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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 March 31, 2020
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 April 6, 2020:
CMS Energy Corporation:
 
CMS Energy Common Stock, $0.01 par value (including 12,322 shares owned by Consumers Energy)
286,221,472

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








CMS Energy Corporation
Consumers Energy Company
Quarterly Reports on Form 10‑Q to the Securities and Exchange Commission for the Period Ended March 31, 2020
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
2019 Form 10‑K
Each of CMS Energy’s and Consumers’ Annual Report on Form 10‑K for the year ended December 31, 2019
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
CARES Act
Coronavirus Aid, Relief, and Economic Security Act of 2020
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
CDC
U.S. Centers for Disease Control and Prevention
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


2


Clean Energy Plan
Consumers’ long‑term strategy for delivering clean, reliable, and affordable energy to its customers through the increased use of energy efficiency and customer demand management programs, additional renewable energy generation, and conservation voltage reduction
Clean Water Act
Federal Water Pollution Control Act of 1972, as amended
CMS Energy
CMS Energy Corporation and its consolidated subsidiaries, unless otherwise noted; the parent of Consumers, CMS Enterprises, and EnerBank
CMS Enterprises
CMS Enterprises Company, a wholly owned subsidiary of CMS Energy
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, L.L.C., a wholly owned subsidiary of CMS Energy
CMS MST
CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS Energy Resource Management Company in 2004
Consumers
Consumers Energy Company and its consolidated subsidiaries, unless otherwise noted; a wholly owned subsidiary of CMS Energy
COVID‑19
Coronavirus disease 2019, a respiratory illness that was declared a pandemic in March 2020 and to which public and private agencies have responded by instituting social-distancing and other measures designed to slow the spread of the disease
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


3


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, L.L.C., a wholly owned subsidiary of CMS Energy
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
FICO
Fair Issac Corporation, a non-affiliated company providing data analytic services, with a focus on credit scoring services
FTR
Financial transmission right
GAAP
U.S. Generally Accepted Accounting Principles
GCR
Gas cost recovery
IRP
Integrated resource plan
IRS
Internal Revenue Service
kWh
Kilowatt‑hour, a unit of energy equal to one thousand watt‑hours


4


LIBOR
The London Interbank Offered Rate
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.
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


UWUA
Utility Workers Union of America, AFL-CIO


7


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, EnerBank, 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, EnerBank, 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 2019 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 the COVID‑19 pandemic on CMS Energy’s and Consumers’ revenues, expenses, uncollectible accounts, energy efficiency programs, pension funding, PSCR and GCR costs, capital investment programs, cash flows, liquidity, maintenance of existing assets, and other operating expenses
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 or failure to receive timely regulatory orders affecting Consumers that are or could come before the MPSC, FERC, or other governmental authorities


8


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
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 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


9


population changes in the geographic areas where CMS Energy and Consumers conduct business
national, regional, and local economic, competitive, and regulatory policies, conditions, and developments
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, global pandemics, 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


10


adverse consequences resulting from any past, present, or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including claims resulting from attempts by foreign or domestic governments to assess taxes on or to impose environmental liability associated with past operations or transactions
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.


11



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12


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


13


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; CMS Enterprises, primarily a domestic independent power producer and marketer; and EnerBank, an industrial bank located in Utah. 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. EnerBank provides primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements.
CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in four business segments: electric utility; gas utility; enterprises, its non‑utility operations and investments; and EnerBank. 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
COVID‑19 Pandemic
CMS Energy and Consumers are responding to a public health emergency caused by the COVID‑19 pandemic by instituting measures consistent with guidance provided by local, state, and federal agencies. CMS Energy and Consumers maintain over 60 departmental business continuity plans; these plans were reviewed and enhanced in early 2020 to ensure readiness for the COVID-19 pandemic. CMS Energy and Consumers have taken steps to protect the safety of employees, customers, and contractors, and have executed their business continuity plans to ensure the continued delivery of critical energy services. Additionally, CMS Energy and Consumers have mitigated the potential impact of the pandemic on their liquidity by recently completing financing transactions and reducing the need for external funding for the remainder of the year.
The COVID‑19 pandemic is a rapidly evolving situation. In the near term, Consumers has experienced a decline in electric deliveries to commercial and industrial customers and anticipates increased


14


uncollectible accounts, workforce-related costs, miscellaneous expenses above amounts in general rates, and other one-time costs in the future as a result of the pandemic. In April 2020, the MPSC issued an order authorizing Consumers to defer uncollectible accounts expense associated with the pandemic and requesting comments on utility accounting for other COVID‑19-related expenses and COVID‑19-related impacts to regulatory activities.
Additionally, EnerBank has experienced slower lending growth and anticipates higher loan write-offs and increased loan modifications in the future as a result of the pandemic. The companies cannot predict the long-term impact of the pandemic on their liquidity, financial condition, results of operations, cash flows, or capital investment program. More detailed discussion of the near-term impacts of and future uncertainties related to the COVID‑19 pandemic can be found throughout this MD&A and in Part II—Item 1A. Risk Factors.
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.
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.
graphic-cmsppp.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 63 percent.
In response to the COVID‑19 pandemic, CMS Energy and Consumers have issued a response plan that is focused on the health and safety of their co-workers, customers, and communities. CMS Energy and Consumers have aligned with CDC guidelines and executive orders issued by Michigan’s governor to


15


protect their employees, customers, and contractors to ensure the continued delivery of critical energy services. To align with, and in addition to, these guidelines, CMS Energy and Consumers have:
sequestered employees with critical roles at generating plants, gas compression facilities, and electric control rooms
adjusted work to focus on emergent and critical activities such as electric outages, gas leaks, and other public safety and reliability work
implemented a 14‑day self-quarantine requirement for employees who have come into contact with a person suspected to have COVID‑19
prohibited business-related international and domestic travel, and instituted a mandatory 14‑day work remote period for employees who return from personal travel to impacted areas
required employees to work remotely when possible
reduced service at 13 direct payment offices to drop box and drive-through services only
contracted a chief medical officer to guide the companies’ response and provide rapid support and supplies for the workforce
offered additional paid leave to employees to alleviate child care-related burdens and implemented other interim workforce policies to offer flexibility and reduce employee concerns
CMS Energy and Consumers have also suspended shut-offs of service for non-payment and extended payment protection plans for low-income and senior customers through June 1, 2020.
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 renewable energy and energy waste reduction and demand response programs
targeted infrastructure investment to improve reliability and safety and to reduce maintenance costs
information and control system efficiencies
employee and retiree health care cost sharing
workforce productivity enhancements
In addition, Consumers’ gas commodity costs declined by 62 percent from 2009 through 2019, 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 the companies’ strategy development, business planning, and enterprise risk management processes.


16


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, 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 35 percent since 2012
reduced landfill waste disposal by over 1.3 million tons since 1992
reduced methane emissions by 12 percent since 2012
Additionally, over the last 20 years, Consumers has reduced its sulfur dioxide, nitrogen oxide, particulate matter, and mercury emissions by over 90 percent.
The 2016 Energy Law:
raised the renewable energy standard to 12.5 percent in 2019 and 15 percent in 2021; Consumers met the 12.5-percent requirement in 2019 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 has achieved 22 percent of the combined renewable energy and energy waste reduction goal through 2019
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
In 2019, the MPSC approved the IRP that Consumers filed in 2018, which details its Clean Energy Plan. 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. Further, Consumers plans to replace its coal-fueled generation predominantly 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 Clean Energy Plan, Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040. Additionally, the Clean Energy Plan will allow Consumers to achieve a breakthrough goal of at least 50 percent combined renewable energy and energy waste reduction by 2030.


