3,930 | | | 3,928 | |
Notes payable – intercompany | | 109 | | | 112 | |
Postretirement benefits | | 15 | | | 19 | |
Other non‑current liabilities | | 15 | | | 15 | |
Total non‑current liabilities | | 4,069 | | | 4,074 | |
| | | | |
Equity | | | | |
Common stockholders’ equity | | 6,791 | | | 6,407 | |
Preferred stock | | 224 | | | 224 | |
Total equity | | 7,015 | | | 6,631 | |
| | | | |
Total Liabilities and Equity | | $ | 11,200 | | | $ | 10,890 | |
The accompanying notes are an integral part of these statements.
Schedule I — Condensed Financial Information of Registrant (Continued)
CMS Energy—Parent Company
Notes to the Condensed Financial Statements
1: Basis of Presentation
CMS Energy’s condensed financial statements have been prepared on a parent-only basis. In accordance with Rule 12-04 of Regulation S-X, these parent-only financial statements do not include all of the information and notes required by GAAP for annual financial statements, and therefore these parent-only financial statements and other information included should be read in conjunction with CMS Energy’s audited consolidated financial statements contained within Item 8. Financial Statements and Supplementary Data.
2:Contingencies
Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, were named as defendants in 4 class action lawsuits filed in Kansas, Missouri, and Wisconsin and 1 individual lawsuit filed in Kansas; these lawsuits arose as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations included price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices. In 2016, CMS Energy entities reached a settlement with the plaintiffs in the Kansas and Missouri class action cases for an amount that was not material to CMS Energy. In 2017, the federal district court approved the settlement.
In 2019, CMS Energy and the plaintiffs in the remaining Kansas individual lawsuit and the Wisconsin class action lawsuit engaged in settlement discussions and CMS Energy recorded a $30 million liability at December 31, 2019 as the probable estimate to settle the two cases. The parties executed a settlement agreement in the Kansas case in February 2020, and that case is now complete. In the Wisconsin case, a settlement agreement was approved in August 2020 and that case is now complete.
3: Guarantees
CMS Energy has issued guarantees with a maximum potential obligation of $596 million$1.0 billion on behalf of some of its wholly owned subsidiaries and related parties. CMS Energy’s maximum potential obligation consists primarily of potential payments:
•to third parties under certain commodity purchase and swapsales agreements entered into withby CMS ERM and other subsidiaries of NorthStar Clean Energy
•to third parties under certain agreementsa credit agreement entered into with Grand River Wind, LLC,by a wholly owned subsidiary of CMS EnterprisesNorthStar Clean Energy
•to tax equity investors that hold membership interests in certain VIEs held by NorthStar Clean Energy
•to Regions Bank related to the sale of EnerBank
•to EGLE on behalf of CMS Land and CMS Capital, for environmental remediation obligations at Bay Harbor
•to the U.S. Department of Energy on behalf of Consumers, in connection with Consumers’ 2011 settlement agreement with the U.S. Department of Energy regarding damages resulting from the department’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers
•to a tax equity investor under certain agreements in connection with the purchase of a VIE
The expiry dates of these guarantees vary, depending upon contractual provisions or upon the statute of limitations under the relevant governing law.
4: Note Payable—Intercompany
In 2018, CMS Energy issued a demand note payable to the DB SERP rabbi trust, of which $124 million was attributable to CMS Energy’s subsidiaries. The demand note bears interest at an annual rate of 4.10 percent and has a maturity date of 2028. This note payable is not recorded at fair value; however, its carrying value approximates fair value at December 31, 2020. This fair value measurement is classified in Level 3 within the fair value hierarchy.
