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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number
Registrant; State of Incorporation;
Address; and Telephone Number
IRS Employer Identification No.
1-9513
CMS ENERGY CORPORATION
38-2726431
(A Michigan Corporation)
One Energy Plaza, Jackson, Michigan 49201
(517) 788‑0550
1-5611
CONSUMERS ENERGY COMPANY
38-0442310
(A Michigan Corporation)
One Energy Plaza, Jackson, Michigan 49201
(517) 788‑0550
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
CMS Energy Corporation Common Stock, $0.01 par value
 
CMS
 
New York Stock Exchange
CMS Energy Corporation 5.625% Junior Subordinated Notes due 2078
 
CMSA
 
New York Stock Exchange
CMS Energy Corporation 5.875% Junior Subordinated Notes due 2078
 
CMSC
 
New York Stock Exchange
CMS Energy Corporation 5.875% Junior Subordinated Notes due 2079
 
CMSD
 
New York Stock Exchange
Consumers Energy Company Cumulative Preferred Stock, $100 par value: $4.50 Series
 
CMS-PB
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
CMS Energy Corporation:
Yes
No
 
Consumers Energy Company:
Yes
No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
CMS Energy Corporation:
Yes
No
 
Consumers Energy Company:
Yes
No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
CMS Energy Corporation:
 
 
 
 
 
Consumers Energy Company:
 
 
 
 
 
Large accelerated filer
 
 
 
 
Large accelerated filer
 
 
 
 
Non‑accelerated filer
 
 
 
 
Non‑accelerated filer
 
 
 
 
Accelerated filer
 
 
 
 
Accelerated filer
 
 
 
 
Smaller reporting company
 
 
 
 
Smaller reporting company
 
 
 
 
Emerging growth company
 
 
 
 
Emerging growth company
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
CMS Energy Corporation:
 
 
 
 
Consumers Energy Company:
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).
CMS Energy Corporation:
Yes
No
 
Consumers Energy Company:
Yes
No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock at July 9, 2019:
CMS Energy Corporation:
 
CMS Energy Common Stock, $0.01 par value (including 20,316 shares owned by Consumers Energy)
283,787,006

Consumers Energy Company:
 
Consumers Common Stock, $10 par value, privately held by CMS Energy Corporation
84,108,789








CMS Energy Corporation
Consumers Energy Company
Quarterly Reports on Form 10‑Q to the Securities and Exchange Commission for the Period Ended June 30, 2019
Table of Contents


1


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


2


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


3


energy waste reduction
The reduction of energy consumption through energy efficiency and demand‑side energy conservation, as established under the 2016 Energy Law
EPA
U.S. Environmental Protection Agency
EPS
Earnings per share
Exchange Act
Securities Exchange Act of 1934
FDIC
Federal Deposit Insurance Corporation
FERC
The Federal Energy Regulatory Commission
FTR
Financial transmission right
GAAP
U.S. Generally Accepted Accounting Principles
GCR
Gas cost recovery
Genesee
Genesee Power Station Limited Partnership, a variable interest entity in which HYDRA‑CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises, has a 50‑percent interest
Internal Revenue Code
Internal Revenue Code of 1986, as amended
IRP
Integrated resource plan
ITC
International Transmission Company, wholly owned by ITC Holdings Corp., a non‑affiliated company
kWh
Kilowatt‑hour, a unit of energy equal to one thousand watt‑hours
LIBOR
The London Interbank Offered Rate
Ludington
Ludington pumped‑storage plant, jointly owned by Consumers and DTE Electric Company, a non‑affiliated company


4


MATS
Mercury and Air Toxics Standards, which limit mercury, acid gases, and other toxic pollution from coal‑fueled and oil‑fueled power plants
MCV Partnership
Midland Cogeneration Venture Limited Partnership
MCV PPA
PPA between Consumers and the MCV Partnership
MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations
METC
Michigan Electric Transmission Company, LLC, a non‑affiliated company
MGP
Manufactured gas plant
Michigan Mercury Rule
Michigan Air Pollution Control Rules of 2009, as amended, Part 15: Emission Limitations and Prohibitions – Mercury
MISO
Midcontinent Independent System Operator, Inc.
MISS DIG Act
MISS DIG Underground Facility Damage Prevention and Safety Act of 2013
mothball
To place a generating unit into a state of extended reserve shutdown in which the unit is inactive and unavailable for service for a specified period, during which the unit can be brought back into service after receiving appropriate notification and completing any necessary maintenance or other work; generation owners in MISO must request approval to mothball a unit, and MISO then evaluates the request for reliability impacts
MPSC
Michigan Public Service Commission
MW
Megawatt, a unit of power equal to one million watts
NAAQS
National Ambient Air Quality Standards
NPDES
National Pollutant Discharge Elimination System, a permit system for regulating point sources of pollution under the Clean Water Act
NREPA
Part 201 of Michigan’s Natural Resources and Environmental Protection Act of 1994, as amended


5


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


6


Filing Format
This combined Form 10‑Q is separately filed by CMS Energy and Consumers. Information in this combined Form 10‑Q relating to each individual registrant is filed by such registrant on its own behalf. Consumers makes no representation regarding information relating to any other companies affiliated with CMS Energy other than its own subsidiaries. None of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers) has any obligation in respect of Consumers’ debt securities and holders of such debt securities should not consider the financial resources or results of operations of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers and its own subsidiaries (in relevant circumstances)) in making a decision with respect to Consumers’ debt securities. Similarly, neither Consumers nor any other subsidiary of CMS Energy has any obligation in respect of debt securities of CMS Energy.
This report should be read in its entirety. No one section of this report deals with all aspects of the subject matter of this report. This report should be read in conjunction with the consolidated financial statements and related notes and with MD&A included in the 2018 Form 10‑K.
Available Information
CMS Energy’s internet address is www.cmsenergy.com. CMS Energy routinely posts important information on its website and considers the Investor Relations section, www.cmsenergy.com/investor‑relations, a channel of distribution. Information contained on CMS Energy’s website is not incorporated herein.
Forward‑Looking Statements and Information
This Form 10‑Q and other CMS Energy and Consumers disclosures may contain forward‑looking statements as defined by the Private Securities Litigation Reform Act of 1995. The use of “might,” “may,” “could,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “predicts,” “assumes,” and other similar words is intended to identify forward‑looking statements that involve risk and uncertainty. This discussion of potential risks and uncertainties is designed to highlight important factors that may impact CMS Energy’s and Consumers’ businesses and financial outlook. CMS Energy and Consumers have no obligation to update or revise forward‑looking statements regardless of whether new information, future events, or any other factors affect the information contained in the statements. These forward‑looking statements are subject to various factors that could cause CMS Energy’s and Consumers’ actual results to differ materially from the results anticipated in these statements. These factors include, but are not limited to, the following, all of which are potentially significant:
the impact of new regulation by the MPSC, FERC, and other applicable governmental proceedings and regulations, including any associated impact on electric or gas rates or rate structures
potentially adverse regulatory treatment, effects of a failure to receive timely regulatory orders affecting Consumers that are or could come before the MPSC, FERC, or other governmental authorities, effects of a government shutdown, or effects of a lack of a quorum of a regulatory body
changes in the performance of or regulations applicable to MISO, METC, pipelines, railroads, vessels, or other service providers that CMS Energy, Consumers, or any of their affiliates rely on to serve their customers


