Company Quick10K Filing
Quick10K
CMS Energy
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$54.40 284 $15,440
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-03 Officers, Shareholder Vote
8-K 2019-04-25 Regulation FD, Exhibits
8-K 2019-04-25 Earnings, Regulation FD, Exhibits
8-K 2019-02-20 Other Events, Exhibits
8-K 2019-01-31 Regulation FD, Exhibits
8-K 2019-01-31 Earnings, Regulation FD, Exhibits
8-K 2019-01-17 Officers, Exhibits
8-K 2018-12-28 Enter Agreement, Exhibits
8-K 2018-11-19 Enter Agreement, Leave Agreement, Exhibits
8-K 2018-10-25 Regulation FD, Exhibits
8-K 2018-10-25 Earnings, Regulation FD, Exhibits
8-K 2018-10-02 Other Events, Exhibits
8-K 2018-10-01 Off-BS Arrangement, Exhibits
8-K 2018-09-26 Other Events, Exhibits
8-K 2018-08-01 Other Events, Exhibits
8-K 2018-07-26 Regulation FD, Exhibits
8-K 2018-07-26 Earnings, Regulation FD, Exhibits
8-K 2018-06-05 Enter Agreement, Leave Agreement, Exhibits
8-K 2018-05-04 Shareholder Vote
8-K 2018-03-12 Other Events, Exhibits
8-K 2018-03-08 Other Events, Exhibits
BCH Bank of Chile 14,480
UHS Universal Health Services 11,080
TER Teradyne 8,310
GHC Graham Holdings 3,760
WTS Watts Water Technologies 2,360
UNIT Uniti Group 2,060
CIA Citizens 344
ASFI Asta Funding 31
SKYL SKY Resort 0
GRPV Gripevine 0
CMS 2019-03-31
Part 201 of Michigan's Natural Resources and Environmental Protection Act of 1994, As Amended
Part I-Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31103312019.htm
EX-31.2 ex31203312019.htm
EX-31.3 ex31303312019.htm
EX-31.4 ex31403312019.htm
EX-32.1 ex32103312019.htm
EX-32.2 ex32203312019.htm

CMS Energy Earnings 2019-03-31

CMS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 consumersenergy10q03312019.htm 10-Q Document

 
 
 
 
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
 
Washington, D.C. 20549
 
 
 
 
 
FORM 10‑Q
 
 
 
 
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
 
For the quarterly period ended March 31, 2019
 
 
OR
 
 
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
 
For the transition period from _____to_____
 
 
 
 
Commission
 
Registrant; State of Incorporation;
 
IRS Employer
File Number
 
Address; and Telephone Number
 
Identification No.
1‑9513
 
CMS ENERGY CORPORATION
 
38‑2726431
 
 
(A Michigan Corporation)
 
 
 
 
One Energy Plaza, Jackson, Michigan 49201
 
 
 
 
(517) 788‑0550
 
 
 
 
 
 
 
1‑5611
 
CONSUMERS ENERGY COMPANY
 
38‑0442310
 
 
(A Michigan Corporation)
 
 
 
 
One Energy Plaza, Jackson, Michigan 49201
 
 
 
 
(517) 788‑0550
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
CMS Energy Corporation: Yes x  No o
Consumers Energy Company: Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
CMS Energy Corporation: Yes x  No o
Consumers Energy Company: Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
CMS Energy Corporation:
Consumers Energy Company:
Large accelerated filer x 
Large accelerated filer o
Non‑accelerated filer o
Non‑accelerated filer x 
Accelerated filer o
Accelerated filer o
Smaller reporting company o
Smaller reporting company o
Emerging growth company o
Emerging growth company o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
CMS Energy Corporation: o
Consumers Energy Company: o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).
CMS Energy Corporation: Yes o  No x
Consumers Energy Company: Yes o  No x 
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock at April 8, 2019:
CMS Energy Corporation:
 
CMS Energy Common Stock, $0.01 par value
 
(including 20,316 shares owned by Consumers Energy)
283,753,895
 
Consumers Energy Company:
 
Consumers Common Stock, $10 par value, privately held by CMS Energy Corporation
84,108,789
 







CMS Energy Corporation
Consumers Energy Company
Quarterly Reports on Form 10‑Q to the Securities and Exchange Commission for the Period Ended March 31, 2019
Table of Contents


1


Glossary
Certain terms used in the text and financial statements are defined below.
2016 Energy Law
Michigan’s Public Acts 341 and 342 of 2016, which became effective in April 2017
2018 Form 10‑K
Each of CMS Energy’s and Consumers’ Annual Report on Form 10‑K for the year ended December 31, 2018
ABATE
The Association of Businesses Advocating Tariff Equity
ARO
Asset retirement obligation
ASU
Financial Accounting Standards Board Accounting Standards Update
Bay Harbor
A residential/commercial real estate area located near Petoskey, Michigan, in which CMS Energy sold its interest in 2002
bcf
Billion cubic feet
Cantera Gas Company
Cantera Gas Company LLC, a non‑affiliated company, formerly known as CMS Field Services
Cantera Natural Gas, Inc.
Cantera Natural Gas, Inc., a non‑affiliated company that purchased CMS Field Services
CCR
Coal combustion residual
CEO
Chief Executive Officer
CERCLA
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended
CFO
Chief Financial Officer
Clean Air Act
Federal Clean Air Act of 1963, as amended
Clean Water Act
Federal Water Pollution Control Act of 1972, as amended
CMS Capital
CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy


2


CMS Energy
CMS Energy Corporation and its consolidated subsidiaries, unless otherwise noted; the parent of Consumers and CMS Enterprises
CMS Enterprises
CMS Enterprises Company, a wholly owned subsidiary of CMS Energy
CMS ERM
CMS Energy Resource Management Company, formerly known as CMS MST, a wholly owned subsidiary of CMS Enterprises
CMS Field Services
CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises
CMS Land
CMS Land Company, a wholly owned subsidiary of CMS Capital
CMS MST
CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM in 2004
Consumers
Consumers Energy Company and its consolidated subsidiaries, unless otherwise noted; a wholly owned subsidiary of CMS Energy
CSAPR
The Cross‑State Air Pollution Rule of 2011, as amended
DB Pension Plans
Defined benefit pension plans of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries
DB SERP
Defined Benefit Supplemental Executive Retirement Plan
DIG
Dearborn Industrial Generation, L.L.C., a wholly owned subsidiary of Dearborn Industrial Energy, L.L.C., a wholly owned subsidiary of CMS Energy
Dodd‑Frank Act
Dodd‑Frank Wall Street Reform and Consumer Protection Act of 2010
EBITDA
Earnings before interest, taxes, depreciation, and amortization
EnerBank
EnerBank USA, a wholly owned subsidiary of CMS Capital
energy waste reduction
The reduction of energy consumption through energy efficiency and demand‑side energy conservation, as established under the 2016 Energy Law


3


EPA
U.S. Environmental Protection Agency
EPS
Earnings per share
Exchange Act
Securities Exchange Act of 1934
FDIC
Federal Deposit Insurance Corporation
FERC
The Federal Energy Regulatory Commission
FTR
Financial transmission right
GAAP
U.S. Generally Accepted Accounting Principles
GCR
Gas cost recovery
Genesee
Genesee Power Station Limited Partnership, a variable interest entity in which HYDRA‑CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises, has a 50‑percent interest
Internal Revenue Code
Internal Revenue Code of 1986, as amended
IRP
Integrated resource plan
ITC
International Transmission Company, wholly owned by ITC Holdings Corp., a non‑affiliated company
kWh
Kilowatt‑hour, a unit of energy equal to one thousand watt‑hours
Ludington
Ludington pumped‑storage plant, jointly owned by Consumers and DTE Electric Company, a
non‑affiliated company
MATS
Mercury and Air Toxics Standards, which limit mercury, acid gases, and other toxic pollution from coal‑fueled and oil‑fueled power plants
MCV Partnership
Midland Cogeneration Venture Limited Partnership
MCV PPA
PPA between Consumers and the MCV Partnership


4


MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations
MDEQ
Michigan Department of Environmental Quality
METC
Michigan Electric Transmission Company, LLC, a non‑affiliated company
MGP
Manufactured gas plant
Michigan Mercury Rule
Michigan Air Pollution Control Rules of 2009, as amended, Part 15: Emission Limitations and Prohibitions – Mercury
MISO
Midcontinent Independent System Operator, Inc.
mothball
To place a generating unit into a state of extended reserve shutdown in which the unit is inactive and unavailable for service for a specified period, during which the unit can be brought back into service after receiving appropriate notification and completing any necessary maintenance or other work; generation owners in MISO must request approval to mothball a unit, and MISO then evaluates the request for reliability impacts
MPSC
Michigan Public Service Commission
MW
Megawatt, a unit of power equal to one million watts
NAAQS
National Ambient Air Quality Standards
NPDES
National Pollutant Discharge Elimination System, a permit system for regulating point sources of pollution under the Clean Water Act
NREPA
Part 201 of Michigan’s Natural Resources and Environmental Protection Act of 1994, as amended
NSR
New Source Review, a construction‑permitting program under the Clean Air Act
OPEB
Other Post‑Employment Benefits
OPEB Plan
Postretirement health care and life insurance plans of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries


5


OSHA
Occupational Safety and Health Administration
PCB
Polychlorinated biphenyl
PHMSA
The U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration
PPA
Power purchase agreement
PSCR
Power supply cost recovery
PURPA
The Public Utility Regulatory Policies Act of 1978
RCRA
The Federal Resource Conservation and Recovery Act of 1976
REC
Renewable energy credit
ROA
Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to Michigan’s Public Acts 141 and 142 of 2000, as amended
SEC
U.S. Securities and Exchange Commission
securitization
A financing method authorized by statute and approved by the MPSC which allows a utility to sell its right to receive a portion of the rate payments received from its customers for the repayment of securitization bonds issued by a special‑purpose entity affiliated with such utility
Smart Energy
Consumers’ Smart Energy grid modernization project, which includes the installation of smart meters that transmit and receive data, a two‑way communications network, and modifications to Consumers’ existing information technology system to manage the data and enable changes to key business processes
TCJA
Tax Cuts and Jobs Act of 2017


