UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009March 31, 2010
OR
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o | | 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 | | Registrant; State of Incorporation; | | IRS Employer |
File Number | | Address; and Telephone Number | | Identification No. |
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1-9513 | | CMS ENERGY CORPORATION
| | 38-2726431 |
| | (A Michigan Corporation)
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| | One Energy Plaza, Jackson, Michigan 49201
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| | (517) 788-0550 | | 38-2726431 |
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1-5611 | | CONSUMERS ENERGY COMPANY
| | 38-0442310 |
| | (A Michigan Corporation)
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| | One Energy Plaza, Jackson, Michigan 49201
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| | (517) 788-0550 | | 38-0442310 |
Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yesþ Noo
Indicate by check mark whether the Registrants have submitted electronically and posted on their corporate Web sites, if any, every Interactive Data file required to be submitted and posted 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 Registrants were required to submit and post such files).
CMS Energy Corporation: Yeso Noo Consumers Energy Company: Yeso Noo
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
CMS Energy Corporation:
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Large accelerated filerþ | | Accelerated filero | Non-accelerated | Non-Accelerated filero (Do not check if a smaller reporting company) | | Smaller reporting companyo |
Consumers Energy Company:
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Large accelerated filero | | Accelerated filero | Non-accelerated | Non-Accelerated filerþ (Do not check if a smaller reporting company) | | Smaller reporting companyo |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
CMS Energy Corporation: Yeso Noþ Consumers Energy Company: Yeso Noþ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock at October 29, 2009:April 21, 2010:
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CMS Energy Corporation: | | | | |
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CMS Energy Common Stock, $.01 par value | | 229,896,872 | 229,606,943 |
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Consumers Energy Company: | | | | |
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Consumers Energy Common Stock, $10 par value, privately held by CMS Energy Corporation | | | 84,108,789 | |
CMS Energy Corporation
Consumers Energy Company
Quarterly reportsReports on Form 10-Q to the
United States Securities and Exchange Commission
for the QuarterPeriod Ended September 30, 2009
This combined Form 10-Q is separately filed by CMS Energy Corporation and Consumers Energy Company. Information in this combined Form 10-Q relating to each individual registrant is filed by such registrant on its own behalf. Consumers Energy Company makes no representation regarding information relating to any other companies affiliated with CMS Energy Corporation other than its own subsidiaries. None of CMS Energy Corporation, CMS Enterprises Company nor any of CMS Energy Corporation’s other subsidiaries (other than Consumers Energy Company) has any obligation in respect of Consumers Energy Company’s debt securities and holders of such securities should not consider the financial resources or results of operations of CMS Energy Corporation, CMS Enterprises Company nor any of CMS Energy Corporation’s subsidiaries (other than Consumers Energy Company and its own subsidiaries (in relevant circumstances)) in making a decision with respect to Consumers Energy Company’s debt securities. Similarly, none of Consumers Energy Company nor any other subsidiary of CMS Energy Corporation has any obligation in respect of debt securities of CMS Energy Corporation.
This report should be read in its entirety. No one section of this report deals with all aspects of the subject matter of this report. This report should be read in conjunction with the consolidated financial statements and related notes and with Management’s Discussion and Analysis included in CMS Energy Corporation’s and Consumers Energy Company’s Annual Report on Form 10-K for the year ended December
March 31, 2008 (each, the “2008 Form 10-K”).2010
TABLE OF CONTENTS
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TABLE OF CONTENTS
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GLOSSARY
Certain terms used in the text and financial statements are defined belowbelow.
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2008 Energy Legislation | | Comprehensive energy reform package enacted in October 2008 with the approval of Michigan Senate Bill 213 and Michigan House Bill 5524 |
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2009 Form 10-K | | Each of CMS Energy’s and Consumers’ Annual Report on Form 10-K for the year ended December 31, 2009 |
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ALJ | | Administrative Law Judge |
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AOC | | Administrative Order on Consent |
APB | | Accounting Principles Board |
ARB | | Accounting Research Bulletin |
ASCASU | | FASB Accounting Standards CodificationUpdate |
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Bay Harbor | | A residential/commercial real estate area located near Petoskey, Michigan. In 2002, CMS Energy sold its interest in Bay Harbor. |
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bcf | | Billion cubic feet of gas |
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Beeland | | Beeland Group LLC, a wholly owned subsidiary of CMS Land |
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Big Rock | | Big Rock Point nuclear power plant, formerly owned by Consumers |
Big Rock ISFSI | | Big Rock Independent Spent Fuel Storage Installation |
BreckenridgeCAIR | | Breckenridge Brewery of Colorado,The Clean Air Interstate Rule |
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Cantera Gas Company | | Cantera Gas Company LLC, a non-affiliated company |
CAIR | | Clean Air Interstate Rule |
CAMRCantera Natural Gas, Inc. | | Clean Air Mercury RuleCantera Natural Gas, Inc., a non-affiliated company that purchased CMS Field Services |
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CEO | | Chief Executive Officer |
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CFO | | Chief Financial Officer |
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Chrysler | | Chrysler LLC, a non-affiliated company |
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CKD | | Cement kiln dust |
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Clean Air Act | | Federal Clean Air Act, as amended |
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Clean Water Act | | Federal Water Pollution Control Act |
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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, the parent of Consumers and CMS Enterprises |
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CMS Energy Common Stock or common stock | | Common stock of CMS Energy, par value $.01$0.01 per share |
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CMS Energy Trust I | | A wholly owned business trust formed for the sole purpose of issuing preferred securities and lending the proceeds to CMS Energy |
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CMS Enterprises | | CMS Enterprises Company, a wholly owned subsidiary of CMS Energy |
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CMS ERM | | CMS Energy Resource Management Company, formerly CMS MST, a wholly owned subsidiary of CMS Enterprises |
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CMS Field Services | | CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission |
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CMS Gas Transmission | | CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises |
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CMS Generation | | CMS Generation Co., a former wholly owned subsidiary of CMS Enterprises |
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CMS International Ventures | | CMS International Ventures LLC, a subsidiary of CMS Enterprises in which CMS Enterprises owns a 61.49 percent interest and CMS Gas Transmission owns a 37.01 percent interest |
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CMS Land | | CMS Land Company, a wholly owned subsidiary of CMS Capital |
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CMS MST | | CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM effective January 2004 |
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CMS Oil and Gas | | CMS Oil and Gas Company, formerly a former wholly owned subsidiary of CMS Enterprises |
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CMS Viron | | CMS Viron Corporation, a wholly owned subsidiary of CMS ERM |
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Consumers | | Consumers Energy Company, a wholly owned subsidiary of CMS Energy |
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Customer Choice Act | | Customer Choice and Electricity Reliability Act, a Michigan statute |
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Detroit Edison | | The Detroit Edison Company, a non-affiliated company |
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D.C. | | District of Columbia |
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DOE | | U.S. Department of Energy |
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DOJ | | U.S. Department of Justice |
Dow | | The Dow Chemical Company, a non-affiliated company |
DSSP | | Deferred Salary Savings Plan |
EITF | | Emerging Issues Task Force |
EITF Issue 07-5 | | EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” |
EITF Issue 08-5 | | EITF Issue No. 08-5, “Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement” |
EnerBank | | EnerBank USA, a wholly owned subsidiary of CMS Capital |
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Entergy | | Entergy Corporation, a non-affiliated company |
Enterprises | | CMS Enterprises Company, a wholly owned subsidiary of CMS Energy |
EPA | | U.S. Environmental Protection Agency |
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EPS | | Earnings per share |
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Exchange Act | | Securities Exchange Act of 1934, as amended |
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Exeter | | Exeter Energy Limited Partnership, a limited partnership owned directly and indirectly by HYDRA-CO |
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FASB | | Financial Accounting Standards Board |
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FDIC | | Federal Deposit Insurance Corporation |
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FERC | | Federal Energy Regulatory Commission |
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FMB | | First mortgage bondsbond |
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FOV | | Finding of Violation |
FSP | | FASB Staff Position |
FSP APB 14-1 | | FASB Staff Position on APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” |
FSP EITF 03-6-1 | | FASB Staff Position on EITF Issue No. 03-6, “Participating Securities and the Two-class Method under FASB Statement No. 128” |
FSP FAS 107-1 and APB 28-1 | | FASB Staff Position on SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” and APB Opinion No. 28, “Interim Financial Reporting” |
FSP FAS 115-2 and FAS 124-2 | | FASB Staff Position on SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and SFAS No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations” |
FSP FAS 132(R)-1 | | FASB Staff Position on SFAS No. 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” |
FSP FAS 157-4 | | FASB Staff Position on SFAS No. 157, “Fair Value Measurements” |
GAAP | | U.S. Generally Accepted Accounting Principles |
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GCR | | Gas cost recovery |
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Genesee | | Genesee Power Station Limited Partnership, a variable interest entity in which HYDRA-CO has a 50 percent interest |
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GM | | General Motors Corporation, a non-affiliated company |
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Grayling | | Grayling Generating Station Limited Partnership, a consolidated variable interest entity in which CMS EnergyHYDRA-CO has a 50 percent interest |
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GWh | | Gigawatt hourGigawatt-hour (a unit of energy equal to one million kilowatt hours)kilowatt-hours) |
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HYDRA-CO | | HYDRA-CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises |
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IPP | | Independent power producer or independent power production |
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IRS | | Internal Revenue Service |
Jorf Lasfar | | A 1,356 MW coal-fueled power plant in Morocco, in which CMS Generation formerly owned a 50
percent interest |
ISFSI | | Independent spent fuel storage installation |
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ITC | | Income tax credit |
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kWh | | Kilowatt-hour (a unit of energy equal to one thousand watt hours)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 Detroit Edison |
MACT | | Maximum Achievable Control Technology; a stringent emission limitation for hazardous pollutants |
Marathon | | Marathon Oil Company, Marathon E.G. Holding, Marathon E.G. Alba, Marathon E.G. LPG, Marathon Production LTD, and Alba Associates, LLC, each a non-affiliated company |
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MBT | | Michigan Business Tax |
mcf | | Thousand cubic feet of gas |
MCV Facility | | A natural gas-fueled, combined-cycle cogeneration facility operated by the MCV Partnership |
MCV Partnership | | Midland Cogeneration Venture Limited Partnership |
MD&A | | Management’s Discussion and Analysis |
MDEQ | | |
MDL | | A pending multi-district litigation case in Nevada |
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MDNRE | | Michigan Department of Natural Resources and Environment, which, effective January 17, 2010 as a result of department reorganizations, is the successor to the Michigan Department of Environmental Quality |
METC | | and the Michigan Electric Transmission Company, LLC, a non-affiliated company owned by ITC HoldingsDepartment of Natural Resources |
| | Corporation and a member of MISO |
MGP | | Manufactured gas plant |
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MISO | | Midwest Independent Transmission System Operator, Inc. |
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MPSC | | Michigan Public Service Commission |
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MW | | Megawatt (a unit of power equal to one million watts) |
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MWh | | Megawatt hourMegawatt-hour (a unit of energy equal to one million watt hours)watt-hours) |
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NAV | | Net asset valuesvalue |
NERC | | North American Electric Reliability Corporation, a non-affiliated company |
NOV | | Notice of Violation |
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NREPA | | Part 201 of Michigan Natural Resources and Environmental Protection Act, a statute that covers environmental activities including remediation |
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NSR | | New Source Review, a construction-permitting program under the Clean Air Act |
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NYMEX | | New York Mercantile Exchange |
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OPEB | | Postretirement benefit plans other than pensions |
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Palisades | | Palisades nuclear power plant, formerly owned by Consumers |
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Panhandle | | Panhandle Eastern Pipe Line Company, including its wholly owned subsidiaries Trunkline, Pan Gas Storage, Panhandle Storage, and Panhandle Holdings, a former wholly owned subsidiary of CMS Gas Transmission |
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PCB | | Polychlorinated biphenyl |
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Pension Plan | | The trusteed,Trusteed, non-contributory, defined benefit pension plan of Panhandle, Consumers, and CMS Energy |
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PFD | | Proposal for decision |
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PPA | | Power purchase agreement |
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PSCR | | Power supply cost recovery |
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PSD | | Prevention of Significant Deterioration |
Quicksilver | | Quicksilver Resources, Inc., a non-affiliated company |
RFCQSPE | | ReliabilityFirst Corporation, a non-affiliated companyQualifying special-purpose entity |
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REC | | Renewable energy credit established under the 2008 Energy Legislation |
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RMRR | | Routine maintenance, repair, and replacement |
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ROA | | Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to the Customer Choice Act |
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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 purposespecial-purpose entity affiliated with such utility |
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SERP | | Supplemental Executive Retirement Plan |
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SFAS | | Statement of Financial Accounting Standards |
SFAS No. 160 | | SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” |
SFAS No. 161 | | SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” |
Stranded Costs | | Costs incurred by utilities in order to serve their customers in a regulated monopoly environment, which may not be recoverable in a competitive environment because of customers leaving their systems and ceasing to pay for their costs. These costs could include owned and purchased generation and regulatory assets. |
Superfund | | Comprehensive Environmental Response, Compensation and Liability Act |
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Supplemental Environmental Programs | | Environmentally beneficial projects which a party agrees to undertake as part of the settlement of an enforcement action, but which the party is not otherwise legally required to perform |
TAQA | | Abu Dhabi National Energy Company, a subsidiary of Abu Dhabi Water and Electricity Authority, a non-affiliated company |
TGNT.E.S Filer City | | T.E.S. Filer City Station Limited Partnership, a variable interest entity in which HYDRA-CO has a 50 percent interest |
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Title V | | A natural gas transportationfederal program under the Clean Air Act designed to standardize air quality permits and pipeline business located in Argentina, in which CMS Gas Transmission formerly owned a 23.54 percent interestthe permitting process for major sources of emissions across the U.S. |
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Trunkline | | CMS Trunkline Gas Company, LLC, formerly a former wholly owned subsidiary of CMS Panhandle Holdings,Holding, LLC |
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Trust Preferred Securities | | Securities representing an undivided beneficial interest in the assets of statutory business trusts, the interests of which have a preference with respect to certain trust distributions over the interests of either CMS Energy or Consumers, as applicable, as owner of the common beneficial interests of the trusts |
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TSU | | Texas Southern University, a non-affiliated entity |
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Union | | Utility Workers Union of America, AFL-CIO |
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U.S | | United States |
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VIE | | Variable interest entity |
Wolverine | | Wolverine Power Supply Cooperative, Inc., a non-affiliated company |
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CMS Energy Corporation
Consumers Energy CompanyFILING FORMAT
MANAGEMENT’S DISCUSSION AND ANALYSIS
This MD&Acombined Form 10-Q is a combined report ofseparately filed by CMS Energy and Consumers. It has been preparedInformation in accordance with the instructions tothis combined Form 10-Q 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. None of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers) has any obligation in respect of Consumers’ securities and Item 303holders of Regulation S-K. such securities should not consider the financial resources or results of operations of CMS Energy, CMS Enterprises, 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. Similarly, none of Consumers nor any other subsidiary of CMS Energy has any obligation in respect of debt securities of CMS Energy.
This MD&Areport should be read in its entirety. No one section of this report deals with all aspects of the subject matter of this report. This report should be read in conjunction with the consolidated financial statements and related notes and with MD&A containedincluded in CMS Energy’s and Consumers’ 20082009 Form 10-K.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This Form 10-Q and other written and oral statements that CMS Energy and Consumers make 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’ businessbusinesses 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 CMS Energy’s and Consumers’ inability to predict or control:control the following, all of which are potentially significant:
| • | | the price of CMS Energy Common Stock, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ postretirement benefit plans, interest costs, and access to the capital markets, including availability of financing (including Consumers’ accounts receivable sales program and CMS Energy’s and Consumers’ revolving credit facilities) to CMS Energy, Consumers, or any of their affiliates, and the energy industry; |
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| • | | the impact of the continued downturntroubled economy (particularly in the economyMichigan) and the sharp downturn and extremerisk of future volatility in the financial and credit markets on CMS Energy, Consumers, or any of their affiliates, including their: |
| • | | revenues; |
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| • | | capital expenditure programs and related earnings growth; |
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| • | | ability to collect accounts receivable from customers; |
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| • | | cost of capital and availability of capital; and |
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| • | | Pension Plan and postretirement benefit plans assets and required contributions; |
| • | | 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 third parties in bankruptcy, to meet their obligations to CMS Energy and Consumers; |
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| • | | population growth or decline in the geographic areas where CMS Energy and Consumers conduct business; |
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changes in applicable laws, rules, regulations, principles or practices, or in their interpretation, including those related to taxes, the environment, and accounting matters, that could have an impact on CMS Energy’s and Consumers’ businesses or financial results, including the impact of any future regulations or laws regarding:
| • | | carbon dioxide and other greenhouse gas emissions, including potential future legislation to establish a cap and trade system; |
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| • | | mercury emissions;criteria pollutants, such as nitrogen oxide, sulfur dioxide, and particulate, and hazardous air pollutants; |
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| • | | coal ash; |
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| • | | cooling water discharge from power plants or other industrial equipment; |
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| • | | limitations on the use or construction of coal-fueled electric power plants; and |
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| • | | renewable portfolio standards and energy efficiency mandates; and |
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| • | | any other potential legislative changes, including changes to the ten-percent ROA limit; |
| • | | national, regional, and local economic, competitive, and regulatory policies, conditions, and developments; |
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| • | | adverse regulatory or legal interpretations or decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with these interpretations or decisions, including but not limited to those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations; |
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| • | | potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant matters affecting Consumers that are presently or potentially before the MPSC, including: |
sufficient and timely recovery of:
| • | | Clean Air Act capital and operating costs and other environmental and safety-related expenditures; |
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| • | | power supply and natural gas supply costs; |
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| • | | operating and maintenance expenses; |
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| • | | additional utility rate-based investments; |
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| • | | increased costs associated with the proposed retirement and decommissioning of facilities; |
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| • | | MISO energy and transmission costs; and |
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| • | | costs associated with energy efficiency investments and state or federally mandated renewable resource standards; and |
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| • | | Big Rock decommissioning funding shortfalls; |
| • | | actions of regulators with respect to expenditures subject to tracking mechanisms; |
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| • | | actions of regulators to prevent or curtail shutoffs for non-paying customers; |
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| • | | actions of regulators with respect to the implementation of the “pilot” decoupling mechanism and an uncollectible expense tracking mechanism described in the November 2009 MPSC electric rate case order; |
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| • | | regulatory orders preventing or curtailing rights to self-implement rate requests; |
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| • | | regulatory orders potentially requiring a refund of previously self-implemented rates; |
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| • | | authorization of a new coal-fueled plant; and |
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| • | | implementation of new energy legislation;legislation or revisions of existing regulations; |
| • | | potentially adverse regulatory treatment resulting from pressure on regulators to oppose annual rate increases or to lessen rate impacts upon customers, particularly in difficult economic times; |
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| • | | loss of customer load to alternative energy suppliers; |
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| • | | potentially adverse regulatory treatment concerning a number of significant matters affecting Consumers that are presently before the MDEQ, including the approval of Consumers’ air permit application for its proposed coal-fueled plant;MDNRE; |
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| • | | the ability of Consumers to recover its regulatory assets in full and in a timely manner; |
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| • | | the effectiveness of the electric decoupling mechanism in moderating the impact of sales variability on net revenues; |
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| • | | the ability of Consumers to recover nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule, and the outcome of pending litigation with the DOE; |
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| • | | loss of customer load to alternative energy suppliers; |
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| • | | the impact of expanded enforcement powers and investigation activities at the FERC; |
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| • | | federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of CMS Energy’s and Consumers’ market-based sales authorizations in wholesale power markets without price restrictions; |
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| • | | effects of weather conditions, such as unusually cool weather during the summer orunseasonably warm weather during the winter, on sales; |
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| • | | the market perception of the energy industry or of CMS Energy, Consumers, or any of their affiliates; |
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| • | | the credit ratings of CMS Energy or Consumers; |
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| • | | the impact of credit markets, economic conditions, and new banking regulations on EnerBank; |
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| • | | disruptions in the normal commercial insurance and surety bond markets that may increase costs or reduce traditional insurance coverage, particularly terrorism and sabotage insurance, performance bonds, and tax-exempt debt insurance, and stability of insurance providers; |
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| • | | energy markets, including availability of capacity and the timing and extent of changes in commodity prices for oil, coal, natural gas, natural gas liquids, electricity, and certain related products due to lower or higher demand, shortages, transportation problems, or other developments, and their impact on CMS Energy’s and Consumers’ cash flows and working capital; |
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| • | | changes in construction material prices and the availability of qualified construction personnel to implement Consumers’ construction program; |
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| • | | factors affecting operations, such as unusual weather conditions, catastrophic weather-related damage, unscheduled generation outages, maintenance or repairs, environmental incidents, or electric transmission or gas pipeline system constraints; |
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| • | | potential disruption or interruption of facilities or operations due to accidents, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events; |
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| • | | technological developments in energy production, delivery, usage, and storage; |
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| • | | achievement of capital expenditure and operating expense goals;goals, including the 2010 capital expenditures forecast; |
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| • | | the impact of CMS Energy’s and Consumers’ integrated business software system on their operations, including utility customer billing and collections; |
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| • | | potential effects of new federal health care legislation on current or future health care costs; |
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| • | | the effectiveness of CMS Energy’s and Consumers’ risk management policies and procedures; |
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| • | | CMS Energy’s and Consumers’ ability to achieve generation planning goals and the occurrence and duration of planned or unplanned generation outages; |
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| • | | adverse outcomes regarding tax positions; |
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| • | | adverse consequences resulting from any past or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including |
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| | | the F.T. Barr matter and claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions; |
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| • | | the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or claims; |
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| • | | earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts, such as electricity sales agreements and interest rate and foreign currency contracts; |
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| • | | changes in financial or regulatory accounting principles or policies, including possible changes to rules involving fair value accounting; |
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| • | | new or revised interpretations of GAAP by regulators, which could affect how accounting principles are applied, and could impact future periods’ financial statements or previously filed financial statements; |
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| • | | a possible future requirement to comply with International Financial Reporting Standards, which differ from GAAP in various ways, including the present lack of special accounting treatment for regulated activities; and |
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| • | | other business or investment matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other publicly issued documents. |
For additional details regarding these and other uncertainties, see the “Outlook” section included in this MD&A, Note 4,3, Contingencies and Commitments, Note 5,4, Utility Rate Matters, Note 10, Income Taxes, and Part II, Item 1A. Risk Factors.
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CMS Energy Corporation
Consumers Energy Company
MANAGEMENT’S DISCUSSION AND ANALYSIS
This MD&A is a combined report of CMS Energy and Consumers. It has been prepared in accordance with the instructions to Form 10-Q and Item 303 of Regulation S-K. This MD&A should be read in conjunction with MD&A contained in CMS Energy’s and Consumers’ 2009 Form 10-K.
EXECUTIVE OVERVIEW
CMS Energy is an energy company operating primarily in Michigan andMichigan. It is the parent holding company of several subsidiaries, including Consumers, and Enterprises. Consumers is a combinationan electric and gas utility, company serving Michigan’s Lower Peninsula.and CMS Enterprises, primarily a domestic IPP. Consumers’ electric utility operations include the generation, purchase, distribution, and sale of electricity.electricity and Consumers’ gas utility operations include the purchase, transportation,transmission, storage, distribution, and sale of natural gas. Consumers’ customer base includesconsists of a mix of residential, commercial, and diversified industrial customers. CMS Enterprises, through its subsidiaries and equity investments, and subsidiaries, is primarily engaged in independentowns power production.generation facilities.
CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in three business segments: electric utility; gas utility; and enterprises, its non-utility investments and operations. Consumers operates principally in two business segments: electric utility and gas utility.
CMS Energy and Consumers earn revenue and generate cash from operations by providing electric and natural gas utility services, electric powerdistribution and generation, gas distribution, transmission, storage, and storage,distribution, and other energy-related services. Their businesses are affected primarily by:
| • | | weather, especially during the heatingregulation and cooling seasons;regulatory matters; |
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| • | | economic conditions; |
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| • | | regulation and regulatory matters;weather; |
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| • | | energy commodity prices; |
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| • | | interest rates; and |
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| • | | CMS Energy’s and Consumers’ debtsecurities credit ratings. |
During the past several years, CMS Energy’s business strategy has emphasized improving its consolidated balance sheet and maintaining focus on its core strength, which is Consumers’ utility operations and service.
Consumers’ forecast calls for capital investments in excess of $6$7 billion from 20092010 through 2013,2014, with a key aspect of its strategy being the balanced energy initiative. The balanced energy initiative is a comprehensive energy resource plan to meet Consumers’ projected short-term and long-term electric power requirements with energy efficiency; demand management; expanded use of renewable energy; development of new power plants; pursuit of additional power purchase agreementsPPAs to complement existing generating sources; and potential retirement of older, less efficient generating units.
Consumers filed an air permit application with the MDEQ in October 2007 forAmong Consumers’ planned capital investments is its proposed new 830 MW coal-fueled plant. Consumers expects the MDEQ to act on the application by the end of 2009. Consumers prepared and filed with the MDEQ and the MPSC a needs-and-alternatives analysis that supported Consumers’ current balanced energy initiative and the construction of its proposed power plant. In September 2009, the MPSC staff issued a report to the MDEQMDNRE on Consumers’ needs-and-alternatives analysis for the proposed coal-fueled plant, concluding that the long-term capacity need was unjustified without the retirement of certain existing coal-fueled power plants from its fleet and that the proposed coal-fueled plant is only one alternative out of a range of alternatives that Consumers may use to fill the
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projected capacity need. In December 2009, the MDNRE issued an air permit for the proposed coal-fueled plant, with the condition that Consumers retire 638 MW of its existing coal-fueled generation, and potentially an additional 320 MW, depending on customer needs. The MDNRE’s condition regarding plant retirements is consistent with Consumers’ balanced energy initiative.
Consumers’ planned capital investments also include renewable energy projects. Consumers expects to spend $570 million on renewable energy investments through 2014. The 2008 Energy Legislation requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and includes requirements for specific capacity additions. In compliance with this legislation, Consumers filed a renewable energy plan with the MPSC in February 2009 outlining its plans to build or contract for additional renewable energy capacity of 200 MW by December 31, 2013, and an additional 300 MW of renewable energy capacity by December 31, 2015. Consumers’ plan proposed that half of the new renewable capacity would be obtained through long-term
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agreements to purchase power from third parties, with the remaining capacity to be supplied by facilities built and owned by Consumers.capacity. At the same time, Consumers filed an energy optimization plan, also called for by the 2008 Energy Legislation, under which Consumers will promote energy efficiency and provide incentives to reduce customer usage. Consumers’ filings include a request for recovery of the cost of the renewable energy and energy optimization measures. In May 2009, the MPSC approved the energy optimization plan and, with minor exceptions, the renewable energy plan.
In April 2009, Consumers filed tariff sheets indicating that itAnother significant planned to self-implement an electric rate increase in the annual amount of $179 million based on an 11 percent authorized return on equity, beginning in May 2009. The MPSC issued an order in May 2009 requiring that, if Consumers self-implemented the $179 million electric rate increase, it must simultaneously distribute to customers $36 million of proceeds from the April 2007 sale of Palisades. Accordingly, Consumers self-implemented an annual electric rate increase of $179 million, subject to refund with interest, and also implemented a one-time distribution of $36 million. Consumers anticipates a final order in this rate filing in November 2009. Additionally, in May 2009, Consumers filed an application with the MPSC seeking an annual increase in gas revenue of $114 million based on an 11 percent authorized return on equity. In October 2009, Consumers filed tariff sheets indicating it plans to self-implement a gas rate case in the annual amount of $89 million beginning November 19, 2009. These rate filings include requests for increases in rates to cover various costs, including capital additions under the balanced energy initiative.
In October 2009, the MPSC issued a show-cause order that directed Consumers to present details of its forestry and fossil-fueled plant operation and maintenance expenditures for 2006 through 2008, as well as available detail for 2009 expenditures, and also to explain why Consumers should not be found in violation of the MPSC’s December 2005 order,investment is Consumers’ smart grid program, which required certain minimum operation and maintenance expenditures on these activities.
There is uncertainty associated with federal legislative and regulatory proposals related to the regulation of carbon dioxide emissions, particularly associated with coal-fueled generation. Federal legislation is being considered to establish a cap and trade system, or alternatively, to tax carbon dioxide emissions. In addition, in April 2009, the EPA issued a proposed finding that greenhouse gases, including carbon dioxide, contribute to air pollution that may endanger the public health and welfare, thus setting the stage for regulation of carbon dioxide emissions under the Clean Air Act. CMS Energy and Consumers are monitoring these developments for potential effects on their plans and operations.
Consumers is developing an advanced metering infrastructure system that will provide enhanced controls over and information about energy usage, as well as timely notification of service interruptions. Consumers is using a phased implementation approach that will allow it to analyze, test, and pilot the new technology prior to widespread investment and deployment.
Regulatory matters are a key aspect of CMS Energy’s and Consumers’ businesses, particularly Consumers’ rate cases and regulatory proceedings with the MPSC. In February 2010, the MPSC issued an order requiring that Consumers will also make certain modificationsrefund to customers $86 million collected during a rate freeze from 2001 to 2003; the MPSC determined that these funds should have been placed in a decommissioning trust fund. Consumers has filed an appeal of this order. In November 2009, Consumers self-implemented a gas rate increase in the annual amount of $89 million, subject to refund with interest. Consumers expects to receive a final MPSC rate order in its software to enablegas rate case in May 2010. In March 2010, the new system.ALJ issued a PFD that recommended an annual increase in gas rates of $69 million, as well as adoption of a decoupling mechanism. Further, in January 2010, Consumers filed an application with the MPSC seeking an annual increase in electric revenue of $178 million based on an 11 percent authorized return on equity.
In the future,Another area of importance for CMS Energy and Consumers is environmental regulation. There is uncertainty associated with federal legislative and regulatory proposals related to the regulation of carbon dioxide emissions, particularly associated with fossil-fueled generation. Federal legislation is being considered to establish a cap and trade system, or alternatively, to tax carbon dioxide emissions. In addition, in December 2009, the EPA issued an endangerment finding that greenhouse gases, including carbon dioxide, contribute to air pollution that may endanger the public health and welfare, thus setting the stage for regulation of carbon dioxide emissions under the Clean Air Act. The EPA is considering regulating coal combustion by-products, such as coal ash, as hazardous wastes under the Resource Conservation and Recovery Act. CMS Energy and Consumers are monitoring these developments for potential effects on their plans and operations.
CMS Energy will continue to focus its strategy on:
| • | | investing in Consumers’ utility system; |
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| • | | growing earnings and operating cash flow while controlling operating and fuel costs; and |
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| • | | maintaining principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance. |
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AsIn executing this strategy, CMS Energy and Consumers execute this strategy, they will need to overcome a Michigan economy that has been impacted adversely by the continued downturn and uncertainty in Michigan’s automotive industry marked by the bankruptcies of GM and Chrysler.Chrysler, as well as by high unemployment rates. The financial market crisis, the effects of which became evident in a global economic downturn during the fourth quarter ofbeginning in 2008, continues to result in a negative economic outlook.outlook in the near term. A range of possible outcomes exists due to the uncertain financial market environment and ongoing government policy responses.progress of economic recovery in Consumers’ service territory. Consumers expects its annualthat the “pilot” decoupling mechanism and the uncollectible expense tracking mechanism adopted in the November 2009 weather-adjusted sales to decline by four percent forMPSC electric rate order will mitigate partially the impacts of these economic conditions on the electric utility and five percent for the gas utility and it projects slower growth in the longer term.utility. While CMS Energy and Consumers believe that their sources of liquidity will be sufficient to meet their requirements, they will continue to monitor developments in the financial and credit markets and government policy responses to those developments for potential implications for CMS Energy’s and Consumers’ businesses and their future financial needs.
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RESULTS OF OPERATIONS
CMS ENERGY’S CONSOLIDATED RESULTS OF OPERATIONSEnergy’s Consolidated Results of Operations
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In Millions (except for per share amounts) |
Three months ended September 30 | | 2009 | | 2008 | | Change |
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Net Income Available to Common Stockholders | | $ | 73 | | | $ | 78 | | | $ | (5 | ) |
Basic Earnings Per Share | | $ | 0.32 | | | $ | 0.35 | | | $ | (0.03 | ) |
Diluted Earnings Per Share | | $ | 0.31 | | | $ | 0.33 | | | $ | (0.02 | ) |
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Electric Utility | | $ | 117 | | | $ | 108 | | | $ | 9 | |
Gas Utility | | | (12 | ) | | | (18 | ) | | | 6 | |
Enterprises | | | 5 | | | | 5 | | | | — | |
Corporate Interest and Other | | | (37 | ) | | | (18 | ) | | | (19 | ) |
Discontinued Operations | | | — | | | | 1 | | | | (1 | ) |
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Net Income Available to Common Stockholders | | $ | 73 | | | $ | 78 | | | $ | (5 | ) |
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In Millions (except for per share amounts) | |
Three months ended March 31 | | 2010 | | | 2009 | | | Change | |
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Net Income Available to Common Stockholders | | $ | 85 | | | $ | 70 | | | $ | 15 | |
Basic Earnings Per Share | | $ | 0.37 | | | $ | 0.31 | | | $ | 0.06 | |
Diluted Earnings Per Share | | $ | 0.34 | | | $ | 0.30 | | | $ | 0.04 | |
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In Millions | |
Three months ended March 31 | | 2010 | | | 2009 | | | Change | |
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Electric Utility | | $ | 41 | | | $ | 39 | | | $ | 2 | |
Gas Utility | | | 66 | | | | 59 | | | | 7 | |
Enterprises | | | 9 | | | | 1 | | | | 8 | |
Corporate Interest and Other | | | (30 | ) | | | (28 | ) | | | (2 | ) |
Discontinued Operations | | | (1 | ) | | | (1 | ) | | | — | |
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Net Income Available to Common Stockholders | | $ | 85 | | | $ | 70 | | | $ | 15 | |
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For the three months ended September 30, 2009,March 31, 2010, net income available to common stockholders was $73$85 million, compared with $78$70 million for 2008.2009. Combined net income available to common stockholders for Consumers’ electric and gas utility segments increased as the favorable impact of the MPSC’s December 2008 gas rate order, a self-implemented rate increase, and a favorable sales mixorders more than offset lower electricdecreased gas deliveries increased operating expenses,related to mild weather and increased interest expense. The positive impacts from the utility segments on CMS Energy’s consolidatedunfavorable economic conditions. Further increasing net income offset partiallyavailable to common stockholders was an increase at the premiums paid on retirement of debt.enterprises segment related to lower fuel costs, increased earnings from equity method investees, and higher net mark-to-market gains.
Specific after-tax changes to net income available to common stockholders for the three months ended September 30,March 31, 2010 versus 2009 versus 2008 are:
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| | After Tax, In Millions | |
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• Increase in electric and gas revenues at Consumers due primarily to a MPSC December 2008 gas rate order and a self-implemented rate increase | | $ | 35 | |
• Increase in electric and gas revenues at Consumers due to a favorable sales mix | | | 11 | |
• Decrease in electric and gas revenues at Consumers due to decreased deliveries, primarily reflecting unfavorable economic conditions | | | (26 | ) |
• Change in corporate interest and other due primarily to premiums paid on the retirement of debt | | | (19 | ) |
• Increase in other net expenses at Consumers, primarily reflecting higher pension and OPEB expenses, higher interest expense, and higher plant maintenance expense, partially offset by the absence of an impairment charge on its SERP investments recorded in 2008 | | | (5 | ) |
• Absence of a gain from discontinued operations due to a reduction to a legal reserve recorded in 2008, related to previously sold assets | | | (1 | ) |
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Total change | | $ | (5 | ) |
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| | | | | | | | | | | | |
In Millions (except for per share amounts) |
Nine months ended September 30 | | 2009 | | 2008 | | Change |
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Net Income Available to Common Stockholders | | $ | 216 | | | $ | 224 | | | $ | (8 | ) |
Basic Earnings Per Share | | $ | 0.95 | | | $ | 0.99 | | | $ | (0.04 | ) |
Diluted Earnings Per Share | | $ | 0.92 | | | $ | 0.94 | | | $ | (0.02 | ) |
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Electric Utility | | $ | 221 | | | $ | 232 | | | $ | (11 | ) |
Gas Utility | | | 52 | | | | 46 | | | | 6 | |
Enterprises | | | (12 | ) | | | 13 | | | | (25 | ) |
Corporate Interest and Other | | | (74 | ) | | | (67 | ) | | | (7 | ) |
Discontinued Operations | | | 29 | | | | — | | | | 29 | |
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Net Income Available to Common Stockholders | | $ | 216 | | | $ | 224 | | | $ | (8 | ) |
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For the nine months ended September 30, 2009, net income was $216 million, compared with $224 million for 2008. Combined net income from Consumers’ electric utility and gas utility segments decreased, reflecting decreased deliveries, the absence of gains from the sale of sulfur dioxide allowances recognized in 2008, and an increase in operating expenses and interest expense. These decreases were offset partially by increased earnings from a June 2008 electric rate order and a December 2008 gas rate order, a self-implemented rate increase, and a favorable sales mix. CMS Energy’s consolidated net income was also negatively impacted by an increase in projected Bay Harbor remediation costs and higher corporate expenses, which were offset partially by the expiration of an indemnity obligation related primarily to discontinued operations.
