CONSUMERS ENERGY CO - Quarter Report: 2011 September (Form 10-Q)
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
OR
o | 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 |
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 þ No o Consumers Energy Company: Yes þ No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data file required to be submitted and posted
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 and post such files).
CMS Energy Corporation: Yes þ No o Consumers Energy Company: Yes þ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
CMS Energy Corporation:
Large accelerated filer þ | Accelerated filer o | Non-Accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Consumers Energy Company:
Large accelerated filer o | Accelerated filer o | Non-Accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting 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 o No þ Consumers Energy Company: Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock at October 14, 2011:
CMS Energy Corporation: |
||||
CMS Energy Common Stock, $0.01 par value (including 1,568,145 shares owned by Consumers Energy Company) |
253,560,753 | |||
Consumers Energy Company: |
||||
Consumers Energy Common Stock, $10 par value, privately held by CMS Energy Corporation |
84,108,789 |
CMS Energy Corporation
Consumers Energy Company
Consumers Energy Company
Quarterly Reports on Form 10-Q to the Securities and Exchange Commission for the Period Ended
September 30, 2011
September 30, 2011
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GLOSSARY
Certain terms used in the text and financial statements are defined below.
2008 Energy Law
|
Comprehensive energy reform package enacted in October 2008 | |
2010 Form 10-K
|
Each of CMS Energys and Consumers Annual Report on Form 10-K for the year ended December 31, 2010 | |
ABATE
|
Association of Businesses Advocating Tariff Equity | |
Bay Harbor
|
A residential/commercial real estate area located near Petoskey, Michigan. In 2002, CMS Energy sold its interest in Bay Harbor. | |
bcf
|
Billion cubic feet of gas | |
Big Rock
|
Big Rock Point nuclear power plant, formerly owned by Consumers | |
CAIR
|
The Clean Air Interstate Rule | |
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 | |
CCB
|
Coal combustion by-product | |
CEO
|
Chief Executive Officer | |
CFO
|
Chief Financial Officer | |
CKD
|
Cement kiln dust | |
Clean Air Act
|
Federal Clean Air Act, as amended | |
Clean Water Act
|
Federal Water Pollution Control Act, as amended | |
CMS Capital
|
CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy | |
CMS Energy
|
CMS Energy Corporation, the parent of Consumers and CMS Enterprises | |
CMS Enterprises
|
CMS Enterprises Company, a wholly owned subsidiary of CMS Energy | |
CMS ERM
|
CMS Energy Resource Management Company, formerly CMS MST, a wholly owned subsidiary of CMS Enterprises |
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CMS Field Services
|
CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission | |
CMS Gas Transmission
|
CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises | |
CMS Land
|
CMS Land Company, a wholly owned subsidiary of CMS Capital | |
CMS MST
|
CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM effective January 2004 | |
CMS Oil and Gas
|
CMS Oil and Gas Company, a former wholly owned subsidiary of CMS Enterprises | |
Consumers
|
Consumers Energy Company, a wholly owned subsidiary of CMS Energy | |
CSAPR
|
Cross-State Air Pollution Rule, finalized in July 2011, which supersedes the EPAs proposed Clean Air Transport Rule and replaces CAIR | |
Customer Choice Act
|
Customer Choice and Electricity Reliability Act, a Michigan statute | |
D.C.
|
District of Columbia | |
Detroit Edison
|
The Detroit Edison Company, a non-affiliated company | |
Dodd-Frank Act
|
Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010 | |
DOE
|
U.S. Department of Energy | |
DOJ
|
U.S. Department of Justice | |
EBITDA
|
Earnings before interest, taxes, depreciation, and amortization | |
EnerBank
|
EnerBank USA, a wholly owned subsidiary of CMS Capital | |
Entergy
|
Entergy Corporation, a non-affiliated company | |
EPA
|
U.S. Environmental Protection Agency | |
EPS
|
Earnings per share | |
Exchange Act
|
Securities Exchange Act of 1934, as amended | |
FDIC
|
Federal Deposit Insurance Corporation |
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FERC
|
The Federal Energy Regulatory Commission | |
FLI Liquidating Trust
|
Trust formed in Missouri bankruptcy court to accomplish the liquidation of Farmland Industries, Inc., a non-affiliated entity | |
FMB
|
First mortgage bond | |
FOV
|
Finding of Violation | |
FTR
|
Financial transmission right | |
GAAP
|
U.S. Generally Accepted Accounting Principles | |
GCR
|
Gas cost recovery | |
GWh
|
Gigawatt-hour, a unit of energy equal to one million kWh | |
Health Care Acts
|
Comprehensive health care reform enacted in March 2010, comprising the Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act | |
IRS
|
Internal Revenue Service | |
ISFSI
|
Independent spent fuel storage installation | |
kWh
|
Kilowatt-hour, a unit of energy equal to one thousand watt-hours | |
Ludington
|
Ludington pumped-storage plant, jointly owned by Consumers and Detroit Edison | |
MACT
|
Maximum Achievable Control Technology, which is the emission control that is achieved in practice by the best-controlled similar source; for existing sources, MACT is the average emission limitation achieved by the best performing 12 percent of existing sources or the average limitation achieved by the best performing five sources, depending on the number of sources in the category | |
MBT
|
Michigan Business Tax | |
MCIT
|
Michigan Corporate Income Tax | |
MD&A
|
Managements Discussion and Analysis | |
MDEQ
|
Michigan Department of Environmental Quality | |
MDL
|
A pending multi-district litigation case in Nevada | |
MGP
|
Manufactured gas plant |
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Midwest Energy Market
|
An energy market developed by MISO to provide day-ahead and real-time market information and centralized dispatch for market participants | |
MISO
|
The Midwest Independent Transmission System Operator, Inc. | |
MPSC
|
Michigan Public Service Commission | |
MW
|
Megawatt, a unit of power equal to one million watts | |
MWh
|
Megawatt-hour, a unit of energy equal to one million watt-hours | |
NOV
|
Notice of Violation | |
NPDES
|
National Pollutant Discharge Elimination System | |
NREPA
|
Part 201 of the Michigan Natural Resources and Environmental Protection Act, a statute that covers environmental activities including remediation | |
NSR
|
New Source Review, a construction-permitting program under the Clean Air Act | |
NYMEX
|
New York Mercantile Exchange | |
OPEB
|
Postretirement benefit plans other than pensions | |
Palisades
|
Palisades nuclear power plant, sold by Consumers to Entergy in 2007 | |
Panhandle
|
Panhandle Eastern Pipe Line Company, including its wholly owned subsidiaries Trunkline Gas Company, LLC, Pan Gas Storage Company, Panhandle Storage Company, and Panhandle Holding Company, a former wholly owned subsidiary of CMS Gas Transmission | |
PCB
|
Polychlorinated biphenyl | |
Pension Plan
|
Trusteed, non-contributory, defined benefit pension plan of CMS Energy, Consumers, and Panhandle | |
PPA
|
Power purchase agreement | |
PSCR
|
Power supply cost recovery | |
PSD
|
Prevention of Significant Deterioration | |
REC
|
Renewable energy credit established under the 2008 Energy Law |
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Renewable Operating Permit
|
Michigans Title V permitting program under the Clean Air Act | |
RMRR
|
Routine maintenance, repair, and replacement | |
ROA
|
Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to the Customer Choice Act | |
SEC
|
U.S. Securities and Exchange Commission | |
SERP
|
Supplemental Executive Retirement Plan | |
Smart Grid
|
Consumers grid modernization project, which includes the installation of smart meters that are capable of transmitting and receiving 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 | |
Superfund
|
Comprehensive Environmental Response, Compensation and Liability Act | |
Supplemental Environmental Projects
|
Environmentally beneficial projects that a party agrees to undertake as part of the settlement of an enforcement action, but which the party is not otherwise legally required to perform | |
Title V
|
A federal program under the Clean Air Act designed to standardize air quality permits and the permitting process for major sources of emissions across the U.S. | |
U.S.
|
United States | |
XBRL
|
eXtensible Business Reporting Language |
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FILING FORMAT
This combined Form 10-Q is separately filed by CMS Energy and Consumers. Information in this
combined Form 10-Q relating to each individual registrant is filed by such registrant on its own
behalf. Consumers makes no representation regarding information relating to any other companies
affiliated with CMS Energy other than its own subsidiaries. None of CMS Energy, CMS Enterprises,
nor any of CMS Energys other subsidiaries (other than Consumers) has any obligation in respect of
Consumers debt securities and holders of such debt securities should not consider the financial
resources or results of operations of CMS Energy, CMS Enterprises, nor any of CMS Energys other
subsidiaries (other than Consumers and its own subsidiaries (in relevant circumstances)) in making
a decision with respect to Consumers debt securities. Similarly, none of 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 2010 Form 10-K.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This Form 10-Q and other written and oral statements that CMS Energy and Consumers make 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
Energys 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 Energys and
Consumers actual results to differ materially from the results anticipated in these statements.
These factors include CMS Energys and Consumers inability to predict or control the following,
all of which are potentially significant:
| the price of CMS Energy common stock, capital and financial market conditions, and the effect of these market conditions on CMS Energys and Consumers postretirement benefit plans, interest costs, and access to the capital markets, including availability of financing (including Consumers accounts receivable sales program and CMS Energys and Consumers revolving credit facilities) to CMS Energy, Consumers, or any of their affiliates, and the energy industry; | ||
| the impact of the economy, particularly in Michigan, and potential future volatility in the financial and credit markets on CMS Energys, Consumers, or any of their affiliates: |
| revenues; | ||
| capital expenditure programs and related earnings growth; | ||
| ability to collect accounts receivable from customers; | ||
| cost of capital and availability of capital; and | ||
| Pension Plan and postretirement benefit plans assets and required contributions; |
| changes in the economic and financial viability of CMS Energys and Consumers suppliers, customers, and other counterparties and the continued ability of these third parties, including third parties in bankruptcy, to meet their obligations to CMS Energy and Consumers; | ||
| population changes in the geographic areas where CMS Energy and Consumers conduct business; |
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| national, regional, and local economic, competitive, and regulatory policies, conditions, and developments; | ||
| changes in applicable laws, rules, regulations, principles, or practices, or in their interpretation, including those related to taxes, the environment, and accounting matters, that could have an impact on CMS Energys and Consumers businesses or financial results, including the impact of any future regulations or lawsuits regarding: |
| carbon dioxide and other greenhouse gas emissions, including potential future legislation to establish a cap and trade system; | ||
| criteria pollutants, such as nitrogen oxides, sulfur dioxide, and particulate, and hazardous air pollutants, including impacts of Clean Air Act regulations; | ||
| CCBs; | ||
| PCBs; | ||
| cooling water intake or discharge from power plants or other industrial equipment; | ||
| limitations on the use or construction of coal-fueled electric power plants; | ||
| nuclear-related regulation; | ||
| renewable portfolio standards and energy efficiency mandates; | ||
| energy-related derivatives and hedges under the Dodd-Frank Act; and | ||
| any other potential legislative changes, including changes to the ten-percent ROA limit; |
| potentially adverse regulatory or legal interpretations or decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with these interpretations or decisions, including those that may affect Bay Harbor or Consumers RMRR classification under NSR regulations; | ||
| potentially adverse or delayed regulatory treatment or permitting decisions concerning significant matters affecting CMS Energy or Consumers that are or could come before the MDEQ and/or EPA, including Bay Harbor; | ||
| potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant matters affecting Consumers that are or could come before the MPSC, including: |
| sufficient and timely recovery of: |
| environmental and safety-related expenditures for coal-fueled plants and other utility properties; | ||
| power supply and natural gas supply costs; | ||
| operating and maintenance expenses; | ||
| additional utility rate-based investments; | ||
| costs associated with the proposed retirement and decommissioning of facilities; | ||
| MISO energy and transmission costs; | ||
| costs associated with energy efficiency investments and state or federally mandated renewable resource standards; and | ||
| Smart Grid program costs; |
| expenditures subject to tracking mechanisms; | ||
| prevention or curtailment of shutoffs for non-paying customers; | ||
| Consumers pilot electric and gas decoupling mechanisms; | ||
| prevention or curtailment of rights to self-implement rate requests; | ||
| refunds of previously self-implemented rates; | ||
| implementation of new energy legislation or revisions of existing regulations; and | ||
| allocation of the DOE settlement amount; |
| potentially adverse regulatory treatment resulting from pressure on regulators to oppose annual rate increases or to lessen rate impacts upon customers, particularly in difficult economic times; |
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| loss of customer demand for electric generation supply to alternative energy suppliers; | ||
| the ability of Consumers to recover its regulatory assets in full and in a timely manner; | ||
| the effectiveness of Consumers electric and gas decoupling mechanisms in moderating the impact of sales variability on net revenues; | ||
| the impact of enforcement powers and investigation activities at FERC; | ||
| federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of CMS Energys and Consumers market-based sales authorizations in wholesale power markets without price restrictions; | ||
| effects of weather conditions, such as unseasonably warm weather during the winter, on sales; | ||
| the market perception of the energy industry or of CMS Energy, Consumers, or any of their affiliates; | ||
| the credit ratings of CMS Energy or Consumers; | ||
| the impact of credit markets, economic conditions, and any new banking regulations on EnerBank; | ||
| potential effects of the Dodd-Frank Act and related regulations on CMS Energy and Consumers, including regulation of financial institutions such as EnerBank, whistleblower rules, and shareholder activity that is or may be permitted under the Act; | ||
| disruptions in the normal commercial insurance and surety bond markets that may increase costs or reduce traditional insurance coverage, particularly terrorism and sabotage insurance, performance bonds, and tax-exempt debt insurance, and stability of insurance providers, and the ability of Consumers to recover the costs of any such insurance from customers; | ||
| changes in energy markets, including availability of capacity and the timing and extent of changes in commodity prices for oil, coal, natural gas, natural gas liquids, electricity, and certain related products due to lower or higher demand, shortages, transportation problems, or other developments, and their impact on CMS Energys and Consumers cash flows and working capital; | ||
| the effectiveness of CMS Energys and Consumers risk management policies, procedures, and strategies, including their strategies to hedge risk related to future prices of electricity, natural gas, and other energy-related commodities; | ||
| changes in construction material prices and the availability of qualified construction personnel to implement Consumers construction program; | ||
| factors affecting development of generation projects and distribution infrastructure replacement and expansion projects, including those related to project site identification, construction, permitting, and government approvals; | ||
| costs and availability of personnel, equipment, and materials for operating and maintaining existing facilities; |
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| factors affecting operations, such as unusual weather conditions, catastrophic weather-related damage, unscheduled generation outages, maintenance or repairs, environmental incidents, or electric transmission and distribution or gas pipeline system constraints; | ||
| potential disruption or interruption of facilities or operations due to accidents, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events; | ||
| potential costs, lost revenues, 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; | ||
| the impact of an accident, explosion, or other physical disaster involving Consumers gas pipelines, gas storage fields, overhead or underground electrical lines, or other utility infrastructure; | ||
| CMS Energys and Consumers ability to achieve generation planning goals and the occurrence and duration of scheduled or unscheduled generation or gas compression outages; | ||
| technological developments in energy production, delivery, usage, and storage; | ||
| achievement of capital expenditure and operating expense goals; | ||
| the impact of CMS Energys and Consumers integrated business software system on their operations, including utility customer billing and collections; | ||
| potential effects of the Health Care Acts on existing or future health care costs; | ||
| adverse outcomes regarding tax positions; | ||
| adverse consequences resulting from any past 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 past operations or transactions; | ||
| the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or claims; | ||
| earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts, such as electricity sales agreements and interest rate and foreign currency contracts; | ||
| changes in financial or regulatory accounting principles or policies; | ||
| a possible future requirement to comply with International Financial Reporting Standards, which differ from GAAP in various ways, including the present lack of special accounting treatment for regulated activities; and | ||
| other business or investment matters that may be disclosed from time to time in CMS Energys and Consumers SEC filings, or in other publicly issued documents. |
For additional details regarding these and other uncertainties, see the Outlook section included
in MD&A; Note 3, Contingencies and Commitments; Note 4, Regulatory Matters; and Part II, Item 1A.