6


Filing Format
This combined Form 10‑Q is separately filed by CMS Energy and Consumers. Information in this 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’ debt securities and holders of such debt 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, neither Consumers nor any other subsidiary of CMS Energy has any obligation in respect of debt securities of CMS Energy.
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 MD&A included in the 2018 Form 10‑K.
Available Information
CMS Energy’s internet address is www.cmsenergy.com. CMS Energy routinely posts important information on its website and considers the Investor Relations section, www.cmsenergy.com/investor‑relations, a channel of distribution. Information contained on CMS Energy’s website is not incorporated herein.
Forward‑Looking Statements and Information
This Form 10‑Q and other CMS Energy and Consumers disclosures may contain forward‑looking statements as defined by the Private Securities Litigation Reform Act of 1995. The use of “might,” “may,” “could,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “predicts,” “assumes,” and other similar words is intended to identify forward‑looking statements that involve risk and uncertainty. This discussion of potential risks and uncertainties is designed to highlight important factors that may impact CMS Energy’s and Consumers’ businesses and financial outlook. CMS Energy and Consumers have no obligation to update or revise forward‑looking statements regardless of whether new information, future events, or any other factors affect the information contained in the statements. These forward‑looking statements are subject to various factors that could cause CMS Energy’s and Consumers’ actual results to differ materially from the results anticipated in these statements. These factors include, but are not limited to, the following, all of which are potentially significant:
the impact of new regulation by the MPSC, FERC, and other applicable governmental proceedings and regulations, including any associated impact on electric or gas rates or rate structures
potentially adverse regulatory treatment, effects of a failure to receive timely regulatory orders affecting Consumers that are or could come before the MPSC, FERC, or other governmental authorities, effects of a government shutdown, or effects of a lack of a quorum of a regulatory body
changes in the performance of or regulations applicable to MISO, METC, pipelines, railroads, vessels, or other service providers that CMS Energy, Consumers, or any of their affiliates rely on to serve their customers


7


the adoption of federal or state laws or regulations or challenges to federal or state laws or regulations, or changes in applicable laws, rules, regulations, principles, or practices, or in their interpretation, such as those related to energy policy, ROA, and PURPA, infrastructure integrity or security, gas pipeline safety, gas pipeline capacity, energy waste reduction, the environment, regulation or deregulation, reliability, health care reforms (including comprehensive health care reform enacted in 2010), taxes, accounting matters, climate change, air emissions, renewable energy, potential effects of the Dodd‑Frank Act, and other business issues that could have an impact on CMS Energy’s, Consumers’, or any of their affiliates’ businesses or financial results
factors affecting operations, such as costs and availability of personnel, equipment, and materials; weather conditions; natural disasters; catastrophic weather‑related damage; scheduled or unscheduled equipment outages; maintenance or repairs; environmental incidents; failures of equipment or materials; electric transmission and distribution or gas pipeline system constraints; interconnection requirements; and changes in trade policies or regulations
increases in demand for renewable energy by customers seeking to meet sustainability goals
the ability of Consumers to execute its cost‑reduction strategies
potentially adverse regulatory or legal interpretations or decisions regarding environmental matters, or delayed regulatory treatment or permitting decisions that are or could come before the MDEQ, EPA, and/or U.S. Army Corps of Engineers, and potential environmental remediation costs associated with these interpretations or decisions, including those that may affect Bay Harbor or Consumers’ routine maintenance, repair, and replacement classification under NSR regulations
changes in energy markets, including availability and price of electric capacity and the timing and extent of changes in commodity prices and availability and deliverability of coal, natural gas, natural gas liquids, electricity, oil, and certain related products
the price of CMS Energy common stock, the credit ratings of CMS Energy and Consumers, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ interest costs and access to the capital markets, including availability of financing to CMS Energy, Consumers, or any of their affiliates
the investment performance of the assets of CMS Energy’s and Consumers’ pension and benefit plans, the discount rates, mortality assumptions, and future medical costs used in calculating the plans’ obligations, and the resulting impact on future funding requirements
the impact of the economy, particularly in Michigan, and potential future volatility in the financial and credit markets on CMS Energy’s, Consumers’, or any of their affiliates’ revenues, ability to collect accounts receivable from customers, or cost and availability of capital
changes in the economic and financial viability of CMS Energy’s and Consumers’ suppliers, customers, and other counterparties and the continued ability of these third parties, including those in bankruptcy, to meet their obligations to CMS Energy and Consumers
population changes in the geographic areas where CMS Energy and Consumers conduct business
national, regional, and local economic, competitive, and regulatory policies, conditions, and developments


8


loss of customer demand for electric generation supply to alternative electric suppliers, increased use of distributed generation, or energy waste reduction
adverse consequences of employee, director, or third‑party fraud or non‑compliance with codes of conduct or with laws or regulations
federal regulation of electric sales and transmission of electricity, including periodic re‑examination by federal regulators of CMS Energy’s and Consumers’ market‑based sales authorizations
the impact of credit markets, economic conditions, increased competition, and any new banking and consumer protection regulations on EnerBank
the availability, cost, coverage, and terms of insurance, the stability of insurance providers, and the ability of Consumers to recover the costs of any insurance from customers
the effectiveness of CMS Energy’s and Consumers’ risk management policies, procedures, and strategies, including strategies to hedge risk related to interest rates and future prices of electricity, natural gas, and other energy‑related commodities
factors affecting development of electric generation projects and gas and electric transmission and distribution infrastructure replacement, conversion, and expansion projects, including factors related to project site identification, construction material pricing, schedule delays, availability of qualified construction personnel, permitting, acquisition of property rights, and government approvals
potential disruption to, interruption of, or other impacts on facilities, utility infrastructure, operations, or backup systems due to accidents, explosions, physical disasters, cyber incidents, vandalism, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events
changes or disruption in fuel supply, including but not limited to supplier bankruptcy and delivery disruptions
potential costs, lost revenues, reputational harm, or other consequences resulting from misappropriation of assets or sensitive information, corruption of data, or operational disruption in connection with a cyber attack or other cyber incident
potential disruption to, interruption or failure of, or other impacts on information technology backup or disaster recovery systems
technological developments in energy production, storage, delivery, usage, and metering
the ability to implement technology successfully
the impact of CMS Energy’s and Consumers’ integrated business software system and its effects on their operations, including utility customer billing and collections
adverse consequences resulting from any past, present, or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including claims resulting from attempts by foreign or domestic governments to assess taxes on or to impose environmental liability associated with past operations or transactions


9


the outcome, cost, and other effects of any legal or administrative claims, proceedings, investigations, or settlements
the reputational impact on CMS Energy and Consumers of operational incidents, violations of corporate policies, regulatory violations, inappropriate use of social media, and other events
restrictions imposed by various financing arrangements and regulatory requirements on the ability of Consumers and other subsidiaries of CMS Energy to transfer funds to CMS Energy in the form of cash dividends, loans, or advances
earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts or interest rate contracts
changes in financial or regulatory accounting principles or policies
other matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other public documents
All forward‑looking statements should be considered in the context of the risk and other factors described above and as detailed from time to time in CMS Energy’s and Consumers’ SEC filings. For additional details regarding these and other uncertainties, see Part I—Item 1. Financial Statements—MD&A—Outlook and Notes to the Unaudited Consolidated Financial StatementsNote 2, Regulatory Matters and Note 3, Contingencies and Commitments; and Part II—Item 1A. Risk Factors.


10


Part I—Financial Information
Item 1.    Financial Statements
Index to Financial Statements


11


CMS Energy Corporation
Consumers Energy Company
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This MD&A is a combined report of CMS Energy and Consumers.
Executive Overview
CMS Energy is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility, and CMS Enterprises, primarily a domestic independent power producer and marketer. Consumers’ electric utility operations include the generation, purchase, transmission, distribution, and sale of electricity, and Consumers’ gas utility operations include the purchase, transmission, storage, distribution, and sale of natural gas. Consumers’ customer base consists of a mix of residential, commercial, and diversified industrial customers. CMS Enterprises, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production.
CMS Energy 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 operations and investments. Consumers operates principally in two business segments: electric utility and gas utility. CMS Energy’s and Consumers’ businesses are affected primarily by:
regulation and regulatory matters
state and federal legislation
economic conditions
weather
energy commodity prices
interest rates
their securities’ credit ratings
The Triple Bottom Line
CMS Energy’s and Consumers’ purpose is to achieve world class performance while delivering hometown service. In support of this purpose, the companies employ the “Consumers Energy Way,” a lean operating model designed to improve safety, quality, cost, delivery, and employee morale.


12


CMS Energy and Consumers measure their progress toward the purpose by considering their impact on the “triple bottom line” of people, planet, and profit, which is underpinned by performance; this consideration takes into account not only the economic value that the companies create for customers and investors, but also their responsibility to social and environmental goals. The triple bottom line balances the interests of the companies’ employees, customers, suppliers, regulators, creditors, Michigan’s residents, the investment community, and other stakeholders, and it reflects the broader societal impacts of the companies’ activities.
cmsimage0a01.jpg
Consumers’ Sustainability Report, which is available to the public, describes the company’s progress toward world class performance measured in the areas of people, planet, and profit.
People: The people element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to their employees, their customers, the residents of local communities in which the companies do business, and other stakeholders.
The safety of employees, customers, and the general public is a priority of CMS Energy and Consumers. Accordingly, CMS Energy and Consumers have worked to integrate a set of safety principles into their business operations and culture. These principles include complying with applicable safety, health, and security regulations and implementing programs and processes aimed at continually improving safety and security conditions. Over the last ten years, Consumers’ OSHA recordable incident rate has decreased by over 70 percent.
CMS Energy and Consumers also place a high priority on customer value and on providing a hometown customer experience. Consumers’ customer-driven investment program is aimed at improving safety and increasing electric and gas reliability, which has resulted in measurable improvements in customer satisfaction.
Central to Consumers’ commitment to its customers are the initiatives it has undertaken to keep electricity and natural gas affordable, including:
replacement of coal-fueled generation and PPAs with cleaner and more efficient natural gas‑fueled generation, renewable energy, and energy waste reduction and demand response programs
targeted infrastructure investment, including the installation of smart meters
information and control system efficiencies
employee and retiree health care cost sharing
workforce productivity enhancements
In addition, Consumers’ gas commodity costs declined by 60 percent from 2008 through 2018, due not only to a decrease in market prices but also to Consumers’ improvements to its gas infrastructure and optimization of its gas purchasing and storage strategy. These gas commodity savings are passed on to customers.
Planet: The planet element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to protect the environment; this commitment extends beyond complying with the various state and federal environmental and health and safety laws and regulations to which CMS Energy and


13


Consumers are subject. Management considers climate change risk and other environmental risks in the companies’ strategy development, business planning, and enterprise risk management processes. In November 2018, CMS Energy published a climate assessment report of the long-term impacts on the company’s portfolio, of public policies and technological advances that are consistent with limiting global warming to no more than two degrees Celsius over pre-industrial levels.
CMS Energy and Consumers continue to focus on opportunities to protect the environment and to reduce their carbon footprint. As a result of actions already taken by CMS Energy and Consumers, including the retirement of seven of Consumers’ coal-fueled electric generating units in 2016, the companies have:
decreased their combined percentage of electric supply (self-generated and purchased) from coal by 18 percentage points since 2015
reduced carbon dioxide emissions by over 35 percent since 2005
reduced the amount of water used to generate electricity by over 30 percent since 2012
reduced landfill waste disposal by over one million cubic yards since 1992
reduced methane emissions by 15 percent since 2011
Additionally, over the last 20 years, Consumers has reduced its sulfur dioxide, nitrogen oxide, particulate matter, and mercury emissions by 90 percent.
The 2016 Energy Law:
raised the renewable energy standard from the present ten‑percent requirement to 12.5 percent in 2019 and 15 percent in 2021
established a goal of 35 percent combined renewable energy and energy waste reduction by 2025
authorized incentives for demand response programs and expanded existing incentives for energy efficiency programs, referring to the combined initiatives as energy waste reduction programs
established an integrated planning process for new generation resources
Consumers filed an IRP with the MPSC in June 2018, detailing its long‑term strategy for delivering reliable and affordable energy to its customers through the increased use of energy efficiency and customer demand management programs and additional renewable energy. In March 2019, Consumers and a broad coalition of key stakeholders, including the MPSC Staff and the Michigan Attorney General, filed a settlement agreement with the MPSC resolving Consumers’ IRP. In April 2019, two parties filed objections to the settlement agreement. The MPSC has commenced a contested settlement proceeding to determine whether the agreement is reasonable and in the public interest, and will either approve or reject the settlement by June 10, 2019.
In its IRP, Consumers details how it will meet the requirements of the 2016 Energy Law using its clean and lean strategy, which focuses on increasing the generation of renewable energy, helping customers use less energy, and offering demand response programs to reduce demand during critical peak times. Further, Consumers details its plans to replace all of its coal-fueled generation with investment in renewable energy, which will enable Consumers to meet and exceed the 2016 Energy Law renewable energy requirements and fulfill increasing customer demand for renewable energy. The IRP would reduce carbon emissions by more than 90 percent by 2040, surpassing the breakthrough goal Consumers set in 2018 to reduce carbon emissions by 80 percent. Additionally, the IRP would allow Consumers to achieve a breakthrough goal of at least 50 percent combined renewable energy and energy waste reduction by 2030.