17


Presented in the following illustration is Consumers’ 2019 capacity portfolio and its future capacity portfolio as projected in the IRP. This illustration includes the effects of purchased capacity and energy waste reduction and uses the nameplate capacity of renewable energy sources:
chart-capacitymix.jpg
The Clean Energy Plan lays the foundation for Consumers’ recently announced goal to achieve net-zero carbon emissions by 2040. As part of this goal, which was announced in February 2020, Consumers will significantly reduce its carbon emissions from its electric business and offset any remaining emissions through strategies including, but not limited to, carbon sequestration, landfill methane capture, and large-scale tree planting. The 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.
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 October 2019, Consumers set a goal of net‑zero methane emissions from its natural gas delivery system by 2030. Consumers’ Methane Reduction Plan, released in November 2019, outlines its plan to reach this net-zero emissions goal. 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 eliminated by purchasing and/or producing renewable natural gas.


18


Additionally, 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; during 2018 and 2019, Consumers reduced its water usage by over 400 million gallons
to reduce the amount of waste taken to landfills by 35 percent; during 2018 and 2019, Consumers reduced its waste to landfills by 10 percent
to enhance, restore, or protect 5,000 acres of land; during 2018 and 2019, Consumers enhanced, restored, or protected over 2,200 acres of land
CMS Energy, through CMS Enterprises, continues to pursue further opportunities for the development of renewable generation projects. In recent years, CMS Enterprises completed the development of and now operates a wind generation project and three solar generation projects.
CMS Energy and Consumers are monitoring numerous legislative, policy, and regulatory initiatives, including those to regulate greenhouse gases, and related litigation. While CMS Energy and Consumers cannot predict the outcome of these matters, which could have a material effect on the companies, they intend to continue to move forward with their clean and lean strategy.
Profit: The profit element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to meeting 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 three months ended March 31, 2020, CMS Energy’s net income available to common stockholders was $243 million, and diluted EPS were $0.85. This compares with net income available to common stockholders of $213 million and diluted EPS of $0.75 for the three months ended March 31, 2019. In 2020, the benefits from electric and gas rate increases, lower service restoration costs, and increased income tax benefits were offset partially by lower electric and gas sales due primarily to unfavorable weather and higher depreciation and property tax expense. 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 anticipates a decline in electric deliveries to commercial and industrial customers in the near term as a result of the COVID‑19 pandemic, but cannot predict the impact on full-year 2020 electric and gas deliveries at this time. Over the long term, Consumers expects weather-normalized electric deliveries over the next five years to decrease slightly and weather‑normalized gas deliveries to remain stable. This outlook reflects the effects of energy waste reduction programs offset largely by modest growth in electric and gas demand.
Performance: Impacting the Triple Bottom Line
CMS Energy and Consumers remain committed to achieving world class performance while delivering hometown service. Leveraging the Consumers Energy Way, CMS Energy and Consumers accomplished the following during 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


19


completed the deployment of automated gas meters in areas where Consumers provides only natural gas to customers, allowing for drive-by meter reading
ranked the highest in customer satisfaction among large natural gas providers in the Midwest, according to a residential customer satisfaction study conducted by J.D. Power, a global marketing information company
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 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.
Presented in the following illustration are planned capital expenditures of $12.2 billion that Consumers expects to make from 2020 through 2024:
chart-plannedcapex.jpg
Of this amount, Consumers plans to spend $9.4 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 $5.0 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 $4.4 billion to strengthen circuits and substations and replace poles. Consumers also expects to spend $2.8 billion on electric supply projects, primarily new renewable generation. In response


20


to the COVID‑19 pandemic, Consumers has rescheduled some capital investment projects, but has not made any changes to its long-term capital investment program at this time.
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.
2019 Gas Rate Case: In December 2019, Consumers filed an application with the MPSC seeking an annual rate increase of $245 million, based on a 10.5 percent authorized return on equity. 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.
2020 Electric Rate Case: In February 2020, Consumers filed an application with the MPSC seeking an annual rate increase of $244 million, based on a 10.5 percent authorized return on equity. The filing also seeks approval to recover $13 million associated with Consumers’ deferral of depreciation and property tax expense and the overall rate of return on distribution-related capital investments exceeding certain threshold amounts. Additionally, the filing seeks approval of a method of recovering amounts earned under the financial compensation mechanism approved by the MPSC in Consumers’ IRP. This mechanism allows Consumers to earn a financial incentive on PPAs approved by the MPSC after January 1, 2019. Consumers also proposes in the filing a new distributed generation tariff to replace the current net metering tariff, pursuant to the 2016 Energy Law.
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.


21


Results of Operations
CMS Energy Consolidated Results of Operations
In Millions, Except Per Share Amounts
 
Three Months Ended March 31
2020
 
2019
 
Change
 
Net Income Available to Common Stockholders
 
$
243

 
$
213

 
$
30

Basic Earnings Per Average Common Share
 
$
0.86

 
$
0.75

 
$
0.11

Diluted Earnings Per Average Common Share
 
$
0.85

 
$
0.75

 
$
0.10

 
In Millions
 
Three Months Ended March 31
2020
 
2019
 
Change
 
Electric utility
 
$
118

 
$
105

 
$
13

Gas utility
 
117

 
121

 
(4
)
Enterprises¹
 
20

 
7

 
13

EnerBank¹
 
14

 
11

 
3

Corporate interest and other¹
 
(26
)
 
(31
)
 
5

Net Income Available to Common Stockholders
 
$
243

 
$
213

 
$
30

1 
Prior period amounts have been reclassified to reflect changes in segment reporting.


22


Presented in the following table are specific after-tax changes to net income available to common stockholders for the three months ended March 31, 2020 versus 2019:
In Millions
 
Three Months Ended March 31, 2019
 
 
 
$
213

Reasons for the change
 
 
 
 
Consumers electric utility and gas utility
 
 
 
 
Electric sales
 
$
(23
)
 
 
Gas sales
 
(37
)
 
 
Electric rate increase
 
5

 
 
Gas rate increase
 
48

 
 
Lower service restoration costs
 
25

 
 
Research and development tax credits
 
9

 
 
Higher mutual insurance distribution
 
5

 
 
Depreciation and amortization
 
(13
)
 
 
Voluntary separation plan expenses
 
(8
)
 
 
Higher property tax, reflecting higher capital spending
 
(7
)
 
 
Other
 
5

 
$
9

Enterprises
 
 
 
 
Higher earnings due primarily to improved receivables management and lower operations and maintenance costs
 
7

 
 
Increased income tax benefit due primarily to production tax credits and restoring previously sequestered alternative minimum tax credits
 
6

 
13

EnerBank
 
 
 
 
Higher earnings based on growth in consumer lending in prior periods
 
 
 
3

Corporate interest and other
 
 
 
 
Increased income tax benefit due to restoring previously sequestered alternative minimum tax credits
 
5

 
 
Lower administrative and other expenses
 
3

 
 
Higher fixed charges due to higher debt
 
(3
)
 
5

Three Months Ended March 31, 2020
 
 
 
$
243



23


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 March 31, 2020 versus 2019 (amounts are presented pre-tax, with the exception of income tax changes):
In Millions
 
Three Months Ended March 31, 2019
 
 
 
$
105

Reasons for the change
 
 
 
