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Regulatory Matters

12 Months Ended

Dec. 31, 2024

Public Utilities, General Disclosures [Line Items]

Regulatory matters are critical to Consumers. The Michigan Attorney General, ABATE, the MPSC Staff, residential customer advocacy groups, environmental organizations, and certain other parties typically participate in MPSC proceedings concerning Consumers, such as Consumers’ rate cases and power supply cost recovery and gas cost recovery processes. Intervenors also participate in certain FERC matters, including FERC’s regulation of certain wholesale rates that affect Consumers’ power supply costs. These parties often challenge various aspects of those proceedings, including the prudence of Consumers’ policies and practices, and seek cost disallowances and other relief. The parties also have appealed significant MPSC orders. Depending upon the specific issues, the outcomes of rate cases and proceedings, including judicial proceedings challenging MPSC and FERC orders or other actions, could negatively affect CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. Consumers cannot predict the outcome of these proceedings.

Regulatory Assets and Liabilities

Consumers is subject to the actions of the MPSC and FERC and therefore prepares its consolidated financial statements in accordance with the provisions of regulatory accounting. A utility must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated services. Under regulatory accounting, Consumers records regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue by non‑regulated businesses.

Presented in the following table are the regulatory assets and liabilities on Consumers’ consolidated balance sheets:


In Millions
December 31	2024			2023
Regulatory assets
Current
2022 PSCR underrecovery1		$	126		$	126
Energy waste reduction plan incentive2		60			54
Retention incentive program3		18			12
Other		25			11
Total current regulatory assets		$	229		$	203
Non-current
Costs of coal-fueled electric generating units to be retired1		$	1,266		$	1,265
Postretirement benefits4		747			741
Securitized costs1		666			778
ARO3		366			328
Decommissioning costs3		158			83
Unamortized loss on reacquired debt1		92			96
MGP sites1		90			99
Energy waste reduction plan incentive2		64			58
Energy waste reduction plan3		31			19
Ludington overhaul contract dispute3		31			13
Postretirement benefits expense deferral mechanism3		21			24
Retention incentive program3		12			27
2022 PSCR underrecovery1		—			126
Other		25			26
Total non-current regulatory assets		$	3,569		$	3,683
Total regulatory assets		$	3,798		$	3,886
Regulatory liabilities
Current
Income taxes, net		$	53		$	49
ASP gain		47			—
Other		11			7
Total current regulatory liabilities		$	111		$	56
Non-current
Cost of removal		$	2,665		$	2,545
Income taxes, net		1,163			1,220
Renewable energy plan		51			29
ASP gain		46			—
Energy waste reduction plan		41			25
Renewable energy grant		40			43
Postretirement benefits expense deferral mechanism		37			12
Other		24			20
Total non-current regulatory liabilities		$	4,067		$	3,894
Total regulatory liabilities		$	4,178		$	3,950

1The MPSC has provided a specific return on these regulatory assets.

2These regulatory assets have arisen from an alternative-revenue program and are not associated with incurred costs or capital investments. Therefore, the MPSC has provided for recovery without a return.

3These regulatory assets represent incurred costs for which the MPSC has provided recovery without a return on investment.

4This regulatory asset is included in rate base, thereby providing a return.

Regulatory Assets

2022 PSCR Underrecovery: As a result of rising fuel prices during 2022, Consumers’ power supply costs for 2022 were significantly higher than those projected in its 2022 PSCR plan. At the end of 2022, Consumers had recorded $401 million of under-recovered power supply costs. In February 2023, the MPSC authorized Consumers to recover the 2022 underrecovery amount over three years, providing immediate relief to electric customers.

Energy Waste Reduction Plan Incentive: The energy waste reduction incentive mechanism provides a financial incentive if the energy savings of Consumers’ customers exceed annual targets established by the MPSC. Consumers accounts for this program as an alternative-revenue program that meets the criteria for recognizing revenue related to the incentive as soon as energy savings exceed the annual targets established by the MPSC.

In November 2024, the MPSC approved a settlement agreement authorizing Consumers to collect $58 million during 2025 as an incentive for exceeding its statutory savings targets in 2023. Consumers recognized incentive revenue under this program of $58 million in 2023.

Consumers also exceeded its statutory savings targets in 2024, achieved certain other goals, and will request the MPSC’s approval to collect $64 million in the energy waste reduction reconciliation to be filed in May 2025. Consumers recognized incentive revenue under this program of $64 million in 2024.