14


Additionally, in an effort to advance its environmental stewardship in Michigan and to minimize the impact of future regulations, Consumers announced the following five-year targets during 2018:
to reduce its water use by one billion gallons; in 2018, Consumers reduced its water usage by 180 million gallons
to reduce the amount of waste taken to landfills by 35 percent; in 2018, Consumers reduced its waste to landfills by 12 percent
to enhance, restore, or protect 5,000 acres of land; in 2018, Consumers enhanced, restored, or protected nearly 800 acres of land
CMS Energy, through its non-utility businesses, continues to pursue further opportunities for the development of renewable generation projects. CMS Enterprises has completed the development of and operates a 105‑MW wind generation project in northwest Ohio and three solar generation projects in Michigan and Wisconsin totaling 27 MW. Renewable energy produced by these projects is committed to customers under long-term PPAs.
CMS Energy and Consumers are monitoring numerous legislative, policy, and regulatory initiatives, including those to regulate greenhouse gases, and related litigation. While CMS Energy and Consumers cannot predict the outcome of these matters, which could have a material effect on the companies, they intend to continue to move forward with their clean and lean strategy.
Profit: The profit element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to meeting financial objectives and providing economic development opportunities and benefits in the communities in which they do business. CMS Energy’s and Consumers’ financial strength allows them to maintain solid investment-grade credit ratings and thereby reduce funding costs for the benefit of customers and investors, to preserve and create jobs, and to reinvest in the communities they serve.
For the three months ended March 31, 2019, CMS Energy’s net income available to common stockholders was $213 million, and diluted EPS were $0.75. This compares with net income available to common stockholders of $241 million and diluted EPS of $0.86 for the three months ended March 31, 2018. In 2019, the benefits from electric and gas rate increases and higher sales were more than offset by higher service restoration costs from 2019 winter storms, higher depreciation, and lower earnings at the enterprises segment. A more detailed discussion of the factors affecting CMS Energy’s and Consumers’ performance can be found in the Results of Operations section that follows this Executive Overview.
Consumers projects that its electric weather-normalized deliveries will remain stable and gas weather‑normalized deliveries will increase slightly through 2023. This outlook reflects modest growth in electric demand offset by the effects of energy waste reduction programs, and modest growth in gas demand offset partially by energy efficiency and conservation.


15


Performance: Impacting the Triple Bottom Line
CMS Energy and Consumers remain committed to achieving world class performance while delivering hometown service. Leveraging the Consumers Energy Way, CMS Energy and Consumers accomplished the following during 2018:
achieved record-breaking performance in the area of on-time delivery commitments
attracted 101 MW of new or expanding load in Consumers’ service territory
announced clean energy goals and filed an IRP in support of those goals
expanded CMS Enterprises’ renewable portfolio
enhanced or restored nearly 800 acres of land in Michigan
finished first overall across the electric utility sector in cyber security testing
CMS Energy and Consumers will continue to utilize the Consumers Energy Way to enable them to achieve world class performance and positively impact the triple bottom line. Consumers’ investment plan and the regulatory environment in which it operates also drive its ability to impact the triple bottom line.
Investment Plan: Consumers expects to make significant expenditures on infrastructure upgrades and replacements and electric supply projects from 2019 through 2023. While it has a large number of potential investment opportunities that would add customer value, Consumers has prioritized its spending based on the criteria of enhancing public safety, increasing reliability, maintaining affordability for its customers, and advancing its environmental stewardship. Consumers’ investment program is expected to result in annual rate-base growth of six to eight percent. This rate-base growth, together with cost-control initiatives, should allow Consumers to maintain affordable customer prices.
Presented in the following illustration are planned capital expenditures of $11.2 billion that Consumers expects to make from 2019 through 2023:
chart-10959460720c2744bf6.jpg


16


Consumers plans to spend $9.3 billion over the next five years to maintain and upgrade its gas infrastructure and electric distribution systems in order to enhance safety and reliability, improve customer satisfaction, and reduce energy waste on those systems. The gas infrastructure projects comprise $5.1 billion to sustain deliverability and enhance pipeline integrity and safety. These projects, which involve replacement of mains and services and enhancement of transmission and storage systems, should reduce the minor quantity of methane emissions released as gas is transported. The electric distribution projects comprise $4.2 billion to strengthen circuits and substations and replace poles. Consumers also expects to spend $1.9 billion on electric supply projects, representing new generation, including renewable generation, and environmental investments needed to comply with state and federal laws and regulations.
Regulation: Regulatory matters are a key aspect of Consumers’ business, particularly rate cases and regulatory proceedings before the MPSC, which permit recovery of new investments while helping to ensure that customer rates are fair and affordable. Important regulatory events and developments not already discussed are summarized below.
2018 Electric Rate Case: In May 2018, Consumers filed an application with the MPSC seeking an annual rate increase of $58 million, based on a 10.75 percent authorized return on equity. The filing requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements. In October 2018, Consumers reduced its requested annual rate increase to $44 million. In January 2019, the MPSC approved a settlement agreement authorizing an annual rate decrease of $24 million, based on a 10.0 percent authorized return of equity. With the elimination of the $113 million TCJA credit to customer bills, the approved settlement agreement results in an $89 million net increase in annual rates. The settlement agreement also provides for deferred accounting treatment for distribution‑related capital investments exceeding certain amounts. Consumers also agreed to not file a new electric rate case prior to January 2020.
2018 Gas Rate Case: In November 2018, Consumers filed an application with the MPSC seeking an annual rate increase of $229 million, based on a 10.75 percent authorized return on equity. The filing also seeks approval of two rate adjustment mechanisms: a revenue decoupling mechanism and an investment recovery mechanism. The revenue decoupling mechanism would annually reconcile Consumers’ actual weather‑normalized non‑fuel revenues with the revenues approved by the MPSC. The investment recovery mechanism would provide for additional annual rate increases of $11 million beginning in October 2020 and another $11 million beginning in October 2021 for incremental investments that Consumers plans to make in those years, subject to reconciliation. These future investments are intended to help ensure adequate system capacity and deliverability.
Tax Cuts and Jobs Act: The TCJA, which changed existing federal tax law and included numerous provisions that affect businesses, was signed into law in December 2017. In early 2018, the MPSC ordered Consumers to file various proceedings to determine the reduction in its electric and gas revenue requirements as a result of the reduction in the corporate income tax rate, and to implement bill credits to reflect that reduction until customer rates could be adjusted through Consumers’ general rate cases. Consumers filed, and the MPSC approved, such proceedings throughout 2018, resulting in credits to customer bills during 2018 to reflect reductions in Consumers’ electric and gas revenue requirements. Additionally, Consumers filed an application to address the December 31, 2017 remeasurement of its deferred income taxes and other base rate impacts of the TCJA on customers. For details on these proceedings, see Note 2, Regulatory Matters.


17


Looking Forward
CMS Energy and Consumers will continue to consider the impact on the triple bottom line of people, planet, and profit in their daily operations as well as in their long-term strategic decisions. Consumers will continue to seek fair and timely regulatory treatment that will support its customer-driven investment plan, while pursuing cost-control initiatives that will allow it to maintain sustainable customer base rates. The Consumers Energy Way is an important means of realizing CMS Energy’s and Consumers’ purpose of achieving world class performance while delivering hometown service.


18


Results of Operations
CMS Energy Consolidated Results of Operations
In Millions, Except Per Share Amounts
 
Three Months Ended March 31
2019
 
2018
 
Change
 
Net Income Available to Common Stockholders
 
$
213

 
$
241

 
$
(28
)
Basic Earnings Per Average Common Share
 
$
0.75

 
$
0.86

 
$
(0.11
)
Diluted Earnings Per Average Common Share
 
$
0.75

 
$
0.86

 
$
(0.11
)
 
 
 
 
 
 
 
In Millions
 
Three Months Ended March 31
2019
 
2018
 
Change
 
Electric utility
 
$
105

 
$
139

 
$
(34
)
Gas utility
 
121

 
103

 
18

Enterprises
 
1

 
15

 
(14
)
Corporate interest and other
 
(14
)
 
(16
)
 
2

Net Income Available to Common Stockholders
 
$
213

 
$
241

 
$
(28
)
Presented in the following table are specific after-tax changes to CMS Energy’s net income available to common stockholders for the three months ended March 31, 2019 versus 2018:
In Millions
 
Three Months Ended March 31, 2018
 
 
 
$
241

Reasons for the change
 
 
 
 
Consumers electric utility and gas utility
 
 
 
 
Electric sales
 
$
9

 
 
Gas sales
 
18

 
 
Electric rate increase
 
10

 
 
Gas rate increase
 
23

 
 
Higher service restoration costs from 2019 winter storms
 
(29
)
 
 
Depreciation and amortization
 
(13
)
 
 
Absence of 2018 settlement of a property tax appeal related to the J.H. Campbell plant
 
(7
)
 
 
Higher property tax, reflecting higher capital spending
 
(7
)
 
 
Absence of 2018 income tax benefit associated with electric cost of removal1
 
(7
)
 
 
Absence of 2018 research and development tax credits1
 
(7
)
 
 
Other
 
(6
)
 
$
(16
)
Enterprises
 
 
 
 
Lower earnings due primarily to lower capacity revenue and higher operating and maintenance costs
 
 
 
(14
)
Corporate interest and other
 
 
 
 
Increased income tax benefit due primarily to production tax credits
 
3

 
 
Higher earnings at EnerBank
 
2

 
 
Higher fixed charges due to higher debt
 
(3
)
 
2

Three Months Ended March 31, 2019
 
 
 
