CMS ENERGY CORP - Annual Report: 2019 (Form 10-K)

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•	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

•	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

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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

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•	increases in demand for renewable energy by customers seeking to meet sustainability goals

•	the ability of Consumers to execute its cost-reduction strategies

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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

•	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

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•	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

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factors affecting development of electric generation projects and gas and electric transmission and distribution infrastructure replacement, conversion, and expansion projects, including factors related to project site identification, construction material pricing, schedule delays, availability of qualified construction personnel, permitting, acquisition of property rights, and government approvals

•	potential disruption to, interruption of, or other impacts on facilities, utility infrastructure, operations, or backup systems due to accidents, explosions, physical disasters, cyber incidents, vandalism, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events

•	changes or disruption in fuel supply, including but not limited to supplier bankruptcy and delivery disruptions

•	potential costs, lost revenues, reputational harm, or other consequences resulting from misappropriation of assets or sensitive information, corruption of data, or operational disruption in connection with a cyber attack or other cyber incident

•	potential disruption to, interruption or failure of, or other impacts on information technology backup or disaster recovery systems

•	technological developments in energy production, storage, delivery, usage, and metering

•	the ability to implement technology successfully

•	the impact of CMS Energy’s and Consumers’ integrated business software system and its effects on their operations, including utility customer billing and collections

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

•	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

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•	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

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•	213 miles of transmission overhead lines operating at 138 kV

•	205 miles of high-voltage distribution overhead lines operating at 138 kV

•	4 miles of high-voltage distribution underground lines operating at 138 kV

•	4,430 miles of high-voltage distribution overhead lines operating at 46 kV and 69 kV

•	19 miles of high-voltage distribution underground lines operating at 46 kV

•	66,917 miles of electric distribution overhead lines

•	9,314 miles of underground distribution lines

•	substations with an aggregate transformer capacity of 26 million kVA

•	two battery facilities with storage capacity of 2 MW

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1	Represents generation capacity during the summer months (planning year 2019 capacity as reported to MISO and limited by interconnection service limits), except for Cross Winds® Energy Park Phase III, which began operation in December 2019. For wind and solar generation, the amount represents the effective load-carrying capability.

2	Represents Consumers’ share of the capacity of the J.H. Campbell 3 unit, net of the 6.69-percent ownership interest of the Michigan Public Power Agency and Wolverine Power Supply Cooperative, Inc.

3	Consumers plans to retire these coal-fueled generating units in 2023.

4	Represents Consumers’ 51-percent share of the capacity of Ludington. DTE Electric holds the remaining 49-percent ownership interest.

5	Represents Consumers’ share of net pumped-storage generation. The pumped-storage facility consumes electricity to pump water during off-peak hours for storage in order to generate electricity later during peak‑demand hours.

6	Represents purchases under long-term PPAs.

7	For information about Consumers’ long-term PPAs related to the MCV Facility and Palisades, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Contingencies and Commitments—Contractual Commitments.

8	Represents purchases from the MISO energy market.

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1	Represents Consumers’ share of net pumped-storage generation. During 2019, the pumped-storage facility consumed 1,110 GWh of electricity to pump water during off-peak hours for storage in order to generate 802 GWh of electricity later during peak-demand hours.

2	Represents purchases under long-term PPAs.

3	Represents purchases from the MISO energy market.

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•	aggressively controlling operating, maintenance, and fuel costs and passing savings on to customers

•	providing renewable energy options and energy waste reduction programs

•	providing competitive rate-design options, particularly for large energy-intensive customers

•	offering tariff-based incentives that support economic development

•	providing non‑energy services and value to customers

•	monitoring activity in adjacent geographical areas

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•	2,426 miles of transmission lines

•	15 gas storage fields with a total storage capacity of 309 bcf and a working gas volume of 151 bcf

•	27,729 miles of distribution mains

•	eight compressor stations with a total of 163,543 installed and available horsepower

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1	Represents the intended full-load sustained output of each plant. The amount of capacity relating to CMS Energy’s ownership interest was 1,234 MW at December 31, 2019.