 
Electric deliveries1 and rate increases
 
 
 
 
Rate increase, including the impacts of the January 2019 order
 
$
7

 
 
Lower sales due primarily to unfavorable weather
 
(28
)
 
 
Other revenues
 
(1
)
 
$
(22
)
Maintenance and other operating expenses
 
 
 
 
Lower service restoration costs
 
33

 
 
Higher mutual insurance distribution
 
7

 
 
Absence of favorable 2019 litigation settlement
 
(8
)
 
 
Voluntary separation plan expenses
 
(6
)
 
 
Retention benefits related to D.E. Karn2
 
(4
)
 
 
Lower maintenance and other operating expenses
 
13

 
35

Depreciation and amortization
 
 
 
 
Increased plant in service, reflecting higher capital spending
 
 
 
(7
)
General taxes
 
 
 
(1
)
Other income, net of expenses
 
 
 
3

Interest charges
 
 
 
(4
)
Income taxes
 
 
 
 
Lower tax expense due primarily to research and development tax credits3
 
7

 
 
Lower other income taxes
 
2

 
9

Three Months Ended March 31, 2020
 
 
 
$
118

1 
Deliveries to end-use customers were 8.8 billion kWh in 2020 and 9.2 billion kWh in 2019.
2 
See Note 14, Exit Activities.
3 
See Note 9, Income Taxes.


24


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 March 31, 2020 versus 2019 (amounts are presented pre-tax, with the exception of income tax changes):
In Millions
 
Three Months Ended March 31, 2019
 
 
 
$
121

Reasons for the change
 
 
 
 
Gas deliveries1 and rate increases
 
 
 
 
Rate increase, including the impacts of the September 2019 order
 
$
64

 
 
Lower sales due primarily to unfavorable weather
 
(55
)
 
 
Lower energy waste reduction program revenues
 
(8
)
 
 
Other revenues
 
6

 
$
7

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

 
 
Voluntary separation plan expenses
 
(4
)
 
 
Lower maintenance and other operating expenses
 
2

 
6

Depreciation and amortization
 
 
 
 
Increased plant in service, reflecting higher capital spending
 
 
 
(10
)
General taxes
 
 
 
 
Higher property tax, reflecting higher capital spending
 
(7
)
 
 
Lower other general taxes
 
1

 
(6
)
Other income, net of expenses
 
 
 
2

Interest charges
 
 
 
(4
)
Income taxes
 
 
 
 
Lower tax expense due primarily to research and development tax credits2
 
 
 
1

Three Months Ended March 31, 2020
 
 
 
$
117

1 
Deliveries to end-use customers were 120 bcf in 2020 and 142 bcf in 2019.
2 
See Note 9, Income Taxes.
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 March 31, 2020 versus 2019:
In Millions
 
Three Months Ended March 31, 2019
 
 
 
$
7

Reasons for the change
 
 
 
 
Higher earnings due primarily to improved receivables management and lower operations and maintenance costs
 
 
 
$
7

Increased income tax benefit due primarily to production tax credits and restoring previously sequestered alternative minimum tax credits
 
 
 
6

Three Months Ended March 31, 2020
 
 
 
$
20



25


EnerBank Results of Operations
Presented in the following table are the detailed after-tax changes to EnerBank’s net income available to common stockholders for the three months ended March 31, 2020 versus 2019:
In Millions
 
Three Months Ended March 31, 2019
 
 
 
$
11

Reasons for the change
 
 
 
 
Higher earnings based on growth in consumer lending in prior periods
 
 
 
$
3

Three Months Ended March 31, 2020
 
 
 
$
14

Corporate Interest and Other Results of Operations
Presented in the following table are the detailed after-tax changes to corporate interest and other results for the three months ended March 31, 2020 versus 2019:
In Millions
 
Three Months Ended March 31, 2019
 
 
 
$
(31
)
Reasons for the change
 
 
 
 
Increased income tax benefit due to restoring previously sequestered alternative minimum tax credits
 
 
 
$
5

Lower administrative and other expenses
 
 
 
3

Higher fixed charges due to higher debt
 
 
 
(3
)
Three Months Ended March 31, 2020
 
 
 
$
(26
)


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Cash Position, Investing, and Financing
At March 31, 2020, CMS Energy had $861 million of consolidated cash and cash equivalents, which included $27 million of restricted cash and cash equivalents. At March 31, 2020, Consumers had $628 million of consolidated cash and cash equivalents, which included $24 million of restricted cash and cash equivalents.
Operating Activities
Presented in the following table are specific components of the changes to net cash provided by operating activities for the three months ended March 31, 2020 versus 2019:
In Millions
 
CMS Energy, including Consumers
 
 
Three Months Ended March 31, 2019
 
$
617

Reasons for the change
 
 
Higher net income
 
$
30

Non‑cash transactions1
 
35

Higher pension contributions
 
(531
)
Favorable impact of changes in core working capital,2 due primarily to higher collections on gas deliveries in 2020
 
41

Favorable impact of changes in other assets and liabilities, due primarily to the absence of 2019 refunds to customers related to the TCJA, offset partially by a payment to settle litigation
 
9

Three Months Ended March 31, 2020
 
$
201

Consumers
 
 
Three Months Ended March 31, 2019
 
$
619

Reasons for the change
 
 
Higher net income
 
$
9

Non-cash transactions1
 
43

Higher pension contributions
 
(518
)
Favorable impact of changes in core working capital,2 due primarily to higher collections on gas deliveries in 2020
 
82

Favorable impact of changes in other assets and liabilities, due primarily to the absence of 2019 refunds to customers related to the TCJA, offset partially by higher income tax payments to CMS Energy
 
3

Three Months Ended March 31, 2020
 
$
238

1 
Non‑cash transactions comprise depreciation and amortization, changes in deferred income taxes and investment tax credits, 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.


27


Investing Activities
Presented in the following table are specific components of net cash used in investing activities for the three months ended March 31, 2020 versus 2019:
In Millions
 
CMS Energy, including Consumers
 
 
Three Months Ended March 31, 2019
 
$
(675
)
Reasons for the change
 
 
Higher capital expenditures
 
$
(42
)
Changes in EnerBank notes receivable, reflecting slower growth in consumer lending in 2020
 
42

Lower purchases of notes receivable by EnerBank
 
113

Other investing activities, primarily lower costs to retire property
 
3

Three Months Ended March 31, 2020
 
$
(559
)
Consumers
 
 
Three Months Ended March 31, 2019
 
$
(502
)
Reasons for the change
 
 
Higher capital expenditures
 
$
(44
)
Other investing activities, primarily lower costs to retire property
 
4

Three Months Ended March 31, 2020
 
$
(542
)


28


Financing Activities
Presented in the following table are specific components of net cash provided by (used in) financing activities for the three months ended March 31, 2020 versus 2019:
In Millions
 
CMS Energy, including Consumers
 
 
Three Months Ended March 31, 2019
 
$
150

Reasons for the change
 
 
Higher debt issuances
 
$
205

Lower debt retirements
 
788

Changes in EnerBank certificates of deposit, reflecting lower borrowings
 
(158
)
Higher repayments under Consumers’ commercial paper program
 
(23
)
Higher issuances of common stock, primarily the settlement of an equity forward sale contract
 