Schedule II — Valuation and Qualifying Accounts and Reserves
CMS Energy Corporation
Years Ended December 31, 2020, 2019,2022, 2021, and 20182020
| In Millions | In Millions | In Millions |
Description | Description | Balance at Beginning of Period | Charged to Expense | Charged to Other Accounts2 | Deductions | Balance at End of Period | Description | Balance at Beginning of Period | Charged to Expense | Charged to Other Accounts | Deductions | Balance at End of Period |
Allowance for uncollectible accounts1 | Allowance for uncollectible accounts1 | | Allowance for uncollectible accounts1 | |
2022 | | 2022 | | $ | 20 | | | $ | 50 | | | $ | — | | | $ | 43 | | | $ | 27 | |
2021 | | 2021 | | 29 | | | 22 | | | — | | | 31 | | | 20 | |
2020 | 2020 | | $ | 20 | | | $ | 33 | | | $ | 0 | | | $ | 24 | | | $ | 29 | | 2020 | | 20 | | | 33 | | | — | | | 24 | | | 29 | |
2019 | | 20 | | | 29 | | | 0 | | | 29 | | | 20 | | |
2018 | | 20 | | | 29 | | | 0 | | | 29 | | | 20 | | |
Deferred tax valuation allowance | Deferred tax valuation allowance | | Deferred tax valuation allowance | |
2022 | | 2022 | | $ | 2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2 | |
2021 | | 2021 | | 1 | | | 1 | | | — | | | — | | | 2 | |
2020 | 2020 | | $ | 2 | | | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 1 | | 2020 | | 2 | | | — | | | — | | | 1 | | | 1 | |
2019 | | 8 | | | 0 | | | 0 | | | 6 | | | 2 | | |
2018 | | 15 | | | 2 | | | 0 | | | 9 | | | 8 | | |
Allowance for notes receivable1 | | |
2020 | | $ | 33 | | | $ | 60 | | | $ | 62 | | | $ | 32 | | | $ | 123 | | |
2019 | | 24 | | | 38 | | | 0 | | | 29 | | | 33 | | |
2018 | | 20 | | | 25 | | | 0 | | | 21 | | | 24 | | |
|
1Deductions represent write-offs of uncollectible accounts, net of recoveries.
2On January 1, 2020, in accordance with ASU 2016‑13, Measurement of Credit Losses on Financial Instruments, CMS Energy adjusted the allowance for loan losses associated with its notes receivable, recording an offsetting adjustment to retained earnings. For further details, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, New Accounting Standards and Note 8, Notes Receivable.
Consumers Energy Company
Years Ended December 31, 2020, 2019,2022, 2021, and 20182020
| In Millions | In Millions | In Millions |
Description | Description | Balance at Beginning of Period | Charged to Expense | Charged to Other Accounts | Deductions | Balance at End of Period | Description | Balance at Beginning of Period | Charged to Expense | Charged to Other Accounts | Deductions | Balance at End of Period |
Allowance for uncollectible accounts1 | Allowance for uncollectible accounts1 | | Allowance for uncollectible accounts1 | |
2022 | | 2022 | | $ | 20 | | | $ | 50 | | | $ | — | | | $ | 43 | | | $ | 27 | |
2021 | | 2021 | | 29 | | | 22 | | | — | | | 31 | | | 20 | |
2020 | 2020 | | $ | 20 | | | $ | 33 | | | $ | 0 | | | $ | 24 | | | $ | 29 | | 2020 | | 20 | | | 33 | | | — | | | 24 | | | 29 | |
2019 | | 20 | | | 29 | | | 0 | | | 29 | | | 20 | | |
2018 | | 20 | | | 29 | | | 0 | | | 29 | | | 20 | | |
|
1Deductions represent write-offs of uncollectible accounts, net of recoveries.
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Exhibit Index
The agreements included as exhibits to this Form 10-K filing are included solely to provide information regarding the terms of the agreements and are not intended to provide any other factual or disclosure information about CMS Energy, Consumers, or other parties to the agreements. The agreements may contain representations and warranties made by each of the parties to each of the agreements that were made exclusively for the benefit of the parties involved in each of the agreements and should not be treated as statements of fact. The representations and warranties were made as a way to allocate risk if one or more of those statements prove to be incorrect. The statements were qualified by disclosures of the parties to each of the agreements that may not be reflected in each of the agreements. The agreements may apply standards of materiality that are different than standards applied to other investors. Additionally, the statements were made as of the date of the agreements or as specified in the agreements and have not been updated.
The representations and warranties may not describe the actual state of affairs of the parties to each agreement.