Risk Factors.
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CMS Energy Corporation
Consumers Energy Company
Consumers Energy Company
MANAGEMENTS DISCUSSION AND ANALYSIS
This MD&A is a combined report of CMS Energy and Consumers.
EXECUTIVE OVERVIEW
CMS Energy is an energy company operating primarily in Michigan. It is the parent holding
company of several subsidiaries, including Consumers, an electric and gas utility, and CMS
Enterprises, primarily a domestic independent power producer. Consumers electric utility
operations include the generation, purchase, distribution, and sale of electricity, and Consumers
gas utility operations include the purchase, transmission, storage, distribution, and sale of
natural gas. Consumers customer base consists of a mix of residential, commercial, and
diversified industrial customers. CMS Enterprises, through its subsidiaries and equity
investments, owns and operates power generation facilities.
CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS
Energy operates principally in three business segments: electric utility; gas utility; and
enterprises, its non-utility investments and operations. Consumers operates principally in two
business segments: electric utility and gas utility.
CMS Energy and Consumers earn revenue and generate cash from operations by providing electric and
natural gas utility services; electric distribution and generation; gas transmission, storage, and
distribution; and other energy-related services. Their businesses are affected primarily by:
| regulation and regulatory matters; | ||
| economic conditions; | ||
| weather; | ||
| energy commodity prices; | ||
| interest rates; and | ||
| CMS Energys and Consumers securities credit ratings. |
CMS Energys business approach has emphasized
the key elements depicted below:
![(GRAPHICS)](https://www.sec.gov/Archives/edgar/data/0000201533/000095012311092346/k50726k5072600.gif)
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Safe, Excellent Operations
The safety and security of employees, customers, and the general public remain 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. From 2007 to 2010, Consumers
achieved a 63 percent reduction in the annual number of recordable safety incidents.
Customer Value
Consumers is undertaking a number of initiatives that reflect its intensified customer focus.
Consumers planned investments in reliability are aimed at improving safety, reducing customer
outage frequency, reducing repetitive outages, and increasing customer satisfaction. Consumers
productivity improvements are expected to help keep annual base rate increases (excluding PSCR and
GCR charges) at or below the average rate of inflation. Consumers considers these and other
aspects of its customer value initiative to be important to its success.
Utility Investment
Consumers expects to make capital investments of $6.6 billion from 2012 through 2016, with a
key aspect of its strategy being the balanced energy initiative. The balanced energy initiative is
a comprehensive energy resource plan to meet Consumers projected short-term and long-term electric
power requirements with energy efficiency, demand management, expanded use of renewable energy,
development of new power plants, pursuit of additional PPAs to complement existing generating
sources, potential retirement or mothballing of older generating units, and continued operation of
other existing units.
Renewable energy projects are a major component of Consumers planned capital investments.
Consumers expects to spend $500 million on renewable energy investments from 2012 through 2016.
The 2008 Energy Law requires that at least ten percent of Consumers electric sales volume come
from renewable energy sources by 2015, and it includes requirements for specific capacity
additions. Consumers has historically included renewable resources as part of its portfolio, with
about five percent of its present power supply coming from such renewable sources as hydroelectric,
landfill gas, biomass, and wind. In May 2011, the MPSC issued an order approving Consumers
amended renewable energy plan, with slight modifications. The amended plan reduces the renewable
energy surcharge that will be billed to customers in the future by an annual amount of $54 million,
reflecting lower-than-anticipated costs to comply with renewable energy requirements. In October
2011, Consumers filed an application for the biennial review and approval of its renewable energy
plan. The plan further reduces the renewable energy surcharge that will be billed to customers by an
annual amount of $3 million.
In February 2011, Consumers and Detroit Edison together announced an $800 million maintenance
and upgrade project at their jointly owned Ludington pumped-storage plant. The project, scheduled
to begin in 2013 and extend through 2019, is expected to increase the capacity of Ludington by 16
percent, from its present level of 1,872 MW to about 2,172 MW, and increase the plants efficiency
by five percent. Consumers expects its share of the project cost to total $400 million.
Consumers Smart Grid program, with an estimated total project capital cost of $750 million, also
represents a major capital investment. The full-scale deployment of advanced metering infrastructure is
planned to begin in the second half of 2012 and to continue through 2019. Consumers will have
spent $160 million through 2011 on its Smart Grid program, and expects to spend an additional $260
million, following a phased approach, from 2012 through 2016.
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Two additional major investment areas for Consumers are environmental spending and reliability
improvements. Consumers expects its environmental investments to total $1.5 billion and its
investments in system reliability to total $1.2 billion from 2012 through 2016.
Regulation
Regulatory matters are a key aspect of CMS Energys and Consumers businesses, particularly
Consumers rate cases and regulatory proceedings before the MPSC. In September 2011, Michigan
Governor Rick Snyder appointed John D. Quackenbush to replace retiring MPSC member Monica Martinez.
John D. Quackenbush will serve as chair of the MPSC and former chair Orjiakor Isiogu will continue
to serve as a member.
Recent important regulatory events and developments are summarized below.
| Gas Rate Cases: In May 2011, the MPSC approved a settlement agreement in Consumers 2010 gas rate case, authorizing a $31 million annual increase in gas rates, based on a 10.5 percent authorized return on equity. In September 2011, Consumers filed a new general gas rate case seeking an annual rate increase of $49 million, based on a 10.7 percent authorized return on equity. | ||
| Electric Rate Case: In June 2011, Consumers filed a new general electric rate case seeking an annual rate increase of $195 million, based on a 10.7 percent authorized return on equity. | ||
| Revenue Decoupling Mechanisms: In March 2011, Consumers filed its first reconciliation of the electric decoupling mechanism, requesting recovery of $27 million from customers for the period December 2009 through November 2010. This mechanism, presently authorized under the MPSCs 2010 electric rate order through November 2011, allows Consumers to adjust future electric rates to compensate for changes in sales volumes resulting from the difference between the level of average sales per customer adopted in the order and actual average sales per customer, subject to certain conditions. | ||
In September 2011, Consumers filed its first reconciliation of the gas revenue decoupling mechanism, requesting recovery of $16 million from customers for the period June 2010 through May 2011. This mechanism, presently authorized under the MPSCs 2010 gas rate case order, allows Consumers to adjust future gas rates to compensate for changes in sales volumes resulting from the difference between the level of average sales per customer adopted in the order and actual average weather-adjusted sales per customer, subject to certain conditions. | |||
| DOE Settlement: In July 2011, Consumers entered into an agreement with the DOE to settle its claims related to the DOEs failure to accept spent nuclear fuel. In September 2011, Consumers filed an application with the MPSC regarding the allocation of the $120 million settlement amount. |
Environmental regulation is another area of importance for CMS Energy and Consumers, and they
are monitoring numerous legislative and regulatory initiatives to regulate greenhouse gases, as
well as related litigation. The EPA has taken steps to regulate greenhouse gases under the Clean
Air Act, and is expected to propose guidelines for states to regulate greenhouse gas emissions from
new and existing sources.
During 2010, the EPA issued various proposals for regulating PCBs, CCBs, sulfur dioxide, and
nitrogen oxides. Additionally, in March 2011, the EPA proposed a hazardous air pollutant rule that
would establish MACT emission standards for mercury and other hazardous air pollutants. Under the
proposed rule, some coal-fueled electric generating units would require additional controls for
hazardous air pollutants. Also in March 2011, the EPA issued a proposed rule to regulate existing
electric generating plant cooling water intake systems. In July 2011, the EPA finalized the CSAPR,
which requires
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Michigan and 26 other states to improve air quality by reducing power plant
emissions that allegedly contribute to ground-level ozone and fine particle pollution in other
downwind states. This rule, which replaces CAIR, mandates emission reductions beginning in 2012.
CMS Energy and Consumers are monitoring developments regarding MACT emission standards for
potential effects on their operations and are continuing to assess the impact and cost of complying
with the CSAPR.
Financial Performance in 2011 and Beyond
For the three months ended September 30, 2011, CMS Energys net income available to common
stockholders was $139 million, and diluted earnings per share were $0.53. This compares with net
income available to common stockholders of $134 million and diluted earnings per share of $0.53 for
the three months ended September 30, 2010. For the nine months ended September 30, 2011, CMS
Energys net income available to common stockholders was $374 million, and diluted earnings per
share were $1.43. This compares with net income available to common stockholders of $299 million
and diluted earnings per share of $1.19 for the nine months ended September 30, 2010. Among the
factors contributing to CMS Energys improved performance for the nine months ended September 30,
2011 were benefits from electric and gas rate orders and increased gas deliveries, offset partially
by higher depreciation, property taxes, and distribution and service restoration costs. A tax
benefit resulting from the enactment of the MCIT in May 2011 was offset by the absence, in 2011, of
an insurance settlement recovery recorded in 2010.
A more detailed discussion of the factors affecting CMS Energys and Consumers performance can be
found in the Results of Operations section that follows this Executive Overview.
CMS Energy believes that economic conditions in Michigan are improving. Although Michigans
economy continues to be affected by the recession and its impact on the states automotive industry
and by high unemployment rates, there are indications that the recession has eased in Michigan.
Consumers expects its electric sales to increase by more than one percent annually through 2016,
driven largely by the continued rise in industrial production. Consumers is projecting that its
gas sales will remain stable through 2016, due largely to energy efficiency and conservation.
As Consumers seeks to continue to receive fair and timely regulatory treatment, delivering customer
value will remain a key strategic priority. To keep costs down for its utility customers,
Consumers has set goals to achieve further annual productivity improvements. Additionally,
Consumers will strive to give priority to capital investments that increase customer value or lower
costs.
Consumers expects to continue to have sufficient capacity to fund its investment-based growth
plans. CMS Energy also expects its sources of liquidity to remain sufficient to meet its cash
requirements. CMS Energy and Consumers will continue to monitor
developments in the financial and credit markets, as well as government policy responses to those
developments, for potential implications for their businesses and their future financial needs.
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RESULTS OF OPERATIONS
CMS Energys Consolidated Results of Operations
In Millions, Except Per Share Amounts | ||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30 | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Net Income
Available to Common
Stockholders |
$ | 139 | $ | 134 | $ | 5 | $ | 374 | $ | 299 | $ | 75 | ||||||||||||
Basic Earnings
Per Share |
$ | 0.55 | $ | 0.58 | $ | (0.03 | ) | $ | 1.49 | $ | 1.30 | $ | 0.19 | |||||||||||
Diluted
Earnings Per Share |
$ | 0.53 | $ | 0.53 | $ | | $ | 1.43 | $ | 1.19 | $ | 0.24 | ||||||||||||
In Millions | ||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30 | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||
Electric Utility |
$ | 159 | $ | 156 | $ | 3 | $ | 309 | $ | 283 | $ | 26 | ||||||||||||
Gas Utility |
(5 | ) | 2 | (7 | ) | 88 | 69 | 19 | ||||||||||||||||
Enterprises |
4 | 9 | (5 | ) | 36 | 51 | (15 | ) | ||||||||||||||||
Corporate Interest and Other |
(19 | ) | (33 | ) | 14 | (61 | ) | (87 | ) | 26 | ||||||||||||||
Discontinued Operations |
| | | 2 | (17 | ) | 19 | |||||||||||||||||
Net Income Available to
Common Stockholders |
$ | 139 | $ | 134 | $ | 5 | $ | 374 | $ | 299 | $ | 75 | ||||||||||||
Presented in the following table are specific after-tax changes to net income available to
common stockholders for the three and nine months ended September 30, 2011 versus 2010:
In Millions | ||||||||||||||||
2011 better/(worse) than 2010 | ||||||||||||||||
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
Electric and gas rate orders |
$ | 7 | $ | 59 | ||||||||||||
Gas sales |
| 34 | ||||||||||||||
Electric sales |
6 | 2 | ||||||||||||||
Distribution and service restoration costs |
(11 | ) | (33 | ) | ||||||||||||
Other, including depreciation and property tax |
(6 | ) | $ | (4 | ) | (24 | ) | $ | 38 | |||||||
Subsidiary earnings of enterprises segment |
(3 | ) | (11 | ) | ||||||||||||
Other, mainly reduced financing costs |
14 | 23 | ||||||||||||||
2010 insurance settlement recovery |
| (31 | ) | |||||||||||||
MCIT enactment |
| 32 | ||||||||||||||
Voluntary separation plan cost in 2010 |
| 7 | ||||||||||||||
Other, including tax adjustments related to
previously sold businesses |
(2 | ) | (2 | ) | 17 | 25 | ||||||||||
Total change |
$ | 5 | $ | 75 | ||||||||||||
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Consumers Electric Utility Results of Operations
In Millions | ||||||||||||
September 30 | 2011 | 2010 | Change | |||||||||
Net Income Available to Common Stockholders |
||||||||||||
Three months ended |
$ | 159 | $ | 156 | $ | 3 | ||||||
Nine months ended |
309 | 283 | 26 | |||||||||
In Millions | ||||||||
2011 better/(worse) than 2010 | ||||||||
Three Months Ended | Nine Months Ended | |||||||
Reasons for the change: | September 30 | September 30 | ||||||
Electric deliveries and rate increases |
$ | 3 | $ | 5 | ||||
Power supply costs and related revenue |
| 10 | ||||||
Other income, net of expenses |
(5 | ) | (12 | ) | ||||
Maintenance and other operating expenses |
(14 | ) | (13 | ) | ||||
Depreciation and amortization |
14 | 38 | ||||||
General taxes |
6 | 1 | ||||||
Interest charges |
(1 | ) | 8 | |||||
Income taxes |
| (11 | ) | |||||
Total change |
$ | 3 | $ | 26 | ||||
Electric deliveries and rate increases: For the three months ended September 30, 2011,
electric delivery revenues increased $3 million compared with 2010. This variance was due to
additional revenues of $17 million resulting from a November 2010 rate increase and a $14 million
increase in sales to Consumers industrial customers, offset partially by the impact of customers
switching from demand rates to energy-only rates. These increases were also offset largely by a
$28 million decrease in surcharge revenues and related reserves. Overall, deliveries to end-use
customers were 10.4 billion kWh in 2011 and 10.5 billion kWh in 2010.
For the nine months ended September 30, 2011, electric delivery revenues increased $5 million
compared with 2010. This variance was due to additional revenues of $83 million resulting from a
November 2010 rate increase and a $9 million increase in other revenues, offset largely by the
absence, in 2011, of $87 million of surcharges in 2010 to recover retirement benefit expenses and
certain regulatory assets. Overall, deliveries to end-use customers were 28.7 billion kWh in 2011
and 28.6 billion kWh in 2010.