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Specific after-tax changes to net income available to common stockholders for the nine months ended September 30, 2009 versus 2008 are:
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| | After Tax, In Millions | |
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• Increase in electric and gas revenues at Consumers due primarily to MPSC rate orders and a self-implemented rate increase | | $ | 101 | |
• Increase in electric and gas revenues at Consumers due to a favorable sales mix | | | 34 | |
• Increase from discontinued operations due primarily to a benefit from the expiration of an indemnity obligation | | | 29 | |
• Decrease in electric and gas revenues at Consumers due to decreased deliveries, primarily reflecting unfavorable economic conditions | | | (66 | ) |
• Increase in projected Bay Harbor remediation costs at Enterprises | | | (22 | ) |
• Increase in other net expenses at Consumers primarily related to higher interest, uncollectible accounts expense, and property taxes | | | (19 | ) |
• Increase in pension and OPEB expenses at Consumers | | | (18 | ) |
• Increase in plant maintenance expense at Consumers | | | (15 | ) |
• Absence of gains from the sale of sulfur dioxide credits recognized at Consumers in 2008 | | | (12 | ) |
• Absence of resource conservation savings recorded in 2008 related to Consumers’ power purchase agreement with the MCV Partnership | | | (10 | ) |
• Change in corporate interest and other due primarily to premiums paid on the retirement of debt and increased tax-related expenses, offset partially by a gain on the redemption of preferred securities | | | (7 | ) |
• Decrease in revenues at Enterprises due primarily to lower power demand and prices | | | (3 | ) |
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Total change | | $ | (8 | ) |
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CONSUMERS’ ELECTRIC UTILITY RESULTS OF OPERATIONS
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In Millions |
September 30 | | 2009 | | 2008 | | Change |
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Net Income: | | | | | | | | | | | | |
Three months ended | | $ | 117 | | | $ | 108 | | | $ | 9 | |
Nine months ended | | $ | 221 | | | $ | 232 | | | $ | (11 | ) |
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| | Three Months Ended | | | Nine Months Ended | |
| | September 30, 2009 | | | September 30, | |
Reasons for the change: | | vs. 2008 | | | 2009 vs. 2008 | |
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Electric deliveries and rate increase | | $ | 17 | | | $ | 54 | |
Power supply costs and related revenue | | | 1 | | | | 3 | |
Other income, net of deductions | | | 8 | | | | 7 | |
Maintenance and other operating expenses | | | (2 | ) | | | (51 | ) |
Depreciation and amortization | | | 5 | | | | 2 | |
General taxes | | | (5 | ) | | | (8 | ) |
Interest charges | | | (5 | ) | | | (15 | ) |
Income taxes | | | (10 | ) | | | (3 | ) |
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Total change | | $ | 9 | | | $ | (11 | ) |
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2010 over/(under) 2009 |
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• | | increase in electric and gas revenues at Consumers due to rate orders | | $41 |
• | | increase at the enterprises segment due to lower fuel costs, increased earnings from equity-method investees, and higher mark-to-market gains | | 8 |
• | | other net increase at Consumers due to lower service restoration and other expenses | | 5 |
• | | decrease in electric and gas revenue due to unfavorable economic conditions and an unfavorable sales mix | | (15) |
• | | decrease in gas revenue due to mild weather | | (15) |
• | | decrease at Consumers due to costs associated with the voluntary separation plan | | (7) |
• | | decrease at corporate and other due to higher fixed charges, reflecting higher debt levels | | (2) |
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Total change | | $15 |
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Consumers’ Electric Utility Results of Operations
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In Millions | |
Three months ended March 31 | | 2010 | | | 2009 | | | Change | |
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Net Income Available to Common Stockholders | | $ | 41 | | | $ | 39 | | | $ | 2 | |
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Reasons for the change: | | | | |
Electric deliveries and rate increase | | $ | 26 | |
Power supply costs and related revenue | | | (10 | ) |
Other income, net of expenses | | | (3 | ) |
Maintenance and other operating expenses | | | (6 | ) |
Depreciation and amortization | | | (1 | ) |
General taxes | | | (2 | ) |
Interest charges | | | (2 | ) |
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Total change | | $ | 2 | |
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Electric deliveries and rate increase:For the three months ended September 30, 2009,March 31, 2010, electric delivery revenues increased $17$26 million compared with 2008.2009. The increase resulted from $49was due to $32 million of additional revenuerevenues resulting from the MayNovember 2009 self-implemented rate order. Also contributing to the increase andwere other rate-related items and a $13of $16 million, increasewhich included the impacts of the decoupling mechanism that became effective in revenues from a favorable sales mix. These increases were offset partially by $40 million in lower deliveries. Deliveries to end-use customers were 9 billion kWh, a decrease of 0.7 billion kWh or 7.2 percent compared with 2008, primarily reflecting unfavorable economic conditions in Michigan.December 2009. Additionally, surcharge revenues and related reserves decreased $5 million due to the expiration of the electric restructuring implementation plan surcharge of $5 million and a reduction in PA 141 surcharge revenue ofincreased $4 million offset partially by a $4 million increase resulting fromin 2010, due primarily to the implementation of anthe energy optimization program in June 2009.
For the nine months ended September 30, 2009, electric delivery revenues increased $54 million compared with 2008. The increase resulted from a combined $121 million of additional revenue from the June 2008 MPSC rate order and the May 2009 self-implemented rate increase and other rate-related items, net of a $20 million decrease from a new rate design structure that provides lower winter and higher summer rates to encourage conservation. These variances, together with a $44 million increase in revenues from a favorable sales mix,increases were offset partially by $90an $8 million decrease in revenues from an unfavorable sales mix, including the impact of customers switching from demand rates to energy rates, and $18 million in lower deliveries. Deliveriesdeliveries due to decreased sales to Consumers’ high margin customers. Overall, deliveries to end-use customers were 279.1 billion kWh, a decreasean increase of 1.80.07 billion kWh or 6.30.8 percent compared with 2008, primarily reflecting unfavorable economic conditions in Michigan. Additionally, surcharge revenues and related reserves decreased $21 million, reflecting the absence of $12 million of retirement benefits expense recovered in revenue in 2008. Also contributing to the decrease were the expiration of the electric restructuring implementation plan surcharge of $9 million and a reduction in PA 141 surcharge revenue of $5 million, offset partially by a $5 million increase resulting from the implementation of an energy optimization program in June 2009.
Power supply costs and related revenue:For the three months ended September 30, 2009,March 31, 2010, PSCR and related revenue increased $1decreased $10 million compared with 2008, due primarily to2009, reflecting an increaseorder received from the MPSC that disallowed recovery of power supply costs in wholesale fuel recovery revenue.
For the nine months ended September 30, 2009, PSCR and related revenue increased $3 million compared with 2008. The increase reflects the absence of a revenue reduction in 2008 related to amounts excluded from recovery in the 2006Consumers’ 2007 PSCR reconciliation case.
Other income, net of deductions:expenses:For the three months ended September 30, 2009,March 31, 2010, other income increased $8decreased $3 million compared with 2008.2009. The increasedecrease was due primarily to the absence in 2009a reduction of a $6 million impairment charge that recognized an other-than-temporary decline in the fair value of Consumers’ SERP investments. Also contributing to the increase was $5 million related to gains from land sales. These increases were offset partially by a decrease in interest income and related items of $3 million, primarily reflecting lower levels of short-term cash investments.recorded on certain regulatory assets.
For the nine months ended September 30, 2009, other income increased $7 million compared with 2008. The increase was due to gains from land sales of $9 million and the absence in 2009 of a $6 million impairment charge that recognized an other-than-temporary decline in the fair value of Consumers’ SERP investments. These increases were offset partially by a decrease in interest income and related items of $8 million, primarily reflecting lower levels of short-term cash investments.
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Maintenance and other operating expenses:For the three months ended September 30, 2009,March 31, 2010, maintenance and other operating expenses increased $2$6 million compared with 2008.2009. The increase was due to cost increases for plant maintenance of $4 million, and a $5 million increase in OPEB expense due to the unfavorable market performance of retirement benefit plan assets. Also contributing to the increase were the absence in 2009 of $4 million of resource conservation savings recorded in 2008 related to Consumers’ power purchase agreement with the MCV Partnership, higher expenses of $5 million related to forestry and tree-trimming services, and additional expenses of $4$6 million associated with the implementation of anthe energy optimization program in 2009. These increases were offset largely byJune 2009, a $7$6 million decreaseincrease in voluntary separation plan expenses and a $2 million increase in uncollectible accounts expense and a $13 million decrease in storm restoration, outside services, and other net expenses.
For the nine months ended September 30, 2009, maintenance and other operating expenses increased $51 million compared with 2008. The increase was due to cost increases for plant maintenance of $18 million, the absence of an $18 million benefit from the sale of sulfur dioxide credits recognized in 2008, higher expenses of $18 million related to forestry and tree-trimming services, and $5 million associated with the implementation of an energy optimization program in 2009. Also contributing to the increase was the absence of $16 million of resource conservation savings recorded in 2008 related to Consumers’ power purchase agreement with the MCV Partnership. Additionally, pension and OPEB expenses increased $5 million, as a $17 million expense increase due to the unfavorable market performance of retirement benefit plan assets more than offset the absence of $12 million of expense associated with retirement benefits recovered in revenue in 2008.expense. These increases were offset partially by a $1an $8 million decrease in uncollectible accounts expense and a $28 million decrease in stormservice restoration outside services, and other net expenses.
Depreciation and amortization:For the three months ended September 30, 2009,March 31, 2010, depreciation and amortization expense decreased $5increased $1 million compared with 2008.2009. The decreaseincrease was due to a $9higher depreciation expense of $2 million reductionfrom increased plant in service, offset partially by lower amortization expense of $1 million on certain regulatory assets, offset partially by a $4 million increase in depreciation from higher plant in service.
For the nine months ended September 30, 2009, depreciation and amortization expense decreased $2 million compared with 2008. The decrease was due to a $14 million reduction in amortization expense on certain regulatory assets, offset partially by a $12 million increase in depreciation from higher plant in service.assets.
General taxes:For the three months ended September 30, 2009,March 31, 2010, general taxes increased $5$2 million and for the nine months ended September 30, 2009, generalcompared with 2009. The increase resulted from higher use taxes increased $8 million, due toon electric property and increased property taxes, primarily reflecting higher capital spending.
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Interest charges:For the three months ended September 30, 2009,March 31, 2010, interest charges increased $5 million and for the nine months ended September 30, 2009, interest charges increased $15 million due primarily to the issuance of debt in 2009.
Income taxes:For the three months ended September 30, 2009, income taxes increased $10$2 million compared with 2008, reflecting $6 million associated with2009. The increase resulted from higher utility earningsdebt levels in 2010 and from an order received from the third quarterMPSC that disallowed recovery of 2009 and a $4 million increasepower supply costs in the MBT.Consumers’ 2007 PSCR reconciliation case.
For the nine months ended September 30, 2009, income taxes increased $3 million compared with 2008, reflecting a $6 million increase in the MBT, offset partially by $3 million associated with lower earnings in 2009.
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CONSUMERS’ GAS UTILITY RESULTS OF OPERATIONSConsumers’ Gas Utility Results of Operations
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| | | | | | | | | | In Millions |
September 30 | | 2009 | | 2008 | | Change |
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Net Income: | | | | | | | | | | | | |
Three months ended | | $ | (12 | ) | | $ | (18 | ) | | $ | 6 | |
Nine months ended | | $ | 52 | | | $ | 46 | | | $ | 6 | |
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In Millions | |
Three months ended March 31 | | 2010 | | | 2009 | | | Change | |
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Net Income Available to Common Stockholders | | $ | 66 | | | $ | 59 | | | $ | 7 | |
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| | Three Months Ended | | Nine Months Ended | | | | | |
| | September 30, 2009 | | September 30, 2009 | |
Reasons for the change: | | vs. 2008 | | vs. 2008 | | |
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Gas deliveries and rate increase | | $ | 13 | | $ | 17 | | | $ | 21 | |
Gas wholesale and retail services, other gas revenues, and other income | | — | | 2 | | |
Other income, net of deductions | | 5 | | 5 | | |
Other income, net of expenses | | | 2 | |
Maintenance and other operating expenses | | | (5 | ) | | | (19 | ) | | | (6 | ) |
Depreciation and amortization | | 1 | | 9 | | | | (1 | ) |
General taxes | | | (2 | ) | | | (3 | ) | | | (1 | ) |
Interest charges | | | (1 | ) | | | (3 | ) | | | (2 | ) |
Income taxes | | | (5 | ) | | | (2 | ) | | | (6 | ) |
| Total change | | $ | 6 | | $ | 6 | | | $ | 7 | |
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Gas deliveries and rate increase:For the three months ended September 30, 2009,March 31, 2010, gas delivery revenuerevenues increased $13$21 million compared with 2008.2009. The increase was due toresulted from $31 million of additional revenue of $3 million from the MPSC’s December 2008November 2009 self-implemented gas rate order. Also contributing to the increase, were higher deliveries of $1 million, and $6 million from a combination of a favorable sales mix and lower system losses incurred in 2009. Gas deliveries, including miscellaneous transportation to end-use customers, were 25 bcf, an increase of 1 bcf or 4.2 percent compared with 2008. Additionally, surcharge revenues increased $3 million due to the implementation of an energy optimization program in June 2009.
For the nine months ended September 30, 2009, gas delivery revenue increased $17 million compared with 2008. The increase was due to additional revenue of $14 million from the MPSC’s December 2008 gas rate order. Also contributing to the increase was $10$5 million from a favorable sales mix, and lower system losses incurred$3 million from the collection in 2010 of regulatory assets related to retirement benefits. Additionally, surcharge revenues increased $6 million due to the implementation of the energy optimization program in June 2009. These increases were offset partially by lower deliveries of $11 million.$24 million due to milder weather. Gas deliveries, including miscellaneous transportation to end-use customers, were 196119.1 bcf, a decrease of 811.6 bcf or 3.98.9 percent compared with 2008. Additionally, surcharge revenues increased $4 million due to the implementation of an energy optimization program in June 2009.
Gas wholesale and retail services, other gas revenues, and other income:Other income, net of expenses:For the ninethree months ended September 30, 2009, gas delivery revenueMarch 31, 2010, other income increased $2 million compared with 2008. The increase was2009, due to additional revenue from the appliance service plan program and an increase in transmission line revenue.
Otherincreased interest income net of deductions:For the three months and nine months ended September 30, 2009, other income increased $5 million compared with 2008. The increase was due primarilyrelated to the absence in 2009 of an impairment charge that recognized an other-than-temporary decline in the fair value of Consumers’ SERP investments.gas segment’s secured borrowing agreements.
Maintenance and other operating expenses:For the three months ended September 30, 2009,March 31, 2010, maintenance and other operating expenses increased $5$6 million compared with 2008.2009. The increase was due to higher OPEB expense of $3 million, reflecting unfavorable market performance of Consumers’ retirement benefit plan assets and an expense associated with prior year retirement benefits recovered in revenue in 2009. Also contributing to the increase were additional expenses related to the implementation
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of an energy optimization program of $3 million, offset partially by a decrease of $1 million in other net expenses.
For the nine months ended September 30, 2009, maintenance and other operating expenses increased $19 million compared with 2008. The increase was due to higher OPEB expense of $10 million, reflecting unfavorable market performance of Consumers’ retirement benefit plan assets. Also contributing to the increase were higher uncollectible account expense of $8 million and additional expenses of $4$6 million related to the implementation of anthe energy optimization program.program in June 2009, a $4 million increase in voluntary separation plan expenses, and higher expenses of $3 million associated with retirement benefits in 2010. These increases were offset partially by lower uncollectible accounts expense of $5 million and a decrease of $3$2 million in other net expenses.
Depreciation and amortization:For the three months ended September 30, 2009,March 31, 2010, depreciation and amortization expense decreasedincreased $1 million compared with 2008. The MPSC’s December 2008 gas rate order reduced amortization expense by $2 million, and delayed collection of an equal amount of amortization in rates. This decrease was offset partially by $1 million of higher depreciation expense2009, due to an increase in plant in service.
For the nine months ended September 30, 2009, depreciation and amortization expense decreased $9 million compared with 2008. The MPSC’s December 2008 gas rate order reduced amortization expense by $13 million, and delayed collection of an equal amount of amortization in rates. This decrease was offset partially by $4 million of higher depreciation expense dueprimarily to an increase in plant in service.
General taxes:For the three months ended September 30, 2009,March 31, 2010, general taxes increased $2$1 million and for the nine months ended September 30,compared with 2009, general taxes increased $3 million, due to increased property taxes, primarily reflecting higher capital spending.
Interest charges:For the three months ended September 30, 2009,March 31, 2010, interest charges increased $1$2 million and for the nine months ended September 30,compared with 2009, interest charges increased $3 million, due primarily to the issuance ofhigher debt levels in 2009.2010.
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Income taxes:For the three months ended September 30, 2009,March 31, 2010, income taxes increased $5$6 million and for the nine months ended September 30, 2009, income taxes increased $2compared with 2009. The change reflects $4 million due to higher gas utility earnings in the third quarter2010 and a $2 million increase in MBT expense.
Enterprises Results of 2009.Operations
ENTERPRISES RESULTS OF OPERATIONS
| | | | | | | | | | | | |
September 30 | | 2009 | | | 2008 | | | Change | |
|
Net Income: | | | | | | | | | | | | |
Three months ended | | $ | 5 | | | $ | 5 | | | $ | — | |
Nine months ended | | $ | (12 | ) | | $ | 13 | | | $ | (25 | ) |
|
| | | | | | | | | | | | |
In Millions | |
Three months ended March 31 | | 2010 | | | 2009 | | | Change | |
|
Net Income Available to Common Stockholders | | $ | 9 | | | $ | 1 | | | $ | 8 | |
|
For the three months ended September 30, 2009, EnterprisesMarch 31, 2010, the enterprises segment reported no change in net income as the impact of depressed power demand and prices was offset by higher fuel reimbursement revenue.
For the nine months ended September 30, 2009, Enterprises recorded a net loss of $12$9 million compared with net income of $13$1 million for the same period in 2008.2009. The change reflects an after-tax expense reductions of $22 million resulting from an increase in projected future environmental remediation costs associated with Bay Harbor, and $3 million from lower fuel costs, increased net earnings from equity-method investees of lower earnings due to depressed power demand$3 million, and prices.
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CORPORATE INTEREST AND OTHER RESULTS OF OPERATIONShigher net mark-to-market gains of $2 million.
| | | | | | | | | | | | |
September 30 | | 2009 | | | 2008 | | | Change | |
|
Net Income: | | | | | | | | | | | | |
Three months ended | | $ | (37 | ) | | $ | (18 | ) | | $ | (19 | ) |
Nine months ended | | $ | (74 | ) | | $ | (67 | ) | | $ | ( 7 | ) |
|
Corporate Interest and Other Results of Operations | | | | | | | | | | | | |
In Millions | |
Three months ended March 31 | | 2010 | | | 2009 | | | Change | |
|
Net Loss Available to Common Stockholders | | $ | (30 | ) | | $ | (28 | ) | | $ | (2 | ) |
|
For the three months ended September 30, 2009,March 31, 2010, corporate interest and other net expenses increased $19$2 million due primarily to a premium paid on the early retirement of debt and the absence of benefits recorded in 2008 related to the reduction of certain tax valuation allowances.
For the nine months ended September 30,compared with 2009 corporate interest and other net expenses increased $7 million. The increase was due to premiums paid on the early retirement of CMS Energy senior notes, the absence of benefits recorded in 2008 related to the reduction of certain tax valuation allowances, and an increase in tax expense due to legislation related to the MBT. These increases were offset partially by a gain recognized on the early retirement of CMS Energy’s long-termhigher fixed charges, reflecting higher debt — related parties.levels.
DISCONTINUED OPERATIONSDiscontinued Operations
For the three months ended September 30,March 31, 2010 and 2009, CMS Energy reported no income from discontinued operations. In 2008, incomenet loss from discontinued operations was $1 million due primarily to a reduction to a legal reserve related to previously sold assets.
Formillion. These amounts reflect the nine months ended September 30, 2009, income from discontinued operations was $29 million, due primarily to the expirationoperating results of an indemnity obligation related to a 2007 assetExeter, which is classified as held for sale.
CAPITAL RESOURCES AND LIQUIDITY
Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing opportunities, if needed. Recent major financing transactions and commitments are as follows:
| • | | In February 2009, Consumers retired $200January 2010, CMS Energy issued $300 million FMB at maturity;of 6.25 percent senior notes due 2020; |
|
| • | | In March 2009, Consumers issued $500 million in FMB; |
|
| • | | In June 2009,2010, CMS Energy issued $173 million in convertible senior notes and $300 million in senior notes, and early retired $144Energy’s $239 million of its $178 million Long-term debt — related parties; |
|
| • | | In July 2009, CMS Energy repurchased and retired $233 million principal amount of the senior notes due 2010 and $87 million principal amount of the senior notes due 2011; |
|
| • | | In August 2009, Consumers retired $150 million FMB at maturity; and |
|
| • | | In September 2009, CMS Energy’s $243 million4.50 percent preferred stock and $140$139 million of 3.375 percent senior notes became convertible at the holders’ option for the fourthsecond quarter of 2009.2010; and |
|
| • | | In April 2010, Consumers executed a bond purchase agreement whereby Consumers will issue, in a September 2010 private placement, $250 million of 5.30 percent FMBs due September 2022 and $50 million of 6.17 percent FMBs due September 2040. |
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Despite the present market volatility, CMS Energy and Consumers expect to continue to have access to the financial and capital markets. Recent and upcoming credit renewals and maturities are as follows:
| • | | In February 2010, Consumers renewed its accounts receivable sales program in April 2009 through February 2011; |
|
| • | | Consumers’ $150 million revolving credit facility is planned for renewal in 2010; |
|
| • | | Consumers renewed its $150Consumers’ $30 million 364-day revolving credit facilityLetter of Credit Reimbursement Agreement is planned for renewal in September 2009;2010; |
|
| • | | Consumers renewed its letter of credit facility in the amount of $30Consumers’ tax-exempt pollution control revenue bond maturities are $58 million in September 2009, effective November 30, 2009;2010; |
|
| • | | Consumers’ FMBs maturities are $250 million in 2010 and $300 million in 2012; |
|
| • | | Consumers’ $500 million revolving credit facility is planned for renewal in 2012; |
|
| • | | Consumers’ FMB maturities are $250 million in 2010, and $300 million in 2012; |
|
| • | | Consumers’ tax-exempt pollution control revenue bond maturities are $58 million in 2010; |
21
| • | | CMS Energy’s senior notes maturities are $67 million in 2010, $213$214 million in 2011, and $150 million in 2012; and |
|
| • | | CMS Energy’s $550 million revolving credit facility is planned for renewal in 2012. |
CMS Energy and Consumers believe that their present level of cash and their expected cash flows from operating activities, together with their access to sources of liquidity, will be sufficient to meet cash requirements. If access to the capital markets were to become diminished or otherwise restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. For additional details, see Note 6,5, Financings and Capitalization.
At September 30, 2009, CMS Energy and Consumers were each in compliance with the financial covenants in their respective debt agreements, and no events of default had occurred with respect to any debt covenants.
Cash Position, Investing, and Financing
CMS Energy’s and Consumers’ operating, investing, and financing activities meet their consolidated cash needs. At September 30, 2009,March 31, 2010, CMS Energy had $213$778 million of consolidated cash and cash equivalents, which includes $30included $23 million of restricted cash and cash equivalents and $14 million of cash and cash equivalents held by consolidated VIEs.equivalents. At September 30, 2009,March 31, 2010, Consumers had $120$614 million of consolidated cash and cash equivalents, which includes $22included $23 million of restricted cash and cash equivalents.
CMS Energy’s primary ongoing source of cash is dividends and other distributions from its subsidiaries. Consumers paid $233 million in common stock dividends and Enterprises paid $55$114 million in common stock dividends to CMS Energy for the ninethree months ended September 30, 2009.March 31, 2010. For details on dividend restrictions, see Note 6,5, Financings and Capitalization.
Operating Activities:For the nine months ended September 30, 2009, CMS Energy generated $638 million in cash from operations and Consumers generated $703 million in cash from operations. For the nine months ended September 30, 2008, CMS Energy generated $181 million in cash from operations and Consumers generated $524 million in cash from operations. Specific components of cash provided by (used in) operating activities for the nine months ended September 30, 2009 and 2008 are:
| | | | | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | | | In Millions |
Nine months ended September 30 | | 2009 | | 2008 | | Change |
|
• Net income | | $ | 233 | | | $ | 238 | | | $ | (5 | ) |
• Non-cash transactions (a) | | | 714 | | | | 695 | | | | 19 | |
| | | | | | | | | | | | |
| | $ | 947 | | | $ | 933 | | | $ | 14 | |
• Sale of gas purchased in prior year | | | 577 | | | | 548 | | | | 29 | |
• Purchase of gas in current year | | | (654 | ) | | | (904 | ) | | | 250 | |
• Electric sales contract termination payment | | | — | | | | (275 | ) | | | 275 | |
• Accounts receivable sales | | | (170 | ) | | | — | | | | (170 | ) |
• Pension contribution | | | (206 | ) | | | — | | | | (206 | ) |
• Change in other core working capital | | | 275 | | | | 120 | | | | 155 | |
• Other changes in assets and liabilities, net | | | (131 | ) | | | (241 | ) | | | 110 | |
|
Net cash provided by operating activities | | $ | 638 | | | $ | 181 | | | $ | 457 | |
|
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| | | | | | | | | | | | |
Consumers | | | | | | | | | | In Millions |
|
Nine months ended September 30 | | 2009 | | 2008 | | Change |
|
• Net income | | $ | 276 | | | $ | 281 | | | $ | (5 | ) |
• Non-cash transactions (a) | | | 640 | | | | 650 | | | | (10 | ) |
| | |
| | $ | 916 | | | $ | 931 | | | $ | (15 | ) |
• Sale of gas purchased in prior year | | | 577 | | | | 548 | | | | 29 | |
• Purchase of gas in current year | | | (654 | ) | | | (904 | ) | | | 250 | |
• Accounts receivable sales | | | (170 | ) | | | — | | | | (170 | ) |
• Pension contribution | | | (199 | ) | | | — | | | | (199 | ) |
• Change in other core working capital | | | 278 | | | | 109 | | | | 169 | |
• Other changes in assets and liabilities, net | | | (45 | ) | | | (160 | ) | | | 115 | |
|
Net cash provided by operating activities | | $ | 703 | | | $ | 524 | | | $ | 179 | |
|
Operating Activities:Specific components of net cash provided by operating activities for the three months ended March 31, 2010 and 2009 were: | | | | | | | | | | | | | | |
In Millions | |
Three months ended March 31 | | 2010 | | | 2009 | | | Change | |
|
CMS Energy, including Consumers |
• | | Net income | | $ | 88 | | | $ | 74 | | | $ | 14 | |
• | | Non-cash transactions (a) | | | 282 | | | | 298 | | | | (16 | ) |
| | | | |
| | | | $ | 370 | | | $ | 372 | | | $ | (2 | ) |
• | | Sale of gas purchased in prior year | | | 449 | | | | 561 | | | | (112 | ) |
• | | Accounts receivable sales, net | | | (50 | ) | | | (170 | ) | | | 120 | |
• | | Change in other core working capital (b) | | | 53 | | | | (61 | ) | | | 114 | |
• | | Other changes in assets and liabilities, net | | | (165 | ) | | | (96 | ) | | | (69 | ) |
| | | | |
Net cash provided by operating activities | | $ | 657 | | | $ | 606 | | | $ | 51 | |
|
|
Consumers |
• | | Net income | | $ | 107 | | | $ | 99 | | | $ | 8 | |
• | | Non-cash transactions (a) | | | 219 | | | | 268 | | | | (49 | ) |
| | | | |
| | | | $ | 326 | | | $ | 367 | | | $ | (41 | ) |
• | | Sale of gas purchased in prior year | | | 449 | | | | 561 | | | | (112 | ) |
• | | Accounts receivable sales, net | | | (50 | ) | | | (170 | ) | | | 120 | |
• | | Change in other core working capital (b) | | | 42 | | | | (63 | ) | | | 105 | |
• | | Other changes in assets and liabilities, net | | | (84 | ) | | | (31 | ) | | | (53 | ) |
| | | | |
Net cash provided by operating activities | | $ | 683 | | | $ | 664 | | | $ | 19 | |
|
| | |
|
(a) | | Non-cash transactions comprise depreciation and amortization, changes in deferred income taxes, postretirement benefits expense, and other non-cash items. |
|
(b) | | Other core working capital comprises other changes in accounts receivable and accrued revenues, inventories, and accounts payable. |
For the ninethree months ended September 30, 2009,March 31, 2010, net cash provided by operating activities at CMS Energy increased $457$51 million compared with 2008. This2009. The increase was due to higher net income, net of non-cash transactions, at the absence in 2009 of a payment made by CMS ERM in 2008enterprises segment, and to terminate electricity sales agreements and the changes affecting Consumers’ cash provided by operating activities described in the following paragraph.
For the ninethree months ended September 30, 2009,March 31, 2010, net cash provided by operating activities at Consumers increased $179$19 million compared with 2008. This2009. The increase was due primarily to the impacthigher collections from customers in 2010, offset largely by lower sales of lower gas prices on inventory purchased in 2009, collection of increased billings due to recent regulatory actions, and other timing differences. These changes were offset partially by the 2009 pension contribution and the absence of 2008 accounts receivable sales.gas.
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Investing Activities:For the nine months ended September 30, 2009, net cash used in investing activities was $679 million at CMS Energy and $639 million at Consumers. For the nine months ended September 30, 2008, net cash used in investing activities was $538 million at CMS Energy and $531 million at Consumers. Specific components of cash used in investing activities for the ninethree months ended September 30,March 31, 2010 and 2009 and 2008 are:were:
| | | | | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | | | In Millions |
|
Nine months ended September 30 | | 2009 | | 2008 | | Change |
|
• Capital expenditures | | $ | (621 | ) | | $ | (511 | ) | | $ | (110 | ) |
• Increase in non-current notes receivable | | | (43 | ) | | | (11 | ) | | | (32 | ) |
• Costs to retire property and other | | | (15 | ) | | | (16 | ) | | | 1 | |
|
Net cash used in investing activities | | $ | (679 | ) | | $ | (538 | ) | | $ | (141 | ) |
|
| | | | | | | | | | | | |
Consumers | | | | | | | | | | In Millions |
|
Nine months ended September 30 | | 2009 | | 2008 | | Change |
|
• Capital expenditures | | $ | (616 | ) | | $ | (510 | ) | | $ | (106 | ) |
• Costs to retire property and other | | | (23 | ) | | | (21 | ) | | | (2 | ) |
|
Net cash used in investing activities | | $ | (639 | ) | | $ | (531 | ) | | $ | (108 | ) |
|
| | | | | | | | | | | | | | |
| | | | | | | | | | | | In Millions | |
|
Three months ended March 31 | | 2010 | | | 2009 | | | Change | |
|
CMS Energy, including Consumers | | | | | | | | | | | | |
• | | Capital expenditures | | $ | (190 | ) | | $ | (180 | ) | | $ | (10 | ) |
• | | Cash effect of deconsolidation of partnerships | | | (10 | ) | | | — | | | | (10 | ) |
• | | Costs to retire property and other | | | (12 | ) | | | (12 | ) | | | — | |
| | | | |
Net cash used in investing activities | | $ | (212 | ) | | $ | (192 | ) | | $ | (20 | ) |
|
Consumers | | | | | | | | | | | | |
• | | Capital expenditures | | $ | (190 | ) | | $ | (177 | ) | | $ | (13 | ) |
• | | Costs to retire property and other | | | (12 | ) | | | (22 | ) | | | 10 | |
| | | | |
Net cash used in investing activities | | $ | (202 | ) | | $ | (199 | ) | | $ | (3 | ) |
|
For the ninethree months ended September 30, 2009,March 31, 2010, net cash used in investing activities at CMS Energy increased $141$20 million compared with 2008.2009. For the ninethree months ended September 30, 2009,March 31, 2010, net cash used in investing activities at Consumers increased $108$3 million compared with 2008. These2009. Both increases were due primarily to an increase in Consumers’reflect higher capital expenditures.expenditures at Consumers.
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Financing Activities:For the nine months ended September 30, 2009,Specific components of net cash provided by financing activities was $11 million at CMS Energy and net cash used in financing activities was $35 million at Consumers. Forfor the ninethree months ended September 30, 2008, net cash provided by financing activities was $171 million at CMS EnergyMarch 31, 2010 and net cash used in financing activities was $99 million at Consumers. Specific components of cash provided by (used in) financing activities for the nine months ended September 30, 2009 and 2008 are:were:
| | | | | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | | | In Millions |
|
Nine months ended September 30 | | 2009 | | 2008 | | Change |
|
• Issuance of FMB, convertible senior notes, | | | | | | | | | | | | |
senior notes and other debt | | $ | 1,047 | | | $ | 685 | | | $ | 362 | |
• Borrowings on revolving credit facility | | | 215 | | | | 245 | | | | (30 | ) |
• Retirement of debt and other debt | | | | | | | | | | | | |
maturity payments | | | (905 | ) | | | (528 | ) | | | (377 | ) |
• Payments on revolving credit facility | | | (255 | ) | | | (140 | ) | | | (115 | ) |
• Payments of common and preferred stock dividends | | | (93 | ) | | | (69 | ) | | | (24 | ) |
• Other financing activities | | | 2 | | | | (22 | ) | | | 24 | |
|
Net cash provided by financing activities | | $ | 11 | | | $ | 171 | | | $ | (160 | ) |
|
| | | | | | | | | | | | |
Consumers | | | | | | | | | | In Millions |
|
Nine months ended September 30 | | 2009 | | 2008 | | Change |
|
• Issuance of FMB | | $ | 500 | | | $ | 600 | | | $ | (100 | ) |
• Retirement of debt and other debt | | | | | | | | | | | | |
maturity payments | | | (377 | ) | | | (434 | ) | | | 57 | |
• Payments of common stock dividends | | | (233 | ) | | | (238 | ) | | | 5 | |
• Stockholder’s contribution from CMS Energy | | | 100 | | | | — | | | | 100 | |
• Other financing activities | | | (25 | ) | | | (27 | ) | | | 2 | |
|
Net cash used in financing activities | | $ | (35 | ) | | $ | (99 | ) | | $ | 64 | |
|
| | | | | | | | | | | | | | |
| | | | | | | | | | | | In Millions | |
|
Three months ended March 31 | | 2010 | | | 2009 | | | Change | |
|
CMS Energy, including Consumers | | | | | | | | | | | | |
|
• | | Issuance of FMBs, convertible senior notes, senior notes, and other debt | | $ | 300 | | | $ | 500 | | | $ | (200 | ) |
• | | Retirement of debt and other debt maturity payments | | | (34 | ) | | | (260 | ) | | | 226 | |
• | | Payments of common and preferred stock dividends | | | (37 | ) | | | (32 | ) | | | (5 | ) |
• | | Other financing activities | | | (8 | ) | | | (9 | ) | | | 1 | |
| | | | |
Net cash provided by financing activities | | $ | 221 | | | $ | 199 | | | $ | 22 | |
|
Consumers | | | | | | | | | | | | |
|
• | | Issuance of FMBs | | $ | — | | | $ | 500 | | | $ | (500 | ) |
• | | Retirement of debt and other debt maturity payments | | | (9 | ) | | | (209 | ) | | | 200 | |
• | | Stockholder’s contribution | | | 200 | | | | — | | | | 200 | |
• | | Payments of common and preferred stock dividends | | | (114 | ) | | | (72 | ) | | | (42 | ) |
• | | Other financing activities | | | (6 | ) | | | (10 | ) | | | 4 | |
| | | | |
Net cash provided by financing activities | | $ | 71 | | | $ | 209 | | | $ | (138 | ) |
|
For the ninethree months ended September 30, 2009,March 31, 2010, net cash provided by financing activities at CMS Energy decreased $160increased by $22 million compared with 2008. This2009. The increase was due primarily to an increase in net proceeds from borrowing.
For the three months ended March 31, 2010, net cash provided by financing activities at Consumers decreased $138 million compared with 2009. The decrease was due primarily to a decrease in net proceeds from borrowings.
For the nine months ended September 30, 2009, net cash used in financing activities at Consumers decreased $64 million compared with 2008. This decrease was due primarily toborrowings offset partially by a stockholder’s contribution from CMS Energy offset partially by a decrease in net proceeds from borrowings.Energy.
For additional details on long-term debt activity, see Note 6,5, Financings and Capitalization.
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Retirement Benefits
The following table provides the most recent estimates of CMS Energy’s and Consumers’ pension cost, OPEB cost, and pension cash contributions:contributions for the next three years.
| | | | | | | | | | | | | | | | | |
| | | In Millions | |
| | | | | | | | | |
| | In Millions | | | Pension Cost | | OPEB Cost | | Pension Contribution | | OPEB Contribution | |
| | Pension Cost | | Pension Contributions | | |
CMS Energy, including Consumers | | |
2009 | | $ | 97 | | $ | 206 | | |
2010 | | 108 | | 92 | | | $ | 107 | | $ | 74 | | $ | 100 | | $ | 71 | |
2011 | | 106 | | 118 | | | 108 | | 71 | | 89 | | 71 | |
2012 | | | 105 | | 67 | | 142 | | 71 | |
| Consumers | | |
2009 | | $ | 94 | | $ | 199 | | |
2010 | | 105 | | 89 | | | $ | 104 | | $ | 76 | | $ | 97 | | $ | 70 | |
2011 | | 103 | | 114 | | | 105 | | 73 | | 86 | | 70 | |
2012 | | | 101 | | 69 | | 137 | | 70 | |
|
Based on recent guidance from the federal Pension Protection Act of 2006, IRS notices, and the federal Worker, Retiree, and Employer Recovery Act of 2008, CMS Energy reduced its estimated pension contribution for 2009 by $94 million to $206 million. During the first ninethree months of 2009,2010, CMS Energy contributed $206$100 million to its pension fund, which includesincluded a contribution of $199$97 million by Consumers. Actual future pension cost and contributions will depend on future investment performance, changes in discount rates, and various other factors related to the Pension Plan participants.
For additional details on retirement benefits, see Note 10,9, Retirement Benefits.
Obligations And Commitments
Revolving Credit Facilities:For details on CMS Energy’s and Consumers’ revolving credit facilities, see Note 6,5, Financings and Capitalization.
Dividend Restrictions:For details on CMS Energy’s and Consumers’ dividend restrictions, see Note 6,5, Financings and Capitalization.
Off-Balance-Sheet Arrangements
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. Indemnities are usually agreements to reimburse a counterparty that may incur losses due to outside claims or breach of contract terms. The maximum payment that could be required under a number of these indemnity obligations is not estimable. While CMS Energy and Consumers believe it is unlikely that they will incur any material losses related to indemnities they have not recorded as liabilities, they cannot predict the impact of these contingent obligations on their liquidity and financial condition. For additional details on these and other guarantee arrangements, see Note 4,3, Contingencies and Commitments, “Guarantees.”
Sale of Accounts Receivable:Under Consumers’ revolving accounts receivable sales program, Consumers may sell up to $250 million of accounts receivable, subject to certain eligibility requirements. At September 30, 2009, $250 million of accounts receivable were eligible for sale, and no accounts receivable were sold under the program.
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OUTLOOK
Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and future 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 the “Forward-Looking Statements and Information” section included in this MD&AInformation,” Note 3, Contingencies and Commitments, and Part II, Item 1A. Risk Factors.