$
213

1 
See Note 10, Income Taxes.


19


Consumers Electric Utility Results of Operations
For the three months ended March 31, 2019, Consumers electric utility’s net income available to common stockholders was $105 million. This compares with net income available to common stockholders of $139 million for the three months ended March 31, 2018. In 2019, revenues were higher due to the impact of the rate order implemented in January 2019 and favorable sales mix. These increases were more than offset by higher service restoration costs resulting from significant 2019 winter storms and costs associated with higher capital spending. Presented in the following table are the detailed changes to the electric utility’s net income available to common stockholders for the three months ended March 31, 2019 versus 2018:
In Millions
 
Three Months Ended March 31, 2018
 
 
 
$
139

Reasons for the change
 
 
 
 
Electric deliveries1 and rate increases
 
 
 
 
Rate increase, including the impacts of the January 2019 order
 
$
13

 
 
Higher sales
 
11

 
 
Higher energy waste reduction program revenues
 
3

 
 
Other revenues
 
1

 
$
28

Maintenance and other operating expenses
 
 
 
 
Higher service restoration costs from 2019 winter storms
 
(39
)
 
 
Higher energy waste reduction program costs
 
(3
)
 
 
Litigation settlement
 
8

 
 
Higher other operating and maintenance expenses
 
(4
)
 
(38
)
Depreciation and amortization
 
 
 
 
Increased plant in service, reflecting higher capital spending
 
 
 
(9
)
General taxes
 
 
 
 
Absence of 2018 settlement of a property tax appeal related to the J.H. Campbell plant
 
(9
)
 
 
Higher property tax, reflecting higher capital spending
 
(2
)
 
(11
)
Other income, net of expenses
 
 
 
 
Lower other income, net of expenses
 
 
 
(1
)
Interest charges
 
 
 
 
Lower PSCR interest expense
 
 
 
2

Income taxes
 
 
 
 
Lower electric utility pre-tax earnings
 
8

 
 
Absence of 2018 income tax benefit associated with cost of removal2
 
(7
)
 
 
Absence of 2018 research and development tax credits2
 
(6
)
 
(5
)
Three Months Ended March 31, 2019
 
 
 
$
105

1 
Deliveries to end-use customers were 9.2 billion kWh in 2019 and 2018.
2 
See Note 10, Income Taxes.
Consumers Gas Utility Results of Operations
For the three months ended March 31, 2019, Consumers gas utility’s net income available to common stockholders was $121 million. This compares with net income available to common stockholders of


20


$103 million for the three months ended March 31, 2018. In 2019, higher net income was due primarily to increased sales attributable to weather and a rate increase, offset partially by costs associated with higher capital spending. Presented in the following table are the detailed changes to the gas utility’s net income available to common stockholders for the three months ended March 31, 2019 versus 2018:
In Millions
 
Three Months Ended March 31, 2018
 
 
 
$
103

Reasons for the change
 
 
 
 
Gas deliveries1 and rate increases
 
 
 
 
Rate increase, including the impacts of the September 2018 order
 
$
23

 
 
Higher sales, due primarily to colder weather
 
23

 
 
Lower energy waste reduction program revenues
 
(8
)
 
 
Other revenues
 
1

 
$
39

Maintenance and other operating expenses
 
 
 
 
Lower energy waste reduction program costs
 
8

 
 
Increased distribution and transmission expenses
 
(5
)
 
 
Higher other maintenance and operating expenses
 
(2
)
 
1

Depreciation and amortization
 
 
 
 
Increased plant in service, reflecting higher capital spending
 
 
 
(9
)
General taxes
 
 
 
 
Higher property tax, reflecting higher capital spending
 
 
 
(7
)
Other income, net of expenses
 
 
 
 
Higher other income, net of expenses
 
 
 
1

Interest charges
 
 
 
(2
)
Income taxes
 
 
 
 
Higher gas utility pre-tax earnings
 
(6
)
 
 
Lower other income taxes
 
1

 
(5
)
Three Months Ended March 31, 2019
 
 
 
$
121

1 
Deliveries to end-use customers were 142 bcf in 2019 and 133 bcf in 2018.
Enterprises Results of Operations
Presented in the following table are the detailed changes to the enterprises segment’s net income available to common stockholders for the three months ended March 31, 2019 versus 2018:
In Millions
 
Three Months Ended March 31, 2018
 
 
 
$
15

Reason for the change
 
 
 
 
Lower earnings due primarily to lower capacity revenue and higher operating and maintenance costs
 
 
 
$
(14
)
Three Months Ended March 31, 2019
 
 
 
$
1



21


Corporate Interest and Other Results of Operations
Presented in the following table are the detailed after-tax changes to corporate interest and other results for the three months ended March 31, 2019 versus 2018:
In Millions
 
Three Months Ended March 31, 2018
 
 
 
$
(16
)
Reasons for the change
 
 
 
 

Increased income tax benefit due primarily to production tax credits
 
 
 
$
3

Higher earnings at EnerBank
 
 
 
2

Higher fixed charges due to higher debt
 
 
 
(3
)
Three Months Ended March 31, 2019
 
 
 
$
(14
)
Cash Position, Investing, and Financing
At March 31, 2019, CMS Energy had $267 million of consolidated cash and cash equivalents, which included $33 million of restricted cash and cash equivalents. At March 31, 2019, Consumers had $64 million of consolidated cash and cash equivalents, which included $27 million of restricted cash and cash equivalents. For additional details, see Note 13, Cash and Cash Equivalents.
Operating Activities
Presented in the following table are specific components of net cash provided by operating activities for the three months ended March 31, 2019 versus 2018:
In Millions
 
CMS Energy, including Consumers
 
 
Three Months Ended March 31, 2018
 
$
708

Reasons for the change
 
 
Lower net income
 
$
(28
)
Non-cash transactions1
 
31

Unfavorable impact of changes in core working capital,2 due primarily to an increase in gas deliveries and the timing of collections on those deliveries
 
(84
)
Unfavorable impact of changes in other assets and liabilities, due primarily to refunds to customers related to the TCJA, offset partially by timing of interest payments on long-term debt
 
(10
)
Three Months Ended March 31, 2019
 
$
617

Consumers
 
 
Three Months Ended March 31, 2018
 
$
720

Reasons for the change
 
 
Lower net income
 
$
(16
)
Non-cash transactions1
 
26

Unfavorable impact of changes in core working capital,2 due primarily to an increase in gas deliveries and the timing of collections on those deliveries
 
(78
)
Unfavorable impact of changes in other assets and liabilities, due primarily to refunds to customers related to the TCJA, offset partially by timing of interest payments on long-term debt
 
(33
)
Three Months Ended March 31, 2019
 
$
619



22


1 
Non-cash transactions comprise depreciation and amortization, changes in deferred income taxes, and other non-cash operating activities and reconciling adjustments.
2 
Core working capital comprises accounts receivable, notes receivable, accrued revenue, inventories, accounts payable, and accrued rate refunds.
Investing Activities
Presented in the following table are specific components of the changes to net cash used in investing activities for the three months ended March 31, 2019 versus 2018:
In Millions
 
CMS Energy, including Consumers
 
 
Three Months Ended March 31, 2018
 
$
(456
)
Reasons for the change
 
 
Higher capital expenditures
 
$
(59
)
Changes in EnerBank notes receivable, reflecting growth in consumer lending
 
(41
)
Purchase of notes receivable by EnerBank in 2019
 
(121
)
Other investing activities, primarily lower costs to retire property
 
2

Three Months Ended March 31, 2019
 
$
(675
)
Consumers
 
 
Three Months Ended March 31, 2018
 
$
(444
)
Reasons for the change
 
 
Higher capital expenditures
 
$
(62
)
Other investing activities, primarily lower costs to retire property
 
4

Three Months Ended March 31, 2019
 
$
(502
)


23


Financing Activities
Presented in the following table are specific components of net cash provided by (used in) financing activities for the three months ended March 31, 2019 and 2018:
In Millions
 
CMS Energy, including Consumers
 
 
Three Months Ended March 31, 2018
 
$
(229
)
Reasons for the change
 
 
Higher debt issuances
 
$
743

Higher debt retirements
 
(610
)
Changes in EnerBank certificates of deposit, reflecting higher borrowings
 
160

Lower repayments under Consumers’ commercial paper program
 
103

Higher payments of dividends on common stock
 
(7
)
Other financing activities, primarily higher debt issuance costs
 
(10
)
Three Months Ended March 31, 2019
 
$
150

Consumers
 
 
Three Months Ended March 31, 2018
 
$
(195
)
Reasons for the change
 
 
Higher debt retirements
 
$
(215
)
Lower repayments under Consumers’ commercial paper program
 
103

Higher stockholder contribution from CMS Energy
 
250

Higher payments of dividends on common stock
 
(53
)
Other financing activities
 
1

Three Months Ended March 31, 2019
 
$
(109
)
Capital Resources and Liquidity
CMS Energy uses dividends and tax‑sharing payments from its subsidiaries and external financing and capital transactions to invest in its utility and non‑utility businesses, retire debt, pay dividends, and fund its other obligations. The ability of CMS Energy’s subsidiaries, including Consumers, to pay dividends to CMS Energy depends upon each subsidiary’s revenues, earnings, cash needs, and other factors. In addition, Consumers’ ability to pay dividends is restricted by certain terms included in its debt covenants and articles of incorporation and potentially by FERC requirements and provisions under the Federal Power Act and the Natural Gas Act. For additional details on Consumers’ dividend restrictions, see Note 4, Financings and Capitalization—Dividend Restrictions. For the three months ended March 31, 2019, Consumers paid $172 million in dividends on its common stock to CMS Energy.
As a result of a provision in the TCJA, CMS Energy is required to recover all alternative minimum tax credits over four years through offsets of regular tax and through cash refunds. CMS Energy expects to be able to offset regular tax through the use of federal net operating loss carryforwards and, accordingly, receive alternative minimum tax credit refunds through 2021. Another provision in the TCJA excludes rate‑regulated utilities from 100 percent cost expensing of certain property. This provision will cause Consumers to make higher tax‑sharing payments to CMS Energy, which in turn might permit CMS Energy to maintain lower levels of debt in order to invest in its businesses, pay dividends, and fund its general obligations. Consumers expects to have sufficient funding sources available to issue credits to customers for all impacts of the TCJA.