Additional information about CMS Energy and Consumers may be found in this filing, at www.cmsenergy.com, at www.consumersenergy.com, and through the SEC’s website at www.sec.gov.
| | | Previously Filed | | | Previously Filed | |
Exhibits | Exhibits | With File Number | As Exhibit Number | | Description | Exhibits | With File Number | As Exhibit Number | | Description |
3.11 | 3.11 | 1-9513 | (3)(a) | — | | 3.11 | 1-9513 | 3.1 | — | |
3.21 | 3.21 | 1-9513 | 3.2 | — | | 3.21 | 1-9513 | 3.2 | — | |
| 3.3 | 3.3 | 1-5611 | 3(c) | — | | 3.3 | 1-5611 | 3(c) | — | |
3.4 | 3.4 | 1-5611 | 3.2 | — | | 3.4 | 1-5611 | 3.2 | — | |
4.1 | 4.1 | 2-65973 | (b)(1)–4 | — | Indenture dated as of September 1, 1945 between Consumers and Chemical Bank (successor to Manufacturers Hanover Trust Company), as Trustee, including therein indentures supplemental thereto through the Forty-third Supplemental Indenture dated as of May 1, 1979 (Form S-16 filed November 13, 1979) | 4.1 | 2-65973 | (b)(1)–4 | — | Indenture dated as of September 1, 1945 between Consumers and Chemical Bank (successor to Manufacturers Hanover Trust Company), as Trustee, including therein indentures supplemental thereto through the Forty-third Supplemental Indenture dated as of May 1, 1979 (Form S-16 filed November 13, 1979) |
| | Indentures Supplemental thereto: | | Indentures Supplemental thereto: |
4.1.a | 4.1.a | 1-5611 | 4.2 | — | | 4.1.a | 1-5611 | 4.2 | — | |
4.1.b | 4.1.b | 1-5611 | 4.1 | — | | 4.1.b | 1-5611 | 4.1 | — | |
4.1.c | 4.1.c | 1-5611 | 4.1 | — | | 4.1.c | 1-5611 | 4.1 | — | |
4.1.d | 4.1.d | 1-5611 | 4.1 | — | | 4.1.d | 1-5611 | 4.1 | — | |
4.1.e | 4.1.e | 1-5611 | 4.1 | — | | 4.1.e | 1-5611 | 4.1 | — | |
4.1.f | 4.1.f | 1-5611 | 4.1 | — | | 4.1.f | 1-5611 | 4.1 | — | |
4.1.g | 4.1.g | 1-5611 | 4.1 | — | | 4.1.g | 1-5611 | 4.1 | — | |
4.1.h | 4.1.h | 1-5611 | 4.1 | — | | 4.1.h | 1-5611 | 4.1 | — | |
4.1.i | 1-5611 | 4.1 | — | | |
| | | | | | | | | | | | | | |
| Previously Filed | | |
Exhibits | With File Number | As Exhibit Number | | Description |
4.1.j4.1.i | 1-5611 | 4.1 | — | |
4.1.k4.1.j | 1-5611 | 4.1 | — | |
4.1.l4.1.k | 1-5611 | 4.1 | — | |
4.1.m4.1.l | 1-5611 | 4.1 | — | |
4.1.n4.1.m | 1-5611 | 4.1 | — | |
4.1.o4.1.n | 1-5611 | 4.1 | — | |
4.1.p4.1.o | 1-5611 | 4.1 | — | |
4.1.q4.1.p | 1-5611 | 4.1 | — | |
4.1.r4.1.q | 1-5611 | 4.1 | — | |
4.1.s4.1.r | 1-5611 | 4.1 | — | |
4.1.t4.1.s | 1-5611 | 4.1 | — | |
4.1.u4.1.t | 1-5611 | 4.1 | — | |
4.1.v4.1.u | 1-5611 | 4.1 | — | |
4.1.w4.1.v | 1-5611 | 4.1 | — | |
4.1.x4.1.w | 1-5611 | 4.3 | — | |
4.1.y4.1.x | 1-5611 | 4.1 | — | |
4.1.z4.1.y | 1-5611 | 4.1 | — | |
4.1.aa4.1.z | 1-5611 | 4.1 | — | |
4.1.bb4.1.aa | 1-5611 | 4.1 | — | |
