Presented in the following table are the detailed after-tax changes to the enterprises segment’s net income available to common stockholders for the three months ended March 31, 20202021 versus 2019:2020:
Presented in the following table are the detailed after-tax changes to EnerBank’s net income available to common stockholders for the three months ended March 31, 20202021 versus 2019:2020:
Presented in the following table are the detailed after-tax changes to corporate interest and other results for the three months ended March 31, 20202021 versus 2019:2020:
Investing Activities
Presented in the following table are specific components of net cash used in investing activities for the three months ended March 31, 20202021 versus 2019:2020:
| | | | | | | | |
| In Millions |
| CMS Energy, including Consumers | | |
| Three Months Ended March 31, 2020 | | $ | (559) | |
| Reasons for the change | | |
| Lower capital expenditures | | 86 | |
| Changes in EnerBank notes receivable, reflecting growth in consumer lending | | (72) | |
| Lower purchases of notes receivable by EnerBank | | 6 | |
| | |
| Proceeds from sale of EnerBank notes receivable in 2021 | | 263 | |
| | |
| Other investing activities, primarily higher costs to retire property | | (7) | |
| Three Months Ended March 31, 2021 | | $ | (283) | |
| Consumers | | |
| Three Months Ended March 31, 2020 | | $ | (542) | |
| Reasons for the change | | |
| Lower capital expenditures | | 87 | |
| | |
| | |
| Other investing activities, primarily higher costs to retire property | | (3) | |
| Three Months Ended March 31, 2021 | | $ | (458) | |
|
| | | | |
| In Millions | |
| CMS Energy, including Consumers | | |
| Three Months Ended March 31, 2019 | | $ | (675 | ) |
| Reasons for the change | | |
| Higher capital expenditures | | $ | (42 | ) |
| Changes in EnerBank notes receivable, reflecting slower growth in consumer lending in 2020 | | 42 |
|
| Lower purchases of notes receivable by EnerBank | | 113 |
|
| Other investing activities, primarily lower costs to retire property | | 3 |
|
| Three Months Ended March 31, 2020 | | $ | (559 | ) |
| Consumers | | |
| Three Months Ended March 31, 2019 | | $ | (502 | ) |
| Reasons for the change | | |
| Higher capital expenditures | | $ | (44 | ) |
| Other investing activities, primarily lower costs to retire property | | 4 |
|
| Three Months Ended March 31, 2020 | | $ | (542 | ) |
Financing Activities
Presented in the following table are specific components of net cash provided by (used in) financing activities for the three months ended March 31, 20202021 versus 2019:2020:
| | | | | | | | |
| In Millions |
| CMS Energy, including Consumers | | |
| Three Months Ended March 31, 2020 | | $ | 1,062 | |
| Reasons for the change | | |
| Lower debt issuances | | (1,198) | |
| | |
| Lower borrowings of certificates of deposit at EnerBank | | (66) | |
| Lower repayments under Consumers’ commercial paper program | | 90 | |
| Lower issuances of common stock | | (92) | |
| Higher payments of dividends on common stock | | (10) | |
| | |
| | |
| | |
| Other financing activities, primarily lower debt issuance costs | | 4 | |
| Three Months Ended March 31, 2021 | | $ | (210) | |
| Consumers | | |
| Three Months Ended March 31, 2020 | | $ | 904 | |
| Reasons for the change | | |
| Lower debt issuances | | (873) | |
| | |
| Lower repayments under Consumers’ commercial paper program | | 90 | |
| Higher repayments of borrowings from CMS Energy | | (250) | |
| Lower stockholder contribution from CMS Energy | | (200) | |
| Higher payments of dividends on common stock | | (57) | |
| | |
| Other financing activities | | 2 | |
| Three Months Ended March 31, 2021 | | $ | (384) | |
|
| | | | |
| In Millions | |
| CMS Energy, including Consumers | | |
| Three Months Ended March 31, 2019 | | $ | 150 |
|
| Reasons for the change | | |
| Higher debt issuances | | $ | 205 |
|
| Lower debt retirements | | 788 |
|
| Changes in EnerBank certificates of deposit, reflecting lower borrowings | | (158 | ) |
| Higher repayments under Consumers’ commercial paper program | | (23 | ) |
| Higher issuances of common stock, primarily the settlement of an equity forward sale contract | | 98 |
|
| Higher payments of dividends on common stock | | (8 | ) |
| Other financing activities, primarily lower debt issuance costs | | 10 |
|