7


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


8


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


9


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


10


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


11


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


12


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


13


Consumers are subject. Management considers climate change risk and other environmental risks in the companies’ strategy development, business planning, and enterprise risk management processes.
CMS Energy and Consumers continue to focus on opportunities to protect the environment and to reduce their carbon footprint. As a result of actions already taken by CMS Energy and Consumers, including the retirement of seven of Consumers’ coal-fueled electric generating units in 2016, the companies have:
decreased their combined percentage of electric supply (self-generated and purchased) from coal by 18 percentage points since 2015
reduced carbon dioxide emissions by over 35 percent since 2005
reduced the amount of water used to generate electricity by over 30 percent since 2012
reduced landfill waste disposal by over one million cubic yards since 1992
reduced methane emissions by 15 percent since 2011
Additionally, over the last 20 years, Consumers has reduced its sulfur dioxide, nitrogen oxide, particulate matter, and mercury emissions by 90 percent.
The 2016 Energy Law:
raised the renewable energy standard from the present ten‑percent requirement to 12.5 percent in 2019 and 15 percent in 2021
established a goal of 35 percent combined renewable energy and energy waste reduction by 2025
authorized incentives for demand response programs and expanded existing incentives for energy efficiency programs, referring to the combined initiatives as energy waste reduction programs
established an integrated planning process for new generation resources
Consumers filed an IRP with the MPSC in June 2018, detailing its long‑term strategy for delivering reliable and affordable energy to its customers through the increased use of energy efficiency and customer demand management programs and additional renewable energy. In March 2019, Consumers and a broad coalition of key stakeholders, including business customers, environmental groups, the MPSC Staff, and the Michigan Attorney General, filed a settlement agreement with the MPSC and the MPSC approved it in June 2019.
Under its IRP, Consumers will meet the requirements of the 2016 Energy Law using its clean and lean strategy, which focuses on increasing the generation of renewable energy, helping customers use less energy, and offering demand response programs to reduce demand during critical peak times. Further, Consumers plans to replace all of its coal-fueled generation with investment in renewable energy, which will enable Consumers to meet and exceed the 2016 Energy Law renewable energy requirements and fulfill increasing customer demand for renewable energy. Through its IRP, Consumers expects to reduce carbon emissions by more than 90 percent by 2040. Additionally, the IRP will allow Consumers to achieve a breakthrough goal of at least 50 percent combined renewable energy and energy waste reduction by 2030.


14


Presented in the following illustration is Consumers’ 2019 generation capacity and projected future generation capacity in 2030 and 2040, including purchased capacity, based on a variety of fuel sources:
chart-3e6daa7857c47f55b0e.jpg
Additionally, in an effort to advance its environmental stewardship in Michigan and to minimize the impact of future regulations, Consumers announced the following five‑year targets during 2018:
to reduce its water use by one billion gallons; in 2018, Consumers reduced its water usage by 180 million gallons
to reduce the amount of waste taken to landfills by 35 percent; in 2018, Consumers reduced its waste to landfills by 12 percent
to enhance, restore, or protect 5,000 acres of land; in 2018, Consumers enhanced, restored, or protected nearly 800 acres of land
CMS Energy, through its non‑utility businesses, continues to pursue further opportunities for the development of renewable generation projects. CMS Enterprises has completed the development of and operates a 105‑MW wind generation project in northwest Ohio and three solar generation projects in Michigan and Wisconsin totaling 27 MW. Renewable energy produced by these projects is committed to customers under long-term PPAs.
CMS Energy and Consumers are monitoring numerous legislative, policy, and regulatory initiatives, including those to regulate greenhouse gases, and related litigation. While CMS Energy and Consumers


15


cannot predict the outcome of these matters, which could have a material effect on the companies, they intend to continue to move forward with their clean and lean strategy.
Profit: The profit element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to meeting 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.
For the six months ended June 30, 2019, CMS Energy’s net income available to common stockholders was $306 million, and diluted EPS were $1.08. This compares with net income available to common stockholders of $380 million and diluted EPS of $1.35 for the six months ended June 30, 2018. In 2019, the benefits from electric and gas rate increases and higher gas sales due primarily to colder weather were more than offset by higher service restoration costs from 2019 winter storms, lower electric sales due primarily to unfavorable weather, higher depreciation, and lower earnings at the enterprises segment. A more detailed discussion of the factors affecting CMS Energy’s and Consumers’ performance can be found in the Results of Operations section that follows this Executive Overview.
Consumers projects that its electric weather-normalized deliveries will remain stable and gas weather-normalized deliveries will increase slightly through 2023. This outlook reflects modest growth in electric demand offset by the effects of energy waste reduction programs, and modest growth in gas demand offset partially by energy efficiency and conservation.
Performance: Impacting the Triple Bottom Line
CMS Energy and Consumers remain committed to achieving world class performance while delivering hometown service. Leveraging the Consumers Energy Way, CMS Energy and Consumers have accomplished the following during 2019:
received approval of Consumers’ IRP, which supports the companies’ clean energy goals
launched a three-year electric vehicle pilot program
committed to invest $7.5 billion in Michigan businesses over the next five years; of that amount,$1.5 billion will be invested in diverse suppliers
completed the deployment of automated gas meters in areas where Consumers provides only natural gas to customers, allowing for drive-by meter reading
CMS Energy and Consumers will continue to utilize the Consumers Energy Way to enable them to achieve world class performance and positively impact the triple bottom line. Consumers’ investment plan and the regulatory environment in which it operates also drive its ability to impact the triple bottom line.
Investment Plan: Consumers expects to make significant expenditures on infrastructure upgrades and replacements and electric supply projects from 2019 through 2023. While it has a large number of potential investment opportunities that would add customer value, Consumers has prioritized its spending based on the criteria of enhancing public safety, increasing reliability, maintaining affordability for its customers, and advancing its environmental stewardship. Consumers’ investment program is expected to result in annual rate-base growth of six to eight percent. This rate-base growth, together with cost-control measures, should allow Consumers to maintain affordable customer prices.