4.1.cc4.1.bb | 1-5611 | 4.1 | — | |
4.1.cc | 1-5611 | 4.1 | — | |
4.1.dd | 1-5611 | 4.1 | — | |
4.1.ee | 1-5611 | 4.1 | — | |
4.1.ff | 1-5611 | 4.1 | — | |
| | | | |
| | | | |
| | | | |
4.2 | 1-5611 | (4)(b) | — | |
4.3 | 1-5611 | (4)(c) | — | |
4.41 | 33-47629 | (4)(a) | — | Indenture dated as of September 15, 1992 between CMS Energy and NBD Bank, as Trustee (Form S-3 filed May 1, 1992) |
| | | | Indentures Supplemental thereto: |
4.4.a1 | 1-9513 | 4.1 | — | |
4.4.b1 | 1-9513 | 4.1 | — | |
4.4.c1 | 1-9513 | 4.2 | — | |
4.4.d1 | 1-9513 | 4.1 | — | |
4.4.e1
| 1-9513 | 4.1 | — | |
4.4.f1
| 1-9513 | 4.1 | — | |
4.4.g1
| 1-9513 | 4.1 | — | |
| | | Previously Filed | | | Previously Filed | |
Exhibits | Exhibits | With File Number | As Exhibit Number | | Description | Exhibits | With File Number | As Exhibit Number | | Description |
4.4.e1 | | 4.4.e1 | 1-9513 | 4.1 | — | |
4.4.f1 | | 4.4.f1 | 1-9513 | 4.1 | — | |
4.4.g1 | | 4.4.g1 | 1-9513 | 4.1 | — | |
| 4.51 | 4.51 | 1-9513 | (4a) | — | | 4.51 | 1-9513 | (4a) | — | |
| | Indentures Supplemental thereto: | | Indentures Supplemental thereto: |
4.5.a1 | 4.5.a1 | 1-9513 | 4.5.a | — | | 4.5.a1 | 1-9513 | 4.5.a | — | |
4.5.b1 | 4.5.b1 | 1-9513 | 4.1 | — | | 4.5.b1 | 1-9513 | 4.1 | — | |
4.5.c1 | 4.5.c1 | 1-9513 | 4.1 | — | | 4.5.c1 | 1-9513 | 4.1 | — | |
4.5.d1 | 4.5.d1 | 1-9513 | 4.1 | — | | 4.5.d1 | 1-9513 | 4.1 | — | |
4.5.e1 | 4.5.e1 | 1-9513 | 4.1 | — | | 4.5.e1 | 1-9513 | 4.1 | — | |
4.5.f1 | 4.5.f1 | 1-9513 | 4.1 | — | | 4.5.f1 | 1-9513 | 4.1 | — | |
| 4.61 | 4.61 | 1-9513 | 4.6 | — | | 4.61 | 1-9513 | 4.6 | — | |
4.7 | 4.7 | 1-5611 | 4.7 | — | | 4.7 | 1-5611 | 4.7 | — | |
4.81 | | 4.81 | 1-9513 | 4.2 | — | |
10.12 | 10.12 | 1-9513 | 10.1 | — | | 10.12 | 1-9513 | 10.1 | — | |
10.22 | 10.22 | 1-9513 | 10.3 | — | | 10.22 | 1-9513 | 10.3 | — | |
10.32 | 10.32 | 1-9513 | 10.5 | — | | 10.32 | 1-9513 | 10.5 | — | |
10.42 | 10.42 | 1-9513 | 10.6 | — | | 10.42 | 1-9513 | 10.6 | — | |
10.52 | 10.52 | 1-9513 | 10.7 | — | | 10.52 | 1-9513 | 10.7 | — | |
10.62 | 10.62 | 1-9513 | 10.6 | — | | 10.62 | 1-9513 | 10.6 | — | |
10.71 | 10.71 | 1-9513 | (10)(y) | — | Environmental Agreement dated as of June 1, 1990 made by CMS Energy to The Connecticut National Bank and Others (Form 10-K for the fiscal year ended December 31, 1990) | 10.71 | 1-9513 | (10)(y) | — | Environmental Agreement dated as of June 1, 1990 made by CMS Energy to The Connecticut National Bank and Others (Form 10-K for the fiscal year ended December 31, 1990) |
10.81,2 | 1-9513 | (10)(a) | — | | |
10.92 | 1-5611 | (10)(b) | — | | |
| | | Previously Filed | | | Previously Filed | |