| Three Months Ended March 31, 2020 | | $ | 1,062 |
|
| Consumers | | |
| Three Months Ended March 31, 2019 | | $ | (109 | ) |
| Reasons for the change | | |
| Higher debt issuances | | $ | 873 |
|
| Lower debt retirements | | 215 |
|
| Higher repayments under Consumers’ commercial paper program | | (23 | ) |
| Higher payments of dividends on common stock | | (47 | ) |
| Other financing activities, primarily higher debt issuance costs | | (5 | ) |
| Three Months Ended March 31, 2020 | | $ | 904 |
|
Capital Resources and Liquidity
CMS Energy uses dividends and tax‑sharingtax-sharing payments from its subsidiaries and external financing and capital transactions to invest in its utility and non‑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 Notes to the Unaudited Consolidated Financial Statements—Note 4,3, Financings and Capitalization—Dividend Restrictions. For the three months ended March 31, 2020,2021, Consumers paid $219$276 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 Energy 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. CMS Energy and Consumers rely on the capital markets to fund their robust capital plan and those markets have faced significant strain. CMS Energy executed and funded a
$300 million term loan facility in February 2020 and settled $100 million of its $250 million contracted forward equity in March 2020, which reduces CMS Energy’s need for external funding for the remainder of the year. Furthermore, Consumers issued $575 million of first mortgage bonds in March 2020. These transactions mitigate the potential impact of the COVID‑19 pandemic on CMS Energy’s and Consumers’ funding needs.In April 2020, Consumers redeemed $100 million of first mortgage bonds due in October 2020.With this transaction, CMS Energy and Consumers have no remaining outstanding debt maturing in 2020. For more information on CMS Energy’s and Consumers’ financing transactions, see Note 4, Financings and Capitalization.
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. The COVID‑19 pandemic is a rapidlycontinually evolving situation and CMS Energy and Consumers cannot predict the ultimate impact it will have on their liquidity, debt covenants, financial condition,business, results of operations, orfinancial condition, capital investment program.
As a result of a provision in the TCJA, as amended by the recently enacted CARES Act, CMS Energy will recover all remaining alternative minimum tax credits in 2020. CMS Energy utilized $7 million of these credits on its 2019 consolidated tax return,program, liquidity, and will receive the remaining $69 million through a cash refund. The CARES Act also provides for the deferral of payroll taxes, which will allow CMS Energy and Consumers to defer remittance of $40 million of payroll taxes in 2020; half of the deferred amount will be due at the end of 2021 and the other half will be due at the end of 2022.flows.
In 2018,2020, CMS Energy entered into an equity offering program under which it may sell from time to time, shares of CMS Energyits common stock having an aggregate sales price of up to $250 million. Under this program, CMS Energy may sell its common stock$500 million in privately negotiated transactions, in “at the market” offerings, through forward sales transactions, or otherwise. At March 31, 2020,
CMS Energy’s remainingEnergy has entered into forward sales contracts had an aggregate sales price of $150 million. These contractstransactions under this program, which allow CMS Energy to either physically settle the contracts by issuing shares of its common stock at the then‑applicablethen-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.
For more information on thethese forward sale contracts, see Notes to the Unaudited Consolidated Financial Statements—Note 4,3, Financings and Capitalization—Issuance of Common Stock.
At March 31, 2020,2021, CMS Energy had $521$532 million of its revolving credit facility available and Consumers had $1.1 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 in 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 March 31, 2020,2021, there were no commercial paper notes outstanding under this program. For additional details on CMS Energy’s and Consumers’ revolving credit facilities and commercial paper program, see Notes to the Unaudited Consolidated Financial Statements—Note 4,3, Financings and Capitalization.
