CMS ENERGY CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

February 10, 2022 at 10:17 am EST

This Management's Discussion and Analysis of Financial Condition and Results of
Operations is a combined report of CMS Energy and Consumers.
Executive Overview
CMS Energy is an energy company operating primarily in Michigan. It is the
parent holding company of several subsidiaries, including Consumers, an electric
and gas utility; and CMS Enterprises, primarily a domestic independent power
producer and marketer. CMS Energy was also the parent holding company of
EnerBank, an industrial bank located in Utah, until October 1, 2021 when
EnerBank was acquired by Regions Bank as described below. Consumers' electric
utility operations include the generation, purchase, distribution, and sale of
electricity, and Consumers' gas utility operations include the purchase,
transmission, storage, distribution, and sale of natural gas. Consumers'
customer base consists of a mix of primarily residential, commercial, and
diversified industrial customers. CMS Enterprises, 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.
On October 1, 2021, EnerBank was acquired by Regions Bank. CMS Energy received
proceeds of over $1 billion from the transaction and recognized a pre-tax gain
of $657 million. CMS Energy intends to use the proceeds from the sale to fund
key initiatives in its core energy business related to safety, reliability, and
its clean energy transformation.
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 nonutility operations and
investments. As a result of the sale described above, EnerBank is no longer
included in the composition of CMS Energy's reportable segments. EnerBank's
results of operations through the date of the sale are presented as income from
discontinued operations. 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, CMS Energy and
Consumers employ the "CE Way," a lean operating model designed to improve
safety, quality, cost, delivery, and employee morale.
CMS Energy and Consumers measure their progress toward the purpose by
considering their impact on the "triple bottom line" of people, planet, and
profit, which is underpinned by performance; this consideration takes into
account not only the economic value that CMS Energy and Consumers create for
customers and investors, but also their responsibility to social and
environmental goals. The triple bottom
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line balances the interests of employees, customers, suppliers, regulators,
creditors, Michigan's residents, the investment community, and other
stakeholders, and it reflects the broader societal impacts of CMS Energy's and
Consumers' activities.
                     [[Image Removed: cms-20211231_g8.jpg]]
CMS Energy's Environmental, Social, Governance and Sustainability Report, which
is available to the public, describes CMS Energy's and Consumers' progress
toward world class performance measured in the areas of people, planet, and
profit.
People: The people element of the triple bottom line represents CMS Energy's and
Consumers' commitment to their employees, their customers, the residents of
local communities in which they 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. Since 2010, Consumers' OSHA recordable
incident rate has decreased by 40 percent.
In response to the COVID-19 pandemic, CMS Energy and Consumers have issued a
response plan that is focused on the health, safety, and well-being of their
co-workers, customers, and communities. CMS Energy and Consumers have aligned
with safety and health guidelines from the CDC, OSHA, MIOSHA, and the Michigan
Department of Health and Human Services in order to protect their employees,
customers, and contractors to ensure the continued delivery of critical energy
services.
In addition, while CMS Energy and Consumers have not yet experienced significant
labor or supply chain disruption as a result of the COVID-19 pandemic, they
continue to monitor minor disruptions and take steps to mitigate against future
impacts in order to continue to provide safe and reliable service to customers.
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.
In 2021, Consumers filed an updated Electric Distribution Infrastructure
Investment Plan with the MPSC, which outlines a five-year strategy to improve
its electric distribution system and the reliability of the grid. The plan
dedicates over $1 billion annually to projects that will reduce the number and
duration of power outages to customers through investment in infrastructure
upgrades, forestry management, and grid modernization.
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Central to Consumers' commitment to its customers are the initiatives it has
undertaken to keep electricity and natural gas affordable, including:
•replacement of coal-fueled generation and PPAs with a cost-efficient mix of
renewable energy and energy waste reduction and demand response programs
•targeted infrastructure investment to reduce maintenance costs and improve
reliability and safety
•supply chain optimization
•economic development to increase sales and reduce overall rates
•information and control system efficiencies
•employee and retiree health care cost sharing
•workforce productivity enhancements
In addition, Consumers' gas commodity costs declined by 52 percent over the last
ten years, 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
compliance with various state and federal environmental, health, and safety laws
and regulations. Management considers climate change and other environmental
risks in strategy development, business planning, and enterprise risk management
processes.
CMS Energy and Consumers continue to focus on opportunities to protect the
environment and to reduce their carbon footprint. As a result of actions already
taken, CMS Energy and Consumers have:
•decreased their combined percentage of electric supply (self-generated and
purchased) from coal by 13 percentage points since 2015
•reduced carbon dioxide emissions by over 30 percent since 2005
•reduced the amount of water used to generate electricity by nearly 30 percent
since 2012
•reduced landfill waste disposal by over 1.6 million tons since 1992
•reduced methane emissions by nearly 20 percent since 2012
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Since 2005, Consumers has reduced its sulfur dioxide and particulate matter
emissions by over 90 percent and its nitrogen oxide emissions by over 80
percent. Consumers began tracking mercury emissions in 2007; since that time, it
has reduced such emissions by nearly 90 percent. Presented in the following
illustration are Consumers' reductions in these emissions:

                     [[Image Removed: cms-20211231_g9.jpg]]
The 2016 Energy Law:
•raised the renewable energy standard to 15 percent in 2021; Consumers met the
15-percent requirement in 2021 and expects to meet the requirement in future
years with a combination of newly generated RECs and previously generated RECs
carried over from prior years
•established a goal of 35 percent combined renewable energy and energy waste
reduction by 2025; Consumers achieved 30 percent combined renewable energy and
energy waste reduction through 2021
•authorized incentives for demand response programs and energy efficiency
programs, referring to the combined initiatives as energy waste reduction
programs
•established an integrated planning process for new capacity and energy
resources
Consumers' Clean Energy Plan details its strategy to meet customers' long-term
energy needs. The Clean Energy Plan was originally outlined in Consumers'
2018 IRP, which was approved by the MPSC in 2019. Under its Clean Energy Plan,
Consumers will meet the requirements of the 2016 Energy Law using its clean and
lean strategy, which focuses on increasing the generation of renewable energy,
helping customers use less energy, and offering demand response programs to
reduce demand during critical peak times.
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In June 2021, Consumers filed its 2021 IRP with the MPSC, proposing updates to
the Clean Energy Plan. Within its 2021 IRP, which is subject to MPSC approval,
Consumers outlines its long-term strategy for delivering clean, reliable,
resilient, and affordable energy to its customers, including plans to:
•end the use of coal-fueled generation in 2025, 15 years sooner than initially
planned
•purchase existing natural gas-fueled generating units, providing an additional
2,177 MW of nameplate capacity and allowing Consumers to continue providing
controllable sources of electricity to customers
•expand its investment in renewable energy, adding nearly 8,000 MW of solar
generation by 2040
These steps are expected to enable Consumers to meet and exceed the 2016 Energy
Law renewable energy requirements and fulfill increasing customer demand for
renewable energy. The 2021 IRP is also expected to allow Consumers to exceed its
breakthrough goal of at least 50 percent combined renewable energy and energy
waste reduction by 2030.
Consumers has a goal of achieving net-zero carbon emissions from its electric
business by 2040. This goal includes not only emissions from Consumers' owned
generation, but also emissions from the generation of power purchased through
long-term PPAs and from the MISO energy market. Consumers expects to meet
90 percent of its customers' needs with clean energy sources by 2040 through
execution of its 2021 IRP. Carbon offset measures including, but not limited to,
carbon sequestration, methane emission capture, and forest preservation and
reforestation may be used to close the gap to achieving net-zero carbon
emissions.
Presented in the following illustration is Consumers' 2021 capacity portfolio
and its future capacity portfolio as projected in the 2021 IRP. This
illustration includes the effects of purchased capacity and energy waste
reduction and uses the nameplate capacity for all energy sources:
                    [[Image Removed: cms-20211231_g10.jpg]]
1  Does not include RECs.
In 2020, Michigan's Governor signed an executive order creating the Michigan
Healthy Climate Plan, which outlines goals for Michigan to achieve economy-wide
net-zero greenhouse gas emissions and to be carbon neutral by 2050. The
executive order aims for a 28-percent reduction below 2005 levels of
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greenhouse gas emissions by 2025. Consumers has already surpassed the 28-percent
reduction milestone for its owned electric generation and previously announced a
goal of achieving net-zero carbon emissions from its electric business by 2040.
In addition to Consumers' efforts to reduce the electric utility's carbon
footprint, it is also making efforts to reduce the gas utility's methane
footprint. In 2019, Consumers released its Methane Reduction Plan, which set a
goal of net-zero methane emissions from its natural gas delivery system by 2030.
Consumers plans to reduce methane emissions from its system by about 80 percent
by accelerating the replacement of aging pipe, rehabilitating or retiring
outdated infrastructure, and adopting new technologies and practices. The
remaining emissions will be offset by purchasing and/or producing renewable
natural gas.
In December 2021, Consumers announced plans to begin development of a renewable
natural gas facility that will capture methane from manure generated at a
neighboring farm and convert it into renewable natural gas. The facility,
expected to start production in 2023, will reduce methane emissions from the
dairy farm and allow Consumers to deliver renewable natural gas as a
cost-effective clean alternative fuel for customers.
Additionally, to advance its environmental stewardship in Michigan and to
minimize the impact of future regulations, Consumers announced the following
fiveyear targets during 2018:
•to reduce its water use by one billion gallons; since 2017, Consumers reduced
its water usage by over 1.3 billion gallons cumulatively
•to enhance, restore, or protect 5,000 acres of land; since 2017, Consumers
enhanced, restored, or protected over 6,000 acres of land cumulatively
•to reduce the amount of waste taken to landfills by 35 percent; compared to
2017, Consumers reduced its landfill waste by 44 percent in 2021
Consumers exceeded each of these targets and is evaluating new targets for the
coming years.
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 affect them materially, they intend to continue to
move forward with their clean and lean strategy.
Profit: The profit element of the triple bottom line represents CMS Energy's and
Consumers' commitment to meeting their financial objectives and providing
economic development opportunities and benefits in the communities in which they
do business. CMS Energy's and Consumers' financial strength allows them to
maintain solid investment-grade credit ratings and thereby reduce funding costs
for the benefit of customers and investors, to preserve and create jobs, and to
reinvest in the communities they serve.
In 2021, CMS Energy's net income available to common stockholders was
$1,348 million, and diluted EPS were $4.66. This compares with net income
available to common stockholders of $755 million and diluted EPS of $2.64 in
2020. In 2021, the gain on the sale of EnerBank, along with benefits from gas
and electric rate increases and higher electric sales were offset partially by
higher service restoration costs, higher distribution, transmission, generation,
and compression expenses, and increased depreciation and property taxes,
reflecting higher capital spending. 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.
Over the next five years, Consumers expects weather-normalized electric and gas
deliveries to remain stable relative to 2021. This outlook reflects the effects
of energy waste reduction programs offset largely by modest growth in electric
and gas demand.
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Performance: Impacting the Triple Bottom Line
CMS Energy and Consumers remain committed to achieving world class performance
while delivering hometown service and positively impacting the triple bottom
line of people, planet, and profit. During 2021, CMS Energy and Consumers:
•realized approximately $55 million in cost reductions by leveraging the CE Way
and through other initiatives
•introduced a new economic development rate designed to attract new business to
Michigan and encourage existing businesses to expand their operations
•achieved five-year planet goals, set in 2018, to save one billion gallons of
water; enhance, restore or protect 5000 acres of land in Michigan; and reduce
waste sent to landfills by 35 percent
•introduced a new three-year electric vehicle pilot program designed to help
fleet owners transition to electric vehicles
•announced plans to begin development of a renewable natural gas facility that
will convert agricultural waste into clean, renewable natural gas
•expanded their renewable energy programs that assist both business and
residential customers in meeting their sustainability goals
•received recognition as #1 utility company in the U.S. for America's Best
Employers for Women and America's Best Employers for Diversity by Forbes®
CMS Energy and Consumers will continue to utilize the CE Way to enable them to
achieve world class performance and positively impact the triple bottom line.
Consumers' investment plan and the regulatory environment in which it operates
also drive its ability to impact the triple bottom line.
Investment Plan: Consumers expects to make capital investments of $25 billion
over the next ten years. Over the next five years, Consumers expects to make
significant expenditures on infrastructure upgrades and replacements and
electric supply projects. 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 measures, should allow Consumers to maintain
affordable customer prices.
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The 2021 IRP, which is subject to MPSC approval, would add over $1 billion of
capital expenditures to the $14.3 billion that Consumers already expects to make
from 2022 through 2026, which are presented in the following illustration:
                    [[Image Removed: cms-20211231_g11.jpg]]
Of this amount, Consumers plans to spend $10.8 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,
reduce energy waste on those systems, and facilitate its clean energy
transformation. The gas infrastructure projects comprise $6.4 billion to sustain
deliverability, enhance pipeline integrity and safety, and reduce methane
emissions. The electric distribution projects comprise $4.4 billion to
strengthen circuits and substations, replace poles, and interconnect clean
energy resources. Consumers also expects to spend $2.8 billion on new clean
generation, which includes investments in wind, solar, and hydro electric
generation resources, and $0.7 billion on other electric supply projects.
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.
2021 Electric Rate Case: In December 2021, the MPSC approved an annual rate
increase of $27 million, based on a 9.9 percent authorized return on equity that
will be reflected in rates beginning January 1, 2022. In its order, the MPSC
disallowed cost recovery for certain categories of recently completed capital
expenditures incurred by Consumers. For additional details, see Item 8.
Financial Statements and Supplementary Data-Notes to the Consolidated Financial
Statements-Note 2, Regulatory Matters.
2021 Gas Rate Case: In December 2021, Consumers filed an application with the
MPSC seeking an annual rate increase of $278 million, based on a 10.5 percent
authorized return on equity and a projected twelve-month period ending
September 30, 2023. The filing requests authority to recover new
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infrastructure investment and related costs that are expected to allow Consumers
to improve system safety and reliability and reduce fugitive methane emissions.
Looking Forward
CMS Energy and Consumers will continue to consider the impact on the triple
bottom line of people, planet, and profit in their daily operations as well as
in their long-term strategic decisions. Consumers will continue to seek fair and
timely regulatory treatment that will support its customer-driven investment
plan, while pursuing cost-control measures that will allow it to maintain
sustainable customer base rates. The CE Way is an important means of realizing
CMS Energy's and Consumers' purpose of achieving world class performance while
delivering hometown service.
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Results of Operations
CMS Energy Consolidated Results of Operations
                                                                 In