16


Presented in the following illustration are planned capital expenditures of $11.2 billion that Consumers expects to make from 2019 through 2023:
chart-ede113ca14875e75999.jpg
Of this amount, Consumers plans to spend $9.3 billion over the next five years to maintain and upgrade its gas infrastructure and electric distribution systems in order to enhance safety and reliability, improve customer satisfaction, and reduce energy waste on those systems. The gas infrastructure projects comprise $5.1 billion to sustain deliverability and enhance pipeline integrity and safety. These projects, which involve replacement of mains and services and enhancement of transmission and storage systems, should reduce the minor quantity of methane emissions released as gas is transported. The electric distribution projects comprise $4.2 billion to strengthen circuits and substations and replace poles. Consumers also expects to spend $1.9 billion on electric supply projects, representing new generation, including renewable generation, and environmental investments needed to comply with state and federal laws and regulations.
Regulation: Regulatory matters are a key aspect of Consumers’ business, particularly rate cases and regulatory proceedings before the MPSC, which permit recovery of new investments while helping to ensure that customer rates are fair and affordable. Important regulatory events and developments not already discussed are summarized below.
2018 Electric Rate Case: In May 2018, Consumers filed an application with the MPSC seeking an annual rate increase of $58 million, based on a 10.75 percent authorized return on equity. The filing requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements. In October 2018, Consumers reduced its requested annual rate increase to $44 million. In January 2019, the MPSC approved a settlement agreement authorizing an annual rate decrease of $24 million, based on a 10.0 percent authorized return on equity. With the elimination of the $113 million TCJA credit to customer bills, the approved settlement agreement resulted in an $89 million net increase in annual rates. The settlement agreement also provided for deferred accounting treatment for distribution‑related capital investments exceeding certain amounts. Consumers also agreed to not file a new electric rate case prior to January 2020.


17


2018 Gas Rate Case: In November 2018, Consumers filed an application with the MPSC seeking an annual rate increase of $229 million, based on a 10.75 percent authorized return on equity. The filing also requests approval of a revenue decoupling mechanism that would annually reconcile Consumers’ actual weather‑normalized, non‑fuel revenues with the revenues approved by the MPSC. In April 2019, Consumers reduced its requested annual rate increase to $204 million.
Tax Cuts and Jobs Act: The TCJA, which changed existing federal tax law and included numerous provisions that affect businesses, was signed into law in December 2017. In early 2018, the MPSC ordered Consumers to file various proceedings to determine the reduction in its electric and gas revenue requirements as a result of the reduction in the corporate income tax rate, and to implement bill credits to reflect that reduction until customer rates could be adjusted through Consumers’ general rate cases. Consumers filed, and the MPSC approved, such proceedings throughout 2018, resulting in credits to customer bills during 2018 to reflect reductions in Consumers’ electric and gas revenue requirements. Additionally, Consumers filed an application to address the December 31, 2017 remeasurement of its deferred income taxes and other base rate impacts of the TCJA on customers. For details on these proceedings, see Note 2, Regulatory Matters.
Looking Forward
CMS Energy and Consumers will continue to consider the impact on the triple bottom line of people, planet, and profit in their daily operations as well as in their long-term strategic decisions. Consumers will continue to seek fair and timely regulatory treatment that will support its customer-driven investment plan, while pursuing cost-control measures that will allow it to maintain sustainable customer base rates. The Consumers Energy Way is an important means of realizing CMS Energy’s and Consumers’ purpose of achieving world class performance while delivering hometown service.


18


Results of Operations
CMS Energy Consolidated Results of Operations
In Millions, Except Per Share Amounts
 
 
Three Months Ended
 
Six Months Ended
June 30
2019
 
2018
 
Change
 
 
2019
 
2018
 
Change
 
Net Income Available to Common Stockholders
 
$
93

 
$
139

 
$
(46
)
 
 
$
306

 
$
380

 
$
(74
)
Basic Earnings Per Average Common Share
 
$
0.33

 
$
0.49

 
$
(0.16
)
 
 
$
1.08

 
$
1.35

 
$
(0.27
)
Diluted Earnings Per Average Common Share
 
$
0.33

 
$
0.49

 
$
(0.16
)
 
 
$
1.08

 
$
1.35

 
$
(0.27
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In Millions
 
 
Three Months Ended
 
Six Months Ended
June 30
2019
 
2018
 
Change
 
 
2019
 
2018
 
Change
 
Electric utility
 
$
90

 
$
130

 
$
(40
)
 
 
$
195

 
$
269

 
$
(74
)
Gas utility
 
8

 
21

 
(13
)
 
 
129

 
124

 
5

Enterprises
 
10

 
14

 
(4
)
 
 
11

 
29

 
(18
)
Corporate interest and other
 
(15
)
 
(26
)
 
11

 
 
(29
)
 
(42
)
 
13

Net Income Available to Common Stockholders
 
$
93

 
$
139

 
$
(46
)
 
 
$
306

 
$
380

 
$
(74
)


19


Presented in the following table are specific after-tax changes to CMS Energy’s net income available to common stockholders for the three and six months ended June 30, 2019 versus 2018:
In Millions
 
 
Three Months Ended
 
Six Months Ended
June 30, 2018
 
 
 
$
139

 
 
 
 
$
380

Reasons for the change
 
 
 
 
 
 
 
 
 
Consumers electric utility and gas utility
 
 
 
 
 
 
 
 
 
Electric sales
 
$
(32
)
 
 
 
 
$
(23
)
 
 
Gas sales
 

 
 
 
 
18

 
 
Electric rate increase
 
14

 
 
 
 
24

 
 
Gas rate increase
 
5

 
 
 
 
28

 
 
Higher service restoration costs from 2019 winter storms
 

 
 
 
 
(25
)
 
 
Depreciation and amortization
 
(8
)
 
 
 
 
(21
)
 
 
Higher distribution and transmission expenses
 
(3
)
 
 
 
 
(10
)
 
 
Absence of 2018 settlement of a property tax appeal related to the J.H. Campbell plant
 

 
 
 
 
(7
)
 
 
Higher property tax, reflecting higher capital spending
 
(2
)
 
 
 
 
(9
)
 
 
Absence of 2018 income tax benefit associated with electric cost of removal1
 
(8
)
 
 
 
 
(15
)
 
 
Absence of 2018 research and development tax credits1
 
(2
)
 
 
 
 
(9
)
 
 
Other
 
(17
)
 


 
 
(20
)
 


 
 
 
 
$
(53
)
 