Certain of CMS Energy’s and Consumers’ credit agreements debt indentures, and other facilities contain covenants that require CMS Energy and Consumers to maintain certain financial ratios, as defined therein. At March 31, 2020,2021, no default had occurred with respect to any financial covenants contained in
CMS Energy’s and Consumers’ credit agreements, debt indentures, or other facilities.agreements. CMS Energy and Consumers were each in compliance with these covenants as of March 31, 2020,2021, as presented in the following table:
|
| | | | | | | |
| March 31, 2020Limit | Actual |
Credit Agreement, Indenture, or Facility | Limit | Actual |
| CMS Energy, parent only | | | |
Debt to EBITDA¹ | < | 6.25 to 1.0 | 5.1 to 1.0 |
Consumers | | | |
Debt to Capital² | < | 0.65 to 1.0 | 0.49 to 1.0 |
| |
Debt to Capital1 | Applies< 0.70 to CMS Energy’s $550 million revolving credit agreement and $300 million term loan credit agreement.1.0 | 0.57 to 1.0 |
| Consumers | | |
Debt to Capital2 | Applies< 0.65 to Consumers’ $850 million and $250 million revolving credit agreements, its $30 million and $35 million reimbursement agreements, and its $300 million term loan credit agreement.1.0 | 0.48 to 1.0 |
1Applies to CMS Energy’s revolving credit agreement and term loan credit agreement.
2Applies to Consumers’ revolving credit agreements and letter of credit agreement.
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 for 20202021 and beyond.
CMS Energy is also required both by law and by contract to provide financial support, 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 March 31, 2021. 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 seamless borrowing capability should the need arise. At March 31, 2021, there were no outstanding borrowings under EnerBank’s contingent funding sources.
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 March 31, 2020,2021, these contracts have an aggregate sales price of $150$58 million, and mature in 2021.maturing through 2022. For additional details on the companies’ indemnity and guarantee arrangements, see Notes to the Unaudited Consolidated Financial Statements—Note 3,2, Contingencies and Commitments—Guarantees. For additional details on letters of credit and CMS Energy’s forward sales contracts, see Notes to the Unaudited Consolidated Financial Statements—Note 4,3, Financings and Capitalization.
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; Notes to the Unaudited Consolidated Financial Statements—Note 1, Regulatory Matters and Note 2, Regulatory Matters; Note 3, Contingencies and Commitments; and Part II—Item 1A. Risk Factors.
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 its Clean Energy Plan, Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040 and eliminate the use of coal to generate electricity by 2040. The Clean Energy Plan also provides the foundation for Consumers’ recently announced 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. Consumers is required to file a new IRP by June 2021.
Specifically, the Clean Energy Plan provides for:
| |
• | the retirement of the D.E. Karn 1 & 2 coal-fueled generating units, totaling 503 MW, in 2023
|
the continued assessmentretirement of the D.E. Karn 1 & 2 coal-fueled generating units, totaling 460 MW, in future IRP filings concerning 2023
•the potential retirement of the J.H. Campbell 1 & 2 coal-fueled generating units, totaling 609540 MW, in 20252031 or earlier
Under the Clean Energy Plan, Consumers will replace the capacity to be retired with:
•increased demand response programs
•increased energy efficiency
•increased renewable energy generation
•conservation voltage reduction
•increased pumped storage
Consumers will competitively bid new capacity and at least 50 percent of the new capacity will be built and owned by third parties; the remainder will be owned and operated by Consumers.
In support of its Clean Energy Plan, Consumers issued a requestrequests for proposals in September 2019 and 2020, each to acquire up to 300 MW of new capacity from projects to be operational in Michigan’s Lower Peninsula by May 2022.2023. Specifically, Consumers solicited offers to enter into PPAs with or purchase solar generation projects ranging in size from 20 MW to 150 MW and to enter into PPAs with PURPA qualifying facilities up to 20 MW. Any contracts entered into as a result of the request for proposals would be subject to MPSC approval.
As a result of the 2019 request for proposals, in December 2020, Consumers entered into a 25-year PPA under which it will purchase 140 MW of renewable capacity, energy, and RECs from a solar generating facility to be constructed in Calhoun County, Michigan. The facility is expected to be operational in 2022. Also, in January 2021, Consumers entered into an agreement to purchase 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. Both of these agreements were approved by the MPSC in April 2021.