Exhibits | Exhibits | With File Number | As Exhibit Number | | Description | Exhibits | With File Number | As Exhibit Number | | Description |
10.81,2 | | 10.81,2 | 1-9513 | (10)(a) | — | |
10.92 | | 10.92 | 1-5611 | (10)(b) | — | |
10.102 | 10.102 | 1-9513 | 10.2 | — | | 10.102 | 1-9513 | 10.10 | — | |
10.112 | 10.112 | 1-9513 | 10.1 | — | | 10.112 | 1-9513 | 10.1 | — | |
10.122 | 10.122 | 1-5611 | 10.12 | — | | 10.122 | 1-9513 | 10.12 | — | |
10.131,2 | 10.131,2 | 1-9513 | 10.3 | — | | 10.131,2 | | — | |
10.141 | 10.141 | 1-9513 | 10.1 | — | | 10.141 | 1-9513 | 10.1 | — | |
10.14.a1 | 1-9513 | 10.2 | — | | |
| 10.15 | 10.15 | 1-5611 | 10.2 | — | | 10.15 | 1-5611 | 10.2 | — | |
| 10.16 | 10.16 | 1-5611 | 10.1 | — | | 10.16 | 1-5611 | 10.1 | — | |
10.16.a | 10.16.a | 1-5611 | 10.1 | — | | 10.16.a | 1-5611 | 10.1 | — | |
10.16.b | 10.16.b | 1-5611 | 10.1 | — | | 10.16.b | 1-5611 | 10.1 | — | |
10.16.c | | 10.16.c | 1-5611 | 10.1 | — | |
10.16.d | | 10.16.d | 1-5611 | 10.1 | — | |
10.172 | 10.172 | 1-9513 | 10.1 | — | | 10.172 | 1-9513 | 10.1 | — | |
10.18 | 1-5611 | 10.1 | — | | |
21.1 | | — | | |
23.1 | | — | | |
23.2 | | — | | |
| | | | | | | | | | | | | | |
| Previously Filed | | |
Exhibits | With File Number | As Exhibit Number | | Description |
10.18 | 1-5611 | 10.1 | — | |
10.191 | 1-9513 | 10.1 | — | |
10.19.a1 | 1-9513 | 10.1 | — | |
10.20 | 1-5611 | 10.1 | — | |
10.21 | 1-5611 | 10.2 | — | |
10.22 | 1-5611 | 10.1 | — | |
10.23 | 1-5611 | 10.1 | — | |
| | | | |
| | | | |
| | | | |
| | | | |
21.1 | | | — | |
23.1 | | | — | |
23.2 | | | — | |
31.1 | | | — | |
31.2 | | | — | |
31.3 | | | — | |
31.4 | | | — | |
32.1 | | | — | |
32.2 | | | — | |
99.11 | 333-249643 | 99.1 | — | |
101.INS | | | — | Inline XBRL Instance Document |
| | | | | | | | | | | | | | |
| Previously Filed | | |
Exhibits | With File Number | As Exhibit Number | | Description |
31.1 | | | — | |
31.2 | | | — | |
31.3 | | | — | |
31.4 | | | — | |
32.1 | | | — | |
32.2 | | | — | |
99.11
| 333-249643 | 99.1 | — | |
101.INS | | | — | Inline XBRL Instance Document |
101.SCH | | | — | Inline XBRL Taxonomy Extension Schema |
101.CAL | | | — | Inline XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | | | — | Inline XBRL Taxonomy Extension Definition Linkbase |
101.LAB | | | — | Inline XBRL Taxonomy Extension Labels Linkbase |
101.PRE | | | — | Inline XBRL Taxonomy Extension Presentation Linkbase |
104 | | | — | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document) |
1Obligations of CMS Energy or its subsidiaries, but not of Consumers.
2Management contract or compensatory plan or arrangement.
Exhibits that have been previously filed with the SEC, designated above, are incorporated herein by reference and made a part hereof.