24


In 2018, CMS Energy entered into an equity offering program under which it may sell, from time to time, shares of CMS Energy common stock having an aggregate sales price of up to $250 million. Under this program, CMS Energy may sell its common stock in privately negotiated transactions, in “at the market” offerings, through forward sales transactions or otherwise. As of March 31, 2019, CMS Energy had entered into forward sales contracts having an aggregate sales price of $250 million. These contracts allow CMS Energy to either physically settle the contracts by issuing shares of its common stock at the then‑applicable forward sale price specified by the agreement or net settle the contracts through the delivery or receipt of cash or shares. CMS Energy may settle the contracts at any time through their maturity dates, and presently intends to physically settle the contracts by delivering shares of its common stock. For more information on the forward sale contracts, see Note 4, Financings and Capitalization.
Consumers uses cash flows generated from operations and external financing transactions, as well as stockholder contributions from CMS Energy, to fund capital expenditures, retire debt, pay dividends, contribute to its employee benefit plans, and fund its other obligations. Accelerated pension funding in prior years and several initiatives to reduce costs have helped improve cash flows from operating activities. Consumers anticipates continued strong cash flows from operating activities for 2019 and beyond.
Access to the financial and capital markets depends on CMS Energy’s and Consumers’ credit ratings and on market conditions. As evidenced by past financing transactions, CMS Energy and Consumers have had ready access to these markets. Barring major market dislocations or disruptions, CMS Energy and Consumers expect to continue to have ready access to the financial and capital markets. If access to these markets were to diminish or otherwise become restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending.
At March 31, 2019, CMS Energy had $546 million of its revolving credit facility available and Consumers had $1,078 million available under its revolving credit facilities. CMS Energy and Consumers use these credit facilities for general working capital purposes and to issue letters of credit. An additional source of liquidity is Consumers’ commercial paper program, which allows Consumers to issue, in one or more placements, up to $500 million in the aggregate in commercial paper notes with maturities of up to 365 days and that bear interest at fixed or floating rates. These issuances are supported by Consumers’ revolving credit facilities. While the amount of outstanding commercial paper does not reduce the available capacity of the revolving credit facilities, Consumers does not intend to issue commercial paper in an amount exceeding the available capacity of the facilities. At March 31, 2019, $30 million of commercial paper notes were outstanding under this program. For additional details on CMS Energy’s and Consumers’ revolving credit facilities and commercial paper program, see Note 4, Financings and Capitalization.
Certain of CMS Energy’s and Consumers’ credit agreements, debt indentures, and other facilities contain covenants that require CMS Energy and Consumers to maintain certain financial ratios, as defined therein. At March 31, 2019, no default had occurred with respect to any financial covenants contained in CMS Energy’s and Consumers’ credit agreements, debt indentures, or other facilities. CMS Energy and Consumers were each in compliance with these covenants as of March 31, 2019, as presented in the following table:
 
March 31, 2019
Credit Agreement, Indenture, or Facility
Limit 
Actual 
CMS Energy, parent only
 
 
 
Debt to EBITDA1
<
6.25 to 1.0
4.4 to 1.0
Consumers
 
 
 
Debt to Capital2
<
0.65 to 1.0
0.47 to 1.0


25


1 
Applies to CMS Energy’s $550 million revolving credit agreement.
2 
Applies to Consumers’ $850 million and $250 million revolving credit agreements and its $35 million and $30 million reimbursement agreements.
Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing and refinancing opportunities. CMS Energy’s and Consumers’ present level of cash and expected cash flows from operating activities, together with access to sources of liquidity, are anticipated to be sufficient to fund the companies’ contractual obligations for 2019 and beyond.
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; the maximum obligation under indemnities for which such amounts were estimable was $153 million at March 31, 2019. 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 3, Contingencies and Commitments—Guarantees.
Outlook
Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and results of operations. These trends and uncertainties could have a material impact on CMS Energy’s and Consumers’ consolidated income, cash flows, or financial position. For additional details regarding these and other uncertainties, see Forward-Looking Statements and Information; Note 2, Regulatory Matters; Note 3, Contingencies and Commitments; and Part II—Item 1A. Risk Factors.
Consumers Electric Utility Outlook and Uncertainties
Energy Resource Planning: While Consumers continues to experience modest growth in demand for electricity due to Michigan’s growing economy and increased use of air conditioning, consumer electronics, and other electric devices, it expects that increase in demand to be offset by the effects of energy efficiency and conservation.
In June 2018, Consumers filed an IRP with the MPSC detailing its long‑term strategy for delivering reliable and affordable energy to its customers through the increased use of energy efficiency and customer demand management programs and additional renewable energy. In March 2019, Consumers and a broad coalition of key stakeholders, including the MPSC Staff and the Michigan Attorney General, filed a settlement agreement with the MPSC resolving Consumers’ IRP. In April 2019, two parties filed objections to the settlement agreement. The MPSC has commenced a contested settlement proceeding to determine whether the agreement is reasonable and in the public interest, and will either approve or reject the settlement by June 10, 2019.


26


The settlement agreement allows Consumers to reduce carbon emissions by more than 90 percent by 2040 and eliminate the use of coal to generate electricity by 2040. Specifically, the parties agreed to:
the retirement of two coal‑fueled generating units, totaling 515 MW, in 2023
the continued assessment in future IRP filings concerning the retirement of two coal‑fueled generating units, totaling 608 MW
The settlement agreement provides that Consumers will replace the capacity to be retired with:
increased demand response programs
increased energy efficiency
increased renewable energy generation
conservation voltage reduction
The settlement agreement requires that Consumers competitively bid new capacity, and that at least 50 percent of the new capacity be built and owned by third parties; the remainder will be owned and operated by Consumers. In accordance with the 2016 Energy Law, the parties to the IRP settlement agreement also agreed to enable Consumers to earn a financial incentive on PPAs approved by the MPSC after January 1, 2019.
The settlement agreement also allows for recovery of significant increases in demand response costs and requires that Consumers file a new IRP by June 2021.
PURPA: PURPA requires Consumers to purchase power from qualifying cogeneration and small power production facilities at a price approved by the MPSC that is meant to represent Consumers’ “avoided cost” of generating power or purchasing power from another source. In November 2017, the MPSC issued an order establishing a new avoided‑cost methodology for determining the price that Consumers must pay to purchase power under PURPA. Among other things, the MPSC’s order changes the basis of Consumers’ avoided cost from the cost of coal‑fueled generating units to that of natural gas‑fueled generating units. The MPSC order also assigns more capacity value to qualifying facilities that are consistently able to generate electricity during peak times. Although the costs Consumers incurs to purchase power from qualifying facilities are passed on to customers, the order could result in mandated purchases of generation, potentially at above‑market prices, and reduce Consumers’ need for new owned generation. This in turn could have a material adverse effect on Consumers’ capital investment plan and the affordability of future customer rates.
In December 2017, Consumers filed a petition with the MPSC requesting corrections to the pricing calculations and capacity purchase model set in the order. Subsequently, the MPSC suspended the implementation of the order and reopened the proceeding. In February 2018, the MPSC issued an order limiting Consumers’ obligation to pay the full avoided capacity cost, which is based on the cost of a natural gas combustion turbine under the new avoided‑cost formula, to existing qualifying facilities upon the expiration of outstanding contracts and to the first 150 MW of new generation projects that qualify under PURPA. In October 2018, the MPSC issued an order lifting the suspension on the November 2017 order and thereby making effective the avoided‑cost formula set at that time. According to the October 2018 order, the use of the full avoided‑cost formula is still limited to outstanding contracts that expire and the first 150 MW of new qualifying generation projects. The October 2018 order also provides that all other qualifying generation projects that establish a legally enforceable obligation are eligible to receive a capacity payment equal to the MISO planning resource auction price and a designated energy price approved in the MPSC’s October order. The MPSC also ruled that the determination of Consumers’ future capacity needs shall take place in the IRP proceeding that Consumers filed in June 2018. Consumers filed a complaint with the MPSC challenging the rates approved in the October 2018 order.  Two developers representing approximately 2,000 MW of qualifying generation projects have filed


27


complaints with the MPSC claiming that their projects have legally enforceable obligations making them eligible for the avoided cost rates approved in the October 2018 order.
In the IRP settlement agreement filed with the MPSC, Consumers and other stakeholders agreed to a new method of calculating avoided cost, based on a competitive bidding process that will enable Consumers to purchase energy from new generation at the lowest cost and mitigate the risk of forced purchases of unneeded renewable generation. Consumers cannot predict the outcome of these matters.
Renewable Energy Plan: The 2016 Energy Law raised the renewable energy standard from the present ten‑percent requirement to 15 percent in 2021, with an interim target of 12.5 percent in 2019. Consumers is required to submit RECs, which represent proof that the associated electricity was generated from a renewable energy resource, in an amount equal to at least the required percentage of Consumers’ electric sales volume each year. Under its renewable energy plan, Consumers expects to meet its renewable energy requirement each year with a combination of newly generated RECs and previously generated RECs carried over from prior years.
In conjunction with its renewable energy plan, Consumers began construction in 2017 of Cross Winds® Energy Park Phase III, with a planned nameplate capacity of 76 MW, and expects it to be operational in 2020. This project is expected to qualify for certain federal production tax credits, generating cost savings that will be passed on to customers.
In February 2019, the MPSC issued an order ruling on amendments Consumers had requested to its renewable energy plan. The MPSC approved the acquisition of up to 525 MW of new wind generation projects, but ruled that Consumers’ request to acquire up to 100 MW of new solar generation will be addressed in a separate proceeding. The MPSC also approved an agreement under which Consumers will purchase a wind generation project under development, with capacity of up to 150 MW, in Gratiot County, Michigan. Consumers expects to begin construction of this project in September 2019 and that it will be complete and operational in 2020.
In June 2018, Consumers issued a request for proposals to acquire up to 400 MW of wind generation projects ranging in size from 75 MW to 200 MW and up to 100 MW of solar generation projects at least 10 MW in size. The projects are required to be located in Michigan and operational by 2021. Negotiations are in progress with several bidders. Any contracts entered into as a result of the request for proposals would be subject to MPSC approval.
Electric Customer Deliveries and Revenue: Consumers’ electric customer deliveries are seasonal and largely dependent on Michigan’s economy. The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment. In addition, Consumers’ electric rates, which follow a seasonal rate design, are higher in the summer months than in the remaining months of the year.
Consumers expects weather‑normalized electric deliveries over the next five years to remain stable relative to 2018. This outlook reflects modest growth in electric demand offset by the effects of energy waste reduction programs and appliance efficiency standards. Actual delivery levels will depend on:
energy conservation measures and results of energy waste reduction programs
weather fluctuations
Michigan’s economic conditions, including utilization, expansion, or contraction of manufacturing facilities, population trends, and housing activity
Electric ROA: Michigan law allows electric customers in Consumers’ service territory to buy electric generation service from alternative electric suppliers in an aggregate amount capped at ten percent, with