98

Higher payments of dividends on common stock
 
(8
)
Other financing activities, primarily lower debt issuance costs
 
10

Three Months Ended March 31, 2020
 
$
1,062

Consumers
 
 
Three Months Ended March 31, 2019
 
$
(109
)
Reasons for the change
 
 
Higher debt issuances
 
$
873

Lower debt retirements
 
215

Higher repayments under Consumers’ commercial paper program
 
(23
)
Higher payments of dividends on common stock
 
(47
)
Other financing activities, primarily higher debt issuance costs
 
(5
)
Three Months Ended March 31, 2020
 
$
904

Capital Resources and Liquidity
CMS Energy uses dividends and tax‑sharing payments from its subsidiaries and external financing and capital transactions to invest in its utility and non‑utility businesses, retire debt, pay dividends, and fund its other obligations. The ability of CMS Energy’s subsidiaries, including Consumers, to pay dividends to CMS Energy depends upon each subsidiary’s revenues, earnings, cash needs, and other factors. In addition, Consumers’ ability to pay dividends is restricted by certain terms included in its debt covenants and articles of incorporation and potentially by FERC requirements and provisions under the Federal Power Act and the Natural Gas Act. For additional details on Consumers’ dividend restrictions, see Note 4, Financings and Capitalization—Dividend Restrictions. For the three months ended March 31, 2020, Consumers paid $219 million in dividends on its common stock to CMS Energy.
Consumers uses cash flows generated from operations and external financing transactions, as well as stockholder contributions from CMS Energy, to fund capital expenditures, retire debt, pay dividends, and fund its other obligations. Consumers also uses these sources of funding to contribute to its employee benefit plans.
CMS Energy and Consumers expect to have sufficient liquidity to fund their commitments despite potential material uncertainties that may impact their cash management and financing strategies as a result of the COVID‑19 pandemic. CMS Energy and Consumers rely on the capital markets to fund their robust capital plan and those markets have faced significant strain. CMS Energy executed and funded a


29


$300 million term loan facility in February 2020 and settled $100 million of its $250 million contracted forward equity in March 2020, which reduces CMS Energy’s need for external funding for the remainder of the year. Furthermore, Consumers issued $575 million of first mortgage bonds in March 2020. These transactions mitigate the potential impact of the COVID‑19 pandemic on CMS Energy’s and Consumers’ funding needs. In April 2020, Consumers redeemed $100 million of first mortgage bonds due in October 2020. With this transaction, CMS Energy and Consumers have no remaining outstanding debt maturing in 2020. For more information on CMS Energy’s and Consumers’ financing transactions, see Note 4, Financings and Capitalization.
Barring any sustained market dislocations or disruptions, CMS Energy and Consumers expect to continue to have ready access to the financial and capital markets and will continue to explore possibilities to take advantage of market opportunities as they arise with respect to future funding needs. If access to these markets were to diminish or otherwise become restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. The COVID‑19 pandemic is a rapidly evolving situation and CMS Energy and Consumers cannot predict the ultimate impact it will have on their liquidity, debt covenants, financial condition, results of operations, or capital investment program.
As a result of a provision in the TCJA, as amended by the recently enacted CARES Act, CMS Energy will recover all remaining alternative minimum tax credits in 2020. CMS Energy utilized $7 million of these credits on its 2019 consolidated tax return, and will receive the remaining $69 million through a cash refund. The CARES Act also provides for the deferral of payroll taxes, which will allow CMS Energy and Consumers to defer remittance of $40 million of payroll taxes in 2020; half of the deferred amount will be due at the end of 2021 and the other half will be due at the end of 2022.
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. At March 31, 2020, CMS Energy’s remaining forward sales contracts had an aggregate sales price of $150 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—Issuance of Common Stock.
At March 31, 2020, CMS Energy had $521 million of its revolving credit facility available and Consumers had $1.1 billion available under its revolving credit facilities. CMS Energy and Consumers use these credit facilities for general working capital purposes and to issue letters of credit. An additional source of liquidity is Consumers’ commercial paper program, which allows Consumers to issue, in one or more placements, up to $500 million in the aggregate in commercial paper notes with maturities of up to 365 days at market interest rates. These issuances are supported by Consumers’ revolving credit facilities. While the amount of outstanding commercial paper does not reduce the available capacity of the revolving credit facilities, Consumers does not intend to issue commercial paper in an amount exceeding the available capacity of the facilities. At March 31, 2020, 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.
Certain of CMS Energy’s and Consumers’ credit agreements, debt indentures, and other facilities contain covenants that require CMS Energy and Consumers to maintain certain financial ratios, as defined therein. At March 31, 2020, no default had occurred with respect to any financial covenants contained in


30


CMS Energy’s and Consumers’ credit agreements, debt indentures, or other facilities. CMS Energy and Consumers were each in compliance with these covenants as of March 31, 2020, as presented in the following table:
 
March 31, 2020
Credit Agreement, Indenture, or Facility
Limit 
Actual 
CMS Energy, parent only
 
 
 
Debt to EBITDA¹
<
6.25 to 1.0
5.1 to 1.0
Consumers
 
 
 
Debt to Capital²
<
0.65 to 1.0
0.49 to 1.0
1 
Applies to CMS Energy’s $550 million revolving credit agreement and $300 million term loan credit agreement.
2 
Applies to Consumers’ $850 million and $250 million revolving credit agreements, its $30 million and $35 million reimbursement agreements, and its $300 million term loan credit agreement.
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 2020 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. Additionally, CMS Energy has entered into forward sales contracts to sell its common stock in order to invest in its utility and non-utility businesses; as of March 31, 2020, these contracts have an aggregate sales price of $150 million and mature in 2021. For additional details on the companies’ indemnity and guarantee arrangements, see Note 3, Contingencies and Commitments—Guarantees. For additional details on letters of credit and CMS Energy’s forward sales contracts, see 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; Note 2, Regulatory Matters; Note 3, Contingencies and Commitments; and Part II—Item 1A. Risk Factors.
Consumers Electric Utility Outlook and Uncertainties
Clean Energy Plan: In 2019, the MPSC approved the IRP that Consumers filed in 2018, which details its Clean Energy Plan. Through its Clean Energy Plan, Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040 and eliminate the use of coal to generate electricity by 2040. The Clean Energy Plan also provides the foundation for Consumers’ recently announced goal to achieve net-zero carbon emissions by 2040. Under this net-zero goal, Consumers plans


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to eliminate the impact of carbon emissions created by the electricity it generates or purchases for customers.
Specifically, the Clean Energy Plan provides for:
the retirement of the D.E. Karn 1 & 2 coal-fueled generating units, totaling 503 MW, in 2023
the continued assessment in future IRP filings concerning the retirement of the J.H. Campbell 1 & 2 coal-fueled generating units, totaling 609 MW, in 2025 or earlier
Under the Clean Energy Plan, Consumers will replace the capacity to be retired with:
increased demand response programs
increased energy efficiency
increased renewable energy generation
conservation voltage reduction
increased pumped storage
Consumers will competitively bid new capacity and at least 50 percent of the new capacity will be built and owned by third parties; the remainder will be owned and operated by Consumers. In support of its Clean Energy Plan, Consumers issued a request for proposals in September 2019 to acquire up to 300 MW of new capacity from projects to be operational in Michigan’s Lower Peninsula by May 2022. Specifically, Consumers solicited offers to enter into PPAs with or purchase solar generation projects ranging in size from 20 MW to 150 MW and to enter into PPAs with PURPA qualifying facilities up to 20 MW. Any contracts entered into as a result of the request for proposals would be subject to MPSC approval.
Renewable Energy Plan: The 2016 Energy Law raised the renewable energy standard to 15 percent in 2021, with an interim target of 12.5 percent in 2019. Consumers met the interim target for 2019 and will demonstrate its compliance by filing the 2019 renewable energy cost reconciliation with the MPSC in June 2020. 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.
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 of a wind generation project under development, with capacity of up to 150 MW, in Gratiot County, Michigan; on-site construction began during the fourth quarter of 2019 and the project is slated to be complete and operational in 2020
purchase of a wind generation project under development, with capacity of up to 166 MW, in Hillsdale, Michigan; Consumers is slated to take full ownership and begin commercial operation of the project in 2020
execution of a 20-year agreement under which Consumers will purchase 100 MW of renewable capacity, energy, and RECs from a 149-MW solar generating facility to be constructed in Calhoun County, Michigan; the facility is expected to be operational in 2021
As a result of the COVID‑19 pandemic, Consumers has received force majeure notifications from the turbine supplier and engineering, procurement, and construction contractors for the two wind generation