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•	offering competitive loan features and pricing

•	maintaining a stable funding model

•	providing convenient loan processes for contractors and homeowners

•	providing strong marketing support for strategic business partners and authorized contractors

•	focusing on customer service

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1	For information about CMS Energy’s and Consumers’ collective bargaining agreements, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12, Retirement Benefits.

2	Consumers’ seasonal workforce peaked at 614 employees during 2019 and 2018, and 598 employees during 2017. Seasonal employees work primarily during the construction season and are subject to yearly layoffs.

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1	Prior to joining CMS Energy and Consumers, Mr. Hayes was executive vice president and CFO for ITC Holdings Corp., a non‑affiliated company, from May 2014 through November 2016. Mr. Hayes started with ITC Holdings Corp. in 2012 as vice president of finance and treasurer.

2	Prior to joining CMS Energy and Consumers, Mr. Brossoit was vice president of manufacturing operations for United Technologies Corp., a non‑affiliated company. Mr. Brossoit started with United Technologies Corp. in 2006.

3	Prior to joining CMS Energy and Consumers, Mr. Johnson was a partner with Dykema Gossett PLLC, a non‑affiliated company, from 2012 to 2016. Mr. Johnson started with Dykema Gossett PLLC in 2005.

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•	Corporate Governance Principles

•	Articles of Incorporation

•	Bylaws

•	Charters and Codes of Conduct (including the Charters of the Audit Committee, Compensation and Human Resources Committee, Finance Committee, and Governance, Sustainability and Public Responsibility Committee, as well as the Employee, Board of Directors, EnerBank, and Third Party Codes of Conduct)

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•	a significant portion of CMS Energy’s cash flow from operations could be dedicated to the payment of principal and interest on its indebtedness and would not be available for other purposes

•	covenants contained in CMS Energy’s existing debt arrangements, which require it to meet certain financial tests, could affect its flexibility in planning for, and reacting to, changes in its business

•	CMS Energy’s ability to obtain additional financing for working capital, capital expenditures, acquisitions, and general corporate and other purposes could become limited

•	CMS Energy could be placed at a competitive disadvantage to its competitors that are less leveraged

•	CMS Energy’s vulnerability to adverse economic and industry conditions could increase

•	CMS Energy’s future credit ratings could fluctuate

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•	effective pre-acquisition evaluation of asset values, future operating costs, potential environmental and other liabilities, and other factors beyond Consumers’ control

•	effective cost and schedule management of new capital projects

•	availability of qualified construction personnel

•	changes in commodity and other prices

•	governmental approvals and permitting

•	operational performance

•	changes in environmental, legislative, and regulatory requirements

•	regulatory cost recovery

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•	litigation originated by third parties against CMS Energy or Consumers due to CMS Energy’s or Consumers’ greenhouse gas or other emissions or CCR disposal and storage

•	impairment of CMS Energy’s or Consumers’ reputation due to their greenhouse gas or other emissions and public perception of their response to potential environmental regulations, rules, and legislation

•	extreme weather conditions, such as severe storms or flooding, that may affect customer demand, company operations, or assets

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•	prevent the construction of new facilities

•	prevent the continued operation and sale of energy from existing facilities

•	prevent the suspension of operations at existing facilities

•	prevent the modification of existing facilities

•	result in significant additional costs that could have a material adverse effect on their liquidity, financial condition, and results of operations

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•	retain specified preexisting liabilities, such as for taxes, pensions, or environmental conditions

•	indemnify the buyers against specified risks, including the inaccuracy of representations and warranties that CMS Energy and Consumers make

•	make payments to the buyers depending on the outcome of post-closing adjustments, litigation, audits, or other reviews, including claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions

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•	General—CMS Energy

•	General—Consumers

•	Business Segments—Consumers Electric Utility—Electric Utility Properties

•	Business Segments—Consumers Gas Utility—Gas Utility Properties

•	Business Segments—Enterprises Segment—Non-Utility Operations and Investments—Independent Power Production

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1	All of the common shares were repurchased to satisfy the minimum statutory income tax withholding obligation for common shares that have vested under the PISP. The value of shares repurchased is based on the market price on the vesting date.

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1	Includes income attributable to noncontrolling interests of $2 million in each period.

2	Excludes off-system transportation customers.

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1	Excludes off-system transportation customers.