Millions, Except Per Share Amounts



Years Ended December 31                                                                           2021        2020           Change
Net Income Available to Common Stockholders                                                                        $ 1,348          $  755          $

593


Basic Earnings Per Average Common Share                                                                            $  4.66          $ 2.65          $

2.01


Diluted Earnings Per Average Common Share                                                                          $  4.66          $ 2.64          $ 2.02


                                                                  In Millions

Years Ended December 31                                                  2021      2020       Change
Electric utility                                                                        $   565      $ 554      $  11
Gas utility                                                                                 302        261         41
Enterprises                                                                                  23         36        (13)
Corporate interest and other                                                               (144)      (154)        10
Discontinued operations                                                                     602         58        544
Net Income Available to Common Stockholders                                             $ 1,348      $ 755      $ 593


For a summary of net income available to common stockholders for 2020 versus
2019, as well as detailed changes by reportable segment, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Results of Operations, in the   Form 10K for the fiscal year ended
December 31, 2020, filed February 11, 2021  .
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Presented in the following table is a summary of after-tax changes to net income
available to common stockholders for 2021 versus 2020:
                                                                                 In Millions

Year Ended December 31, 2020                                                                                       $   755
Reasons for the change
Consumers electric utility and gas utility
Electric sales                                                                                     $   54
Gas sales                                                                                             (23)
Electric rate increase                                                                                105
Gas rate increase                                                                                      74
Lower income tax expense                                                                               34
Lower non-operating retirement benefits expenses                                                       33
Absence of 2020 voluntary revenue refund                                                               21
Lower donations                                                                                        19
Higher service restoration costs                                                                      (72)

Higher distribution, transmission, generation, and compression expenses

                                                                                              (43)
Higher depreciation and amortization                                                                  (39)
Fleet and other asset impairments1                                                                    (34)
Higher forestry costs                                                                                 (23)
Higher property taxes, reflecting higher capital spending                                             (17)
Higher demand response expenses                                                                       (11)
Absence of 2020 gain on sale of transmission assets, net of
voluntary gain sharing                                                                                (10)
Other                                                                                                 (16)
                                                                                                                   $    52
Enterprises                                                                                                            (13)
Corporate interest and other                                                                                            10
Discontinued operations                                                                                                544
Year Ended December 31, 2021                                                                                       $ 1,348

1See Note 2, Regulatory Matters.


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Consumers Electric Utility Results of Operations
Presented in the following table are the detailed changes to the electric
utility's net income available to common stockholders for 2021 versus 2020
(amounts are presented pre-tax, with the exception of income tax changes):

In Millions



Year Ended December 31, 2020                                                                                       $  554
Reasons for the change
Electric deliveries1 and rate increases
Rate increase, including return on higher renewable capital
spending                                                                                           $  141
Higher revenue due primarily to favorable weather and sales mix                                        61
Higher energy waste reduction program revenues                                                         21
Absence of 2020 voluntary revenue refund2                                                              16
Higher other revenues                                                                                  12
                                                                                                                   $  251
Maintenance and other operating expenses
Higher service restoration costs                                                                      (97)
Fleet and other asset impairments2                                                                    (34)
Higher distribution, transmission, and generation expenses                                            (31)
Higher forestry costs                                                                                 (31)
Higher energy waste reduction program costs                                                           (21)
Higher demand response costs                                                                          (15)

Absence of 2020 gain on sale of transmission assets, net of voluntary gain sharing

                                                                                (14)
Higher maintenance and other operating expenses                                                        (9)
                                                                                                                     (252)
Depreciation and amortization
Increased plant in service, reflecting higher capital spending                                                        (33)
General taxes
Higher property taxes, reflecting higher capital spending                                                             (10)
Other income, net of expenses
Lower non-operating retirement benefits expenses and other                                             24
Lower donations                                                                                        18
Higher other income, net of expenses                                                                    5
                                                                                                                       47
Interest charges                                                                                                       10

Income taxes Higher production tax credits attributable primarily to new wind generation projects

                                                                                    15
Absence of prior years' research and development tax credits3                                          (7)
Higher electric utility pre-tax earnings                                                               (3)
Higher other income taxes                                                                              (7)
                                                                                                                       (2)
Year Ended December 31, 2021                                                                                       $  565


1Deliveries to end-use customers were 36.2 billion kWh in 2021 and
35.4 billion kWh in 2020.
2Includes $20 million for fleet disallowances, $10 million for other
disallowances, and $4 million for fleet held-for-sale impairment. See Note 2,
Regulatory Matters.
3See Note 12, Income Taxes.
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Consumers Gas Utility Results of Operations
Presented in the following table are the detailed changes to the gas utility's
net income available to common stockholders for 2021 versus 2020 (amounts are
presented pre-tax, with the exception of income tax changes):
                                                                                 In Millions

Year Ended December 31, 2020                                                                                       $  261
Reasons for the change
Gas deliveries1 and rate increases
Rate increase                                                                                      $   99
Absence of 2020 voluntary revenue refund                                                               12
Higher energy waste reduction program revenues                                                          9
Lower revenue due to unfavorable weather and sales mix                                                (27)
Lower other revenues                                                                                   (5)
                                                                                                                   $   88
Maintenance and other operating expenses
Higher distribution, transmission, and compression expenses                                           (27)
Fleet and other asset impairments2                                                                    (11)
Higher energy waste reduction program costs                                                            (9)
Higher maintenance and other operating expenses                                                       (16)
                                                                                                                      (63)
Depreciation and amortization
Increased plant in service, reflecting higher capital spending                                                        (21)
General taxes
Higher property taxes, reflecting higher capital spending                                                             (13)
Other income, net of expenses
Lower non-operating retirement benefits expenses and other                                             20
Lower donations                                                                                         9
Higher other income, net of expenses                                                                    4
                                                                                                                       33
Interest charges                                                                                                       (2)

Income taxes Lower income tax expense due primarily to acceleration of tax benefits associated with cost of removal3

Lower income tax expense due primarily to accelerated amortization of excess deferred income taxes3

                                                                       13
Higher gas utility pre-tax earnings                                                                    (6)
Absence of prior years' research and development tax credits3                                          (1)
Higher other income taxes                                                                              (1)
                                                                                                                       19
Year Ended December 31, 2021                                                                                       $  302

1Deliveries to end-use customers were 282 bcf in 2021 and 283 bcf in 2020. 2Includes $9 million for fleet disallowances and $2 million for other disallowances. See Note 2, Regulatory Matters. 3See Note 12, Income Taxes.