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projects. As this time, construction activities continue and Consumers does not anticipate any changes to the projects’ expected commercial operation dates, overall cost, or ability to qualify for production tax credits, but Consumers cannot predict the ultimate impact of the force majeure notifications.
Electric Customer Deliveries and Revenue: Consumers’ electric customer deliveries are seasonal and largely dependent on Michigan’s economy. The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment. In addition, Consumers’ electric rates, which follow a seasonal rate design, are higher in the summer months than in the remaining months of the year. Beginning in June 2020, electric residential customers will transition to a summer peak time-of-use rate that will allow them to take advantage of lower-cost energy during off-peak times during the summer months. Thus, customers could reduce their electric bills by shifting their consumption from on-peak to off-peak times.
As a result of the COVID‑19 pandemic, on March 23, 2020, Michigan’s Governor issued an executive order requiring all non-essential businesses to close temporarily and Michigan residents to stay home until April 13, 2020; this order has since been extended to May 15, 2020 and amended in scope to allow some additional business and personal activities. Since the issuance of the order, Consumers has experienced declines in weather-normalized commercial and industrial demand of over 20 percent compared to the same period of 2019. These declines, however, have been offset partially by residential load, which has increased by over five percent over the same period. While Consumers anticipates a decline in electric deliveries to commercial and industrial customers in the near term as a result of the COVID‑19 pandemic, it cannot predict the impact on full-year 2020 deliveries at this time.
Consumers has suspended shut-offs of service for non-payment and extended payment protection plans for low-income and senior customers through June 1, 2020. In light of the expected economic impacts of the pandemic, Consumers anticipates increased uncollectible accounts in the near term, but cannot predict the long-term impact of the pandemic on Michigan’s economy or its customers.
Over the long term, Consumers expects weather-normalized electric deliveries over the next five years to decrease slightly. This outlook reflects the effects of energy waste reduction programs and appliance efficiency standards offset largely by modest growth in electric demand. Actual delivery levels will depend on:
energy conservation measures and results of energy waste reduction programs
weather fluctuations
Michigan’s economic conditions, including utilization, expansion, or contraction of manufacturing facilities, population trends, and housing activity
Electric ROA: Michigan law allows electric customers in Consumers’ service territory to buy electric generation service from alternative electric suppliers in an aggregate amount capped at ten percent, with certain exceptions. At March 31, 2020, electric deliveries under the ROA program were at the ten-percent limit. Of Consumers’ 1.8 million electric customers, fewer than 300, or 0.02 percent, purchased electric generation service under the ROA program.
The 2016 Energy Law established a path to ensure that forward capacity is secured for all electric customers in Michigan, including customers served by alternative electric suppliers under ROA. The new law also authorized the MPSC to ensure that alternative electric suppliers have procured enough capacity to cover their anticipated capacity requirements for the four-year forward period. In 2017, the MPSC issued an order establishing a state reliability mechanism for Consumers. Under this mechanism, beginning June 1, 2018, if an alternative electric supplier does not demonstrate that it has procured its capacity requirements for the four-year forward period, its customers will pay a set charge to the utility for capacity that is not provided by the alternative electric supplier. All alternative electric suppliers have


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demonstrated that they have procured their capacity requirements through the MISO planning year beginning June 1, 2023.
During 2017, the MPSC issued orders finding that it has statutory authority to determine and implement a local clearing requirement, which requires all electric suppliers to demonstrate that a portion of the capacity procured to serve customers during peak demand times is located in the MISO footprint in Michigan’s Lower Peninsula. In 2018, the Michigan Court of Appeals issued a decision that the MPSC does not have statutory authority to implement such a requirement for individual alternative electric suppliers. The MPSC and Consumers filed applications for leave to appeal the Court of Appeals’ decision to the Michigan Supreme Court. In April 2020, the Michigan Supreme Court issued a unanimous opinion reversing the Court of Appeals’ decision and determined that the 2016 Energy Law authorizes the MPSC to implement a local clearing requirement on individual alternative electric suppliers. The Michigan Supreme Court remanded the case to the Court of Appeals to consider a procedural challenge previously undecided by the Court of Appeals; this challenge concerns the process that the MPSC used in 2017 to consider a local clearing requirement and does not affect the substance of the MPSC’s authority to implement a local clearing requirement for future planning periods. In April 2020, ABATE filed a motion for rehearing of the Michigan Supreme Court’s decision. Consumers will file a response to oppose the motion.
Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. For additional details on rate matters, see Note 2, Regulatory Matters.
2020 Electric Rate Case: In February 2020, Consumers filed an application with the MPSC seeking an annual rate increase of $244 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending December 31, 2021. The filing requests authority to recover new investment in distribution system reliability and technology enhancements. Presented in the following table are the components of the requested increase in revenue:
In Millions
 
Projected Twelve-Month Period Ending December 31
 
2021

Components of the requested rate increase
 
 
Investment in rate base
 
$
181

Operating and maintenance costs
 
108

Cost of capital
 
27

Sales
 
(36
)
TCJA deferred federal income taxes amortization
 
(36
)
Total
 
$
244

The filing also seeks approval to recover $13 million associated with Consumers’ deferral of depreciation and property tax expense and the overall rate of return on distribution-related capital investments exceeding certain threshold amounts. This deferred accounting treatment was approved by the MPSC in January 2019.
Additionally, the filing seeks approval of a method of recovering amounts earned under the financial compensation mechanism approved by the MPSC in Consumers’ IRP. This mechanism allows Consumers to earn a financial incentive on PPAs approved by the MPSC after January 1, 2019. In the filing, Consumers requests recovery of $3 million, beginning in January 2021, for incentives earned and to be earned on PPA payments during 2019 through 2021.
Consumers also proposes in the filing a new distributed generation tariff to replace the current net metering tariff, pursuant to the 2016 Energy Law. The proposed distributed generation tariff is consistent


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with other distributed generation tariffs already approved by the MPSC and would substantially reduce the subsidies paid by non-distributed generation customers under the current net metering program. 
Electric Environmental Outlook: Consumers’ operations are subject to various state and federal environmental laws and regulations. Consumers estimates that it will incur capital expenditures of $275 million from 2020 through 2024 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. Any litigation or remand to the EPA is not expected to 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, 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 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. In addition, in 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 litigation or rulemaking are expected to be minor and should not impact Consumers’ MATS compliance strategy. If the MATS regulations were repealed, Consumers would then be required to comply with the Michigan Mercury Rule, which has similar requirements to MATS. In addition, Consumers must comply with its settlement agreement with the EPA entered into in 2014 concerning opacity and NSR, which has similar emission requirements to MATS.
In 2015, the EPA lowered the NAAQS for ozone. The new ozone NAAQS will make it more difficult to construct or modify power plants and other emission sources 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. Consumers does not expect that any litigation involving NAAQS for ozone will have a material adverse impact on its generating assets.
Consumers’ strategy to comply with air quality regulations, including CSAPR, NAAQS, and MATS, as well as its legal obligations, involved the installation and operation of emission control equipment at some facilities and the suspension of operations at others; however, Consumers continues to evaluate these rules in conjunction with other EPA and EGLE rulemakings, litigation, 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