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 will demonstrate its compliance by filing the 2019 renewable energy cost reconciliation with the MPSC in June 2020.2021. 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 percentage of Consumers’ electric sales volume each year. Under its renewable energy plan, Consumers expects to meet its renewable energythe 15-percent requirement each yearin 2021 and future years 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-MW wind generation project in Gratiot County, Michigan; the project became operational 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 150201 MW, in Gratiot County, Michigan; on-site construction began during the fourth quarter of 2019 and the project is slated to be complete and operational in 2020
purchase of a wind generation project under development, with capacity of up to 166 MW, in Hillsdale, Michigan; Consumers is slatedexpects to take full ownership and begin commercial operation of the project in 20202022
The MPSC also approved the execution of a 20-year agreementPPA under which Consumers will purchase 100 MW of renewable capacity, energy, and RECs from a 149-MW solar generating facility to be constructed in Calhoun County, Michigan; the facility is expected to be operational in 2021
As a result of the COVID‑19 pandemic, Consumers has received force majeure notifications from the turbine supplier and engineering, procurement, and construction contractors for the two wind generation
projects. As this time, construction activities continue and Consumers does not anticipate any changes to the projects’ expected commercial operation dates, overall cost, or ability to qualify for production tax credits, but Consumers cannot predict the ultimate impact of the force majeure notifications.2022.
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. Beginning in June 2020,2021, electric residential customers will transition to a summer peak time-of-use rate that will allow them to take advantage of lower-cost energy during off-peak times during the summer months. Thus, customers could reduce their electric bills by shifting their consumption from on-peakon‑peak to off-peakoff‑peak times.
As a result ofIn response to the COVID‑19 pandemic, on March 23, 2020, Michigan’s Governor and the Michigan Department of Health and Human Services have issued an executive order requiring all non-essential businesses to close temporarily and Michigan residents to stay home until April 13, 2020; this order has since been extended to May 15,numerous orders throughout 2020 and amended in scope to allow some additional2021 restricting business, educational, and personal activities. activities at varying levels. Presently, state guidelines include requiring remote work in lieu of in-person work when feasible and restrictions on indoor and outdoor gatherings, certain entertainment venues, and indoor dining at restaurants. Most other businesses are now open with safety measures in place.
Since the issuancebeginning of the order,pandemic, Consumers has experienced declines in weather-normalized commercial and industrial demand of over 20 percent compared to the same period of 2019. These declines, however, have been offset partially by residential load, which has increased by over five percent over the same period. While Consumers anticipates a decline in electric deliveries. Specifically, Consumers’ weather-normalized electric deliveries to commercial and industrial customers have decreased, offset partially by an increase in the near term as a result of the COVID‑19 pandemic, it cannot predict the impact on full-year 2020 deliveries at this time.
to residential customers. Additionally, Consumers has suspended shut-offs of service for non-payment and extended payment protection plans for low-income and senior customers through June 1, 2020. In light of the expected economic impacts of the pandemic, Consumers anticipatesrecognized increased uncollectible accounts during 2020 and the aggregate outstanding amount of, and the number of its customers with, past-due accounts remains in excess of pre‑pandemic levels. Although Michigan businesses and residents are moving closer to resuming normal activities, the near term, butCOVID-19 pandemic is a continually evolving situation and Consumers cannot predict the long-term impact of the pandemic on Michigan’s economy or its customers.
Over the long term,next five years, Consumers expects weather-normalized electric deliveries over the next five years to decrease slightly.remain stable relative to 2020. 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, 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 March 31, 2020,2021, electric deliveries under the ROA program were at the ten-percentten‑percent limit. Of Consumers’ 1.81.9 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 1, 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, 2023.2024.
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. The MPSC and Consumers filed applications for leave to appeal the Court of Appeals’ decision to the Michigan Supreme Court. 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 considerproviders.
In September 2020, ABATE and another intervenor filed a procedural challenge previously undecided by the Court of Appeals; this challenge concerns the process thatcomplaint against the MPSC used in 2017the 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 considerissue 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 does not affectdefend the substance of the MPSC’s authority to implement a local clearing requirement for future planning periods. In April 2020, ABATE filed ain that federal litigation; this motion for rehearing of the Michigan Supreme Court’s decision. Consumers will file a response to oppose the motion.was granted in January 2021 and this case remains pending.
Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. For additional details on rate matters, see Notes to the Unaudited Consolidated Financial Statements—Note 1, Regulatory Matters and Note 2, Regulatory Matters.Contingencies and Commitments.