Power supply costs and related revenue: For the nine months ended September 30, 2011, PSCR revenue
increased $10 million compared with 2010. This increase was due to the absence, in 2011, of a
disallowance in 2010 of certain power supply costs.
Other income, net of expenses: For the three months ended September 30, 2011, other income
decreased $5 million compared with 2010, and for the nine months ended September 30, 2011, other
income decreased $12 million compared with 2010. These decreases were due primarily to a reduction
in the return on certain regulatory assets as a result of their declining balances.
Maintenance and other operating expenses: For the three months ended September 30, 2011,
maintenance and other operating expenses increased $14 million compared with 2010. This variance
was due to $6 million of higher service restoration costs and $14 million of higher forestry and
other operating expenses. These increases were offset partially by the absence, in 2011, of $6
million of retirement benefit expenses that were recovered in revenues in 2010.
For the nine months ended September 30, 2011, maintenance and other operating expenses
increased $13 million compared with 2010. This variance was due to $27 million of higher service
restoration costs, caused by a series of unusually severe storms in 2011, and $24 million of higher
forestry, plant maintenance, and other operating expenses. These increases were offset partially
by the absence, in 2011,
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of $32 million of retirement benefit expenses that were recovered in revenues in 2010 and $6
million of voluntary separation plan expenses incurred in 2010.
Depreciation and amortization: For the three months ended September 30, 2011, depreciation and
amortization expense decreased $14 million compared with 2010, and for the nine months ended
September 30, 2011, depreciation and amortization expense decreased $38 million compared with 2010.
These decreases were due to lower amortization expense on certain regulatory assets, offset
partially by higher depreciation expense from increased plant in service.
General taxes: For the three months ended September 30, 2011, general taxes decreased $6 million
compared with 2010, reflecting the impact of a final Michigan single business tax assessment for
the years 2004 through 2007 that resulted in a tax deficiency less than the amount previously
accrued.
Interest charges: For the nine months ended September 30, 2011, interest charges decreased $8
million compared with 2010, primarily from the absence, in 2011, of interest expense on a Michigan
use tax assessment.
Income taxes: For the nine months ended September 30, 2011, income taxes increased $11 million
compared with 2010, reflecting higher electric utility earnings in 2011.
Consumers Gas Utility Results of Operations
In Millions | ||||||||||||
September 30 | 2011 | 2010 | Change | |||||||||
Net Income (Loss) Available to Common Stockholders |
||||||||||||
Three months ended |
$ | (5 | ) | $ | 2 | $ | (7 | ) | ||||
Nine months ended |
88 | 69 | 19 | |||||||||
In Millions | ||||||||
2011 better/(worse) than 2010 | ||||||||
Three Months Ended | Nine Months Ended | |||||||
Reasons for the change: | September 30 | September 30 | ||||||
Gas deliveries and rate increases |
$ | 3 | $ | 55 | ||||
Other income, net of expenses |
(2 | ) | (6 | ) | ||||
Maintenance and other operating expenses |
(14 | ) | (9 | ) | ||||
Depreciation and amortization |
(1 | ) | (6 | ) | ||||
General taxes |
3 | (3 | ) | |||||
Interest charges |
(1 | ) | 2 | |||||
Income taxes |
5 | (14 | ) | |||||
Total change |
$ | (7 | ) | $ | 19 | |||
Gas deliveries and rate increases: For the three months ended September 30, 2011, gas
delivery revenues increased $3 million compared with 2010. This increase was due primarily to the
May 2011 rate increase. Gas deliveries, including miscellaneous transportation to end-use
customers, were 25.5 bcf in 2011, a decrease of 0.5 bcf, or 1.9 percent, compared with 2010.
For the nine months ended September 30, 2011, gas delivery revenues increased $55 million compared
with 2010. This increase reflected higher customer usage, of which $38 million was due to colder
weather in 2011. Gas deliveries, including miscellaneous transportation to end-use customers, were
205.0 bcf in 2011, an increase of 23.8 bcf, or 13.1 percent, compared with 2010.
Other income, net of expenses: For the three months ended September 30, 2011, other income
decreased $2 million compared with 2010, and for the nine months ended September 30, 2011, other
income decreased $6 million compared with 2010. These decreases were due primarily to a reduction
in interest income related to secured lending agreements.
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Maintenance and other operating expenses: For the three months ended September 30, 2011,
maintenance and other operating expenses increased $14 million compared with 2010, reflecting
higher distribution operating expenses.
For the nine months ended September 30, 2011, maintenance and other operating expenses increased $9
million compared with 2010. The increase was due to $16 million of higher distribution operating
expenses, offset partially by the absence, in 2011, of $3 million of retirement benefit expenses
that were recovered in revenues in 2010 and $4 million of voluntary separation plan expenses
incurred in 2010.
Depreciation and amortization: For the nine months ended September 30, 2011, depreciation and
amortization expense increased $6 million compared with 2010, due to higher depreciation expense
from increased plant in service.
General taxes: For the three months ended September 30, 2011, general taxes decreased $3 million
compared with 2010, reflecting the impact of a final Michigan single business tax assessment for
the years 2004 through 2007 that resulted in a tax deficiency less than the amount previously
accrued.
Income taxes: For the three months ended September 30, 2011, income taxes decreased $5 million
compared with 2010, reflecting lower gas utility earnings in 2011.
For the nine months ended September 30, 2011, income taxes increased $14 million compared with
2010, reflecting higher gas utility earnings in 2011.
Enterprises Results of Operations
In Millions | ||||||||||||
September 30 | 2011 | 2010 | Change | |||||||||
Net Income Available to Common Stockholders |
||||||||||||
Three months ended |
$ | 4 | $ | 9 | $ | (5 | ) | |||||
Nine months ended |
36 | 51 | (15 | ) | ||||||||
For the three months ended September 30, 2011, net income of the enterprises segment decreased
$5 million compared with 2010, due primarily to lower after-tax mark-to-market gains of $3 million.
For the nine months ended September 30, 2011, net income of the enterprises segment decreased $15
million compared with 2010, due to the absence, in 2011, of a $31 million insurance settlement
recovery in 2010, lower electric revenues of $8 million, and lower mark-to-market gains of $5
million. These after-tax decreases were offset partially by a $28 million income tax benefit
resulting from the enactment of the MCIT in May 2011.
For further details about the enactment of the MCIT, see Note 11, Income Taxes.
Corporate Interest and Other Results of Operations
In Millions | ||||||||||||
September 30 | 2011 | 2010 | Change | |||||||||
Net Loss Available to Common Stockholders |
||||||||||||
Three months ended |
$ | (19 | ) | $ | (33 | ) | $ | 14 | ||||
Nine months ended |
(61 | ) | (87 | ) | 26 | |||||||
For the three months ended September 30, 2011, corporate interest and other net expenses
decreased $14 million compared with 2010, due primarily to the absence, in 2011, of an $8 million
after-tax charge in
2010 for deferred issuance costs on conversion of preferred stock. Also contributing to the
decrease were a $4 million benefit from the impact of a final Michigan single business tax
assessment for the years
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2004 through 2007 that resulted in a tax deficiency less than the amount
previously accrued and lower fixed charges in 2011.
For the nine months ended September 30, 2011, corporate interest and other net expenses decreased
$26 million compared with 2010, due to the absence, in 2011, of an $8 million after-tax charge in
2010 for deferred issuance costs on conversion of preferred stock and an $8 million after-tax
decrease in fixed charges in 2011. Also contributing to the decrease were lower income tax expense
resulting partially from the enactment of the MCIT in May 2011 and a $4 million benefit from the
impact of a final Michigan single business tax assessment for the years 2004 through 2007 that
resulted in a tax deficiency less than the amount previously accrued.
Discontinued Operations
For the nine months ended September 30, 2011, income of $2 million was recorded from
discontinued operations due to a legal settlement, compared with a loss from discontinued
operations of $17 million in 2010 related to prior asset sales.
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CASH POSITION, INVESTING, AND FINANCING
At September 30, 2011, CMS Energy had $623 million of consolidated cash and cash equivalents
and $29 million of restricted cash and cash equivalents. At September 30, 2011, Consumers had $373
million of consolidated cash and cash equivalents and $28 million of restricted cash and cash
equivalents.
Operating Activities
Presented in the following table are specific components of net cash provided by operating
activities for the nine months ended September 30, 2011 and 2010:
In Millions | ||||||||||||
Nine Months Ended September 30 | 2011 | 2010 | Change | |||||||||
CMS Energy, including Consumers |
||||||||||||
Net income |
$ | 376 | $ | 318 | $ | 58 | ||||||
Non-cash transactions1 |
742 | 864 | (122 | ) | ||||||||
$ | 1,118 | $ | 1,182 | $ | (64 | ) | ||||||
Sale of gas purchased in the prior year |
514 | 475 | 39 | |||||||||
Purchase of gas in the current year |
(623 | ) | (608 | ) | (15 | ) | ||||||
Accounts receivable sales, net |
| (50 | ) | 50 | ||||||||
Change in other core working capital2 |
293 | 325 | (32 | ) | ||||||||
Postretirement benefits contributions |
(56 | ) | (171 | ) | 115 | |||||||
Other changes in assets and liabilities, net |
(51 | ) | (155 | ) | 104 | |||||||
Net cash provided by operating activities |
$ | 1,195 | $ | 998 | $ | 197 | ||||||
Consumers |
||||||||||||
Net income |
$ | 400 | $ | 355 | $ | 45 | ||||||
Non-cash transactions1 |
655 | 749 | (94 | ) | ||||||||
$ | 1,055 | $ | 1,104 | $ | (49 | ) | ||||||
Sale of gas purchased in the prior year |
514 | 475 | 39 | |||||||||
Purchase of gas in the current year |
(623 | ) | (608 | ) | (15 | ) | ||||||
Accounts receivable sales, net |
| (50 | ) | 50 | ||||||||
Change in other core working capital2 |
295 | 325 | (30 | ) | ||||||||
Postretirement benefits contributions |
(53 | ) | (161 | ) | 108 | |||||||
Other changes in assets and liabilities, net |
57 | (185 | ) | 242 | ||||||||
Net cash provided by operating activities |
$ | 1,245 | $ | 900 | $ | 345 | ||||||
1 Non-cash transactions comprise depreciation and amortization, changes in deferred
income taxes, postretirement benefits expense, and other non-cash items.
2 Other core working capital comprises other changes in accounts receivable and
accrued revenues, inventories, and accounts payable.
For the nine months ended September 30, 2011, net cash provided by operating activities at CMS
Energy increased $197 million compared with 2010. The increase was due primarily to the changes in
Consumers cash provided by operating activities described in the following paragraph.
For the nine months ended September 30, 2011, net cash provided by operating activities at
Consumers increased $345 million compared with 2010. The increase was due primarily to the absence
of Pension Plan contributions in 2011, increased collections of accounts receivable, and the
absence, in 2011, of refunds paid to customers in 2010.
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Investing Activities
Presented in the following table are specific components of net cash used in investing
activities for the nine months ended September 30, 2011 and 2010:
In Millions | ||||||||||||
Nine Months Ended September 30 | 2011 | 2010 | Change | |||||||||
CMS Energy, including Consumers |
||||||||||||
Capital expenditures |
$ | (624 | ) | $ | (611 | ) | $ | (13 | ) | |||
Cash effect of deconsolidation of partnerships |
| (10 | ) | 10 | ||||||||
Increase in EnerBank loans receivable |
(60 | ) | (75 | ) | 15 | |||||||
Costs to retire property and other |
(68 | ) | (30 | ) | (38 | ) | ||||||
Net cash used in investing activities |
$ | (752 | ) | $ | (726 | ) | $ | (26 | ) | |||
Consumers |
||||||||||||
Capital expenditures |
$ | (618 | ) | $ | (608 | ) | $ | (10 | ) | |||
Costs to retire property and other |
(65 | ) | (32 | ) | (33 | ) | ||||||
Net cash used in investing activities |
$ | (683 | ) | $ | (640 | ) | $ | (43 | ) | |||
For the nine months ended September 30, 2011, net cash used in investing activities increased
$26 million at CMS Energy compared with 2010. This variance was due to an increase in capital
expenditures and other investing activities, including CMS Energys contribution of $27 million to
its SERP fund. These changes were offset partially by the absence, in 2011, of the cash effect of
deconsolidating certain partnerships in 2010.
For the nine months ended September 30, 2011, net cash used in investing activities increased $43
million at Consumers compared with 2010. The variance was due to an increase in asset retirement
costs and other investing activities, including Consumers contribution of $20 million to its SERP
fund.
Financing Activities
Presented in the following table are specific components of net cash (used in) provided by
financing activities for the nine months ended September 30, 2011 and 2010:
In Millions | ||||||||||||
Nine Months Ended September 30 | 2011 | 2010 | Change | |||||||||
CMS Energy, including Consumers |
||||||||||||
Issuance of FMBs, senior notes, and other debt |
$ | 375 | $ | 850 | $ | (475 | ) | |||||
Proceeds from EnerBank notes, net |
58 | 105 | (47 | ) | ||||||||
Retirement of long-term debt |
(300 | ) | (436 | ) | 136 | |||||||
Payment of net DOE liability |
(43 | ) | | (43 | ) | |||||||
Payment of common and preferred dividends |
(159 | ) | (111 | ) | (48 | ) | ||||||
Other financing activities |
| (73 | ) | 73 | ||||||||
Net cash (used in) provided by financing activities |
$ | (69 | ) | $ | 335 | $ | (404 | ) | ||||
Consumers |
||||||||||||
Issuance of FMBs |
$ | | $ | 300 | $ | (300 | ) | |||||
Retirement of debt and other debt maturity payments |
(27 | ) | (335 | ) | 308 | |||||||
Payment of net DOE liability |
(43 | ) | | (43 | ) | |||||||
Payments of common and preferred dividends |
(294 | ) | (261 | ) | (33 | ) | ||||||
Stockholders contribution from CMS Energy |
125 | 250 | (125 | ) | ||||||||
Other financing activities |
(21 | ) | (20 | ) | (1 | ) | ||||||
Net cash used in financing activities |
$ | (260 | ) | $ | (66 | ) | $ | (194 | ) | |||
For the nine months ended September 30, 2011, net cash used in financing activities at CMS
Energy increased $404 million compared to 2010. The change was due to a decrease in net proceeds
from borrowings and higher dividend payments in 2011.
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For the nine months ended September 30, 2011, net cash used in financing activities at Consumers
increased $194 million compared with 2010. The change was due to an increase in net retirements of
debt, a lower stockholders contribution from CMS Energy, and higher dividend payments in 2011.
CAPITAL RESOURCES AND LIQUIDITY
CMS Energy uses dividends 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 Energys subsidiaries, including Consumers, to pay
dividends to CMS Energy depends upon each subsidiarys revenues, earnings, cash needs, and other
factors. In addition, Consumers ability to pay dividends may be restricted by certain terms
included in its articles of incorporation, by provisions under the Federal Power Act and the
Natural Gas Act, and by FERC requirements. For additional details on Consumers dividend
restrictions, see Note 5, Financings, Dividend Restrictions. For the nine months ended September
30, 2011, Consumers paid $292 million in common stock dividends to CMS Energy.