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•	regulation and regulatory matters

•	state and federal legislation

•	economic conditions

•	weather

•	energy commodity prices

•	interest rates

•	their securities’ credit ratings

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•	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

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•	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 31 percent since 2012

•	reduced landfill waste disposal by over 1.3 million tons since 1992

•	reduced methane emissions by 17 percent since 2012

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•	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

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•	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

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•	received approval of Consumers’ IRP, which supports the companies’ clean energy goals

•	launched a three-year electric vehicle pilot program

•	committed to invest $7.5 billion in Michigan businesses over the next five years; of that amount,$1.5 billion will be invested in diverse suppliers

•	completed the deployment of automated gas meters in areas where Consumers provides only natural gas to customers, allowing for drive-by meter reading

•	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

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2018 Electric Rate Case: In May 2018, Consumers filed an application with the MPSC seeking an annual rate increase of $58 million, based on a 10.75 percent authorized return on equity. In October 2018, Consumers reduced its requested annual rate increase to $44 million. In January 2019, the MPSC approved a settlement agreement authorizing an annual rate decrease of $24 million, based on a 10.0 percent authorized return on equity. With the elimination of the

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2018 Gas Rate Case: In November 2018, Consumers filed an application with the MPSC seeking an annual rate increase of $229 million, based on a 10.75 percent authorized return on equity. In April 2019, Consumers reduced its requested annual rate increase to $204 million. In September 2019, the MPSC approved an annual rate increase of $144 million, based on a 9.9 percent authorized return on equity. This increase includes a $13 million adjustment to begin returning net regulatory tax liabilities associated with the TCJA to customers. The MPSC also approved the continuation of a revenue decoupling mechanism, which annually reconciles Consumers’ actual weather-normalized, non‑fuel revenues with the revenues approved by the MPSC.

•	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.

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Tax Cuts and Jobs Act: The TCJA, which changed existing federal tax law and included numerous provisions that affect businesses, was signed into law in December 2017. In October 2018, Consumers filed an application to address the December 31, 2017 remeasurement of its deferred income taxes and other base rate impacts of the TCJA on customers. In September 2019, the MPSC authorized Consumers to begin returning net regulatory tax liabilities of $0.4 billion to gas customers through rates approved in the 2018 gas rate case and $1.2 billion to electric customers through rates to be determined in Consumers’ next electric rate case. Until then, the MPSC authorized Consumers to refund $32 million to electric customers through a temporary bill credit. For details on these proceedings, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Regulatory Matters.

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1	See Note 3, Regulatory Matters and Note 22, Asset Sales and Exit Activities.

2	See Note 14, Income Taxes.

3	See Note 4, Contingencies and Commitments—CMS Energy Contingencies—Gas Index Price Reporting Litigation.

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1	Deliveries to end-use customers were 36.8 billion kWh in 2019 and 38.2 billion kWh in 2018.

2	Under the provisions of ASU 2016-02, Leases, fixed energy and capacity costs associated with Consumers’ PPAs that are accounted for as finance leases are presented as amortization and interest expense, rather than purchased power expense. See Note 10, Leases and Palisades Financing for more information about Consumers’ leases.

3	See Note 3, Regulatory Matters and Note 22, Asset Sales and Exit Activities.

4	See Note 14, Income Taxes.

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1	Deliveries to end-use customers were 313 bcf in 2019 and 310 bcf in 2018.

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1	See Note 22, Asset Sales and Exit Activities.

1	See Note 14, Income Taxes.

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1	See Note 4, Contingencies and Commitments—CMS Energy Contingencies—Gas Index Price Reporting Litigation.

1	See Note 14, Income Taxes.

2	Eliminated on CMS Energy’s consolidated statements of income.

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

3	CMS Energy received alternative minimum tax (AMT) credit refunds of $68 million in 2019 and $125 million in 2018.

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1	See Note 7, Financial Instruments.

2	See Note 22, Asset Sales and Exit Activities

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1	Applies to CMS Energy’s $550 million revolving credit agreement.

2	Applies to Consumers’ $850 million and $250 million revolving credit agreements and its $30 million and $35 million reimbursement agreements.

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1	Long-term contracts for the purchase of commodities and related services, and construction and service agreements. The commodities and related services include natural gas and coal and associated transportation.