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Consumers’ Electric Utility Business Outlook and Uncertainties
Balanced Energy InitiativeInitiative:: Consumers’ balanced energy initiative is a comprehensive energy resource plan designed to meet its projected short-term and long-term electric power requirements through:
| • | | energy efficiency; |
|
| • | | demand management; |
|
| • | | expanded use of renewable energy; |
|
| • | | development of new power plants and pursuit of additional power purchase agreementsPPAs to complement existing generating sources; and |
|
| • | | potential retirement of older, less efficient generating units. |
Consumers’ balanced energy initiative includes plans to build an 830 MW coal-fueled plant at its Karn/Weadock generating complex near Bay City, Michigan. Consumers expects the plant to be in operation in 2017 and plans to use five-eighths of the plant’s output to serve its own customers, with the remaining output to be committed to others.
In December 2009, the MDNRE approved an air permit for Consumers’ proposed coal-fueled plant. As set forth in the air permit, Consumers would retire up to seven of its older, less-efficient generating units if the new unit is built and operated. Consumers plans to retire five units, or 638 MW, by the earlier of December 31, 2017 or within six months of commencement of operation of the new coal plant, with retirement of the additional two units, or 320 MW, dependent on customer need.
In March 2010, two parties filed a petition for review of the MDNRE air permit. Consumers is in the process of intervening in the matter and plans to defend the air permit with the MDNRE.
The 2008 Energy Legislation provided guidelines with respect tofor the MPSC’s review and approval of energy resource plans and proposed power plants through the issuance of a certificate of need.necessity. Consumers plans to file a new case with the MPSC in 2010 seeking a certificate of neednecessity that conforms to the legislation.
In October 2007, Consumers filed an air permit application with2008 Energy Legislation. If the MDEQ for its proposed coal-fueled plant. The MDEQ published Consumers’ draft air permit for public comment in March 2009 and, in response to public comments, indicated that it would require a needs-and-alternatives analysis. In June 2009, Consumers prepared and filed with the MDEQ andcertificate of necessity is not approved by the MPSC, a needs-and-alternatives analysis that supported Consumers’ current balanced energy initiative and the construction of its proposed coal-fueled power plant. In September 2009, the MPSC staff issued a reportalternatives to the MDEQ on Consumers’ analysis, concluding that the long-term capacity need identified by Consumers in its analysis was unjustified without the retirement of certain existing coal-fueled power plants from its fleet. The MPSC staff’s report also stated thatconstructing the proposed coal-fueled plant is only one alternative outinclude constructing new gas-fueled generation, as well as extending the useful life of a range of options that Consumers may use to fill the projected capacity need, and that such options include increased energy efficiency and renewable energy.several existing coal-fueled plants.
Renewable Energy Plan:TheConsumers’ renewable energy plan details how Consumers will meet REC and capacity standards prescribed by the 2008 Energy Legislation prescribed renewable energy standards for energy and capacity. The energy standardLegislation. This legislation requires thatConsumers to obtain RECs in an amount equal to at least ten percent of Consumers’its electric sales volume come(estimated to be 3.6 million RECs annually) from renewable sourcesenergy resources by 2015 with interim target requirements. Using the guidelines2015. A single REC represents proof that one MWh of the standard, four percent of Consumers’ electric sales volume now comeselectricity was generated from a renewable sources.energy resource. The capacity standardlegislation also requires Consumers to add newobtain 500 MW of capacity from renewable energy capacity of 200 MWresources by December 31, 2013, and an additional 300 MW2015, either through generation resources owned by December 31, 2015, from owned renewable energy sourcesConsumers or through agreements to purchase power.capacity from other parties.
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In February 2009, Consumers filedUnder its renewable energy plan, with the MPSC. The plan detailed how Consumers wouldexpects to secure its required 3.6 million RECs each year by 2015; such RECs will be a combination of newly generated RECs and previously generated RECs carried over from prior years. Presently, Consumers generates and purchases 1.6 million RECs per year, which represent 40 percent of its long-term REC needs. Consumers expects to be able to generate and purchase an additional 2 million RECs per year by 2018.
To meet the renewable energy standards for energy and capacity, with wind generation as Consumers’ primary resource. Consumers’ plan proposed that half of the newits renewable capacity would be obtained through long-term agreementsrequirements, Consumers expects to purchase power from third parties, with the remainingadd 500 MW of owned or contracted renewable capacity to be supplied by facilities built and owned by Consumers. The plan also proposed a schedule of surcharges to be applied over a 20-year period to recover the incremental cost of compliance. Consumers’ plan was approved by the MPSC in May 2009 with minor exceptions. It is subject to biennial review and annual cost and revenue reconciliation proceedings.
2015. Consumers has secured more than 52,00060,000 acres of land easements in Michigan’s TuscolaMason, Huron, and MasonTuscola Counties for the potential development of wind generation development and is presently collecting wind speed and other meteorological data at those sites. Consumers plans to construct a 100 MW wind farm in Mason County, Lake Winds Energy Park, which Consumers expects to
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be operational in late 2012. As part of the sites.development of this wind farm, Consumers issued a request for proposal to manufacturers of wind turbine generators in January 2010 and is analyzing bids received in response to that request. Consumers will continue to seek opportunities for wind generation development in support of the renewable energycapacity standards.
Consumers has also executed agreements with six small-scale renewable energy suppliers for the purchase of 9.4 MW of renewable capacity, andwhich will generate an estimated two percent of itsConsumers’ long-term renewable energyREC needs. The MPSC has approved these agreements, in October, which will enableenabling Consumers to recover the full costs of these contracts from its customers. Additionally, Consumers is in May 2009, Consumers requestedthe process of evaluating proposals due in December 2009,from several renewable energy suppliers for a portion of its capacity and energy from larger projects to meet its renewable capacity and energy needs through 2015.
Energy Optimization Plan:The 2008 Energy Legislation requires utilities to prepare energy optimization plans and achieve annual sales reduction targets beginning in 2009 through at least 2015. The targets are incremental with the goal of achieving a six percent reduction in customers’ electricity use and a four percent reduction in natural gas use by December 31, 2015. In February 2009, Consumers filed its energy optimization plan with the MPSC. The plan detailed Consumers’ proposals for energy cost savings among all customer classes through incentives to reduce customer usage by offering customer energy audits, rebates and discounts on purchases of highly efficient appliances, and other incentives and programs. The plan also sought recovery of program costs. Consumers’ plan was approved by the MPSC in May 2009. It is subject to biennial review and annual cost and revenue reconciliation proceedings. In July 2009, Consumers launched its energy optimization programs for residential customers.needs.
Electric Customer Deliveries and Revenue:Consumers’ electric customer deliveries are largely dependent on Michigan’s economy, which has suffered from plant closures, restructurings,economic and bankruptciesfinancial instability in the automotive sector and from the depressed housing market. The Michigan economy also has been harmed by the present volatility in the financial and credit markets. Although Consumers’ electric utility results are not substantially dependent upon a single customer, or even a few customers, customers in the automotive sector and their direct suppliers represented four percent of Consumers’ total 2008 electric revenue and 2.5 percent of Consumers’ 2008 electric operating income. Consumers cannot predict the financial impact of the Michigan economy on its electric customer revenue.real estate sectors.
Electric Deliveries:Consumers expects weather-adjusted electric deliveries to decreaseincrease in 20092010 by fourtwo percent compared with 2008.2009. Consumers’ outlook for 20092010 includes continuing growth in deliveries to its largest customer, which produces semiconductor and solar energyenergy-related components. Consumers has a long-term contract with this customer to provide electricity at a discounted rate for economic development purposes. Excluding this customer’s growth, Consumers expects weather-adjusted electric deliveries in 20092010 to decrease six percent compared with 2008.remain unchanged from 2009. Consumers’ outlook reflects the impact of reduced deliveries associated with its investment in energy efficiency programs included in the 2008 Energy Legislation, as well as recent projections of MichiganMichigan’s economic conditions.
Beginning in 2010, Consumers expects economic conditions to stabilize by the end of 2010, resulting in modestly growing deliveriesannual electric delivery growth of electricityabout one percent on average through 2014. This modestreflects growth expectation takes into accountin electric deliveries offset by the predicted effects of energy efficiency programs.programs and appliance efficiency standards. Actual deliveries will depend on:
| • | | energy conservation measures and results of energy efficiency programs; |
|
| • | | fluctuations in weather; and |
|
| • | | changes in economic conditions, including utilization and expansion or contraction of manufacturing facilities, population trends, and housing activity. |
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Electric Supply Resources:In its 2009 electric rate case order, the MPSC authorized Consumers through its supply resources,to adopt a “pilot” decoupling mechanism. This mechanism, subject to certain conditions, allows Consumers to adjust future rates to collect or refund the change in marginal revenue by class arising from the difference between the level of average sales per customer adopted in the order and actual average sales per customer. The MPSC’s order also adopted an uncollectible expense tracking mechanism, which consistallows future rates to be adjusted to collect or refund 80 percent of electric generating plants, long-term power purchase contracts,the difference between the level of uncollectible expense included in rates and short-term purchasesactual uncollectible expense. Consumers expects these mechanisms to mitigate partially the effects of capacityweather fluctuations, the economy, and energy is planning to meet the resource adequacy requirements established by MISO.
Electric Transmission Expenses:Consumers expects the transmission charges it incurs to increase by $47 millionefficiency programs on Consumers’ electric revenue in 2009 compared with 2008, due primarily to a 25 percent increase in METC and Wolverine transmission rates. This increase was included in Consumers’ 2009 PSCR plan filed with the MPSC in September 2008. For details on litigation concerning Consumers’ recovery of its electric transmission expense, see Note 4, Contingencies, “Consumers’ Electric Utility Contingencies — Litigation.”future periods.
Electric ROA:The Customer Choice Act allows Consumers’ electric customers to buy electric generation service from Consumers or from an alternative electric supplier. However, theThe 2008 Energy Legislation generally limitslimited alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. During the third quarter of 2009, customer enrollment inAt March 31, 2010, electric deliveries under the ROA program reachedwere at the ten percent limit. At September 30, 2009,limit and alternative electric suppliers were providing 586777 MW of generation service to ROA customers, a 77 percent increase from December 31, 2008. For the twelve-month period ended September 30, 2009, alternative electric supply represented 4.5 percent of Consumers’ weather-adjusted retail sales of the preceding calendar year.customers.
Electric Environmental Estimates:Consumers’ operations are subject to various state and federal environmental laws and regulations. Generally, Consumers has been able to recover, in customer rates, its costs to operate its facilities in compliance with these laws and regulations.
Clean Air Act:Consumers continues to focus on complying with the federal Clean
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Air Act, Clean Water Act, and numerous state and federal environmental regulations. Consumers estimates expenditures of $1.32$1.4 billion from 20092010 through 2017 for equipment installation to comply with a number of environmental regulations, including regulations limiting nitrogen oxides, sulfur dioxide, and mercury emissions.these regulations. Consumers expects to recover these costs in customer rates.
Itrates, but cannot assure that result. Consumers’ primary environmental compliance focus includes, but is expected that allowances and installation of pollution control equipment will covernot limited to, the shortfall in nitrogen oxides emission allowances through 2015. Consumers also plans to purchase sulfur dioxide emission allowances between 2012 and 2015 at an average cost of $5 million per year. Consumers expects to recover emission allowance costs from its customers through the PSCR process.following matters:
Clean Air Interstate Rule:In 2005, the EPA adopted theAt this time, CAIR which required additional coal-fueled electric generating plant emission controls for nitrogen oxides and sulfur dioxide. The CAIR was appealed to the U.S. Court of Appeals for the District of Columbia. The court initially nullified the CAIR and the CAIR federal implementation plan in its entirety, but subsequently changed course and remanded the rule to the EPA, maintaining the ruleremains in effect, pending EPA revision. At this time,While the CAIR remains in effect, with 2009 as the first nitrogen oxides compliance year. The EPA must now revise the rule to resolve the court’s concerns. The impacts of this revision are unknown, butConsumers expects the EPA to propose stricter regulation is envisioned.standards. A draft rule is expected this year. Consumers’ strategy to comply with CAIR involves the installation of state-of-the-art emission control equipment. In addition, Consumers is monitoring legislative initiatives in 2010.
State and Federal Mercury Air Rules:In 2005, the EPA issued the CAMR,U.S. Senate, which required initial reductions of mercury emissions from coal-fueled electric generating plants by 2010 and further reductions by 2018. A number of states and other entities appealed certain portions of the CAMRmay lead to an alternative to the U.S. Court of Appeals for the District of Columbia. In 2008, the U.S. Court of Appeals for the District of Columbia determined that the rules developed by the EPA were not consistent with the Cleanrevised CAIR.
Federal Hazardous Air Act. The U.S. Supreme Court denied a request to review this decision. Pollutant Regulation:The EPA has initiated the development of a revised rule for electric generating unit hazardous air pollutants, such as mercury, based on MACT. The rule is expected to be proposed in early 2010, at which timeSection 112 of the Clean Air Act. Consumers will have a better understanding of the potential impact.
In 2006, Michigan’s governor proposed a plan that would result in mercury emissions reductions of 90 percent by 2015. In response to the governor’s proposal, the MDEQ promulgated a rule that became
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effective in October 2009. Consumers has a plan in place to comply with this proposed rule; however, the developmentimpact of the Federalproposed rule may affect Consumers’ plan. Consumers cannot predictupon its release, which is expected this year. Existing sources must meet the financial impact or outcomestandards generally within three years of this matter until this state regulation can be evaluated with respect to a Federal rule that is under development.issuance of the final rule.
Greenhouse GasesGases:: In June 2009, the United StatesU.S. House of Representatives passed the American Clean Energy and Security Act, which requireswould require reductions in emissions of greenhouse gases, including carbon dioxide. The bill proposes to reduce carbon dioxide and other greenhouse gas emissions by 3three percent below 2005 levels by 2012, 17 percent below 2005 levels by 2020, and 42 percent below 2005 levels by 2030. The bill also contains provisions for the direct granting of substantial free greenhouse gas emission allowances to load-serving entities, in orderwhich would mitigate some of the price impact to mitigate price impacts toConsumers’ customers. Consumers considers it likely thatbelieves Congress willmay eventually pass greenhouse gas legislation, but the form and timing of any final bill is difficult to predict. These laws, EPA regulations regarding greenhouse gases, or similar treaties, state laws, or rules, if enacted, could require Consumers to replace equipment, install additional equipment for emission controls, purchase allowances, curtail operations, arrange for alternative sources of supply, or take other steps to manage or lower the emission of greenhouse gases.
In SeptemberDecember 2009, the EPA finalizedissued an endangerment finding for greenhouse gases under the Clean Air Act. In this finding, which has been challenged in the U.S. Court of Appeals for the D.C. Circuit by numerous parties, the EPA determined that current and projected atmospheric concentrations of six greenhouse gases threaten the public health and welfare of current and future generations. The finding alone does not impose any standard or regulation on industry, but it is a precursor for finalizing proposed emissions standards. Recently, the EPA issued its final rule that regulates greenhouse gas emissions from motor vehicles under Section 202 of the Clean Air Act. This final action renders carbon dioxide and other greenhouse gases “regulated air pollutants” under the Clean Air Act, meaning that PSD and Title V permitting programs will now, under EPA’s view, apply to these greenhouse gases beginning on January 2, 2011. In addition, the EPA recently proposed revisions to its Mandatory Reporting of Greenhouse Gases Rule. This rule will requireRule that would extend reporting requirements to methane releases from natural gas pipelines, distribution facilities, producing 25,000 metric tons or more of greenhouse gases to collect emissions data under a new reporting system, beginning January 1, 2010. The first reports will be due to the EPA on March 31, 2011. The rule covers carbon dioxide, methane, nitrous oxide, hydro fluorocarbons, and other fluorinated gases. The purpose of the rule is to collect accurate and timely data on greenhouse gas emissions that can be used to inform future climate change policy decisions. In addition, the EPA, through public statements and actions, has signaled that it intends to initiate regulation of greenhouse gases through the Clean Air Act.storage fields.
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 have an opportunity to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.
Combustion By-Products:The EPA is considering regulating coal combustion by-products, such as coal ash, as hazardous wastes under the Resource Conservation and Recovery Act. Michigan already regulates coal combustion by-products as low-hazard industrial waste. If coal ash is regulated as a hazardous waste, Consumers would likely cease the beneficial re-use of this product, resulting in significantly more coal ash requiring costly disposal. Additionally, it is possible that existing landfills could be closed if the upgrades to hazardous waste landfill standards are economically prohibitive. Costs associated with this
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potential regulation could be substantial.
Water:In 2004, the EPA issued rules that govern existing electric generating plant cooling water intake systems. These rules require a significant reduction in the number of fish harmed by cooling water intake structures at existing power plants. The EPA compliance options in the rule were challenged before the U.S. Court of Appeals for the Second Circuit, which remanded the bulk of the rule back to the EPA for reconsideration in 2007. In April 2009, the U.S. Supreme Court ruled in favor of the utility industry’s position that the EPA can rely on a cost-benefit analysis in setting the national performance standards for fish protection. The EPA has announced plans to issue a revised draft rule in early 2010.this year. Consumers estimates capital expenditures of $150 million to comply with these regulations.
Other electric environmental matters including routine maintenance classification, could have a major impact on Consumers’ outlook. For additional details on these and other electric environmental matters, see Note 4,3, Contingencies and Commitments, “Consumers’ Electric Utility Contingencies —– Electric Environmental Matters.”
Electric Rate Matters:Rate matters are critical to Consumers’ electric utility business. For details on Consumers’ stranded cost recovery, power supply cost recovery,PSCR, electric rate casecases, uncollectible expense tracking mechanism reconciliation, electric operation and self-implemented rates, Palisades regulatory proceedings, andmaintenance expenditures show-cause order, Big Rock decommissioning proceedings, electric depreciation cases, renewable energy plan, and energy optimization plan, see Note 5,4, Utility Rate Matters, “Consumers’ Electric Utility Rate Matters.”
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Consumers’ Gas Utility Business Outlook and Uncertainties
Gas Deliveries:Consumers expects 2010 weather-adjusted gas deliveries to decline in 2009 by fivetwo percent compared with 2008,2009, due to continuing conservation and overall economic conditions in Michigan. In addition, Consumers expects weather-adjusted gas deliveries to decline an average of two percent annually from 20102011 through 2014,2015, which reflectsincludes expected effects of energy efficiency programs. Actual delivery levels from year to year may vary from this trend due to:
| • | | fluctuations in weather; |
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| • | | use by independent power producers;IPPs; |
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| • | | availability and development of renewable energy sources; |
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| • | | changes in gas prices; |
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| • | | Michigan economic conditions including population trends and housing activity; |
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| • | | the price of competing energy sources or fuels; and |
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| • | | energy efficiency and conservation. |
Gas Environmental Estimates:Consumers expects to incur investigation and remedial action costs at a number of sites, including 23 former manufactured gas plantMGP sites. For additional details, see Note 4,3, Contingencies and Commitments, “Consumers’ Gas Utility Contingencies —– Gas Environmental Matters.”
Gas Rate Matters:Rate matters are critical to Consumers’ gas utility business. For details on Consumers’ gas cost recovery, gas depreciation,GCR, gas rate case, and lost and unaccounted for gas depreciation case, see Note 5,4, Utility Rate Matters, “Consumers’ Gas Utility Rate Matters.”
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Enterprises’Enterprises Outlook and Uncertainties
The primary focus with respect to CMS Energy’s remaining non-utility businesses is to optimize cash flow and maximize the value of their assets.
In April 2010, CMS Energy settled an insurance claim related to a previously sold South American investment, under which insurers will pay CMS Energy $50 million. This settlement will be recognized as a reduction to operating expenses in the second quarter of 2010.
Trends and uncertainties that could have a material impact on CMS Energy’s consolidated income, cash flows, or financial position include:
| • | | the impact of indemnity and environmental remediation obligations at Bay Harbor; |
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| • | | the outcome of certain legal proceedings; |
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| • | | the impact of lower electricity prices, caused primarily by lower natural gas prices, unseasonably cool weather in the summer, and decreased industrial production, on the profitability of Enterprises’the enterprises segment’s generating units; |
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| • | | the impact of representations, warranties, and indemnities provided by CMS Energy or its subsidiaries in connection with the sales of assets; |
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| • | | the impact of 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; |
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| • | | the impact of changes in various environmental laws, regulations, principles, practices, or in their interpretation; and |
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| • | | the impact of economic conditions in Michigan, including population trends and housing activity. |
For additional details regarding Enterprises’the enterprises segment’s uncertainties, see Note 4,3, Contingencies and Part II, Item 1. Legal Proceedings.Commitments.
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Other Outlook and Uncertainties
Advanced Metering Infrastructure:Smart Grid:Consumers’ development of a smart grid continues to move forward. The foundation of the smart grid program is an advanced metering infrastructure system is proceeding as planned. This system is designed to provideinfrastructure. The program will include electric and gas smart meters that are capable of transmitting and receiving data, a two-way communications between Consumersnetwork, and its customers and should allow Consumersmodifications to read meters, receive outage and restoration notification, and turn service on and off without visitingConsumers’ existing systems to manage the meter.data. It shouldis intended to enable customers to monitor and manage their energy usage and help reduce demand during critical peak times, resulting in higher energy efficiency and environmental benefits. Due to this system’s complexity and relative market immaturity, Consumers is using a phased implementation approach that will allow it to analyze, test, and pilot the new technology prior to widespread investment and deployment. Consumers will also make certain modifications to its software to enable the new system. Consumers intends to begin mass deploymentconduct an operational pilot of the systemsmart grid technology in 2012.
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Health Care Reform:The Patient Protection and installationAffordable Care Act and the related Health Care and Education Reconciliation Act (the Health Care Acts) were enacted in March 2010. For taxable years beginning after December 31, 2012, the Health Care Acts repeal the tax deduction for the portion of health care costs that are reimbursed by the Medicare Part D subsidy. This legislation resulted in a $3 million increase to CMS Energy’s tax expense for the three months ended March 31, 2010, and it had no effect on Consumers’ net income. For additional details, see Note 10, Income Taxes.
Union Contract:The present Union agreement expires in June 2010. In April 2010, Consumers reached a tentative agreement with the Union on a new meters in 2012.five-year contract for Union members. The schedule allows for ratification of the new contract by May 2010.
Litigation:CMS Energy, Consumers, and certain of their subsidiaries are named as a partyparties 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 Note 4,3, Contingencies and Part II, Item 1. Legal Proceedings.Commitments and Note 4, Utility Rate Matters.
EnerBank:EnerBank, a wholly owned subsidiary of CMS Capital that represents one percent of CMS Energy’s net assets, is a Utah state-chartered, FDIC-insured industrial bank providing unsecured home improvement loans. The carrying value of EnerBank’s loan portfolio was $227$268 million at September 30, 2009.March 31, 2010. Its loan portfolio was funded primarily by deposit liabilities of $163$240 million and borrowings from the U.S. Federal Reserve bankBank of $50$14 million. Twelve-month rolling average default rates on loans held by EnerBank have risendeclined slightly from 1.42.1 percent at December 31, 20082009 to 2.22.0 percent at September 30, 2009. Due to the economic downturn,March 31, 2010. EnerBank expects the level of loan defaults to continue to increase throughout the remainder of 2009decline in 2010 and into 2010, returningreturn gradually to lower levels thereafter.historical levels.
NEW ACCOUNTING STANDARDS
For details regarding the implementation of new accounting standards and new accounting standards issued that are not yet effective, see Note 2,1, New Accounting Standards.
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CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | In Millions | | | In Millions | |
| | Three Months Ended | | Nine Months Ended | | |
September 30 | | 2009 | | 2008 | | 2009 | | 2008 | | |
| |
Three Months Ended March 31 | | | 2010 | | 2009 | |
| | |
Operating Revenue | | $ | 1,274 | | $ | 1,428 | | $ | 4,608 | | $ | 4,977 | | | $ | 1,967 | | $ | 2,104 | |
| | |
Income (Loss) from Equity Method Investees | | | (1 | ) | | 5 | | | (2 | ) | | 3 | | | 3 | | | (1 | ) |
| | |
Operating Expenses | | |
Fuel for electric generation | | 140 | | 173 | | 393 | | 470 | | | 138 | | 135 | |
Purchased and interchange power | | 318 | | 406 | | 889 | | 1,026 | | | 278 | | 289 | |
Purchased and interchange power — related parties | | | 21 | | — | |
Cost of gas sold | | 123 | | 191 | | 1,294 | | 1,526 | | | 778 | | 963 | |
Other operating expenses | | 228 | | 218 | | 709 | | 615 | | | 233 | | 222 | |
Maintenance | | 52 | | 51 | | 163 | | 140 | | | 42 | | 47 | |
Depreciation and amortization | | 128 | | 135 | | 422 | | 436 | | | 172 | | 173 | |
General taxes | | 51 | | 47 | | 164 | | 155 | | | 66 | | 65 | |
Gain on asset sales, net | | | (5 | ) | | — | | | (13 | ) | | | (8 | ) | |
| | | | |
| | 1,035 | | 1,221 | | 4,021 | | 4,360 | | | 1,728 | | 1,894 | |
| | | |
Operating Income | | 238 | | 212 | | 585 | | 620 | | | 242 | | 209 | |
| | |
Other Income (Deductions) | | |
Other Income (Expense) | | |
Interest and dividends | | 6 | | 5 | | 17 | | 23 | | | 5 | | 4 | |
Regulatory return on capital expenditures | | 7 | | 9 | | 20 | | 25 | | |
Allowance for equity funds used during construction | | | 1 | | 1 | |
Other income | | 4 | | 4 | | 42 | | 10 | | | 9 | | 12 | |
Other expense | | | (20 | ) | | | (15 | ) | | | (25 | ) | | | (21 | ) | | | (2 | ) | | | (2 | ) |
| | | | |
| | | (3 | ) | | 3 | | 54 | | 37 | | | 13 | | 15 | |
| | | |
Interest Charges | | |
Interest on long-term debt | | 96 | | 88 | | 280 | | 264 | | | 98 | | 92 | |
Interest on long-term debt — related parties | | 1 | | 3 | | 7 | | 10 | | |
Other interest | | 7 | | 8 | | 23 | | 26 | | | 8 | | 8 | |
Capitalized interest | | | (1 | ) | | | (1 | ) | | | (3 | ) | | | (4 | ) | |
Allowance for borrowed funds used during construction | | | | (1 | ) | | | (1 | ) |
| | | | |
| | 103 | | 98 | | 307 | | 296 | | | 105 | | 99 | |
| | | |
Income Before Income Taxes | | 132 | | 117 | | 332 | | 361 | | | 150 | | 125 | |
Income Tax Expense | | 51 | | 36 | | 128 | | 123 | | | 61 | | 50 | |
| | | | |
| | |
Income from Continuing Operations | | 81 | | 81 | | 204 | | 238 | | |
Income From Discontinued Operations, Net of Tax of $—, $1, $19 and $— | | — | | 1 | | 29 | | — | | |
Income From Continuing Operations | | | 89 | | 75 | |
Loss From Discontinued Operations, Net of Tax Benefit of $(1) and $(1) | | | | (1 | ) | | | (1 | ) |
| | | | |
| | |
Net Income | | 81 | | 82 | | 233 | | 238 | | | 88 | | 74 | |
Income Attributable to Noncontrolling Interests | | 6 | | 2 | | 9 | | 6 | | | — | | 1 | |
| | | | |
| | |
Net Income Attributable to CMS Energy | | 75 | | 80 | | 224 | | 232 | | | 88 | | 73 | |
Preferred Stock Dividends | | 2 | | 2 | | 8 | | 8 | | | 3 | | 3 | |
| | | | |
| | |
Net Income Available to Common Stockholders | | $ | 73 | | $ | 78 | | $ | 216 | | $ | 224 | | | $ | 85 | | $ | 70 | |
|
The accompanying notes are an integral part of these statements.
31
| | | | | | | | |
| | In Millions, Except Per Share Amounts | |
Three Months Ended March 31 | | 2010 | | | 2009 | |
|
Amounts Attributable to Common Stockholders | | | | | | | | |
Amounts Attributable to Continuing Operations | | $ | 86 | | | $ | 71 | |
Amounts Attributable to Discontinued Operations | | | (1 | ) | | | (1 | ) |
| | |
Net Income Available to Common Stockholders | | $ | 85 | | | $ | 70 | |
| | |
| | | | | | | | |
Amounts Attributable to Noncontrolling Interests | | | | | | | | |
Amounts Attributable to Continuing Operations | | $ | — | | | $ | 1 | |
Amounts Attributable to Discontinued Operations | | | — | | | | — | |
| | |
Income Attributable to Noncontrolling Interests | | $ | — | | | $ | 1 | |
| | |
| | | | | | | | |
Basic Earnings (Loss) Per Average Common Share | | | | | | | | |
Basic Earnings from Continuing Operations | | $ | 0.38 | | | $ | 0.32 | |
Basic Loss from Discontinued Operations | | | (0.01 | ) | | | (0.01 | ) |
| | |
Basic Earnings Attributable to Common Stock | | $ | 0.37 | | | $ | 0.31 | |
| | |
| | | | | | | | |
Diluted Earnings (Loss) Per Average Common Share | | | | | | | | |
Diluted Earnings from Continuing Operations | | $ | 0.35 | | | $ | 0.31 | |
Diluted Loss from Discontinued Operations | | | (0.01 | ) | | | (0.01 | ) |
| | |
Diluted Earnings Attributable to Common Stock | | $ | 0.34 | | | $ | 0.30 | |
| | |
| | | | | | | | |
Dividends Declared Per Common Share | | $ | 0.15 | | | $ | 0.125 | |
|
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CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | |
| | | | | | In Millions | |
Three Months Ended March 31 | | 2010 | | | 2009 | |
|
Cash Flows from Operating Activities | | | | | | | | |
Net income | | $ | 88 | | | $ | 74 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | |
Depreciation and amortization | | | 172 | | | | 173 | |
Deferred income taxes and investment tax credit | | | 42 | | | | 49 | |
Postretirement benefits expense | | | 49 | | | | 46 | |
Allowance for equity funds used during construction | | | (1 | ) | | | (1 | ) |
Capital lease and other amortization | | | 9 | | | | 10 | |
Bad debt expense | | | 14 | | | | 20 | |
Loss (income) from equity-method investees | | | (3 | ) | | | 1 | |
Cash distributions received from equity-method investees | | | 2 | | | | — | |
Postretirement benefits contributions | | | (135 | ) | | | (13 | ) |
Changes in other assets and liabilities: | | | | | | | | |
Decrease (increase) in accounts receivable and accrued revenues | | | 36 | | | | (161 | ) |
Decrease in accrued power supply and gas revenue | | | 38 | | | | 1 | |
Decrease in inventories | | | 460 | | | | 566 | |
Decrease in accounts payable | | | (44 | ) | | | (75 | ) |
Decrease in taxes and accrued expenses | | | (77 | ) | | | (52 | ) |
Decrease in other current and non-current assets | | | 39 | | | | 27 | |
Decrease in other current and non-current liabilities | | | (32 | ) | | | (59 | ) |
| | |
Net cash provided by operating activities | | | 657 | | | | 606 | |
|
| | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | |
Capital expenditures (excludes assets placed under capital lease) | | | (190 | ) | | | (180 | ) |
Cost to retire property | | | (11 | ) | | | (17 | ) |
Cash effect of deconsolidation of partnerships | | | (10 | ) | | | — | |
Other investing activities | | | (1 | ) | | | 5 | |
| | |
Net cash used in investing activities | | | (212 | ) | | | (192 | ) |
|
| | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | |
Proceeds from issuance of notes, bonds, and other long-term debt | | | 300 | | | | 500 | |
Issuance of common stock | | | 3 | | | | 3 | |
Retirement of bonds and other long-term debt, including related parties | | | (25 | ) | | | (252 | ) |
Payments on securitization bonds | | | (9 | ) | | | (8 | ) |
Payment of common stock dividends | | | (34 | ) | | | (29 | ) |
Payment of preferred stock dividends | | | (3 | ) | | | (3 | ) |
Payment of capital and finance lease obligations | | | (6 | ) | | | (6 | ) |
Debt issuance costs, financing fees, and other | | | (5 | ) | | | (6 | ) |
| | |
Net cash provided by financing activities | | | 221 | | | | 199 | |
|
| | | | | | | | |
Net Increase in Cash and Cash Equivalents | | | 666 | | | | 613 | |
Decreases (Increases) in Cash and Cash Equivalents Included in Assets Held for Sale | | | (1 | ) | | | 2 | |
| | |
| | | | | | | | |
Net Increase in Cash and Cash Equivalents Excluding Assets Held for Sale | | | 665 | | | | 615 | |
| | | | | | | | |
Cash and Cash Equivalents, Beginning of Period | | | 90 | | | | 207 | |
| | |
| | | | | | | | |
Cash and Cash Equivalents, End of Period | | $ | 755 | | | $ | 822 | |
|
The accompanying notes are an integral part of these statements.
33
| | | | | | | | | | | | | | | | |
| | | | | | In Millions, Except Per Share Amounts | |
| | Three Months Ended | | | Nine Months Ended | |
September 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
| | | | | | | | | | | | | | | | |
Net Income Available to Common Stockholders | | $ | 73 | | | $ | 78 | | | $ | 216 | | | $ | 224 | |
| | |
| | | | | | | | | | | | | | | | |
Basic Earnings Per Average Common Share | | | | | | | | | | | | | | | | |
Income from Continuing Operations | | $ | 0.32 | | | $ | 0.34 | | | $ | 0.82 | | | $ | 0.99 | |
Income from Discontinued Operations | | | — | | | | 0.01 | | | | 0.13 | | | | — | |
| | |
Net Income Attributable to Common Stock | | $ | 0.32 | | | $ | 0.35 | | | $ | 0.95 | | | $ | 0.99 | |
| | |
| | | | | | | | | | | | | | | | |
Diluted Earnings Per Average Common Share | | | | | | | | | | | | | | | | |
Income from Continuing Operations | | $ | 0.31 | | | $ | 0.32 | | | $ | 0.79 | | | $ | 0.94 | |
Income from Discontinued Operations | | | — | | | | 0.01 | | | | 0.13 | | | | — | |
| | |
Net Income Attributable to Common Stock | | $ | 0.31 | | | $ | 0.33 | | | $ | 0.92 | | | $ | 0.94 | |
| | |
| | | | | | | | | | | | | | | | |
Dividends Declared Per Common Share | | $ | 0.125 | | | $ | 0.09 | | | $ | 0.375 | | | $ | 0.27 | |
|
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CMS Energy Corporation
Consolidated Statements of Cash FlowsBalance Sheets
(Unaudited)
| | | | | | | | |
| | In Millions | |
Nine Months Ended September 30 | | 2009 | | | 2008 | |
|
| | | | | | | | |
Cash Flows from Operating Activities | | | | | | | | |
Net income | | $ | 233 | | | $ | 238 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | |
Depreciation and amortization | | | 422 | | | | 436 | |
Deferred income taxes and investment tax credit | | | 131 | | | | 115 | |
Postretirement benefits expense | | | 136 | | | | 110 | |
Regulatory return on capital expenditures | | | (20 | ) | | | (25 | ) |
Capital lease and other amortization | | | 31 | | | | 34 | |
Bad debt expense | | | 46 | | | | 36 | |
Gain due to expiration of indemnification | | | (50 | ) | | | — | |
Gain on sale of assets | | | (8 | ) | | | (8 | ) |
Gain on extinguishment of long-term debt — related parties | | | (28 | ) | | | — | |
Loss on extinguishment of debt | | | 17 | | | | — | |
Increase in environmental remediation accrual | | | 35 | | | | — | |
Loss (income) from equity method investees | | | 2 | | | | (3 | ) |
Cash distributions from equity method investees | | | — | | | | 2 | |
Postretirement benefits contributions | | | (247 | ) | | | (38 | ) |
Electric sales contract termination payment | | | — | | | | (275 | ) |
Changes in other assets and liabilities: | | | | | | | | |
Decrease in accounts receivable and accrued revenues | | | 205 | | | | 178 | |
Decrease (increase) in accrued power supply and gas revenue | | | (1 | ) | | | 39 | |
Increase in inventories | | | (122 | ) | | | (393 | ) |
Decrease in deferred property taxes | | | 122 | | | | 118 | |
Decrease in accounts payable | | | (55 | ) | | | (21 | ) |
Decrease in accrued taxes | | | (164 | ) | | | (189 | ) |
Decrease in accrued expenses | | | (15 | ) | | | (42 | ) |
Decrease in other current and non-current assets | | | 20 | | | | 11 | |
Decrease in other current and non-current liabilities | | | (52 | ) | | | (142 | ) |
| | |
Net cash provided by operating activities | | | 638 | | | | 181 | |
|
| | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | |
Capital expenditures (excludes assets placed under capital lease) | | | (621 | ) | | | (511 | ) |
Cost to retire property | | | (33 | ) | | | (22 | ) |
Proceeds from sale of assets | | | 7 | | | | 1 | |
Decrease in restricted cash and cash equivalents | | | 8 | | | | 4 | |
Increase in non-current notes receivable | | | (43 | ) | | | (11 | ) |
Other investing activities | | | 3 | | | | 1 | |
| | |
Net cash used in investing activities | | | (679 | ) | | | (538 | ) |
|
| | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | |
Proceeds from issuance of notes, bonds, and other long-term debt | | | 1,188 | | | | 845 | |
Proceeds from (retirement of) EnerBank notes, net | | | (12 | ) | | | 8 | |
Issuance of common stock | | | 7 | | | | 6 | |
Retirement of bonds and other long-term debt, including related parties | | | (1,074 | ) | | | (591 | ) |
Payment of common stock dividends | | | (85 | ) | | | (61 | ) |
Payment of preferred stock dividends | | | (8 | ) | | | (8 | ) |
Increase in non-current notes payable | | | 50 | | | | — | |
Payment of capital lease and finance lease obligations | | | (17 | ) | | | (18 | ) |
Debt issuance costs, financing fees, and other | | | (38 | ) | | | (10 | ) |
| | |
Net cash provided by financing activities | | | 11 | | | | 171 | |
|
| | | | | | | | |
Net Decrease in Cash and Cash Equivalents | | | (30 | ) | | | (186 | ) |
| | | | | | | | |
Cash and Cash Equivalents, Beginning of Period | | | 213 | | | | 348 | |
| | |
| | | | | | | | |
Cash and Cash Equivalents, End of Period | | $ | 183 | | | $ | 162 | |
|
ASSETS | | | | | | | | |
| | | | | | In Millions | |
| | March 31 | | | December 31 | |
| | 2010 | | | 2009 | |
|
Current Assets | | | | | | | | |
Cash and cash equivalents | | $ | 755 | | | $ | 90 | |
Restricted cash and cash equivalents | | | 23 | | | | 32 | |
Accounts receivable and accrued revenue, less allowances of $28 in 2010 and $23 in 2009 | | | 870 | | | | 948 | |
Notes receivable | | | 81 | | | | 81 | |
Accrued power supply and gas revenue | | | 10 | | | | 48 | |
Accounts receivable — related parties | | | 12 | | | | — | |
Inventories at average cost | | | | | | | | |
Gas in underground storage | | | 607 | | | | 1,043 | |
Materials and supplies | | | 112 | | | | 118 | |
Generating plant fuel stock | | | 127 | | | | 158 | |
Deferred property taxes | | | 142 | | | | 172 | |
Regulatory assets | | | 19 | | | | 19 | |
Assets held for sale | | | 2 | | | | 2 | |
Prepayments and other | | | 35 | | | | 31 | |
| | |
| | | 2,795 | | | | 2,742 | |
|
| | | | | | | | |
Plant, Property & Equipment (at cost) | | | | | | | | |
Plant, property & equipment, gross | | | 13,591 | | | | 13,716 | |
Less accumulated depreciation, depletion, and amortization | | | 4,507 | | | | 4,540 | |
| | |
Plant, property & equipment, net | | | 9,084 | | | | 9,176 | |
Construction work in progress | | | 563 | | | | 506 | |
| | |
| | | 9,647 | | | | 9,682 | |
|
| | | | | | | | |
Non-current Assets | | | | | | | | |
Regulatory assets | | | 2,244 | | | | 2,291 | |
Notes receivable, less allowances of $5 in 2010 and $6 in 2009 | | | 257 | | | | 269 | |
Investments | | | 52 | | | | 9 | |
Assets held for sale | | | 9 | | | | 9 | |
Other | | | 222 | | | | 254 | |
| | |
| | | 2,784 | | | | 2,832 | |
|
| | | | | | | | |
Total Assets | | $ | 15,226 | | | $ | 15,256 | |
|
The accompanying notes are an integral part of these statements.