28


certain exceptions, of Consumers’ weather‑normalized retail sales of the preceding calendar year. At March 31, 2019, electric deliveries under the ROA program were at the ten‑percent limit. Of Consumers’ 1.8 million electric customers, 286 customers, or 0.02 percent, purchased electric generation service under the ROA program.
The 2016 Energy Law established a path to ensure that forward capacity is secured for all electric customers in Michigan, including customers served by alternative electric suppliers under ROA. The new law also authorized the MPSC to ensure that alternative electric suppliers have procured enough capacity to cover their anticipated capacity requirements for the four‑year forward period. In 2017, the MPSC issued an order establishing a state reliability mechanism for Consumers. Under this mechanism, beginning June 1, 2018, if an alternative electric supplier does not demonstrate that it has procured its capacity requirements for the four‑year forward period, its customers will pay a set charge to the utility for capacity that is not provided by the alternative electric supplier. All alternative electric suppliers have demonstrated that they have procured their capacity requirements through the MISO planning year beginning June 1, 2022.
In June 2018, the MPSC issued an order requiring all electric suppliers to demonstrate that a portion of the capacity procured to serve customers during peak demand times is located in the MISO footprint in Michigan’s Lower Peninsula. In July 2018, the Michigan Court of Appeals issued a decision that the MPSC does not have statutory authority to implement such a requirement for alternative electric suppliers. Consumers believes the 2016 Energy Law does give such authorization to the MPSC. The MPSC and Consumers have filed applications for leave to appeal the Court of Appeals’ decision to the Michigan Supreme Court. The Michigan Supreme Court has discretion on whether to grant the applications for leave to appeal.
Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. For additional details on rate matters, see Note 2, Regulatory Matters.
Electric Environmental Outlook: Consumers’ operations are subject to various state and federal environmental laws and regulations. Consumers estimates that it will incur capital expenditures of $0.3 billion from 2019 through 2023 to continue to comply with RCRA, the Clean Water Act, the Clean Air Act, and numerous state and federal environmental regulations. Consumers expects to recover these costs in customer rates, but cannot guarantee this result. Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters.
Air Quality: Multiple air quality regulations apply, or may apply, to Consumers.
CSAPR, which became effective in 2015, requires Michigan and many other states to improve air quality by reducing power plant emissions that, according to EPA computer models, contribute to ground‑level ozone and fine particle pollution in other downwind states. In 2016, the EPA finalized new ozone season standards for CSAPR, which became effective in 2017. CSAPR is presently being litigated; however, any decision will not impact Consumers’ compliance strategy, as Consumers expects its emissions to be within the CSAPR allowance allocations.
In 2012, the EPA published emission standards for electric generating units, based on Section 112 of the Clean Air Act, known as MATS. Under MATS, all of Consumers’ existing coal‑fueled electric generating units were required to add additional controls for hazardous air pollutants. Consumers met the extended deadline of April 2016 for five coal‑fueled units and two oil/gas‑fueled units it continues to operate and retired its seven remaining coal‑fueled units. MATS is presently being litigated. In addition, in December 2018, the EPA proposed changes to the supporting analysis used to justify MATS, but did not propose any changes to the MATS regulations. Any changes resulting from that litigation or rulemaking are not expected to impact Consumers’ MATS compliance strategy because Consumers is still required to


29


comply with the Michigan Mercury Rule, which has similar requirements to MATS. In addition, Consumers must comply with its settlement agreement with the EPA entered into in 2014 concerning opacity and NSR.
In 2015, the EPA released its new rule to lower the NAAQS for ozone. The new ozone NAAQS will make it more difficult to construct or modify power plants in areas of the country that have not met the new ozone standard. In April 2018, the EPA designated certain areas of Michigan as not meeting the new standard with an August 2018 effective date. None of Consumers’ fossil‑fuel‑fired generating units are located in these areas. Some of Consumers’ compressor stations are located in areas impacted by the rule, but Consumers expects only minor permitting impacts if those units are modified in the future. The NAAQS for ozone are presently being litigated. Consumers does not expect that any decision will have a material adverse impact on its generating assets.
Consumers’ strategy to comply with air quality regulations, including CSAPR, NAAQS, and MATS, as well as its legal obligations, involved the installation and operation of emission control equipment at some facilities and the suspension of operations at others; however, Consumers continues to evaluate these rules in conjunction with other EPA and MDEQ rulemakings, litigation, and congressional action. This evaluation could result in:
a change in Consumers’ fuel mix
changes in the types of generating units Consumers may purchase or build in the future
changes in how certain units are used
the retirement, mothballing, or repowering with an alternative fuel of some of Consumers’ generating units
changes in Consumers’ environmental compliance costs
Greenhouse Gases: There have been numerous legislative and regulatory initiatives at the state, regional, national, and international levels that involve the potential regulation of greenhouse gases. Consumers continues to monitor and comment on these initiatives and to follow litigation involving greenhouse gases.
In 2015, the EPA finalized new rules pursuant to Section 111(b) of the Clean Air Act to limit carbon dioxide emissions from new electric generating units, as well as modified or reconstructed electric generating units. New coal‑fueled units would not be able to meet this limit without installing carbon dioxide control equipment using such methods as carbon capture and sequestration. These rules are being litigated.
In December 2018, the EPA proposed a revised Section 111(b) regulation to replace the 2015 standard rule limiting carbon dioxide emissions from new electric generating units, citing limited availability and high costs of carbon capture and sequestration equipment as reasons to change the 2015 rule. The revised Section 111(b) regulation requires new coal‑fueled generating units to meet a highly efficient steam cycle performance standard. Consumers does not expect this proposal to change its existing environmental strategy.
Also in 2015, the EPA published final rules pursuant to Section 111(d) of the Clean Air Act to limit carbon dioxide emissions from existing electric generating units, calling the rules the “Clean Power Plan.” The rules required a 32‑percent nationwide reduction in carbon emissions from existing power plants by 2030 (based on 2005 levels). States choosing not to develop their own implementation plans would be subject to the federal plan. Certain states, corporations, and industry groups initiated litigation opposing the proposed Clean Power Plan, and in 2016, the U.S. Supreme Court stayed the Clean Power Plan while the litigation proceeded. In March 2017, the EPA and other federal agencies were directed to review the Clean Power Plan, among other proposed or final rules. The EPA subsequently filed motions to hold the


30


Section 111(b) and Clean Power Plan litigation in abeyance while it reconsidered the rules. In October 2017, the EPA published a proposal to repeal the Clean Power Plan and is reviewing comments received.
In August 2018, the EPA proposed the “Affordable Clean Energy” rule as a replacement for the EPA’s 2015 Clean Power Plan, which the U.S. Supreme Court stayed in 2016. This proposed rule requires individual states to evaluate fossil fuel‑fired power plants for heat‑rate improvements that could increase overall plant efficiency. There is also a proposal to modify the Clean Air Act permitting requirements to promote these efficiency projects. The EPA believes it will finalize the Affordable Clean Energy rule in 2019. Consumers does not expect that the Affordable Clean Energy rule will have an adverse impact on its environmental strategy.
In 2015, a group of 195 countries, including the U.S., finalized the Paris Agreement, which governs carbon dioxide reduction measures beginning in 2020. Although the U.S. subsequently withdrew from the Paris Agreement, it has stated a desire to renegotiate a new agreement in the future. At this time, Consumers does not expect any adverse changes to its environmental strategy as a result of these events.
While Consumers cannot predict the outcome of changes in U.S. policy or of other legislative or regulatory initiatives involving the potential regulation of greenhouse gases, it intends to continue to move forward with its clean energy plan, its present carbon reduction goal, and its emphasis on supply diversity. Consumers will continue to monitor regulatory and legislative activity and related litigation regarding greenhouse gas emissions standards that may affect electric generating units.
Severe weather events and climate change associated with increasing levels of greenhouse gases could affect the companies’ facilities and energy sales and could have a material impact on the companies’ future results of operations. Consumers is unable to predict these events or their financial impact; however, Consumers plans for adverse weather and takes steps to reduce its potential impact.
Litigation, international treaties, federal laws and regulations (including regulations by the EPA), and state laws and regulations, if enacted or ratified, could ultimately require Consumers to replace equipment, install additional emission control equipment, purchase emission allowances, curtail operations, arrange for alternative sources of supply, mothball or retire facilities that generate certain emissions, or take other steps to manage or lower the emission of greenhouse gases. Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material and cost recovery cannot be assured, Consumers expects to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.
CCRs: In 2015, the EPA published a final rule regulating CCRs, such as coal ash, under RCRA. The final rule adopts minimum standards for beneficially reusing and disposing of non‑hazardous CCRs. The rule establishes new minimum requirements for site location, groundwater monitoring, flood protection, storm water design, fugitive dust control, and public disclosure of information, including any groundwater protection standard exceedances. The rule also sets out conditions under which CCR units would be forced to cease receiving CCR and non‑CCR waste and initiate closure based on the inability to achieve minimum safety standards, meet a location standard, or meet minimum groundwater standards. Consumers has aligned with state regulatory authorities on closure plans for each of its unlined ash ponds to ensure coordination between federal and state requirements. Work has already been completed to close some existing ash ponds and replace them with double‑lined ash ponds or concrete tanks.
Furthermore, Congress passed legislation in 2016 that allows participating states to develop permitting programs for CCRs under RCRA. In July 2018, the EPA published preliminary rulemaking that was intended to amend the 2015 final rule. The rulemaking did not change Consumers’ compliance strategy, but demonstrated the EPA’s willingness to allow states to incorporate flexibility into their permitting


31


processes. Consumers is waiting for the EPA to promulgate a final rule. In December 2018, Michigan adopted a permitting program, which would still require the EPA’s authorization. The MDEQ is presently working on an application requesting such authorization for the Michigan permitting program. Federal rulemaking delays also have the potential to delay EPA approval of the Michigan permitting program.
Consumers may need to adjust its recorded ARO associated with coal ash disposal sites depending on the outcome of its submissions to the MDEQ and on the RCRA permitting program under the MDEQ, if the EPA approves a state‑level program. Consumers has historically been authorized to recover in electric rates costs related to coal ash disposal sites.
Water: The EPA’s rule to regulate the cooling water intake systems of existing electric generating plants under Section 316(b) of the Clean Water Act became effective in 2014. The rule is aimed at reducing alleged harmful impacts on fish and shellfish. In April 2018, Consumers submitted to the MDEQ for review and approval all required studies and recommended plans to comply with Section 316(b).
In 2015, the EPA released its final effluent limitation guidelines. These guidelines, which are presently being litigated, set stringent new requirements for the discharge from electric generating units into wastewater streams. In August 2017, the EPA announced that it will undertake a rulemaking to replace specific portions of the rule. In September 2017, the EPA proposed delaying the compliance start dates for two years, but maintained the compliance end dates. Consumers expects that additional rulemaking will begin in 2019 and likely conclude in 2020. Consumers does not expect any adverse changes to its environmental strategy as a result of any revisions to the rule.
In 2015, the EPA and the U.S. Army Corps of Engineers published a final rule redefining “waters of the United States,” which defines the scope of the EPA’s jurisdiction under the Clean Water Act. Numerous states and other interested parties have filed suits in federal courts to block the rule, which subsequently was stayed in 2015 while litigation ensued. In January 2018, the U.S. Supreme Court unanimously ruled that the federal district courts, not the federal appellate courts, had jurisdiction over challenges to the 2015 rule. Consequently, in February 2018, the U.S. Court of Appeals for the Sixth Circuit lifted the stay of the rule. The EPA has published a notice, called the Applicability Rule, that prevents the 2015 rule from going into effect until February 2020 in an attempt to maintain consistency and provide certainty for regulated entities while the agencies continue to consider possible revisions to the 2015 rule. In August 2018, the U.S. District Court for the District of South Carolina set aside the Applicability Rule nationally and, as a result, the 2015 rule again went into effect in 22 states, including Michigan.
In December 2018, the EPA and the U.S. Army Corps of Engineers released a proposed rule re‑defining the term “waters of the United States” under the Clean Water Act. In 2015, the EPA under President Obama approved a rule expanding the definition, particularly with respect to tributaries, adjacent waters, and wetlands. The EPA’s recently proposed rule narrows the definition of jurisdictional waters.
The 2015 and 2018 rules change the scope of water and wetlands regulations for the EPA under the Clean Water Act. The EPA has delegated authority to manage the Michigan wetlands program to the MDEQ. As a result, regardless of the 2015 and 2018 rules’ ultimate outcome, Consumers expects to continue to operate under Michigan’s wetlands regulations, and under the applicable state and federal water jurisdictional regulations. Thus, Consumers does not expect any adverse changes to its environmental strategy as a result of these events.
Many of Consumers’ facilities maintain NPDES permits, which are renewed every five years and are vital to the facilities’ operations. Failure of the MDEQ to renew any NPDES permit, a successful appeal against a permit, or onerous terms contained in a permit could have a significant detrimental effect on the operations of a facility.