 
 
 
$
(69
)
Enterprises
 
 
 
 
 
 
 
 
 
Lower earnings due primarily to lower capacity revenue and higher operating and maintenance costs
 
(13
)
 
 
 
 
(27
)
 
 
Absence of 2018 expiration of indemnity obligation
 
(3
)
 
 
 
 
(3
)
 
 
Gain on sale of transmission equipment
 
12

 


 
 
12

 


 
 
 
 
(4
)
 
 
 
 
(18
)
Corporate interest and other
 
 
 
 
 
 
 
 
 
Increased income tax benefit due primarily to production tax credits
 
8

 
 
 
 
11

 
 
Higher earnings at EnerBank
 
3

 
 
 
 
5

 
 
Absence of 2018 loss on early extinguishment of debt
 
4

 
 
 
 
4

 
 
Higher fixed charges due to higher debt
 
(4
)
 


 
 
(7
)
 


 
 
 
 
11

 
 
 
 
13

June 30, 2019
 
 
 
$
93

 
 
 
 
$
306

1 
See Note 10, Income Taxes.


20


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 the three months ended June 30, 2019 versus 2018:
In Millions
 
Three Months Ended June 30, 2018
 
 
 
$
130

Reasons for the change
 
 
 
 
Electric deliveries1 and rate increases
 
 
 
 
Rate increase, including the impacts of the January 2019 order
 
$
22

 
 
Lower sales due primarily to unfavorable weather
 
(51
)
 
 
Other revenues
 
6

 
$
(23
)
Maintenance and other operating expenses
 
 
 
(7
)
Depreciation and amortization
 
 
 
 
Increased plant in service, reflecting higher capital spending
 
 
 
(6
)
General taxes
 
 
 
(1
)
Interest charges
 
 
 
(3
)
Income taxes
 
 
 
 
Lower electric utility pre-tax earnings
 
10

 
 
Absence of 2018 income tax benefit associated with cost of removal2
 
(7
)
 
 
Absence of 2018 research and development tax credits2
 
(2
)
 
 
Higher other income taxes
 
(1
)
 

Three Months Ended June 30, 2019
 
 
 
$
90

1 
Deliveries to end-use customers were 8.6 billion kWh in 2019 and 9.2 billion kWh in 2018.
2 
See Note 10, Income Taxes.


21


Presented in the following table are the detailed changes to the electric utility’s net income available to common stockholders for the six months ended June 30, 2019 versus 2018:
In Millions
 
Six Months Ended June 30, 2018
 
 
 
$
269

Reasons for the change
 
 
 
 
Electric deliveries1 and rate increases
 
 
 
 
Rate increase, including the impacts of the January 2019 order
 
$
35

 
 
Lower sales due primarily to unfavorable weather
 
(40
)
 
 
Other revenues
 
10

 
$
5

Maintenance and other operating expenses
 
 
 
 
Higher service restoration costs from 2019 winter storms
 
(33
)
 
 
Higher distribution and transmission expenses
 
(6
)
 
 
Lower mutual insurance distribution
 
(4
)
 
 
Litigation settlement
 
8

 
 
Higher maintenance and other operating expenses
 
(10
)
 
(45
)
Depreciation and amortization
 
 
 
 
Increased plant in service, reflecting higher capital spending
 
 
 
(15
)
General taxes
 
 
 
 
Absence of 2018 settlement of a property tax appeal related to the J.H. Campbell plant
 
(9
)
 
 
Higher property tax, reflecting higher capital spending
 
(4
)
 


Lower other general taxes
 
1

 
(12
)
Other income, net of expenses
 
 
 
 
Lower other income, net of expenses
 
 
 
(1
)
Interest charges
 
 
 
(1
)
Income taxes
 
 
 
 
Lower electric utility pre-tax earnings
 
18

 
 
Absence of 2018 income tax benefit associated with cost of removal2
 
(14
)
 
 
Absence of 2018 research and development tax credits2
 
(8
)
 
 
Higher other income taxes
 
(1
)
 
(5
)
Six Months Ended June 30, 2019
 
 
 
$
195

1 
Deliveries to end-use customers were 17.8 billion kWh in 2019 and 18.5 billion kWh in 2018.
2 
See Note 10, Income Taxes.


22


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 the three months ended June 30, 2019 versus 2018:
In Millions
 
Three Months Ended June 30, 2018
 
 
 
$
21

Reasons for the change
 
 
 
 
Gas deliveries1 and rate increases
 
 
 
 
Rate increase, including the impacts of the September 2018 order
 
$
6

 
 
Other revenues
 
(1
)
 
$
5

Maintenance and other operating expenses
 
 
 
 
Higher distribution and transmission expenses
 
(3
)
 
 
Higher pipeline integrity expenses
 
(4
)
 
 
Higher leak repair and survey expenses
 
(3
)
 
 
Higher maintenance and other operating expenses
 
(4
)
 
(14
)
Depreciation and amortization
 
 
 
 
Increased plant in service, reflecting higher capital spending
 
 
 
(4
)
General taxes
 
 
 
 
Higher property tax, reflecting higher capital spending
 
 
 
(2
)
Other income, net of expenses
 
 
 
 
Higher other income, net of expenses
 
 
 
1

Income taxes
 
 
 
 
Lower gas utility pre-tax earnings
 
4

 
 
Higher other income taxes
 
(3
)
 
1

Three Months Ended June 30, 2019
 
 
 
$
8

1 
Deliveries to end-use customers were 49 bcf in 2019 and 50 bcf in 2018.


23


Presented in the following table are the detailed changes to the gas utility’s net income available to common stockholders for the six months ended June 30, 2019 versus 2018:
In Millions
 
Six Months Ended June 30, 2018
 
 
 
$
124

Reasons for the change
 
 
 
 
Gas deliveries1 and rate increases
 
 
 
 
Rate increase, including the impacts of the September 2018 order
 
$
29

 
 
Higher sales, due primarily to colder weather
 
24

 
 
Lower energy waste reduction program revenues
 
(8
)
 
 
Other revenues
 
(1
)
 
$
44

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

 
 
Higher distribution and transmission expenses
 
(7
)
 
 
Higher pipeline integrity expenses
 
(4
)
 
 
Higher leak repair and survey expenses
 
(4
)
 
 
Higher maintenance and other operating expenses
 
(6
)
 
(13
)
Depreciation and amortization
 
 
 
 
Increased plant in service, reflecting higher capital spending
 
 
 
(13
)
General taxes
 
 
 
 
Higher property tax, reflecting higher capital spending
 
 
 
(9
)
Other income, net of expenses
 
 
 
 
Higher other income, net of expenses
 
 
 