Retention Incentive Program: To ensure necessary staffing at the D.E. Karn and J.H. Campbell coal-fueled generating units through their retirement, Consumers established retention incentive programs. The MPSC has approved deferred accounting treatment for the retention and severance costs incurred under these programs and has allowed for recovery over three years. For additional details regarding the retention incentive program, see Note 19, Exit Activities and Asset Sales.

Costs of Coal-fueled Electric Generating Units to be Retired: In 2022, the MPSC approved Consumers’ plans to retire the J.H. Campbell coal-fueled generating units in 2025. Upon the units’ retirement, Consumers will receive regulatory asset treatment to recover their remaining book value, as well as a 9.0‑percent return on equity, through 2040, the units’ original retirement date. Until retirement, the book value of the generating units will remain in rate base and receive full regulatory returns in general rate cases.

In 2022, Consumers removed from total plant, property, and equipment an amount of $1.3 billion, representing the projected remaining book value of the electric generating units upon their retirement, and recorded it as a non‑current regulatory asset on its consolidated balance sheets.

Postretirement Benefits: As part of the ratemaking process, the MPSC allows Consumers to recover the costs of postretirement benefits. Accordingly, Consumers defers the net impact of actuarial losses and gains, prior service costs and credits, and settlements associated with postretirement benefits as a regulatory asset or liability. The asset or liability will decrease as the deferred items are amortized and

recognized as components of net periodic benefit cost. For details about the amortization periods, see Note 10, Retirement Benefits.

Securitized Costs: The MPSC has issued securitization financing orders authorizing Consumers to issue securitization bonds in order to finance the recovery of the remaining book value of three smaller natural gas-fueled electric generating units that Consumers retired in 2015, seven smaller coal-fueled electric generating units that Consumers retired in 2016, and the D.E. Karn coal-fueled electric generating units that Consumers retired in June 2023. Consumers has removed from plant, property, and equipment and recorded as a regulatory asset the book value of these units. Consumers is amortizing the regulatory asset over the life of the related securitization bonds, which it issued through subsidiaries in 2014 and 2023. For additional details regarding the securitization bonds, see Note 4, Financings and Capitalization—Securitization Bonds.

ARO: The recovery of the underlying asset investments and related removal and monitoring costs of recorded AROs is approved by the MPSC in depreciation rate cases. Consumers records a regulatory asset and a regulatory liability for timing differences between the recognition of AROs for financial reporting purposes and the recovery of these costs from customers. The recovery period approximates the useful life of the assets to be removed.

Decommissioning Costs: In Consumers’ electric depreciation and general rate cases, the MPSC has authorized Consumers to remove from depreciation rates the costs of decommissioning the D.E. Karn coal-fueled electric generating units, and instead defer those costs as a regulatory asset to be recovered through 2031. Additionally, ash disposal costs related to Consumers’ retired coal-fueled generating units may be deferred as a regulatory asset and collected over a ten‑year period. In its 2022 order approving Consumers’ Clean Energy Plan, the MPSC authorized similar treatment for the decommissioning and ash disposal costs associated with the J.H. Campbell coal-fueled generating units that will be retired in 2025.

Unamortized Loss on Reacquired Debt: Under regulatory accounting, any unamortized discount, premium, or expense related to debt redeemed with the proceeds of new debt is deferred and amortized over the life of the new debt.

MGP Sites: Consumers is incurring environmental remediation and other response activity costs at 23 former MGP facilities. The MPSC allows Consumers to recover from its natural gas customers over a ten‑year period the costs incurred to remediate the MGP sites. For additional information, see Note 3, Contingencies and Commitments—Consumers Gas Utility Contingencies.

Energy Waste Reduction Plan: The MPSC allows Consumers to collect surcharges from customers to fund its energy waste reduction plan. The amount of spending incurred in excess of surcharges collected is recorded as a regulatory asset and amortized as surcharges are collected from customers over the plan period. The amount of surcharges collected in excess of spending incurred is recorded as a regulatory liability and amortized as costs are incurred.