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Other Matters: Other electric environmental matters could have a material impact on Consumers’ outlook. For additional details on other electric environmental matters, see Note 3, Contingencies and Commitments—Consumers Electric Utility Contingencies—Electric Environmental Matters.
Consumers Gas Utility Outlook and Uncertainties
Gas Deliveries: Consumers’ gas customer deliveries are seasonal. The peak demand for natural gas typically occurs in the winter due to colder temperatures and the resulting use of natural gas as heating fuel. Consumers expects weather‑normalized gas deliveries over the next five years to increase slightly relative to 2018. This outlook reflects modest growth in gas demand offset partially by the predicted effects of energy efficiency and conservation. Actual delivery levels from year to year may vary from this expectation due to:
weather fluctuations
use by power producers
availability and development of renewable energy sources
gas price changes
Michigan economic conditions, including population trends and housing activity
the price of competing energy sources or fuels
energy efficiency and conservation impacts
Gas Rate Matters: Rate matters are critical to Consumers’ gas utility business. For additional details on rate matters, see Note 2, Regulatory Matters.
Gas Rate Case: In November 2018, Consumers filed an application with the MPSC seeking an annual rate increase of $229 million, based on a 10.75 percent authorized return on equity. The filing requests authority to recover new infrastructure investment and related costs that will allow Consumers to improve system safety, capacity, and deliverability. Presented in the following table are the components of the requested increase in revenue:
In Millions
 
Components of the requested rate increase
 
 
Investment in rate base
 
$
136

Operating and maintenance cost
 
81

Cost of capital
 
29

Working capital
 
11

Gross margin
 
(28
)
Total
 
$
229

The filing also seeks approval of two rate adjustment mechanisms: a revenue decoupling mechanism and an investment recovery mechanism. The revenue decoupling mechanism would annually reconcile Consumers’ actual weather‑normalized non‑fuel revenues with the revenues approved by the MPSC. The investment recovery mechanism would provide for additional annual rate increases of $11 million beginning in October 2020 and another $11 million beginning in October 2021 for incremental investments that Consumers plans to make in those years, subject to reconciliation. These future investments are intended to help ensure adequate system capacity and deliverability.
Gas Pipeline and Storage Integrity and Safety: In 2016, PHMSA published a notice of proposed rulemaking that would expand federal safety standards for gas transmission pipelines. The rule could cause Consumers to incur increased capital costs to install and remediate pipelines as well as operating


33


and maintenance costs to expand inspections, maintenance, and monitoring of its existing pipelines. PHMSA expects to publish a final rule in 2019.
Also in 2016, PHMSA published an interim final rule that established minimum federal safety standards for underground natural gas storage facilities. As published, the rule could cause Consumers to incur increased capital and operating and maintenance costs to expand inspections, maintenance, and monitoring of its underground gas storage facilities. PHMSA expects to publish a final rule in 2019.
Although associated capital or operating and maintenance costs relating to these regulations could be material and cost recovery cannot be assured, Consumers would expect to recover such costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with laws and regulations. Consumers will continue to monitor gas safety regulations.
Gas Environmental Outlook: Consumers expects to incur response activity costs at a number of sites, including 23 former MGP sites. For additional details, see Note 3, Contingencies and Commitments—Consumers Gas Utility Contingencies—Gas Environmental Matters.
Consumers Electric Utility and Gas Utility Outlook and Uncertainties
Energy Waste Reduction Plan: The 2016 Energy Law authorized incentives for demand response programs and expanded existing incentives for energy efficiency programs, referring to the combined initiatives as energy waste reduction programs. The 2016 Energy Law:
extended the requirement to achieve annual reductions of 1.0 percent in customers’ electricity use through 2021 and 0.75 percent in customers’ natural gas use indefinitely
removed limits on investments under the program and provided for a higher return on those investments; together, these provisions effectively doubled the financial incentives Consumers may earn for exceeding the statutory targets
established a goal of 35 percent combined renewable energy and energy waste reduction by 2025
Under its energy waste reduction plan, Consumers provides its customers with incentives to reduce usage by offering energy audits, rebates and discounts on purchases of highly efficient appliances, and other incentives and programs.
Enterprises Outlook and Uncertainties
CMS Energy’s primary focus with respect to its enterprises businesses is to maximize the value of generating assets, its share of which represents 1,234 MW of capacity, and to pursue opportunities for the development of renewable generation projects.
The enterprises segment’s assets may be affected by environmental laws and regulations. The new ozone NAAQS will make it more difficult to construct or modify power plants in areas of the country that have not met the new ozone standard. In April 2018, the EPA designated certain areas of Michigan as not meeting the new standard with an August 2018 effective date. The enterprises segment’s DIG plant located in Dearborn, Michigan is in one such area and, as a result, would be subject to additional permitting restrictions in the event of any future modifications. For additional details regarding the new ozone NAAQS, see Consumers Electric Utility Outlook and Uncertainties—Electric Environmental Outlook.


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Trends, uncertainties, and other matters related to the enterprises segment that could have a material impact on CMS Energy’s consolidated income, cash flows, or financial position include:
investment in and financial benefits received from renewable energy and energy storage projects
changes in energy and capacity prices
changes in commodity prices and interest rates on certain derivative contracts that do not qualify for hedge accounting and must be marked to market through earnings
changes in various environmental laws, regulations, principles, or practices, or in their interpretation
the outcome of certain legal proceedings, including gas price reporting litigation
indemnity and environmental remediation obligations at Bay Harbor, including an inability to renew an NPDES permit in 2020
obligations related to a tax claim from the government of Equatorial Guinea
representations, warranties, and indemnities provided by CMS Energy in connection with previous sales of assets
For additional details regarding the enterprises segment’s uncertainties, see Note 3, Contingencies and Commitments.
Other Outlook and Uncertainties
EnerBank: EnerBank is a Utah state‑chartered, FDIC‑insured industrial bank providing primarily unsecured consumer installment loans for financing home improvements. EnerBank represented five percent of CMS Energy’s net assets at March 31, 2019 and five percent of CMS Energy’s net income available to common stockholders for the three months ended March 31, 2019. The carrying value of EnerBank’s loan portfolio was $2.0 billion at March 31, 2019. Its loan portfolio was funded primarily by certificates of deposit of $1.9 billion. The 12‑month rolling average net default rate on loans held by EnerBank was 1.2 percent at March 31, 2019. CMS Energy is required both by law and by contract to provide financial support, including infusing additional capital, to ensure that EnerBank satisfies mandated capital requirements and has sufficient liquidity to operate. With its self‑funding plan, EnerBank has exceeded these requirements historically and exceeded them as of March 31, 2019.
Litigation: CMS Energy, Consumers, and certain of their subsidiaries are named as parties in various litigation matters, as well as in administrative proceedings before various courts and governmental agencies, arising in the ordinary course of business. For additional details regarding these and other legal matters, see Note 2, Regulatory Matters and Note 3, Contingencies and Commitments.
New Accounting Standards
For details regarding new accounting standards issued but not yet effective, see Note 1, New Accounting Standards.


35


CMS Energy Corporation
Consolidated Statements of Income (Unaudited)
In Millions, Except Per Share Amounts
 
Three Months Ended March 31
2019
 
2018
 
Operating Revenue
 
$
2,059

 
$
1,953

 
 
 
 
 
Operating Expenses
 
 
 
 
Fuel for electric generation
 
142

 
132

Purchased and interchange power
 
378

 
382

Purchased power – related parties
 
18

 
19

Cost of gas sold
 
404

 
381

Maintenance and other operating expenses
 
354

 
310

Depreciation and amortization
 
298

 
279

General taxes
 
106

 
87

Total operating expenses
 
1,700

 
1,590

 
 
 
 
 
Operating Income
 
359

 
363

 
 
 
 
 
Other Income (Expense)
 
 
 
 
Interest income
 
1

 
2

Allowance for equity funds used during construction
 
2

 
1

Income (loss) from equity method investees
 
(1
)
 
3

Nonoperating retirement benefits, net
 
23

 
24

Other income
 
1

 
1

Other expense
 
(3
)
 
(2
)
Total other income
 
23

 
29

 
 
 
 
 
Interest Charges
 
 
 
 
Interest on long-term debt
 
106

 
100

Other interest expense
 
16

 
11

Allowance for borrowed funds used during construction
 
(1
)
 

Total interest charges
 
121

 
111

 
 
 
 
 
Income Before Income Taxes
 
261

 
281

Income Tax Expense
 
48

 
40

 
 
 
 
 
Net Income Available to Common Stockholders
 
$
213

 
$
241

 
 
 
 
 
Basic Earnings Per Average Common Share
 
$
0.75

 
$
0.86

Diluted Earnings Per Average Common Share
 
$
0.75

 
$
0.86

The accompanying notes are an integral part of these statements.


36


CMS Energy Corporation
Consolidated Statements of Comprehensive Income (Unaudited)
In Millions
 
Three Months Ended March 31
2019
 
2018
 
Net Income
 
$
213

 
$
241

 
 
 
 
 
Retirement Benefits Liability
 
 
 
 
Amortization of net actuarial loss, net of tax of $- for both periods
 
1

 
1

Amortization of prior service credit, net of tax of $- for both periods
 
(1
)
 

 
 
 
 
 
Investments
 
 
 
 
Unrealized loss on investments, net of tax of $- for both periods
 

 
(1
)
 
 
 
 
 
Derivatives
 
 
 
 
Unrealized loss on derivative instruments, net of tax of $- for both periods
 
(1
)
 

 
 
 
 
 
Other Comprehensive Loss
 
(1
)
 

 
 
 
 
 
Comprehensive Income
 
$
212

 
$
241

The accompanying notes are an integral part of these statements.