2

Interest charges
 
 
 
(2
)
Income taxes
 
 
 
 
Higher gas utility pre-tax earnings
 
(2
)
 
 
Higher other income taxes
 
(2
)
 
(4
)
Six Months Ended June 30, 2019
 
 
 
$
129

1 
Deliveries to end-use customers were 191 bcf in 2019 and 183 bcf in 2018.
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 the three months ended June 30, 2019 versus 2018:
In Millions
 
Three Months Ended June 30, 2018
 
 
 
$
14

Reason for the change
 
 
 
 
Lower earnings due primarily to lower capacity revenue and higher operating and maintenance costs
 
 
 
$
(13
)
Absence of 2018 expiration of indemnity obligation
 
 
 
(3
)
Gain on sale of transmission equipment1
 
 
 
12

Three Months Ended June 30, 2019
 
 
 
$
10

1 
See Note 15, Asset Sales.


24


Presented in the following table are the detailed after-tax changes to the enterprises segment’s net income available to common stockholders for the six months ended June 30, 2019 versus 2018:
In Millions
 
Six Months Ended June 30, 2018
 
 
 
$
29

Reason for the change
 
 
 
 
Lower earnings due primarily to lower capacity revenue and higher operating and maintenance costs
 
 
 
$
(27
)
Absence of 2018 expiration of indemnity obligation
 
 
 
(3
)
Gain on sale of transmission equipment1
 
 
 
12

Six Months Ended June 30, 2019
 
 
 
$
11

1 
See Note 15, Asset Sales.
Corporate Interest and Other Results of Operations
Presented in the following table are the detailed after-tax changes to corporate interest and other results for the three months ended June 30, 2019 versus 2018:
In Millions
 
Three Months Ended June 30, 2018
 
 
 
(26
)
Reasons for the change
 
 
 
 

Increased income tax benefit due primarily to production tax credits
 
 
 
$
8

Absence of 2018 loss on early extinguishment of debt
 
 
 
4

Higher earnings at EnerBank
 
 
 
3

Higher fixed charges due to higher debt
 
 
 
(4
)
Three Months Ended June 30, 2019
 
 
 
$
(15
)
Presented in the following table are the detailed after-tax changes to corporate interest and other results for the six months ended June 30, 2019 versus 2018:
In Millions
 
Six Months Ended June 30, 2018
 
 
 
$
(42
)
Reasons for the change
 
 
 
 

Increased income tax benefit due primarily to production tax credits
 
 
 
$
11

Higher earnings at EnerBank
 
 
 
5

Absence of 2018 loss on early extinguishment of debt
 
 
 
4

Higher fixed charges due to higher debt
 
 
 
(7
)
Six Months Ended June 30, 2019
 
 
 
$
(29
)


25


Cash Position, Investing, and Financing
At June 30, 2019, CMS Energy had $334 million of consolidated cash and cash equivalents, which included $22 million of restricted cash and cash equivalents. At June 30, 2019, Consumers had $212 million of consolidated cash and cash equivalents, which included $16 million of restricted cash and cash equivalents. For additional details, see Note 13, Cash and Cash Equivalents.
Operating Activities
Presented in the following table are specific components of net cash provided by operating activities for the six months ended June 30, 2019 versus 2018:
In Millions
 
CMS Energy, including Consumers
 
 
Six Months Ended June 30, 2018
 
$
1,416

Reasons for the change
 
 
Lower net income
 
$
(74
)
Non‑cash transactions1
 
18

Unfavorable impact of changes in core working capital,2 due primarily to the absence of a 2018 receipt of alternative minimum tax credit refunds
 
(118
)
Unfavorable impact of changes in other assets and liabilities, due primarily to refunds to customers related to the TCJA
 
(57
)
Six Months Ended June 30, 2019
 
$
1,185

Consumers
 
 
Six Months Ended June 30, 2018
 
$
1,098

Reasons for the change
 
 
Lower net income
 
$
(70
)
Non-cash transactions1
 
23

Favorable impact of changes in core working capital2
 
6

Favorable impact of changes in other assets and liabilities, due primarily to lower income taxes payments to CMS Energy, offset partially by refunds to customers related to the TCJA
 
53

Six Months Ended June 30, 2019
 
$
1,110

1 
Non‑cash transactions comprise depreciation and amortization, changes in deferred income taxes, and other non‑cash operating activities and reconciling adjustments.
2 
Core working capital comprises accounts receivable, notes receivable, accrued revenue, inventories, accounts payable, and accrued rate refunds.


26


Investing Activities
Presented in the following table are specific components of the changes to net cash used in investing activities for the six months ended June 30, 2019 versus 2018:
In Millions
 
CMS Energy, including Consumers
 
 
Six Months Ended June 30, 2018
 
$
(1,008
)
Reasons for the change
 
 
Higher capital expenditures
 
$
(101
)
Changes in EnerBank notes receivable, reflecting growth in consumer lending
 
(90
)
Purchase of notes receivable by EnerBank in 2019
 
(220
)
Other investing activities, primarily proceeds from sale of transmission equipment, offset partially by higher costs to retire property
 
9

Six Months Ended June 30, 2019
 
$
(1,410
)
Consumers
 
 
Six Months Ended June 30, 2018
 
$
(914
)
Reasons for the change
 
 
Higher capital expenditures
 
$
(104
)
Other investing activities, primarily higher costs to retire property
 
(8
)
Six Months Ended June 30, 2019
 
$
(1,026
)


27


Financing Activities
Presented in the following table are specific components of net cash provided by (used in) financing activities for the six months ended June 30, 2019 and 2018:
In Millions
 
CMS Energy, including Consumers
 
 
Six Months Ended June 30, 2018
 
$
(111
)
Reasons for the change
 
 
Higher debt issuances
 
$
661

Higher debt retirements
 
(444
)
Changes in EnerBank certificates of deposit, reflecting higher borrowings
 
235

Lower repayments under Consumers’ commercial paper program
 
73

Lower issuances of common stock under the continuous equity offering program
 
(30
)
Higher payments of dividends on common stock
 
(14
)
Other financing activities, primarily higher customer advances for construction, offset partially by higher debt issuance costs
 
14

Six Months Ended June 30, 2019
 
$
384

Consumers
 
 
Six Months Ended June 30, 2018
 
$
27

Reasons for the change
 
 
Lower debt issuances
 
$
(247
)
Higher debt retirements
 
(198
)
Lower repayments under Consumers’ commercial paper program
 
73

Higher stockholder contribution from CMS Energy
 
425

Higher payments of dividends on common stock
 
(27
)
Other financing activities, primarily higher customer advances for construction
 