Ludington Overhaul Contract Dispute: The MPSC has authorized Consumers to defer as a regulatory asset costs associated with correcting incomplete, nonconforming, and defective work performed by TAES during a major overhaul and upgrade of Ludington. Consumers will defer such costs while litigation with TAES and Toshiba moves forward; such costs will be offset by potential future litigation proceeds received from TAES or Toshiba. Consumers has also deferred replacement power costs due to outages resulting from correcting this work. Consumers will have the opportunity to seek appropriate recovery and ratemaking treatment for amounts recorded as a regulatory asset following resolution of the litigation. For additional details on the contract dispute, see Note 3, Contingencies and Commitments—Consumers Electric Utility Contingencies.

Postretirement Benefits Expense Deferral Mechanism: In Consumers’ general rate cases, the MPSC approved a mechanism allowing Consumers to defer for future recovery or refund pension and OPEB expenses above or below the amounts used to set existing rates. Amounts deferred will be collected from or refunded to customers over ten years.

Regulatory Liabilities

Income Taxes, Net: Consumers records regulatory assets and liabilities to reflect the difference between deferred income taxes recognized for financial reporting purposes and amounts previously reflected in Consumers’ rates. This net balance will decrease over the remaining life of the related temporary differences and flow through income tax expense. The majority of the net regulatory liability recorded related to income taxes is associated with plant assets that are subject to normalization, which is governed by the Internal Revenue Code, and will be returned to customers over the remaining book life of the related plant assets. For additional details on deferred income taxes, see Note 12, Income Taxes.

ASP Gain: In April 2024, Consumers sold its unregulated ASP business to a non-affiliated company, resulting in a $110 million gain. In July 2024, the MPSC approved the utilization of $27.5 million, or one-fourth, of the gain on the sale as an offset to the revenue deficiency in lieu of additional rate relief during the 12‑month period beginning October 1, 2024, with the remaining three-fourths of the gain, or $82.5 million, to be credited to customers as a bill credit over a three-year period beginning October 1, 2024.

Cost of Removal: The MPSC allows Consumers to collect amounts from customers to fund future asset removal activities. This regulatory liability is reduced as costs are incurred to remove the assets at the end of their useful lives.

Renewable Energy Plan: Consumers has collected surcharges to fund its renewable energy plan. Amounts not yet spent under the plan are recorded as a regulatory liability, which is amortized as incremental costs are incurred to operate and depreciate Consumers’ renewable generation facilities and to purchase RECs under renewable energy purchase agreements. Incremental costs represent costs incurred in excess of amounts recovered through the PSCR process.

Renewable Energy Grant: In 2013, Consumers received a $69 million renewable energy grant for Lake Winds® Energy Park, which began operations in 2012. This grant reduces Consumers’ cost of complying with Michigan’s renewable portfolio standard and, accordingly, reduces the overall renewable energy surcharge to be collected from customers. The regulatory liability recorded for the grant will be amortized over the life of Lake Winds® Energy Park. Consumers presents the amortization as a reduction to maintenance and other operating expenses on its consolidated statements of income.

Consumers Electric and Gas Utility

Meter Investigation: In July 2023, the MPSC issued an order initiating an investigation into Consumers’ handling of malfunctioning meters and meters requiring transition from 3G to 4G, estimated billing, and new service installations. The order directed Consumers to provide information on such meters and their replacement, meter-reading performance, communications with customers and the MPSC regarding these issues, and other information. Subsequently, the MPSC issued a show-cause order directing Consumers to provide further information on consecutive estimated billings, the provision of actual meter readings, and new service installation issues.

In May 2024, the MPSC approved a settlement agreement resolving this matter. Under the settlement agreement, Consumers paid a $1 million penalty to the MPSC and committed to return a minimum of

$3 million to customers. Independent of this agreement, Consumers has made a claim against the associated vendor, with any proceeds to be used to reimburse some or all of Consumers’ $3 million commitment and any excess to be returned to customers.

Consumers Electric Utility

2023 Electric Rate Case: In May 2023, Consumers filed an application with the MPSC seeking a rate increase of $216 million, based on an authorized return on equity of 10.25 percent for the projected 12‑month period ending February 28, 2025. In September 2023, Consumers revised its requested increase to $169 million. The filing requested authority to recover costs related to new infrastructure investment primarily in distribution system reliability and cleaner energy resources.

In March 2024, the MPSC issued an order authorizing an annual rate increase of $92 million, which is inclusive of a $9 million surcharge for the recovery of select distribution investments made in 2022 that exceeded the rates authorized in accordance with the December 2021 electric rate order. The approved rate increase is based on a 9.9‑percent authorized return on equity. The new rates became effective March 15, 2024.