Consumers uses cash flows generated from operations and external financing transactions, as well as
stockholders contributions from CMS Energy, to fund capital expenditures, retire debt, pay
dividends, contribute to its employee benefit plans, and fund its other obligations.
CMS Energys and Consumers access to the financial and capital markets depends on their credit
ratings and on market conditions. As evidenced by past financing transactions, CMS Energy and
Consumers have had ready access to these markets and, barring major market dislocations or
disruptions, they expect to continue to have such access. If access to these markets were to
become diminished or otherwise restricted, however, CMS Energy and Consumers would implement
contingency plans to address debt maturities, which could include reduced capital spending. CMS
Energy and Consumers had the following secured revolving credit facilities available at September
30, 2011:
In Millions | ||||||||||||||||||||
Letters of Credit | ||||||||||||||||||||
Amount of Facility | Amount Borrowed | Outstanding | Amount Available | Expiration Date | ||||||||||||||||
CMS Energy |
||||||||||||||||||||
Revolving credit facility1 |
$ | 550 | $ | | $ | 3 | $ | 547 | March 2016 | |||||||||||
Consumers |
||||||||||||||||||||
Revolving credit facility2,3 |
$ | 500 | $ | | $ | 1 | $ | 499 | March 2016 | |||||||||||
Revolving credit facility3 |
150 | | | 150 | August 2013 | |||||||||||||||
Revolving credit facility3,4 |
30 | | 30 | | September 2014 | |||||||||||||||
1 On March 31, 2011, CMS Energy entered into a $550 million secured revolving credit
facility with a consortium of banks. This facility has a five-year term and replaces CMS
Energys revolving credit facility that was set to expire in 2012. Obligations under this
facility are secured by Consumers common stock.
2 On March 31, 2011, Consumers entered into a $500 million secured revolving credit
facility with a consortium of banks. This facility has a five-year term and replaces
Consumers revolving credit facility that was set to expire in 2012.
3 Obligations under this facility are secured by FMBs of Consumers.
4 Secured revolving letter of credit facility.
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 revolving accounts
receivable sales program, which allows it to transfer up to $250 million of accounts receivable as
a secured borrowing. At September 30, 2011, $250 million of accounts receivable were eligible for
transfer under this program.
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CMS Energys $550 million revolving credit agreement specifies a maximum debt-to-EBITDA ratio, as
defined therein. Consumers $500 million revolving credit agreement specifies a maximum
debt-to-capital ratio, as defined therein. CMS Energy and Consumers were each in compliance with
these limits as of September 30, 2011, as presented in the following table:
Ratio at | ||||||||||||
Revolving Credit Agreement | Description | Maximum Limit | September 30, 2011 | |||||||||
CMS Energy |
||||||||||||
$550 million revolving credit agreement |
Debt to EBITDA | 6.0 to 1.0 | 4.74 to 1.0 | |||||||||
Consumers |
||||||||||||
$500 million revolving credit agreement |
Debt to Capital | 0.65 to 1.0 | 0.49 to 1.0 | |||||||||
Components of CMS Energys and Consumers cash management plan include controlling operating
expenses and capital expenditures and evaluating market conditions for financing and refinancing
opportunities. CMS Energy and Consumers believe that their present level of cash and their
expected cash flows from operating activities, together with their access to sources of liquidity,
will be sufficient to fund their contractual obligations for 2011 and beyond.
Off-Balance-Sheet Arrangements
CMS Energy, Consumers, and certain of their subsidiaries also enter into various arrangements
in the normal course of business to facilitate commercial transactions with third parties. These
arrangements include indemnities, surety bonds, letters of credit, and financial and performance
guarantees. Indemnities are usually agreements to reimburse a counterparty that may incur losses
due to outside claims or breach of contract terms. The maximum payment that could be required
under a number of these indemnity obligations is not estimable. While CMS Energy and Consumers
believe it is unlikely that they will incur any material losses related to indemnities they have
not recorded as liabilities, they cannot predict the impact of these contingent obligations on
their liquidity and financial condition. For additional details on these and other guarantee
arrangements, see Note 3, Contingencies and Commitments, Guarantees.
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OUTLOOK
Several business trends and uncertainties may affect CMS Energys and Consumers financial
condition and results of operations. These trends and uncertainties could have a material impact
on CMS Energys and Consumers consolidated income, cash flows, or financial position. For
additional details regarding these and other uncertainties, see Forward-Looking Statements and
Information; Note 3, Contingencies and Commitments; and Part II, Item 1A. Risk Factors.
Consumers Electric Utility Business Outlook and Uncertainties
Balanced Energy Initiative: Consumers balanced energy initiative is a comprehensive energy
resource plan designed to meet the short-term and long-term energy needs of its customers through:
| energy efficiency; | ||
| demand management; | ||
| expanded use of renewable energy; | ||
| development of new power plants; | ||
| pursuit of additional PPAs to complement existing generating sources; | ||
| continued operation of existing units; and | ||
| potential retirement or mothballing of older generating units. |
In 2010, Consumers announced plans to defer the development of its proposed 830-MW coal-fueled
plant at its Karn/Weadock generating complex. This decision reflects reduced customer usage and
demand for electricity due to the recession, forecasted lower natural gas prices due to recent
developments in shale gas recovery technology, and projected surplus generating capacity in the
MISO market. Consumers has been monitoring customer usage and demand, fuel and power prices, and
other market conditions, and has not set a timetable for a future decision about the project.
Although the likelihood that the plant will be constructed has diminished significantly, in July
2011 the MDEQ granted Consumers an extension of the projects air permit, which is being challenged
by two environmental groups. Consumers alternatives to constructing the proposed coal-fueled
plant include constructing new gas-fueled generation, relying on additional market purchases, and
continued operation of several existing generating units.
Renewable Energy Plan: Consumers renewable energy plan details how Consumers will meet REC and
capacity standards prescribed by the 2008 Energy Law. This law requires Consumers to obtain RECs
in an amount equal to at least ten percent of its electric sales volume (estimated to be 3.5
million RECs annually) by 2015. RECs represent proof that the associated electricity was generated
from a renewable energy resource. Under its renewable energy plan, Consumers expects to secure its
renewable energy requirement each year with a combination of newly generated RECs and previously
generated RECs carried over from prior years. At September 30, 2011, the combination of these
sources represented 84 percent of Consumers 2015 REC requirement.
The 2008 Energy Law also requires Consumers to obtain 500 MW of capacity from renewable energy
resources by 2015, either through generation resources owned by Consumers or through agreements to
purchase capacity from other parties. To meet its renewable capacity requirements, Consumers
expects to add more than 500 MW of owned or contracted renewable capacity by 2015. Through
September 2011, Consumers has contracted for the purchase of 297 MW of nameplate capacity from
renewable energy suppliers, which represents 59 percent of the 2015 renewable capacity requirement.
Consumers has secured more than 81,000 acres of land easements in Michigans Huron, Mason, and
Tuscola Counties for the potential development of wind generation, and is now collecting wind speed
and other meteorological data at those sites. Consumers has entered into construction and supply
contracts as
well as a contract to purchase wind turbine generators
for the construction of Lake Winds Energy
Park, a 100-MW wind park in Mason County, which Consumers expects to be operational in late 2012.
In July 2011, the Mason County Planning Commission voted in favor of granting a special land use
permit
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for the construction of Lake Winds Energy Park. The actions of the Mason County Planning
Commission have been upheld by the Mason County Zoning Board of Appeals. The permit has now been
appealed to the Mason County Circuit Court. Consumers will also continue development of Cross Winds
Energy Park, its 150-MW wind park in Tuscola County, scheduled for operation by late 2015, as well
as seek other opportunities for wind generation development in support of the renewable capacity
standards.
Electric Customer Deliveries and Revenue: Consumers electric customer deliveries are largely
dependent on Michigans economy, which has suffered from economic and financial instability in the
automotive and real estate sectors. Consumers believes economic
conditions are improving, and
expects weather-adjusted electric deliveries to increase in 2011 by 1.5 percent compared with 2010.
Consumers expects average electric delivery growth of more than one percent annually over the next
five years. This increase reflects growth in electric demand, offset partially by the predicted
effects of energy efficiency programs and appliance efficiency standards. Actual deliveries will
depend on:
| energy conservation measures and results of energy efficiency programs; | ||
| fluctuations in weather; and | ||
| changes in economic conditions, including utilization, expansion, or contraction of manufacturing facilities, population trends, and housing activity. |
The MPSCs 2009 electric rate case order authorized Consumers to implement an electric revenue
decoupling mechanism, subject to certain conditions. This decoupling mechanism, which was extended
through November 2011 in the MPSCs 2010 electric rate case order, allows Consumers to adjust future
electric rates to compensate for changes in sales volumes resulting from the difference between the
level of average sales per customer adopted in the order and actual average sales per customer.
This mechanism mitigates the impacts of weather fluctuations, energy efficiency, and conservation
on Consumers electric utility revenue.
Electric ROA: The Customer Choice Act allows all of Consumers electric customers to buy electric
generation service from Consumers or from an alternative electric supplier. The 2008 Energy Law
revised the Customer Choice Act by limiting alternative electric supply to ten percent of
Consumers weather-adjusted retail sales of the preceding calendar year. At September 30, 2011,
electric deliveries under the ROA program were at the ten percent limit and alternative electric
suppliers were providing 792 MW of generation service to ROA customers. Based on 2010
weather-adjusted retail sales, Consumers expects 2011 electric deliveries under the ROA program to
be at a similar level to 2010.
Electric Transmission: In July 2011, FERC issued an order in a rulemaking proceeding concerning
regional electric transmission planning and cost allocations. In August 2011, Consumers and
several other electric utilities filed a joint petition seeking clarification/rehearing of FERCs
July order and opposing the allocation methodology.
In a related matter, in July 2010, MISO filed a tariff revision with FERC proposing a cost
allocation methodology for a new category of transmission projects. In December 2010, FERC
approved MISOs cost allocation proposal. Under this tariff revision, the cost of these new
transmission projects will be spread proportionally across the Midwest Energy Market. Consumers
believes that Michigan customers will bear additional costs under MISOs tariff without receiving
comparable benefits from these projects. In January 2011, Consumers, along with the Michigan
Attorney General, ABATE, Detroit Edison, the Michigan Municipal Electric Association, and the
Michigan Public Power Agency, filed a request for rehearing with FERC, opposing the
allocation methodology in the MISO tariff revision. In October 2011, FERC denied this request for rehearing. Consumers expects to continue to recover
transmission expenses, including those associated with the MISO tariff revision, through the PSCR
process.
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Electric Rate Matters: Rate matters are critical to Consumers electric utility business. See
Note 4, Regulatory Matters, Consumers Electric Utility for details on the following electric
rate matters:
| electric rate cases; | ||
| PSCR; | ||
| electric revenue decoupling mechanism; | ||
| uncollectible expense tracking mechanism; | ||
| electric operation and maintenance expenditures show-cause order; | ||
| Big Rock decommissioning; | ||
| renewable energy plan; | ||
| energy optimization plan; and | ||
| electric depreciation. |
Electric Environmental Estimates: Consumers operations are subject to various state and federal
environmental laws and regulations. Consumers estimates that it will incur expenditures of $1.6
billion from 2011 through 2018 to continue to comply with the Clean Air Act, Clean Water 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: In December 2008, a court decision remanded CAIR back to the EPA. Until the EPA
finalized a new rule, CAIR remained in effect. In July 2011, the EPA released CSAPR, a final
replacement rule for CAIR, which requires Michigan and 26 other states to improve air quality by
reducing power plant emissions that allegedly contribute to ground level ozone and fine particle
pollution in other downwind states. This rule mandates emission reductions beginning in 2012. In
a separate but related regulatory action, the EPA also issued a supplemental notice of proposed
rulemaking requiring certain states, including Michigan, to reduce nitrogen oxides emissions during the summer months
under the CSAPR ozone-season control program. If this supplemental proposal were finalized, it
would bring the total number of states covered under CSAPR to 28.
In March 2011, the EPA proposed MACT emission standards for electric generating units, based on
Section 112 of the Clean Air Act. Under the proposed rule, some coal-fueled and oil-fueled
electric generating units would require additional controls for hazardous air pollutants. Existing
units must meet the standards generally within three to four years of issuance of the final rule.
Although numerous parties, including the State of Michigan, have sought to extend the deadline, the
EPA is scheduled to issue the final rule in December 2011.
Presently, Consumers strategy to comply with CSAPR, and with MACT emission standards for electric
generating units in its proposed form, involves the installation of state-of-the-art emission
control equipment; however, Consumers continues to evaluate CSAPR and MACT emission standards for
electric generating units in conjunction with other EPA rulemakings, litigation and congressional
action. These rules could result in:
| additional or accelerated environmental compliance costs related to Consumers coal-fueled and oil-fueled power plants; | ||
| a change in the fuel mix at coal-fueled and oil-fueled power plants; | ||
| changes in how certain plants are used; and | ||
| the retirement of some or all of Consumers older, smaller generating units or the temporary suspension of their operations. |
The MDEQ renewed and issued the B.C. Cobb Renewable Operating Permit in August 2011 after an
extensive review and a public comment period. In October 2011, the Sierra Club and the Natural
Resources Defense Council filed a petition with the EPA to object to the MDEQs issuance of the
state Renewable Operating Permit, alleging that the facility is not in compliance with certain
provisions of the
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Clean Air Act, including NSR and Title V. The EPA could either deny the petition
outright or grant the petition and remand the matter to the MDEQ for further action. Consumers
believes these claims are baseless, but is unable to predict the outcome of this petition.
Greenhouse Gases: There are numerous legislative and regulatory initiatives at the state,
regional, and national levels that involve the regulation of greenhouse gases. Consumers monitors
and comments on these initiatives and also follows litigation involving greenhouse gases.
Consumers believes Congress may eventually pass greenhouse gas legislation, but is unable to
predict the form and timing of any final legislation.
In 2010, the EPA released its Prevention of Significant Deterioration and Title V Greenhouse Gas
Tailoring Rule, which sets limits for greenhouse gas emissions that define when permits are
required for new and existing industrial facilities under NSR PSD and Title V Operating Permit
programs. Numerous parties have challenged this rule in the U.S Court of Appeals for the D.C.
Circuit, and Consumers is monitoring this litigation. Consumers does not expect to incur
significant expenditures to comply with this rule.
In December 2010, the EPA entered into a settlement agreement with certain states and environmental
groups wherein in September 2011 the EPA was to propose new source performance standards for
greenhouse gases at new and modified power plants pursuant to Section 111(b) of the Clean Air Act.
The EPA did not meet the September 2011 deadline and has not yet announced a new schedule for
issuance of the standards. The EPA is also expected to propose emissions guidelines for the states
to regulate greenhouse gas emissions from existing generating units under Section 111(d) of the
Clean Air Act. Under the expected schedule, states will need to submit plans to the EPA within
nine months of issuance of the final rule and guidelines. Consumers will continue to monitor
activity from this settlement and any proposed new source performance standards regulations.
Litigation, as well as federal laws, EPA regulations regarding greenhouse gases, or similar treaties, state
laws, or rules, if enacted or ratified, could require Consumers to replace equipment, install
additional emission control equipment, purchase emission allowances, curtail operations, arrange
for alternative sources of supply, 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.