Item 16. Form 10-K Summary
None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, CMS Energy Corporation has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
/s/ Garrick J. Rochow | | |
Name: | Garrick J. Rochow | | |
Title: | President andChief Executive Officer | | |
Date: | February 11, 20219, 2023 | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of CMS Energy Corporation and in the capacities indicated and on February 11, 2021.9, 2023.
| | | | | | | | |
/s/ Garrick J. Rochow | | /s/ Kurt L. DarrowWilliam D. Harvey |
Garrick J. Rochow | | Kurt L. Darrow,William D. Harvey, Director |
President, Chief Executive Officer, and Director | | |
(Principal Executive Officer) | | |
| | /s/ William D. HarveyJohn G. Russell |
| | William D. Harvey,John G. Russell, Director |
| | |
/s/ Rejji P. Hayes | | /s/ John G. Russell |
Rejji P. Hayes | | John G. Russell, Director |
Executive Vice President and Chief Financial Officer | | |
| /s/ Suzanne F. Shank |
| Suzanne F. Shank, Director |
(Principal Financial Officer) | | Suzanne F. Shank, Director |
| | |
| | /s/ Myrna M. Soto |
/s/ Glenn P. BarbaScott B. McIntosh | | Myrna M. Soto, Director |
Glenn P. BarbaScott B. McIntosh | | |
Vice President, Controller, and Chief Accounting Officer | | |
| /s/ John G. Sznewajs |
(Controller) | | John G. Sznewajs, Director |
(Controller) | | |
| | /s/ Ronald J. Tanski |
| | Ronald J. Tanski, Director |
| | |
/s/ Jon E. Barfield | | /s/ Ronald J. Tanski |
Jon E. Barfield, Director | | Ronald J. Tanski, Director |
| | |
| | |
/s/ Deborah H. Butler | | /s/ Laura H. Wright |
Jon E. Barfield,Deborah H. Butler, Director | | Laura H. Wright, Director |
| | |
| | |
/s/ Deborah H. ButlerKurt L. Darrow | | |
Deborah H. Butler,Kurt L. Darrow, Director | | |
| | |
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Consumers Energy Company has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
/s/ Garrick J. Rochow | | |
Name: | Garrick J. Rochow | | |
Title: | President andChief Executive Officer | | |
Date: | February 11, 20219, 2023 | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of Consumers Energy Company and in the capacities indicated and on February 11, 2021.9, 2023.
| | | | | | | | |
/s/ Garrick J. Rochow | | /s/ Kurt L. DarrowWilliam D. Harvey |
Garrick J. Rochow | | Kurt L. Darrow,William D. Harvey, Director |
President, Chief Executive Officer, and Director | | |
(Principal Executive Officer) | | |
| | /s/ William D. HarveyJohn G. Russell |
| | William D. Harvey,John G. Russell, Director |
| | |
/s/ Rejji P. Hayes | | /s/ John G. Russell |
Rejji P. Hayes | | John G. Russell, Director |
Executive Vice President and Chief Financial Officer | | |
| /s/ Suzanne F. Shank |
| Suzanne F. Shank, Director |
(Principal Financial Officer) | | Suzanne F. Shank, Director |
| | |
| | /s/ Myrna M. Soto |
/s/ Glenn P. BarbaScott B. McIntosh | | Myrna M. Soto, Director |
Glenn P. BarbaScott B. McIntosh | | |
Vice President, Controller, and Chief Accounting Officer | | |
| /s/ John G. Sznewajs |
(Controller) | | John G. Sznewajs, Director |
(Controller) | | |
| | /s/ Ronald J. Tanski |
| | Ronald J. Tanski, Director |
| | |
/s/ Jon E. Barfield | | /s/ Ronald J. Tanski |
Jon E. Barfield, Director | | Ronald J. Tanski, Director |
| | |
| | |
/s/ Deborah H. Butler | | /s/ Laura H. Wright |
Jon E. Barfield,Deborah H. Butler, Director | | Laura H. Wright, Director |
| | |
| | |
/s/ Deborah H. ButlerKurt L. Darrow | | |
Deborah H. Butler,Kurt L. Darrow, Director | | |
| | |