2	Long-term PPAs from certain affiliates of CMS Enterprises.

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•	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

•	increased demand response programs

•	increased energy efficiency

•	increased renewable energy generation

•	conservation voltage reduction

•	increased pumped storage

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•	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

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•	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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•	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

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•	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

•	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

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•	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

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•	life expectancies

•	discount rates

•	expected long-term rate of return on plan assets

•	rate of compensation increases

•	expected health care costs

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1	Contribution occurred in January 2020.

2	Consumers’ pension and OPEB costs are recoverable through its general ratemaking process.

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1:	Significant Accounting Policies

•	they do not have a notional amount (that is, a number of units specified in a derivative instrument, such as MWh of electricity or bcf of natural gas)

•	they qualify for the normal purchases and sales exception

•	they cannot be net settled due in part to the absence of an active market for the commodity

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•	Note 8, Notes Receivable

•	Note 9, Plant, Property, and Equipment

•	Note 11, Asset Retirement Obligations

•	Note 12, Retirement Benefits

•	Note 14, Income Taxes

•	Note 15, Earnings Per Share—CMS Energy

•	Note 16, Revenue

•	Note 18, Cash and Cash Equivalents

2:	New Accounting Standards

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3:	Regulatory Matters

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1	These 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.

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

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3	The MPSC has historically authorized and Consumers expects the MPSC to authorize a specific return on these regulatory assets.

4	These regulatory assets represent incurred costs for which the MPSC has provided, or Consumers expects, recovery without a return on investment.

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•	A regulatory tax liability of $1.7 billion associated with plant assets that are subject to normalization, which is governed by the Internal Revenue Code; this regulatory tax liability will be returned over the remaining book life of the related plant assets, the average of which is 44 years for gas plant assets and 27 years for electric plant assets.

•	A regulatory tax asset of $0.3 billion associated with plant assets that are not subject to normalization; this regulatory tax asset will be collected over 44 years from gas customers and over 27 years from electric customers.

•	A regulatory tax liability of $0.2 billion, which is primarily related to employee benefits; this regulatory tax liability will be refunded to customers over ten years.

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4:	Contingencies and Commitments

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In 2006, a class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 2000 and October 2002. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute. The plaintiffs are seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.

•	In 2009, a class action complaint, Newpage Wisconsin System v. CMS ERM, et al., was filed in circuit court in Wood County, Wisconsin, against CMS Energy, CMS ERM, Cantera Gas Company, and others. The plaintiff is seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.

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In 2005, J.P. Morgan Trust Company, N.A., in its capacity as trustee of the FLI Liquidating Trust, filed an action in Kansas state court against CMS Energy, CMS MST, CMS Field Services, and others. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is seeking statutory full consideration damages for its purchases of natural gas in 2000 and 2001, costs, and attorneys’ fees.

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1

These obligations arose from stock and asset sale agreements under which CMS Energy or a subsidiary of CMS Energy indemnified the purchaser for losses resulting from various matters, primarily claims related to taxes. The maximum obligation amount is mostly related to the Equatorial Guinea tax claim discussed in the CMS Energy Contingencies section of this Note. CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.

2	At Consumers, this obligation comprises a guarantee provided to the U.S. Department of Energy in connection with a settlement agreement regarding damages resulting from the department’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers. At CMS Energy, the

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•	a capacity charge of $10.14 per MWh of available capacity

•	a fixed energy charge based on Consumers’ annual average baseload coal generating plant operating and maintenance cost, fuel inventory, and administrative and general expenses

•	a variable energy charge based on the MCV Partnership’s cost of production when the plant is dispatched

•	a $5 million annual contribution by the MCV Partnership to a renewable resources program

•	an option for Consumers to extend the MCV PPA for five years or purchase the MCV Facility at the conclusion of the MCV PPA’s term in March 2025; although Consumers is not obligated to exercise either of these options, the table above presents the impact on future cash flows of extending the MCV PPA through 2030

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5:	Financings and Capitalization

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1	These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness.