Coal Combustion By-Products: In June 2010, the EPA proposed rules regulating CCBs, such as coal
ash, under the Resource Conservation and Recovery Act. Michigan already regulates CCBs as
low-hazard industrial waste. The EPA proposed a range of alternatives for regulating CCBs,
including regulation as either a non-hazardous waste or a hazardous waste. If coal ash were
regulated as a hazardous waste, Consumers would likely cease the beneficial re-use of this product,
which would result in a significant increase in the amount of coal ash requiring costly disposal.
Additionally, if the cost of upgrading existing coal ash disposal areas to meet hazardous waste
landfill standards were to become economically prohibitive, existing coal ash disposal areas could
close, requiring Consumers to find costly alternative arrangements for disposal. Consumers is
unable to predict the impacts from this wide range of possible outcomes, but significant
expenditures are likely.
Water: In March 2011, the EPA issued a proposed rule to regulate existing electric generating
plant cooling water intake systems under Section 316(b) of the Clean Water Act aimed at reducing
alleged harmful impacts on fish and shellfish. Consumers is evaluating this proposed rule and its
potential impacts on Consumers plants. A final rule is expected in July 2012.
PCBs: In April 2010, the EPA issued an Advance Notice of Proposed Rulemaking, indicating that it
is considering a variety of regulatory actions with respect to PCBs. One proposal aims to phase
out
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equipment containing PCBs by 2025. Another proposal eliminates an exemption for small
equipment containing PCBs. To comply with this proposed rule, Consumers could incur substantial
costs associated with existing electrical equipment that could contain PCBs.
Other electric environmental matters could have a major 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.
Consumers Gas Utility Business Outlook and Uncertainties
Gas
Deliveries: Consumers believes economic conditions in Michigan
are improving, and expects
weather-adjusted gas deliveries to increase in 2011 by three percent compared with 2010. Over the
next five years, Consumers expects average gas deliveries to remain stable. Actual delivery levels
from year to year may vary from this trend due to:
| fluctuations in weather; | ||
| use by independent power producers; | ||
| availability and development of renewable energy sources; | ||
| changes in gas prices; | ||
| Michigan economic conditions, including population trends and housing activity; | ||
| the price of competing energy sources or fuels; and | ||
| energy efficiency and conservation impacts greater or less than predicted. |
A decoupling mechanism was authorized by the MPSC in Consumers 2009 gas rate case, subject to
certain conditions. This mechanism, which was extended in the MPSCs 2010 gas rate order, allows
Consumers to adjust future gas rates to compensate for changes in sales volumes resulting from the
difference between the level of average sales per customer adopted in the order and actual average
weather-adjusted sales per customer. The mechanism does not provide rate adjustments for changes
in sales volumes arising from weather fluctuations. This mechanism mitigates the impacts of energy
efficiency programs, conservation, and changes in economic conditions on Consumers gas utility
revenue.
Gas Rate Matters: Rate matters are critical to Consumers gas utility business. See Note 4,
Regulatory Matters, Consumers Gas Utility for details on Consumers gas rate case, GCR, and gas
revenue decoupling mechanism.
Gas Pipeline Safety: In response to the natural gas pipeline explosion that occurred in San Bruno,
California in September 2010 and other recent events, the U.S. House of Representatives and the
U.S. Senate have proposed bills stipulating stricter regulation of natural gas pipelines
nationwide. These proposed bills affect both transmission and distribution pipelines. The
proposed bills contain provisions mandating:
| the installation of automatic shutoff equipment in high consequence areas; | ||
| redefinition of high consequence areas | ||
| increased civil penalties; | ||
| prescribed notification and on-site incident response times; | ||
| plans for safe management and replacement of cast iron pipelines; | ||
| consideration of seismic activity; | ||
| verification of maximum allowable operating pressure of all pipelines; and | ||
| certain disclosures to homeowners and regulatory agencies. |
Consumers continues to comply with laws and regulations governing natural gas pipeline safety. If
these proposed laws are put into effect, Consumers could incur significant additional costs related
to its natural
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gas pipeline safety programs. Consumers expects that it would be able to recover
the costs in rates, consistent with the recovery of other reasonable costs of complying with laws
and regulations.
Gas Environmental Estimates: 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.
Consumers Other Outlook and Uncertainties
Smart Grid: Consumers grid modernization effort continues, with the recent selection of a
vendor that will provide smart electric meters and a cellular communications network to allow
Consumers to transmit and receive electric usage information from customers homes and businesses.
Smart meters are designed to allow customers to monitor and manage their energy usage, which should
help reduce demand during critical peak times, resulting in lower peak capacity requirements. The
installation of smart meters should also provide operational benefits to Consumers. Consumers
intends to use a phased implementation approach, beginning deployment in the second half of 2012
and continuing through 2019. Consumers is also considering installing communication modules on gas
meters in areas where Consumers provides both electricity and natural gas to customers.
Enterprises Outlook and Uncertainties
The primary focus with respect to CMS Energys remaining non-utility businesses is to optimize
cash flow and maximize the value of their assets.
Trends, uncertainties, and other matters that could have a material impact on CMS Energys
consolidated income, cash flows, or financial position include:
| indemnity and environmental remediation obligations at Bay Harbor; | ||
| the outcome of certain legal proceedings; | ||
| impacts of declines in electricity prices on the profitability of the enterprises segments generating units; | ||
| representations, warranties, and indemnities provided by CMS Energy or its subsidiaries in connection with previous sales of assets; | ||
| 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; and | ||
| economic conditions in Michigan, including population trends and housing activity. |
For additional details regarding the enterprises segments uncertainties, see Note 3, Contingencies
and Commitments.
Other Outlook and Uncertainties
EnerBank: EnerBank, a wholly owned subsidiary of CMS Capital, is a Utah state-chartered,
FDIC-insured industrial bank providing unsecured home improvement loans. EnerBank represented one
percent of CMS Energys net assets at September 30, 2011, and two percent of CMS Energys net
income available to common stockholders for the nine months ended September 30, 2011. The carrying
value of EnerBanks loan portfolio was $439 million at September 30, 2011. Its loan portfolio was
funded primarily by deposit liabilities of $422 million. Twelve-month rolling average default
rates on loans held
by EnerBank have declined from 1.4 percent at December 31, 2010 to 1.0 percent at September 30,
2011. CMS Energy is required to ensure that EnerBank remains well capitalized.
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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 3, Contingencies and Commitments and Note 4,
Regulatory Matters.
NEW ACCOUNTING STANDARDS
For details regarding the implementation of new accounting standards and new accounting
standards issued that are not yet effective, see Note 1, New Accounting Standards.
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CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
(Unaudited)
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Operating Revenue |
$ | 1,464 | $ | 1,443 | $ | 4,883 | $ | 4,750 | ||||||||
Operating Expenses |
||||||||||||||||
Fuel for electric generation |
199 | 183 | 504 | 472 | ||||||||||||
Purchased and interchange power |
365 | 363 | 968 | 955 | ||||||||||||
Purchased power related parties |
23 | 21 | 64 | 63 | ||||||||||||
Cost of gas sold |
107 | 104 | 1,095 | 1,060 | ||||||||||||
Maintenance and other operating expenses |
301 | 273 | 868 | 844 | ||||||||||||
Depreciation and amortization |
120 | 133 | 404 | 436 | ||||||||||||
General taxes |
33 | 49 | 151 | 156 | ||||||||||||
Insurance settlement |
| | | (50 | ) | |||||||||||
Gain on asset sales, net |
| (2 | ) | | (6 | ) | ||||||||||
Total operating expenses |
1,148 | 1,124 | 4,054 | 3,930 | ||||||||||||
Operating Income |
316 | 319 | 829 | 820 | ||||||||||||
Other Income (Expense) |
||||||||||||||||
Interest income |
4 | 5 | 8 | 14 | ||||||||||||
Allowance for equity funds used during construction |
1 | 1 | 4 | 4 | ||||||||||||
Income from equity method investees |
4 | 3 | 10 | 8 | ||||||||||||
Other income |
3 | 9 | 12 | 27 | ||||||||||||
Other expense |
(3 | ) | (2 | ) | (8 | ) | (7 | ) | ||||||||
Total other income |
9 | 16 | 26 | 46 | ||||||||||||
Interest Charges |
||||||||||||||||
Interest on long-term debt |
99 | 97 | 298 | 293 | ||||||||||||
Other interest expense |
6 | 6 | 18 | 34 | ||||||||||||
Allowance for borrowed funds used during construction |
(1 | ) | (1 | ) | (3 | ) | (3 | ) | ||||||||
Total interest charges |
104 | 102 | 313 | 324 | ||||||||||||
Income Before Income Taxes |
221 | 233 | 542 | 542 | ||||||||||||
Income Tax Expense |
81 | 87 | 168 | 207 | ||||||||||||
Income From Continuing Operations |
140 | 146 | 374 | 335 | ||||||||||||
Income (Loss) From Discontinued Operations, Net of Tax |
||||||||||||||||
Expense of $-, $-, $1 and $5 |
| | 2 | (17 | ) | |||||||||||
Net Income |
140 | 146 | 376 | 318 | ||||||||||||
Income Attributable to Noncontrolling Interests |
1 | 1 | 2 | 3 | ||||||||||||
Net Income Attributable to CMS Energy |
139 | 145 | 374 | 315 | ||||||||||||
Charge for Deferred Issuance Costs on Preferred Stock |
| 8 | | 8 | ||||||||||||
Preferred Stock Dividends |
| 3 | | 8 | ||||||||||||
Net Income Available to Common Stockholders |
$ | 139 | $ | 134 | $ | 374 | $ | 299 | ||||||||
The accompanying notes are an integral part of these statements.
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In Millions, Except Per Share Amounts | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net Income Attributable to Common Stockholders |
||||||||||||||||
Amounts Attributable to Continuing Operations |
$ | 139 | $ | 134 | $ | 372 | $ | 316 | ||||||||
Amounts Attributable to Discontinued Operations |
| | 2 | (17 | ) | |||||||||||
Net Income Available to Common Stockholders |
$ | 139 | $ | 134 | $ | 374 | $ | 299 | ||||||||
Income Attributable to Noncontrolling Interests |
||||||||||||||||
Amounts Attributable to Continuing Operations |
$ | 1 | $ | 1 | $ | 2 | $ | 3 | ||||||||
Amounts Attributable to Discontinued Operations |
| | | | ||||||||||||
Income Attributable to Noncontrolling Interests |
$ | 1 | $ | 1 | $ | 2 | $ | 3 | ||||||||
Basic Earnings Per Average Common Share |
||||||||||||||||
Basic Earnings from Continuing Operations |
$ | 0.55 | $ | 0.58 | $ | 1.48 | $ | 1.38 | ||||||||
Basic Earnings (Loss) from Discontinued Operations |
| | 0.01 | (0.08 | ) | |||||||||||
Basic Earnings Attributable to Common Stock |
$ | 0.55 | $ | 0.58 | $ | 1.49 | $ | 1.30 | ||||||||
Diluted Earnings Per Average Common Share |
||||||||||||||||
Diluted Earnings from Continuing Operations |
$ | 0.53 | $ | 0.53 | $ | 1.42 | $ | 1.26 | ||||||||
Diluted Earnings (Loss) from Discontinued
Operations |
| | 0.01 | (0.07 | ) | |||||||||||
Diluted Earnings Attributable to Common Stock |
$ | 0.53 | $ | 0.53 | $ | 1.43 | $ | 1.19 | ||||||||
Dividends Declared Per Common Share |
$ | 0.21 | $ | 0.15 | $ | 0.63 | $ | 0.45 | ||||||||
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CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)
Consolidated Statements of Cash Flows
(Unaudited)
In Millions | ||||||||
Nine months ended September 30 | 2011 | 2010 | ||||||
Cash Flows from Operating Activities |
||||||||
Net Income |
$ | 376 | $ | 318 | ||||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||
Depreciation and amortization |
404 | 436 | ||||||
Deferred income taxes and investment tax credit |
149 | 205 | ||||||
Postretirement benefits expense |
124 | 169 | ||||||
Other non-cash operating activities |
65 | 54 | ||||||
Postretirement benefits contributions |
(56 | ) | (171 | ) | ||||
Changes in other assets and liabilities: |
||||||||
Decrease in accounts receivable, notes receivable, and accrued revenue |
280 | 239 | ||||||
Decrease in accrued power supply revenue |
15 | 2 | ||||||
Increase in inventories |
(106 | ) | (88 | ) | ||||
Decrease in deferred property taxes |
133 | 127 | ||||||
Increase (decrease) in accounts payable |
10 | (9 | ) | |||||
Decrease in accrued expenses |
(227 | ) | (187 | ) | ||||
Increase in other current and non-current assets |
(23 | ) | (12 | ) | ||||
Increase (decrease) in other current and non-current liabilities |
51 | (85 | ) | |||||
Net cash provided by operating activities |
1,195 | 998 | ||||||
Cash Flows from Investing Activities |
||||||||
Capital expenditures (excludes assets placed under capital lease) |
(624 | ) | (611 | ) | ||||
Cost to retire property |
(43 | ) | (31 | ) | ||||
Cash effect of deconsolidation of partnerships |
| (10 | ) | |||||
Increase in EnerBank loans receivable |
(60 | ) | (75 | ) | ||||
Other investing activities |
(25 | ) | 1 | |||||
Net cash used in investing activities |
(752 | ) | (726 | ) | ||||
Cash Flows from Financing Activities |
||||||||
Proceeds from issuance of long-term debt |
375 | 850 | ||||||
Proceeds from EnerBank notes, net |
58 | 105 | ||||||
Issuance of common stock |
26 | 7 | ||||||
Retirement of long-term debt |
(300 | ) | (436 | ) | ||||
Payment of net DOE liability |
(43 | ) | | |||||
Payment of common stock dividends |
(159 | ) | (103 | ) | ||||
Payment of preferred stock dividends |
| (8 | ) | |||||
Redemption of preferred stock |
| (13 | ) | |||||
Payment of capital and finance lease obligations |
(18 | ) | (18 | ) | ||||
Other financing costs |
(8 | ) | (49 | ) | ||||
Net cash (used in) provided by financing activities |
(69 | ) | 335 | |||||
Net Increase in Cash and Cash Equivalents, Including Assets Held for Sale |
374 | 607 | ||||||
Decrease (Increase) in Cash and Cash Equivalents Included in Assets Held for Sale |
2 | (1 | ) | |||||
Net Increase in Cash and Cash Equivalents |
376 | 606 | ||||||
Cash and Cash Equivalents, Beginning of Period |
247 | 90 | ||||||
Cash and Cash Equivalents, End of Period |
$ | 623 | $ | 696 | ||||
The accompanying notes are an integral part of these statements.