35
STOCKHOLDERS’ INVESTMENT AND LIABILITIES
| | | | | | | | |
| | | | | | In Millions | |
| | March 31 | | | December 31 | |
| | 2010 | | | 2009 | |
|
Current Liabilities | | | | | | | | |
Current portion of long-term debt, capital and finance lease obligations | | $ | 706 | | | $ | 694 | |
Notes payable | | | 14 | | | | 40 | |
Accounts payable | | | 395 | | | | 509 | |
Accrued rate refunds | | | 2 | | | | 21 | |
Accounts payable — related parties | | | 8 | | | | — | |
Accrued interest | | | 78 | | | | 96 | |
Accrued taxes | | | 238 | | | | 283 | |
Deferred income taxes | | | 18 | | | | 43 | |
Regulatory liabilities | | | 128 | | | | 145 | |
Liabilities held for sale | | | 2 | | | | — | |
Other | | | 104 | | | | 123 | |
| | |
| | | 1,693 | | | | 1,954 | |
|
| | | | | | | | |
Non-current Liabilities | | | | | | | | |
Regulatory liabilities | | | 1,932 | | | | 1,991 | |
Postretirement benefits | | | 1,366 | | | | 1,460 | |
Asset retirement obligation | | | 233 | | | | 229 | |
Deferred investment tax credit | | | 50 | | | | 51 | |
Deferred income taxes | | | 408 | | | | 231 | |
Other | | | 298 | | | | 310 | |
| | |
| | | 4,287 | | | | 4,272 | |
|
| | | | | | | | |
Commitments and Contingencies(Notes 3, 4, 5, 7 and 8) | | | | | | | | |
| | | | | | | | |
Capitalization | | | | | | | | |
Long-term debt | | | 6,103 | | | | 5,895 | |
Non-current portion of capital and finance lease obligations | | | 202 | | | | 197 | |
Common stockholders’ equity | | | | | | | | |
Common stock, authorized 350.0 shares; outstanding 228.0 shares in 2010 and 227.9 shares in 2009 | | | 2 | | | | 2 | |
Other paid-in capital | | | 4,564 | | | | 4,560 | |
Accumulated other comprehensive loss | | | (32 | ) | | | (33 | ) |
Accumulated deficit | | | (1,876 | ) | | | (1,927 | ) |
| | |
Total common stockholders’ equity | | | 2,658 | | | | 2,602 | |
Preferred stock | | | 239 | | | | 239 | |
Noncontrolling interests | | | 44 | | | | 97 | |
| | |
Total equity | | | 2,941 | | | | 2,938 | |
| | | | | | | | |
| | | 9,246 | | | | 9,030 | |
|
| | | | | | | | |
Total Stockholders’ Investment and Liabilities | | $ | 15,226 | | | $ | 15,256 | |
|
36
CMS Energy Corporation
Consolidated Balance SheetsStatements of Changes in Equity
(Unaudited)
| | | | | | | | |
| | | | | | In Millions | |
Three Months Ended March 31 | | 2010 | | | 2009 | |
|
Common Stock | | | | | | | | |
At beginning and end of period | | $ | 2 | | | $ | 2 | |
|
| | | | | | | | |
Other Paid-in Capital | | | | | | | | |
At beginning of period | | | 4,560 | | | | 4,533 | |
Common stock issued | | | 4 | | | | 5 | |
| | |
At end of period | | | 4,564 | | | | 4,538 | |
|
| | | | | | | | |
Accumulated Other Comprehensive Loss | | | | | | | | |
Retirement benefits liability | | | | | | | | |
At beginning of period | | | (32 | ) | | | (27 | ) |
Retirement benefits liability adjustments (a) | | | 1 | | | | — | |
| | |
At end of period | | | (31 | ) | | | (27 | ) |
| | |
| | | | | | | | |
Investments | | | | | | | | |
At beginning of period | | | — | | | | — | |
Unrealized loss on investments (a) | | | — | | | | (4 | ) |
| | |
At end of period | | | — | | | | (4 | ) |
| | |
| | | | | | | | |
Derivative instruments | | | | | | | | |
At beginning and end of period | | | (1 | ) | | | (1 | ) |
| | |
| | | | | | | | |
At end of period | | | (32 | ) | | | (32 | ) |
|
| | | | | | | | |
Accumulated Deficit | | | | | | | | |
At beginning of period | | | (1,927 | ) | | | (2,031 | ) |
Net income attributable to CMS Energy (a) | | | 88 | | | | 73 | |
Preferred stock dividends declared | | | (3 | ) | | | (3 | ) |
Common stock dividends declared | | | (34 | ) | | | (29 | ) |
| | |
At end of period | | | (1,876 | ) | | | (1,990 | ) |
|
| | | | | | | | |
Preferred Stock | | | | | | | | |
At beginning and end of period | | | 239 | | | | 243 | |
|
| | | | | | | | |
Noncontrolling Interests | | | | | | | | |
At beginning of period | | | 97 | | | | 96 | |
Income attributable to noncontrolling interests | | | — | | | | 1 | |
Distributions and other changes in noncontrolling interests | | | (53 | ) | | | (1 | ) |
| | |
At end of period | | | 44 | | | | 96 | |
|
| | | | | | | | |
Total Equity | | $ | 2,941 | | | $ | 2,857 | |
|
37
ASSETSCMS Energy Corporation
Consolidated Statements of Changes in Equity
(Unaudited)
| | | | | | | | |
| | In Millions | |
| | September 30 | | | December 31 | |
| | 2009 | | | 2008 | |
|
| | | | | | | | |
Plant and Property (at cost) | | | | | | | | |
Electric utility | | $ | 9,374 | | | $ | 8,965 | |
Gas utility | | | 3,755 | | | | 3,622 | |
Enterprises | | | 395 | | | | 390 | |
Other | | | 33 | | | | 33 | |
| | |
| | | 13,557 | | | | 13,010 | |
Less accumulated depreciation, depletion and amortization | | | 4,515 | | | | 4,428 | |
| | |
| | | 9,042 | | | | 8,582 | |
Construction work in progress | | | 524 | | | | 608 | |
| | |
| | | 9,566 | | | | 9,190 | |
|
| | | | | | | | |
Investments | | | | | | | | |
Enterprises | | | 3 | | | | 5 | |
Other | | | 6 | | | | 6 | |
| | |
| | | 9 | | | | 11 | |
|
| | | | | | | | |
Current Assets | | | | | | | | |
Cash and cash equivalents | | | 183 | | | | 213 | |
Restricted cash and cash equivalents | | | 30 | | | | 35 | |
Accounts receivable and accrued revenue, less allowances of $31 in 2009 and $26 in 2008 | | | 665 | | | | 851 | |
Notes receivable | | | 87 | | | | 95 | |
Accrued power supply and gas revenue | | | 8 | | | | 7 | |
Inventories at average cost | | | | | | | | |
Gas in underground storage | | | 1,246 | | | | 1,168 | |
Materials and supplies | | | 128 | | | | 110 | |
Generating plant fuel stock | | | 153 | | | | 127 | |
Deferred property taxes | | | 115 | | | | 165 | |
Regulatory assets — postretirement benefits | | | 19 | | | | 19 | |
Prepayments and other | | | 28 | | | | 37 | |
| | |
| | | 2,662 | | | | 2,827 | |
|
| | | | | | | | |
Non-current Assets | | | | | | | | |
Regulatory assets | | | | | | | | |
Securitized costs | | | 378 | | | | 416 | |
Postretirement benefits | | | 1,363 | | | | 1,431 | |
Customer Choice Act | | | 56 | | | | 90 | |
Other | | | 468 | | | | 482 | |
Notes receivable, less allowances of $6 in 2009 and $34 in 2008 | | | 227 | | | | 186 | |
Other | | | 154 | | | | 268 | |
| | |
| | | 2,646 | | | | 2,873 | |
|
| | | | | | | | |
Total Assets | | $ | 14,883 | | | $ | 14,901 | |
|
| | | | | | | | |
| | | | | | In Millions | |
Three Months Ended March 31 | | 2010 | | | 2009 | |
|
(a) Disclosure of Comprehensive Income: | | | | | | | | |
| | | | | | | | |
Net income | | $ | 88 | | | $ | 74 | |
Income attributable to noncontrolling interests | | | — | | | | 1 | |
| | |
Net income attributable to CMS Energy | | $ | 88 | | | $ | 73 | |
| | | | | | | | |
Retirement benefits liability: | | | | | | | | |
Retirement benefits liability adjustments, net of tax benefit of $1 in 2010 and $- in 2009 | | | 1 | | | | — | |
| | | | | | | | |
Investments: | | | | | | | | |
Unrealized loss on investments, net of tax of $- in 2010 and $- in 2009 | | | — | | | | (4 | ) |
| | |
| | | | | | | | |
Total Comprehensive Income | | $ | 89 | | | $ | 69 | |
| | |
The accompanying notes are an integral part of these statements.
37
STOCKHOLDERS’ INVESTMENT AND LIABILITIES
| | | | | | | | |
| | In Millions | |
| | September 30 | | | December 31 | |
| | 2009 | | | 2008 | |
|
| | | | | | | | |
Capitalization | | | | | | | | |
Common stockholders’ equity | | | | | | | | |
Common stock, authorized 350.0 shares; outstanding 227.6 shares in 2009 and 226.4 shares in 2008 | | $ | 2 | | | $ | 2 | |
Other paid-in capital | | | 4,555 | | | | 4,533 | |
Accumulated other comprehensive loss | | | (23 | ) | | | (28 | ) |
Accumulated deficit | | | (1,900 | ) | | | (2,031 | ) |
| | |
| | | 2,634 | | | | 2,476 | |
Noncontrolling interests | | | 53 | | | | 52 | |
Preferred stock of subsidiary | | | 44 | | | | 44 | |
Preferred stock | | | 239 | | | | 243 | |
| | |
Total equity | | | 2,970 | | | | 2,815 | |
| | | | | | | | |
Long-term debt | | | 5,889 | | | | 5,837 | |
Long-term debt — related parties | | | 34 | | | | 178 | |
Non-current portion of capital and finance lease obligations | | | 193 | | | | 206 | |
| | |
| | | 9,086 | | | | 9,036 | |
|
| | | | | | | | |
Current Liabilities | | | | | | | | |
Current portion of long-term debt, capital and finance lease obligations | | | 662 | | | | 514 | |
Notes payable | | | 50 | | | | — | |
Accounts payable | | | 376 | | | | 466 | |
Accrued rate refunds | | | 21 | | | | 7 | |
Accrued interest | | | 79 | | | | 107 | |
Accrued taxes | | | 125 | | | | 289 | |
Deferred income taxes | | | 185 | | | | 100 | |
Regulatory liabilities | | | 96 | | | | 120 | |
Other | | | 236 | | | | 260 | |
| | |
| | | 1,830 | | | | 1,863 | |
|
| | | | | | | | |
Non-current Liabilities | | | | | | | | |
Regulatory liabilities | | | | | | | | |
Cost of removal | | | 1,246 | | | | 1,203 | |
Income taxes, net | | | 528 | | | | 519 | |
Other | | | 158 | | | | 146 | |
Postretirement benefits | | | 1,336 | | | | 1,502 | |
Asset retirement obligation | | | 214 | | | | 206 | |
Deferred investment tax credit | | | 52 | | | | 54 | |
Deferred income taxes | | | 105 | | | | 55 | |
Other | | | 328 | | | | 317 | |
| | |
| | | 3,967 | | | | 4,002 | |
|
| | | | | | | | |
Commitments and Contingencies(Notes 4, 5, 6, 8 and 9) | | | | | | | | |
| | | | | | | | |
Total Stockholders’ Investment and Liabilities | | $ | 14,883 | | | $ | 14,901 | |
|
38
CMSConsumers Energy Corporation
Company
Consolidated Statements of Changes in Equity
Income
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | In Millions | |
| | Three Months Ended | | | Nine Months Ended | |
September 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
| | | | | | | | | | | | | | | | |
Common Stock | | | | | | | | | | | | | | | | |
At beginning and end of period | | $ | 2 | | | $ | 2 | | | $ | 2 | | | $ | 2 | |
|
| | | | | | | | | | | | | | | | |
Other Paid-in Capital | | | | | | | | | | | | | | | | |
At beginning of period | | | 4,552 | | | | 4,525 | | | | 4,533 | | | | 4,517 | |
Common stock issued | | | 4 | | | | 4 | | | | 12 | | | | 12 | |
Common stock repurchased | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | (1 | ) |
Conversion option on convertible debt | | | — | | | | — | | | | 11 | | | | — | |
| | |
At end of period | | | 4,555 | | | | 4,528 | | | | 4,555 | | | | 4,528 | |
|
| | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | | |
Retirement benefits liability | | | | | | | | | | | | | | | | |
At beginning of period | | | (27 | ) | | | (16 | ) | | | (27 | ) | | | (15 | ) |
Retirement benefits liability adjustments (a) | | | 1 | | | | — | | | | 1 | | | | (1 | ) |
| | |
At end of period | | | (26 | ) | | | (16 | ) | | | (26 | ) | | | (16 | ) |
| | |
| | | | | | | | | | | | | | | | |
Investments | | | | | | | | | | | | | | | | |
At beginning of period | | | 1 | | | | (5 | ) | | | — | | | | — | |
Unrealized gain (loss) on investments (a) | | | 3 | | | | (3 | ) | | | 4 | | | | (8 | ) |
Reclassification adjustments included in net income (a) | | | — | | | | 8 | | | | — | | | | 8 | |
| | |
At end of period | | | 4 | | | | — | | | | 4 | | | | — | |
| | |
| | | | | | | | | | | | | | | | |
Derivative instruments | | | | | | | | | | | | | | | | |
At beginning and end of period | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | (1 | ) |
| | |
Foreign currency translation | | | | | | | | | | | | | | | | |
At beginning of period | | | — | | | | — | | | | — | | | | (128 | ) |
Sale of interests in TGN (a) | | | — | | | | — | | | | — | | | | 128 | |
| | |
At end of period | | | — | | | | — | | | | — | | | | — | |
| | |
Total Accumulated Other Comprehensive Loss | | | (23 | ) | | | (17 | ) | | | (23 | ) | | | (17 | ) |
|
| | | | | | | | | | | | | | | | |
Accumulated Deficit | | | | | | | | | | | | | | | | |
At beginning of period | | | (1,945 | ) | | | (2,128 | ) | | | (2,031 | ) | | | (2,227 | ) |
Effects of changing the retirement plans measurement date | | | | | | | | | | | | | | | | |
Service cost, interest cost, and expected return on plan assets for December 1 through December 31, 2007, net of tax | | | — | | | | — | | | | — | | | | (4 | ) |
Additional loss from December 1 through December 31, 2007, net of tax | | | — | | | | — | | | | — | | | | (2 | ) |
Net income attributable to CMS Energy (a) | | | 75 | | | | 80 | | | | 224 | | | | 232 | |
Preferred stock dividends declared | | | (2 | ) | | | (2 | ) | | | (8 | ) | | | (8 | ) |
Common stock dividends declared | | | (28 | ) | | | (20 | ) | | | (85 | ) | | | (61 | ) |
| | |
At end of period | | | (1,900 | ) | | | (2,070 | ) | | | (1,900 | ) | | | (2,070 | ) |
| | |
| | | | | | | | | | | | | | | | |
Noncontrolling Interests | | | | | | | | | | | | | | | | |
At beginning of period | | | 338 | | | | 345 | | | | 339 | | | | 347 | |
Conversion of preferred stock | | | (4 | ) | | | — | | | | (4 | ) | | | (1 | ) |
Other changes in noncontrolling interests | | | 2 | | | | 1 | | | | 1 | | | | — | |
| | |
At end of period | | | 336 | | | | 346 | | | | 336 | | | | 346 | |
|
| | | | | | | | | | | | | | | | |
Total Equity | | $ | 2,970 | | | $ | 2,789 | | | $ | 2,970 | | | $ | 2,789 | |
|
| | | | | | | | |
| | | | | | In Millions | |
Three Months Ended March 31 | | 2010 | | | 2009 | |
|
Operating Revenue | | $ | 1,890 | | | $ | 2,034 | |
| | | | | | | | |
Operating Expenses | | | | | | | | |
Fuel for electric generation | | | 125 | | | | 111 | |
Purchased and interchange power | | | 277 | | | | 284 | |
Purchased power — related parties | | | 21 | | | | 18 | |
Cost of gas sold | | | 746 | | | | 936 | |
Other operating expenses | | | 222 | | | | 207 | |
Maintenance | | | 40 | | | | 44 | |
Depreciation and amortization | | | 171 | | | | 170 | |
General taxes | | | 64 | | | | 61 | |
| | |
| | | 1,666 | | | | 1,831 | |
|
| | | | | | | | |
Operating Income | | | 224 | | | | 203 | |
| | | | | | | | |
Other Income (Expense) | | | | | | | | |
Interest and dividends | | | 5 | | | | 4 | |
Allowance for equity funds used during construction | | | 1 | | | | 1 | |
Other income | | | 9 | | | | 12 | |
Other expense | | | (2 | ) | | | (2 | ) |
| | |
| | | 13 | | | | 15 | |
|
| | | | | | | | |
Interest Charges | | | | | | | | |
Interest on long-term debt | | | 63 | | | | 59 | |
Other interest | | | 6 | | | | 5 | |
Allowance for borrowed funds used during construction | | | (1 | ) | | | (1 | ) |
| | |
| | | 68 | | | | 63 | |
|
| | | | | | | | |
Income Before Income Taxes | | | 169 | | | | 155 | |
| | | | | | | | |
Income Tax Expense | | | 62 | | | | 56 | |
| | |
| | | | | | | | |
Net Income | | | 107 | | | | 99 | |
| | | | | | | | |
Preferred Stock Dividends | | | — | | | | 1 | |
| | |
| | | | | | | | |
Net Income Available to Common Stockholder | | $ | 107 | | | $ | 98 | |
|
The accompanying notes are an integral part of these statements.
39
| | | | | | | | | | | | | | | | |
| | | | | | | | | | In Millions | |
| | Three Months Ended | | | Nine Months Ended | |
September 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
| | | | | | | | | | | | | | | | |
(a) Disclosure of Comprehensive Income: | | | | | | | | | | | | | | | | |
Net income attributable to CMS Energy | | $ | 75 | | | $ | 80 | | | $ | 224 | | | $ | 232 | |
Retirement benefits liability adjustments, net of tax of $—, $—, $—, and $2, respectively | | | 1 | | | | — | | | | 1 | | | | (1 | ) |
Unrealized gain (loss) on investments, net of tax (tax benefit) of $4, $(3), $4, and $(6), respectively | | | 3 | | | | (3 | ) | | | 4 | | | | (8 | ) |
Reclassification adjustments included in net income, net of tax of $—, $5, $—, and $5, respectively | | | — | | | | 8 | | | | — | | | | 8 | |
Sale of interests in TGN, net of tax of $69 | | | — | | | | — | | | | — | | | | 128 | |
| | |
| | | | | | | | | | | | | | | | |
Total Comprehensive Income | | $ | 79 | | | $ | 85 | | | $ | 229 | | | $ | 359 | |
| | |
Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited) | | | | | | | | |
| | | | | | In Millions | |
Three Months Ended March 31 | | 2010 | | | 2009 | |
|
Cash Flows from Operating Activities | | | | | | | | |
Net income | | $ | 107 | | | $ | 99 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | |
Depreciation and amortization | | | 171 | | | | 170 | |
Deferred income taxes and investment tax credit | | | (19 | ) | | | 29 | |
Allowance for equity funds used during construction | | | (1 | ) | | | (1 | ) |
Postretirement benefits expense | | | 48 | | | | 45 | |
Capital lease and other amortization | | | 7 | | | | 6 | |
Bad debt expense | | | 13 | | | | 19 | |
Postretirement benefits contributions | | | (125 | ) | | | (12 | ) |
Changes in other assets and liabilities: | | | | | | | | |
Decrease (increase) in accounts receivable, notes receivable, and accrued revenue | | | 31 | | | | (167 | ) |
Decrease in accrued power supply and gas revenue | | | 38 | | | | 1 | |
Decrease in inventories | | | 459 | | | | 566 | |
Decrease in accounts payable | | | (49 | ) | | | (71 | ) |
Decrease in accrued taxes and expenses | | | (28 | ) | | | (19 | ) |
Decrease in other current and non-current assets | | | 44 | | | | 24 | |
Decrease in other current and non-current liabilities | | | (13 | ) | | | (25 | ) |
| | |
Net cash provided by operating activities | | | 683 | | | | 664 | |
|
| | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | |
Capital expenditures (excludes assets placed under capital lease) | | | (190 | ) | | | (177 | ) |
Cost to retire property | | | (11 | ) | | | (17 | ) |
Decrease in restricted cash and cash equivalents | | | (1 | ) | | | (5 | ) |
| | |
Net cash used in investing activities | | | (202 | ) | | | (199 | ) |
|
| | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | |
Proceeds from issuance of long-term debt | | | — | | | | 500 | |
Retirement of long-term debt | | | — | | | | (201 | ) |
Payments on securitization bonds | | | (9 | ) | | | (8 | ) |
Payment of common stock dividends | | | (114 | ) | | | (72 | ) |
Stockholder’s contribution | | | 200 | | | | — | |
Payment of capital and finance lease obligations and other financing costs | | | (6 | ) | | | (10 | ) |
| | |
Net cash provided by financing activities | | | 71 | | | | 209 | |
|
| | | | | | | | |
Net Increase in Cash and Cash Equivalents | | | 552 | | | | 674 | |
| | | | | | | | |
Cash and Cash Equivalents, Beginning of Period | | | 39 | | | | 69 | |
| | |
| | | | | | | | |
Cash and Cash Equivalents, End of Period | | $ | 591 | | | $ | 743 | |
|
40
Consumers Energy Company
Consolidated Statements of IncomeBalance Sheets
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | In Millions | |
| | Three Months Ended | | | Nine Months Ended | |
September 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
| | | | | | | | | | | | | | | | |
Operating Revenue | | $ | 1,213 | | | $ | 1,307 | | | $ | 4,431 | | | $ | 4,661 | |
| | | | | | | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | | | | | | |
Fuel for electric generation | | | 119 | | | | 128 | | | | 335 | | | | 373 | |
Purchased and interchange power | | | 315 | | | | 405 | | | | 879 | | | | 1,015 | |
Purchased power — related parties | | | 25 | | | | 20 | | | | 60 | | | | 57 | |
Cost of gas sold | | | 103 | | | | 135 | | | | 1,234 | | | | 1,368 | |
Other operating expenses | | | 204 | | | | 201 | | | | 613 | | | | 565 | |
Maintenance | | | 49 | | | | 44 | | | | 147 | | | | 124 | |
Depreciation and amortization | | | 125 | | | | 131 | | | | 413 | | | | 425 | |
General taxes | | | 51 | | | | 44 | | | | 158 | | | | 146 | |
Gain on asset sales, net | | | (6 | ) | | | — | | | | (9 | ) | | | — | |
| | |
| | | 985 | | | | 1,108 | | | | 3,830 | | | | 4,073 | |
|
| | | | | | | | | | | | | | | | |
Operating Income | | | 228 | | | | 199 | | | | 601 | | | | 588 | |
| | | | | | | | | | | | | | | | |
Other Income (Deductions) | | | | | | | | | | | | | | | | |
Interest | | | 6 | | | | 4 | | | | 16 | | | | 20 | |
Regulatory return on capital expenditures | | | 7 | | | | 9 | | | | 20 | | | | 25 | |
Other income | | | 3 | | | | 4 | | | | 11 | | | | 9 | |
Other expense | | | (2 | ) | | | (11 | ) | | | (6 | ) | | | (17 | ) |
| | |
| | | 14 | | | | 6 | | | | 41 | | | | 37 | |
|
| | | | | | | | | | | | | | | | |
Interest Charges | | | | | | | | | | | | | | | | |
Interest on long-term debt | | | 63 | | | | 56 | | | | 187 | | | | 169 | |
Other interest | | | 5 | | | | 6 | | | | 15 | | | | 17 | |
Capitalized interest | | | (1 | ) | | | (1 | ) | | | (3 | ) | | | (4 | ) |
| | |
| | | 67 | | | | 61 | | | | 199 | | | | 182 | |
|
| | | | | | | | | | | | | | | | |
Income Before Income Taxes | | | 175 | | | | 144 | | | | 443 | | | | 443 | |
| | | | | | | | | | | | | | | | |
Income Tax Expense | | | 68 | | | | 53 | | | | 167 | | | | 162 | |
| | |
| | | | | | | | | | | | | | | | |
Net Income | | | 107 | | | | 91 | | | | 276 | | | | 281 | |
| | | | | | | | | | | | | | | | |
Preferred Stock Dividends | | | 1 | | | | 1 | | | | 2 | | | | 2 | |
| | |
| | | | | | | | | | | | | | | | |
Net Income Available to Common Stockholder | | $ | 106 | | | $ | 90 | | | $ | 274 | | | $ | 279 | |
|
ASSETS | | | | | | | | |
| | | | | | In Millions | |
| | March 31 | | | December 31 | |
| | 2010 | | | 2009 | |
|
Current Assets | | | | | | | | |
Cash and cash equivalents | | $ | 591 | | | $ | 39 | |
Restricted cash and cash equivalents | | | 23 | | | | 22 | |
Accounts receivable and accrued revenue, less allowances of $21 in 2010 and $21 in 2009 | | | 861 | | | | 935 | |
Notes receivable | | | 67 | | | | 79 | |
Accrued power supply and gas revenue | | | 10 | | | | 48 | |
Accounts receivable — related parties | | | 8 | | | | 2 | |
Inventories at average cost | | | | | | | | |
Gas in underground storage | | | 603 | | | | 1,038 | |
Materials and supplies | | | 108 | | | | 111 | |
Generating plant fuel stock | | | 127 | | | | 148 | |
Deferred property taxes | | | 142 | | | | 172 | |
Regulatory assets | | | 19 | | | | 19 | |
Prepayments and other | | | 26 | | | | 23 | |
| | |
| | | 2,585 | | | | 2,636 | |
|
| | | | | | | | |
Plant, Property & Equipment (at cost) | | | | | | | | |
Plant, property & equipment, gross | | | 13,471 | | | | 13,352 | |
Less accumulated depreciation, depletion, and amortization | | | 4,459 | | | | 4,386 | |
| | |
Plant, property & equipment, net | | | 9,012 | | | | 8,966 | |
Construction work in progress | | | 563 | | | | 505 | |
| | |
| | | 9,575 | | | | 9,471 | |
|
| | | | | | | | |
Non-current Assets | | | | | | | | |
Regulatory assets | | | 2,244 | | | | 2,291 | |
Investments | | | 28 | | | | 29 | |
Other | | | 154 | | | | 195 | |
| | |
| | | 2,426 | | | | 2,515 | |
|
| | | | | | | | |
Total Assets | | $ | 14,586 | | | $ | 14,622 | |
|
The accompanying notes are an integral part of these statements.
41
Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)STOCKHOLDER’S INVESTMENT AND LIABILITIES
| | | | | | | | |
| | In Millions | |
Nine Months Ended September 30 | | 2009 | | | 2008 | |
|
| | | | | | | | |
Cash Flows from Operating Activities | | | | | | | | |
Net income | | $ | 276 | | | $ | 281 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | |
Depreciation and amortization | | | 413 | | | | 425 | |
Deferred income taxes and investment tax credit | | | 65 | | | | 87 | |
Postretirement benefits expense | | | 132 | | | | 107 | |
Regulatory return on capital expenditures | | | (20 | ) | | | (25 | ) |
Capital lease and other amortization | | | 19 | | | | 23 | |
Bad debt expense | | | 40 | | | | 33 | |
Gain on sale of assets | | | (9 | ) | | | — | |
Postretirement benefits contributions | | | (239 | ) | | | (37 | ) |
Changes in assets and liabilities: | | | | | | | | |
Decrease in accounts receivable, notes receivable and accrued revenue | | | 205 | | | | 178 | |
Decrease (increase) in accrued power supply and gas revenue | | | (1 | ) | | | 39 | |
Increase in inventories | | | (119 | ) | | | (411 | ) |
Decrease in deferred property taxes | | | 122 | | | | 118 | |
Decrease in accounts payable | | | (55 | ) | | | (14 | ) |
Decrease in accrued taxes | | | (130 | ) | | | (127 | ) |
Decrease in accrued expenses | | | (11 | ) | | | (36 | ) |
Decrease in other current and non-current assets | | | 34 | | | | 17 | |
Decrease in other current and non-current liabilities | | | (19 | ) | | | (134 | ) |
| | |
Net cash provided by operating activities | | | 703 | | | | 524 | |
|
| | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | |
Capital expenditures (excludes assets placed under capital lease) | | | (616 | ) | | | (510 | ) |
Cost to retire property | | | (33 | ) | | | (22 | ) |
Proceeds from sale of assets | | | 7 | | | | — | |
Decrease in restricted cash and cash equivalents | | | 3 | | | | 1 | |
| | |
Net cash used in investing activities | | | (639 | ) | | | (531 | ) |
|
| | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | |
Proceeds from issuance of long-term debt | | | 500 | | | | 600 | |
Retirement of long-term debt | | | (377 | ) | | | (434 | ) |
Payment of common stock dividends | | | (233 | ) | | | (238 | ) |
Payment of capital and finance lease obligations | | | (17 | ) | | | (18 | ) |
Stockholder’s contribution | | | 100 | | | | — | |
Payment of preferred stock dividends | | | (2 | ) | | | (2 | ) |
Debt issuance and financing costs | | | (6 | ) | | | (7 | ) |
| | |
Net cash used in financing activities | | | (35 | ) | | | (99 | ) |
|
| | | | | | | | |
Net Increase (Decrease) in Cash and Cash Equivalents | | | 29 | | | | (106 | ) |
|
Cash and Cash Equivalents, Beginning of Period | | | 69 | | | | 195 | |
| | |
| | | | | | | | |
Cash and Cash Equivalents, End of Period | | $ | 98 | | | $ | 89 | |
|
The accompanying notes are an integral part of these statements. | | | | | | | | |
| | | | | | In Millions | |
| | March 31 | | | December 31 | |
| | 2010 | | | 2009 | |
|
Current Liabilities | | | | | | | | |
Current portion of long-term debt, capital and finance lease obligations | | $ | 368 | | | $ | 365 | |
Accounts payable | | | 379 | | | | 490 | |
Accrued rate refunds | | | 2 | | | | 21 | |
Accounts payable — related parties | | | 10 | | | | 11 | |
Accrued interest | | | 41 | | | | 70 | |
Accrued taxes | | | 298 | | | | 277 | |
Deferred income taxes | | | 151 | | | | 206 | |
Regulatory liabilities | | | 128 | | | | 145 | |
Other | | | 78 | | | | 86 | |
| | |
| | | 1,455 | | | | 1,671 | |
|
| | | | | | | | |
Non-current Liabilities | | | | | | | | |
Regulatory liabilities | | | 1,932 | | | | 1,991 | |
Postretirement benefits | | | 1,305 | | | | 1,396 | |
Asset retirement obligations | | | 232 | | | | 228 | |
Deferred investment tax credit | | | 50 | | | | 51 | |
Deferred income taxes | | | 1,072 | | | | 926 | |
Other | | | 235 | | | | 241 | |
| | |
| | | 4,826 | | | | 4,833 | |
|
| | | | | | | | |
Commitments and Contingencies(Notes 3, 4, 5, 7 and 8) | | | | | | | | |
| | | | | | | | |
Capitalization | | | | | | | | |
Long-term debt | | | 4,053 | | | | 4,063 | |
Non-current portion of capital and finance lease obligations | | | 202 | | | | 197 | |
Common stockholder’s equity | | | | | | | | |
Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods | | | 841 | | | | 841 | |
Other paid-in capital | | | 2,782 | | | | 2,582 | |
Accumulated other comprehensive income | | | 1 | | | | 2 | |
Retained earnings | | | 382 | | | | 389 | |
| | |
Total common stockholder’s equity | | | 4,006 | | | | 3,814 | |
Preferred stock | | | 44 | | | | 44 | |
| | |
Total equity | | | 4,050 | | | | 3,858 | |
| | | | | | | | |
| | | 8,305 | | | | 8,118 | |
|
| | | | | | | | |
Total Stockholder’s Investment and Liabilities | | $ | 14,586 | | | $ | 14,622 | |
|
42
Consumers Energy Company
Consolidated Balance SheetsStatements of Changes in Equity
(Unaudited)
ASSETS
| | | | | | | | |
| | | | | | In Millions | |
| | September 30 | | | December 31 | |
| | 2009 | | | 2008 | |
|
| | | | | | | | |
Plant and Property (at cost) | | | | | | | | |
Electric utility | | $ | 9,374 | | | $ | 8,965 | |
Gas utility | | | 3,755 | | | | 3,622 | |
Other | | | 15 | | | | 15 | |
| | |
| | | 13,144 | | | | 12,602 | |
Less accumulated depreciation, depletion, and amortization | | | 4,321 | | | | 4,242 | |
| | |
| | | 8,823 | | | | 8,360 | |
Construction work in progress | | | 522 | | | | 607 | |
| | |
| | | 9,345 | | | | 8,967 | |
|
| | | | | | | | |
Investments | | | | | | | | |
Stock of affiliates | | | 25 | | | | 19 | |
|
| | | | | | | | |
Current Assets | | | | | | | | |
Cash and cash equivalents | | | 98 | | | | 69 | |
Restricted cash and cash equivalents | | | 22 | | | | 25 | |
Accounts receivable and accrued revenue, less allowances of $28 in 2009 and $24 in 2008 | | | 647 | | | | 829 | |
Notes receivable | | | 84 | | | | 93 | |
Accrued power supply and gas revenue | | | 8 | | | | 7 | |
Accounts receivable — related parties | | | 1 | | | | 2 | |
Inventories at average cost | | | | | | | | |
Gas in underground storage | | | 1,242 | | | | 1,168 | |
Materials and supplies | | | 121 | | | | 103 | |
Generating plant fuel stock | | | 145 | | | | 118 | |
Deferred property taxes | | | 115 | | | | 165 | |
Regulatory assets — postretirement benefits | | | 19 | | | | 19 | |
Prepayments and other | | | 25 | | | | 30 | |
| | |
| | | 2,527 | | | | 2,628 | |
|
| | | | | | | | |
Non-current Assets | | | | | | | | |
Regulatory assets | | | | | | | | |
Securitized costs | | | 378 | | | | 416 | |
Postretirement benefits | | | 1,363 | | | | 1,431 | |
Customer Choice Act | | | 56 | | | | 90 | |
Other | | | 468 | | | | 482 | |
Other | | | 100 | | | | 213 | |
| | |
| | | 2,365 | | | | 2,632 | |
|
| | | | | | | | |
Total Assets | | $ | 14,262 | | | $ | 14,246 | |
|
| | | | | | | | |
| | | | | | In Millions | |
Three Months Ended March 31 | | 2010 | | | 2009 | |
|
Common Stock | | | | | | | | |
At beginning and end of period (a) | | $ | 841 | | | $ | 841 | |
|
| | | | | | | | |
Other Paid-in Capital | | | | | | | | |
At beginning of period | | | 2,582 | | | | 2,482 | |
Stockholder’s contribution | | | 200 | | | | — | |
| | |
At end of period | | | 2,782 | | | | 2,482 | |
|
| | | | | | | | |
Accumulated Other Comprehensive Income | | | | | | | | |
Retirement benefits liability | | | | | | | | |
At beginning and end of period | | | (11 | ) | | | (7 | ) |
| | |
| | | | | | | | |
Investments | | | | | | | | |
At beginning of period | | | 13 | | | | 6 | |
Unrealized gain (loss) on investments (b) | | | (1 | ) | | | 1 | |
| | |
At end of period | | | 12 | | | | 7 | |
| | |
| | | | | | | | |
At end of period | | | 1 | | | | — | |
|
| | | | | | | | |
Retained Earnings | | | | | | | | |
At beginning of period | | | 389 | | | | 383 | |
Net income (b) | | | 107 | | | | 99 | |
Common stock dividends declared | | | (114 | ) | | | (72 | ) |
Preferred stock dividends declared | | | — | | | | (1 | ) |
| | |
At end of period | | | 382 | | | | 409 | |
|
| | | | | | | | |
Preferred Stock | | | | | | | | |
At beginning and end of period | | | 44 | | | | 44 | |
|
| | | | | | | | |
Total Equity | | $ | 4,050 | | | $ | 3,776 | |
|
The accompanying notes are an integral part of these statements.