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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 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.
In 2019, the EPA finalized the Affordable Clean Energy rule. The rule requires individual states to evaluate coal-fueled power plants for heat‑rate improvements that could increase overall plant efficiency. The evaluations to be performed by the State of Michigan under the final rule may require Consumers to make heat-rate improvements at its remaining coal-fueled units beginning in the mid‑2020s. This rule is presently being litigated. Consumers cannot evaluate the potential impact of the rule until the State of Michigan completes its evaluations.
In 2015, a group of 195 countries, including the U.S., finalized the Paris Agreement, which governs carbon dioxide reduction measures beginning in 2020. Although the U.S. has begun the process of withdrawing from the Paris Agreement, it has stated a desire to renegotiate a new agreement in the future. At this time, Consumers does not expect any adverse changes to its environmental strategy as a result of these events.
While Consumers cannot predict the outcome of changes in U.S. policy or of other legislative or regulatory initiatives involving the potential regulation of greenhouse gases, it intends to continue to move forward with its Clean Energy Plan, its present net-zero carbon reduction goal, and its emphasis on supply diversity. Consumers will continue to monitor regulatory and legislative activity and related litigation regarding greenhouse gas emissions standards that may affect electric generating units.
Severe weather events and climate change associated with increasing levels of greenhouse gases could affect Consumers’ facilities and energy sales and could have a material impact on its future results of operations. Consumers is unable to predict these events or their financial impact; however, Consumers plans for adverse weather and evaluates the possible physical impacts of climate change on its operations and is taking steps to reduce its potential impact.
Litigation, international treaties, federal laws and regulations (including regulations by the EPA), and state laws and regulations, if enacted or ratified, could ultimately require Consumers to replace equipment, install additional emission control equipment, purchase emission allowances or credits, curtail operations, arrange for alternative sources of supply, 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 and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.


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CCRs: In 2015, the EPA published a final rule regulating CCRs under RCRA. The final rule adopts minimum standards for beneficially reusing and disposing of non‑hazardous CCRs. The rule establishes new minimum requirements for site location, groundwater monitoring, flood protection, storm water design, fugitive dust control, and public disclosure of information, including any groundwater protection standard exceedances. The rule also sets out conditions under which CCR units would be forced to cease receiving CCR and non‑CCR wastewater and initiate closure based on the inability to achieve minimum safety standards, meet a location standard, or meet minimum groundwater standards. Consumers has aligned with EGLE on closure plans for each of its unlined ash ponds to ensure coordination between federal and state requirements. The unlined ash ponds have ceased operation and have been replaced with double-lined ash ponds or concrete tanks. Significant closure work has been completed at the remaining ash ponds.
Due to litigation, many aspects of the 2015 CCR rule have been remanded to the EPA, which has resulted in various new rulemakings. These new rulemakings are now in litigation. Continued litigation will add uncertainty around requirements for compliance and state permit programs.
Separately, Congress passed legislation in 2016 allowing participating states to develop permitting programs for CCRs under RCRA. In 2018, the Michigan Legislature adopted a permitting program, which requires the EPA’s authorization. This program should reduce costly, duplicative oversight over CCRs and provide local oversight to CCR issues unique to Michigan. EGLE submitted the state CCR permit program application to Michigan’s Attorney General in June 2019 for review and signature. The Attorney General signed the application in March 2020. EGLE is preparing the final package for submission to the EPA. Federal rulemaking challenges may delay EPA approval of the Michigan permitting program.
Consumers has aligned with EGLE on closure plans for all of its coal ash disposal sites, including those subject to the EPA’s 2015 CCR rule, and adjusted its recorded ARO accordingly. Consumers has historically been authorized to recover in electric rates costs related to coal ash disposal sites.
Water: Multiple water-related regulations apply, or may apply, to Consumers.
The EPA regulates cooling water intake systems of existing electric generating plants under Section 316(b) of the Clean Water Act and the corresponding rules that were revised in 2014. The rules are aimed at reducing 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 wastewater streams. In 2017, the EPA announced that it will undertake a rulemaking to replace specific portions of the rule and proposed delaying the compliance start dates for two years, but maintained the compliance end dates. Additional rulemaking began in November 2019 and will continue in 2020. Consumers does not expect any adverse changes to its environmental strategy as a result of any revisions to the rule.
In recent years, the EPA and the U.S. Army Corps of Engineers have proposed rules redefining “Waters of the United States,” which defines the scope of federal jurisdiction under the Clean Water Act, and other changes to the Clean Water Act regulations. For example, the EPA recently finalized a rule repealing the 2015 definition of “Waters of the United States” and, in January 2020, released a rule with its new definition. These rules are presently being, or are likely to be, litigated.
A final definition would change the scope of water and wetlands regulations under the Clean Water Act. The EPA has delegated authority to manage the Michigan wetlands program to EGLE for a large portion


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of Consumers’ service territory, but dual jurisdiction exists between the EPA and the U.S. Army Corps of Engineers in some locations in Michigan. As a result, regardless of the ultimate outcome of the EPA’s rules, Consumers expects to continue to operate under Michigan’s wetlands regulations, and under the applicable state and federal water jurisdictional regulations. Thus, Consumers does not expect any material adverse changes to its environmental strategy as a result of these events, but under an expanded federal definition, could experience permitting delays for infrastructure projects where dual jurisdiction exists.
Many of Consumers’ facilities maintain NPDES permits, which are renewed every five years and are vital to the facilities’ operations. Failure of EGLE to renew any NPDES permit, a successful appeal against a permit, a change in the interpretation or scope of NPDES permitting, or onerous terms contained in a permit could have a significant detrimental effect on the operations of a facility.
Other Matters: Other electric environmental matters could have a material impact on Consumers’ outlook. For additional details on other electric environmental matters, see Note 3, Contingencies and Commitments—Consumers Electric Utility Contingencies—Electric Environmental Matters.
Retention Incentive Program: In October 2019, Consumers announced a retention incentive program to ensure necessary staffing at the D.E. Karn generating complex through the anticipated retirement of the coal-fueled generating units. Based on the number of employees that have chosen to participate, the aggregate cost of the program through 2023 is estimated to be $35 million. Consumers expects to recognize up to $15 million of expense related to retention benefits in 2020. Consumers is seeking recovery of these costs from customers in its 2020 electric rate case. For additional details on this program, see Note 14, Exit Activities.
Consumers Gas Utility Outlook and Uncertainties
Gas Deliveries: Consumers’ gas customer deliveries are seasonal. The peak demand for natural gas typically occurs in the winter due to colder temperatures and the resulting use of natural gas as heating fuel.
Consumers does not anticipate that the COVID‑19 pandemic will have a material impact on near-term gas deliveries, but cannot predict the impact on full-year 2020 deliveries at this time. In light of the expected economic impacts of the pandemic, Consumers anticipates increased uncollectible accounts in the near term, but cannot predict the long-term impact of the pandemic on Michigan’s economy or its customers.
Over the long term, Consumers expects weather‑normalized gas deliveries over the next five years to remain stable relative to 2019. This outlook reflects modest growth in gas demand offset by the predicted effects of energy efficiency and conservation. Actual delivery levels from year to year may vary from this expectation as a result of:
weather fluctuations
use by power producers
availability and development of renewable energy sources
gas price changes
Michigan economic conditions, including population trends and housing activity
the price of competing energy sources or fuels
energy efficiency and conservation impacts
Gas Rate Matters: Rate matters are critical to Consumers’ gas utility business. For additional details on rate matters, see Note 2, Regulatory Matters.