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CMS Energy Corporation
Consolidated Statements of Cash Flows (Unaudited)
In Millions
 
Three Months Ended March 31
2019
 
2018
 
Cash Flows from Operating Activities
 
 
 
 
Net income
 
$
213

 
$
241

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
298

 
279

Deferred income taxes and investment tax credit
 
43

 
37

Other non-cash operating activities and reconciling adjustments
 
16

 
10

Cash provided by (used in) changes in assets and liabilities
 
 
 
 
Accounts and notes receivable and accrued revenue
 
(61
)
 
7

Inventories
 
209

 
228

Accounts payable and accrued rate refunds
 
(89
)
 
(92
)
Other current and non-current assets and liabilities
 
(12
)
 
(2
)
Net cash provided by operating activities
 
617

 
708

 
 
 
 
 
Cash Flows from Investing Activities
 
 
 
 
Capital expenditures (excludes assets placed under finance lease)
 
(481
)
 
(422
)
Increase in EnerBank notes receivable
 
(46
)
 
(5
)
Purchase of notes receivable by EnerBank
 
(121
)
 

Cost to retire property and other investing activities
 
(27
)
 
(29
)
Net cash used in investing activities
 
(675
)
 
(456
)
 
 
 
 
 
Cash Flows from Financing Activities
 
 
 
 
Proceeds from issuance of debt
 
993

 
250

Retirement of debt
 
(790
)
 
(180
)
Increase (decrease) in EnerBank certificates of deposit
 
151

 
(9
)
Decrease in notes payable
 
(67
)
 
(170
)
Issuance of common stock
 
3

 
3

Payment of dividends on common stock
 
(108
)
 
(101
)
Payment of finance lease obligations and other financing costs
 
(32
)
 
(22
)
Net cash provided by (used in) financing activities
 
150

 
(229
)
 
 
 
 
 
Net Increase in Cash and Cash Equivalents, Including Restricted Amounts
 
92

 
23

Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period
 
175

 
204

 
 
 
 
 
Cash and Cash Equivalents, Including Restricted Amounts, End of Period
 
$
267

 
$
227

 
 
 
 
 
Other Non-cash Investing and Financing Activities
 
 
 
 
Non-cash transactions
 
 
 
 
Capital expenditures not paid
 
$
99

 
$
102

The accompanying notes are an integral part of these statements.


39


CMS Energy Corporation
Consolidated Balance Sheets (Unaudited)
ASSETS
In Millions
 
 
March 31
2019
 
December 31
2018
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
234

 
$
153

Restricted cash and cash equivalents
 
33

 
21

Accounts receivable and accrued revenue, less allowance of $20 in both periods
 
997

 
964

Notes receivable, less allowance of $26 in 2019 and $24 in 2018
 
250

 
233

Assets held for sale
 
39

 

Accounts receivable – related parties
 
14

 
14

Accrued gas revenue
 
18

 
16

Inventories at average cost
 
 
 
 
Gas in underground storage
 
256

 
450

Materials and supplies
 
148

 
143

Generating plant fuel stock
 
38

 
57

Deferred property taxes
 
226

 
279

Regulatory assets
 
26

 
37

Prepayments and other current assets
 
97

 
101

Total current assets
 
2,376

 
2,468

 
 
 
 
 
Plant, Property, and Equipment
 
 
 
 
Plant, property, and equipment, gross
 
24,729

 
24,400

Less accumulated depreciation and amortization
 
7,236

 
7,037

Plant, property, and equipment, net
 
17,493

 
17,363

Construction work in progress
 
822

 
763

Total plant, property, and equipment
 
18,315

 
18,126

 
 
 
 
 
Other Non-current Assets
 
 
 
 
Regulatory assets
 
1,711

 
1,743

Accounts and notes receivable
 
1,791

 
1,645

Investments
 
62

 
69

Other
 
538

 
478

Total other non-current assets
 
4,102

 
3,935

 
 
 
 
 
Total Assets
 
$
24,793

 
$
24,529



40




LIABILITIES AND EQUITY
In Millions
 
 
March 31
2019
 
December 31
2018
 
Current Liabilities
 
 
 
 
Current portion of long-term debt, finance leases, and other financing
 
$
842

 
$
996

Notes payable
 
30

 
97

Accounts payable
 
544

 
723

Accounts payable – related parties
 
6

 
10

Accrued rate refunds
 
25

 
4

Accrued interest
 
109

 
94

Accrued taxes
 
295

 
398

Regulatory liabilities
 
107

 
155

Other current liabilities
 
148

 
147

Total current liabilities
 
2,106

 
2,624

 
 
 
 
 
Non-current Liabilities
 
 
 
 
Long-term debt
 
11,105

 
10,615

Non-current portion of finance leases and other financing
 
91

 
69

Regulatory liabilities
 
3,736

 
3,681

Postretirement benefits
 
440

 
436

Asset retirement obligations
 
433

 
432

Deferred investment tax credit
 
98

 
99

Deferred income taxes
 
1,544

 
1,487

Other non-current liabilities
 
345

 
294

Total non-current liabilities
 
17,792

 
17,113

 
 
 
 
 
Commitments and Contingencies (Notes 2 and 3)
 


 


 
 
 
 
 
Equity
 
 
 
 
Common stockholders’ equity
 


 


Common stock, authorized 350.0 shares; outstanding 283.7 shares in 2019 and 283.4 shares in 2018
 
3

 
3

Other paid-in capital
 
5,087

 
5,088

Accumulated other comprehensive loss
 
(66
)
 
(65
)
Accumulated deficit
 
(166
)
 
(271
)
Total common stockholders’ equity
 
4,858

 
4,755

Noncontrolling interests
 
37

 
37

Total equity
 
4,895

 
4,792

 
 
 
 
 
Total Liabilities and Equity
 
$
24,793

 
$
24,529

The accompanying notes are an integral part of these statements.


41


CMS Energy Corporation
Consolidated Statements of Changes in Equity (Unaudited)
In Millions, Except Per Share Amounts
 
Three Months Ended March 31
2019
 
2018
 
Total Equity at Beginning of Period
 
$
4,792

 
$
4,478

 
 
 
 
 
Common Stock
 
 
 
 
At beginning and end of period
 
3

 
3

 
 
 
 
 
Other Paid-in Capital
 
 
 
 
At beginning of period
 
5,088

 
5,019

Common stock issued
 
7

 
8

Common stock repurchased
 
(8
)
 
(10
)
Common stock reissued
 

 
20

At end of period
 
5,087

 
5,037

 
 
 
 
 
Accumulated Other Comprehensive Loss
 
 
 
 
At beginning of period
 
(65
)
 
(50
)
Retirement benefits liability
 


 


At beginning of period
 
(63
)
 
(50
)
Cumulative effect of change in accounting principle
 

 
(11
)
Amortization of net actuarial loss
 
1

 
1

Amortization of prior service credit
 
(1
)
 

At end of period
 
(63
)
 
(60
)
Investments
 
 
 
 
At beginning of period
 

 

Unrealized loss on investments
 

 
(1
)
At end of period
 

 
(1
)
Derivative instruments
 
 
 
 
At beginning of period
 
(2
)
 

Unrealized loss on derivative instruments
 
(1
)
 

At end of period
 
(3
)
 

At end of period
 
(66
)
 
(61
)
 
 
 
 
 
Accumulated Deficit
 
 
 
 
At beginning of period
 
(271
)
 
(531
)
Cumulative effect of change in accounting principle
 

 
8

Net income attributable to CMS Energy
 
213

 
241

Dividends declared on common stock
 
(108
)
 
(101
)
At end of period
 
(166
)
 
(383
)
 
 
 
 
 
Noncontrolling Interests
 
 
 
 
At beginning and end of period
 
37

 
37

 
 
 
 
 
Total Equity at End of Period
 
$
4,895

 
$
4,633

 
 
 
 
 
Dividends Declared Per Common Share
 
$
0.3825

 
$
0.3575

The accompanying notes are an integral part of these statements.


42



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43


Consumers Energy Company
Consolidated Statements of Income (Unaudited)
In Millions
 
Three Months Ended March 31
2019
 
2018
 
Operating Revenue
 
$
1,943

 
$
1,855

 
 
 
 
 
Operating Expenses
 
 
 
 
Fuel for electric generation
 
106

 
102

Purchased and interchange power
 
374

 
378

Purchased power – related parties
 
18

 
20

Cost of gas sold
 
401

 
377

Maintenance and other operating expenses
 
319

 
282

Depreciation and amortization
 
294

 
277

General taxes
 
103

 
85

Total operating expenses
 
1,615

 
1,521

 
 
 
 
 
Operating Income
 
328

 
334

 
 
 
 
 
Other Income (Expense)
 
 
 
 
Interest income
 
1

 
2

Interest and dividend income – related parties
 
1

 

Allowance for equity funds used during construction
 
2

 
1

Nonoperating retirement benefits, net
 
21

 
22

Other income
 
1

 
1

Other expense
 
(3
)
 
(2
)
Total other income
 
23

 
24

 
 
 
 
 
Interest Charges
 
 
 
 
Interest on long-term debt
 
69

 
67

Other interest expense
 
3

 
5

Allowance for borrowed funds used during construction
 
(1
)
 

Total interest charges
 
71

 
72

 
 
 
 
 
Income Before Income Taxes
 
280

 
286

Income Tax Expense
 
54

 
44

 
 
 
 
 
Net Income Available to Common Stockholder
 
$
226

 
$
242

The accompanying notes are an integral part of these statements.


44


Consumers Energy Company
Consolidated Statements of Comprehensive Income (Unaudited)
In Millions
 
Three Months Ended March 31
2019
 
2018
 
Net Income
 
$
226

 
$
242

 
 
 
 
 
Retirement Benefits Liability
 
 
 
 
Amortization of net actuarial loss, net of tax of $- for both periods
 

 
1

 
 
 
 
 
Investments
 
 
 
 

Unrealized loss on investments, net of tax of $- for both periods
 

 
(1
)
 
 
 
 
 
Other Comprehensive Income
 

 

 
 
 
 
 
Comprehensive Income
 
$
226

 
$
242

The accompanying notes are an integral part of these statements.


45



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46


Consumers Energy Company
Consolidated Statements of Cash Flows (Unaudited)
In Millions
 
Three Months Ended March 31
 
2019

 
2018

Cash Flows from Operating Activities
 
 

 
 

Net income
 
$
226

 
$
242

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 

Depreciation and amortization
 
294

 
277

Deferred income taxes and investment tax credit
 
17

 
3

Other non-cash operating activities and reconciling adjustments
 
2

 
7

Cash provided by (used in) changes in assets and liabilities
 
 
 
 

Accounts and notes receivable and accrued revenue
 
(59
)
 
5

Inventories
 
204

 
226

Accounts payable and accrued rate refunds
 
(80
)
 
(88
)
Other current and non-current assets and liabilities
 
15

 
48

Net cash provided by operating activities
 
619

 
720

 
 
 
 
 
Cash Flows from Investing Activities
 
 

 
 

Capital expenditures (excludes assets placed under finance lease)
 
(476
)
 
(414
)
Cost to retire property and other investing activities
 
(26
)
 
(30
)
Net cash used in investing activities
 
(502
)
 
(444
)
 
 
 
 
 
Cash Flows from Financing Activities
 
 

 
 

Retirement of debt
 
(215
)
 

Decrease in notes payable
 
(67
)
 
(170
)
Stockholder contribution
 
350

 
100

Payment of dividends on common stock
 
(172
)
 
(119
)
Payment of finance lease obligations and other financing costs
 
(5
)
 
(6
)
Net cash used in financing activities
 
(109
)
 
(195
)
 
 
 
 
 
Net Increase in Cash and Cash Equivalents, Including Restricted Amounts
 
8

 
81

Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period
 
56

 
65