19

Six Months Ended June 30, 2019
 
$
72

Capital Resources and Liquidity
CMS Energy uses dividends and tax‑sharing payments from its subsidiaries and external financing and capital transactions to invest in its utility and non‑utility businesses, retire debt, pay dividends, and fund its other obligations. The ability of CMS Energy’s subsidiaries, including Consumers, to pay dividends to CMS Energy depends upon each subsidiary’s revenues, earnings, cash needs, and other factors. In addition, Consumers’ ability to pay dividends is restricted by certain terms included in its debt covenants and articles of incorporation and potentially by FERC requirements and provisions under the Federal Power Act and the Natural Gas Act. For additional details on Consumers’ dividend restrictions, see Note 4, Financings and Capitalization—Dividend Restrictions. For the six months ended June 30, 2019, Consumers paid $272 million in dividends on its common stock to CMS Energy.
As a result of a provision in the TCJA, CMS Energy is required to recover all alternative minimum tax credits over four years through offsets of regular tax and through cash refunds. CMS Energy expects to be able to offset regular tax through the use of federal net operating loss carryforwards and, accordingly, receive alternative minimum tax credit refunds through 2021. Another provision in the TCJA excludes rate‑regulated utilities from 100 percent cost expensing of certain property. This provision will cause Consumers to make higher tax‑sharing payments to CMS Energy, which in turn might permit CMS Energy to maintain lower levels of debt in order to invest in its businesses, pay dividends, and fund


28


its general obligations. Consumers expects to have sufficient funding sources available to issue credits to customers for all impacts of the TCJA.
In 2018, CMS Energy entered into an equity offering program under which it may sell, from time to time, shares of CMS Energy common stock having an aggregate sales price of up to $250 million. Under this program, CMS Energy may sell its common stock in privately negotiated transactions, in “at the market” offerings, through forward sales transactions or otherwise. CMS Energy has entered into forward sales contracts having an aggregate sales price of $250 million. These contracts allow CMS Energy to either physically settle the contracts by issuing shares of its common stock at the then‑applicable forward sale price specified by the agreement or net settle the contracts through the delivery or receipt of cash or shares. CMS Energy may settle the contracts at any time through their maturity dates, and presently intends to physically settle the contracts by delivering shares of its common stock. For more information on the forward sale contracts, see Note 4, Financings and Capitalization.
Consumers uses cash flows generated from operations and external financing transactions, as well as stockholder contributions from CMS Energy, to fund capital expenditures, retire debt, pay dividends, contribute to its employee benefit plans, and fund its other obligations. Accelerated pension funding in prior years and several initiatives to reduce costs have helped improve cash flows from operating activities. Consumers anticipates continued strong cash flows from operating activities for 2019 and beyond.
Access to the financial and capital markets depends on CMS Energy’s and Consumers’ credit ratings and on market conditions. As evidenced by past financing transactions, CMS Energy and Consumers have had ready access to these markets. Barring major market dislocations or disruptions, CMS Energy and Consumers expect to continue to have ready access to the financial and capital markets. If access to these markets were to diminish or otherwise become restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending.
At June 30, 2019, CMS Energy had $548 million of its revolving credit facility available and Consumers had $1,078 million available under its revolving credit facilities. CMS Energy and Consumers use these credit facilities for general working capital purposes and to issue letters of credit. An additional source of liquidity is Consumers’ commercial paper program, which allows Consumers to issue, in one or more placements, up to $500 million in the aggregate in commercial paper notes with maturities of up to 365 days and that bear interest at fixed or floating rates. These issuances are supported by Consumers’ revolving credit facilities. While the amount of outstanding commercial paper does not reduce the available capacity of the revolving credit facilities, Consumers does not intend to issue commercial paper in an amount exceeding the available capacity of the facilities. At June 30, 2019, 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 Note 4, Financings and Capitalization.


29


Certain of CMS Energy’s and Consumers’ credit agreements, debt indentures, and other facilities contain covenants that require CMS Energy and Consumers to maintain certain financial ratios, as defined therein. At June 30, 2019, no default had occurred with respect to any financial covenants contained in CMS Energy’s and Consumers’ credit agreements, debt indentures, or other facilities. CMS Energy and Consumers were each in compliance with these covenants as of June 30, 2019, as presented in the following table:
 
June 30, 2019
Credit Agreement, Indenture, or Facility
Limit 
Actual 
CMS Energy, parent only
 
 
 
Debt to EBITDA1
<
6.25 to 1.0
4.6 to 1.0
Consumers
 
 
 
Debt to Capital2
<
0.65 to 1.0
0.45 to 1.0
Debt to Capital3
<
0.65 to 1.0
0.46 to 1.0
1 
Applies to CMS Energy’s $550 million revolving credit agreement and $165 million term loan credit agreement.
2 
Applies to Consumers’ $850 million and $250 million revolving credit agreements and its $30 million reimbursement agreement.
3 
Applies to Consumers’ $35 million reimbursement agreement.
Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing and refinancing opportunities. CMS Energy’s and Consumers’ present level of cash and expected cash flows from operating activities, together with access to sources of liquidity, are anticipated to be sufficient to fund the companies’ contractual obligations for 2019 and beyond.
Off-Balance-Sheet Arrangements
CMS Energy, Consumers, and certain of their subsidiaries enter into various arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include indemnities, surety bonds, letters of credit, and financial and performance guarantees. Indemnities are usually agreements to reimburse a counterparty that may incur losses due to outside claims or breach of contract terms. The maximum payment that could be required under a number of these indemnity obligations is not estimable; the maximum obligation under indemnities for which such amounts were estimable was $153 million at June 30, 2019. While CMS Energy and Consumers believe it is unlikely that they will incur any material losses related to indemnities they have not recorded as liabilities, they cannot predict the impact of these contingent obligations on their liquidity and financial condition. For additional details on these and other guarantee arrangements, see Note 3, Contingencies and Commitments—Guarantees.
Outlook
Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and results of operations. These trends and uncertainties could have a material impact on CMS Energy’s and Consumers’ consolidated income, cash flows, or financial position. For additional details regarding these and other uncertainties, see Forward-Looking Statements and Information; Note 2, Regulatory Matters; Note 3, Contingencies and Commitments; and Part II—Item 1A. Risk Factors.