2

A subsidiary of CMS Enterprises issued non‑recourse debt to finance the acquisition of a wind generation project in Northwest Ohio. The debt bears interest at an annual interest rate of LIBOR plus 1.500 percent through October 2022 (3.445 percent at December 31, 2019 and 4.303 percent at December 31, 2018). Beginning in October 2022, the debt will bear interest at an annual interest rate of LIBOR plus 1.750 percent. The same subsidiary of CMS Enterprises entered into interest rate swaps with the lending banks to fix the interest charges associated with the debt, at a rate of 4.702 percent through October 2022 and 4.952 percent beginning in October 2022. Principal and interest payments are made quarterly. For information about the interest rate swaps, see Note 6, Fair Value Measurements.

3	The weighted-average interest rate for EnerBank’s certificates of deposit was 2.445 percent at December 31, 2019 and 2.440 percent at December 31, 2018. EnerBank’s primary deposit product consists of brokered certificates of deposit with varying maturities and having a face value of $1,000.

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1	The variable-rate bonds bear interest quarterly at a rate of three-month LIBOR minus 0.300 percent (1.594 percent at December 31, 2019).

2	The interest rate on these tax‑exempt revenue bonds is reset weekly and was 1.740 percent at December 31, 2019 and 1.780 percent at December 31, 2018.

3	The interest rate on these tax‑exempt revenue bonds will reset on October 1, 2024.

4	The weighted-average interest rate for Consumers’ securitization bonds issued through its subsidiary, Consumers 2014 Securitization Funding, was 3.220 percent at December 31, 2019 and 3.057 percent at December 31, 2018.

5	Principal and interest payments are made semiannually.

1	These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness.

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1	During the year ended December 31, 2019, CMS Energy’s average borrowings totaled $5 million with a weighted-average interest rate of 3.859 percent.

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2	Under this facility, $8 million is available solely for the purpose of issuing letters of credit. Obligations under this facility are secured by the collateral accounts with the lending bank. There were no borrowings under this facility during the year ended December 31, 2019.

3	Obligations under these facilities are secured by first mortgage bonds of Consumers. During the year ended December 31, 2019, Consumers’ average borrowings totaled $2 million with a weighted-average interest rate of 3.225 percent.

•	350 million shares of CMS Energy Common Stock, par value $0.01 per share

•	10 million shares of CMS Energy Preferred Stock, par value $0.01 per share

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6:	Fair Value Measurements

•	Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

•	Level 2 inputs are observable, market-based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, and inputs derived from or corroborated by observable market data.

•	Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities.

1	All assets and liabilities were classified as Level 1 with the exception of derivative contracts, which were classified as Level 2 or Level 3.

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7:	Financial Instruments

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1	Includes current portion of long-term accounts receivable of $13 million at December 31, 2019 and $14 million at December 31, 2018.

2	Includes current portion of notes receivable of $242 million at December 31, 2019 and $233 million at December 31, 2018. For further details, see Note 8, Notes Receivable.

3	Includes current portion of long-term debt of $1.1 billion at December 31, 2019 and $1.0 billion at December 31, 2018.

4	Includes current portion of long-term payables of $1 million at December 31, 2019 and December 31, 2018.

5	Includes current portion of notes receivable – related party of $7 million at December 31, 2019 and December 31, 2018. For further details on this note receivable, see the DB SERP discussion below.

6	Includes current portion of long-term debt of $202 million at December 31, 2019 and $26 million at December 31, 2018.

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8:	Notes Receivable

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9:	Plant, Property, and Equipment

1	The majority of independent power production assets are leased to others under operating leases. For information regarding CMS Energy’s operating leases of owned assets, see Note 10, Leases and Palisades Financing.

2	For information regarding the amortization terms of Consumers’ assets under finance leases and other financing, see Note 10, Leases and Palisades Financing.

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3	Underground storage includes base natural gas of $26 million at December 31, 2019 and 2018. Base natural gas is not subject to depreciation.

4

For the year ended December 31, 2019, Consumers’ plant additions were $2.0 billion and plant retirements were $380 million. For the year ended December 31, 2018, Consumers’ plant additions were $1.8 billion and plant retirements were $190 million. Consumers plans to retire the D.E. Karn 1 & 2 coal-fueled electric generating units in 2023. Accordingly, in 2019, Consumers removed from total plant, property, and equipment $667 million, representing the remaining book value of the two units upon their retirement, and recorded it as a regulatory asset. For additional details, see Note 3, Regulatory Matters.