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Enterprises Results of Operations
Presented in the following table are the detailed after-tax changes to the
enterprises segment's net income available to common stockholders for 2021
versus 2020:
                                                                                 In Millions

Year Ended December 31, 2020                                                                                       $   36
Reason for the change
Lower earnings due primarily to outages at DIG                                                                     $   (9)

Absence of refund for alternative minimum tax credit
sequestration1                                                                                                         (4)
Year Ended December 31, 2021                                                                                       $   23


1See Note 12, Income Taxes.
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 2021 versus 2020:
                                                                                 In Millions

Year Ended December 31, 2020                                                                                       $ (154)
Reasons for the change
Absence of loss on early extinguishment of debt                                                                    $   12
Reduction in state tax liabilities                                                                                      7
Absence of refund for alternative minimum tax credit
sequestration1                                                                                                         (5)
Preferred stock dividends                                                                                              (5)
Other                                                                                                                   1
Year Ended December 31, 2021                                                                                       $ (144)


1See Note 12, Income Taxes.
Results of Discontinued Operations
On October 1, 2021, EnerBank was acquired by Regions Bank. As a result,
EnerBank's results of operations through the date of the sale are presented as
income from discontinued operations on CMS Energy's consolidated statements of
income for 2021 and 2020. For additional details, see Item 8. Financial
Statements and Supplementary Data-Notes to the Consolidated Financial
Statements-Note 20, Exit Activities and Discontinued Operations.
Presented in the following table are the detailed after-tax changes to
discontinued operations for 2021 versus 2020:
                                                        In Millions

Year Ended December 31, 2020                                                 $  58
Reason for the change
Gain on sale of EnerBank                                                     $ 514
Higher earnings at discontinued operations                                      30
Year Ended December 31, 2021                                                 $ 602


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Cash Position, Investing, and Financing
At December 31, 2021, CMS Energy had $476 million of consolidated cash and cash
equivalents, which included $24 million of restricted cash and cash equivalents.
At December 31, 2021, Consumers had $44 million of consolidated cash and cash
equivalents, which included $22 million of restricted cash and cash equivalents.
For specific components of net cash provided by operating activities, net cash
used in investing activities, and net cash used in investing activities for 2020
versus 2019, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Cash Position, Investing, and Financing, in
the   Form 10K for the fiscal year ended December 31, 2020, filed
February 11, 2021  .
Operating Activities
Presented in the following table are specific components of net cash provided by
operating activities for 2021 versus 2020:
                                                                                             In Millions
CMS Energy, including Consumers
Year Ended December 31, 2020                                                                  $ 1,276
Reasons for the change
Higher net income                                                                             $   578
Noncash transactions1                                                                             87
Absence of pension contributions                                                                  700
Gain from sale of EnerBank in 20212                                                              (657)
Lower cash provided by discontinued operations2                                                  (144)
Unfavorable impact of changes in core working capital,3 due primarily to higher gas
prices and the timing of collections on deliveries, offset partially by lower vendor
payments                                                                                         (122)
Favorable impact of changes in other assets and liabilities, due primarily to the
absence of a payment to settle litigation and the timing of payments on higher property
taxes                                                                                             101
Year Ended December 31, 2021                                                                  $ 1,819

Consumers


Year Ended December 31, 2020                                                                  $ 1,218
Reasons for the change
Higher net income                                                                             $    52
Noncash transactions1                                                                            (14)

Lower postretirement benefits contributions, primarily absence of pension contributions

           681
Unfavorable impact of changes in core working capital,3 due primarily to higher gas
prices and the timing of collections on deliveries, offset partially by lower vendor
payments                                                                                          (78)

Favorable impact of changes in other assets and liabilities, due primarily to lower income tax payments to CMS Energy and the timing of payments on higher property taxes

             123
Year Ended December 31, 2021                                                                  $ 1,982


1Noncash transactions comprise depreciation and amortization, changes in
deferred income taxes and investment tax credits, bad debt expense, and other
noncash operating activities and reconciling adjustments.
2For information regarding the sale of EnerBank, see Note 20, Exit Activities
and Discontinued Operations.
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3Core working capital comprises accounts receivable, accrued revenue,
inventories, accounts payable, and accrued rate refunds.
Investing Activities
Presented in the following table are specific components of net cash used in
investing activities for 2021 versus 2020:
                                                                                        In Millions
CMS Energy, including Consumers
Year Ended December 31, 2020                                                            $ (2,867)
Reasons for the change
Lower capital expenditures                                                              $    235

Proceeds from sale of EnerBank in 20211, net of cash and cash equivalents sold and transaction costs

                                                                        898
Absence of proceeds from sale of transmission equipment in 2020                              (58)
Higher cash provided by discontinued operations1                                             563
Other investing activities                                                                    (4)
Year Ended December 31, 2021                                                            $ (1,233)

Consumers


Year Ended December 31, 2020                                                            $ (2,246)
Reasons for the change
Lower capital expenditures                                                              $    118
Absence of proceeds from sale of transmission equipment in 2020                              (58)
Other investing activities                                                                     1
Year Ended December 31, 2021                                                            $ (2,185)

1For information regarding the sale of EnerBank, see Note 20, Exit Activities and Discontinued Operations.


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Financing Activities
Presented in the following table are specific components of net cash provided by
(used in) financing activities for 2021 versus 2020:
                                                                                        In Millions
CMS Energy, including Consumers
Year Ended December 31, 2020                                                            $  1,619
Reasons for the change
Lower debt issuances                                                                    $ (2,844)
Lower debt retirements                                                                     1,775

Absence of repayments under Consumers' commercial paper program in 2020

                   90
Lower issuances of common stock                                                             (227)
Issuance of preferred stock in 2021                                                          224
Higher payments of dividends on common stock                                                 (42)
Absence of debt prepayment costs in 2020                                                      59

Absence of 2020 proceeds from the sale of membership interest in VIE to tax equity investor

                                                                             (417)
Lower contributions from noncontrolling interest                                             (30)
Lower cash provided by discontinued operations1                                             (500)

Other financing activities, primarily the use of customer advances for construction, offset largely by lower debt issuance costs


                  (2)
Year Ended December 31, 2021                                                            $   (295)
Consumers
Year Ended December 31, 2020                                                            $  1,035
Reasons for the change
Lower debt issuances                                                                    $ (1,619)
Lower debt retirements                                                                     1,059

Absence of repayments under Consumers' commercial paper program in 2020

                   90
Higher repayments of borrowings from CMS Energy                                             (222)
Lower stockholder contribution from CMS Energy                                               (75)
Higher payments of dividends on common stock                                                 (85)
Absence of debt prepayment costs in 2020                                                      43

Other financing activities, primarily the use of customer advances for construction, offset partially by lower debt issuance costs


                 (14)
Year Ended December 31, 2021                                                            $    212

1For information regarding the sale of EnerBank, see Note 20, Exit Activities and Discontinued Operations.

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Capital Resources and Liquidity
CMS Energy and Consumers expect to have sufficient liquidity to fund their
present and future commitments. CMS Energy uses dividends and tax-sharing
payments from its subsidiaries and external financing and capital transactions
to invest in its utility and nonutility 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 articles of incorporation and potentially by FERC requirements and
provisions under the Federal Power Act and the Natural Gas Act. For additional
details on Consumers' dividend restrictions, see Item 8. Financial Statements
and Supplementary Data-Notes to the Consolidated Financial Statements-Note 4,
Financings and Capitalization-Dividend Restrictions. During the year ended
December 31, 2021, Consumers paid $722 million in dividends on its common stock
to CMS Energy.
On October 1, 2021, EnerBank was acquired by Regions Bank. CMS Energy received
proceeds of over $1 billion. CMS Energy intends to use the proceeds from the
sale to fund key initiatives in its core energy business related to safety,
reliability, and its clean energy transformation. For information regarding
EnerBank, see Item 8. Financial Statements and Supplementary Data-Notes to the
Consolidated Financial Statements-Note 20, Exit Activities and Discontinued
Operations.
Consumers uses cash flows generated from operations and external financing
transactions, as well as stockholder contributions from CMS Energy, to fund
capital expenditures, retire debt, pay dividends, and fund its other
obligations. Consumers also uses these sources of funding to contribute to its
employee benefit plans.
Financing and Capital Resources: CMS Energy and Consumers rely on the capital
markets to fund their robust capital plan. Barring any sustained market
dislocations or disruptions, CMS Energy and Consumers expect to continue to have
ready access to the financial and capital markets and will continue to explore
possibilities to take advantage of market opportunities as they arise with
respect to future funding needs. If access to these markets were to diminish or
otherwise become restricted, CMS Energy and Consumers would implement
contingency plans to address debt maturities, which could include reduced
capital spending.
In 2020, CMS Energy entered into an equity offering program under which it may
sell shares of its common stock having an aggregate sales price of up to
$500 million in privately negotiated transactions, in "at the market" offerings,
through forward sales transactions, or otherwise.
CMS Energy has entered into forward sales transactions under this program, which
allow CMS Energy to either physically settle the contracts by issuing shares of
its common stock at the then-applicable forward sale price specified by the
agreement or net settle the contracts through the delivery or receipt of cash or
shares. CMS Energy may settle the contracts at any time through their maturity
dates, and presently intends to physically settle the contracts by delivering
shares of its common stock. As of December 31, 2021, these contracts have an
aggregate sales price of $56 million, maturing through 2022. For more
information on these forward sale contracts, see Item 8. Financial Statements
and Supplementary Data-Notes to the Consolidated Financial Statements-Note 4,
Financings and Capitalization-Issuance of Common Stock.
At December 31, 2021, CMS Energy had $526 million of its revolving credit
facility available and Consumers had $1.1 billion available under its revolving
credit facilities. CMS Energy and Consumers use these credit facilities for
general working capital purposes and to issue letters of credit. An additional
source of liquidity is Consumers' commercial paper program, which allows
Consumers to issue, in one or more placements, up to $500 million in the
aggregate in commercial paper notes with maturities of up to
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365 days at market interest rates. These issuances are supported by Consumers'
revolving credit facilities. While the amount of outstanding commercial paper
does not reduce the available capacity of the revolving credit facilities,
Consumers does not intend to issue commercial paper in an amount exceeding the
available capacity of the facilities. At December 31, 2021, there were no
commercial paper notes outstanding under this program. For additional details on
CMS Energy's and Consumers' revolving credit facilities and commercial paper
program, see Item 8. Financial Statements and Supplementary Data-Notes to the
Consolidated Financial Statements-Note 4, Financings and Capitalization.
Certain of CMS Energy's and Consumers' credit agreements contain covenants that
require CMS Energy and Consumers to maintain certain financial ratios, as
defined therein. At December 31, 2021, no default had occurred with respect to
any financial covenants contained in CMS Energy's and Consumers' credit
agreements. CMS Energy and Consumers were each in compliance with these
covenants as of December 31, 2021, as presented in the following table:
Limit Actual
CMS Energy, parent only
Debt to Capital1 < 0.70 to 1.0 0.54 to 1.0
Consumers
Debt to Capital2 < 0.65 to 1.0 0.48 to 1.0