43
STOCKHOLDER’S INVESTMENT AND LIABILITIES
| | | | | | | | |
| | | | | | In Millions | |
| | September 30 | | | December 31 | |
| | 2009 | | | 2008 | |
|
| | | | | | | | |
Capitalization | | | | | | | | |
Common stockholder’s equity | | | | | | | | |
Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods | | $ | 841 | | | $ | 841 | |
Other paid-in capital | | | 2,582 | | | | 2,482 | |
Accumulated other comprehensive income (loss) | | | 6 | | | | (1 | ) |
Retained earnings | | | 424 | | | | 383 | |
| | |
| | | 3,853 | | | | 3,705 | |
Preferred stock | | | 44 | | | | 44 | |
| | |
Total equity | | | 3,897 | | | | 3,749 | |
| | | | | | | | |
Long-term debt | | | 4,072 | | | | 3,908 | |
Non-current portion of capital and finance lease obligations | | | 193 | | | | 206 | |
| | |
| | | 8,162 | | | | 7,863 | |
|
| | | | | | | | |
Current Liabilities | | | | | | | | |
Current portion of long-term debt, capital and finance lease obligations | | | 365 | | | | 408 | |
Accounts payable | | | 359 | | | | 444 | |
Accrued rate refunds | | | 21 | | | | 7 | |
Accounts payable — related parties | | | 10 | | | | 14 | |
Accrued interest | | | 45 | | | | 69 | |
Accrued taxes | | | 159 | | | | 289 | |
Deferred income taxes | | | 251 | | | | 277 | |
Regulatory liabilities | | | 96 | | | | 120 | |
Other | | | 192 | | | | 151 | |
| | |
| | | 1,498 | | | | 1,779 | |
|
| | | | | | | | |
Non-current Liabilities | | | | | | | | |
Deferred income taxes | | | 881 | | | | 792 | |
Regulatory liabilities | | | | | | | | |
Cost of removal | | | 1,246 | | | | 1,203 | |
Income taxes, net | | | 528 | | | | 519 | |
Other | | | 158 | | | | 146 | |
Postretirement benefits | | | 1,278 | | | | 1,436 | |
Asset retirement obligations | | | 213 | | | | 205 | |
Deferred investment tax credit | | | 52 | | | | 54 | |
Other | | | 246 | | | | 249 | |
| | |
| | | 4,602 | | | | 4,604 | |
|
| | | | | | | | |
Commitments and Contingencies(Notes 4, 5, 6, 8 and 9) | | | | | | | | |
| | | | | | | | |
Total Stockholder’s Investment and Liabilities | | $ | 14,262 | | | $ | 14,246 | |
|
| | | | | | | | |
| | | | | | In Millions | |
Three Months Ended March 31 | | 2010 | | | 2009 | |
|
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented. |
| | | | | | | | |
(b) Disclosure of Comprehensive Income: | | | | | | | | |
| | | | | | | | |
Net income | | $ | 107 | | | $ | 99 | |
| | | | | | | | |
Investments | | | | | | | | |
Unrealized gain (loss) on investments, net of tax of $- in 2010 and $- in 2009 | | | (1 | ) | | | 1 | |
| | |
| | | | | | | | |
Total Comprehensive Income | | $ | 106 | | | $ | 100 | |
| | |
44
Consumers Energy Company
Consolidated Statements of Changes in Equity
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | In Millions | |
| | Three Months Ended | | | Nine Months Ended | |
September 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
| | | | | | | | | | | | | | | | |
Common Stock | | | | | | | | | | | | | | | | |
At beginning and end of period (a) | | $ | 841 | | | $ | 841 | | | $ | 841 | | | $ | 841 | |
|
| | | | | | | | | | | | | | | | |
Other Paid-in Capital | | | | | | | | | | | | | | | | |
At beginning of period | | | 2,582 | | | | 2,482 | | | | 2,482 | | | | 2,482 | |
Stockholder’s contribution | | | — | | | | — | | | | 100 | | | | — | |
| | |
At end of period | | | 2,582 | | | | 2,482 | | | | 2,582 | | | | 2,482 | |
|
| | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Income | | | | | | | | | | | | | | | | |
Retirement benefits liability | | | | | | | | | | | | | | | | |
At beginning of period | | | (7 | ) | | | (9 | ) | | | (7 | ) | | | (15 | ) |
Retirement benefits liability adjustments (b) | | | — | | | | — | | | | — | | | | 6 | |
| | |
At end of period | | | (7 | ) | | | (9 | ) | | | (7 | ) | | | (9 | ) |
| | |
| | | | | | | | | | | | | | | | |
Investments | | | | | | | | | | | | | | | | |
At beginning of period | | | 10 | | | | 8 | | | | 6 | | | | 15 | |
Unrealized gain (loss) on investments (b) | | | 3 | | | | (5 | ) | | | 7 | | | | (12 | ) |
Reclassification adjustments included in net income (b) | | | — | | | | 6 | | | | — | | | | 6 | |
| | |
At end of period | | | 13 | | | | 9 | | | | 13 | | | | 9 | |
| | |
| | | | | | | | | | | | | | | | |
Total Accumulated Other Comprehensive Income | | | 6 | | | | — | | | | 6 | | | | — | |
|
| | | | | | | | | | | | | | | | |
Retained Earnings | | | | | | | | | | | | | | | | |
At beginning of period | | | 421 | | | | 339 | | | | 383 | | | | 324 | |
Effects of changing the retirement plans measurement date | | | | | | | | | | | | | | | | |
Service cost, interest cost, and expected return on plan assets for December 1 through December 31, 2007, net of tax | | | — | | | | — | | | | — | | | | (4 | ) |
Additional loss from December 1 through December 31, 2007, net of tax | | | — | | | | — | | | | — | | | | (2 | ) |
Net income (b) | | | 107 | | | | 91 | | | | 276 | | | | 281 | |
Common stock dividends declared | | | (103 | ) | | | (70 | ) | | | (233 | ) | | | (238 | ) |
Preferred stock dividends declared | | | (1 | ) | | | (1 | ) | | | (2 | ) | | | (2 | ) |
| | |
At end of period | | | 424 | | | | 359 | | | | 424 | | | | 359 | |
|
| | | | | | | | | | | | | | | | |
Preferred Stock | | | | | | | | | | | | | | | | |
At beginning and end of period | | | 44 | | | | 44 | | | | 44 | | | | 44 | |
|
| | | | | | | | | | | | | | | | |
Total Equity | | $ | 3,897 | | | $ | 3,726 | | | $ | 3,897 | | | $ | 3,726 | |
|
| | The accompanying notes are an integral part of these statements. |
45
| | | | | | | | | | | | | | | | |
| | | | | | | | | | In Millions | |
| | Three Months Ended | | | Nine Months Ended | |
September 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
| | | | | | | | | | | | | | | | |
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(b) Disclosure of Comprehensive Income: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 107 | | | $ | 91 | | | $ | 276 | | | $ | 281 | |
Retirement benefits liability | | | | | | | | | | | | | | | | |
Retirement benefits liability adjustments, net of tax of $—, $—, $—, and $2, respectively | | | — | | | | — | | | | — | | | | 6 | |
| | | | | | | | | | | | | | | | |
Investments | | | | | | | | | | | | | | | | |
Unrealized gain (loss) on investments, net of tax (tax benefit) of $4, $(3), $4, and $(6), respectively | | | 3 | | | | (5 | ) | | | 7 | | | | (12 | ) |
Reclassification adjustments included in net income, net of tax of $—, $3, $—, and $3, respectively | | | — | | | | 6 | | | | — | | | | 6 | |
| | |
Total Comprehensive Income | | $ | 110 | | | $ | 92 | | | $ | 283 | | | $ | 281 | |
| | |
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CMS Energy Corporation
Consumers Energy Company
notes to consolidated financial statements
(Unaudited)
These interim Consolidated Financial Statements have been prepared by CMS Energy and Consumers in accordance with accounting principles generally accepted in the United StatesU.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As a result, CMS Energy and Consumers have condensed or omitted certain information and Note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States.U.S. CMS Energy and Consumers have reclassified certain prior year amounts to conform to the presentation in the current year. The Consolidated Financial Statements for the ninethree months ended September 30, 2008March 31, 2009 have been updated for amounts previously reported. In management’s opinion, the unaudited information contained in this report reflects all adjustments of a normal recurring nature necessary to ensure the fair presentation of financial position, results of operations, and cash flows for the periods presented. The Notes to Consolidated Financial Statements and the related Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related Notes contained in CMS Energy’s and Consumers’ 20082009 Form 10-K. Due to the seasonal nature of CMS Energy’s and Consumers’ operations, the results presented for this interim period are not necessarily indicative of results to be achieved for the fiscal year.
These interim Consolidated Financial Statements and accompanying Note disclosures include the evaluation of subsequent events through October 30, 2009, the date of issuance.
1: SIGNIFICANT ACCOUNTING POLICIES
Self-Implemented Rates:Consumers is allowed to self-implement new energy rates six months after a new rate case filing if the MPSC has not issued an order in the case. The MPSC then has another six months to issue a final order. If the MPSC does not issue an order, the filed rates are considered approved. If the MPSC issues an order, the rates that Consumers self-implemented may be subject to refund, with interest. Consumers recognizes revenue associated with self-implemented rates. If Consumers considers it probable that it will be required to refund a portion of its self-implemented rates, then Consumers records a provision for revenue subject to refund. For details on Consumers’ self-implemented rates, see Note 5, Utility Rate Matters.
2: NEW ACCOUNTING STANDARDS
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles,codified inASC 105-10, Generally Accepted Accounting Principles:This standard, which was effective for CMS Energy and Consumers July 1, 2009, establishes the ASC as the single source of authoritative nongovernmental U.S. GAAP, except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The ASC supersedes all existing non-SEC accounting and reporting standards. CMS Energy and Consumers have included references to the ASC in these consolidated financial statements and notes where appropriate.
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SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment to ARB No. 51,codified inASC 810-10, Consolidation:Under this standard, which was effective for CMS Energy and Consumers January 1, 2009, ownership interests in subsidiaries held by third parties, previously referred to as minority interests, are presented as noncontrolling interests and shown separately on the parent’s balance sheet within equity. In addition, net income attributable to noncontrolling interests is included in net income on the income statement. CMS Energy and Consumers have applied these provisions to current and prior periods presented in its consolidated financial statements. The standard also affects the accounting for changes in a parent’s ownership interest, including deconsolidation of a subsidiary. CMS Energy and Consumers will apply these provisions of the standard to any such future transactions.
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133,codified inASC 815-10, Derivatives and Hedging:This standard, which was effective for CMS Energy and Consumers January 1, 2009, requires enhanced disclosures about how and why derivatives are used, how derivatives and related hedged items are accounted for, and how derivatives and any related hedged items affect financial position, financial performance, and cash flows. The standard did not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position. For additional details on CMS Energy’s and Consumers’ derivatives, see Note 9, Derivative Instruments.
49
FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled In Cash UponConversion (Including Partial Cash Settlement),codified inASC 470-20, Debt with Conversion and Other Options:This standard, which was effective for CMS Energy and Consumers January 1, 2009, requires CMS Energy to account for the liability and equity components of its convertible debt securities separately and in a manner that reflects CMS Energy’s borrowing rate for nonconvertible debt. The following table summarizes the effects of adopting this standard on CMS Energy’s consolidated financial statements:
| | | | | | | | | | | | |
Increases (decreases) | | In Millions, Except Per Share Amounts | | | | |
Three months ended September 30 | | 2009 | | 2008 | | | | |
| | | | |
Interest on long-term debt | | $ | 2 | | | $ | 2 | | | | | |
Income tax expense | | | — | | | | (1 | ) | | | | |
| | |
Net income | | $ | (2 | ) | | $ | (1 | ) | | | | |
| | |
| | | | | | | | | | | | |
Earnings Per Average Common Share | | | | | | | | | | | | |
Basic | | $ | (0.01 | ) | | $ | (0.01 | ) | | | | |
Diluted | | $ | (0.01 | ) | | $ | (0.01 | ) | | | | |
| | | | |
| | | | | | | | |
Nine months ended September 30 | | 2009 | | 2008 |
|
Interest on long-term debt | | $ | 6 | | | $ | 7 | |
Income tax expense | | | (2 | ) | | | (3 | ) |
| | |
Net income | | $ | (4 | ) | | $ | (4 | ) |
| | |
| | | | | | | | |
Earnings Per Average Common Share | | | | | | | | |
Basic | | $ | (0.02 | ) | | $ | (0.02 | ) |
Diluted | | $ | (0.02 | ) | | $ | (0.02 | ) |
|
| | | | | | | | |
Increases (decreases) | | December 31, 2008 | | January 1, 2008 |
|
Assets | | | | | | | | |
Non-current deferred income tax assets | | $ | — | | | $ | (12 | ) |
| | |
| | | | | | | | |
Liabilities | | | | | | | | |
Long-term debt | | $ | (22 | ) | | $ | (30 | ) |
Non-current deferred income tax liabilities | | | 9 | | | | — | |
| | |
Total | | $ | (13 | ) | | $ | (30 | ) |
| | |
| | | | | | | | |
Common Stockholders’ Equity | | | | | | | | |
Other paid-in capital | | $ | 37 | | | $ | 37 | |
Accumulated deficit | | | 24 | | | | 19 | |
| | |
Total | | $ | 13 | | | $ | 18 | |
|
The standard had no impact on Consumers’ consolidated financial statements. For additional details on CMS Energy’s convertible debt instruments, see Note 6, Financings and Capitalization.
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FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,codified inASC 260-10, Earnings per Share:Under this standard, which was effective for CMS Energy and Consumers January 1, 2009, share-based payment awards that accrue cash dividends when common shareholders receive dividends are considered participating securities if the dividends are not required to be returned to the company when the employee forfeits the award. The standard applies to CMS Energy’s outstanding unvested restricted stock awards, which are considered participating securities and thus are included in the computation of basic EPS. Implementation of the standard for CMS Energy reduced basic and diluted EPS by $0.01 for the nine months ended September 30, 2009 and 2008. The standard had no impact on Consumers’ consolidated financial statements.
FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,codified inASC 820-10, Fair Value Measurements and Disclosures:The standard, which was effective for CMS Energy and Consumers April 1, 2009, provides guidance on determining whether there has been a significant decrease in market activity for an asset or liability and whether quoted prices may reflect distressed transactions. The guidance indicates that entities should not rely on distressed prices in determining fair value, but may instead use alternative valuation techniques, such as discounting future cash flows assuming an orderly transaction. The standard requires quarterly disclosures about the inputs and valuation techniques used in fair value measurements. Previously, these disclosures were required only annually. See Note 3, Fair Value Measurements, for the required disclosures. The standard had no impact on CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, codified inASC 320-10, Investments—Debt and Equity Securities:The standard, which was effective for CMS Energy and Consumers April 1, 2009, amends the other-than-temporary impairment guidance for debt securities. Entities no longer need to assert both the intent and ability to hold an impaired debt security until recovery to avoid recording an other-than-temporary impairment. Instead, an entity must consider whether it intends to sell the security or whether it is more likely than not that it will be required to sell the security prior to recovery. If either of these criteria are met, the full impairment should be recognized in earnings. If neither criterion is met, only impairments due to credit losses should be recorded to earnings, while impairments related to other factors should be recorded to other comprehensive income. The standard also includes additional disclosure requirements. The standard had no impact on CMS Energy’s or Consumers’ consolidated financial statements; however, the new guidance will be incorporated in future assessments of other-than-temporary impairments of debt securities.
FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments,codified inASC 825-10, Financial Instruments:This standard, which was effective for CMS Energy and Consumers April 1, 2009, requires quarterly disclosures of the fair values of financial instruments. Previously, these disclosures were required only annually. The standard also requires quarterly disclosure of the methods and significant assumptions used in the fair value measurements. The standard did not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
EITF Issue 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock,codified inASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity:This standard, which was effective for CMS Energy and Consumers January 1, 2009, establishes new criteria for determining whether freestanding instruments or embedded features are considered “indexed to an entity’s own stock” for the purpose of assessing potential derivative accounting or balance sheet classification. This guidance applies to the equity conversion features in CMS Energy’s contingently convertible senior notes and preferred stock. Under the new criteria, these features remain exempt from derivative accounting, and thus, this standard had no impact on CMS Energy’s or Consumers’ consolidated financial statements.
51
EITF Issue 08-5, Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement,codified inASC 820-10, Fair Value Measurements and Disclosures:This standard, which was effective for CMS Energy and Consumers January 1, 2009, concludes that the fair value measurement of a liability should not consider the effect of a third-party credit enhancement or guarantee supporting the liability. To comply with the standard, CMS Energy and Consumers adjusted the methods they use to determine the fair values of certain long-term debt instruments for their fair value disclosures, resulting in a minor reduction in the fair values disclosed. For the fair value disclosures, see Note 8, Financial Instruments. The standard had no impact on CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE
SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140:140, codified throughASU No. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets:This standard, which will bewas effective for CMS Energy and Consumers January 1, 2010, removes the concept of a qualifying special purpose entity (QSPE)QSPE from guidance relating to transfers of financial assets and extinguishments of liabilities. It also removes the exceptions from applying guidance relating to VIEs to QSPEs. TheThis standard revises and clarifies when an entity is required to derecognize a financial asset that it has transferred to another entity. It further clarifies how to measure beneficial interests received as proceeds in connection with a transfer of a financial asset, and introduces the concept of a “participating interest,” the conditions of which must be met for a partial asset transfer to qualify for sale accounting treatment. The standard also requires enhanced disclosures related to continuing involvement with transferred financial assets. Under this standard, transactions entered into under Consumers’ revolving accounts receivable sales program, discussed in Note 5, Financings and Capitalization, are accounted for as secured borrowings rather than as sales. CMS Energy and Consumers are evaluatingpresent outstanding amounts under the impact of this standard on their consolidated financial statements.program as short-term debt collateralized by accounts receivable.
SFAS No. 167, Amendments to FASB Interpretation No. 46(R),codified throughASU No. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities:This standard, which will bewas effective for CMS Energy and Consumers January 1, 2010, amends the criteria used to determine which enterprise,entity, if any, has a controlling financial interest in a VIE. It replaces the quantitative calculation of risks and rewards with a qualitative approach focused on identifying which enterpriseentity (1) has the power to direct the activities of a VIE that most significantly impact the entity’sVIE’s economic performance and (2) has the obligation to absorb losses of the entityVIE or the right to receive benefits from the entity. TheVIE. This standard also requires ongoing assessments of whether an enterpriseentity is the primary beneficiary of a VIE. Upon implementation of this guidance, CMS Energy concluded that it is the primary beneficiary of CMS Energy Trust I and consolidated the trust in its consolidated financial statements on January 1, 2010. CMS Energy also concluded that it is not the primary beneficiary of T.E.S. Filer City, Grayling, or Genesee and deconsolidated these partnerships in its consolidated financial statements on January 1, 2010. CMS Energy consolidated CMS Energy Trust I at the carrying value that
46
would be recorded had this guidance been effective when CMS Energy initially became involved with CMS Energy Trust I. CMS Energy recorded its retained interest in the deconsolidated partnerships at the carrying value that would be recorded had this guidance been effective when CMS Energy initially became involved with the partnerships. CMS Energy and Consumers are evaluating the impacthave chosen not to adjust previously reported balances. No cumulative effect adjustments were required. See Note 11, Consolidation of this standard on their consolidated financial statements.Variable Interest Entities, for further details.
FSP FAS 132(R)-1, Employers’ASU No. 2010-06, Improving Disclosures about Postretirement Benefit Plan Assets,codified inASC 715-20, Compensation—Retirement Benefits—Defined Benefit Plans—General:Fair Value Measurements:This standard expands the required quarterly disclosures about fair value measurements that are included in Note 2, Fair Value Measurements. The standard requires information on transfers in and out of Levels 1 and 2 of the fair value hierarchy. In addition, it requires gross reporting of purchases, sales, issuances, and settlements in the reconciliation of Level 3 fair values, rather than reporting this activity as one net amount. The standard also clarifies certain existing disclosure requirements. This standard was effective for CMS Energy and Consumers January 1, 2010, except for the gross reporting of Level 3 fair value activity, which will be effective for CMS Energy and Consumers December 31, 2009, requires expanded annual disclosures about postretirement benefit plan assets. The required disclosures include information about investment allocation decisions, major categories of plan assets, the inputs and valuation techniques used in the fair value measurements, the effects of significant unobservable inputs on changes in plan assets, and significant concentrations of risk within plan assets. TheJanuary 1, 2011. This standard willdoes not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.position, and did not result in any significant changes to the fair value disclosures.
52
3:2: 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. These markets must be accessible to CMS Energy and Consumers at the measurement date.
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, interest rates and yield curves observable at commonly quoted intervals, credit risks, default rates, 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.
| • | | 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, interest rates and yield curves observable at commonly quoted intervals, credit risks, default rates, 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. |
To the extent possible, CMS Energy and Consumers use quoted market prices or other observable market pricing data in valuing assets and liabilities measured at fair value. If this information is unavailable, they use market-corroborated data or reasonable estimates about market participant assumptions. 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.
5347
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at September 30, 2009:March 31, 2010:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | In Millions | |
In Millions | | In Millions |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | |
| CMS Energy, including Consumers | | |
Assets: | | |
Cash equivalents | | $ | 109 | | $ | 109 | | $ | — | | $ | — | | | $ | 737 | | $ | 737 | | $ | — | | $ | — | |
Restricted cash equivalents | | 9 | | 9 | | — | | — | | | 4 | | 4 | | — | | — | |
Nonqualified deferred compensation plan assets | | 5 | | 5 | | — | | — | | | 5 | | 5 | | — | | — | |
SERP | | |
Equity securities | | 47 | | 47 | | — | | — | | |
Debt securities | | 27 | | — | | 27 | | — | | |
Derivative instruments (a) | | 1 | | — | | 1 | | — | | |
SERP: | | |
Cash equivalents | | | 3 | | 3 | | — | | — | |
Mutual fund | | | 63 | | 63 | | — | | — | |
State and municipal bonds | | | 27 | | — | | 27 | | — | |
Derivative instruments: | | |
Commodity contracts (a) | | | 5 | | 2 | | 3 | | — | |
| | | | |
Total | | $ | 198 | | $ | 170 | | $ | 28 | | $ | — | | | $ | 844 | | $ | 814 | | $ | 30 | | $ | — | |
| | | | |
| | |
Liabilities: | | |
Nonqualified deferred compensation plan liabilities | | $ | 5 | | $ | 5 | | $ | — | | $ | — | | | $ | 5 | | $ | 5 | | $ | — | | $ | — | |
Derivative instruments (b) | | 12 | | 2 | | 2 | | 8 | | |
Derivative instruments: | | |
Commodity contracts (b) | | | 7 | | 2 | | 2 | | 3 | |
| | | | |
Total (c) | | $ | 17 | | $ | 7 | | $ | 2 | | $ | 8 | | | $ | 12 | | $ | 7 | | $ | 2 | | $ | 3 | |
| Consumers | | |
Assets: | | |
Cash equivalents | | $ | 51 | | $ | 51 | | $ | — | | $ | — | | | $ | 581 | | $ | 581 | | $ | — | | $ | — | |
Restricted cash equivalents | | 4 | | 4 | | — | | — | | | 4 | | 4 | | — | | — | |
CMS Energy Common Stock | | 25 | | 25 | | — | | — | | | 28 | | 28 | | — | | — | |
Nonqualified deferred compensation plan assets | | 4 | | 4 | | — | | — | | | 4 | | 4 | | — | | — | |
SERP | | |
Equity securities | | 31 | | 31 | | — | | — | | |
Debt securities | | 18 | | — | | 18 | | — | | |
SERP: | | |
Cash equivalents | | | 2 | | 2 | | — | | — | |
Mutual fund | | | 39 | | 39 | | — | | — | |
State and municipal bonds | | | 17 | | — | | 17 | | — | |
| | | | |
Total | | $ | 133 | | $ | 115 | | $ | 18 | | $ | — | | | $ | 675 | | $ | 658 | | $ | 17 | | $ | — | |
| | | | |
| | |
Liabilities: | | |
Nonqualified deferred compensation plan liabilities | | $ | 4 | | $ | 4 | | $ | — | | $ | — | | | $ | 4 | | $ | 4 | | $ | — | | $ | — | |
| | | | |
Total (c) | | $ | 4 | | $ | 4 | | $ | — | | $ | — | | | $ | 4 | | $ | 4 | | $ | — | | $ | — | |
|
(a) | | This amount is gross and excludes the $2 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $3 million impact of offsetting cash margin deposits paid to CMS ERM by other parties. |
|
(b) | | This amount is gross and excludes the $2 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $1 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. |
|
(c) | | At March 31, 2010, CMS Energy’s liabilities classified as Level 3 represented 25 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3. |
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The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at December 31, 2009:
| | | | | | | | | | | | | | | | |
In Millions |
| | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
|
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents | | $ | 57 | | | $ | 57 | | | $ | — | | | $ | — | |
Restricted cash equivalents | | | 12 | | | | 12 | | | | — | | | | — | |
Nonqualified deferred compensation plan assets | | | 5 | | | | 5 | | | | — | | | | — | |
SERP: | | | | | | | | | | | | | | | | |
Cash equivalents | | | 49 | | | | 49 | | | | — | | | | — | |
State and municipal bonds | | | 27 | | | | — | | | | 27 | | | | — | |
Derivative instruments: | | | | | | | | | | | | | | | | |
Commodity contracts (a) | | | 1 | | | | — | | | | 1 | | | | — | |
| | |
Total | | $ | 151 | | | $ | 123 | | | $ | 28 | | | $ | — | |
| | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Nonqualified deferred compensation plan liabilities | | $ | 5 | | | $ | 5 | | | $ | — | | | $ | — | |
Derivative instruments: | | | | | | | | | | | | | | | | |
Commodity contracts (b) | | | 9 | | | | 1 | | | | 1 | | | | 7 | |
Interest rate contracts | | | 1 | | | | — | | | | — | | | | 1 | |
| | |
Total (c) | | $ | 15 | | | $ | 6 | | | $ | 1 | | | $ | 8 | |
|
Consumers | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents | | $ | 31 | | | $ | 31 | | | $ | — | | | $ | — | |
Restricted cash equivalents | | | 5 | | | | 5 | | | | — | | | | — | |
CMS Energy Common Stock | | | 29 | | | | 29 | | | | — | | | | — | |
Nonqualified deferred compensation plan assets | | | 4 | | | | 4 | | | | — | | | | — | |
SERP: | | | | | | | | | | | | | | | | |
Cash equivalents | | | 30 | | | | 30 | | | | — | | | | — | |
State and municipal bonds | | | 16 | | | | — | | | | 16 | | | | — | |
| | |
Total | | $ | 115 | | | $ | 99 | | | $ | 16 | | | $ | — | |
| | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Nonqualified deferred compensation plan liabilities | | $ | 4 | | | $ | 4 | | | $ | — | | | $ | — | |
| | |
Total (c) | | $ | 4 | | | $ | 4 | | | $ | — | | | $ | — | |
|
(a) | | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. |
|
(b) | | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $2$1 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. |
|
(c) | | At September 30,December 31, 2009, CMS Energy’s liabilities classified as Level 3 represent 47represented 53 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3. |
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The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at December 31, 2008:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | In Millions |
| | Total | | Level 1 | | Level 2 | | Level 3 |
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents | | $ | 176 | | | $ | 176 | | | $ | — | | | $ | — | |
Restricted cash equivalents | | | 5 | | | | 5 | | | | — | | | | — | |
Nonqualified deferred compensation plan assets | | | 5 | | | | 5 | | | | — | | | | — | |
SERP | | | | | | | | | | | | | | | | |
Equity securities | | | 39 | | | | 39 | | | | — | | | | — | |
Debt securities | | | 29 | | | | — | | | | 29 | | | | — | |
Derivative instruments (a) | | | 1 | | | | — | | | | 1 | | | | — | |
| | |
Total | | $ | 255 | | | $ | 225 | | | $ | 30 | | | $ | — | |
| | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Nonqualified deferred compensation plan liabilities | | $ | 5 | | | $ | 5 | | | $ | — | | | $ | — | |
Derivative instruments (b) | | | 20 | | | | 2 | | | | 2 | | | | 16 | |
| | |
Total (c) | | $ | 25 | | | $ | 7 | | | $ | 2 | | | $ | 16 | |
|
Consumers | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents | | $ | 56 | | | $ | 56 | | | $ | — | | | $ | — | |
Restricted cash equivalents | | | 5 | | | | 5 | | | | — | | | | — | |
CMS Energy Common Stock | | | 19 | | | | 19 | | | | — | | | | — | |
Nonqualified deferred compensation plan assets | | | 3 | | | | 3 | | | | — | | | | — | |
SERP | | | | | | | | | | | | | | | | |
Equity securities | | | 25 | | | | 25 | | | | — | | | | — | |
Debt securities | | | 19 | | | | — | | | | 19 | | | | — | |
| | |
Total | | $ | 127 | | | $ | 108 | | | $ | 19 | | | $ | — | |
| | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Nonqualified deferred compensation plan liabilities | | $ | 3 | | | $ | 3 | | | $ | — | | | $ | — | |
Derivative instruments | | | 1 | | | | — | | | | 1 | | | | — | |
| | |
Total (c) | | $ | 4 | | | $ | 3 | | | $ | 1 | | | $ | — | |
|
| | |
(a) | | This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements. |
|
(b) | | This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements and the $2 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. |
|
(c) | | At December 31, 2008, CMS Energy’s liabilities classified as Level 3 represent 64 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3. |
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Cash Equivalents:Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity. The funds invest in U.S. Treasury notes, other government-backed securities, and repurchase agreements collateralized by U.S. Treasury notes.
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Nonqualified Deferred Compensation Plan Assets:CMS Energy’s and Consumers’ nonqualified deferred compensation plan assets are invested in various mutual funds. CMS Energy and Consumers value these assets using a market approach, using the daily quoted NAVNAVs provided by the fund managers that are the basis for transactions to buy or sell shares in each fund. CMS Energy and Consumers report these assets in Other non-current assets on their Consolidated Balance Sheets.
SERP Assets:CMS Energy and Consumers value their SERP assets using a market approach, incorporating prices and other relevant information from market transactions. The SERP equity securitiescash equivalents consist of an investmenta money market fund with daily liquidity, which invests in state and municipal securities.
The SERP invests in a Standard & Poor’s 500 Indexshort-term, fixed-income mutual fund.fund that holds a variety of debt securities with average maturities of one to three years. The fund’s equityfund invests primarily in investment grade debt securities are listed on an active exchange.but, in order to achieve its investment objective, it may invest a portion of its assets in high-yield securities, foreign debt, and derivative instruments. The fair value of the SERP equity securitiesfund is based on the NAV of the mutual fund, derived fromdetermined using the daily closing prices of the equity securities held by the fund. Thepublished NAV, which is the basis for transactions to buy or sell shares in the fund.
CMS EnergyThe SERP state and Consumers value their SERP debt securities, whichmunicipal bonds are investment grade municipal bonds,securities that are valued using a matrix pricing model that incorporates Level 2 market-based information. The fair value of the SERP debt securitiesbonds 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 municipal securities normally considered by market participants when pricing such debt securities. CMS Energy and Consumers report their SERP assets in Other non-current assets on their Consolidated Balance Sheets. For additional details about SERP securities, see Note 8,7, Financial Instruments.
Nonqualified Deferred Compensation Plan Liabilities:CMS Energy and Consumers value their non-qualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect what CMS Energy and Consumers oweis owed to the plan participants in accordance with their investment elections. CMS Energy reportsand Consumers report these liabilities, except for liabilities related to its DSSP, in Other non-current liabilities on its Consolidated Balance Sheets; its DSSP liability is included in Non-current postretirement benefits. Consumers reports all of its nonqualified deferred compensation plan liabilities in Other non-current liabilities on itstheir 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. They use various inputs to value the derivatives depending on the type of contract and the availability of market data. CMS Energy has exchange-traded derivative contracts that are valued based on Level 1 quoted prices in actively traded markets, as well as derivatives that are valued using Level 2 inputs, including commodity market prices, interest rates, credit ratings, default rates, and market-based seasonality factors. CMS Energy also has derivative instruments that extend beyond time periods in which quoted prices are available. For these instruments, CMS Energy uses modeling methods to project future prices. Such fair value measurements are classified in Level 3 unless modeling was required only for an insignificant portion of the total derivative value.
CMS Energy’s derivatives include an electricity sales agreement held by CMS ERM. This agreement, classified as Level 3, extends beyond the term for which quoted electricity prices are available. To value this agreement, CMS Energy uses a proprietary forward power pricing curve that is based on forward gas prices and an implied heat rate. CMS Energy also increases the fair value of the liability for this agreement by an amount that reflects the uncertainty of its model.
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For all fair values other than Level 1 prices, CMS Energy and Consumers incorporate adjustments for the risk of nonperformance. For derivative assets, a credit adjustment is applied against the asset based on the published default rate for the credit rating that CMS Energy and Consumers assign to the counterparty based on an internal credit-scoring model. This model considers various inputs, including the counterparty’s financial statements, credit reports, trade press, and other information that would be available to market participants. To the extent that the internal ratings are comparable to credit ratings
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published by independent rating agencies, the resulting credit adjustment is classified within Level 2. If the internal model results in a rating that is outside of the range of ratings given by the independent agencies and the credit adjustment is significant to the overall valuation, the derivative fair value is classified as Level 3. CMS Energy and Consumers adjust their derivative liabilities downward to reflect the risk of their own nonperformance, based on their published credit ratings. Adjustments for credit risk using the approach outlined within this paragraph are not materially different from the adjustments that would result from using credit default swap rates for the contracts presently held. For further details about derivative contracts, see Note 9,8, Derivative Instruments.
Assets and Liabilities Measured at Fair Value on a Recurring Basis using Significant Level 3 Inputs
The following table is a reconciliation of changes in the fair values of Level 3 assets and liabilities at CMS Energy:
| | | | | | | | |
| | | | | | In Millions |
Three months ended September 30 | | 2009 | | 2008 |
|
Balance at July1 | | $ | (11 | ) | | $ | (24 | ) |
Total gains (losses) (realized and unrealized) | | | | | | | | |
Included in earnings (a) | | | (1 | ) | | | 5 | |
Purchases, sales, issuances, and settlements (net) | | | 4 | | | | 1 | |
| | |
Balance at September 30 | | | (8 | ) | | | (18 | ) |
|
Unrealized gains (losses) included in earnings for the quarter ended September 30 relating to assets and liabilities still held at September 30 (a) | | $ | (1 | ) | | $ | 6 | |
|
| | | | | | | | |
In Millions |
Three months ended March 31 | | 2010 | | 2009 |
|
Balance at January 1 | | $ | (8 | ) | | $ | (16 | ) |
Total gains included in earnings (a) | | | 4 | | | | 6 | |
Purchases, sales, issuances, and settlements (net) | | | 1 | | | | — | |
| | |
Balance at March 31 | | $ | (3 | ) | | $ | (10 | ) |
|
Unrealized gains included in earnings for the three months ended March 31 relating to assets and liabilities still held at March 31 (a) | | $ | 4 | | | $ | 5 | |
|
| | | | | | | | |
| | | | | | In Millions |
Nine months ended September 30 | | 2009 | | 2008 |
|
Balance at January 1 | | $ | (16 | ) | | $ | (19 | ) |
Total gains (losses) (realized and unrealized) | | | | | | | | |
Included in earnings (a) | | | 5 | | | | (1 | ) |
Purchases, sales, issuances, and settlements (net) | | | 3 | | | | 2 | |
| | |
Balance at September 30 | | | (8 | ) | | | (18 | ) |
|
Unrealized gains (losses) included in earnings for the nine months ended September 30 relating to assets and liabilities still held at September 30 (a) | | $ | 3 | | | $ | — | |
|
| | |
|
(a) | | CMS Energy records realized and unrealized gains and losses for Level 3 recurring fair values in earnings as a component of Operating Revenue or Operating Expenses inOther operating expenses on its Consolidated Statements of Income. |
4:3: CONTINGENCIES AND COMMITMENTS
CMS ENERGY CONTINGENCIES
Gas Index Price Reporting Investigation:In 2002, CMS Energy notified appropriate regulatory and governmental agencies that some employees at CMS MST and CMS Field Services appeared to have provided inaccurate information regarding natural gas trades to various energy industry publications, which compile and report index prices. CMS Energy cooperated with an investigation by the DOJ regarding this matter. Although CMS Energy has not received any formal notification that the DOJ has
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completed its investigation, the DOJ’s last request for information occurred in 2003, and CMS Energy completed its response to this request in 2004. CMS Energy is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on its business.CMS Energy.