1	For the year ended December 31, 2019, Consumers’ intangible asset additions were $67 million and intangible asset retirements were $193 million. For the year ended December 31, 2018, Consumers’ intangible asset additions were $90 million and intangible asset retirements were $7 million.

2	Leasehold improvements are amortized over the life of the lease, which may change whenever the lease is renewed or extended.

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10:	Leases and Palisades Financing

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1	CMS Energy’s and Consumers’ operating right-of-use lease assets are reported as other non‑current assets on their consolidated balance sheets.

2	The current portion of CMS Energy’s and Consumers’ operating lease liabilities are reported as other current liabilities on their consolidated balance sheets.

3	The non‑current portion of CMS Energy’s and Consumers’ operating lease liabilities are reported as other non‑current liabilities on their consolidated balance sheets.

4	This includes $25 million for leases with related parties, of which less than $1 million is current.

5	This rate excludes the impact of Consumers’ pipeline agreements and long-term PPAs accounted for as finance leases. The required capacity payments under these agreements, when compared to the underlying fair value of the leased assets, result in effective interest rates that exceed market rates for leases with similar terms.

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11:	Asset Retirement Obligations

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12:	Retirement Benefits

•	non‑contributory, qualified DB Pension Plans (closed to new non‑union participants as of July 1, 2003 and closed to new union participants as of September 1, 2005)

•	a non‑contributory, qualified DCCP for employees hired on or after July 1, 2003

•	benefits to certain management employees under a non‑contributory, nonqualified DB SERP (closed to new participants as of March 31, 2006)

•	a non‑contributory, nonqualified DC SERP for certain management employees hired or promoted on or after April 1, 2006

•	a contributory, qualified defined contribution 401(k) plan

•	health care and life insurance benefits under an OPEB Plan

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1

The mortality assumption for benefit obligations was based on the Pri-2012 mortality table for 2019 and on the RP-2014 mortality table for 2018 and 2017, with projection scales MP-2019 for 2019, MP-2018 for 2018, and MP-2017 for 2017. The mortality assumption for net periodic benefit cost for 2019, 2018, and 2017 was based on the RP-2014 mortality table, with projection scales MP-2018 for 2019, MP-2017 for 2018, and MP-2016 for 2017.

2	The discount rate reflects the rate at which benefits could be effectively settled and is equal to the equivalent single rate resulting from a yield-curve analysis. This analysis incorporated the projected benefit payments specific to CMS Energy’s and Consumers’ DB Pension Plans and OPEB Plan and the yields on high-quality corporate bonds rated Aa or better.

3	CMS Energy and Consumers have elected to use a full-yield-curve approach in the estimation of service cost and interest cost; this approach applies individual spot rates along the yield curve to future projected benefit payments based on the time of payment.

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4	Effective December 31, 2017, CMS Energy’s and Consumers’ existing defined benefit pension plan was amended to include only retired or inactive employees; this amended plan is referred to as DB Pension Plan B. Active employees were moved to a newly created pension plan, referred to as DB Pension Plan A.

•	service cost discount rate of 4.53 percent

•	interest cost discount rate of 3.56 percent

•	weighted-average rate of compensation increase of 3.60 percent

5

CMS Energy and Consumers determined the long-term rate of return using historical market returns, the present and expected future economic environment, the capital market principles of risk and return, and the expert opinions of individuals and firms with financial market knowledge. CMS Energy and Consumers considered the asset allocation of the portfolio in forecasting the future expected total return of the portfolio. The goal was to determine a long-term rate of return that could be incorporated into the planning of future cash flow requirements in conjunction with the change in the liability. Annually, CMS Energy and Consumers review for reasonableness and appropriateness the forecasted returns for various classes of assets used to construct an expected return model. CMS Energy’s and Consumers’ expected long-term rate of return on the assets of the DB Pension Plans was 7.00 percent in 2019. The actual return (loss) on the assets of the DB Pension Plans was 21.0 percent in 2019, (6.7) percent in 2018, and 18.0 percent in 2017.