1Applies to CMS Energy's revolving credit agreement and letter of credit
reimbursement agreement.
2Applies to Consumers' revolving credit agreements and letter of credit
agreement.
Material Cash Requirements: Based on the present investment plan, during 2022,
Consumers projects capital expenditures of $2.6 billion. Additionally,
CMS Energy's other material cash requirements for 2022 include $2.3 billion of
purchase obligations and $843 million of principal and interest payments on
long-term debt. Consumers' other material cash requirements for 2022 comprise
$2.2 billion of purchase obligations and $653 million of principal and interest
payments on long-term debt.
Components of CMS Energy's and Consumers' cash management plan include
controlling operating expenses and capital expenditures and evaluating market
conditions for financing and refinancing opportunities. CMS Energy's and
Consumers' present level of cash and expected cash flows from operating
activities, together with access to sources of liquidity, are anticipated to be
sufficient to fund contractual obligations and other material cash requirements
for 2022 and beyond.
Capital Expenditures: Over the next five years, Consumers expects to make
substantial capital investments. Consumers may revise its forecast of capital
expenditures periodically due to a number of factors, including environmental
regulations, MPSC approval or disapproval, business opportunities, market
volatility, economic trends, and the ability to access capital. Presented in the
following table are Consumers' estimated capital expenditures, including lease
commitments, for 2022 through 2026:
In Billions
2022 2023 2024 2025 2026 Total
Consumers
Electric utility operations $ 1.5 $ 1.7 $ 1.7 $ 1.5 $ 1.5 $ 7.9
Gas utility operations 1.1 1.2 1.3 1.4 1.4 6.4
Total Consumers $ 2.6 $ 2.9 $ 3.0 $ 2.9 $ 2.9 $ 14.3

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Other Material Cash Requirements: Presented in the following table are
CMS Energy's and Consumers' material cash obligations from known contractual and
other legal obligations:
In Billions
Payments Due
December 31, 2021 Less Than One Year Total
CMS Energy, including Consumers
Long-term debt $ 0.4 $ 12.6
Interest payments on long-term debt 0.5 12.3
Purchase obligations 2.3 12.5
AROs - 2.2
Total obligations $ 3.2 $ 39.6
Consumers
Long-term debt $ 0.4 $ 8.5
Interest payments on long-term debt 0.3 6.6
Purchase obligations 2.2 12.0
AROs - 2.2
Total obligations $ 2.9 $ 29.3

Purchase obligations arise from long-term contracts for the purchase of
commodities and related services, plant purchase commitments, and construction
and service agreements. The commodities and related services include long-term
PPAs, natural gas and associated transportation, and coal and associated
transportation. For more information on CMS Energy's and Consumers' purchase
obligations, see Item 8. Financial Statements and Supplementary Data-Notes to
the Consolidated Financial Statements-Note 3, Contingencies and
Commitments-Contractual Commitments.
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. For
additional details on indemnity and guarantee arrangements, see Item 8.
Financial Statements and Supplementary Data-Notes to the Consolidated Financial
Statements-Note 3, Contingencies and Commitments-Guarantees. For additional
details on letters of credit and CMS Energy's forward sales contracts, see
Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated
Financial Statements-Note 4, Financings and Capitalization.
Outlook
Several business trends and uncertainties may affect CMS Energy's and Consumers'
financial condition and results of operations. These trends and uncertainties
could have a material impact on CMS Energy's and Consumers' consolidated income,
cash flows, or financial position. For additional details regarding these and
other uncertainties, see Forward-Looking Statements and Information; Item 1A.
Risk Factors; and Item 8. Financial Statements and Supplementary Data-Notes to
the Consolidated Financial Statements-Note 2, Regulatory Matters and Note 3,
Contingencies and Commitments.
Consumers Electric Utility Outlook and Uncertainties
Clean Energy Plan: Consumers' Clean Energy Plan details its strategy to meet
customers' long-term energy needs. The Clean Energy Plan was originally outlined
in Consumers' 2018 IRP, which was approved by the MPSC in 2019. In June 2021,
Consumers filed its 2021 IRP with the MPSC, proposing
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updates to the Clean Energy Plan. Under its 2021 IRP, Consumers proposes to
eliminate the use of coal-fueled generation in 2025 and expects to meet
90 percent of its customers' needs with clean energy sources by 2040.
Specifically, the 2021 IRP provides for a full transition away from coal-fueled
generation by the end of 2025 and includes:
•the retirement of the D.E. Karn oil/gas-fueled and coal-fueled generating
units, totaling 1,734 MW of nameplate capacity, in 2023
•the retirement of the J.H. Campbell coal-fueled generating units, totaling
1,407 MW of nameplate capacity, in 2025
The MPSC has authorized Consumers to issue securitization bonds to finance the
recovery of and return on the D.E. Karn coal-fueled generating units. In the
2021 IRP, Consumers has requested regulatory asset treatment to recover the
remaining book value of and return on the other D.E. Karn units and the
J.H. Campbell coal-fueled generating units.
To bridge the transition away from coal generation, the 2021 IRP proposes:
•the purchase of the New Covert Generating Facility, a natural gas-fueled
generating unit with 1,176 MW of nameplate capacity in Van Buren County,
Michigan, in 2023
•the purchase, in 2025, of the enterprises segment's three natural gas-fueled
generating units, totaling 1,001 MW of nameplate capacity:
•the 770-MW DIG plant located in Dearborn, Michigan
•a 156-MW peaking generating unit located in Gaylord, Michigan
•a 75-MW peaking generating unit located in Comstock, Michigan
These investments are expected to allow Consumers to continue providing
controllable sources of electricity to customers while expanding its investment
in renewable energy. The 2021 IRP forecasts renewable energy capacity levels of
35 percent in 2025, 47 percent in 2030, and 63 percent in 2040, including the
addition of nearly 8,000 MW of solar generation. Under its 2021 IRP, Consumers
will continue to bid new capacity competitively. The updated plan proposes that
Consumers will own and operate at least 50 percent of new capacity, with the
remainder being built and owned by third parties.
Consumers' Clean Energy Plan provides the foundation for its goal to achieve
net-zero carbon emissions from its electric business by 2040. Under this
net-zero goal, Consumers plans to eliminate the impact of carbon emissions
created by the electricity it generates or purchases for customers.
Through its Clean Energy Plan, Consumers continues to make progress on expanding
its customer programs, namely its demand response, energy efficiency, and
conservation voltage reduction programs, as well as increasing its renewable
energy and pumped storage generation.
In support of its Clean Energy Plan, Consumers issued requests for proposals in
2019 and 2020, each to acquire up to 300 MW of new capacity from projects to be
operational in Michigan's Lower Peninsula by May 2023. Specifically, Consumers
solicited offers to enter into PPAs with or purchase solar generation projects
ranging in size from 20 MW to 150 MW and to enter into PPAs with PURPA
qualifying facilities up to 20 MW. Any contracts entered into as a result of the
requests for proposals would be subject to MPSC approval.
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As a result of the requests for proposals, Consumers has entered into PPAs to
purchase renewable capacity, energy, and RECs from solar generating facilities
and build transfer agreements to purchase solar generating facilities, as
presented in the following table:
Expected Commercial
Type of Agreement Capacity (MW) Location of Facility Operation1 Date of Agreement Date of MPSC Approval
2019 request
PPA (25 years) 140 Calhoun County, Michigan 2022 December 2020 April 2021
Build transfer agreement 150 Southeastern Michigan 2023/2024 January 2021 April 2021

2020 request
PPA (20 years) 30 Manistee, Michigan 2022 May 2021 September 2021
PPA (25 years)2 100 Calhoun County, Michigan 2023 October 2021 November 2021
PPA (20 years)2 125 Jackson County, Michigan 2023 October 2021 November 2021
Build transfer agreement 150 Southeastern Michigan 2023/2024 October 2021 November 2021