Gas Index Price Reporting Litigation:CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc. (the company that purchased CMS Field Services), and Cantera Gas Company, are named as defendants in various class action and individual lawsuits arising as a result of alleged inaccurate natural gas price reporting.reporting to publications that report trade information. Allegations include manipulation of NYMEX natural gas futures and options prices, price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in California, Colorado, Kansas, Missouri, Tennessee, and Wisconsin. The following provides more detail on these proceedings:
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| • | | In 2005, CMS MST was served with a summons and complaint that named CMS Energy, CMS MST, and CMS Field Services as defendants in a putative class action filed in Kansas state court, Learjet, Inc., et al. v. Oneok, Inc., et al. The complaint alleges that during the putative class period, January 1, 2000 through October 31, 2002, the defendants engaged in a scheme to violate the Kansas Restraint of Trade Act. The plaintiffs, who allege they purchased natural gas from the defendants and others for their facilities, are seeking statutory full consideration damages consisting of the full consideration paid by plaintiffs for natural gas. |
|
| • | | In 2007, a class action complaint, Heartland Regional Medical Center, et al. v. Oneok, Inc. et al., was filed in Missouri state court alleging violations of Missouri antitrust laws. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Missouri antitrust law in connection with their natural gas price reporting activities. |
|
| • | | Breckenridge Brewery of Colorado, LLC and BBD Acquisition Co. v. Oneok, Inc., et al., a class action complaint brought on behalf of retail direct purchasers of natural gas in Colorado, was filed in Colorado state court in May 2006. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Colorado Antitrust Act of 1992 in connection with their natural gas price reporting activities. Plaintiffs are seeking full refund damages. |
|
| • | | A class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in 2006 in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 1, 2000 and October 31, 2002. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute. The plaintiffs are seeking full consideration damages, plus exemplary damages, and attorneys’ fees. After dismissal on jurisdictional grounds in 2009, plaintiffs filed a new Arandell case in Michigan. The CMS Energy defendants filed a motion to dismiss the new case on statute-of-limitations grounds and that motion remains pending. Also pending before the court is plaintiffs’ motion for reconsideration of the dismissal of the Wisconsin case. |
|
| • | | Another class action complaint, Newpage Wisconsin System v. CMS ERM, CMS Energy, and Cantera Gas Company, was filed in 2009 in circuit court in Wood County, Wisconsin, against CMS Energy defendants and 19 other non-CMS Energy companies. The plaintiff is seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees. After removal to federal court in Wisconsin, the case was transferred to the MDL case. CMS Energy defendants have filed motions to dismiss for lack of jurisdiction and based on the statute of limitations and these motions remain pending. |
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| • | | In 2005, J.P. Morgan Trust Company, in its capacity as Trustee of the FLI Liquidating Trust, filed an action in Kansas state court against a number of energy companies, including CMS Energy, CMS MST, and CMS Field Services. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is seeking statutory full consideration damages for its purchases of natural gas between January 1, 2000 and December 31, 2001. This case is part of the MDL proceeding, but is not a class action. |
In 2007,After removal to federal court, the Learjet, Heartland, Breckenridge, both Arandell cases, Newpage, and J.P. Morgan cases were transferred to the MDL case. CMS MST settled a master class action suitEnergy was dismissed from the Learjet, Heartland, and J.P. Morgan cases in California state court for $7 million and the2009, but other CMS Energy defendants settled four class action suits originally filed in California federal court. In July 2009, CMS MST, as the only remaining defendant in the California state court cases, entered into a settlement of those remaining California state court cases and those cases have been dismissed. The settlement amount is immaterial to CMS Energy.
remain parties. All CMS Energy defendants were dismissed from the Missouri Public Service CommissionBreckenridge case a state action,in 2009. It is expected that the plaintiffs in this case will appeal this decision after all claims against defendants have been dismissed. At this time, there is no pending appeal. Pending before the court in all of the MDL cases are the defendants’ renewed motions for summary judgment based on FERC preemption and the Breckenridge case, a federal action. An appeal is pending in the Missouri Public Service Commission case. CMS Energy was also dismissed from three federal cases, while the other CMS Energy defendants remain. CMS Energy defendants were also dismissed from a federal case in Wisconsin, but the plaintiffs have filed aplaintiffs’ motion for reconsideration and refiled the complaint in Michigan federal court. The Michigan case was transferred to the multi-district litigation proceeding in Nevada. In addition, the Tennessee Supreme Court has granted the CMS Energy defendants’ application for leave to appealamend their complaint to add a federal Sherman Act antitrust claim. In all but the Tennessee
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J.P. Morgan case, there are also pending plaintiffs’ motions for class action lawsuit. Othercertification. These motions are not yet decided.
| • | | In 2005, Samuel D. Leggett, et al. v. Duke Energy Corporation, et al., a class action complaint brought on behalf of retail and business purchasers of natural gas in Tennessee, was filed in the Chancery Court of Fayette County, Tennessee. The defendants include CMS Energy, CMS MST, and CMS Field Services. The complaint contains claims for violations of the Tennessee Trade Practices Act. The complaint seeks statutory full consideration damages and attorneys’ fees and injunctive relief regulating defendants’ future conduct. In 2007, the state court in Tennessee granted the motion to dismiss filed by the CMS Energy defendants. In 2008, the Tennessee Court of Appeals reversed the trial court and remanded the case for trial. The Tennessee Supreme Court granted the defendants’ application for leave to appeal and all further proceedings in the trial court have been stayed until that appeal is resolved. Oral argument on the appeal took place in Tennessee Supreme Court in 2009. This appeal is not yet decided. |
|
| • | | In 2006, CMS Energy and CMS MST were each served with a summons and complaint which named CMS Energy, CMS MST, and CMS Field Services as defendants in an action filed in Missouri state court, titled Missouri Public Service Commission v. Oneok, Inc. alleging violation of the Missouri antitrust law, fraud, and unjust enrichment. In 2009, all defendants were dismissed for lack of standing. The Missouri Court of Appeals affirmed the dismissals in late 2009. In February 2010, the plaintiff filed an application for leave to appeal with the Missouri Supreme Court, seeking to overturn the Missouri Court of Appeals decision. In April 2010, the Missouri Supreme Court granted review to hear the case. |
These cases involve complex facts, a large number of similarly situated defendants with different factual positions, and multiple jurisdictions. Presently, any estimate of liability would be highly speculative; the amount of CMS Energy’s possible loss would be based on widely varying models previously untested in several jurisdictions remain pending.
Another class action complaint was filedthis context. Defenses are being pursued vigorously, which could result in March 2009 in circuit court in Wood County, Wisconsin, againstthe dismissal of the cases completely, but CMS Energy defendants, along with 19 other non-CMS Energy companies, alleging conspiracyis unable to restrain trade through inaccurate natural gas price reporting. Defendants removed the case to federal court in Wisconsin, and it was transferred through the multi-district litigation process to the consolidated actions in Nevada. CMS Energy cannot predict the financial impact or outcome of these matters. If the outcome is unfavorable, these cases could have a material adverse impact on CMS Energy’s financial condition and results of operations.
Bay Harbor:As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, and under an agreement with the MDEQ,MDNRE, third parties constructed a golf course and park over several abandoned CKD piles left over from the former cement plant operations on the Bay Harbor site. The third parties also undertook a series of remedial actions, including constructing a leachate collection system at an identified seep. Leachate is produced when water enters into the CKD piles. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under environmental indemnities entered into at the start of the project.
In 2005, the EPA, along with CMS Land and CMS Capital, voluntarily executed an AOC under Superfund and approved a Removal Action Work Plan to address contamination issues at Bay Harbor. Collection systems required under the plan have been installed and effectiveness monitoring of the systems at the shoreline is ongoing. CMS Land, CMS Capital, and the EPA agreed upon augmentation measures to address areas where pH measurements were not satisfactory. The augmentation measures were implemented and completed in the second quarter of 2009.
In 2008, the MDEQMDNRE and the EPA granted permits for CMS Land or its affiliate, Beeland, to construct and operate a deep injection well in Antrim County, Michigan, to dispose of leachate from Bay Harbor. Certain environmental groups, a local township, and a local county filed lawsuits appealing the permits. The legal proceeding was stayed in the third quarter of 2009 and can be renewed by either party at any time. CMS Land and CMS Capital continue to seek a lower cost long-term water disposal option including using deep injection wells, permitted discharge to surface water, and disposal with a local municipal water treatment facility.
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CMS Land and CMS Capital, the MDEQ,MDNRE, the EPA, and other parties are discussingnegotiating the long-term remedy for the Bay Harbor sites, including:
| • | | the disposal of leachate; |
|
| • | | the capping and excavation of CKD; |
|
| • | | the location and design of collection lines and upstream diversion of water; |
|
| • | | potential flow of leachate below the collection system; |
|
| • | | applicable criteria for various substances such as mercury; and |
|
| • | | other matters that are likely to affect the scope of remedial work that CMS Land and CMS Capital may be obligated to undertake. |
CMS Energy has recorded a cumulative charge related to Bay Harbor including accretion expense, of $178 million, of which $36 million was recorded in the second quarter of 2009. Several factors contributed to the revised remediation cost estimates in the second quarter of 2009. These factors include increased costs related to the disposal of collected leachate and delays in identifying and securing a long-term water management solution. In addition, CMS Land and CMS Capital are projecting higher costs for operating and maintaining the existing collection system.
$179 million. At September 30, 2009,March 31, 2010, CMS Energy had a recorded liability of $85$74 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.32 percent and an inflation rate of 1one percent on annual operating and maintenance costs. CMS Energy based the discount rate on the interest rate for 30-year U.S. Treasury securities on June 30, 2009. The undiscounted amount of the remaining obligation is $114$97 million. CMS Energy expects to pay $29 million in 2009, $11$14 million in 2010, $4$9 million in 2011, $7 million in 2012, $5 million in 2013, and the remainderremaining amount thereafter on long-term liquid disposal and operating and maintenance costs.
CMS Energy’s estimate of remedial action costs and the timing of expenditures could change if there are additional major changes in circumstances or assumptions, including but not limited to:
| • | | inability to secure a suitable long-term water disposal option at a reasonable cost; |
|
| • | | further increases in water disposal costs;costs under existing options; |
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| • | | delays in developing a long-term water disposal option; |
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| • | | an increase in the number of contamination areas; |
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| • | | different remediation techniques; |
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| • | | the nature and extent of contamination; |
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| • | | continued inability to reach agreement with the MDEQMDNRE or the EPA over required remedial actions; |
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| • | | delays in the receipt of requested permits; |
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| • | | delays following the receipt of any requested permits due to legal appeals of third parties; |
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| • | | additional or new legal or regulatory requirements; or |
|
| • | | new or different landowner claims. |
Depending on the size of any indemnity obligation or liability under environmental laws, an adverse outcome of this matter could have a material adverse effect on CMS Energy’s liquidity and financial condition and could negatively affect CMS Energy’s financial results. CMS Energy cannot predict the financial impact or outcome of this matter.
Quicksilver Resources, Inc.:In 2001, Quicksilver sued CMS MST in Texas state court in Fort Worth, Texas, for breach of contract in connection with a base contract for the sale and purchase of natural gas. The jury verdict awarded Quicksilver no compensatory damages but $10 million in punitive damages. In 2007, the trial court nullified the jury award of punitive damages but held that the contract should be rescinded prospectively. The judicial rescission of the contract caused CMS Energy to record a charge in the second quarter of 2007 of $24 million, net of tax. In June 2009, the Texas Court of Appeals ruled in
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favor of CMS MST and, pursuant to a settlement agreement to end the litigation, Quicksilver paid $5 million to CMS MST, which caused CMS Energy to recognize a $5 million credit to Cost of gas sold in the second quarter of 2009. The parties have agreed not to appeal, and this settlement has resolved the Quicksilver matter.
State Street Bank and TSU Litigation:In 1998, CMS Viron installed a number of energy savings measures at TSU. CMS Viron sold the master lease for the project to a third-party, which transferred its interest to State Street Bank. Although TSU accepted the improvements, it refused to pay on the grounds that the Texas Board of Higher Education had not approved the expenditure. As Texas law requires that special approval be obtained from the state legislature before any state agency, including a university, may be sued, State Street Bank did not sue TSU under the master lease. Instead, in 2002, State Street Bank sued CMS Viron in the District Court of Harris County, Texas, claiming primarily a breach of representations and warranties. The plaintiffs arewarranties and seeking $8$9 million plus interest from CMS Viron. The plaintiffs have received $2 million from an escrow account, which could have been paid to CMS Viron to compensate it for the cost of some of the improvements. During the same year, CMS Viron filed a counterclaim, as well as a third-party actionactions against TSU, Academic Capital Group, Inc., and Academic Services, Inc. for breach of contract and fiduciary duties and conversion. In December 2009, the jury rendered a verdict in favor of CMS Viron filedand a motion for summary disposition, whichfinal judgment was denied. The trial is scheduled to beginrendered on November 30, 2009.January 15, 2010 awarding CMS Viron believes it has$8 million plus prejudgment interest from TSU and another $3 million plus prejudgment interest and attorneys’ fees against Academic Capital Group, Inc. and Academic Services, Inc., collectively. This verdict is affected by an agreement under which CMS Viron agreed to pay $3 million to State Street Bank regardless of the verdict. In addition, State Street Bank agreed to assign certain rights of indemnification under a valid defenselease agreement to the claim, but cannot predict the outcomeCMS Viron in return for a two-thirds stake in any ultimate recovery from TSU. At March 31, 2010, CMS Energy had a recorded liability of $3 million for its potential obligation related to this litigation.matter.
Equatorial Guinea Tax Claim:In 2004, CMS Energy received a request for indemnification from the purchaser of CMS Oil and Gas. The indemnity claim relates to the sale of CMS Energy’s oil, gas, and methanol projects in Equatorial Guinea and the claim of the government of Equatorial Guinea that CMS Energy owes $142 million in taxes in connection with that sale. CMS Energy concluded that the government’s tax claim is without merit and the purchaser of CMS Oil and Gas submitted a response to the government rejecting the claim. The government of Equatorial Guinea has indicated that it still intends to pursue its claim. CMS Energy cannot predict the financial impact or outcome of this matter.
Moroccan Tax Claim:In 2007, CMS Energy sold its 50 percent interest in Jorf Lasfar. As part of the sale agreement, CMS Energy agreed to indemnify the purchaser for 50 percent of any tax assessments on Jorf Lasfar attributable to tax years prior to the sale. In 2007, the Moroccan tax authority concluded its audit of Jorf Lasfar for tax years 2003 through 2005. The audit asserted deficiencies in certain corporate and withholding taxes. In January 2009, CMS Energy paid $18 million, which it charged against a tax indemnification liability established when it recorded the sale of Jorf Lasfar, and accordingly, the payment did not affect earnings. The Moroccan tax authority may also assess taxes for 2006. At September 30, 2009, CMS Energy had a recorded liability of $4 million for its potential indemnity obligation for corporate and withholding taxes for 2006. CMS Energy cannot predict the financial impact or outcome of this matter.
Marathon Indemnity Claim regarding F.T. Barr Claim:In 2001, F. T.F.T. Barr an individual with an overriding royalty interest in production from the Alba field, filed a lawsuit in Harris County District Court in Texas against CMS Energy, CMS Oil and Gas, and other defendants alleging that his overriding royalty payments related to Alba field production were improperly calculated. CMS Oil and Gas believes that Barr was properly paid on gas sales and that he was not entitled to the additional overriding royalty payment sought. AllIn 2004, all parties signed a confidential settlement agreement in 2004. The settlementthat resolved claims between Barr and the defendants, and the involveddefendants. The CMS Energy entitiesdefendants reserved all defenses to any indemnity claim relating to the settlement. Issues exist between Marathon and certain present or former CMS Energy entities as to the existence and scope of any indemnity obligation to Marathon in connection with the matter. In April 2008, Marathon indicated its intent to pursue the indemnity claim, and certain present and former CMS Energy entities and Marathon entered into a one-year agreement tolling the statute of limitations on any claim by Marathon under the indemnity.
In April 2009, certain Marathon entities filed a case in the United StatesU.S. District Court for the Southern District of Texas against CMS Enterprises for indemnification.indemnification in connection with this matter. CMS Energy entities dispute Marathon’s claim, and will vigorously oppose it. CMS Energy entities also will assert that Marathon has suffered minimal, if any, damages.
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CMS Energy cannot predict the outcome of this matter. If Marathon’s claim were sustained, it would have a material effect on CMS Energy’s future earnings and cash flow.
CONSUMERS’ ELECTRIC UTILITY CONTINGENCIES
Electric Environmental Matters:Consumers’ operations are subject to environmental laws and regulations. Generally, Consumers has been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations.
Cleanup and Solid Waste:Under the NREPA, Consumers will ultimately incur remediation and other response activity costs at a number of sites. Consumers believes that these costs willshould be recoverable in rates, under current ratemaking policies.but cannot guarantee that outcome. At September 30, 2009,March 31, 2010, Consumers had a recorded liability of $1 million, the minimum amount in the range of its estimated probable NREPA liability, in accordance with applicable accounting standards.liability.
Consumers is a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund liability is joint and several. In addition to Consumers, many other creditworthy parties with substantial assets are potentially responsible with respect to the individual sites. Based on its experience, Consumers estimates that its share of the total liability for known Superfund sites will be between $2 million and $8 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At September 30, 2009, March 31, 2010,
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Consumers had a recorded liability of $2 million, the minimum amount in the range of its estimated probable Superfund liability, in accordance with applicable accounting standards.liability.
The timing of payments related to Consumers’ remediation and other response activities at its Superfund and NREPA sites is uncertain. Periodically, Consumers receives information about new sites, which leads it to review its cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, different remediation techniques, nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and Superfund 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 and replaced part of the PCB material with non-PCB material. Since proposing a plan to take action with respect to the remaining materials, Consumers has had several communications with the EPA. Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the financial impact or outcome of this matter.
Electric Utility Plant Air Permit Issues and Notices of Violation:In 2007, Consumers received aan NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in their associated air permits. The utility boilers are located at the Karn/Weadock Generating Complex, Campbell Plant, Cobb Electric Generating Station, and Whiting Plant, which are all in Michigan. Consumers has responded formally to the NOV/FOV denying the allegations and is awaiting the EPA’s response to its submission.
In addition, the EPA has alleged that some utilities have incorrectly classified major plant modifications as RMRR rather than seeking permits from the EPA to modify their plants. Consumers responded to information requests from the EPA on this subject in 2000, 2002, 2006, and 2008. Consumers believes that it has properly interpreted the requirements of RMRR.allegations. In addition, in 2008, Consumers received aan NOV for three of its coal-fueled facilities alleging, among other things, violations of NSR and PSD regulations relating to ten projects from 1986 to 1998 allegedly subject to NSR review. The EPA has alleged that some utilities have classified incorrectly major plant modifications as RMRR rather than seeking permits from the EPA or state regulatory agencies to modify their plants. Consumers responded to the information requests from the EPA on this subject in the past. Consumers believes that it has properly interpreted the requirements of RMRR.
Consumers is engaged in discussions with the EPA on bothall of these matters. Depending upon the outcome of these discussions, the EPA could bring legal action against Consumers and/or Consumers
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could be required to install additional pollution control equipment at some or all of its coal-fueled electric generating plants, surrender emission allowances, engage in Supplemental Environmental Programs, and/or pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants. Consumers cannot predict the financial impact or outcome of these matters.
RFC Settlement:In July 2008, Although the potential costs relating to these matters could be material and cost recovery cannot be assured, Consumers notified the RFC, the reliability organizationexpects that it would be able to recover such costs in the region that includes Consumers’ generating plants, that certain generation equipment covered by the NERC standards for maintenance and testing of certain electrical protection equipment was not covered by Consumers’ Generation Reliability Compliance Program. In February 2009, the RFC issued an initial notice of alleged violation to Consumers. Since notifying RFC, Consumers has submitted and implemented a mitigation plan. In October 2009, Consumers agreed to settlerates, consistent with the RFC for an immaterial amount. The settlement must be approved by the NERC and the FERC. Consumers cannot predict the timing or the outcome of the approval process.
Litigation:The transmission charges Consumers pays to the MISO have been subject to regulatory review and recovery through the annual PSCR process. Michigan’s attorney general has argued that the statute governing the PSCR process does not permit recovery of transmission charges in that mannerother reasonable costs of complying with environmental laws and that those expenses should be considered in general rate cases. Several decisions of the Michigan Court of Appeals have ruled against the Michigan attorney general’s arguments, but in September 2008, the Michigan Supreme Court granted the Michigan attorney general’s applications for leave to appeal two of those decisions. In May 2009, the Michigan Supreme Court issued an order affirming Consumers’ ability to recover transmission costs through the PSCR process. The Michigan attorney general filed a petition for reconsideration/rehearing on this decision, which the Michigan Supreme Court denied in June 2009.regulations.
Nuclear Matters:
DOE Litigation:In 1997, a United StatesU.S. Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent United StatesU.S. Court of Appeals litigation, in which Consumers and other utilities participated, has not been successful in producing more specific relief for the DOE’s failure to accept the spent nuclear fuel.
A number of court decisions support the right of utilities to pursue damage claims in the United StatesU.S. Court of Claims against the DOE for failure to take delivery of spent nuclear fuel. Consumers filed a complaint in 2002. If Consumers’ litigation against the DOE is successful, Consumers plans to use any recoveries as reimbursement for the incurred costs of spent nuclear fuel storage during Consumers’ ownership of Palisades and Big Rock. Consumers cannot predict the financial impact or outcome of this matter. The sale of Palisades and the Big Rock ISFSI did not transfer the right to any recoveries from the DOE related to costs of spent nuclear fuel storage incurred during Consumers’ ownership of Palisades and Big Rock.
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Nuclear Fuel Disposal Cost:Consumers deferred paymenthas a recorded liability of $163 million for amounts it collected from customers before 1983 to fund the disposal of spent nuclear fuel used before April 7, 1983. Its DOE liability is $163 million at September 30, 2009.fuel. This amount, which includes interest andof $119 million, is payable uponto the firstDOE when it begins to accept delivery of spent nuclear fuel to the DOE. Consumers recovered the amount of this liability, excluding a portion of interest, through electric rates.fuel. In conjunction with the sale of Palisades and the Big Rock ISFSI in 2007, Consumers retained this obligation and provided a letter of credit to Entergy as security for this obligation.
CONSUMERS’ GAS UTILITY CONTINGENCIES
Gas Environmental Matters:Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA. These sites include 23 former manufactured gas plantMGP facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, itConsumers has no currentpresent ownership interest or may own only a portion of the original site. At September 30, 2009,
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March 31, 2010, Consumers estimated its undiscounted remaining remediation and other response activity costs to be between $36$35 million and $50$49 million. Generally, Consumers has been able to recover most of its costs to date through proceeds from insurance settlements and customer rates.
At September 30, 2009,March 31, 2010, Consumers had a recorded liability of $36$35 million and a regulatory asset of $65$62 million that included $29$27 million of deferred MGP expenditures. The timing of payments related to the remediation and other response activity at Consumers’ former manufactured gas plantMGP sites is uncertain. Consumers expects its remediation and other response activity costs to average $6 million annually over the next five years. 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.
FERC Investigation:In February 2008, Consumers received a data request relating to an investigation the FERC is conducting into possible violations of the FERC’s posting and competitive bidding regulations related to releases of firm capacity on natural gas pipelines. Consumers responded to the FERC’s first data request in the first quarter of 2008. The FERC has also taken depositions and Consumers has responded to additional data requests. In August 2009, Consumers received a letter presenting the preliminary view of the FERC staff that Consumers violated a regulation in connection with certain capacity release transactions from August 2005 through October 2007. Consumers submitted a response and defense of its views to the FERC in September 2009. Consumers cannot predict the financial impact or outcome of this matter.
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GUARANTEES
The following table describes CMS Energy’s guarantees at September 30, 2009:March 31, 2010:
| | | | | | | | | | | | | | | | | | | | | | | | |
In Millions | In Millions | In Millions |
| | Issue | | Expiration | | Maximum | | Carrying | | Issue | | Expiration | | Maximum | | Carrying |
Guarantee Description | | Date | | Date | | Obligation | | Amount | | Date | | Date | | Obligation | | Amount |
| Indemnity obligations from asset sales and other agreements | | | Various | | Various through | | | | |
| | | | | June 2022 | | $853 (a) | | $15 |
Indemnity obligations from asset sales and other agreements (a) | | Various | | Various through June 2022 | | $ | 857 | (b) | | $ | 16 | | |
Surety bonds and other indemnity obligations (c)(b) | | Various | | Various through May 2022 | | 12 | | — | | | Various | | Various through | | | | |
Guarantees and put options (d)(e) | | Various | | Various through September 2023 | | 3 | | 1 | | |
| | | | | May 2022 | | 12 | | 1 |
Guarantees and put options (c) | | | Various | | Various through | | | | |
| | | | | September 2023 | | 3 | | 1 |
| | |
| | |
(a) | | In May 2007, CMS Energy provided an indemnity to TAQA in connection with the sale of its ownership interests in businesses in the Middle East, Africa, and India, and recorded a $50 million provision for the contingent liability. This indemnity expired on May 2, 2009. CMS Energy eliminated the liability from its balance sheet, recognizing a $45 million benefit to Income from Discontinued Operations, Net of Tax and a $5 million benefit to Gain on asset sales, net. |
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(b) | | The majority of this amount arises from stock and asset sales agreements under which CMS Energy indemnified the purchaser for losses resulting from various matters, including claims related to tax disputes, claims related to power purchase agreements,PPAs, and defects in title to the assets or stock sold to the purchaser by CMS Energy subsidiaries. Except for items described elsewhere in this Note, CMS Energy believes the likelihood of loss to be remote for the indemnity obligations not recorded as liabilities. |
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(c)(b) | | In the normal course of business, CMS Energy issues surety bonds and indemnifications to counterparties to facilitate commercial transactions. CMS Energy would be required to pay a counterparty if itthe counterparty incurred losses due to a breach of contract terms or nonperformance under the contract. |
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(d) | | In 1987, Consumers issued an $85 million guarantee of the MCV Partnership’s performance under a steam and electric power agreement with Dow. In May 2009, the parties mutually terminated the steam and electric power agreement. The termination of the agreement released Consumers from its $85 million guarantee to Dow. |
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(e)(c) | | At September 30, 2009,March 31, 2010, the carrying amount of CMS Energy’sLand’s put option agreements with certain Bay Harbor property owners was $1 million. Additionally, ifIf CMS EnergyLand is required to purchase a Bay Harbor property under a put option agreement, it may sell the property to recover the amount paid under the option.put option agreement. |
At September 30, 2009,March 31, 2010, the maximum obligation and carrying amountamounts for Consumers’ guarantees were immaterial.less than $1 million.
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The following table provides additional information regarding CMS Energy’s guarantees:
| | | | |
| | | | Events That Would Require |
Guarantee Description | | How Guarantee Arose | | Performance |
|
Indemnity obligations from asset sales and other agreements | | Stock and asset sales agreements | | Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances |
|
Surety bonds and other indemnity obligations | | Normal operating activity, permits and licenses | | Nonperformance |
| | | | |
Guarantees and put options | | Normal operating activity | | Nonperformance or non-payment by a subsidiary under a related contract |
| | | | |
| | Bay Harbor remediation efforts | | Owners exercising put options requiring CMS Land and CMS Capital to purchase property |
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CMS Energy and Consumers also enter into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. These factors include unspecified exposure under certain agreements. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities to be remote.
OTHER CONTINGENCIES
In addition to the matters disclosed in this Note CMS Energy, Consumers, and certain other subsidiaries of CMS EnergyNote 4, Utility Rate Matters, there are parties to certain lawsuits and administrative proceedings before various courts and governmental agencies arising fromin the ordinary course of business.business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These lawsuits and proceedings may involve personal injury, property damage, contracts, environmental issues, federal and state taxes, rates, licensing, 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 will not have a material adverse effect on their consolidated results of operations, financial position, or cash flows. Further, CMS Energy and Consumers occasionally self-report certain regulatory non-compliance matters that may or may not eventually result in administrative proceedings.
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5:4: UTILITY RATE MATTERS
CONSUMERS’ ELECTRIC UTILITY RATE MATTERS
Stranded Cost Recovery:In 2004, the MPSC approved recovery of Consumers’ Stranded Costs incurred in 2002 and 2003 plus interest through the period of collection through a surcharge on ROA customers. The 2008 Energy Legislation amended the Customer Choice Act and directed the MPSC to approve rates that will allow recovery of Stranded Costs within five years. In January 2009, Consumers filed an application with the MPSC requesting recovery of these Stranded Costs through a surcharge on both full service and ROA customers. The MPSC approved the surcharge in August 2009. At September 30, 2009, Consumers had a regulatory asset for Stranded Costs of $71 million.
Power Supply Cost Recovery:The PSCR process is designed to allow Consumers to recover all of its power supply 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 billing factor monthly in order to minimize the over- or underrecovery amount in the annual PSCR reconciliation.
The following table summarizes the PSCR reconciliation filings pending with the MPSC:
| | | | | | | | | | | | | | | | |
| | | | | | | | Net Over- | Over/ | | PSCR Cost | | | of |
PSCR | Year | | Date | Filed | | (Under) recovery | | | of Power | | | |
Year | | | Filed | | | recovery (a) | | | Sold | | | Description |
|
| 2007 | | | March 2008 | | $(42) million (b) | | $1.628 billion | | In the 2007 PSCR Plan, Consumers expected to offset power supply costs by including a $44 million credit for Palisades sale proceeds due customers. However, the MPSC directed that the Palisades sale proceeds be refunded through bill credits outside of the PSCR process. |
| | | | | | | | | | | | | | | | |
| 2008 | | | March 2009 | | $2 million | | $1.7 billion |
2009 | | March 2010 | | $(39) million | | $1.6701.6 billion | | The overrecovery amount includes accrued interest and reflects an overrecovery for 2008 less underrecoveries from 2007. |
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| | |
(a) | | Amount includes prior year over- or underrecoveries as allowed by59
PSCR Reconciliations:In March 2010, the MPSC issued an order in Consumers’ 2007 PSCR reconciliation, disallowing PSCR plan case. |
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(b) | | In May 2009, the ALJ’s proposal for decision recommended no PSCR recovery for economic development discounts of $3 million and disallowance of $4 million of net replacement power costs associated with a crane incident at Consumers’ Campbell Plant. |
2009 PSCR Plan: In September 2008, Consumers submitted its 2009 PSCR plan to the MPSC. The plan seeks approval to apply a uniform maximum PSCR factor of up to $0.02680 per kWh to all classes of customers, which includes recovery of $3 million of economic development discounts and $4 million of net replacement power costs associated with a crane incident at Consumers’ Campbell Plant located near West Olive, Michigan. The MPSC approved the 2007 PSCR reconciliation, as modified by the order, and authorized Consumers to include an expected $22overrecovery of $21 million in its 2008 PSCR plan.
Consumers filed for a rehearing in April 2010, asking the MPSC to reconsider its decision to disallow recovery of a $2 million economic development discount provided in power supply charges provided2007 to a large industrial customer. The MPSC had approved this discount in 2005 to promote long-term investments in the industrial infrastructure of Michigan. In June 2009, the ALJ’s proposal for decision recommended thatConsumers has also requested recovery of this discount should not be includedin its 2008 and 2009 PSCR reconciliations; the discount totaled $3 million in 2008 and $4 million in 2009. The ALJ’s PFD in the 2008 PSCR but should be determined through a general rate case.reconciliation supported disallowing recovery of this discount. Consumers cannot predict the outcome of this matter, but will vigorously oppose any attempt to preventmatter.
PSCR Plans: In January 2010, the MPSC approved Consumers’ 2009 PSCR plan with the exception of recovery of the $22 millioneconomic development discount already approved bydescribed in the MPSC.
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preceding paragraph. It was determined in the November 2009 electric rate case order that recovery of this discount should be provided through the electric general rates that Consumers self-implemented in May 2009. That order, however, did not address the recovery of the discount provided from January 2009 through self-implementation, which totaled $4 million. Consumers requested recovery of this amount through its 2009 PSCR charge in January 2009. The November 2009 PSCR billing factor is $0.01216 per kWh. While Consumers expects to recover all of its PSCR costs, it cannot predict the financial impact or outcome of these proceedings.reconciliation.
2010 PSCR Plan: In September 2009, Consumers submitted its 2010 PSCR planPlan to the MSPC. The plan seeks approval to apply a uniformMPSC. Using the maximum PSCR factor of up to $0.02257 per kWh to all classes of customers.proposed in its plan, Consumers expects to self-implementself-implemented the proposed 2010 PCSRPSCR charge beginning in January 2010. While Consumers expects to recover all of its PSCR costs, it cannot predict the financial impact or outcome of this proceeding.
Electric Rate CaseCases:The MPSC, through a final order and Self-Implemented Rates:rehearing in Consumers’ 2009 electric rate case, authorized Consumers to increase its rates by $134 million annually, $45 million less than the $179 million rate increase self-implemented by Consumers in May 2009. The MPSC directed Consumers to refund to customers the difference between the rates it self-implemented in May 2009 and the rates authorized in this order, plus interest, subject to a reconciliation proceeding. In November 2008,February 2010, Consumers filed an application for the refund of $12 million to its customers beginning in September 2010.
The MPSC’s order in Consumers’ 2009 electric rate case also adopted a “pilot” decoupling mechanism and an uncollectible expense tracking mechanism. Various parties have filed appeals concerning aspects of the MPSC order, including both of these ratemaking mechanisms. Two parties also seek to have the Michigan Supreme Court hear these appeals directly.
In January 2010, Consumers filed an application with the MPSC seeking an annual increase in revenue of $214$178 million based on an 11 percent authorized return on equity. The filing seeks recovery of costs associated with new plant investments including Clean Air Act investments, higher operating and maintenance costs, and the approvalrequested authority to recover costs associated with Consumers’ advanced metering infrastructure program.new investments in system reliability, environmental compliance, and technology advancements. The following table details the components of the requested increase in revenue:
This | | | | |
In Millions | |
Components of the increase in revenue | | | | |
|
Investment in rate base | | $ | 106 | |
Recovery of operating and maintenance costs | | | 49 | |
Return on equity | | | 18 | |
Impact of sales declines | | | 5 | |
| | | |
Total | | $ | 178 | |
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Consumers is the first electric rate case under the new streamlined regulatory process enacted by the 2008 Energy Legislation. The new provisions generally allow utilitiespermitted to self-implement ratessome or all of the requested increase in July 2010, six months after filing subject to refund with interest, unless the MPSC finds good cause to prohibit self-implementation. The rate of interest to be charged on refunded amounts is LIBOR plus five percent for the appropriate period. For any portion of a refund that exceeds 25 percent of the annual revenue increase approved by the MPSC in its final order, the rate of interest charged would be Consumers’ authorized rate of return on equity. The new provisions require the MPSC to issue an order 12 months after filing or the rates, as filed, become permanent.
application. In April 2009, Consumers filed tariff sheets indicating that it planned to self-implement an electric rate increase in2010, the annual amount of $179 million beginning in May 2009. The MPSC issued an order in May 2009 requiring that, if Consumers self-implementedto file tariff sheets showing the $179 million electric rate increase, it must simultaneously distribute to customers $36 millionamount of proceeds from the April 2007 sale of Palisades. Accordingly, in May 2009 Consumers self-implemented an annual electric rate increase of $179 million, subject to refund with interest, and also implemented a one-time distribution of $36 million to customers.
In September 2009, the ALJ’s proposal for decision recommended an annual revenue increase of $97 million. Compared with the rate increase self-implemented by Consumers in May 2009, this recommendation reflects lower recovery of operating and maintenance costs related to Consumers’ distribution and production activities, a prediction of lesser sales declines, and the exclusion from rate base of amounts associated with an obligation to the DOE for nuclear fuel disposal. The ALJ’s proposal for decision also recommended a 10.7 percent return on equity. While it cannot predict the outcome of this case, Consumers does not consider it probable that it will be requiredintends to refund a portion of its self-implemented rates, and therefore it has not recorded a provision for revenue subjectself-implement. If the MPSC were to refund. If Consumers is requiredtake action to make a refund,prevent or delay Consumers’ self-implementation, it could have a material adverse effectnegative impact on Consumers’ earnings and cash flow.flows. Consumers cannot predict the financial impact or outcome of this electric rate case.
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Uncollectible Expense Tracking Mechanism:The order in Consumers’ 2009 electric rate case authorized an uncollectible expense tracking mechanism, which allows future rates to be adjusted to collect or refund 80 percent of the difference between the level of uncollectible expense included in electric rates and actual uncollectible expense. In March 2010, Consumers filed its 2009 uncollectible expense tracking mechanism reconciliation, requesting recovery of a $6 million deficiency through a one-time surcharge to its customers in September 2010.
Electric Operation and Maintenance Expenditures Show-Cause Order:In December 2005, the MPSC authorized Consumers to increase its electric rates. In the same order, the MPSC ordered Consumers to spend certain amounts on future tree trimmingtree-trimming and line clearingline-clearing activities, as well as on the operation and maintenance of Consumers’ fossil-fueled power plants. At that time, the MPSC also ordered Consumers to establish mechanisms to track these expenditures and stated that the rate increase was subject to refund with interest if the specified amounts were not spent on these activities.
In October 2009, the MPSC issued a show-cause order alleging that, in 2007, Consumers spent $14 million less on forestry and fossil-fueled plant operation and maintenance activity than the amount ordered by the MPSC.MPSC and that Consumers has not refunded this amount to customers. The October 2009 show-cause order directed Consumers to explain why it should not be found in violation of the MPSC’s December 2005 order and subjectsubjected to applicable sanctions, and why the refunds required by that order have not yet occurred. Consumers’ response must include the details of its forestry and fossil-fueled plant operation and maintenance expenditures for 2006 through
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2008, as well as available data for 2009 expenditures. Consumers expectsindicated that the total amountsamount it will have spent on forestry and fossil-fueled plant operation and maintenance activity for the years 2006 through 2009 will approximateexceeded the total amounts included in rates for these activities.
In March 2010, the MPSC Staff requested that the MPSC find Consumers in violation of the December 2005 order and that the MPSC order Consumers to refund $27 million for these activities. Whilefailure to meet annual spending requirements during 2007 and 2008. Consumers filed a response, stating that it would be unreasonable and unlawful to order a refund of this amount and that Consumers’ expenditures were consistent with the MPSC’s orders. In March 2010, the ALJ’s PFD found Consumers’ expenditures to be prudent and that Consumers did not violate the December 2005 order. The ALJ recommended that the MPSC find that no violation of the December 2005 order occurred and that no refunds be made to customers. Consumers cannot predict the outcome of this proceeding, Consumers does not consider it probable that it will be required to provide a refund to customers. Accordingly, Consumers has not recorded a provision for revenue subject to refund.
Palisades Regulatory Proceedings:The MPSC order approving the Palisades sale transaction required that Consumers credit $255 million of excess sales proceeds and decommissioning amounts to its retail customers by December 2008. There are additional excess sales proceeds and decommissioning fund balances of $135 million above the amount in the MPSC order. The MPSC order in Consumers’ 2007 electric rate case instructed Consumers to offset the excess sales proceeds and decommissioning fund balances with $26 million of transaction costs from the Palisades sale, excluding interest. In addition, as described in “Electric Rate Case and Self-Implemented Rates” section of this Note, the MPSC required Consumers to offset its self-implemented electric rate increase with $36 million of these funds. The distribution of the remaining balance of $73 million is still pending with the MPSC.proceeding.
Big Rock Decommissioning:The MPSC and the FERC regulate the recovery of Consumers’ costs to decommission Big Rock. Subsequent to December 31, 2000, Consumers stopped funding a Big Rock trust fund because the collection period for an MPSC-authorized decommissioning surcharge collection period expired on that date. The level of funds provided by the trust fell short of the amount needed to complete decommissioning. As a result,decommissioning and Consumers provided $44 million of corporate contributions for decommissioning costs.