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1

The actuarial loss for 2019 for the DB Pension Plans was primarily the result of lower discount rates and lower interest rates used to calculate the value of lump-sum payments. The actuarial gain for 2018 was primarily the result of higher discount rates. The actuarial loss for 2019 for the OPEB Plan was primarily the result of lower discount rates. The actuarial gain for 2018 was primarily the result of higher discount rates.

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2	The total funded status of the DB Pension Plans attributable to Consumers, based on an allocation of expenses, was $408 million at December 31, 2019 and $246 million at December 31, 2018.

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13:	Stock-Based Compensation

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14:	Income Taxes

1

In 2017, CMS Energy completed the evaluation of its methodology for the state apportionment of Consumers’ electricity sales to MISO, taking into account recent state tax law developments in the electric utility sector. To recognize the anticipated refund and the impact of the expected lower effective tax rate on their deferred state tax liabilities, CMS Energy, including Consumers, recorded a $14 million income tax benefit in 2017. These tax benefits were net of reserves for uncertain tax positions and primarily

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2	In December 2017, Consumers remeasured its deferred tax assets and liabilities at the new federal tax rate enacted by the TCJA and recorded a net $1.6 billion regulatory liability. As a result of an order received in September 2019, Consumers began refunding these excess deferred taxes to customers. For additional details on the order received, see Note 3, Regulatory Matters.

3	In 2013, the MPSC issued an order authorizing Consumers to accelerate the flow-through to electric and gas customers of certain income tax benefits associated primarily with the cost of removal of plant placed in service before 1993. Consumers implemented this regulatory treatment beginning in 2014, with the electric portion ending in 2018 and the gas portion continuing through 2025.

4	In March 2018, Consumers finalized a study of research and development tax credits for the tax years 2012 through 2016. As a result, Consumers recognized an $8 million increase in the credit, net of reserves for uncertain tax positions, at that time.

5	In December 2017, CMS Energy and Consumers recorded a reasonable estimate to measure and account for the impact of the TCJA. In December 2018, CMS Energy recorded a true-up of their estimate and eliminated the $9 million valuation allowance on the sequestration of alternative minimum tax credits.

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15:	Earnings Per Share—CMS Energy

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16:	Revenue

1	Amounts represent the enterprises segment’s operating revenue from independent power production and CMS ERM’s sales of energy commodities in support of the independent power production portfolio.

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1	Amounts represent the enterprises segment’s operating revenue from independent power production and CMS ERM’s sales of energy commodities in support of the independent power production portfolio.

•

Consumers has performance obligations for the service of standing ready to deliver electricity or natural gas to customers, and it satisfies these performance obligations over time. Consumers recognizes revenue at a fixed rate as it provides these services. These arrangements generally do not have fixed terms and remain in effect as long as the customer consumes the utility service. The rates are set by the MPSC through the rate-making process and represent the stand-alone selling price of Consumers’ service to stand ready to deliver.

•

Consumers has performance obligations for the service of delivering the commodity of electricity or natural gas to customers, and it satisfies these performance obligations upon delivery. Consumers recognizes revenue at a price per unit of electricity or natural gas delivered, based on the tariffs established by the MPSC. These arrangements generally do not have fixed terms and remain in effect as long as the customer consumes the utility service. The rates are set by the MPSC through the rate-making process and represent the stand-alone selling price of a bundled product comprising the commodity, electricity or natural gas, and the service of delivering such commodity.

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17:	Other Income and Other Expense

18:	Cash and Cash Equivalents

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19:	Reportable Segments

•	electric utility, consisting of regulated activities associated with the generation, purchase, transmission, distribution, and sale of electricity in Michigan

•	gas utility, consisting of regulated activities associated with the purchase, transmission, storage, distribution, and sale of natural gas in Michigan

•	enterprises, consisting of various subsidiaries engaging in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production

•	EnerBank, a Utah state-chartered, FDIC-insured industrial bank providing unsecured consumer installment loans, largely for financing home improvements

•	electric utility, consisting of regulated activities associated with the generation, purchase, transmission, distribution, and sale of electricity in Michigan

•	gas utility, consisting of regulated activities associated with the purchase, transmission, storage, distribution, and sale of natural gas in Michigan

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1	Consumers had no significant equity method investments.

2	Amounts include a portion of Consumers’ other common assets attributable to both the electric and gas utility businesses.