1 For build transfer agreements, represents the date Consumers expects to take
full ownership and begin commercial operation.
2 This agreement provides Consumers the option to purchase the associated solar
generating facility after ten years.
In addition, Consumers issued a request for proposals in September 2021 to
acquire up to 500 MW of new capacity from projects to be operational in
Michigan's Lower Peninsula by December 2024. Specifically, Consumers solicited
offers to enter into PPAs with or purchase solar generation projects up to
300 MW in size and to enter into PPAs with PURPA qualifying facilities up to
five MW in size. Consumers will acquire at least 250 MW through long-term PPAs.
Any contracts entered into as a result of the request for proposals would be
subject to MPSC approval.
Renewable Energy Plan: The 2016 Energy Law raised the renewable energy standard
to 15 percent in 2021. Consumers is required to submit RECs, which represent
proof that the associated electricity was generated from a renewable energy
resource, in an amount equal to at least the required percentage of Consumers'
electric sales volume each year. Under its renewable energy plan, Consumers met
the 15-percent requirement in 2021 and expects to meet the requirement in future
years with a combination of newly generated RECs and previously generated RECs
carried over from prior years.
Under Consumers' renewable energy plan, the MPSC has approved the acquisition of
up to 525 MW of new wind generation projects and authorized Consumers to earn a
10.7 percent return on equity on any projects approved by the MPSC.
Specifically, the MPSC has approved the following:
•purchase and construction of a 150-MW wind generation project in Gratiot
County, Michigan; the project became operational in December 2020
•purchase of a 166-MW wind generation project in Hillsdale, Michigan; the
project became operational and Consumers took full ownership in February 2021
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•purchase of a wind generation project under development, with capacity of up to
201 MW, in Gratiot County, Michigan; Consumers expects to take full ownership
and begin commercial operation of the project before 2024
The MPSC also approved the execution of a 20-year PPA under which Consumers will
purchase 100 MW of renewable capacity, energy, and RECs from a 149-MW solar
generating facility to be constructed in Calhoun County, Michigan; the facility
is expected to be operational in 2022.
Voluntary Large Customer Renewable Energy Program: Consumers provides service
under a program that provides large full-service electric customers with the
opportunity to advance the development of renewable energy beyond the
requirements of the 2016 Energy Law. In September 2021, the MPSC approved
Consumers' request to amend its renewable energy plan to remove the annual
subscription limit associated with this program. The MPSC also approved up to
1,000 MW of new wind and solar generation projects between 2024 and 2027 to meet
customer demand for the program. Consumers will competitively solicit for
additional renewable energy assets based on customer applications and will
construct the assets based on customer subscriptions to the program.
Electric Customer Deliveries and Revenue: Consumers' electric customer
deliveries are seasonal and largely dependent on Michigan's economy. The
consumption of electric energy typically increases in the summer months, due
primarily to the use of air conditioners and other cooling equipment. In
addition, Consumers' electric rates, which follow a seasonal rate design, are
higher in the summer months than in the remaining months of the year. In
June 2021, electric residential customers transitioned to a summer peak
time-of-use rate that allows them to take advantage of lower-cost energy during
off-peak times during the summer months. Thus, customers can reduce their
electric bills by shifting their consumption from onpeak to offpeak times.
In response to the COVID19 pandemic, Michigan's Governor and the Michigan
Department of Health and Human Services have issued numerous orders throughout
2020 and 2021 restricting business, educational, and personal activities at
varying levels. In June 2021, almost all restrictions were lifted and Consumers
expects businesses and residents to continue resuming normal activities and for
weather-normalized electric deliveries to stabilize.
Over the next five years, Consumers expects weather-normalized electric
deliveries to remain stable relative to 2021. This outlook reflects the effects
of energy waste reduction programs offset largely by modest growth in electric
demand. Actual delivery levels will depend on:
•energy conservation measures and results of energy waste reduction programs
•weather fluctuations
•Michigan's economic conditions, including utilization, expansion, or
contraction of manufacturing facilities, population trends, and housing activity
Electric ROA: Michigan law allows electric customers in Consumers' service
territory to buy electric generation service from alternative electric suppliers
in an aggregate amount capped at ten percent of Consumers' sales, with certain
exceptions. At December 31, 2021, electric deliveries under the ROA program were
at the tenpercent limit. Of Consumers' 1.9 million electric customers, fewer
than 300, or 0.02 percent, purchased electric generation service under the ROA
program.
The 2016 Energy Law established a path to ensure that forward capacity is
secured for all electric customers in Michigan, including customers served by
alternative electric suppliers under ROA. The 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, if an alternative
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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, 2024.
During 2017, the MPSC issued orders finding that it has statutory authority to
determine and implement a local clearing requirement, which requires all
electric suppliers to demonstrate that a portion of the capacity procured to
serve customers during peak demand times is located in the MISO footprint in
Michigan's Lower Peninsula. In April 2020, the Michigan Supreme Court affirmed
the MPSC's statutory authority to implement a local clearing requirement on
individual electric providers.
In September 2020, ABATE and another intervenor filed a complaint against the
MPSC in the U.S. District Court for the Eastern District of Michigan challenging
the constitutionality of a local clearing requirement. The complaint requests
the federal court to issue a permanent injunction prohibiting the MPSC from
implementing a local clearing requirement on individual electric providers. In
December 2020, Consumers filed a motion to intervene and defend the local
clearing requirement in that federal litigation; this motion was granted in
January 2021 and this case remains pending.
Electric Rate Matters: Rate matters are critical to Consumers' electric utility
business. For additional details on rate matters, see Item 8. Financial
Statements and Supplementary Data-Notes to the Consolidated Financial
Statements-Note 2, Regulatory Matters and Note 3, Contingencies and Commitments.
2021 Electric Rate Case: In December 2021, the MPSC approved an annual rate
increase of $27 million, based on a 9.9 percent authorized return on equity that
will be reflected in rates beginning January 1, 2022. In its order, the MPSC
disallowed cost recovery for certain categories of recently completed capital
expenditures incurred by Consumers. For additional details, see Item 8.
Financial Statements and Supplementary Data-Notes to the Consolidated Financial
Statements-Note 2, Regulatory Matters.
Depreciation Rate Case: In March 2021, Consumers filed a depreciation case
related to its electric and common utility property. In this case, Consumers
requested to increase depreciation expense, and its recovery of that expense by
$43 million annually. In December 2021, the MPSC approved a settlement agreement
that decreases depreciation expense by $27 million annually based on
December 31, 2019 balances. The new depreciation rates will be reflected in
rates beginning January 1, 2022, concurrent with rates to be implemented in
accordance with Consumers' recently approved electric rate case.
PSCR Plan: Consumers submitted its 2022 PSCR plan to the MPSC in September 2021
and, in accordance with its proposed plan, self-implemented the 2022 PSCR charge
beginning in January 2022.
Retention Incentive Program: In 2019, Consumers announced a retention incentive
program to ensure necessary staffing at the D.E. Karn generating complex through
the anticipated retirement of the coal-fueled generating units. Based on the
number of employees that have chosen to participate, the aggregate cost of the
program through 2023 is estimated to be $35 million. In its order in Consumers'
2020 electric rate case, the MPSC approved deferred accounting treatment for
these costs. Consumers expects to recognize $5 million of retention benefit
costs in 2022; this expense will be deferred as a regulatory asset. For
additional details on this program, see Item 8. Financial Statements and
Supplementary Data-Notes to the Consolidated Financial Statements-Note 20, Exit
Activities and Discontinued Operations. Within its 2021 IRP, Consumers proposes
to retire the J.H. Campbell coal-fueled generating units. No retention incentive
costs related to this retirement will be recognized unless Consumers' 2021 IRP
is approved by the MPSC.
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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 $255 million from 2022 through 2026 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 initially became effective in 2015, requires Michigan and many
other states to improve air quality by reducing power plant emissions that,
according to EPA modeling, contribute to ground-level ozone and fine particle
pollution in other downwind states. In 2016, the EPA finalized ozone season
standards for CSAPR, which became effective in 2017. In 2020, in response to a
court-ordered remand due to litigation, the EPA proposed a revised CSAPR rule to
reflect updated emission reductions from electric generating units in 12 states,
including Michigan. The EPA finalized this revised rule in March 2021, with
continued emission reductions through 2024. Consumers has evaluated its emission
compliance strategy for existing units based on the proposed number of
allowances allocated to Michigan for 2021 through 2024 and believes the impact
of this rule should be minimal.
In 2012, the EPA published emission standards for electric generating units,
known as MATS, based on Section 112 of the Clean Air Act. Under MATS, all of
Consumers' existing coal-fueled electric generating units were required to add
additional controls for hazardous air pollutants. Consumers met the deadline for
five coal-fueled units and two oil/gas-fueled units it continues to operate and
retired its seven remaining coal-fueled units. In May 2020, the EPA finalized
changes to the supporting analysis used to enact the MATS rule. However, in
January 2022, the EPA announced a proposed rule to revoke this 2020 finding and
reaffirm that it is appropriate and necessary to regulate emissions of hazardous
air pollutants from coal- and oil-fueled power plants. The EPA is also
considering whether more stringent protections for hazardous air pollution from
power plants are feasible and warranted. Consumers will continue to monitor the
MATS rule status and any pending litigation. Consumers does not expect any
changes to the MATS rule will have a significant impact on its current MATS
compliance strategy.
In 2015, the EPA lowered the NAAQS for ozone. The 2015 ozone NAAQS made it more
difficult to construct or modify power plants and other emission sources in
areas of the country that have not met the 2015 ozone standard. In 2018, the EPA
designated certain areas of Michigan as not meeting the ozone standard.
Specifically, seven counties in southeastern Michigan and three counties in
western Michigan were not in attainment with the ozone standard by an
August 2021 regulatory deadline, and thus may have their nonattainment
designations increased from marginal to moderate. None of Consumers'
fossil-fuel-fired generating units are located in these areas. The State of
Michigan has convened industry workgroups to seek implementation and control
strategy ideas for statewide compliance of the 2015 ozone standard, which will
need to be in place by early 2023. In January 2022, EGLE submitted a request to
the EPA for redesignation of the seven counties in southeastern Michigan to be
in attainment with the 2015 ozone standard based on the most recent data. EGLE
is awaiting the EPA's response to that request. Consumers will continue to stay
engaged with EGLE and the workgroups to assess potential impacts to its
generating assets.
In August 2020, the EPA proposed to retain the 2015 NAAQS for ozone without
revision and finalized this regulatory decision in December 2020. In
October 2021, the EPA provided notice that it was going to reconsider the
December 2020 ozone NAAQS decision. The EPA believes it will complete this
reconsideration by December 2023. Although this action may ultimately result in
more ozone nonattainment areas in Michigan, Consumers does not expect that any
litigation involving NAAQS for ozone or lowering of the ozone standard will have
a material adverse impact on its generating assets.
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Consumers' strategy to comply with air quality regulations, including CSAPR,
MATS, and NAAQS, as well as its legal obligations, involved the installation and
operation of emission control equipment at some facilities and the suspension of
operations at others; however, Consumers continues to evaluate these rules in
conjunction with other EPA and EGLE rulemakings, litigation, executive orders,
treaties, and congressional action. This evaluation could result in:
•a change in Consumers' fuel mix
•changes in the types of generating units Consumers may purchase or build in the
future
•changes in how certain units are operated
•the retirement, mothballing, or repowering with an alternative fuel of some of
Consumers' generating units
•changes in Consumers' environmental compliance costs
Greenhouse Gases: There have been numerous legislative and regulatory
initiatives at the state, regional, national, and international levels that
involve the potential regulation of greenhouse gases. Consumers continues to
monitor and comment on these initiatives and to follow litigation involving
greenhouse gases.