20202021 Electric Rate Case: In February 2020,March 2021, Consumers filed an application with the MPSC seeking an annual rate increase of $244$225 million, based on a 10.5 percent authorized return on equity and afor the projected twelve-month period ending December 31, 2021.2022. The filing requests authority to recover new investment infuture investments associated with distribution system reliability, solar generation, environmental compliance,
and technology enhancements.enhanced technology. Presented in the following table are the components of the requested increase in revenue:
| | | | | | | | |
| In Millions |
| Projected Twelve-Month Period Ending December 31 | | 2022 |
| Components of the requested rate increase | | |
| Investment in rate base | | $ | 121 | |
| Operating and maintenance costs | | 76 | |
| Cost of capital | | 53 | |
| Sales and other revenue | | (25) | |
| Total | | $ | 225 | |
|
| | | | |
| In Millions | |
| Projected Twelve-Month Period Ending December 31 | | 2021 |
|
| Components of the requested rate increase | | |
| Investment in rate base | | $ | 181 |
|
| Operating and maintenance costs | | 108 |
|
| Cost of capital | | 27 |
|
| Sales | | (36 | ) |
| TCJA deferred federal income taxes amortization | | (36 | ) |
| Total | | $ | 244 |
|
The filing also seeks approvalDepreciation Rate Case: In March 2021, Consumers filed a depreciation case related to recover $13 million associated with Consumers’ deferral ofits electric and common utility property. In this case, Consumers requested an increase in depreciation and property tax expense, and its recovery of that expense, of $43 million annually based on December 31, 2019 balances.
Retention Incentive Program: In 2019, Consumers announced a retention incentive program to ensure necessary staffing at the overallD.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 of return on distribution-related capital investments exceeding certain threshold amounts. Thiscase, the MPSC approved deferred accounting treatment was approved by the MPSCfor these costs. Consumers expects to recognize $8 million of retention benefit costs in January 2019.
Additionally, the filing seeks approval of2021; this expense will be deferred as a method of recovering amounts earned under the financial compensation mechanism approved by the MPSC in Consumers’ IRP. This mechanism allows Consumers to earn a financial incentiveregulatory asset. For additional details on PPAs approved by the MPSC after January 1, 2019. In the filing, Consumers requests recovery of $3 million, beginning in January 2021, for incentives earned and to be earned on PPA payments during 2019 through 2021.
Consumers also proposes in the filing a new distributed generation tariff to replace the current net metering tariff, pursuantthis program, see Notes to the 2016 Energy Law. The proposed distributed generation tariff is consistentUnaudited Consolidated Financial Statements—Note 14, Exit Activities.
with other distributed generation tariffs already approved by the MPSC and would substantially reduce the subsidies paid by non-distributed generation customers under the current net metering program.
Electric Environmental Outlook:Consumers’ operations are subject to various state and federal environmental laws and regulations. Consumers estimates that it will incur capital expenditures of $275$260 million from 20202021 through 20242025 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 customer 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‑levelground-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. AnyIn October 2020, in response to a court-ordered remand due to litigation, or remand to the EPA proposed a revised CSAPR rule to reflect updated emission reductions from electric generating units in 12 states, including Michigan. The EPA finalized the rule in March 2021, and has made provisions for program implementation by May 2021, with continued emission reductions through 2024. Consumers is not expected to impact Consumers’evaluating its emission compliance strategy as Consumers expects its emissionsfor existing units based on the proposed number of allowances allocated to Michigan for 2021 through 2024, and believes the impact of this rule should be within the CSAPR allowance allocations.minimal.
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‑fueledcoal-fueled electric generating units were required to add additional controls for hazardous air pollutants. Consumers met the extended deadline of April 2016 for five coal‑fueledcoal-fueled units and two oil/gas‑fueledgas-fueled units it continues to operate and retired its seven remaining coal‑fueledcoal-fueled units. In addition, in 2018,May 2020, the EPA proposedfinalized changes to the supporting analysis used to justifyenact MATS, but did not proposemake any changes to the MATS regulations. AnyThese changes resulting from litigation or rulemaking are expected to be minor and should do
not impact Consumers’ MATS compliance strategy. Ifstrategy 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 settlement agreement with the EPA entered into in 2014 concerning opacity and NSR,renewable operating permits, which hashave similar emission requirements to MATS.