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CMS Energy Corporation
Consolidated Balance Sheets
(Unaudited)
Consolidated Balance Sheets
(Unaudited)
In Millions | ||||||||
September 30 | December 31 | |||||||
ASSETS | 2011 | 2010 | ||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 623 | $ | 247 | ||||
Restricted cash and cash equivalents |
29 | 23 | ||||||
Accounts receivable and accrued revenue,
less allowances of $25 in 2011 and 2010 |
690 | 981 | ||||||
Notes receivable |
62 | 70 | ||||||
Accounts receivable related parties |
10 | 10 | ||||||
Accrued power supply revenue |
| 15 | ||||||
Inventories at average cost |
||||||||
Gas in underground storage |
1,050 | 946 | ||||||
Materials and supplies |
102 | 104 | ||||||
Generating plant fuel stock |
127 | 125 | ||||||
Deferred property taxes |
116 | 180 | ||||||
Regulatory assets |
2 | 19 | ||||||
Assets held for sale |
| 2 | ||||||
Prepayments and other current assets |
49 | 37 | ||||||
Total current assets |
2,860 | 2,759 | ||||||
Plant, Property, and Equipment (at cost) |
||||||||
Plant, property, and equipment, gross |
14,607 | 14,145 | ||||||
Less accumulated depreciation, depletion, and amortization |
4,869 | 4,646 | ||||||
Plant, property, and equipment, net |
9,738 | 9,499 | ||||||
Construction work in progress |
672 | 570 | ||||||
Total plant, property, and equipment |
10,410 | 10,069 | ||||||
Non-current Assets |
||||||||
Regulatory assets |
2,002 | 2,093 | ||||||
Accounts and notes receivable,
less allowances of $5 in 2011 and 2010 |
430 | 397 | ||||||
Investments |
53 | 49 | ||||||
Assets held for sale |
| 4 | ||||||
Other non-current assets |
203 | 245 | ||||||
Total non-current assets |
2,688 | 2,788 | ||||||
Total Assets |
$ | 15,958 | $ | 15,616 | ||||
The accompanying notes are an integral part of these statements.
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In Millions | ||||||||
September 30 | December 31 | |||||||
LIABILITIES AND EQUITY | 2011 | 2010 | ||||||
Current Liabilities |
||||||||
Current portion of long-term debt, capital and finance
lease obligations |
$ | 1,140 | $ | 750 | ||||
Accounts payable |
484 | 492 | ||||||
Accounts payable related parties |
9 | 9 | ||||||
Accrued rate refunds |
24 | 19 | ||||||
Accrued interest |
70 | 102 | ||||||
Accrued taxes |
103 | 302 | ||||||
Deferred income taxes |
132 | 180 | ||||||
Regulatory liabilities |
121 | 22 | ||||||
Liabilities held for sale |
| 1 | ||||||
Other current liabilities |
131 | 144 | ||||||
Total current liabilities |
2,214 | 2,021 | ||||||
Non-current Liabilities |
||||||||
Long-term debt |
6,037 | 6,448 | ||||||
Non-current portion of capital and finance lease obligations |
171 | 188 | ||||||
Regulatory liabilities |
1,874 | 1,988 | ||||||
Postretirement benefits |
1,139 | 1,135 | ||||||
Asset retirement obligations |
254 | 245 | ||||||
Deferred investment tax credit |
47 | 49 | ||||||
Deferred income taxes |
870 | 438 | ||||||
Other non-current liabilities |
265 | 267 | ||||||
Total non-current liabilities |
10,657 | 10,758 | ||||||
Commitments and Contingencies (Notes 3, 4, 5, 7, and 8) |
||||||||
Equity |
||||||||
Common stockholders equity |
||||||||
Common stock, authorized 350.0 shares; outstanding 252.0
shares in 2011
and 249.6 shares in 2010 |
3 | 2 | ||||||
Other paid-in capital |
4,622 | 4,588 | ||||||
Accumulated other comprehensive loss |
(40 | ) | (40 | ) | ||||
Accumulated deficit |
(1,542 | ) | (1,757 | ) | ||||
Total common stockholders equity |
3,043 | 2,793 | ||||||
Noncontrolling interests |
44 | 44 | ||||||
Total equity |
3,087 | 2,837 | ||||||
Total Liabilities and Equity |
$ | 15,958 | $ | 15,616 | ||||
37
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CMS Energy Corporation
Consolidated Statements of Changes in Equity
(Unaudited)
Consolidated Statements of Changes in Equity
(Unaudited)
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Common Stock |
||||||||||||||||
At beginning of period |
$ | 3 | $ | 2 | $ | 2 | $ | 2 | ||||||||
Common stock issued |
| | 1 | | ||||||||||||
At end of period |
3 | 2 | 3 | 2 | ||||||||||||
Other Paid-in Capital |
||||||||||||||||
At beginning of period |
4,621 | 4,569 | 4,588 | 4,560 | ||||||||||||
Common stock issued |
7 | 5 | 35 | 15 | ||||||||||||
Common stock reissued |
| | 5 | | ||||||||||||
Common stock repurchased |
(6 | ) | (1 | ) | (6 | ) | (2 | ) | ||||||||
Charge for deferred issuance costs |
| 8 | | 8 | ||||||||||||
At end of period |
4,622 | 4,581 | 4,622 | 4,581 | ||||||||||||
Accumulated Other Comprehensive Loss |
||||||||||||||||
Retirement benefits liability |
||||||||||||||||
At beginning of period |
(38 | ) | (30 | ) | (39 | ) | (32 | ) | ||||||||
Retirement benefits liability adjustments1 |
| | 1 | 2 | ||||||||||||
At end of period |
(38 | ) | (30 | ) | (38 | ) | (30 | ) | ||||||||
Investments |
||||||||||||||||
At beginning of period |
1 | | | | ||||||||||||
Unrealized loss on investments1 |
(2 | ) | | (1 | ) | | ||||||||||
At end of period |
(1 | ) | | (1 | ) | | ||||||||||
Derivative instruments |
||||||||||||||||
At beginning and end of period |
(1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||
At end of period |
(40 | ) | (31 | ) | (40 | ) | (31 | ) | ||||||||
Accumulated Deficit |
||||||||||||||||
At beginning of period |
(1,628 | ) | (1,831 | ) | (1,757 | ) | (1,927 | ) | ||||||||
Net income attributable to CMS Energy1 |
139 | 145 | 374 | 315 | ||||||||||||
Common stock dividends declared |
(53 | ) | (34 | ) | (159 | ) | (103 | ) | ||||||||
Preferred stock dividends declared |
| (3 | ) | | (8 | ) | ||||||||||
Charge for deferred issuance costs |
| (8 | ) | | (8 | ) | ||||||||||
At end of period |
(1,542 | ) | (1,731 | ) | (1,542 | ) | (1,731 | ) | ||||||||
Preferred Stock |
||||||||||||||||
At beginning of period |
| 239 | | 239 | ||||||||||||
Conversion of preferred stock |
| (239 | ) | | (239 | ) | ||||||||||
At end of period |
| | | | ||||||||||||
Noncontrolling Interests |
||||||||||||||||
At beginning of period |
44 | 45 | 44 | 97 | ||||||||||||
Income attributable to noncontrolling interests1 |
1 | 1 | 2 | 3 | ||||||||||||
Distributions and other changes in noncontrolling interests |
(1 | ) | (1 | ) | (2 | ) | (55 | ) | ||||||||
At end of period |
44 | 45 | 44 | 45 | ||||||||||||
Total Equity |
$ | 3,087 | $ | 2,866 | $ | 3,087 | $ | 2,866 | ||||||||
38
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In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
1 Disclosure of Comprehensive Income: |
||||||||||||||||
Net income |
$ | 140 | $ | 146 | $ | 376 | $ | 318 | ||||||||
Income attributable to noncontrolling interests |
1 | 1 | 2 | 3 | ||||||||||||
Net income attributable to CMS Energy |
$ | 139 | $ | 145 | $ | 374 | $ | 315 | ||||||||
Retirement benefits liability: |
||||||||||||||||
Retirement benefits liability adjustments, net of tax of
$1, $-, $1, and $1 respectively |
| | 1 | 2 | ||||||||||||
Investments: |
||||||||||||||||
Unrealized loss on investments, net of tax of
$- , $- , $- , and $- respectively |
(2 | ) | | (1 | ) | | ||||||||||
Total Comprehensive Income |
$ | 137 | $ | 145 | $ | 374 | $ | 317 | ||||||||
The accompanying notes are an integral part of these statements.
39
Table of Contents
Consumers Energy Company
Consolidated Statements of Income
(Unaudited)
Consolidated Statements of Income
(Unaudited)
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Operating Revenue |
$ | 1,397 | $ | 1,370 | $ | 4,688 | $ | 4,536 | ||||||||
Operating Expenses |
||||||||||||||||
Fuel for electric generation |
175 | 157 | 442 | 407 | ||||||||||||
Purchased and interchange power |
362 | 359 | 954 | 946 | ||||||||||||
Purchased power related parties |
24 | 22 | 64 | 63 | ||||||||||||
Cost of gas sold |
88 | 92 | 1,038 | 1,001 | ||||||||||||
Maintenance and other operating expenses |
286 | 258 | 824 | 801 | ||||||||||||
Depreciation and amortization |
119 | 131 | 401 | 432 | ||||||||||||
General taxes |
38 | 47 | 153 | 151 | ||||||||||||
Total operating expenses |
1,092 | 1,066 | 3,876 | 3,801 | ||||||||||||
Operating Income |
305 | 304 | 812 | 735 | ||||||||||||
Other Income (Expense) |
||||||||||||||||
Interest income |
2 | 4 | 6 | 13 | ||||||||||||
Interest and dividend income related parties |
1 | | 1 | | ||||||||||||
Allowance for equity funds used during construction |
1 | 1 | 4 | 4 | ||||||||||||
Other income |
3 | 9 | 16 | 27 | ||||||||||||
Other expense |
(3 | ) | (2 | ) | (8 | ) | (7 | ) | ||||||||
Total other income |
4 | 12 | 19 | 37 | ||||||||||||
Interest Charges |
||||||||||||||||
Interest on long-term debt |
62 | 60 | 188 | 183 | ||||||||||||
Other interest expense |
5 | 5 | 14 | 30 | ||||||||||||
Allowance for borrowed funds used during
construction |
(1 | ) | (1 | ) | (3 | ) | (3 | ) | ||||||||
Total interest charges |
66 | 64 | 199 | 210 | ||||||||||||
Income Before Income Taxes |
243 | 252 | 632 | 562 | ||||||||||||
Income Tax Expense |
88 | 92 | 232 | 207 | ||||||||||||
Net Income |
155 | 160 | 400 | 355 | ||||||||||||
Preferred Stock Dividends |
1 | 1 | 2 | 2 | ||||||||||||
Net Income Available to Common Stockholder |
$ | 154 | $ | 159 | $ | 398 | $ | 353 | ||||||||
The accompanying notes are an integral part of these statements.
40
Table of Contents
Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)
Consolidated Statements of Cash Flows
(Unaudited)
In Millions | ||||||||
Nine months ended September 30 | 2011 | 2010 | ||||||
Cash Flows from Operating Activities |
||||||||
Net Income |
$ | 400 | $ | 355 | ||||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||
Depreciation and amortization |
401 | 432 | ||||||
Deferred income taxes and investment tax credit |
85 | 107 | ||||||
Postretirement benefits expense |
117 | 166 | ||||||
Other non-cash operating activities |
52 | 44 | ||||||
Postretirement benefits contributions |
(53 | ) | (161 | ) | ||||
Changes in other assets and liabilities: |
||||||||
Decrease in accounts receivable, notes receivable, and accrued
revenue |
268 | 241 | ||||||
Decrease in accrued power supply revenue |
15 | 2 | ||||||
Increase in inventories |
(109 | ) | (90 | ) | ||||
Decrease in deferred property taxes |
133 | 127 | ||||||
Increase (decrease) in accounts payable |
27 | (9 | ) | |||||
Decrease in accrued expenses |
(126 | ) | (195 | ) | ||||
Increase in other current and non-current assets |
(25 | ) | (9 | ) | ||||
Increase (decrease) in other current and non-current liabilities |
60 | (110 | ) | |||||
Net cash provided by operating activities |
1,245 | 900 | ||||||
Cash Flows from Investing Activities |
||||||||
Capital expenditures (excludes assets placed under capital lease) |
(618 | ) | (608 | ) | ||||
Cost to retire property |
(43 | ) | (31 | ) | ||||
Other investing activities |
(22 | ) | (1 | ) | ||||
Net cash used in investing activities |
(683 | ) | (640 | ) | ||||
Cash Flows from Financing Activities |
||||||||
Proceeds from issuance of long-term debt |
| 300 | ||||||
Retirement of long-term debt |
(27 | ) | (335 | ) | ||||
Payment of net DOE liability |
(43 | ) | | |||||
Payment of common stock dividends |
(292 | ) | (259 | ) | ||||
Payment of preferred stock dividends |
(2 | ) | (2 | ) | ||||
Stockholders contribution |
125 | 250 | ||||||
Payment of capital and finance lease obligations |
(18 | ) | (18 | ) | ||||
Other financing costs |
(3 | ) | (2 | ) | ||||
Net cash used in financing activities |
(260 | ) | (66 | ) | ||||
Net Increase in Cash and Cash Equivalents |
302 | 194 | ||||||
Cash and Cash Equivalents, Beginning of Period |
71 | 39 | ||||||
Cash and Cash Equivalents, End of Period |
$ | 373 | $ | 233 | ||||
The accompanying notes are an integral part of these statements.
41
Table of Contents
Consumers Energy Company
Consolidated Balance Sheets
(Unaudited)
Consolidated Balance Sheets
(Unaudited)
In Millions | ||||||||
September 30 | December 31 | |||||||
ASSETS | 2011 | 2010 | ||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 373 | $ | 71 | ||||
Restricted cash and cash equivalents |
28 | 23 | ||||||
Accounts receivable and accrued revenue,
less allowances of $23 in 2011 and 2010 |
683 | 963 | ||||||
Notes receivable |
43 | 55 | ||||||
Accrued power supply revenue |
| 15 | ||||||
Accounts receivable related parties |
2 | 1 | ||||||
Inventories at average cost |
||||||||
Gas in underground storage |
1,050 | 941 | ||||||
Materials and supplies |
98 | 100 | ||||||
Generating plant fuel stock |
125 | 124 | ||||||
Deferred property taxes |
116 | 180 | ||||||
Regulatory assets |
2 | 19 | ||||||
Prepayments and other current assets |
43 | 27 | ||||||
Total current assets |
2,563 | 2,519 | ||||||
Plant, Property, and Equipment (at cost) |
||||||||
Plant, property, and equipment, gross |
14,475 | 14,022 | ||||||
Less accumulated depreciation, depletion, and amortization |
4,814 | 4,593 | ||||||
Plant, property, and equipment, net |
9,661 | 9,429 | ||||||
Construction work in progress |
671 | 566 | ||||||
Total plant, property, and equipment |
10,332 | 9,995 | ||||||
Non-current Assets |
||||||||
Regulatory assets |
2,002 | 2,093 | ||||||
Accounts and notes receivable |
7 | 22 | ||||||
Investments |
31 | 34 | ||||||
Other non-current assets |
123 | 176 | ||||||
Total non-current assets |
2,163 | 2,325 | ||||||
Total Assets |
$ | 15,058 | $ | 14,839 | ||||
The accompanying notes are an integral part of these statements.