30


Consumers Electric Utility Outlook and Uncertainties
Energy Resource Planning: While Consumers continues to experience modest growth in demand for electricity due to Michigan’s growing economy and increased use of air conditioning, consumer electronics, and other electric devices, it expects that increase in demand to be offset by the effects of energy efficiency and conservation.
In June 2018, Consumers filed an IRP with the MPSC detailing its long‑term strategy for delivering reliable and affordable energy to its customers through the increased use of energy efficiency and customer demand management programs and additional renewable energy. In March 2019, Consumers and a broad coalition of key stakeholders, including business customers, environmental groups, the MPSC Staff, and the Michigan Attorney General, filed a settlement agreement with the MPSC and the MPSC approved it in June 2019.
Through its IRP, Consumers expects to reduce carbon emissions by more than 90 percent by 2040 and eliminate the use of coal to generate electricity by 2040. Specifically, the IRP provides for:
the retirement of the D.E. Karn 1 & 2 coal‑fueled generating units, totaling 515 MW, in 2023
the continued assessment in future IRP filings concerning the retirement of the J.H. Campbell 1 & 2 coal‑fueled generating units, totaling 608 MW, in 2025 or earlier
Under the IRP, Consumers will replace the capacity to be retired with:
increased demand response programs
increased energy efficiency
increased renewable energy generation
conservation voltage reduction
increased pumped storage
Consumers will competitively bid new capacity and at least 50 percent of the new capacity will be built and owned by third parties; the remainder will be owned and operated by Consumers. In accordance with the 2016 Energy Law, the IRP also enables Consumers to earn a financial incentive on PPAs approved by the MPSC after January 1, 2019.
The IRP also allows for recovery of significant increases in demand response costs. Consumers is required to file a new IRP by June 2021.
PURPA: PURPA requires Consumers to purchase power from qualifying cogeneration and small power production facilities at a price approved by the MPSC that is meant to represent Consumers’ “avoided cost” of generating power or purchasing power from another source. In November 2017, the MPSC issued an order establishing a new avoided‑cost methodology for determining the price that Consumers must pay to purchase power under PURPA. Among other things, the MPSC’s order changes the basis of Consumers’ avoided cost from the cost of coal‑fueled generating units to that of natural gas‑fueled generating units. The MPSC order also assigns more capacity value to qualifying facilities that are consistently able to generate electricity during peak times. Although the costs Consumers incurs to purchase power from qualifying facilities are passed on to customers, the order could result in mandated purchases of generation, potentially at above‑market prices, and reduce Consumers’ need for new owned generation. This in turn could have a material adverse effect on Consumers’ capital investment plan and the affordability of future customer rates.
In December 2017, Consumers filed a petition with the MPSC requesting corrections to the pricing calculations and capacity purchase model set in the November 2017 order. Subsequently, the MPSC suspended the implementation of the order and reopened the proceeding. In February 2018, the MPSC


31


issued an order limiting Consumers’ obligation to pay the full avoided capacity cost, which is based on the cost of a natural gas combustion turbine under the new avoided‑cost formula, to existing qualifying facilities upon the expiration of outstanding contracts and to the first 150 MW of new generation projects that qualify under PURPA. In October 2018, the MPSC issued an order lifting the suspension on the November 2017 order and thereby making effective the avoided‑cost formula set at that time. According to the October 2018 order, the use of the full avoided‑cost formula is still limited to outstanding contracts that expire and the first 150 MW of new qualifying generation projects. The October 2018 order also provides that all other qualifying generation projects that establish a legally enforceable obligation are eligible to receive a capacity payment equal to the MISO planning resource auction price and a designated energy price approved in the MPSC’s October order. The MPSC also ruled that the determination of Consumers’ future capacity needs would take place in Consumers’ IRP proceeding.
In November 2018, Consumers made a filing in support of another party’s request that the MPSC stay the effectiveness of its October 2018 order. In February 2019, Consumers filed a petition with the MPSC challenging the rates approved in the October 2018 order, and it separately filed a request to withdraw a tariff provision incorporating those rates. In June 2019, the MPSC denied both of these requests, as well as the prior request for a stay of the October 2018 order. Five PURPA developers, representing approximately 2,100 MW of alleged qualifying generation projects, have filed complaints with the MPSC claiming that their projects have legally enforceable obligations making them eligible for the avoided cost rates approved in the October 2018 order. One of those developers is challenging aspects of the MPSC’s October 2018 order in the Michigan Court of Appeals.
In the approved IRP settlement agreement, Consumers agreed to a new method of calculating avoided cost, based on a competitive bidding process that will enable Consumers to purchase energy from new generation at the lowest cost and mitigate the risk of forced purchases of unneeded renewable generation. Consumers cannot predict the outcome of these matters.
Renewable Energy Plan: The 2016 Energy Law raised the renewable energy standard from the present ten‑percent requirement to 15 percent in 2021, with an interim target of 12.5 percent in 2019. Consumers is required to submit RECs, which represent proof that the associated electricity was generated from a renewable energy resource, in an amount equal to at least the required percentage of Consumers’ electric sales volume each year. Under its renewable energy plan, Consumers expects to meet its renewable energy requirement each year with a combination of newly generated RECs and previously generated RECs carried over from prior years.
In conjunction with its renewable energy plan, Consumers began construction in 2017 of Cross Winds® Energy Park Phase III, with a planned nameplate capacity of 76 MW, and expects it to be operational in 2020. This project is expected to qualify for certain federal production tax credits, generating cost savings that will be passed on to customers.
In February 2019, the MPSC issued an order ruling on amendments Consumers had requested to its renewable energy plan. The MPSC approved the acquisition of up to 525 MW of new wind generation projects, but ruled that Consumers’ request to acquire up to 100 MW of new solar generation will be addressed in a separate proceeding. The MPSC also approved an agreement under which Consumers will purchase a wind generation project under development, with capacity of up to 150 MW, in Gratiot County, Michigan. Consumers expects to begin construction of this project during the fourth quarter of 2019 and that it will be complete and operational in 2020. In June 2019, Consumers entered into an agreement to purchase a wind generation project under development in Michigan, with capacity of up to 166 MW. Consumers expects to take full ownership and begin commercial operation of the project in 2020. The agreement is subject to MPSC approval.