In 2015, the EPA lowered the NAAQS for ozone. The new2015 ozone NAAQS will makemade it more difficult to construct or modify power plants and other emission sources in areas of the country that have not met the new2015 ozone standard. In April 2018, the EPA designated certain areas of Michigan as not meeting the new standard with an August 2018 effective date.ozone standard. None of Consumers’ fossil‑fuel‑firedfossil-fuel-fired generating units are located in these areas. SomeAdditionally, the State of Consumers’ compressor stations are locatedMichigan 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 areas impacted by the rule, but Consumers expects only minor permitting impacts if those units are modified in the future.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‑fueledcoal-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 requireswould require new coal‑fueledcoal-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. The EPA has not formally indicated whether they intend to finalize this rulemaking or instead pursue a new set of regulations.
In 2019, the EPA finalized the Affordable Clean Energy rule. The rule requires individual states to evaluate coal-fueledcoal‑fueled power plants for heat‑rate improvements that could increase overall plant efficiency. The evaluations to be performed by the State of Michigan under the final rule may require Consumers to make heat-rate improvements at its remaining coal-fueled unitsJ.H. Campbell plant beginning in the mid‑2020s. ThisHowever, the D.C. Circuit Court of Appeals vacated and remanded this rule is presently being litigated.to the EPA in January 2021. Consumers cannot evaluate the potential impact of the ruleremand until the StateEPA 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. AlthoughWhile the U.S. has begun the process of withdrawingwithdrew from the Paris Agreement, it has statedrejoined the Paris Agreement in 2021. In April 2021, the U.S. announced it is committing to a desirenationally determined contribution under the Paris Agreement. Nationally determined contributions are the efforts by each country to renegotiate a new agreement inreduce national greenhouse gas emissions. The commitment made by the future.U.S. is to reduce greenhouse gas emissions by 50-52 percent from 2005 levels by 2030. 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.
SevereIncreased frequency of severe weather events, andincluding those due to climate change, associated with increasing levels of greenhouse gases could affectmaterially impact Consumers’ facilities, and energy sales, and could have a material impact on its future results of operations. Consumers is unable to predict these events or their financial impact; however, Consumers plans for adverse weather and evaluates the possiblepotential physical impacts of climate change on its operations, including increased temperature, increased storm activity, increased rainfall, and higher lake and river levels. Consumers is taking steps to reduce its potential impact.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 requireimpact Consumers. Consumers may be required to replace equipment,equipment; install additional emission control equipment,equipment; purchase emission allowances or credits,credits; curtail operations,operations; arrange for alternative sources of supply,supply; purchase facilities that generate fewer emissions; mothball or retire facilities that generate certain emissions,emissions; pursue energy efficiency or demand response measures more swiftly,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 the state CCRa regulatory package for Michigan’s permit program application to Michigan’s Attorney General in June 2019 for review and signature. The Attorney General signed the application in March 2020. EGLE is preparing the final package for submission to the EPA.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 are aimed at reducingseek 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. In 2017, the EPA announced that it will undertake a rulemaking to replace specific portionsstreams from electric generating units. The rule also allows for extension of the rule and proposed delayingcompliance deadline from the compliance start dates for two years, but maintainedend of 2023 to the compliance end dates. Additional rulemaking began in November 2019 and will continue in 2020.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 anythese 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. These rules are presently being, or are likely to be, litigated.
A finalThe new definition would changenarrows the scope of waterfederal jurisdiction and wetlands regulations underreduces the Clean Water Act. The EPA has delegatedfrequency of dual jurisdiction in states with authority to manageregulate the same waters; Michigan wetlands program to EGLE for a large portion
of Consumers’ service territory, but dual jurisdiction exists between the EPA and the U.S. Army Corps of Engineers in some locations in Michigan. As a result, regardless of the ultimate outcome of the EPA’s rules, Consumers expects to continue to operate under Michigan’s wetlands regulations, and under the applicable state and federal water jurisdictional regulations. Thus,is one such state. Consumers does not expect any material adverse changes to its environmental strategy as a result of these events, but under an expanded federalthe new definition, could experience permitting delays for infrastructure projects where dual jurisdiction exists.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, see Notes to the Unaudited
Consolidated Financial Statements—Note 3,2, Contingencies and Commitments—Consumers Electric Utility Contingencies—Electric Environmental Matters.
Retention Incentive Program: 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 up to $15 million of expense related to retention benefits in 2020. Consumers is seeking recovery of these costs from customers in its 2020 electric rate case. For additional details on this program, see Note 14, Exit Activities.