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2019 Gas Rate Case: In December 2019, Consumers filed an application with the MPSC seeking an annual rate increase of $245 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending September 30, 2021. The filing requests authority to recover new infrastructure investment and related costs that will allow Consumers to improve system safety and reliability. Presented in the following table are the components of the requested increase in revenue:
In Millions
 
Projected Twelve-Month Period Ending September 30
 
2021

Components of the requested rate increase
 
 
Investment in rate base
 
$
126

Operating and maintenance costs
 
91

Cost of capital
 
26

Sales
 
2

Total
 
$
245

The filing also seeks approval of a revenue decoupling mechanism that would annually reconcile Consumers’ actual weather-normalized non-fuel revenues with the revenues approved by the MPSC; similar to the mechanism previously approved by the MPSC, this reconciliation would commence when the projected twelve-month period covered by the filing ends and continue until the MPSC resets rates in a subsequent rate case.
Gas Pipeline and Storage Integrity and Safety: In October 2019, PHMSA published a final rule that expands federal safety standards for gas transmission pipelines. To comply with the rule, Consumers will incur increased capital costs to install and remediate pipelines as well as increased operating and maintenance costs to expand inspections, maintenance, and monitoring of its existing pipelines. The requirements in the regulation take effect July 1, 2020, with various implementation phases over numerous years.
In February 2020, PHMSA finalized an interim rule it had published in 2016; this rule established minimum federal safety standards for underground natural gas storage facilities. To comply with the rule, Consumers incurred increased capital and operating and maintenance costs to expand inspections, maintenance, and monitoring of its underground gas storage facilities.
Although associated capital or operating and maintenance costs relating to these regulations could be material and cost recovery cannot be assured, Consumers expects to recover such costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with laws and regulations. Consumers will continue to monitor gas safety regulations and is implementing the American Petroleum Institute’s Recommended Practice 1173, Pipeline Safety Management Systems. This program ensures 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 Note 3, Contingencies and Commitments—Consumers Gas Utility Contingencies—Gas Environmental Matters.
Greenhouse Gases: Consumers is making voluntary efforts to reduce its gas utility’s methane emissions. In October 2019, Consumers 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 eliminated by purchasing and/or producing renewable natural gas.


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There is also increasing interest at the federal, state, and local levels involving potential regulation of greenhouse gases or its sources, which include methane emissions and carbon dioxide from Consumers’ gas utility. Such regulation, if adopted, may involve requirements to reduce methane and carbon dioxide emissions from natural gas use. No such measures apply to Consumers at this time. Consumers continues to monitor these initiatives and comment as appropriate. Consumers cannot predict the impact of any potential future legislation or regulation on its gas utility.
Consumers Electric Utility and Gas Utility Outlook and Uncertainties
Energy Waste Reduction Plan: The 2016 Energy Law authorized incentives for demand response programs and expanded existing incentives for energy efficiency programs, referring to the combined initiatives as energy waste reduction programs. The 2016 Energy Law:
extended the requirement to achieve annual reductions of 1.0 percent in customers’ electricity use through 2021 and 0.75 percent in customers’ natural gas use indefinitely
removed limits on investments under the program and provided for a higher return on those investments; together, these provisions effectively doubled the financial incentives Consumers may earn for exceeding the statutory targets
established a goal of 35 percent combined renewable energy and energy waste reduction by 2025; Consumers has achieved 22 percent of the combined renewable energy and energy waste reduction goal through 2019
Additionally, the MPSC has approved the recovery of demand response costs and an associated financial incentive based on demand response target performance.
Under its energy waste reduction plan, Consumers provides its customers with incentives to reduce usage by offering energy audits, rebates and discounts on purchases of highly efficient appliances, and other incentives and programs. The COVID‑19 pandemic may impact Consumers’ ability to execute energy efficiency programs effectively and, accordingly, could affect Consumers’ ability to exceed its statutory savings targets and earn the energy waste reduction incentive for 2020. Consumers cannot predict the ultimate financial impact of the pandemic on its 2020 energy waste reduction incentive.
COVID‑19 Costs Accounting Deferral: In April 2020, the MPSC issued an order authorizing Consumers to defer uncollectible accounts expense incurred beginning March 24, 2020 that are in excess of the amount used to set existing rates. The order also requests that interested parties submit comments by the end of April 2020 regarding utility accounting for COVID‑19-related expenses and COVID‑19-related impacts to regulatory activities.
Enterprises Outlook and Uncertainties
CMS Energy’s primary focus with respect to its enterprises businesses is to maximize the value of generating assets, its share of which represents 1,234 MW of capacity, and to pursue opportunities for the development of renewable generation projects.
The enterprises segment’s assets may be affected by environmental laws and regulations. The new ozone NAAQS will make it more difficult to construct or modify power plants and other emission sources in areas of the country that have not met the new ozone standard. In April 2018, the EPA designated certain areas of Michigan as not meeting the new standard with an August 2018 effective date. The enterprises segment’s DIG plant located in Dearborn, Michigan is in one such area and, as a result, would be subject to additional permitting restrictions in the event of any future modifications. For additional details regarding the new ozone NAAQS, see Consumers Electric Utility Outlook and Uncertainties—Electric Environmental Outlook.


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Trends, uncertainties, and other matters related to the enterprises segment that could have a material impact on CMS Energy’s consolidated income, cash flows, or financial position include:
investment in and financial benefits received from renewable energy and energy storage projects
changes in energy and capacity prices
severe weather events and climate change associated with increasing levels of greenhouse gases
changes in commodity prices and interest rates on certain derivative contracts that do not qualify for hedge accounting and must be marked to market through earnings
changes in various environmental laws, regulations, principles, or practices, or in their interpretation
the outcome of certain legal proceedings, including gas price reporting litigation
indemnity and environmental remediation obligations at Bay Harbor, including an inability to renew an NPDES permit in 2020
obligations related to a tax claim from the government of Equatorial Guinea
representations, warranties, and indemnities provided by CMS Energy in connection with previous sales of assets
For additional details regarding the enterprises segment’s uncertainties, see Note 3, Contingencies and Commitments.
EnerBank Outlook and Uncertainties
EnerBank is a Utah state-chartered, FDIC-insured industrial bank providing primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements. The carrying value of EnerBank’s loan portfolio was $2.4 billion at March 31, 2020. The 12‑month rolling average net default rate on loans held by EnerBank was 1.3 percent at March 31, 2020.
As a result of the COVID‑19 pandemic, EnerBank has instituted new payment accommodations for current customers and has experienced slower lending growth, offset slightly by market share gains as a result of new customers shifting from competitors. EnerBank cannot predict the longer-term impacts of the pandemic, but could experience higher loan write-offs, increased loan modifications, and slower lending growth. EnerBank expects lending growth of up to five percent in 2020; lending growth could be higher if EnerBank continues to experience customers shifting from competitors. Over the long term, EnerBank expects lending growth to average nine percent annually over the next five years.
EnerBank’s loan portfolio was funded primarily by certificates of deposit of $2.4 billion at March 31, 2020. CMS Energy is required both by law and by contract to provide financial support, including infusing additional capital, to ensure that EnerBank satisfies mandated capital requirements and has sufficient liquidity to operate. With its self-funding plan, EnerBank has exceeded these requirements historically and exceeded them as of March 31, 2020. For additional details regarding EnerBank’s loan portfolio, see Note 7, Notes Receivable.
Other Outlook and Uncertainties
Employee Separation Program: In December 2019, CMS Energy and Consumers announced a voluntary separation program for non‑union employees. For the three months ended March 31, 2020, CMS Energy and Consumers recorded an after-tax charge of $8 million related to the program, under which 140 employees accepted and were approved for early separation. As a result of the program, CMS Energy and Consumers expect to benefit from future cost savings, as employee staffing levels will be better matched to workload demand, which reflects the companies’ ongoing workforce productivity improvements.