42
Table of Contents
In Millions | ||||||||
September 30 | December 31 | |||||||
LIABILITIES AND EQUITY | 2011 | 2010 | ||||||
Current Liabilities |
||||||||
Current portion of long-term debt, capital and finance
lease obligations |
$ | 362 | $ | 61 | ||||
Accounts payable |
473 | 471 | ||||||
Accounts payable related parties |
12 | 11 | ||||||
Accrued rate refunds |
24 | 19 | ||||||
Accrued interest |
41 | 74 | ||||||
Accrued taxes |
102 | 199 | ||||||
Deferred income taxes |
154 | 209 | ||||||
Regulatory liabilities |
121 | 22 | ||||||
Other current liabilities |
94 | 95 | ||||||
Total current liabilities |
1,383 | 1,161 | ||||||
Non-current Liabilities |
||||||||
Long-term debt |
3,997 | 4,488 | ||||||
Non-current portion of capital and finance lease obligations |
171 | 188 | ||||||
Regulatory liabilities |
1,874 | 1,988 | ||||||
Postretirement benefits |
1,081 | 1,076 | ||||||
Asset retirement obligations |
253 | 244 | ||||||
Deferred investment tax credit |
47 | 49 | ||||||
Deferred income taxes |
1,663 | 1,289 | ||||||
Other non-current liabilities |
178 | 176 | ||||||
Total non-current liabilities |
9,264 | 9,498 | ||||||
Commitments and Contingencies (Notes 3, 4, 5, 7, and 8) |
||||||||
Equity |
||||||||
Common stockholders equity |
||||||||
Common stock, authorized 125.0 shares; outstanding
84.1 shares for both periods |
841 | 841 | ||||||
Other paid-in capital |
2,957 | 2,832 | ||||||
Retained earnings |
569 | 463 | ||||||
Total common stockholders equity |
4,367 | 4,136 | ||||||
Preferred stock |
44 | 44 | ||||||
Total equity |
4,411 | 4,180 | ||||||
Total Liabilities and Equity |
$ | 15,058 | $ | 14,839 | ||||
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Table of Contents
Consumers Energy Company
Consolidated Statements of Changes in Equity
(Unaudited)
Consolidated Statements of Changes in Equity
(Unaudited)
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Common Stock |
||||||||||||||||
At beginning and end of period |
$ | 841 | $ | 841 | $ | 841 | $ | 841 | ||||||||
Other Paid-in Capital |
||||||||||||||||
At beginning of period |
2,957 | 2,832 | 2,832 | 2,582 | ||||||||||||
Stockholders contribution |
| | 125 | 250 | ||||||||||||
At end of period |
2,957 | 2,832 | 2,957 | 2,832 | ||||||||||||
Accumulated Other Comprehensive Income |
||||||||||||||||
Retirement benefits liability |
||||||||||||||||
At beginning of period |
(15 | ) | (11 | ) | (16 | ) | (11 | ) | ||||||||
Retirement benefits liability adjustments1 |
| | 1 | | ||||||||||||
At end of period |
(15 | ) | (11 | ) | (15 | ) | (11 | ) | ||||||||
Investments |
||||||||||||||||
At beginning of period |
15 | 11 | 16 | 13 | ||||||||||||
Unrealized gain (loss) on investments1 |
| 6 | (1 | ) | 4 | |||||||||||
At end of period |
15 | 17 | 15 | 17 | ||||||||||||
At end of period |
| 6 | | 6 | ||||||||||||
Retained Earnings |
||||||||||||||||
At beginning of period |
511 | 415 | 463 | 389 | ||||||||||||
Net income1 |
155 | 160 | 400 | 355 | ||||||||||||
Common stock dividends declared |
(96 | ) | (91 | ) | (292 | ) | (259 | ) | ||||||||
Preferred stock dividends declared |
(1 | ) | (1 | ) | (2 | ) | (2 | ) | ||||||||
At end of period |
569 | 483 | 569 | 483 | ||||||||||||
Preferred Stock |
||||||||||||||||
At beginning and end of period |
44 | 44 | 44 | 44 | ||||||||||||
Total Equity |
$ | 4,411 | $ | 4,206 | $ | 4,411 | $ | 4,206 | ||||||||
The accompanying notes are an integral part of these statements.
44
Table of Contents
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
1 Disclosure of Comprehensive Income: |
||||||||||||||||
Net income |
$ | 155 | $ | 160 | $ | 400 | $ | 355 | ||||||||
Retirement benefits liability: |
||||||||||||||||
Retirement benefits liability adjustments, net of tax
of $-, $- , $-, and $-, respectively |
| | 1 | | ||||||||||||
Investments: |
||||||||||||||||
Unrealized gain (loss) on investments, net of tax benefit
of $-, $(1) , $(1), and $(1), respectively |
| 6 | (1 | ) | 4 | |||||||||||
Total Comprehensive Income |
$ | 155 | $ | 166 | $ | 400 | $ | 359 | ||||||||
45
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46
Table of Contents
CMS Energy Corporation
Consumers Energy Company
Consumers Energy Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
These interim consolidated financial statements have been prepared by CMS Energy and Consumers
in accordance with GAAP for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. As a result, CMS Energy and Consumers have condensed or omitted
certain information and note disclosures normally included in consolidated financial statements
prepared in accordance with GAAP. CMS Energy and Consumers have reclassified certain prior period
amounts to conform to the presentation in the current period. In managements opinion, the
unaudited information contained in this report reflects all adjustments of a normal recurring
nature necessary to ensure the fair presentation of financial position, results of operations, and
cash flows for the periods presented. The notes to the consolidated financial statements and the
related consolidated financial statements should be read in conjunction with the consolidated
financial statements and related notes contained in the 2010 Form 10-K. Due to the seasonal nature
of CMS Energys and Consumers operations, the results presented for this interim period are not
necessarily indicative of results to be achieved for the fiscal year.
1: NEW ACCOUNTING STANDARDS
New Accounting Standards Not Yet Effective
ASU 2011-05, Presentation of Comprehensive Income: This standard, effective January 1, 2012
for CMS Energy and Consumers, eliminates the option of reporting other comprehensive income and its
components on the statement of changes in equity. Presently, both CMS Energy and Consumers use
this option for their consolidated financial statements. Under the standard, entities will be
required to present either a single continuous statement of comprehensive income, containing both
net income and components of other comprehensive income, or two separate consecutive statements.
This standard will affect only the presentation of comprehensive income in CMS Energys and
Consumers consolidated financial statements.
ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs: This standard, effective January 1, 2012 for CMS Energy and Consumers, is the
result of a joint project of the Financial Accounting Standards Board and the International
Accounting Standards Board. The primary objective of the standard is to ensure that fair value has
the same meaning under GAAP and International Financial Reporting Standards and to establish common
fair value measurement guidance in the two sets of standards. The standard does not change the
overall fair value model in GAAP, but it amends various fair value principles and establishes
additional disclosure requirements. CMS Energy and Consumers are evaluating this standard, but
they do not expect it to have a significant impact on their consolidated financial statements.
2: FAIR VALUE MEASUREMENTS
Accounting standards define fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants. When measuring
fair value, CMS Energy and Consumers are required to incorporate all assumptions that market
participants would use in pricing an asset or liability, including assumptions about risk. A fair
value hierarchy prioritizes inputs used to measure fair value according to their observability in
the market. The three levels of the fair value hierarchy are as follows:
| Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. |
47
Table of Contents
| 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, interest rates and yield curves observable at commonly quoted intervals, credit risks, default rates, and inputs derived from or corroborated by observable market data. | ||
| Level 3 inputs are unobservable inputs that reflect CMS Energys or Consumers own assumptions about how market participants would value their assets and liabilities. |
To the extent possible, CMS Energy and Consumers use quoted market prices or other observable
market pricing data in valuing assets and liabilities measured at fair value. If this information
is unavailable, they use market-corroborated data or reasonable estimates about market participant
assumptions. CMS Energy and Consumers classify fair value measurements within the fair value
hierarchy based on the lowest level of input that is significant to the fair value measurement in
its entirety.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Presented in the following table are CMS Energys and Consumers assets and liabilities, by
level within the fair value hierarchy, reported at fair value on a recurring basis at September 30,
2011:
In Millions | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Assets |
||||||||||||||||
Cash equivalents |
$ | 512 | $ | 512 | $ | | $ | | ||||||||
Restricted cash equivalents |
14 | 14 | | | ||||||||||||
Nonqualified deferred compensation plan assets |
4 | 4 | | | ||||||||||||
SERP |
||||||||||||||||
Cash equivalents |
1 | 1 | | | ||||||||||||
Mutual fund |
87 | 87 | | | ||||||||||||
State and municipal bonds |
26 | | 26 | | ||||||||||||
Derivative instruments |
||||||||||||||||
Commodity contracts1 |
2 | | | 2 | ||||||||||||
Total2 |
$ | 646 | $ | 618 | $ | 26 | $ | 2 | ||||||||
Liabilities |
||||||||||||||||
Nonqualified deferred compensation plan liabilities |
$ | 4 | $ | 4 | $ | | $ | | ||||||||
Derivative instruments |
||||||||||||||||
Commodity contracts3 |
3 | | | 3 | ||||||||||||
Total4 |
$ | 7 | $ | 4 | $ | | $ | 3 | ||||||||
Consumers |
||||||||||||||||
Assets |
||||||||||||||||
Cash equivalents |
$ | 282 | $ | 282 | $ | | $ | | ||||||||
Restricted cash equivalents |
13 | 13 | | | ||||||||||||
CMS Energy common stock |
31 | 31 | | | ||||||||||||
Nonqualified deferred compensation plan assets |
3 | 3 | | | ||||||||||||
SERP |
||||||||||||||||
Cash equivalents |
1 | 1 | | | ||||||||||||
Mutual fund |
57 | 57 | | | ||||||||||||
State and municipal bonds |
17 | | 17 | | ||||||||||||
Derivative instruments |
||||||||||||||||
Commodity contracts |
2 | | | 2 | ||||||||||||
Total5 |
$ | 406 | $ | 387 | $ | 17 | $ | 2 | ||||||||
Liabilities |
||||||||||||||||
Nonqualified deferred compensation plan liabilities |
$ | 3 | $ | 3 | $ | | $ | | ||||||||
Total |
$ | 3 | $ | 3 | $ | | $ | | ||||||||
48
Table of Contents
1 This amount is gross and excludes the impact of offsetting derivative assets and
liabilities under master netting arrangements, which was less than $1 million at September
30, 2011.
2 At September 30, 2011, CMS Energys assets classified as Level 3 represented less
than one percent of CMS Energys total assets measured at fair value.
3 This amount is gross and excludes the impact of offsetting derivative assets and
liabilities under master netting arrangements and offsetting cash margin deposits paid by
CMS ERM to other parties, which was less than $1 million at September 30, 2011.
4 At September 30, 2011, CMS Energys liabilities classified as Level 3 represented 43
percent of CMS Energys total liabilities measured at fair value. The Level 3 liabilities
consisted primarily of an electricity sales agreement held by CMS ERM.
5 At September 30, 2011, Consumers assets classified as Level 3 represented less than
one percent of Consumers total assets measured at fair value.
Presented in the following table are CMS Energys and Consumers assets and liabilities, by
level within the fair value hierarchy, reported at fair value on a recurring basis at December 31,
2010:
In Millions | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Assets |
||||||||||||||||
Cash equivalents |
$ | 183 | $ | 183 | $ | | $ | | ||||||||
Restricted cash equivalents |
6 | 6 | | | ||||||||||||
Nonqualified deferred compensation plan assets |
6 | 6 | | | ||||||||||||
SERP |
||||||||||||||||
Cash equivalents |
1 | 1 | | | ||||||||||||
Mutual fund |
62 | 62 | | | ||||||||||||
State and municipal bonds |
28 | | 28 | | ||||||||||||
Derivative instruments |
||||||||||||||||
Commodity contracts1 |
1 | | | 1 | ||||||||||||
Total2 |
$ | 287 | $ | 258 | $ | 28 | $ | 1 | ||||||||
Liabilities |
||||||||||||||||
Nonqualified deferred compensation plan liabilities |
$ | 6 | $ | 6 | $ | | $ | | ||||||||
Derivative instruments |
||||||||||||||||
Commodity contracts3 |
4 | | | 4 | ||||||||||||
Total4 |
$ | 10 | $ | 6 | $ | | $ | 4 | ||||||||
Consumers |
||||||||||||||||
Assets |
||||||||||||||||
Cash equivalents |
$ | 19 | $ | 19 | $ | | $ | | ||||||||
Restricted cash equivalents |
6 | 6 | | | ||||||||||||
CMS Energy common stock |
34 | 34 | | | ||||||||||||
Nonqualified deferred compensation plan assets |
4 | 4 | | | ||||||||||||
SERP |
||||||||||||||||
Cash equivalents |
1 | 1 | | | ||||||||||||
Mutual fund |
39 | 39 | | | ||||||||||||
State and municipal bonds |
17 | | 17 | | ||||||||||||
Derivative instruments |
||||||||||||||||
Commodity contracts |
1 | | | 1 | ||||||||||||
Total5 |
$ | 121 | $ | 103 | $ | 17 | $ | 1 | ||||||||
Liabilities |
||||||||||||||||
Nonqualified deferred compensation plan liabilities |
$ | 4 | $ | 4 | $ | | $ | | ||||||||
Total |
$ | 4 | $ | 4 | $ | | $ | | ||||||||
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1 This amount is gross and excludes the impact of offsetting derivative assets and
liabilities under master netting arrangements, which was less than $1 million at December
31, 2010.
2 At December 31, 2010, CMS Energys assets classified as Level 3 represented less
than one percent of CMS Energys total assets measured at fair value.
3 This amount is gross and excludes the impact of offsetting derivative assets and
liabilities under master netting arrangements and offsetting cash margin deposits paid by
CMS ERM to other parties, which was less than $1 million at December 31, 2010.
4 At December 31, 2010, CMS Energys liabilities classified as Level 3 represented 40
percent of CMS Energys total liabilities measured at fair value. The Level 3 liabilities
consisted primarily of an electricity sales agreement held by CMS ERM.
5 At December 31, 2010, Consumers assets classified as Level 3 represented one
percent of Consumers total assets measured at fair value.
Cash Equivalents: Cash equivalents and restricted cash equivalents consist of money market
funds with daily liquidity. The funds invest in U.S. Treasury notes, other government-backed
securities, repurchase agreements collateralized by U.S. Treasury notes, and highly rated,
short-term corporate debt securities.
Nonqualified Deferred Compensation Plan Assets: CMS Energys and Consumers nonqualified deferred
compensation plan assets are invested in various mutual funds. CMS Energy and Consumers value
these assets using a market approach, using the daily quoted net asset values provided by the fund
managers that are the basis for transactions to buy or sell shares in each fund. CMS Energy and
Consumers report these assets in other non-current assets on their consolidated balance sheets.
SERP Assets: CMS Energy and Consumers value their SERP assets using a market approach,
incorporating prices and other relevant information from market transactions. The SERP cash
equivalents consist of a money market fund with daily liquidity, which invests in state and
municipal securities.
The SERP invests in a short-term, fixed-income mutual fund that holds a variety of debt securities
with average maturities of one to three years. The fund invests primarily in investment-grade debt
securities but, in order to achieve its investment objective, it may invest a portion of its assets
in high-yield securities, foreign debt, and derivative instruments. The fair value of the fund is
determined using the daily published net asset value, which is the basis for transactions to buy or
sell shares in the fund.
The SERP state and municipal bonds are investment grade securities that are valued using a matrix
pricing model that incorporates Level 2 market-based information. The fair value of the bonds is
derived from various observable inputs, including benchmark yields, reported trades, broker/dealer
quotes, bond ratings, and general information on market movements normally considered by market
participants when pricing such debt securities. CMS Energy and Consumers report their SERP assets
in other non-current assets on their consolidated balance sheets. For additional details about
SERP securities, see Note 7, Financial Instruments.