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.
Consumers does not anticipate thatThe impact of the COVID‑19COVID-19 pandemic will have a material impact on near-termweather-normalized gas deliveries but cannot predict the impact on full-year 2020 deliveries at this time. In light of the expected economic impacts of the pandemic,has not been material. Consumers anticipatesdid recognize increased uncollectible accounts during 2020 and the aggregate outstanding amount of, and the number of its customers with, past-due accounts remains in excess of pre‑pandemic levels. Although Michigan businesses and residents are moving closer to resuming normal activities, the near term, butCOVID-19 pandemic is a continually evolving situation and Consumers cannot predict the long-term impact of the pandemic on Michigan’s economy or its customers.
Over the long term, Consumers expects weather‑normalized gas deliveries over the next five years, Consumers expects weather-normalized gas deliveries to remain stable relative to 2019.2020. This outlook reflects modest growth in gas demand offset by the predicted effects of energy efficiency and conservation. Actual delivery levels from year to year may vary from this expectation as a result of:
•weather fluctuations
•use by power producers
•availability and development of renewable energy sources
•gas price changes
•Michigan economic conditions, including population trends and housing activity
•the price 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 Notes to the Unaudited Consolidated Financial Statements—Note 1, Regulatory Matters and Note 2, Regulatory Matters.
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 equityContingencies and a projected twelve-month period ending September 30, 2021. The filing requests authority to recover new infrastructure investment and related costs that will allow Consumers to improve system safety and reliability. Presented in the following table are the components of the requested increase in revenue:Commitments.
|
| | | | |
| In Millions | |
| Projected Twelve-Month Period Ending September 30 | | 2021 |
|
| Components of the requested rate increase | | |
| Investment in rate base | | $ | 126 |
|
| Operating and maintenance costs | | 91 |
|
| Cost of capital | | 26 |
|
| Sales | | 2 |
|
| Total | | $ | 245 |
|
The filing also seeks approval of a revenue decoupling mechanism that would annually reconcile Consumers’ actual weather-normalized non-fuel revenues with the revenues approved by the MPSC; similar to the mechanism previously approved by the MPSC, this reconciliation would commence when the projected twelve-month period covered by the filing ends and continue until the MPSC resets rates in a subsequent rate case.
Gas Pipeline and Storage Integrity and Safety: In October 2019, PHMSA published a final rule that expands federal safety standards for gas transmission pipelines. To comply with the rule, Consumers will incur increased capital 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 taketook effect July 1, 2020, with various implementationfuture regulation phases to be released 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 gas 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 is implementingcontinue implementation of the American Petroleum Institute’s Recommended Practice 1173, Pipeline Safety Management Systems. This program ensuresminimizes 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 Notes to the Unaudited Consolidated Financial Statements—Note 3,2, Contingencies and Commitments—Consumers Gas Utility Contingencies—Gas Environmental Matters.
Greenhouse Gases: Consumers is making voluntary efforts to reduce its gas utility’s methane emissions. In October 2019, Consumers released its Methane Reduction Plan, which set a goal of net‑zeronet-zero methane emissions from its natural gas delivery system by 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 be eliminatedoffset by purchasing and/or producing renewable natural gas.
There is also increasing interest at the federal, state, and local levels involving potential regulation of greenhouse gases or its sources, which include methane emissions and carbon dioxide from Consumers’ gas utility.sources. Such regulation, if adopted, may involve requirements to reduce methane emissions from Consumers’ gas utility operations and carbon dioxide emissions from natural gas customer use. No such measures apply to Consumers at this time. 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 Electric Utility and Gas Utility Outlook and Uncertainties
Energy Waste Reduction Plan:The 2016 Energy Law authorized incentives for demand response programs and expanded existing incentives for energy efficiency programs, referring to the combined initiatives as energy waste reduction programs. The 2016 Energy Law:
extended thelaw also set a requirement to achieve annual reductions of 1.0 percent in customers’ electricity use through 2021 and 0.75 percent in customers’ natural gas use indefinitely
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;2025. Consumers has achieved 2225 percent of the combined renewable energy and energy waste reduction goal through 20192020.
Additionally, the MPSC has approved the recovery of demand response costs and an associated financial incentive based on demand response target performance.