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Union Contract: The present UWUA agreement for operating, maintenance, and construction employees expires in June 2020. Consumers has suspended in-person negotiations due to the COVID‑19 pandemic; however, Consumers executed an agreement with the UWUA to reach a tentative agreement within two weeks once the in-person restrictions are lifted. The tentative agreement would then need to be ratified by UWUA members. If a ratified tentative agreement cannot be reached with the UWUA by June 2020, the agreement provides for a one‑month extension to July 1, 2020 and a three‑percent general pay increase effective June 1, 2020 to the UWUA membership.
Litigation: CMS Energy, Consumers, and certain of their subsidiaries are named as parties in various litigation matters, as well as in administrative proceedings before various courts and governmental agencies, arising in the ordinary course of business. For additional details regarding these and other legal matters, see Note 2, Regulatory Matters and Note 3, Contingencies and Commitments.


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43


CMS Energy Corporation
Consolidated Statements of Income (Unaudited)
In Millions, Except Per Share Amounts
 
Three Months Ended March 31
2020
 
2019
 
Operating Revenue
 
$
1,864

 
$
2,059

 
 
 
 
 
Operating Expenses
 
 
 
 
Fuel for electric generation
 
103

 
142

Purchased and interchange power
 
357

 
378

Purchased power – related parties
 
18

 
18

Cost of gas sold
 
273

 
404

Maintenance and other operating expenses
 
315

 
354

Depreciation and amortization
 
316

 
298

General taxes
 
114

 
106

Total operating expenses
 
1,496

 
1,700

 
 
 
 
 
Operating Income
 
368

 
359

 
 
 
 
 
Other Income (Expense)
 
 
 
 
Interest income
 
1

 
1

Interest income – related parties
 
7

 

Allowance for equity funds used during construction
 
1

 
2

Income (loss) from equity method investees
 
3

 
(1
)
Nonoperating retirement benefits, net
 
31

 
23

Other income
 

 
1

Other expense
 
(4
)
 
(3
)
Total other income
 
39

 
23

 
 
 
 
 
Interest Charges
 
 
 
 
Interest on long-term debt
 
116

 
106

Interest expense – related parties
 
3

 

Other interest expense
 
19

 
16

Allowance for borrowed funds used during construction
 
(1
)
 
(1
)
Total interest charges
 
137

 
121

 
 
 
 
 
Income Before Income Taxes
 
270

 
261

Income Tax Expense
 
27

 
48

 
 
 
 
 
Net Income Available to Common Stockholders
 
$
243

 
$
213

 
 
 
 
 
Basic Earnings Per Average Common Share
 
$
0.86

 
$
0.75

Diluted Earnings Per Average Common Share
 
$
0.85

 
$
0.75

The accompanying notes are an integral part of these statements.


44


CMS Energy Corporation
Consolidated Statements of Comprehensive Income (Unaudited)
In Millions
 
Three Months Ended March 31
2020
 
2019
 
Net Income
 
$
243

 
$
213

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

 
1

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

 
(1
)
 
 
 
 
 
Derivatives
 
 
 
 
Unrealized loss on derivative instruments, net of tax of $(1) and $-
 
(4
)
 
(1
)
 
 
 
 
 
Other Comprehensive Loss
 
(3
)
 
(1
)
 
 
 
 
 
Comprehensive Income
 
$
240

 
$
212

The accompanying notes are an integral part of these statements.


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46


CMS Energy Corporation
Consolidated Statements of Cash Flows (Unaudited)
In Millions
 
Three Months Ended March 31
2020
 
2019
 
Cash Flows from Operating Activities
 
 
 
 
Net income
 
$
243

 
$
213

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
316

 
298

Deferred income taxes and investment tax credits
 
67

 
43

Pension contributions
 
(531
)
 

Other non-cash operating activities and reconciling adjustments
 
9

 
16

Cash provided by (used in) changes in assets and liabilities
 
 
 
 
Accounts and notes receivable and accrued revenue
 
(17
)
 
(61
)
Inventories
 
171

 
209

Accounts payable and accrued rate refunds
 
(54
)
 
(89
)
Other current and non-current assets and liabilities
 
(3
)
 
(12
)
Net cash provided by operating activities
 
201

 
617

 
 
 
 
 
Cash Flows from Investing Activities
 
 
 
 
Capital expenditures (excludes assets placed under finance lease)
 
(523
)
 
(481
)
Increase in EnerBank notes receivable
 
(4
)
 
(46
)
Purchase of notes receivable by EnerBank
 
(8
)
 
(121
)
Cost to retire property and other investing activities
 
(24
)
 
(27
)
Net cash used in investing activities
 
(559
)
 
(675
)
 
 
 
 
 
Cash Flows from Financing Activities
 
 
 
 
Proceeds from issuance of debt
 
1,198

 
993

Retirement of debt
 
(2
)
 
(790
)
Increase (decrease) in EnerBank certificates of deposit
 
(7
)
 
151

Decrease in notes payable
 
(90
)
 
(67
)
Issuance of common stock, net of issuance costs
 
101

 
3

Payment of dividends on common stock
 
(116
)
 
(108
)
Other financing costs
 
(22
)
 
(32
)
Net cash provided by financing activities
 
1,062

 
150

 
 
 
 
 
Net Increase in Cash and Cash Equivalents, Including Restricted Amounts
 
704

 
92

Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period
 
157

 
175

 
 
 
 
 
Cash and Cash Equivalents, Including Restricted Amounts, End of Period
 
$
861

 
$
267

 
 
 
 
 
Other Non-cash Investing and Financing Activities
 
 
 
 
Non-cash transactions
 
 
 
 
Capital expenditures not paid
 
$
95

 
$
99

The accompanying notes are an integral part of these statements.


47


CMS Energy Corporation
Consolidated Balance Sheets (Unaudited)
ASSETS
In Millions
 
 
March 31
2020
 
December 31
2019
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
834

 
$
140

Restricted cash and cash equivalents
 
27

 
17

Accounts receivable and accrued revenue, less allowance of $22 in 2020 and $20 in 2019
 
884

 
886

Notes receivable, less allowance of $33 in both periods
 
241

 
223

Notes receivable held for sale
 

 
19

Accounts and notes receivable – related parties
 
25

 
17

Accrued gas revenue
 
1

 

Inventories at average cost
 
 
 
 
Gas in underground storage
 
225

 
399

Materials and supplies