In an order issued in February 2010, the MPSC concluded that decommissioning surcharges collected during a statutory rate freeze from 2001 through 2003 should have been deposited in the decommissioning trust fund. The MPSC agreed that Consumers alsowas entitled to a recovery of the $44 million decommissioning shortfall, but concluded that Consumers had collected this amount previously through the decommissioning surcharge in effect during the rate freeze. The MPSC ordered Consumers to refund the $64 million of revenue collected in excess of decommissioning costs, plus interest of $22 million, over eighteen months beginning in May 2010. Consumers has filed an alternative refund proposal, suggesting a refund over seven months beginning in July 2010. Additionally, Consumers filed an appeal with the Michigan Court of Appeals in March 2010 to dispute the MPSC’s conclusion that the collections received during the rate freeze should not have been used for general corporate purposes. Consumers cannot predict the outcome of this proceeding.
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Consumers has paid $30 million to Entergy to assume ownership and responsibility for the Big Rock ISFSI, and paidhas incurred $55 million for nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule.fuel. Consumers is seeking recovery of these costs from the DOE. At September 30, 2009,March 31, 2010, Consumers has a $129had an $85 million regulatory asset recorded on its Consolidated Balance Sheets for these costs.
Electric Depreciation:In 2008,February 2010, Consumers filed an application withelectric depreciation case related to its wholly owned electric utility property. As ordered by the MPSC, seeking to recoverConsumers prepared a traditional cost-of-removal study, which supported a $46 million increase in annual depreciation expense.
Also in February 2010, Consumers filed an electric depreciation case for Ludington, the $44pumped storage plant jointly owned by Consumers and Detroit Edison. This case, filed jointly with Detroit Edison, requests an increase in annual depreciation expense. Consumers’ share of this increase is $9 million Big Rock decommissioning shortfall from customers. At that time,annually. Consumers also indicated that no action from the MPSC was necessary with respect to the recovery of the nuclear fuel storage costs and the payment to Entergy, as those costs are the subject of litigation in the federal courts. The MPSC staff and other interveners have filed testimony in this case recommending that the MPSC deny Consumers’ request and requesting rate refunds of various amounts up to $107 million. Consumers continues to believe that recovery of its regulatory asset is probable, but it cannot predict the financial impact or outcome of this proceeding.these proceedings.
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Renewable Energy Plan:In August 2009, the MPSC ordered Consumers to file its first cost and revenue reconciliation proceeding for its renewable energy plan in May 2010. In March 2010, the MPSC issued an order extending Consumers’ renewable energy plan reconciliation filing date to June 2010. Consumers must also file its first biennial plan review in May 2011.
Energy Optimization Plan:In August 2009, the MPSC ordered Consumers to file its first cost and revenue reconciliation proceeding for its energy optimization plan in April 2010. In March 2010, the MPSC issued an order requiring Consumers to file its first biennial plan review in August 2011.
CONSUMERS’ GAS UTILITY RATE MATTERS
Gas Cost Recovery:The GCR process is designed to allow Consumers to recover all of its 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 GCR billing factor monthly in order to minimize the over- or underrecovery amount in the annual GCR reconciliation.
The following table summarizes the GCR reconciliation filings pending with the MPSC:
| | | | | | | | |
| | | | Net Over- | | | | |
| | | | (Under) | | GCR Cost of Gas | | |
GCR Year | | Date Filed | | recoveryNet Underrecovery | | Gas Sold | | Description |
|
2007-2008 | | June 2008 | | $17 million | | $1.7 billion | | The overrecovery amount reflects an overrecovery of $15 million plus $2 million in accrued interest owed to customers. |
2008-2009 | | June 2009 | | $(15)15 million | | $1.8 billion | | The underrecovery amount reflects an underrecovery of $16 million less $1 million in accrued interest owed to customers. |
|
GCR Plans:In March 2010, the MPSC authorized Consumers to implement its 2009-2010 base GCR factor and generally approved Consumers’ plan for year 2009-2010:with minor adjustments to Consumers’ current purchasing guidelines. The order also approved a pilot on-line auction, which the MPSC believes will assist Consumers in securing reliable supplies of gas at reasonable prices.
In December 2008,2009, Consumers filed an application with the MPSC seeking approval of a GCR plan for its 2009-20102010-2011 GCR plan year. The request proposed the use of a base GCR ceiling factor of $8.10 per mcf, plus a quarterly GCR ceiling price adjustment contingent upon future events. Using the proposed base GCR ceiling factor,In April 2010, Consumers self-implemented the 2009-2010its filed GCR charge in April 2009. The November 2009 GCR billing factor is $7.41 per mcf.plan. While Consumers expects to recover all of its GCR costs, it cannot predict the financial impact or outcome of these proceedings.
Gas Depreciation:In August 2008, Consumers filed a gas depreciation case using 2007 data with the MPSC-ordered variations on traditional cost-of-removal methodologies. In December 2008, the MPSC approved a partial settlement agreement allowing Consumers to implement the filed depreciation rates, on an interim basis, concurrent with the implementation of settled rates in its 2008 gas rate case. In September 2009, the MPSC ordered that Consumers continue to use the depreciation rates authorized by the December 2008 partial settlement agreement. These depreciation rates have reduced Consumers’ recovery of depreciation expense by $20 million per year. The MPSC also ordered Consumers to adopt certain standard retirement units by January 1, 2010. Consumers estimates that the utilization of these standard retirement units will increase gas revenues and maintenance expense by $10 million in 2010.
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Gas Rate Case:In May 2009, Consumers filed an application with the MPSC seeking an annual increase in revenue of $114 million based on an 11 percent authorized return on equity. The filing seeks recovery of costs associated with ongoing investments inrequested authorization to implement an uncollectible expense tracking mechanism, Pension Plan and OPEB equalization mechanisms, as well as a revenue decoupling mechanism.
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In November 2009, Consumers self-implemented a gas utility assets, increases in operating and maintenance costs, and recognition of a decrease in expected sales related to the continued declinerate increase in the Michigan economy.annual amount of $89 million, subject to refund with interest. In March 2010, the ALJ issued a PFD recommending a gas rate increase of $69 million based on a 10.45 percent authorized return on equity. The following table details the components of Consumers’ self-implemented gas rate increase and the requested increase in revenue:ALJ’s position:
| | | | | | | | | | | | | | | | |
In Millions | | In Millions | |
| | In Millions | | | Consumers’ | | | | | |
| | | Self-Implemented | | ALJ’s PFD | | | |
Components of the increase in revenue | | | Position | | Position | | Difference | |
| Recovery of operating and maintenance costs | | $ | 25 | | |
Impact of sales declines | | 41 | | | $ | 41 | | $ | 35 | | $ | 6 | |
Investment in rate base | | 40 | | | 23 | | 24 | | | (1 | ) |
Recovery of operating and maintenance costs | | | 17 | | 12 | | 5 | |
Return on equity | | 8 | | | 8 | | | (2 | ) | | 10 | |
| | | | | |
Total | | $ | 114 | | | $ | 89 | | $ | 69 | | $ | 20 | |
|
UnderThe ALJ also recommended that the new streamlined regulatory process described inMPSC approve the “Consumers’ Electric Utility Rate Matters — Electric Rate Caserevenue decoupling mechanism and Self-Implemented Rates” sectionPension Plan and OPEB equalization mechanisms, but did not recommend approval of Consumers’ proposed uncollectible expense tracking mechanism. While it cannot predict the outcome of this Note, utilities maycase, Consumers does not consider it probable that it will be allowedrequired to self-implement rates six months after filing. refund a material portion of its self-implemented rates.
Gas Depreciation:In OctoberSeptember 2009, the MPSC issued an order requiringordered Consumers to file tariff sheets showingadopt certain standard retirement units by January 1, 2010. Consumers estimates that the rateuse of these standard retirement units will increase maintenance expense, and recovery of that expense, by $10 million annually. In February 2010, the MPSC directed Consumers to begin implementation of the new standard retirement units when it intends to self-implement. Accordingly, on October 16, 2009, Consumers filed tariff sheets indicating that it plans to self-implement an annualimplements the final rates approved in its pending gas rate increasecase in the spring of $89 million beginning November 19, 2009. If the MPSC were to take action to prevent or delay Consumers’ self-implementation, it could have a materially negative impact on Consumers’ earnings and cash flows. Consumers cannot predict the financial impact or outcome of this gas rate case.
Lost and Unaccounted for Gas:Gas utilities typically lose some gas as it is injected into and withdrawn from storage and sent through transmission and distribution systems. Consumers recovers the cost of lost and unaccounted for gas through general rate cases, which have provided for recovery based on an average of the previous five years of actual losses. To the extent that Consumers’ annual lost and unaccounted for gas cost exceeds the previous five-year average, Consumers may be unable to recover these amounts in rates.2010.
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6:5: FINANCINGS AND CAPITALIZATION
Long-term debt is summarized as follows:
| | | | | | | | | | | | | | | | |
In Millions | | In Millions | |
| | In Millions | | | March 31, | | December 31, | |
| | September 30, 2009 | | December 31, 2008 | | | 2010 | | 2009 | |
| CMS Energy | | |
Senior notes | | $ | 1,856 | | $ | 1,703 | | | $ | 2,155 | | $ | 1,856 | |
Revolving credit facility | | 65 | | 105 | | | — | | 25 | |
| | | | | | | | | | |
Total — CMS Energy | | $ | 1,921 | | $ | 1,808 | | | $ | 2,155 | | $ | 1,881 | |
Consumers | | 4,420 | | 4,297 | | | 4,401 | | 4,411 | |
Other CMS Energy Subsidiaries | | 233 | | 252 | | | 240 | | 283 | |
Long-term debt — related parties(a) | | | — | | 34 | |
Trust preferred securities(a) | | | 29 | | — | |
| | | | | | | | | | |
Total CMS Energy principal amounts outstanding | | $ | 6,574 | | $ | 6,357 | | |
Total CMS Energy principal amount outstanding | | | $ | 6,825 | | $ | 6,609 | |
Current amounts | | | (640 | ) | | | (489 | ) | | | (681 | ) | | | (672 | ) |
Net unamortized discount | | | (45 | ) | | | (31 | ) | | | (41 | ) | | | (42 | ) |
| | | | | | |
| | | | | | |
Total CMS Energy Long-term debt | | $ | 5,889 | | $ | 5,837 | | | $ | 6,103 | | $ | 5,895 | |
| Consumers | | |
First mortgage bonds | | $ | 3,664 | | $ | 3,517 | | |
FMBs | | | $ | 3,663 | | $ | 3,664 | |
Senior notes and other | | 503 | | 503 | | | 503 | | 504 | |
Securitization bonds | | 253 | | 277 | | | 235 | | 243 | |
| | | | | | | | | | |
Total Consumers principal amounts outstanding | | $ | 4,420 | | $ | 4,297 | | |
Total Consumers principal amount outstanding | | | $ | 4,401 | | $ | 4,411 | |
Current amounts | | | (343 | ) | | | (383 | ) | | | (343 | ) | | | (343 | ) |
Net unamortized discount | | | (5 | ) | | | (6 | ) | | | (5 | ) | | | (5 | ) |
| | | | | | | | | | |
| | |
Total Consumers Long-term debt | | $ | 4,072 | | $ | 3,908 | | | $ | 4,053 | | $ | 4,063 | |
|
| | |
(a) | | For additional details regarding CMS Energy’s consolidation of the trust that issued Trust Preferred Securities, see Note 1, New Accounting Standards, and Note 11, Consolidation of Variable Interest Entities. The Trust Preferred Securities bear interest at an annual rate of 7.75 percent and are subject to mandatory redemption in July 2027 at par. |
Financings:The following is a summary of significant long-term debt transactions during the ninethree months ended March 31, 2010:
| | | | | | | | | | | | | | | | |
| | Principal | | | Interest | | | | | | | |
| | (In Millions) | | | Rate (%) | | | Issue Date | | | Maturity Date | |
|
Debt Issuances: | | | | | | | | | | | | | | | | |
CMS Energy | | | | | | | | | | | | | | | | |
Senior notes | | $ | 300 | | | | 6.25 | % | | January 2010 | | February 2020 |
|
In April 2010, Consumers executed a bond purchase agreement whereby Consumers will issue, in a September 30, 2009:2010 private placement, $250 million of 5.30 percent FMBs due September 2022 and $50 million of 6.17 percent FMBs due September 2040.
| | | | | | | | | | | | | | | | |
| | Principal | | Interest | | Issue/Retirement | | |
| | (in millions) | | Rate (%) | | Date | | Maturity Date |
|
Debt Issuances: | | | | | | | | | | | | | | | | |
CMS Energy | | | | | | | | | | | | | | | | |
Convertible senior notes | | $ | 173 | | | | 5.50 | % | | June 2009 | | June 2029 |
Senior notes | | | 300 | | | | 8.75 | % | | June 2009 | | June 2019 |
Consumers | | | | | | | | | | | | | | | | |
First mortgage bonds | | | 500 | | | | 6.70 | % | | March 2009 | | September 2019 |
|
Debt Retirements: | | | | | | | | | | | | | | | | |
CMS Energy | | | | | | | | | | | | | | | | |
Long-term debt — related parties (a) | | $ | 144 | | | | 7.75 | % | | June 2009 | | July 2027 |
Senior notes (b) | | | 233 | | | | 7.75 | % | | July 2009 | | August 2010 |
Senior notes (b) | | | 87 | | | | 8.50 | % | | July 2009 | | April 2011 |
Consumers | | | | | | | | | | | | | | | | |
First mortgage bonds | | | 200 | | | | 4.80 | % | | February 2009 | | February 2009 |
First mortgage bonds | | | 150 | | | | 4.40 | % | | August 2009 | | August 2009 |
|
| | |
(a) | | CMS Energy retired this debt at a discount, and recorded a gain on extinguishment of debt of $28 million in Other income in its Consolidated Statements of Income. |
|
(b) | | CMS Energy retired this debt at a premium, and recorded a loss on extinguishment of debt of $17 million in Other expense in its Consolidated Statements of Income. |
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Revolving Credit Facilities:The following secured revolving credit facilities with banks were available at September 30, 2009:March 31, 2010:
| | | | | | | | | | | | | | | | | | |
In Millions |
| | | | | | | | | | | | Letters of | | |
| | | | Amount of | | Amount | | Credit | | Amount |
Company | | Expiration Date | | Facility | | Borrowed | | Outstanding | | Available |
|
CMS Energy (a) | | April 2, 2012 | | $ | 550 | | | $ | 65 | | | $ | 3 | | | $ | 482 | |
Consumers | | March 30, 2012 | | | 500 | | | | — | | | | 335 | | | | 165 | |
Consumers (b) | | November 30, 2009 | | | 30 | | | | — | | | | 30 | | | | — | |
Consumers | | August 17, 2010 | | | 150 | | | | — | | | | — | | | | 150 | |
|
| | | | | | | | | | | | | | | | | | | | |
In Millions | |
| | | | | | | | | | | | | | Letters of | | | | |
| | | | | | Amount of | | | Amount | | | Credit | | | Amount | |
Company | | Expiration Date | | | Facility | | | Borrowed | | | Outstanding | | | Available | |
|
CMS Energy (a) | | April 2, 2012 | | $ | 550 | | | $ | — | | | $ | 3 | | | $ | 547 | |
Consumers | | March 30, 2012 | | | 500 | | | | — | | | | 335 | | | | 165 | |
Consumers (b) | | November 30, 2010 | | | 30 | | | | — | | | | 30 | | | | — | |
Consumers | | August 17, 2010 | | | 150 | | | | — | | | | — | | | | 150 | |
|
| | |
(a) | | CMS Energy’s average borrowings during the ninethree months ended September 30, 2009,March 31, 2010 totaled $70$4 million, with a weighted average annual interest rate of 1.231.0 percent, at LIBOR plus 0.75 percent. |
|
(b) | | Consumers’ securedSecured revolving letter of credit facility. During September 2009, the facility was renewed effective November 30, 2009 in the amount of $30 million, with an expiration date of November 30, 2010. |
Sale of Accounts Receivable:Short-term Borrowings:Under Consumers’ revolving accounts receivable sales program, Consumers may selltransfer up to $250 million of accounts receivable, subject to certain eligibility requirements. Effective January 1, 2010, transactions entered into under this program are accounted for as secured borrowings rather than as sales. For additional details, see Note 1, New Accounting Standards. At September 30, 2009,March 31, 2010, $250 million of accounts receivable were eligible for sale,transfer, and no accounts receivable were soldhad been transferred under the program.
Consumers’ average short-term borrowings during the three months ended March 31, 2010 totaled $2 million, with a weighted average annual interest rate of 0.21 percent.
Contingently Convertible Securities:At September 30, 2009,March 31, 2010, the significant terms of CMS Energy’s contingently convertible securities were as follows:
| | | | | | | | | | | | | | | | |
| | | | | | Outstanding | | Adjusted | | Adjusted |
Security | | Maturity | | (In Millions) | | Conversion Price | | Trigger Price |
|
4.50% preferred stock (a) (b) | | | — | | | $ | 243 | | | $ | 9.32 | | | $ | 11.18 | |
3.375% senior notes (a) (c) | | | 2023 | | | | 140 | | | | 10.05 | | | | 12.06 | |
2.875% senior notes | | | 2024 | | | | 288 | | | | 13.89 | | | | 16.67 | |
5.50% senior notes | | | 2029 | | | | 173 | | | | 14.46 | | | | 18.80 | |
|
| | | | | | | | | | | | | | | | |
| | | | | | Outstanding | | | Adjusted | | | Adjusted | |
Security | | Maturity | | | (In Millions) | | | Conversion Price | | | Trigger Price | |
|
4.50% preferred stock (a) | | | — | | | $ | 239 | | | $ | 9.14 | | | $ | 10.96 | |
3.375% senior notes (a) | | | 2023 | | | | 139 | | | | 9.86 | | | | 11.83 | |
2.875% senior notes | | | 2024 | | | | 288 | | | | 13.62 | | | | 16.35 | |
5.50% senior notes | | | 2029 | | | | 173 | | | | 14.46 | | | | 18.80 | |
|
| | |
(a) | | During 20 of the last 30 trading days ended September 30, 2009,March 31, 2010, the adjusted trigger prices were met for these securities and, as a result, the securities are convertible at the option of the security holders for the three months ending December 31, 2009. |
|
(b) | | At SeptemberJune 30, 2009, the condition had been met for CMS Energy to exercise its mandatory conversion option for these securities. The required condition is that the price of CMS Energy common stock exceed $12.11 (130 percent of the prevailing conversion price) for 20 of the previous 30 trading days, including the most recent trading day, prior to exercise. |
|
(c) | | CMS Energy has the option to redeem these securities at par.2010. |
During the quarterthree months ended September 30, 2009,March 31, 2010, no other trigger price contingencies were met that would have allowed CMS Energy or the holders of the convertible securities to convert the securities to cash and equity.
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In September 2009, 84,000 shares of 4.50 percent preferred stock were tendered for conversion. The conversion at $13.37 per share resulted in the issuance of 136,712 shares of common stock and payment of $4 million in October 2009.
Dividend Restrictions:Under provisions of CMS Energy’s senior notes indenture, at September 30, 2009,March 31, 2010, payment of common stock dividends by CMS Energy was limited to $723$831 million.
Under the provisions of its articles of incorporation, at September 30, 2009,March 31, 2010, Consumers had $366$323 million of unrestricted retained earnings available to pay common stock dividends 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 the FERC suggest that under a variety of circumstances common stock dividends from Consumers would not be limited to amounts in Consumers’ retained earnings. Any decision by Consumers to pay common stock dividends in excess of
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retained earnings would be based on specific facts and circumstances and would result only after a formal regulatory filing process.
For the ninethree months ended September 30, 2009,March 31, 2010, CMS Energy received $233$114 million of common stock dividends from Consumers.
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7:6: EARNINGS PER SHARE — CMS ENERGY
The following table presents CMS Energy’s basic and diluted EPS computations based on EarningsIncome from Continuing Operations:
| | | | | | | | |
| | In Millions, Except Per Share Amounts |
|
| | Three months ended |
|
September 30 | | 2009 | | | 2008 | |
|
Earnings Available to Common Stockholders | | | | | | | | |
Earnings from Continuing Operations | | $ | 81 | | | $ | 81 | |
Less Earnings Attributable to Noncontrolling Interests | | | (6 | ) | | | (2 | ) |
Less Preferred Dividends | | | (2 | ) | | | (2 | ) |
| | |
Earnings from Continuing Operations Available to Common Stockholders — Basic and Diluted | | $ | 73 | | | $ | 77 | |
| | |
Average Common Shares Outstanding | | | | | | | | |
Weighted Average Shares — Basic | | | 227.3 | | | | 225.8 | |
Add dilutive impact of Contingently Convertible Securities | | | 11.1 | | | | 10.4 | |
Add dilutive Stock Options and Warrants | | | 0.1 | | | | 0.1 | |
| | |
Weighted Average Shares — Diluted | | | 238.5 | | | | 236.3 | |
| | |
Earnings Per Average Common ShareAvailable to Common Stockholders | | | | | | | | |
Basic | | $ | 0.32 | | | $ | 0.34 | |
Diluted | | $ | 0.31 | | | $ | 0.32 | |
|
| | | | | | | | | | | | | | | | |
In Millions, Except Per Share Amounts | | In Millions, Except Per Share Amounts | |
Three months ended March 31 | | | 2010 | | 2009 | |
| | In Millions, Except Per Share Amounts | |
| |
| | Nine months ended | | |
| |
September 30 | | 2009 | | 2008 | | |
| |
Earnings Available to Common Stockholders | | |
Earnings from Continuing Operations | | $ | 204 | | $ | 238 | | |
Less Earnings Attributable to Noncontrolling Interests | | | (9 | ) | | | (6 | ) | |
Income Available to Common Stockholders | | |
Income from Continuing Operations | | | $ | 89 | | $ | 75 | |
Less Income Attributable to Noncontrolling Interests | | | — | | | (1 | ) |
Less Preferred Dividends | | | (8 | ) | | | (8 | ) | | | (3 | ) | | | (3 | ) |
| | | | |
Earnings from Continuing Operations Available to Common Stockholders — Basic and Diluted | | $ | 187 | | $ | 224 | | |
Income from Continuing Operations Available to Common Stockholders — Basic and Diluted | | | $ | 86 | | $ | 71 | |
| | | | |
Average Common Shares Outstanding | | |
Weighted Average Shares — Basic | | 227.0 | | 225.5 | | | 228.0 | | 226.6 | |
Add dilutive impact of Contingently Convertible Securities | | 8.6 | | 12.5 | | | 18.4 | | 6.5 | |
Add dilutive Stock Options and Warrants | | 0.1 | | 0.2 | | |
Add dilutive Options and Warrants | | | 0.1 | | 0.1 | |
| | | | |
Weighted Average Shares — Diluted | | 235.7 | | 238.2 | | | 246.5 | | 233.2 | |
| | | |
Earnings Per Average Common ShareAvailable to Common Stockholders | | |
Income from Continuing Operations Per Average Common Share Available to Common Stockholders | | |
Basic | | $ | 0.82 | | $ | 0.99 | | | $ | 0.38 | | $ | 0.32 | |
Diluted | | $ | 0.79 | | $ | 0.94 | | | $ | 0.35 | | $ | 0.31 | |
|
Contingently Convertible Securities:When CMS Energy has earnings from continuing operations, its contingently convertible securities dilute EPS to the extent that the conversion value of a security, which is based on the average market price of CMS Energy’s common stock, exceeds the principal value of that security. For additional details on contingently convertible securities, see Note 6,5, Financings and Capitalization.
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Stock Options and Warrants:For the three and nine months ended September 30, 2009,March 31, 2010, outstanding options and warrants to purchase 0.50.4 million shares of CMS Energy common stock had no impact on diluted EPS, since the exercise price was greater than the average market price of CMS Energy common stock. These stock options have the potential to dilute EPS in the future.
Unvested Restricted Stock Awards:CMS Energy’s unvested restricted stock awards 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 unvested restricted stock awards are considered participating securities. As such, unvested restricted stock awards were included in the computation of basic EPS.
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Convertible Debentures:For the three and nine months ended September 30,March 31, 2010, and 2009, and 2008, there was no impact on diluted EPS from CMS Energy’s 7.75 percent convertible subordinated debentures. Using the if-converted method, the debentures would have:
| • | | increased the numerator of diluted EPS by less thenthan $1 million for the three months ended September 30, 2009,March 31, 2010 and by $2 million for the three months ended September 30, 2008, by $4 million for the nine months ended September 30,March 31, 2009, and by $7 million for the nine months ended September 30, 2008, from an assumed reduction of interest expense, net of tax; and |
|
| • | | increased the denominator of diluted EPS by 0.7 million shares for the three months ended September 30, 2009March 31, 2010 and by 2.8 million shares for the nine months ended September 30, 2009. The denominator of diluted EPS would have increased by 4.2 million shares for the three months and nine months ended September 30, 2008.March 31, 2009. |
CMS Energy can revoke the conversion rights if certain conditions are met.
8:7: FINANCIAL INSTRUMENTS
The carrying amounts of CMS Energy’s and Consumers’ cash, cash equivalents, current accounts and notes receivable, short-term investments, and current liabilities approximate their fair values because of their short-term nature. The cost or carrying amountamounts and fair valuevalues of CMS Energy’s and Consumers’ long-term financial instruments were as follows:
| | | | | | | | | | | | | | | | |
In Millions | |
|
| | September 30, 2009 | | | December 31, 2008 | |
|
| | Cost or | | | | | | | Cost or | | | | |
| | Carrying | | | | | | | Carrying | | | | |
| | Amount | | | Fair Value | | | Amount | | | Fair Value | |
|
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Securities held to maturity | | $ | 3 | | | $ | 3 | | | $ | 3 | | | $ | 3 | |
Securities available for sale | | | 66 | | | | 74 | | | | 68 | | | | 68 | |
Notes receivable, net | | | 227 | | | | 239 | | | | 186 | | | | 201 | |
Long-term debt (a) | | | 6,529 | | | | 7,004 | | | | 6,326 | | | | 5,962 | |
Long-term debt — related parties | | | 34 | | | | 30 | | | | 178 | | | | 107 | |
|
Consumers | | | | | | | | | | | | | | | | |
Securities available for sale | | $ | 51 | | | $ | 74 | | | $ | 52 | | | $ | 63 | |
Long-term debt (b) | | | 4,415 | | | | 4,724 | | | | 4,291 | | | | 4,073 | |
|
| | | | | | | | | | | | | | | | |
In Millions | |
| | March 31, 2010 | | | December 31, 2009 | |
| | Cost or | | | | | | | Cost or | | | | |
| | Carrying | | | | | | | Carrying | | | | |
| | Amount | | | Fair Value | | | Amount | | | Fair Value | |
|
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Securities held to maturity | | $ | 3 | | | $ | 3 | | | $ | 4 | | | $ | 4 | |
Securities available for sale | | | 89 | | | | 90 | | | | 26 | | | | 27 | |
Notes receivable, net | | | 268 | | | | 289 | | | | 269 | | | | 279 | |
Long-term debt (a) | | | 6,784 | | | | 7,377 | | | | 6,567 | | | | 7,013 | |
|
Consumers | | | | | | | | | | | | | | | | |
Securities available for sale | | $ | 63 | | | $ | 84 | | | $ | 24 | | | $ | 45 | |
Long-term debt (b) | | | 4,396 | | | | 4,695 | | | | 4,406 | | | | 4,635 | |
|
| | |
|
(a) | | Includes current maturitiesportion of $640long-term debt of $681 million at September 30, 2009March 31, 2010 and $489$672 million at December 31, 2008.2009. |
|
(b) | | Includes current maturitiesportion of long-term debt of $343 million at September 30, 2009March 31, 2010 and $383$343 million at December 31, 2008.2009. |
Notes receivable, net consist of EnerBank’s fixed-rate installment loans. EnerBank estimates the fair value of these loans using a discounted cash flows technique that incorporates current market interest rates as well as assumptions about the remaining life of the loans and credit risk. Fair values for impaired loans are estimated using discounted cash flows or underlying collateral values.
CMS Energy and Consumers estimate the fair value of their long-term debt using quoted prices from
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market trades of the debt, if available. In the absence of quoted prices, CMS Energy and Consumers calculate market yields and prices for the debt using a matrix method that incorporates market data for similarly rated debt. Depending on the information available, other valuation techniques may be used that rely on internal assumptions and models. For its convertible securities, CMS Energy incorporates, as appropriate, information on the market prices of CMS EnergyEnergy’s common stock.
The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt. At March 31, 2010, CMS Energy’s long-term debt includes $287included $271 million principal amount
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that was supported by third-party insurance or other credit enhancements. This entire principal amount was at Consumers. At December 31, 2009, CMS Energy’s long-term debt included $286 million principal amount that iswas supported by third-party insurance or other credit enhancements. Of this amount, $272$271 million principal amount iswas at Consumers. The effects of this third-party credit support were excluded from the measurement of fair value at September 30, 2009.
The following table summarizes CMS Energy’s and Consumers’ investment securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | In Millions | |
| |
| | September 30, 2009 | | December 31, 2008 | | | |
In Millions | | In Millions | |
| | | March 31, 2010 | | December 31, 2009 | | | |
| | Unrealized | | Unrealized | | Fair | | Unrealized | | Unrealized | | Fair | | Unrealized | | Unrealized | | Fair | | Unrealized | | Unrealized | | Fair | |
| | Cost | | Gains | | Losses | | Value | | Cost | | Gains | | Losses | | Value | | Cost | | Gains | | Losses | | Value | | Cost | | Gains | | Losses | | Value | |
| CMS Energy, includingConsumers | | |
Available for sale: | | |
SERP: | | |
Equity securities | | $ | 40 | | $ | 7 | | $ | — | | $ | 47 | | $ | 39 | | $ | — | | $ | — | | $ | 39 | | |
Debt securities | | 26 | | 1 | | — | | 27 | | 29 | | — | | — | | 29 | | |
Mutual fund | | | $ | 62 | | $ | 1 | | $ | — | | $ | 63 | | $ | — | | $ | — | | $ | — | | $ | — | |
State and municipal bonds | | | 27 | | — | | — | | 27 | | 26 | | 1 | | — | | 27 | |
Held to maturity: | | |
Debt securities | | 3 | | — | | — | | 3 | | 3 | | — | | — | | 3 | | | 3 | | — | | — | | 3 | | 4 | | — | | — | | 4 | |
| Consumers | | |
Available for sale: | | |
SERP: | | |
Equity securities | | $ | 26 | | $ | 5 | | $ | — | | $ | 31 | | $ | 25 | | $ | — | | $ | — | | $ | 25 | | |
Debt securities | | 17 | | 1 | | — | | 18 | | 19 | | — | | — | | 19 | | |
Common stock of CMS Energy | | 8 | | 17 | | — | | 25 | | 8 | | 11 | | — | | 19 | | |
Mutual fund | | | $ | 38 | | $ | 1 | | $ | — | | $ | 39 | | $ | — | | $ | — | | $ | — | | $ | — | |
State and municipal bonds | | | 17 | | — | | — | | 17 | | 16 | | — | | — | | 16 | |
CMS Energy Common Stock | | | 8 | | 20 | | — | | 28 | | 8 | | 21 | | — | | 29 | |
|
Equity securitiesThe mutual fund classified as available for sale is a short-term, fixed-income fund. Shares in this fund were acquired during the three months ended March 31, 2010. State and municipal bonds classified as available for sale consist of an investment in a Standard & Poor’s 500 Index mutual fund. Debt securities classified as available for sale consist of investment-gradegrade state and municipal bonds. Debt securities classified as held to maturity consist of state and municipal bonds and mortgage-backed securities held by EnerBank.
During the three months ended March 31, 2010, the proceeds from CMS Energy’s sales of SERP securities were $1 million, which included proceeds from Consumers’ sales of SERP securities of less than $1 million. During the three months ended March 31, 2009, the proceeds from CMS Energy’s sales of SERP securities were $2 million, which included proceeds from Consumers’ sales of SERP securities of $1 million. During both of the three-month periods ended March 31, 2010 and 2009, gross realized losses on sales of SERP securities were less than $1 million for CMS Energy and Consumers.
The fair values of the SERP state and municipal bonds by contractual maturity at March 31, 2010 were as follows:
| | | | | | | | |
In Millions | |
| | CMS Energy, | | | | |
| | including | | | | |
| | Consumers | | | Consumers | |
|
Due one year or less | | $ | 2 | | | $ | 1 | |
Due after one year through five years | | | 10 | | | | 6 | |
Due after five years through ten years | | | 10 | | | | 6 | |
Due after ten years | | | 5 | | | | 4 | |
| | | | | | |
Total | | $ | 27 | | | $ | 17 | |
|
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9:8: DERIVATIVE INSTRUMENTS
In order to limit exposure to certain market risks, primarily changes in commodity prices, interest rates, and foreign exchange rates, CMS Energy and Consumers may enter into various risk management contracts, such as forward contracts, futures, options, and swaps. In entering into these contracts, they follow established policies and procedures under the direction of an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers. Neither CMS Energy nor Consumers holds any of its derivatives for trading purposes.
The contracts used to manage market risks may qualify as derivative instruments. If a contract is a derivative and does not qualify for the normal purchases and sales exception, the contract is recorded on the balance sheet at its fair value. Each quarter,reporting period, the resulting asset or liability is adjusted to reflect any change in the fair value of the contract, a practice known as marking the contract to market.contract. Since none of CMS Energy’s or Consumers’ derivatives have been designated as accounting hedges, all mark-to-market gains and losseschanges in fair value are reported in earnings. For a discussion of how CMS Energy and Consumers determine the fair value of their derivatives, see Note 3,2, Fair Value Measurements.
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Commodity Price Risk: 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 because:
| • | | 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; or |
|
| • | | there is not an active market for the commodity. |
CMS Energy’s and Consumers’ coal purchase contracts are not derivatives because there is not an active market for the coal they purchase. If an active market for coal develops in the future, some of these contracts may qualify as derivatives. For Consumers, which is subject to regulatory accounting, the resulting mark-to-marketfair value gains and losses would be offset by changes in regulatory assets and liabilities and would not affect net income. For other subsidiaries, CMS Energy does not believe the resulting mark-to-market impact on earnings would be material.
CMS ERM has not designated its contracts to purchase and sell electricity and natural gas as normal purchases and sales and, therefore, CMS Energy accounts for those contracts as derivatives. To manage commodity price risks associated with these forward purchase and sale contracts, CMS ERM uses various financial instruments, such as futures, options, and swaps. At September 30, 2009,March 31, 2010, CMS ERM held a forward contract for the physical sale of 855788 GWh of electricity through 2015 on behalf of one of CMS Energy’s non-utility generating plants. CMS ERM also held futures contracts through 2011 as an economic hedge of 4742 percent of the generating plant’s natural gas requirements needed to serve a steam sales contract, for a total of 0.920.7 bcf of natural gas. In its role as a marketer of natural gas for third-party producers, CMS ERM held forward contracts to purchase 7.83.6 bcf and sell 6.93.5 bcf of natural gas through 2010 and a financial contract to sell 0.751.0 bcf of natural gas as an economic hedge of gas storage sales in 2010.2011. At September 30, 2009,March 31, 2010, CMS ERM held financial contracts through 2010 as an economic hedge of the saleagainst tolling arrangements with a purchase of 260 GWh of electricity and 1.67a sale of 1.7 bcf of gas.
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Interest rate risk: In order to mitigate its exposure to changes in interest rates, Grayling executed an interest rate collar as an economic hedge of the variable interest rate charged on its outstanding revenue bonds. At September 30, 2009, the notional amount of this contract was $15 million.
At September 30,March 31, 2010 and December 31, 2009, the fair value of Consumers’ derivative instruments was immaterial.less than $1 million. The following table summarizes the fair values of CMS Energy’s derivative instruments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | In Millions | | | In Millions |
| | | Derivative Assets | | Derivative Liabilities |
| | Asset Derivatives | | Liability Derivatives | | | Fair Value | | Fair Value |
| | | Balance | | | | | | Balance | | | | |
| | Balance Sheet | | Balance Sheet | | | | | Sheet | | March 31, | | December 31, | | Sheet | | March 31, | | December 31, |
September 30, 2009 | | Location | | Fair Value | | Location | | Fair Value | | |
| | | Location | | 2010 | | 2009 | | Location | | 2010 | | 2009 |
| CMS Energy | | |
Derivatives not designated as hedging instruments: | | |
Commodity contracts (a) | | Other assets | | $ | 1 | | Other liabilities | | $ | (11 | ) | | Other assets (b) | | $ | 5 | | $ | 1 | | Other liabilities (c) | | $ | 7 | | $ | 9 | |
Interest rate contracts | | Other assets | | — | | Other liabilities | | | (1 | ) | |
| | |
Interest rate contracts (d) | | | Other assets | | — | | — | | Other liabilities | | — | | 1 | |
| | | | | | | | | |
Total CMS Energy Derivatives | | $ | 1 | | $ | (12 | ) | | $ | 5 | | $ | 1 | | $ | 7 | | $ | 10 | |
|
| | |
(a) | | Assets and liabilities are presented gross and exclude the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. The liability also excludesagreements, which was $2 million at March 31, 2010 and $1 million at December 31, 2009. |
|
(b) | | Assets exclude the $2impact of offsetting cash margin deposits paid by other parties to CMS ERM, which was $3 million at March 31, 2010. Offsetting cash margin deposits on derivative assets at December 31, 2009 were less than $1 million. CMS Energy presents these assets net of these impacts on its Consolidated Balance Sheets. |
|
(c) | | Liabilities exclude the impact of offsetting cash margin deposits paid by CMS ERM to other parties.parties, which was $1 million at March 31, 2010 and December 31, 2009. CMS Energy presents these assets and liabilities net of these impacts on its Consolidated Balance Sheets. |
|
(d) | | At December 31, 2009, CMS Energy’s derivatives included an interest rate collar held by Grayling as an economic hedge of the variable interest rate charged on its outstanding revenue bonds. Effective January 1, 2010, CMS Energy deconsolidated Grayling. CMS Energy reflected its share of the loss on the interest rate collar, which was less than $1 million at March 31, 2010, in Income (Loss) from Equity Method Investees in its Consolidated Statements of Income. For additional details about the deconsolidation of Grayling, see Note 11, Consolidation of Variable Interest Entities. |
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At March 31, 2010 and 2009, the effect of Consumers’ derivative instruments on its Consolidated Statements of Income was less than $1 million. The following tables summarizetable summarizes the effect of CMS Energy’s and Consumers’ derivative instruments on theirits Consolidated Statements of Income:
| | | | | | | | | | | | | | | | | | |
| | In Millions | | | In Millions |
| | | Location of Gain (Loss) | | Amount of Gain (Loss) |
| | Location of Gain (Loss) | | Amount of Gain (Loss) | | | on Derivatives | | on Derivatives |
| | Recognized in Income on | | Recognized in Income on | | | Recognized in Income | | Recognized in Income |
Three months ended September 30, 2009 | | Derivatives | | Derivatives | | |
Three months ended March 31 | | | 2010 | | 2009 |
| CMS Energy, including Consumers | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | |
Commodity contracts | | Operating Revenue | | $ | 2 | | | Operating Revenue | | $ | 5 | | $ | 7 | |
| | Fuel for electric generation | | | (1 | ) | | Fuel for electric generation | | 2 | | | (2 | ) |
| | Cost of gas sold | | | — | | | Cost of gas sold | | — | | | (3 | ) |
| | Other income | | | 4 | | | Cost of power purchased | | 1 | | — | |
Interest rate contracts | | Other expense | | | — | | |
Foreign exchange contracts (a) | | | Other expense | | — | | | (1 | ) |
| | | | | | | |
Total CMS Energy | | | | $ | 5 | | | $ | 8 | | $ | 1 | |
| Consumers | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | |
Commodity contracts | | Other income | | $ | 4 | | |
| |
| | | | | | |
| | | | In Millions | |
|
| | Location of Gain (Loss) | | Amount of Gain (Loss) | |
| | Recognized in Income on | | Recognized in Income on | |
Nine months ended September 30, 2009 | | Derivatives | | Derivatives | |
|
CMS Energy, including Consumers | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | |
Commodity contracts | | Operating Revenue | | $ | 7 | |
| | Fuel for electric generation | | | (3 | ) |
| | Cost of gas sold | | | (3 | ) |
| | Other income | | | 5 | |
Interest rate contracts | | Other expense | | | — | |
Foreign exchange contracts (a) | | Other expense | | | (1 | ) |
| | | | | |
Total CMS Energy | | | | $ | 5 | |
|
Consumers | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | |
Commodity contracts | | Other income | | $ | 5 | |
|
| | |
(a) | | This derivative loss relates to a foreign-exchange forward contract CMS Energy held at December 31, 2008.that CMS Energy settled this obligation and the related derivative in January 2009. |
At September 30,March 31, 2010, none of CMS Energy’s derivative liabilities was subject to credit-risk-related contingency features. At December 31, 2009, CMS Energy’s derivative liabilities subject to credit-risk-related contingent features were immaterial.less than $1 million.