Under its energy waste reduction plan, Consumers provides its customers with incentives to reduce usage by offering energy audits, rebates and discounts on purchases of highly efficient appliances, and other incentives and programs. The COVID‑19 pandemic may impact Consumers’ ability to execute energy efficiency programs effectively and, accordingly, could affect Consumers’ ability to exceed its statutory
savings targets and earn the maximum energy waste reduction incentive for 2020.2021. Consumers cannot predict the ultimate financial impact of the pandemic on its 20202021 energy waste reduction incentive.
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. The order also requests that interested parties submit comments by the end of April 2020 regarding utility accounting for COVID‑19-related expenses and COVID‑19-related impacts to regulatory activities.
Enterprises Outlook and Uncertainties
CMS Energy’s primary focus with respect to its enterprises businesses is to maximize the value of generating assets, its share of which represents 1,2341,480 MW of capacity, and to pursue opportunities for the development of renewable generation projects.
The enterprises segment’s assets may be affected by environmental laws and regulations. The new2015 ozone NAAQS will makemade it more difficult to construct or modify power plants and other emission sources in areas of the country that have not met the new2015 ozone standard. In April 2018, the EPA designated certain areas of Michigan as not meeting the new standard with an August 2018 effective date.ozone standard. The enterprises segment’s DIG plant located in Dearborn, Michigan is in one such area and, as a result, would be subject to additional permitting restrictions in the event of any future modifications. For additional details regarding the new ozone NAAQS, see Consumers Electric Utility Outlook and Uncertainties—Electric Environmental Outlook.
Trends, uncertainties, and other matters related to the enterprises segment 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
the outcome of certain legal proceedings, including gas price reporting litigation
•indemnity and environmental remediation obligations at Bay Harbor, including an inability to renew an NPDES permit
•indemnity obligations assumed in 2020connection with the purchase or ownership of an interest in one or more facilities that involve tax equity financing
obligations related to a tax claim from the government of Equatorial Guinea
•representations, warranties, and indemnities provided by CMS Energy in connection with previous sales of assets
For additional details regarding the enterprises segment’s uncertainties, see Notes to the Unaudited Consolidated Financial Statements—Note 3,2, Contingencies and Commitments.
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 $2.4$2.7 billion at March 31, 2020.2021. The 12‑month12-month rolling average net default rate on loans held by EnerBank was 1.31.1 percent at March 31, 2020.2021. For additional details regarding EnerBank’s loan portfolio, see Notes to the Unaudited Consolidated Financial Statements—Note 6, Notes Receivable.
EnerBank’s loan portfolio was funded primarily by certificates of deposit of $2.7 billion at March 31, 2021. 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, of the COVID‑19 pandemic, EnerBank has institutedexperienced 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 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. The vast majority of customers and has experienced slower lending growth, offset slightly by market share gains asthat received payment accommodations in 2020 have resumed making their regular monthly payment in a result of new customers shifting from competitors.timely manner. EnerBank cannot predict the longer-term impacts of the pandemic, but could experience slower lending growth, higher loan write-offs, and increased loan modifications, and slower lending growth. EnerBank expects lending growth of up to five percent in 2020; lending growth could be higher if EnerBank continues to experience customers shifting from competitors. Over the long term, EnerBank expects lending growth to average nine percent annually over the next five years.modifications.
EnerBank’s loan portfolio was funded primarily by certificates of deposit of $2.4 billion at March 31, 2020. CMS Energy is required both by law and by contract to provide financial support, 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 March 31, 2020. For additional details regarding EnerBank’s loan portfolio, see Note 7, Notes Receivable.
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 three months ended March 31, 2020, CMS Energy and Consumers recorded an after-tax charge of $8 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 Contract: The present UWUA agreement for operating, maintenance, and construction employees expires in June 2020. Consumers has suspended in-person negotiations due to the COVID‑19 pandemic; however, Consumers executed an agreement with the UWUA to reach a tentative agreement within two weeks once the in-person restrictions are lifted. The tentative agreement would then need to be ratified by UWUA members. If a ratified tentative agreement cannot be reached with the UWUA by June 2020, the agreement provides for a one‑month extension to July 1, 2020 and a three‑percent general pay increase effective June 1, 2020 to the UWUA membership.
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 Notes to the Unaudited Consolidated Financial Statements—Note 2,1, Regulatory Matters and Note 3,2, Contingencies and Commitments.
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.
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