In 2015, the EPA finalized new rules pursuant to Section 111(b) of the Clean Air
Act to limit carbon dioxide emissions from new electric generating units, as
well as modified or reconstructed electric generating units. New coal-fueled
units would not be able to meet this limit without installing carbon dioxide
control equipment using such methods as carbon capture and sequestration.
In 2018, the EPA proposed a revised Section 111(b) regulation to replace the
2015 standard rule limiting carbon dioxide emissions from new electric
generating units, citing limited availability and high costs of carbon capture
and sequestration equipment as reasons to change the 2015 rule. The revised
Section 111(b) regulation would require new coal-fueled generating units to meet
a highly efficient steam cycle performance standard. If finalized, Consumers
does not expect this proposal to change its existing environmental strategy. The
EPA has not formally indicated whether they intend to finalize this rulemaking
or instead pursue a new set of regulations.
In 2019, the EPA finalized the Affordable Clean Energy rule, which required
individual states to evaluate coalfueled power plants for heatrate
improvements that could increase overall plant efficiency. In January 2021, the
D.C. Circuit Court of Appeals vacated and remanded this rule to the EPA which,
in turn, appealed the rule to the U.S. Supreme Court. In October 2021, the
U.S. Supreme Court agreed to hear an appeal of this case. A decision is expected
by June 2022. Consumers cannot evaluate the potential impact of the rule until
any appeals and EPA actions are resolved. It is anticipated that the EPA will
propose a new regulation in 2022 addressing greenhouse gas emissions from
existing fossil-fueled electric generating units, potentially under the Clean
Air Act; however, Consumers cannot predict the form and extent of such potential
regulation as it is likely to be impacted by the U.S. Supreme Court's decision
on the Affordable Clean Energy rule.
In 2015, a group of 195 countries, including the U.S., finalized the Paris
Agreement, which addresses carbon dioxide reduction measures beginning in 2020.
While the U.S. had withdrawn from the Paris Agreement, it rejoined the Paris
Agreement in 2021. In April 2021, the U.S. announced it is committing to a
nationally determined contribution under the Paris Agreement. Nationally
determined contributions are the efforts by each country to reduce national
greenhouse gas emissions. The commitment made by the U.S. is to reduce
greenhouse gas emissions by 50 to 52 percent from 2005 levels by 2030. In its
2021 IRP, pending MPSC approval, Consumers proposed a 60-percent reduction in
its carbon emissions from 2005 levels by 2025. At this time, Consumers does not
expect any adverse changes to its environmental strategy as a result of these
events, as the nationally determined contribution is not binding without new
Congressional legislation.
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In 2020, Michigan's Governor signed an executive order creating the Michigan
Healthy Climate Plan, which outlines goals for Michigan to achieve economy-wide
net-zero greenhouse gas emissions and to be carbon neutral by 2050. The
executive order aims for a 28-percent reduction below 2005 levels of greenhouse
gas emissions by 2025. Consumers has already surpassed the 28-percent reduction
milestone for its owned electric generation and previously announced a goal of
achieving net-zero carbon emissions from its electric business by 2040. The
order directs EGLE to develop and oversee an action plan for achieving these
goals. In addition, the Governor established the Council on Climate Solutions,
an advisory group of key stakeholders to be appointed by the Governor that will
assist EGLE in implementing the plan. These goals are aspirational in nature and
any changes in law or regulation to achieve these goals would need to be
approved by Michigan Legislature or the relevant regulatory agency. The MPSC has
requested comments from utilities and other stakeholders on how the Governor's
goal should be incorporated into future IRP filings. Consumers does not expect
any adverse changes to its environmental strategy as a result of these events.
While Consumers cannot predict the outcome of changes in U.S. policy or of other
legislative or regulatory initiatives involving the potential regulation of
greenhouse gases, it intends to continue to move forward with its Clean Energy
Plan, its present net-zero carbon reduction goal, and its emphasis on reliable
and resilient supply. Consumers will continue to monitor regulatory and
legislative activity and related litigation regarding greenhouse gas emissions
standards that may affect electric generating units.
Increased frequency of severe weather events, including those due to climate
change, could materially impact Consumers' facilities, energy sales, and results
of operations. Consumers is unable to predict these events or their financial
impact; however, Consumers evaluates the potential physical impacts of climate
change on its operations, including increased temperature, increased storm
activity, increased rainfall, and higher lake and river levels. Consumers is
taking steps to mitigate these risks as appropriate.
Litigation, international treaties, executive orders, federal laws and
regulations (including regulations by the EPA), and state laws and regulations,
if enacted or ratified, could ultimately impact Consumers. Consumers may be
required to replace equipment; install additional emission control equipment;
purchase emission allowances or credits; curtail operations; arrange for
alternative sources of supply; purchase facilities that generate fewer
emissions; mothball or retire facilities that generate certain emissions; pursue
energy efficiency or demand response measures more swiftly; 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 in rates consistent with the recovery of other reasonable costs of
complying with environmental laws and regulations.
CCRs: In 2015, the EPA published a rule regulating CCRs under RCRA. This 2015
rule adopts minimum standards for beneficially reusing and disposing of
nonhazardous CCRs. The rule establishes new minimum requirements for CCR unit
location, design, structural stability, groundwater monitoring and correction
action, flood protection, fugitive dust control, recordkeeping, and public
disclosure of certain records, including any groundwater protection standard
exceedances. The 2015 rule also sets out conditions under which some CCR units
would be forced to cease receiving CCR and nonCCR wastewater and initiate
closure based on the inability to achieve minimum safety standards, meet a
location standard, or meet minimum groundwater standards. Due to litigation,
many aspects of the 2015 CCR rule have been remanded to the EPA, which has
resulted in numerous proposed rules and three final rules. One of the final
rules is in litigation. Anticipated litigation related to remanded aspects that
have not been addressed will add uncertainty around requirements for compliance
and state permit programs.
The EPA amended the conditions of forced closure in a rule published in
August 2020. The August 2020 rule required all unlined CCR units to initiate
closure by mid-April 2021, unless conditions that satisfied an alternate closure
schedule were approved by the EPA. Consumers, with agreement from EGLE,
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completed the work necessary to initiate closure by excavating CCRs or placing a
final cover over each of its relevant CCR units prior to the April 2021 closure
initiation deadline.
Separate from the 2015 or 2020 rules, Congress passed legislation in 2016
allowing participating states to develop permitting programs for CCRs under RCRA
Subtitle D. In 2018, the Michigan Legislature adopted standards for a permitting
program, which requires the EPA's authorization. This program should reduce
costly, duplicative oversight over CCRs and provide local oversight to CCR
issues unique to Michigan. In April 2020, EGLE submitted a regulatory package
for Michigan's permit program to the EPA for its review, which is still pending.
Federal rulemaking challenges may delay EPA approval of the Michigan permitting
program.
Consumers has historically been authorized to recover in electric rates costs
related to coal ash disposal sites.
Water: Multiple water-related regulations apply, or may apply, to Consumers.
The EPA regulates cooling water intake systems of existing electric generating
plants under Section 316(b) of the Clean Water Act and the corresponding rules
that were revised in 2014. The rules seek to reduce alleged harmful impacts on
aquatic organisms, such as fish. In 2018, Consumers submitted to EGLE for
approval all required studies and recommended plans to comply with
Section 316(b), but has not yet received final approval.
In 2015, the EPA released its final effluent limitation guidelines for steam
electric generating plants. These guidelines, which are presently being
litigated, set stringent new requirements for the discharge from electric
generating units into surface waters. The EPA published a final rule in
October 2020, with an effective date of December 2020, revising the 2015
guidelines related to the discharge of certain wastewater streams from electric
generating units. The rule also allows for extension of the compliance deadline
from the end of 2023 to the end of 2025, upon approval by EGLE through the NPDES
permitting process. Consumers received such an extension to 2025 for its
Campbell generating facility in 2021. Consumers does not expect any adverse
changes to its environmental strategy as a result of these revisions to the rule
or any litigation of the guidelines.
In January 2020, the EPA and the U.S. Army Corps of Engineers finalized a rule
under the Clean Water Act that repealed a 2015 definition of "Waters of the
United States," narrowed the scope of federal jurisdiction, and reduced the
frequency of dual jurisdiction in states with authority to regulate the same
waters; Michigan is one such state. In November 2021, the EPA and the U.S. Army
Corps of Engineers proposed to revise the 2020 "Waters of the United States"
definition to revert to the 2015 "Waters of the United States" definition, with
changes reflecting the EPA's interpretation of intervening U.S. Supreme Court
decisions. The proposed November 2021 rulemaking may change how Consumers
interacts with federal jurisdictional waters within Michigan, which may add
additional requirements to existing compliance programs, or may require
additional permitting for infrastructure projects. However, Consumers does not
expect adverse changes to its environmental strategy as a result of the current
interpretations. The "Waters of the United States" definition continues to be
litigated in multiple jurisdictions.
Many of Consumers' facilities maintain NPDES permits, which are renewed every
five years and are vital to the facilities' operations. Failure of EGLE to renew
any NPDES permit, a successful appeal against a permit, a change in the
interpretation or scope of NPDES permitting, or onerous terms contained in a
permit could have a significant detrimental effect on the operations of a
facility.
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Protected Wildlife: Multiple regulations apply, or may apply, to Consumers
relating to protected species and habitats.
Statutes like the Endangered Species Act, the Migratory Bird Treaty Act, and the
Bald and Golden Eagle Protection Act may impact operations at Consumers'
facilities. In May 2021, the U.S. Fish and Wildlife Service proposed to repeal a
January 2021 rule related to incidental take of migratory birds. In
November 2021, the U.S. Fish and Wildlife Service published an advanced notice
of proposed rulemaking outlining its intent to regulate incidental take under
the Migratory Bird Treaty Act. Permitting and monitoring fees and restrictions
on operations associated with the rules could impact Consumers' existing and
future operations, including wind and solar generation facilities.
Additionally, Consumers is monitoring proposed changes to the listing status of
several species within its operational area due to an increase in
wildlife-related regulatory activity. A change in species listed under the
Endangered Species Act may impact Consumers' costs to mitigate its impact on
protected species and habitats at certain existing facilities as well as siting
choices for new facilities.
Other Matters: Other electric environmental matters could have a material impact
on Consumers' outlook. For additional details on other electric environmental
matters, see Item 8. Financial Statements and Supplementary Data-Notes to the
Consolidated Financial Statements-Note 3, Contingencies and
Commitments-Consumers Electric Utility Contingencies-Electric Environmental
Matters.
Consumers Gas Utility Outlook and Uncertainties
Gas Deliveries: Consumers' gas customer deliveries are seasonal. The peak demand
for natural gas typically occurs in the winter due to colder temperatures and
the resulting use of natural gas as heating fuel.
Over the next five years, Consumers expects weather-normalized gas deliveries to
remain stable relative to 2021. This outlook reflects the effects of energy
waste reduction programs offset largely by modest growth in gas demand. Actual
delivery levels will depend on:
•weather fluctuations
•use by power producers
•availability and development of renewable energy sources
•gas price changes
•Michigan's economic conditions, including population trends and housing
activity
•the price or demand of competing energy sources or fuels
•energy efficiency and conservation impacts
Gas Rate Matters: Rate matters are critical to Consumers' gas utility business.
For additional details on rate matters, see Item 8. Financial Statements and
Supplementary Data-Notes to the Consolidated Financial Statements-Note 2,
Regulatory Matters and Note 3, Contingencies and Commitments.
Gas Rate Case: In December 2021, Consumers filed an application with the MPSC
seeking an annual rate increase of $278 million, based on a 10.5 percent
authorized return on equity and a projected twelve-month period ending
September 30, 2023. The filing requests authority to recover new infrastructure
investment and related costs that are expected to allow Consumers to improve
system safety and
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reliability and reduce fugitive methane emissions. Presented in the following
table are the components of the requested increase in revenue:
In Millions