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3	Costs related to coal-fueled electric generating units to be retired in 2023 were removed and recorded as a regulatory asset in June 2019. For additional details, see Note 3, Regulatory Matters.

4	Amounts include finance lease additions.

5	Amounts include a portion of Consumers’ capital expenditures for plant and equipment attributable to both the electric and gas utility businesses.

20:	Related-Party Transactions—Consumers

•	purchases of electricity from affiliates of CMS Enterprises

•	payments to and from CMS Energy related to parent company overhead costs

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21:	Variable Interest Entities

1	Reduced dispatch agreements allow the facilities to be dispatched based on the market price of power compared with the cost of production of the plants. This results in fuel cost savings that each partnership shares with Consumers’ customers.

2	CMS Energy’s guarantee is capped at $3 million annually through 2021. For additional details on this guarantee, see Note 4, Contingencies and Commitments—Guarantees.

3	CMS Energy’s maximum exposure to loss from these receivables is $10 million.

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22:	Asset Sales and Exit Activities

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23:	Quarterly Financial and Common Stock Information (Unaudited)

1	The sum of the quarters may not equal annual EPS due to changes in the number of shares outstanding.

1	The sum of the quarters may not equal annual EPS due to changes in the number of shares outstanding.

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•	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of CMS Energy

•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of CMS Energy are being made only in accordance with authorizations of management and directors of CMS Energy

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of CMS Energy’s assets that could have a material effect on its financial statements

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•	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Consumers

•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of Consumers are being made only in accordance with authorizations of management and directors of Consumers

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Consumers’ assets that could have a material effect on its financial statements

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•	Consolidated Statements of Income of CMS Energy for the years ended December 31, 2019, 2018, and 2017

•	Consolidated Statements of Comprehensive Income of CMS Energy for the years ended December 31, 2019, 2018, and 2017

•	Consolidated Statements of Cash Flows of CMS Energy for the years ended December 31, 2019, 2018, and 2017

•	Consolidated Balance Sheets of CMS Energy at December 31, 2019 and 2018

•	Consolidated Statements of Changes in Equity of CMS Energy for the years ended December 31, 2019, 2018, and 2017

•	Consolidated Statements of Income of Consumers for the years ended December 31, 2019, 2018, and 2017

•	Consolidated Statements of Comprehensive Income of Consumers for the years ended December 31, 2019, 2018, and 2017

•	Consolidated Statements of Cash Flows of Consumers for the years ended December 31, 2019, 2018, and 2017

•	Consolidated Balance Sheets of Consumers at December 31, 2019 and 2018

•	Consolidated Statements of Changes in Equity of Consumers for the years ended December 31, 2019, 2018, and 2017

•	Notes to the Consolidated Financial Statements

•	Report of Independent Registered Public Accounting Firm for CMS Energy

•	Report of Independent Registered Public Accounting Firm for Consumers

•	Schedule I — Condensed Financial Information of Registrant, CMS Energy—Parent Company at December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018, and 2017

•	Schedule II — Valuation and Qualifying Accounts and Reserves of CMS Energy for the years ended December 31, 2019, 2018, and 2017

•	Schedule II — Valuation and Qualifying Accounts and Reserves of Consumers for the years ended December 31, 2019, 2018, and 2017

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1:	Basis of Presentation

2:	Contingencies

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3:	Guarantees

•	to third parties under certain commodity purchase and swap agreements entered into with CMS ERM

•	to third parties under certain agreements entered into with Grand River Wind, LLC, a wholly owned subsidiary of CMS Enterprises

•	to third parties in support of non‑recourse revenue bonds issued by Genesee

•	to EGLE on behalf of CMS Land and CMS Capital, for environmental remediation obligations at Bay Harbor

•	to the U.S. Department of Energy on behalf of Consumers, in connection with Consumers’ 2011 settlement agreement with the U.S. Department of Energy regarding damages resulting from the department’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers

4:	Note Payable—Intercompany

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1	Deductions represent write-offs of uncollectible accounts, net of recoveries.

1	Deductions represent write-offs of uncollectible accounts, net of recoveries.

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1	Obligations of CMS Energy or its subsidiaries, but not of Consumers.

2	Management contract or compensatory plan or arrangement.

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