Credit Risk:CMS Energy’s swaps, options, and forward contracts contain credit risk, which is the risk that a counterparty will fail to meet its contractual obligations. CMS Energy reduces this risk through established policies and procedures. CMS Energy assesses credit quality by considering credit ratings, financial condition, and other available information for counterparties. A credit limit is established for each counterparty based on the evaluation of their credit quality. Exposure to potential loss under each contract is monitored and action is taken when appropriate.
CMS ERM enters into contracts primarily with companies in the electric and gas industry. This industry concentration may have a positive or negative impact on CMS Energy’s exposure to credit risk based on how similar changes in economic conditions, the weather, or other conditions affect these counterparties. CMS ERM reduces its credit risk exposure by using industry-standard agreements that allow for netting positive and negative exposures associated with the same counterparty. Typically, these agreements also allow each party to demand adequate assurance of future performance from the other party, when there is reason to do so.
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The following table illustrates CMS Energy’s exposure to potential losses at March 31, 2010, if each counterparty within this industry concentration failed to meet its contractual obligations. This table includes contracts accounted for as financial instruments. It does not include trade accounts receivable, derivative contracts that qualify for the normal purchases and sales exception, or other contracts that CMS Energy does not account for as derivatives.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | In Millions |
| | | | | | | | | | | | | | Net Exposure | | Net Exposure |
| | Exposure | | | | | | | | | | from | | from |
| | Before | | | | | | | | | | Investment | | Investment |
| | Collateral | | | | | | | | | | Grade | | Grade |
| | (a) | | Collateral Held | | Net Exposure | | Companies | | Companies (%) |
|
CMS ERM | | $ | 3 | | | $ | 3 | | | $ | — | | | $ | — | | | | — | |
|
| | |
(a) | | Exposure is reflected net of payables or derivative liabilities if netting arrangements exist. |
CMS Energy does not expect a material adverse effect on its Consolidated Balance Sheets and Consolidated Statements of Income as a result of counterparty nonperformance, given CMS Energy’s credit policies, current exposures, and credit reserves.
10:9: RETIREMENT BENEFITS
CMS Energy and Consumers provide pension,Pension Plan, OPEB, and other retirement benefit plans to employees.
The following tables show the costs and other changes in plan assets and benefit obligations incurred in CMS Energy’s and Consumers’ retirement benefits plans:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | In Millions | | | In Millions |
| | | Pension | | |
| | Pension | | |
| | Three months ended | | Nine months ended | | |
| |
September 30 | | 2009 | | 2008 | | 2009 | | 2008 | | |
Three months ended March 31 | | | 2010 | | 2009 |
| CMS Energy, including Consumers | | |
Service cost | | $ | 10 | | $ | 11 | | $ | 30 | | $ | 32 | | | $ | 11 | | $ | 10 | |
Interest expense | | 24 | | 23 | | 72 | | 71 | | | 24 | | 24 | |
Expected return on plan assets | | | (22 | ) | | | (20 | ) | | | (65 | ) | | | (61 | ) | | | (23 | ) | | | (21 | ) |
Amortization of: | | |
Net loss | | 10 | | 10 | | 31 | | 31 | | | 13 | | 10 | |
Prior service cost | | 2 | | 1 | | 5 | | 4 | | | 2 | | 2 | |
| | | | |
Net periodic cost | | 24 | | 25 | | 73 | | 77 | | | $ | 27 | | $ | 25 | |
Regulatory adjustment | | — | | — | | — | | 4 | | | 2 | | — | |
| | | | |
Net periodic cost after regulatory adjustment | | $ | 24 | | $ | 25 | | $ | 73 | | $ | 81 | | | $ | 29 | | $ | 25 | |
| Consumers | | |
Service cost | | $ | 9 | | $ | 10 | | $ | 29 | | $ | 30 | | | $ | 11 | | $ | 10 | |
Interest expense | | 24 | | 23 | | 70 | | 69 | | | 24 | | 23 | |
Expected return on plan assets | | | (20 | ) | | | (20 | ) | | | (62 | ) | | | (59 | ) | | | (23 | ) | | | (20 | ) |
Amortization of: | | |
Net loss | | 9 | | 10 | | 29 | | 30 | | | 12 | | 10 | |
Prior service cost | | 2 | | 2 | | 5 | | 5 | | | 2 | | 1 | |
| | | | |
Net periodic cost | | $ | 24 | | $ | 25 | | $ | 71 | | $ | 75 | | | $ | 26 | | $ | 24 | |
Regulatory adjustment | | — | | — | | — | | 4 | | | 2 | | — | |
| | | | |
Net periodic cost after regulatory adjustment | | $ | 24 | | $ | 25 | | $ | 71 | | $ | 79 | | | $ | 28 | | $ | 24 | |
|
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CMS Energy’s and Consumers’ expected long-term rate of return on plan assets is 8.258.0 percent. For the ninethree months ended September 30,March 31, 2010, the actual return on Pension Plan assets was 3.5 percent, and for 2009 the actual return on pension plan assets was 17.4 percent, and for 2008 the actual return was a negative 23.221 percent. The expected rate of return is an assumption about long-term asset performance that CMS Energy and Consumers review annually for reasonableness and appropriateness.
| | | | | | | | |
| | In Millions |
| | OPEB | | |
Three months ended March 31 | | 2010 | | 2009 |
|
CMS Energy, including Consumers | | | | | | | | |
Service cost | | $ | 7 | | | $ | 6 | |
Interest expense | | | 21 | | | | 20 | |
Expected return on plan assets | | | (15 | ) | | | (13 | ) |
Amortization of: | | | | | | | | |
Net loss | | | 8 | | | | 8 | |
Prior service credit | | | (2 | ) | | | (2 | ) |
| | |
Net periodic cost | | $ | 19 | | | | 19 | |
Regulatory adjustment | | | 1 | | | | — | |
| | |
Net periodic cost after regulatory adjustment | | $ | 20 | | | $ | 19 | |
|
Consumers | | | | | | | | |
Service cost | | $ | 7 | | | $ | 6 | |
Interest expense | | | 20 | | | | 20 | |
Expected return on plan assets | | | (14 | ) | | | (12 | ) |
Amortization of: | | | | | | | | |
Net loss | | | 8 | | | | 8 | |
Prior service credit | | | (2 | ) | | | (2 | ) |
| | |
Net periodic cost | | $ | 19 | | | $ | 20 | |
Regulatory adjustment | | | 1 | | | | — | |
| | |
Net periodic cost after regulatory adjustment | | $ | 20 | | | $ | 20 | |
|
In February 2010, the MPSC issued an order in Consumers’ GCR case that allowed Consumers to collect a one-time surcharge under a Pension Plan and OPEB equalization mechanism. For the three months ended March 31, 2010, Consumers collected $2 million of Pension Plan and $1 million of OPEB surcharge revenue in gas rates. Consumers recorded a reduction of $3 million of equalization regulatory assets on its Consolidated Balance Sheets and an increase of $3 million of expense on its Consolidated Statements of Income. Thus, Consumers’ collection of the equalization mechanism surcharge had no impact on net income for the three months ended March 31, 2010.
During the first three months of 2010, CMS Energy contributed $100 million to its pension fund, which included a contribution of $97 million by Consumers.
During the first three months of 2010, CMS Energy contributed $17 million to its SERP fund, which included a contribution of $11 million by Consumers.
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| | | | | | | | | | | | | | | | |
| | | | | | | | | | In Millions | |
|
| | | | | | OPEB | | | | | |
| | Three months ended | | | Nine months ended | |
|
September 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Service cost | | $ | 6 | | | $ | 6 | | | $ | 19 | | | $ | 17 | |
Interest expense | | | 20 | | | | 18 | | | | 60 | | | | 54 | |
Expected return on plan assets | | | (12 | ) | | | (17 | ) | | | (38 | ) | | | (50 | ) |
Amortization of: | | | | | | | | | | | | | | | | |
Net loss | | | 8 | | | | 3 | | | | 25 | | | | 7 | |
Prior service credit | | | (3 | ) | | | (3 | ) | | | (8 | ) | | | (8 | ) |
| | |
Net periodic cost | | $ | 19 | | | $ | 7 | | | $ | 58 | | | | 20 | |
Regulatory adjustment | | | — | | | | — | | | | — | | | | 3 | |
| | |
Net periodic cost after regulatory adjustment | | $ | 19 | | | $ | 7 | | | $ | 58 | | | $ | 23 | |
|
Consumers | | | | | | | | | | | | | | | | |
Service cost | | $ | 6 | | | $ | 6 | | | $ | 18 | | | $ | 17 | |
Interest expense | | | 20 | | | | 18 | | | | 59 | | | | 54 | |
Expected return on plan assets | | | (11 | ) | | | (16 | ) | | | (35 | ) | | | (49 | ) |
Amortization of: | | | | | | | | | | | | | | | | |
Net loss | | | 8 | | | | 3 | | | | 25 | | | | 8 | |
Prior service credit | | | (3 | ) | | | (3 | ) | | | (8 | ) | | | (8 | ) |
| | |
Net periodic cost | | | 20 | | | | 8 | | | | 59 | | | | 22 | |
Regulatory adjustment | | | — | | | | — | | | | — | | | | 3 | |
| | |
Net periodic cost after regulatory adjustment | | $ | 20 | | | $ | 8 | | | $ | 59 | | | $ | 25 | |
|
11:10: INCOME TAXES
The actual income tax expense on continuing operations differs from the amount computed by applying the statutory federal tax rate of 35 percent to income before income taxes as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | In Millions | | | In Millions |
| |
| | Three months ended | | Nine months ended | | |
| |
September 30 | | 2009 | | 2008 | | 2009 | | 2008 | | |
Three months ended March 31 | | | 2010 | | 2009 |
| CMS Energy, including Consumers | | |
Income from continuing operations before income taxes less income attributable to noncontrolling interests | | $ | 126 | | $ | 115 | | $ | 323 | | $ | 355 | | |
Statutory federal income tax rate | | | x 35 | % | | | x 35 | % | | | x 35 | % | | | x 35 | % | |
Net income available to common stockholders | | | $ | 85 | | $ | 70 | |
Discontinued operations, net of tax | | | 1 | | 1 | |
| | | | |
Expected income tax expense | | 44 | | 40 | | 113 | | 124 | | |
Increase (decrease) in taxes from: | | |
Net income from continuing operations | | | 86 | | 71 | |
Preferred stock dividends | | | 3 | | 3 | |
Income tax expense on continuing operations | | | 61 | | 50 | |
| | | |
Income from continuing operations before income taxes | | | 150 | | 124 | |
| | |
Expected income tax expense at statutory federal rate | | | 53 | | 43 | |
Increase (decrease) in income taxes from: | | |
ITC amortization | | | | (1 | ) | | | (1 | ) |
Medicare Part D exempt income | | | | (2 | ) | | | (2 | ) |
Change in tax law, Medicare Part D subsidy | | | 3 | | — | |
State and local income taxes, net of federal benefit | | 7 | | 3 | | 19 | | 7 | | | 7 | | 8 | |
Medicare Part D exempt income | | | (2 | ) | | | (4 | ) | | | (5 | ) | | | (7 | ) | |
Other, net | | 2 | | | (3 | ) | | 1 | | | (1 | ) | | 1 | | 2 | |
| | | | |
Recorded income tax expense | | $ | 51 | | $ | 36 | | $ | 128 | | $ | 123 | | |
Income tax expense | | | $ | 61 | | $ | 50 | |
| | | |
Effective tax rate | | | 40.5 | % | | | 31.3 | % | | | 39.6 | % | | | 34.6 | % | | | 40.7 | % | | | 40.3 | % |
| Consumers | | |
Income from continuing operations before income taxes | | | $ | 169 | | $ | 155 | |
| | |
Expected income tax expense at statutory federal rate | | | 59 | | 54 | |
Increase (decrease) in taxes from: | | |
ITC amortization | | | | (1 | ) | | | (1 | ) |
Medicare Part D exempt income | | | | (2 | ) | | | (2 | ) |
State and local income taxes, net of federal benefit | | | 6 | | 4 | |
Other, net | | | — | | 1 | |
| | | |
Income tax expense | | | $ | 62 | | $ | 56 | |
| | | |
Effective tax rate | | | | 36.7 | % | | | 36.1 | % |
| | |
The increase in the effective tax raterates from September 30, 2008March 31, 2009 to September 30, 2009March 31, 2010 was due largely to increasesa change in tax law related to Medicare Part D subsidies.
The Patient Protection and Affordable Care Act and the MBT from legislative changes, as well asrelated Health Care and Education Reconciliation Act (the Health Care Acts) were enacted in March 2010. For taxable years beginning after December 31, 2012, the recognition, beginning inHealth Care Acts repeal the second quarter of 2009, of deferred MBTtax deduction for the electric utility segmentportion of Consumers. The periodhealth care costs that are reimbursed by the Medicare Part D subsidy. To reflect the law change, CMS Energy and Consumers decreased their deferred tax asset balances by $68 million, with CMS Energy recognizing deferred tax expense of $3 million and Consumers recognizing an increase to net regulatory tax assets of $65 million (not including the effects of ratemaking tax gross-ups). Therefore, this legislation had no effect on Consumers’ net income for the three months ended September 30, 2008 also benefitted from the reversal of a valuation allowance related to certain loss carryforwards.March 31, 2010.
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11: CONSOLIDATION OF VARIABLE INTEREST ENTITIES
Entities that are VIEs must be consolidated if the reporting entity determines that it has a controlling financial interest. The entity that is required to consolidate the VIE is called the primary beneficiary. Variable interests are contractual, ownership, or other interests in an entity that change as the fair value of the VIE’s net assets, excluding variable interests, changes. An entity is considered to be a VIE when its capital is insufficient to permit it to finance its activities without additional subordinated financial support or its equity investors, as a group, lack the characteristics of having a controlling financial interest.
Effective January 1, 2010, the accounting standards for consolidation of VIEs were amended. The most significant amendment changed the criteria for identifying the primary beneficiary. Under the amended standard, the primary beneficiary is the entity that has both (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE.
As a result of adopting this amendment, effective January 1, 2010, CMS Energy has consolidated CMS Energy Trust I and deconsolidated three partnerships that it had previously consolidated.
CMS Energy has consolidated CMS Energy Trust I because CMS Energy is the variable interest holder that designed the entity and through the design has the power to direct the activities of CMS Energy Trust I that most significantly impact the trust’s economic performance. Through its guarantee, CMS Energy also has the obligation to absorb losses of CMS Energy Trust I. The sole assets of the trust consist of notes payable by CMS Energy, and the sole liabilities of the trust consist of Trust Preferred Securities. Upon consolidation, CMS Energy reduced its equity method investment by $5 million and its Long-term Debt — Related Parties by $34 million. CMS Energy also recorded a $29 million liability for the mandatorily redeemable preferred securities issued by the trust. No gain or loss was recognized on the consolidation of CMS Energy Trust I.
CMS Energy has deconsolidated T.E.S. Filer City, Grayling, and Genesee because CMS Energy determined that power is shared among unrelated parties, and that no one party has the power to direct the activities that most significantly impact the entities’ economic performance. The partners must agree on all major decisions for each of the partnerships. As a result, CMS Energy is not the primary beneficiary of these partnerships.
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The following table provides information about these partnerships:
| | | | |
| | Nature of | | |
Name (Ownership Interest) | | the Entity | | Financing of Partnership |
T.E.S. Filer City (50%) | | Coal-fueled power generator | | Non-recourse long-term debt that matured in December 2007. |
| | | | |
Grayling (50%) | | Wood waste- fueled power generator | | Sale of revenue bonds that mature in November 2012 and bear interest at variable rates. The debt is recourse to the partnership, but not the individual partners, and secured by a letter of credit equal to the outstanding balance. |
| | | | |
Genesee (50%) | | Wood waste- fueled power generator | | Sale of revenue bonds that mature in 2021 and bear interest at fixed rates. The debt is non-recourse to the partnership and secured by a CMS Energy guarantee capped at $3 million annually. |
| | | | |
CMS Energy has operating and management contracts with Grayling and Genesee, and Consumers is the primary purchaser of power from each partnership through long-term PPAs. Consumers also has reduced dispatch agreements with Grayling and Genesee, which allow these facilities to be dispatched based on the market price of wood waste. This results in fuel cost savings that each partnership shares with Consumers’ customers.
CMS Energy’s investment in these partnerships is included in Investments on the Consolidated Balance Sheets in the amount of $48 million as of March 31, 2010. The partnerships were consolidated at December 31, 2009. Total assets of the partnerships were $189 million and total liabilities were $92 million at December 31, 2009. The partnerships had third-party debt obligations totaling $70 million at December 31, 2009. Plant, property, and equipment serving as collateral for these obligations had a carrying value of $137 million at December 31, 2009. The creditors of these partnerships do not have recourse to the general credit of CMS Energy or Consumers, except through outstanding letters of credit of $2 million and a guarantee of $3 million annually. CMS Energy has deferred collections on certain receivables owed by Genesee. CMS Energy’s maximum exposure to loss from these receivables is $6 million. Consumers has not provided any financial or other support during the periods presented that was not previously contractually required.
12: REPORTABLE SEGMENTS
Reportable segments consist of business units defined by the products and services they offer. CMS Energy and Consumers evaluate performance based on the net income available to common stockholders of each segment. The reportable segments for CMS Energy and Consumers are:
CMS Energy:
| • | | electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan; |
|
| • | | gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; |
|
| • | | enterprises, consisting of various subsidiaries engaging primarily in domestic independent power production; and |
|
| • | | other, including corporate interest and other expenses and discontinued operations. |
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Consumers:
| • | | electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan; |
|
| • | | gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; and |
|
| • | | other, including a consolidated special-purpose entity for the sale of accounts receivable. |
The following tables provide financial information by reportable segment:
| | | | | | | | |
| | In Millions |
Three months ended March 31 | | 2010 | | 2009 |
Operating Revenue | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | |
Electric utility | | $ | 838 | | | $ | 812 | |
Gas utility | | | 1,052 | | | | 1,222 | |
Enterprises | | | 68 | | | | 64 | |
Other | | | 9 | | | | 6 | |
| | |
Total Operating Revenue — CMS Energy | | $ | 1,967 | | | $ | 2,104 | |
Consumers | | | | | | | | |
Electric utility | | $ | 838 | | | $ | 812 | |
Gas utility | | | 1,052 | | | | 1,222 | |
| | |
Total Operating Revenue — Consumers | | $ | 1,890 | | | $ | 2,034 | |
| | | | | | | | |
Net Income Available to Common Stockholders | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | |
Electric utility | | $ | 41 | | | $ | 39 | |
Gas utility | | | 66 | | | | 59 | |
Enterprises | | | 9 | | | | 1 | |
Discontinued operations | | | (1 | ) | | | (1 | ) |
Other | | | (30 | ) | | | (28 | ) |
| | |
Total Net Income Available to Common Stockholders — CMS Energy | | $ | 85 | | | $ | 70 | |
Consumers | | | | | | | | |
Electric utility | | $ | 41 | | | $ | 39 | |
Gas utility | | | 66 | | | | 59 | |
| | |
Total Net Income Available to Common Stockholder — Consumers | | $ | 107 | | | $ | 98 | |
|
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| | | | | | | | |
| | | | | | In Millions |
| | March 31, 2010 | | December 31, 2009 |
Plant, Property, and Equipment, Gross | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | |
Electric utility | | $ | 9,620 | | | $ | 9,525 | |
Gas utility | | | 3,836 | | | | 3,812 | |
Enterprises | | | 101 | | | | 345 | |
Other | | | 34 | | | | 34 | |
| | |
Total Plant, Property, and Equipment — CMS Energy | | $ | 13,591 | | | $ | 13,716 | |
Consumers | | | | | | | | |
Electric utility | | $ | 9,620 | | | $ | 9,525 | |
Gas utility | | | 3,836 | | | | 3,812 | |
Other | | | 15 | | | | 15 | |
| | |
Total Plant, Property, and Equipment — Consumers | | $ | 13,471 | | | $ | 13,352 | |
| | | | | | | | |
Assets | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | |
Electric utility (a) | | $ | 9,510 | | | $ | 9,157 | |
Gas utility (a) | | | 4,259 | | | | 4,594 | |
Enterprises | | | 192 | | | | 303 | |
Other | | | 1,265 | | | | 1,202 | |
| | |
Total Assets — CMS Energy | | $ | 15,226 | | | $ | 15,256 | |
Consumers | | | | | | | | |
Electric utility (a) | | $ | 9,510 | | | $ | 9,157 | |
Gas utility (a) | | | 4,259 | | | | 4,594 | |
Other | | | 817 | | | | 871 | |
| | |
Total Assets — Consumers | | $ | 14,586 | | | $ | 14,622 | |
|
The following tables show financial information by reportable segment:
| | | | | | | | | | | | | | | | |
| | In Millions | |
|
| | Three months ended | | | Nine months ended | |
|
September 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Operating Revenue | | | | | | | | | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 1,000 | | | $ | 1,074 | | | $ | 2,662 | | | $ | 2,775 | |
Gas utility | | | 213 | | | | 233 | | | | 1,769 | | | | 1,886 | |
Enterprises | | | 54 | | | | 115 | | | | 158 | | | | 300 | |
Other | | | 7 | | | | 6 | | | | 19 | | | | 16 | |
| | |
Total Operating Revenue — CMS Energy | | $ | 1,274 | | | $ | 1,428 | | | $ | 4,608 | | | $ | 4,977 | |
|
Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 1,000 | | | $ | 1,074 | | | $ | 2,662 | | | $ | 2,775 | |
Gas utility | | | 213 | | | | 233 | | | | 1,769 | | | | 1,886 | |
| | |
Total Operating Revenue — Consumers | | $ | 1,213 | | | $ | 1,307 | | | $ | 4,431 | | | $ | 4,661 | |
|
|
Net Income Available to Common Stockholders | | | | | | | | | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 117 | | | $ | 108 | | | $ | 221 | | | $ | 232 | |
Gas utility | | | (12 | ) | | | (18 | ) | | | 52 | | | | 46 | |
Enterprises | | | 5 | | | | 5 | | | | (12 | ) | | | 13 | |
Other | | | (37 | ) | | | (17 | ) | | | (45 | ) | | | (67 | ) |
| | |
Total Net Income Available to Common Stockholders — CMS Energy | | $ | 73 | | | $ | 78 | | | $ | 216 | | | $ | 224 | |
|
Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 117 | | | $ | 108 | | | $ | 221 | | | $ | 232 | |
Gas utility | | | (12 | ) | | | (18 | ) | | | 52 | | | | 46 | |
Other | | | 1 | | | | — | | | | 1 | | | | 1 | |
| | |
Total Net Income Available to Common Stockholder — Consumers | | $ | 106 | | | $ | 90 | | | $ | 274 | | | $ | 279 | |
|
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| | | | | | | | |
| In Millions | |
|
| | September 30, 2009 | | | December 31, 2008 | |
|
Assets | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | |
Electric utility (a) | | $ | 8,995 | | | $ | 8,904 | |
Gas utility (a) | | | 4,704 | | | | 4,565 | |
Enterprises | | | 301 | | | | 313 | |
Other | | | 883 | | | | 1,119 | |
| | |
Total Assets — CMS Energy | | $ | 14,883 | | | $ | 14,901 | |
|
Consumers | | | | | | | | |
Electric utility (a) | | $ | 8,995 | | | $ | 8,904 | |
Gas utility (a) | | | 4,704 | | | | 4,565 | |
Other | | | 563 | | | | 777 | |
| | |
Total Assets — Consumers | | $ | 14,262 | | | $ | 14,246 | |
|
| | |
(a) | | Amounts include a portion of Consumers’ other common assets attributable to both the electric and the gas utility businesses. |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | | |
Item 3. | | Quantitative and Qualitative Disclosures About Market Risk |
CMS ENERGY
Quantitative and Qualitative Disclosures about Market Risk is contained in PARTPart I, Item 2. — MD&A, which is incorporated by reference herein.
CONSUMERS
Quantitative and Qualitative Disclosures about Market Risk is contained in PARTPart I, Item 2. — MD&A, which is incorporated by reference herein.
Item 4. Controls and Procedures | | |
Item 4. | | Controls and Procedures |
CMS ENERGY
Disclosure Controls and Procedures: CMS Energy’s management, with the participation of its CEO and CFO, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, CMS Energy’s CEO and CFO have concluded that, as of the end of such period, its disclosure controls and procedures are effective.
Internal Control Over Financial Reporting: There have not been any changes in CMS Energy’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
Item 4T. Controls and Procedures | | |
Item 4T. | | Controls and Procedures |
CONSUMERS
Disclosure Controls and Procedures: Consumers’ management, with the participation of its CEO and CFO, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, Consumers’ CEO and CFO have concluded that, as of the end of such period, its disclosure controls and procedures are effective.
Internal Control Over Financial Reporting: There have not been any changes in Consumers’ internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal ProceedingsInformationCMS Energy and Consumers are parties to various lawsuits and regulatory matters in the ordinary course of business. For information regarding reportablematerial legal proceedings, is contained inincluding updates to information reported under Item 3 of Part I “Item 3. Legal Proceedings” inof CMS Energy’s and Consumers’ 20082009 Form 10-K, see Part I, Item 1, Note 3, Contingencies and Part II, “Item 1. Legal Proceedings” in CMS Energy’sCommitments, and Consumers’ Forms 10-Q for the quarters ended March 31, 2009 and June 30, 2009.Note 4, Utility Rate Matters.
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There have been no material changes to the Risk Factors as previously disclosed in Part I, Item 1A. Risk Factors, in CMS Energy’s and Consumers’ 20082009 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | | |
Item 2. | | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) Unregistered Sales of Equity Securities
On OctoberJanuary 15, 2009,2010, CMS Energy issued 136,712761 shares of its Common Stock and paid $4 million$20,000 in cash in exchange for 84,000 shares$20,000 aggregate principal amount of its 4.50% Cumulative3.375 percent Convertible Preferred Stock,Senior Notes Due 2023, Series B, (“Convertible Preferred Stock”), tendered for conversion on September 28,December 22, 2009, in accordance with the terms and provisions of the CertificateIndenture of DesignationCMS Energy dated as of 4.50% Cumulative Convertible Preferred StockSeptember 15, 1992, as supplemented by the Sixteenth Supplemental Indenture dated as of December 20, 2004, corrected February 27, 2006.16, 2004. Such common shares of Common Stock were issued based on the conversion rate of $13.37101.464 shares per share.$1,000 principal amount of convertible note. The foregoing issuance, an exchange of securities with an existing shareholder,securities holder, was exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.
(c) Issuer Repurchases of Equity Securities
The following table shows CMS Energy’s repurchases of equity securities for the three months ended September 30, 2009:March 31, 2010:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Maximum Number |
| | | | | | | | | | | | | | of |
| | | | | | | | | | | | | | Shares that May |
| | | | | | | | | | Total Number of | | Yet |
| | Total | | Average | | Shares | | Be Purchased |
| | Number | | Price | | Purchased as Part of | | Under |
| | of Shares | | Paid per | | Publicly Announced | | Publicly Announced |
Period | | Purchased* | | Share | | Plans or Programs | | Plans or Programs |
|
July 1, 2009 to July 31, 2009 | | | 12,520 | | | $ | 12.29 | | | | — | | | | — | |
August 1, 2009 to August 31, 2009 | | | 61,536 | | | $ | 12.91 | | | | — | | | | — | |
September 1, 2009 to September 30, 2009 | | | — | | | $ | — | | | | — | | | | — | |
| | |
Total | | | 74,056 | | | | — | | | | — | | | | — | |
|
| | | | | | | | | | | | | | | | |
| | | | | | | | | | Total Number of | | Maximum Number of |
| | Total | | Average | | Shares Purchased as | | Shares that May Yet |
| | Number of | | Price | | Part of Publicly | | Be Purchased Under |
| | Shares | | Paid per | | Announced Plans or | | Publicly Announced |
Period | | Purchased* | | Share | | Programs | | Plans or Programs |
January 1, 2010 to January 31, 2010 | | | 563 | | | $ | 15.69 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
February 1, 2010 to February 28, 2010 | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
March 1, 2010 to March 31, 2010 | | | — | | | | — | | | | — | | | | — | |
| | |
Total | | | 563 | | | $ | 15.69 | | | | — | | | | — | |
|
| | |
* | | CMS Energy repurchases certain restricted shares upon vesting under the performance incentive stock plan from participants in the performance incentive stock plan, equal to its minimum statutory income tax withholding obligation. Shares repurchased have a value based on the market price on the vesting date. |
Item 3. Defaults Upon Senior Securities | | |
Item 3. | | Defaults Upon Senior Securities |
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other InformationNone.
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The agreements included as exhibits to this Form 10-Q 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 the 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 provedprove to be incorrect. The statements were qualified by disclosures to the parties to each of the agreements and may not be reflected in each of the agreements. The agreements may apply standards of materiality that are different than standards applied byto 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 http://www.sec.gov.
| | |
(3)(a) | | CMS Energy Corporation Bylaws, amended and restated as of August 14, 2009 (Exhibit 3.01 to Form 8-K filed August 18, 2009 and incorporated herein by reference) |
| | |
(3)(b) | | Consumers Energy Company Bylaws, amended and restated as of August 14, 2009 (Exhibit 3.02 to Form 8-K filed August 18, 2009 and incorporated herein by reference) |
| | |
(10)(a) | | $150 million Amended and Restated Revolving CreditAmendment No. 19 to the Receivables Purchase Agreement, dated as of August 18, 2009 between Consumers Energy Company, the Banks, Agent, Co-Syndication Agents, and Documentation Agent all as defined therein. (Exhibit 10.1 to Form 8-K filed August 21, 2009 and incorporated herein by reference)March 17, 2010 |
| | |
(10)(b) | | Amendment No. 175 to the Receivables PurchaseSale Agreement, dated as of September 3, 2009March 17, 2010 |
| | |
(10)(c) | | Second Amendment No. 20 to Reimbursementthe Receivables Purchase Agreement, dated as of September 25, 2009April 20, 2010 |
| | |
(10)(d)* | | $300 million Seventh Amended and Restated CreditAmendment No. 6 to the Receivables Sale Agreement, dated as of April 2, 2007 among CMS Energy Corporation, the Banks, the Administrative Agent, Collateral Agent, Syndication Agent and Documentation Agents all defined therein and Amendment No. 1 dated as of December 19, 200720, 2010 |
| | |
10)(10)(e)* | | AssumptionCMS Incentive Compensation Plan for CMS Energy and Acceptance datedits Subsidiaries, effective January 8, 2008 to the $300 million Seventh Amended1, 2004, amended and Restated Credit Agreement datedrestated, effective as of April 2, 2007 among CMS Energy Corporation, the Banks, the Administrative Agent, Collateral Agent, Syndication Agent and Documentation Agents all defined thereinJanuary 1, 2010 |
| | |
(10)(f)* | | $500 million Fourth Amended and Restated CreditForm of Change in Control Agreement dated as of March 30, 2007 among Consumers Energy Company, the Banks, the Administrative Agent, the Collateral Agent, the Syndication Agent and the Documentation Agents all as defined therein2010 |
| | |
(10)(g)* | | 2004 FormAgreement between David W. Joos and CMS Energy Board of Executive Severance AgreementDirectors |
| | |
(10)(h)* | | 2004 Form of Officer Severance Agreement |
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| | |
(10)(i)* | | Asset Sale Agreement dated as of July 11, 2006 by and among Consumers Energy Company as Seller and Entergy Nuclear Palisades, LLC as Buyer |
| | |
(10)(j)* | | Palisades Nuclear Power Plant PowerBond Purchase Agreement dated asbetween Consumers and each of July 11, 2006 between Entergy Nuclear Palisades, LLC and Consumers Energy Company |
| | |
(10)(k)* | | Agreement of Purchase and Sale, by and between CMS Enterprises Company and Abu Dhabi National Energy Company PJSC dated as of February 3, 2007 |
| | |
(10)(l)* | | Agreement of Purchase and Sale dated March 12, 2007 by and among CMS Enterprises Company, CMS Energy Investment, LLC, and Lucid Energy, LLC and Michigan Pipeline and Processing, LLC |
| | |
(10)(m)* | | Agreement of Purchase and Sale dated March 12, 2007 by and among CMS Enterprises Company, CMS Generation Holdings Company, CMS International Ventures, LLC, and Lucid Energy, LLC and New Argentine Generation Company, LLC |
| | |
(10)(n)* | | Agreement of Purchase and Sale dated as of March 30, 2007 between CMS Energy Corporation and Petroleos de Venezuela, S.A. |
| | |
(10)(o)* | | Share Purchase Agreementthe Purchasers named therein, dated as of April 12, 2007 by and among CMS Electric and Gas, L.L.C., CMS Energy Brasil S.A. and CPFL Energia S.A. together with CMS Energy Corporation (solely for the limited purposes of Section 8.9)19, 2010 |
| | |
(10)(p)* | | Purchase and Sale Agreement by and between Broadway Gen Funding, LLC as Seller and Consumers Energy Company as Buyer dated as of May 24, 2007 |
| | |
(10)(q)* | | Amended and Restated Securities Purchase Agreement by and among CMS International Ventures, L.L.C., CMS Capital L.L.C., CMS Gas Argentina Company and CMS Enterprises and AEI Chile Holdings LTD together with Ashmore Energy International (for purposes of the Parent Guarantee) dated as of June 1, 2007 |
| | |
(10)(r)* | | Stock Purchase Agreement by and among Hydra-Co Enterprises, Inc., HCO-Jamaica, Inc., and AEI Central America LTD together with Ashmore Energy International dated as of May 31, 2007 |
| | |
(10)(s)* | | Securities Purchase Agreement by and among CMS International Ventures, L.L.C., CMS Capital, L.L.C., CMS Gas Argentina Company and CMS Enterprises Company and Pacific Energy LLC together with Empresa Nacional De Electricdad S.A. (for purposes of the Parent Guarantee) dated as of July 11, 2007 |
| | |
(10)(t)* | | Settlement Agreement and Amended and Restated Power Purchase Agreement between Consumers Energy Company and Midland Cogeneration Venture Limited Partnership |
| | |
(10)(u)* | | Receivables Purchase Agreement dated as of May 22, 2003 (as modified by Amendments 1-14) among Consumers Receivables Funding II, LLC, Consumers Energy Company, Falcon Asset Securitization Corporation, The Financial Institutions from time to time parties hereto, as Financial Institutions, and Bank One, NA, as Administrative Agent, as amended by Amendment No. 15 dated as of February 12, 2009 |
| | |
(10)(v)* | | Receivables Sale Agreement, dated as of May 22, 2003, between Consumers Energy Company, as Originator and Consumers Receivables Funding II, LLC, as Buyer, as amended by Amendment No. 1 dated as of May 20, 2004 and as amended by Amendment No. 2 dated as of August 15, 2006 |
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| | |
(12)(a) | | Statement regarding computation of CMS Energy’s Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends |
| | |
(12)(b) | | Statement regarding computation of Consumers’ Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends |
| | |
(31)(a) | | CMS Energy Corporation’sEnergy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
(31)(b) | | CMS Energy Corporation’sEnergy’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
(31)(c) | | Consumers Energy Company’sConsumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
(31)(d) | | Consumers Energy Company’sConsumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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| | |
|
(32)(a) | | CMS Energy Corporation’sEnergy’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
(32)(b) | | Consumers Energy Company’sConsumers’ certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
* | | This exhibit is being refiled to include all schedules, exhibits, appendices, and attachments to the exhibit. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiary.
| | | | |
| CMS ENERGY CORPORATION (Registrant) | |
Dated: October 30, 2009April 23, 2010 | By: | /s/ Thomas J. Webb | |
| | Thomas J. Webb | |
| | Executive Vice President and Chief Financial Officer | |
|
| CONSUMERS ENERGY COMPANY (Registrant) | |
Dated: October 30, 2009April 23, 2010 | By: | /s/ Thomas J. Webb | |
| | Thomas J. Webb | |
| | Executive Vice President and Chief Financial Officer | |
|
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