Projected Twelve-Month Period Ending September 30 2022 Components of the requested rate increase Investment in rate base

$ 247
Operating and maintenance costs (4)
Cost of capital 22
Sales 13
Total $ 278

The filing also seeks approval of a revenue decoupling mechanism that would
annually reconcile Consumers' actual weather-normalized non-fuel revenues with
the revenues approved by the MPSC.
Depreciation Rate Case: In December 2021, Consumers filed a depreciation case
related to its gas utility plant property. In this case, Consumers requested a
decrease in depreciation expense of $1 million annually based on
December 31, 2020 balances.
GCR Plan: Consumers submitted its 2022-2023 GCR plan to the MPSC in
December 2021 and, in accordance with its proposed plan, expects to
self-implement the 2022-2023 GCR charge beginning in April 2022.
Gas Pipeline and Storage Integrity and Safety: The PHMSA has published various
rules that expand federal safety standards for gas transmission pipelines and
underground storage facilities. To comply with these rules, Consumers will incur
increased capital and operating and maintenance costs to install and remediate
pipelines and to expand inspections, maintenance, and monitoring of its existing
pipelines and storage facilities. The initial requirements in the regulation
took effect in July 2020, with future regulation phases to be released over
numerous years.
Although associated capital or operating and maintenance costs relating to these
regulations could be material and cost recovery cannot be assured, Consumers
expects to recover such costs in rates consistent with the recovery of other
reasonable costs of complying with laws and regulations. Consumers will continue
to monitor gas safety regulations and continue implementation of the American
Petroleum Institute's Recommended Practice 1173, Pipeline Safety Management
Systems. This program minimizes gas system asset- and performance-related risks
by ensuring that there are policies, procedures, work instructions, forms, and
records in place to streamline adoption and deployment of any existing or future
regulations.
Gas Environmental Outlook: Consumers expects to incur response activity costs at
a number of sites, including 23 former MGP sites. For additional details, see
Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated
Financial Statements-Note 3, Contingencies and Commitments-Consumers Gas Utility
Contingencies-Gas Environmental Matters.
Air Quality: In 2015, the EPA lowered the NAAQS for ozone. The 2015 ozone NAAQS
made it more difficult to construct or modify power plants and other emission
sources in areas of the country that have not met the 2015 ozone standard. In
2018, the EPA designated certain areas of Michigan as not meeting the ozone
standard. Specifically, seven counties in southeastern Michigan and three
counties in western Michigan were not in attainment with the ozone standard by
an August 2021 regulatory deadline, and thus may have their nonattainment
designations increased from marginal to moderate. Some of Consumers' compressor
stations are located in these areas. The State of Michigan has convened industry
workgroups
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to seek implementation and control strategy ideas for statewide compliance of
the 2015 ozone standard, which will need to be in place by early 2023. In
January 2022, EGLE submitted a request to the EPA for redesignation of the
seven counties in southeastern Michigan to be in attainment with the 2015 ozone
standard based on the most recent data. EGLE is awaiting the EPA's response to
that request.
In August 2020, the EPA proposed to retain the 2015 NAAQS for ozone without
revision and finalized this regulatory decision in December 2020. In
October 2021, the EPA provided notice that it was going to reconsider the
December 2020 ozone NAAQS decision. The EPA believes it will complete this
reconsideration by December 2023. Consumers will continue to stay engaged with
EGLE and the workgroups to assess potential impacts to its compressor stations.
Greenhouse Gases: Consumers is making voluntary efforts to reduce its gas
utility's methane emissions. In 2019, Consumers released its Methane Reduction
Plan, which set a goal of net-zero methane emissions from its natural gas
delivery system by 2030. Under its Methane Reduction Plan, Consumers plans to
reduce methane emissions from its system by about 80 percent by accelerating the
replacement of aging pipe, rehabilitating or retiring outdated infrastructure,
and adopting new technologies and practices. The remaining emissions will be
offset by purchasing and/or producing renewable natural gas.
In November 2021, the EPA released a proposed rule to regulate methane for the
oil and gas sector. This proposed rule is not expected to have a material
adverse impact on Consumers' natural gas storage, compressor stations, and
distribution systems, as it applies upstream of Consumers' facilities.
In 2020, Michigan's Governor signed an executive order creating the Michigan
Healthy Climate Plan, which outlines goals for Michigan to achieve economy-wide
net-zero greenhouse gas emissions and to be carbon neutral by 2050. The
executive order aims for a 28-percent reduction below 2005 levels of greenhouse
gas emissions by 2025. These new goals could impact Consumers' gas business over
the long term. Consumers is evaluating decarbonization options for its gas
business including energy efficiency, renewable natural gas, carbon offsets, and
other decarbonization methods. As one strategy, Consumers recently requested the
MPSC's approval of a proposed program that would allow gas customers to purchase
carbon offset credits on a voluntary basis. Similarly, in December 2021,
Consumers announced plans to begin development of a renewable natural gas
facility that will capture methane from manure generated at a neighboring farm
and convert it into renewable natural gas. For additional details on the
executive order, see Consumers Electric Utility Outlook and
Uncertainties-Electric Environmental Outlook.
In 2015, a group of 195 countries, including the U.S., finalized the Paris
Agreement, which addresses carbon dioxide reduction measures beginning in 2020.
While the U.S. had withdrawn from the Paris Agreement, it rejoined the Paris
Agreement in 2021. In April 2021, the U.S. announced it is committing to a
nationally determined contribution under the Paris Agreement. Nationally
determined contributions are the efforts by each country to reduce national
greenhouse gas emissions. The commitment made by the U.S. is to reduce
greenhouse gas emissions by 50 to 52 percent from 2005 levels by 2030. In its
2021 IRP, pending MPSC approval, Consumers proposed a 60-percent reduction in
its carbon emissions from 2005 levels by 2025. At this time, Consumers does not
expect any adverse changes to its environmental strategy as a result of these
events, as the nationally determined contribution is not binding without new
Congressional legislation.
There is increasing interest at the federal, state, and local levels involving
potential regulation of greenhouse gases or its sources. Such regulation, if
adopted, may involve requirements to reduce methane emissions from Consumers'
gas utility operations and carbon dioxide emissions from natural gas customer
use. No such measures apply to Consumers at this time. Consumers continues to
monitor these initiatives and comment as appropriate. Consumers cannot predict
the impact of any potential future legislation or regulation on its gas utility.
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Consumers Electric Utility and Gas Utility Outlook and Uncertainties
Energy Waste Reduction Plan: The 2016 Energy Law authorized incentives for
demand response programs and energy efficiency programs, referring to the
combined initiatives as energy waste reduction programs. The law also set a
requirement to achieve annual reductions of 1.0 percent in customers'
electricity use through 2021 and 0.75 percent in customers' natural gas use
indefinitely and established a goal of 35 percent combined renewable energy and
energy waste reduction by 2025. Consumers achieved 30 percent combined renewable
energy and energy waste reduction through 2021.
Additionally, the MPSC has approved the recovery of demand response costs and an
associated financial incentive based on demand response target performance.
Under its energy waste reduction plan, Consumers provides its customers with
incentives to reduce usage by offering energy audits; rebates and discounts on
purchases of highly efficient appliances; and other incentives and programs.
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 1,483 MW
of capacity, and to pursue opportunities for the development of renewable
generation projects.
In June 2021, DIG, CMS Generation Michigan Power, and CMS ERM entered into an
agreement with Consumers to sell, for $515 million, subject to certain
adjustments, the enterprises segment's three natural gas-fueled generating
units, totaling 1,001 MW of nameplate capacity:
•the 770-MW DIG plant located in Dearborn, Michigan
•a 156-MW peaking generating unit located in Gaylord, Michigan
•a 75-MW peaking generating unit located in Comstock, Michigan
The parties plan to close the sale, which is dependent upon regulatory
approvals, in 2025.
The enterprises segment's assets may be affected by environmental laws and
regulations. The 2015 ozone NAAQS made it more difficult to construct or modify
power plants and other emission sources in areas of the country that have not
met the 2015 ozone standard. In 2018, the EPA designated certain areas of
Michigan as not meeting the ozone standard. The DIG plant is in one such area
and, as a result, would be subject to additional permitting restrictions in the
event of any future modifications. For additional details regarding the new
ozone NAAQS, see Consumers Electric Utility Outlook and Uncertainties-Electric
Environmental Outlook.
Trends, uncertainties, and other matters related to the enterprises segment that
could have a material impact on CMS Energy's consolidated income, cash flows, or
financial position include:
•investment in and financial benefits received from renewable energy and energy
storage projects
•changes in energy and capacity prices
•severe weather events and climate change associated with increasing levels of
greenhouse gases
•changes in commodity prices and interest rates on certain derivative contracts
that do not qualify for hedge accounting and must be marked to market through
earnings
•changes in various environmental laws, regulations, principles, or practices,
or in their interpretation
•indemnity and environmental remediation obligations at Bay Harbor
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•indemnity obligations assumed in connection with the purchase or ownership of
an interest in one or more facilities that involve tax equity financing
•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
Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated
Financial Statements-Note 3, Contingencies and Commitments.
Other Outlook and Uncertainties
Litigation: CMS Energy, Consumers, and certain of their subsidiaries are named
as parties in various litigation matters, as well as in administrative
proceedings before various courts and governmental agencies, arising in the
ordinary course of business. For additional details regarding these and other
legal matters, see Item 8. Financial Statements and Supplementary Data-Notes to
the Consolidated Financial Statements-Note 2, Regulatory Matters and Note 3,
Contingencies and Commitments.
Critical Accounting Policies and Estimates
The following information is important to understand CMS Energy's and Consumers'
results of operations and financial condition. For additional accounting
policies, see Item 8. Financial Statements and Supplementary Data-Notes to the
Consolidated Financial Statements-Note 1, Significant Accounting Policies.
In the preparation of CMS Energy's and Consumers' consolidated financial
statements, estimates and assumptions are used that may affect reported amounts
and disclosures. CMS Energy and Consumers use accounting estimates for asset
valuations, unbilled revenue, depreciation, amortization, financial and
derivative instruments, employee benefits, stock-based compensation, the effects
of regulation, indemnities, contingencies, and AROs. Actual results may differ
from estimated results due to changes in the regulatory environment, regulatory
decisions, lawsuits, competition, and other factors. CMS Energy and Consumers
consider all relevant factors in making these assessments.
Accounting for the Effects of Industry Regulation: Because Consumers has
regulated operations, it uses regulatory accounting to recognize the effects of
the regulators' decisions on its financial statements. Consumers continually
assesses whether future recovery of its regulatory assets is probable by
considering communications and experience with its regulators and changes in the
regulatory environment. If Consumers determined that recovery of a regulatory
asset were not probable, Consumers would be required to write off the asset and
immediately recognize the expense in earnings.
Contingencies: CMS Energy and Consumers make judgments regarding the future
outcome of various matters that give rise to contingent liabilities. For such
matters, they record liabilities when they are considered probable and
reasonably estimable, based on all available information. In particular,
CMS Energy and Consumers are participating in various environmental remediation
projects for which they have recorded liabilities. The recorded amounts
represent estimates that may take into account such considerations as the number
of sites, the anticipated scope, cost, and timing of remediation work, the
available technology, applicable regulations, and the requirements of
governmental authorities. For remediation projects in which the timing of
estimated expenditures is considered reliably determinable, CMS Energy and
Consumers record the liability at its net present value, using a discount rate
equal to the interest rate on monetary assets that are essentially risk-free and
have maturities comparable to that of the environmental liability. The amount
recorded for any contingency may differ from actual costs incurred when the
contingency is resolved. For additional details, see Item 8. Financial
Statements and
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Supplementary Data-Notes to the Consolidated Financial Statements-Note 3,
Contingencies and Commitments.
Derivative Instruments: CMS Energy and Consumers account for certain contracts
as derivative instruments. If a contract is a derivative and does not qualify
for the normal purchases and sales exception, it is recorded on the consolidated
balance sheets at its fair value. At CMS Energy, if the derivative is accounted
for as a cash flow hedge, unrealized gains and losses from changes in the fair
value of the derivative are recognized in AOCI and subsequently recognized in
earnings when the hedged transactions impact earnings. If the derivative is
accounted for as a fair value hedge, changes in the fair value of the derivative
and changes in the fair value of the hedged item due to the hedged risk are
recognized in earnings. For the FTRs at Consumers, changes in fair value are
deferred as regulatory assets or liabilities.
The criteria used to determine if an instrument qualifies for derivative
accounting or for an exception from derivative accounting are complex and often
require judgment in application. Changes in business strategies or market
conditions, as well as a requirement to apply different interpretations of the
derivative accounting literature, could result in changes in accounting for a
single contract or groups of contracts, which could have a material impact on
CMS Energy's and Consumers' financial statements. For additional details on
CMS Energy's and Consumers' derivatives and how the fair values of derivatives
are determined, see Item 8. Financial Statements and Supplementary Data-Notes to
the Consolidated Financial Statements-Note 5, Fair Value Measurements.
Income Taxes: The amount of income taxes paid by CMS Energy is subject to
ongoing audits by federal, state, and foreign tax authorities, which can result
in proposed assessments. An estimate of the potential outcome of any uncertain
tax issue is highly judgmental. CMS Energy believes adequate reserves have been
provided for these exposures; however, future results may include favorable or
unfavorable adjustments to the estimated tax liabilities in the period the
assessments are made or resolved or when statutes of limitation on potential
assessments expire. Additionally, CMS Energy's judgment as to the ability to
recover its deferred tax assets may change. CMS Energy believes the valuation
allowances related to its deferred tax assets are adequate, but future results
may include favorable or unfavorable adjustments. As a result, CMS Energy's
effective tax rate may fluctuate significantly over time. For additional
details, see Item 8. Financial Statements and Supplementary Data-Notes to the
Consolidated Financial Statements-Note 12, Income Taxes.
Pension and OPEB: CMS Energy and Consumers provide retirement pension benefits
to certain employees under noncontributory DB Pension Plans, and they provide
postretirement health and life benefits to qualifying retired employees under an
OPEB Plan.
CMS Energy and Consumers record liabilities for pension and OPEB on their
consolidated balance sheets at the present value of the future obligations, net
of any plan assets. The calculation of the liabilities and associated expenses
requires the expertise of actuaries, and requires many assumptions, including:
•life expectancies
•discount rates
•expected long-term rate of return on plan assets
•rate of compensation increases
•expected health care costs
A change in these assumptions could change significantly CMS Energy's and
Consumers' recorded liabilities and associated expenses.
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Presented in the following table are estimates of credits and cash contributions
through 2024 for the DB Pension Plans and OPEB Plan. Actual future costs,
credits, and contributions will depend on future investment performance,
discount rates, and various factors related to the participants of the
DB Pension Plans and OPEB Plan. CMS Energy and Consumers will, at a minimum,
contribute to the plans as needed to comply with federal funding requirements.
In Millions
DB Pension Plans OPEB Plan
Credit Contribution Credit Contribution
CMS Energy, including Consumers
2022 $ (10) $ - $ (120) $ -
2023 (31) - (114) -
2024 (52) - (104) -
Consumers1
2022 $ (7) $ - $ (113) $ -
2023 (27) - (107) -
2024 (47) - (97) -