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In June 2018, Consumers issued a request for proposals to acquire up to 400 MW of wind generation projects and up to 100 MW of solar generation projects, all of which are required to be located in Michigan. Negotiations are in progress with bidders. Any contracts entered into as a result of the request for proposals would be subject to MPSC approval. Consumers is authorized to earn a 10.7 percent return on equity on any projects approved by the MPSC.
Electric Customer Deliveries and Revenue: Consumers’ electric customer deliveries are seasonal and largely dependent on Michigan’s economy. The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment. In addition, Consumers’ electric rates, which follow a seasonal rate design, are higher in the summer months than in the remaining months of the year.
Consumers expects weather‑normalized electric deliveries over the next five years to remain stable relative to 2018. This outlook reflects modest growth in electric demand offset by the effects of energy waste reduction programs and appliance efficiency standards. Actual delivery levels will depend on:
energy conservation measures and results of energy waste reduction programs
weather fluctuations
Michigan’s economic conditions, including utilization, expansion, or contraction of manufacturing facilities, population trends, and housing activity
Electric ROA: Michigan law allows electric customers in Consumers’ service territory to buy electric generation service from alternative electric suppliers in an aggregate amount capped at ten percent, with certain exceptions, of Consumers’ weather‑normalized retail sales of the preceding calendar year. At June 30, 2019, electric deliveries under the ROA program were at the ten‑percent limit. Of Consumers’ 1.8 million electric customers, 285 customers, or 0.02 percent, purchased electric generation service under the ROA program.
The 2016 Energy Law established a path to ensure that forward capacity is secured for all electric customers in Michigan, including customers served by alternative electric suppliers under ROA. The new law also authorized the MPSC to ensure that alternative electric suppliers have procured enough capacity to cover their anticipated capacity requirements for the four‑year forward period. In 2017, the MPSC issued an order establishing a state reliability mechanism for Consumers. Under this mechanism, beginning June 1, 2018, if an alternative electric supplier does not demonstrate that it has procured its capacity requirements for the four‑year forward period, its customers will pay a set charge to the utility for capacity that is not provided by the alternative electric supplier. All alternative electric suppliers have demonstrated that they have procured their capacity requirements through the MISO planning year beginning June 1, 2022.
In June 2018, the MPSC issued an order requiring all electric suppliers to demonstrate that a portion of the capacity procured to serve customers during peak demand times is located in the MISO footprint in Michigan’s Lower Peninsula. In July 2018, the Michigan Court of Appeals issued a decision that the MPSC does not have statutory authority to implement such a requirement for alternative electric suppliers. Consumers believes the 2016 Energy Law does give such authorization to the MPSC. The MPSC and Consumers have filed applications for leave to appeal the Court of Appeals’ decision to the Michigan Supreme Court. In June 2019, the Michigan Supreme Court issued orders directing the filing of supplemental briefs and the scheduling of oral arguments in the case, and will ultimately decide whether to consider and rule on the appeals.
Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. For additional details on rate matters, see Note 2, Regulatory Matters.


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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 $0.3 billion from 2019 through 2023 to continue to comply with RCRA, the Clean Water Act, the Clean Air Act, and numerous state and federal environmental regulations. Consumers expects to recover these costs in customer rates, but cannot guarantee this result. Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters.
Air Quality: Multiple air quality regulations apply, or may apply, to Consumers.
CSAPR, which became effective in 2015, requires Michigan and many other states to improve air quality by reducing power plant emissions that, according to EPA computer models, contribute to ground‑level ozone and fine particle pollution in other downwind states. In 2016, the EPA finalized new ozone season standards for CSAPR, which became effective in 2017. CSAPR is presently being litigated; however, any decision will not impact Consumers’ compliance strategy, as Consumers expects its emissions to be within the CSAPR allowance allocations.
In 2012, the EPA published emission standards for electric generating units, based on Section 112 of the Clean Air Act, known as MATS. Under MATS, all of Consumers’ existing coal‑fueled electric generating units were required to add additional controls for hazardous air pollutants. Consumers met the extended deadline of April 2016 for five coal‑fueled units and two oil/gas‑fueled units it continues to operate and retired its seven remaining coal‑fueled units. MATS is presently being litigated. In addition, in December 2018, the EPA proposed changes to the supporting analysis used to justify MATS, but did not propose any changes to the MATS regulations. Any changes resulting from that litigation or rulemaking are not expected to impact Consumers’ MATS compliance strategy because Consumers is still required to comply with the Michigan Mercury Rule, which has similar requirements to MATS. In addition, Consumers must comply with its settlement agreement with the EPA entered into in 2014 concerning opacity and NSR.
In 2015, the EPA lowered the NAAQS for ozone. The new ozone NAAQS will make it more difficult to construct or modify power plants in areas of the country that have not met the new ozone standard. In April 2018, the EPA designated certain areas of Michigan as not meeting the new standard with an August 2018 effective date. None of Consumers’ fossil‑fuel‑fired generating units are located in these areas. Some of Consumers’ compressor stations are located in areas impacted by the rule, but Consumers expects only minor permitting impacts if those units are modified in the future. The NAAQS for ozone are presently being litigated. Consumers does not expect that any decision will have a material adverse impact on its generating assets.
Consumers’ strategy to comply with air quality regulations, including CSAPR, NAAQS, and MATS, as well as its legal obligations, involved the installation and operation of emission control equipment at some facilities and the suspension of operations at others; however, Consumers continues to evaluate these rules in conjunction with other EPA and EGLE rulemakings, litigation, and congressional action. This evaluation could result in:
a change in Consumers’ fuel mix
changes in the types of generating units Consumers may purchase or build in the future
changes in how certain units are used
the retirement, mothballing, or repowering with an alternative fuel of some of Consumers’ generating units
changes in Consumers’ environmental compliance costs
Greenhouse Gases: There have been numerous legislative and regulatory initiatives at the state, regional, national, and international levels that involve the potential regulation of greenhouse gases. Consumers


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continues to monitor and comment on these initiatives and to follow litigation involving greenhouse gases.
In 2015, the EPA finalized new rules pursuant to Section 111(b) of the Clean Air Act to limit carbon dioxide emissions from new electric generating units, as well as modified or reconstructed electric generating units. New coal‑fueled units would not be able to meet this limit without installing carbon dioxide control equipment using such methods as carbon capture and sequestration. These rules are being litigated.
In December 2018, the EPA proposed a revised Section 111(b) regulation to replace the 2015 standard rule limiting carbon dioxide emissions from new electric generating units, citing limited availability and high costs of carbon capture and sequestration equipment as reasons to change the 2015 rule. The revised Section 111(b) regulation requires new coal‑fueled generating units to meet a highly efficient steam cycle performance standard. Consumers does not expect this proposal to change its existing environmental strategy.
Also in 2015, the EPA published final rules pursuant to Section 111(d) of the Clean Air Act to limit carbon dioxide emissions from existing electric generating units, calling the rules the “Clean Power Plan.” Certain states, corporations, and industry groups initiated litigation opposing the proposed Clean Power Plan, and in 2016, the U.S. Supreme Court stayed the Clean Power Plan while the litigation proceeded. In 2017, the EPA and other federal agencies were directed to review the Clean Power Plan, and the EPA published a proposal to repeal it. In June 2019, the EPA released a final rule repealing the Clean Power Plan.
In August 2018, the EPA proposed the &#