Consumers Gas Utility

2023 Gas Rate Case: In December 2023, Consumers filed an application with the MPSC seeking an annual rate increase of $136 million based on a 10.25‑percent authorized return on equity for the projected test year comprising the 12‑month period ending September 30, 2025. In May 2024, Consumers revised its requested increase to $113 million. The filing requested authority to recover new infrastructure investment and related costs that are expected to allow Consumers to continue to provide safe, reliable, affordable, and increasingly cleaner natural gas service.

In July 2024, the MPSC approved a settlement agreement authorizing an annual rate increase of $35 million, based on a 9.9‑percent authorized return on equity. Additionally, the settlement approves the use of $27.5 million, or one-fourth, of the gain on the sale of Consumers’ unregulated ASP business as an offset to the revenue deficiency in lieu of additional rate relief during the test year. This results in effective rate relief of $62.5 million for the test year.

The settlement agreement also provides for the remaining three-fourths of the $110 million gain on the sale of the ASP business, or $82.5 million, to be provided to customers as a bill credit over a three-year period. The new rates, including the bill credit, became effective October 1, 2024. The settlement also authorizes the continuation of the cost deferral mechanism allowing Consumers to defer for future recovery or refund pension and OPEB expense above or below the amounts used to set rates. For additional details on Consumers’ sale of its ASP business, see Note 19, Exit Activities and Asset Sales.

Power Supply Cost Recovery and Gas Cost Recovery

The PSCR and GCR ratemaking processes are designed to allow Consumers to recover all of its power supply and purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and reconciliation proceedings. Consumers adjusts its PSCR and GCR billing charges monthly, subject to ceiling factor limitations, in order to minimize the underrecovery or overrecovery amount in the annual reconciliations. Underrecoveries represent power supply and purchased natural gas costs that will be recovered from customers; overrecoveries represent previously collected revenues that will be refunded to customers.

Presented in the following table are the liabilities for PSCR and GCR overrecoveries reflected on Consumers’ consolidated balance sheets:


In Millions
December 31	2024			2023




Liabilities
PSCR overrecoveries		$	13		$	10
GCR overrecoveries		25			44
Accrued rate refunds		$	38		$	54

PSCR Plans and Reconciliations: As a result of rising fuel prices during 2022, Consumers’ power supply costs for 2022 were significantly higher than those projected in its 2022 PSCR plan, resulting in a substantial amount of under-recovered power supply costs. In March 2023, Consumers filed its 2022 PSCR reconciliation, requesting full recovery of $2.5 billion of power costs and authorization to reflect in its 2023 PSCR reconciliation the underrecovery of $404 million. In November 2023, Consumers revised its reconciliation, requesting authorization to reflect in its 2023 PSCR reconciliation the underrecovery of $401 million.

In March 2024, Consumers filed its 2023 PSCR reconciliation, requesting full recovery of $1.8 billion of power costs and authorization to reflect in its 2024 PSCR reconciliation the underrecovery of $255 million.

Consumers submitted its 2024 PSCR plan to the MPSC in September 2023 and, in accordance with its proposed plan, self-implemented the 2024 PSCR charge beginning in January 2024.

GCR Plans and Reconciliations: In March 2024, the MPSC approved a settlement agreement in Consumers’ 2022-2023 GCR reconciliation, authorizing full recovery of $1.1 billion of gas costs and authorizing Consumers to reflect in its 2023-2024 GCR reconciliation the underrecovery of $15 million.

Consumers submitted its 2023-2024 GCR plan to the MPSC in December 2022 and self-implemented its proposed 2023-2024 GCR charge in April 2023. The MPSC approved Consumers’ 2023-2024 GCR plan in June 2024. Also, in June 2024, Consumers filed its 2023-2024 GCR reconciliation, requesting recovery of $0.5 billion of gas costs and authorization to reflect in its 2024-2025 GCR reconciliation the overrecovery of $3 million.

Consumers submitted its 2024‑2025 GCR plan to the MPSC in December 2023 and, in accordance with its proposed plan, self-implemented the 2024‑2025 GCR charge beginning in April 2024. The MPSC approved Consumers’ 2024-2025 GCR plan in August 2024.

Consumers Energy Company