1Consumers' pension and OPEB costs are recoverable through its general
ratemaking process.
Lowering the expected long-term rate of return on the assets of the DB Pension
Plans by 25 basis points would increase estimated pension cost for 2022 by
$8 million for both CMS Energy and Consumers. Lowering the PBO discount rates by
25 basis points would increase estimated pension cost for 2022 by $5 million for
both CMS Energy and Consumers.
Pension and OPEB plan assets are accounted for and disclosed at fair value. Fair
value measurements incorporate assumptions that market participants would use in
pricing an asset or liability, including assumptions about risk. Development of
these assumptions may require judgment.
For additional details on postretirement benefits, including the fair value
measurements for the assets of the DB Pension Plans and OPEB Plan, see Item 8.
Financial Statements and Supplementary Data-Notes to the Consolidated Financial
Statements-Note 10, Retirement Benefits.
Unbilled Revenues: Consumers' customers are billed monthly in cycles having
billing dates that do not generally coincide with the end of a calendar month.
This results in customers having received electricity or natural gas that they
have not been billed for as of the month-end. Consumers estimates its unbilled
revenues by applying an average billed rate to total unbilled deliveries for
each customer class. Consumers records unbilled revenues as accounts receivable
and accrued revenue on its consolidated balance sheet. For additional
information on unbilled revenues, see Item 8. Financial Statements and
Supplementary Data-Notes to the Consolidated Financial Statements-Note 14,
Revenue.
New Accounting Standards
There are no new accounting standards issued but not yet effective that are
expected to have a material impact on CMS Energy's or Consumers' consolidated
financial statements.
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Real-time Estimate Cboe BZX Other stock markets 01:15:24 2024-05-14 pm EDT			5-day change	1st Jan Change
62.01 ^USD	-0.62%		-0.21%	+6.92%

12:32pm	BMO Capital Adjusts Price Target on CMS Energy to $71 From $68	MT
May. 09	Argus Research Adjusts Price Target on CMS Energy to $70 From $68	MT

BMO Capital Adjusts Price Target on CMS Energy to $71 From $68	06:32am	MT
Argus Research Adjusts Price Target on CMS Energy to $70 From $68	May. 09	MT
Barclays Raises CMS Energy's Price Target to $59 From $57	Apr. 29	MT
Wolfe Research Adjusts Price Target on CMS Energy to $64 From $62	Apr. 26	MT
BMO Capital Adjusts Price Target on CMS Energy to $68 From $67	Apr. 26	MT
Wells Fargo Adjusts CMS Energy Price Target to $66 From $64	Apr. 26	MT
CMS Energy posts higher first-quarter profit helped by robust demand, lower costs	Apr. 25	RE
CMS Energy's Q1 Adjusted Net Income Rises, Operating Revenue Falls; 2024 Non-GAAP Earnings Outlook Reaffirmed	Apr. 25	MT
Transcript : CMS Energy Corporation, Q1 2024 Earnings Call, Apr 25, 2024	Apr. 25
Earnings Flash (CMS) CMS ENERGY Reports Q1 Revenue $2.18B, vs. Street Est of $2.45B	Apr. 25	MT
Earnings Flash (CMS) CMS ENERGY Posts Q1 EPS $0.97, vs. Street Est of $0.92	Apr. 25	MT
CMS Energy Corporation Reports Earnings Results for the First Quarter Ended March 31, 2024	Apr. 25	CI
CORRECTION : --Morgan Stanley Adjusts CMS Energy's Price Target to $57 From $56, Keeps Equalweight Rating	Apr. 23	MT
Morgan Stanley Adjusts CMS Energy's Price Target to $30 From $29, Keeps Overweight Rating	Apr. 23	MT
CMS Energy Keeps Quarterly Dividend at $0.515 Per Share, Payable May 31 to Shareholders of Record on May 15	Apr. 22	MT
Cms Energy Corporation Declares Quarterly Dividend on Common Stock, Payable on May 31, 2024	Apr. 22	CI
BMO Capital Adjusts CMS Energy Price Target to $67 From $64	Apr. 22	MT
Scotiabank Adjusts CMS Energy's Price Target to $66 From $67	Apr. 22	MT
KeyBanc Adjusts CMS Energy Price Target to $66 From $65	Apr. 19	MT
BMO Capital Adjusts CMS Energy Price Target to $64 From $63	Apr. 17	MT
Barclays Adjusts CMS Energy's Price Target to $57 From $58	Apr. 12	MT
North American Morning Briefing : Investors on -2-	Apr. 05	DJ
UBS Downgrades CMS Energy to Neutral From Buy, $65 Price Target	Apr. 04	MT
Barclays Raises Price Target on CMS Energy to $58 From $57, Maintains Equalweight Rating	Mar. 14	MT
JPMorgan Adjusts Price Target on CMS Energy to $66 From $65, Maintains Overweight Rating	Mar. 13	MT

	1st Jan change	Capi.
CMS ENERGY CORPORATION	+6.92%	18.79B
ABU DHABI NATIONAL ENERGY COMPANY	-16.57%	91.21B
ACWA POWER COMPANY	+59.07%	79.99B
NATIONAL GRID PLC	+5.81%	52.04B
E.D.F.	-.--%	51.55B
SEMPRA	+2.86%	48.81B
EON SE	+7.33%	37.18B
PUBLIC SERVICE ENTERPRISE GROUP, INC.	+20.15%	36.6B
RWE AG	-15.13%	27.67B
UNIPER SE	-6.38%	24.41B

CMS Energy Corporation

Equities

CMS

US1258961002

Multiline Utilities

CMS ENERGY CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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Sector Other Multiline Utilities