Nonqualified Deferred Compensation Plan Liabilities: CMS Energy and Consumers value their
non-qualified deferred compensation plan liabilities based on the fair values of the plan assets,
as they reflect what is owed to the plan participants in accordance with their investment
elections. CMS Energy and Consumers report these liabilities in other non-current liabilities on
their consolidated balance sheets.
Derivative Instruments: CMS Energy and Consumers value their derivative instruments using either a
market approach that incorporates information from market transactions, or an income approach that
discounts future expected cash flows to a present value amount. They use various inputs to value
the derivatives depending on the type of contract and the availability of market data. CMS Energy
has exchange-traded derivative contracts that are valued based on Level 1 quoted prices in actively
traded
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markets, as well as derivatives valued using Level 2 inputs, including commodity market prices,
interest rates, credit ratings, default rates, and market-based seasonality factors. CMS Energy
and Consumers have classified certain derivatives as Level 3 since the fair value measurements
incorporate pricing assumptions that cannot be observed or confirmed through market transactions.
The most significant derivatives classified as Level 3 are an electricity sales agreement held by
CMS ERM and FTRs held by Consumers. At December 31, 2010 and in prior periods, quoted electricity
prices were not available for the entire term of the electricity sales agreement held by CMS ERM,
and a proprietary forward pricing model was used to determine fair value. At September 30, 2011,
quoted prices at the nearest active market were available for the entire term of the agreement.
The agreement, however, remains classified as Level 3 since the pricing differential between the
nearest active market in Ohio and the delivery point in Michigan cannot be confirmed with
observable market transactions. There is no quoted pricing information for FTRs held by Consumers.
Consumers determines the fair value of FTRs based on Consumers average historical settlements.
For fair values other than Level 1 prices, CMS Energy and Consumers may incorporate adjustments for
the risk of nonperformance as deemed appropriate. For derivative assets, a credit adjustment is
applied against the asset based on the published default rate for the credit rating assigned to the
counterparty based on an internal credit-scoring model. This model considers various inputs,
including the counterpartys financial statements, credit reports, trade press, and other
information available to market participants. If the internal rating is comparable to credit
ratings published by independent rating agencies, the resulting credit adjustment is classified as
Level 2. If the internal rating is outside of the range of ratings given by independent agencies
and the credit adjustment is significant to the overall valuation, the derivative fair value is
classified as Level 3. CMS Energy and Consumers adjust their derivative liabilities downward to
reflect the risk of their own nonperformance, based on their published credit ratings. CMS Energy
and Consumers monitor market conditions and may incorporate other data, such as credit default swap
rates, in determining adjustments for credit risk as warranted. For additional details about
derivative contracts, see Note 8, Derivative Instruments.
Assets and Liabilities Measured at Fair Value on a Recurring Basis using Significant Level
3 Inputs
Presented in the following tables are reconciliations of changes in the fair values of Level 3
assets and liabilities at CMS Energy and Consumers:
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Balance at beginning of period |
$ | | $ | (5 | ) | $ | (3 | ) | $ | (8 | ) | |||||
Total gains (losses) included in earnings1 |
(1 | ) | 2 | (1 | ) | 4 | ||||||||||
Total gains (losses) offset through regulatory accounting |
(1 | ) | 3 | 2 | 4 | |||||||||||
Settlements |
1 | (3 | ) | 1 | (3 | ) | ||||||||||
Balance at end of period |
$ | (1 | ) | $ | (3 | ) | $ | (1 | ) | $ | (3 | ) | ||||
Unrealized gains (losses) included in earnings relating
to assets and liabilities still held at end of
period1 |
$ | (1 | ) | $ | 2 | $ | | $ | 4 | |||||||
Consumers |
||||||||||||||||
Balance at beginning of period |
$ | 3 | $ | | $ | 1 | $ | | ||||||||
Total gains (losses) offset through regulatory accounting |
(1 | ) | 3 | 2 | 4 | |||||||||||
Settlements |
| (2 | ) | (1 | ) | (3 | ) | |||||||||
Balance at end of period |
$ | 2 | $ | 1 | $ | 2 | $ | 1 | ||||||||
1 CMS Energy records realized and unrealized gains and losses for Level 3 recurring
fair values in earnings as a component of operating revenue or maintenance and other
operating expenses on its consolidated statements of income.
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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
CMS Energy and Consumers had no nonrecurring fair value measurements during the nine months
ended September 30, 2011.
Presented in the following table are CMS Energys assets, by level within the fair value hierarchy,
reported at fair value on a nonrecurring basis during the nine months ended September 30, 2010:
In Millions | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Losses | |||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Assets held for sale |
$ | | $ | | $ | 7 | $ | (4 | ) | |||||||
In June 2010, CMS Energy wrote down assets held for sale from their carrying amount of $11
million to their fair value of $7 million, resulting in a loss of $4 million, which was recorded in
earnings as part of discontinued operations. The fair value was determined based on a discounted
cash flow technique. CMS Energy had no other nonrecurring fair value measurements and Consumers
had no nonrecurring fair value measurements during the nine months ended September 30, 2010.
3: CONTINGENCIES AND COMMITMENTS
CMS Energy and Consumers are involved in various matters that give rise to contingent
liabilities. Depending on the specific issues, the resolution of these contingencies could have a
material effect on CMS Energys and Consumers liquidity, financial condition, and results of
operations. In their disclosures of these matters, CMS Energy and Consumers provide an estimate of
the possible loss or range of loss when such an estimate can be made. Disclosures that state that
CMS Energy or Consumers cannot predict the outcome of a matter indicate that they are unable to
estimate a possible loss or range of loss for the matter.
CMS Energy Contingencies
Gas Index Price Reporting Investigation: In 2002, CMS Energy notified appropriate regulatory
and governmental agencies that some employees at CMS MST and CMS Field Services appeared to have
provided inaccurate information regarding natural gas trades to various energy industry
publications which compile and report index prices. CMS Energy cooperated with an investigation by
the DOJ regarding this matter. Although CMS Energy has not received any formal notification that
the DOJ has completed its investigation, the DOJs last request for information occurred in 2003,
and CMS Energy completed its response to this request in 2004. CMS Energy is unable to predict the
outcome of the DOJ investigation and what effect, if any, the investigation will have on CMS
Energy.
Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera
Natural Gas, Inc., and Cantera Gas Company, are named as defendants in various lawsuits arising as
a result of alleged inaccurate natural gas price reporting to publications that report trade
information. Allegations include manipulation of NYMEX natural gas futures and options prices,
price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail
prices in Colorado, Kansas, Missouri, and Wisconsin. The following provides more detail on these
proceedings:
| In 2005, CMS Energy, CMS MST, and CMS Field Services were named as defendants in a putative class action filed in Kansas state court, Learjet, Inc., et al. v. Oneok, Inc., et al. The complaint alleges that the defendants engaged in a scheme to violate the Kansas Restraint of Trade Act. The plaintiffs are seeking statutory full consideration damages consisting of the full consideration paid by plaintiffs for natural gas allegedly purchased from defendants. |
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| In 2007, a class action complaint, Heartland Regional Medical Center, et al. v. Oneok, Inc. et al., was filed in Missouri state court alleging violations of Missouri antitrust laws. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Missouri antitrust laws. | ||
| Breckenridge Brewery of Colorado, LLC and BBD Acquisition Co. v. Oneok, Inc., et al., a class action complaint brought on behalf of retail direct purchasers of natural gas in Colorado, was filed in Colorado state court in 2006. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Colorado Antitrust Act of 1992. Plaintiffs are seeking full refund damages. | ||
| A class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in 2006 in Wisconsin state court on behalf of Wisconsin commercial entities. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsins antitrust statute. The plaintiffs are seeking full consideration damages, plus exemplary damages and attorneys fees. After dismissal on jurisdictional grounds in 2009, plaintiffs filed a new complaint in the U.S. District Court for the Eastern District of Michigan. In 2010, the MDL judge issued an opinion and order granting the CMS Energy defendants motion to dismiss the Michigan complaint on statute-of-limitations grounds and all CMS Energy defendants have been dismissed from the Arandell (Michigan) action. | ||
| Another class action complaint, Newpage Wisconsin System v. CMS ERM, et al., was filed in 2009 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. | ||
| In 2005, J.P. Morgan Trust Company, 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. |
After removal to federal court, all of the cases described above were transferred to the MDL. CMS
Energy was dismissed from the Learjet, Heartland, and J.P. Morgan cases in 2009, but other CMS
Energy defendants remained parties. All CMS Energy defendants were dismissed from the Breckenridge
case in 2009. In 2010, CMS Energy and Cantera Gas Company were dismissed from the Newpage case and
the Arandell (Wisconsin) case was reinstated against CMS ERM. In July 2011, all claims against
remaining CMS Energy defendants in the MDL cases were dismissed based on FERC preemption.
Plaintiffs have filed appeals in all of the cases.
These cases involve complex facts, a large number of similarly situated defendants with different
factual positions, and multiple jurisdictions. Presently, any estimate of liability would be
highly speculative; the amount of CMS Energys possible loss would be based on widely varying
models previously untested in this context. If the outcome after appeals is unfavorable, these
cases could have a material adverse impact on CMS Energys liquidity, financial condition, and
results of operations.
Bay Harbor: As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, and
under an agreement with the MDEQ, third parties constructed a golf course and park over several
abandoned CKD piles left over from the former cement plant operations on the Bay Harbor site. The
third parties also undertook a series of response activities, including constructing a leachate
collection system in one area where CKD-impacted groundwater was entering Little Traverse Bay.
Leachate is produced when water enters into the CKD piles. In 2002, CMS Energy sold its interest
in Bay Harbor, but retained its obligations under environmental indemnities entered into at the
start of the project.
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In 2005, the EPA, along with CMS Land and CMS Capital, voluntarily executed an Administrative Order
on Consent under Superfund, and the EPA approved a Removal Action Work Plan to address
contamination issues. Collection systems required under the plan have been installed and
effectiveness monitoring of the systems at the shoreline is ongoing. CMS Land, CMS Capital, and
the EPA agreed upon augmentation measures to address areas where pH measurements were not
satisfactory. Several augmentation measures were implemented and completed in 2009, with the
remaining measure completed in 2010.
In May 2011, CMS Energy received approval from the EPA on a revised scope of remedies that CMS
Energy had submitted in December 2010. CMS Energy is presently in negotiations with the MDEQ to
finalize an agreement that will identify the remaining final remedies at the site. In December
2010, the MDEQ issued an NPDES permit that authorizes CMS Land to discharge treated leachate into
Little Traverse Bay. This permit requires renewal every five years. Discharge of treated leachate
under the permit commenced at the East Park portion of the Bay Harbor site in October 2011.
Additionally, CMS Land has committed to investigate the potential for a deep injection well on the
Bay Harbor site as an alternative long-term solution to the leachate disposal issue. In 2008, the
MDEQ and the EPA granted permits for CMS Land or its wholly owned subsidiary, Beeland Group LLC, to
construct and operate an off-site deep injection well in Antrim County, Michigan, to dispose of
leachate from Bay Harbor. Certain environmental groups, a local township, and a local county filed
lawsuits appealing the permits. The legal proceeding was stayed in 2009 and can be renewed by
either party at any time.
Various claims have been brought against CMS Land or its affiliates, including CMS Energy, alleging
environmental damage to property, loss of property value, insufficient disclosure of environmental
matters, breach of agreement relating to access, or other matters. In October 2010, CMS Land and
other parties received a demand for payment from the EPA in the amount of $7 million, plus
interest, whereby the EPA is seeking recovery, as allowed under Superfund, of the EPAs response
costs incurred at the Bay Harbor site. CMS Land communicated to the EPA in November 2010 that it
does not believe that this is a valid claim.
CMS Land and CMS Capital, the MDEQ, the EPA, and other parties continue to negotiate the long-term
remedy for the Bay Harbor site, including:
| the disposal of leachate; | ||
| the capping and excavation of CKD; | ||
| the location and design of collection lines and upstream water diversion systems; | ||
| application of criteria for various substances such as mercury; and | ||
| other matters that are likely to affect the scope of response activities that CMS Land and CMS Capital may be obligated to undertake. |
CMS Energy has recorded a cumulative charge related to Bay Harbor of $224 million, which includes
accretion expense. At September 30, 2011, CMS Energy had a recorded liability of $82 million for
its remaining obligations. CMS Energy calculated this liability based on discounted projected
costs, using a discount rate of 4.34 percent and an inflation rate of one percent on annual
operating and maintenance costs. CMS Energy based the discount rate on the interest rate for
30-year U.S. Treasury securities at December 31, 2010. The undiscounted amount of the remaining
obligation is $103 million. CMS Energy expects to pay $8 million during the remainder of 2011, $18
million in 2012, $8 million in 2013, $5 million in 2014, $4 million in 2015, and the remaining
amount thereafter on long-term liquid disposal and operating and maintenance costs.
CMS Energys estimate of response activity costs and the timing of expenditures could change if
there are additional major changes in circumstances or assumptions, including but not limited to:
| inability to complete the present long-term water disposal strategy at a reasonable cost; |
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| delays in implementing the present long-term water disposal strategy; | ||
| requirements to alter the present long-term water disposal strategy upon expiration of the NPDES permit if the MDEQ or EPA identify a more suitable alternative; | ||
| an increase in the number of contamination areas; | ||
| different remediation techniques; | ||
| the nature and extent of contamination; | ||
| inability to reach agreement with the MDEQ or the EPA over additional response activities; | ||
| delays in the receipt of requested permits; | ||
| delays following the receipt of any requested permits due to legal appeals of third parties; | ||
| additional or new legal or regulatory requirements; or | ||
| new or different landowner claims. |
Depending on the size of any indemnity obligation or liability under environmental laws, an adverse
outcome of this matter could have a material adverse effect on CMS Energys liquidity and financial
condition and could negatively affect CMS Energys financial results. Although a liability for its
present estimate of remaining response activity costs has been recorded, CMS Energy cannot predict
the ultimate financial impact or outcome of this matter.
Equatorial Guinea Tax Claim: In 2004, CMS Energy received a request for indemnification from the
purchaser of CMS Oil and Gas. The indemnity claim relates to the 2002 sale of CMS Energys oil,
gas, and methanol projects in Equatorial Guinea and the claim of the government of Equatorial
Guinea that CMS Energy owes $142 million in taxes, plus interest, in connection with that sale.
CMS Energy concluded that the governments tax claim is without merit and the purchaser of CMS Oil
and Gas submitted a response to the government rejecting the claim. The government of Equatorial
Guinea indicated through a request for arbitration in October 2011 that it still intends to pursue
its claim. CMS Energy is evaluating this request and cannot predict the financial impact or
outcome of this matter.
Consumers Electric Utility Contingencies
Electric Environmental Matters: Consumers operations are subject to environmental laws and
regulations. Historically, Consumers has generally been able to recover, in customer rates, the
costs to operate its facilities in compliance with these laws and regulations.
Cleanup and Solid Waste: Consumers expects to incur remediation and other response activity costs
at a number of sites under NREPA. Consumers believes that these costs should be recoverable in
rates, but cannot guarantee that outcome. At September 30, 2011, Consumers had a recorded
liability of $2 million, its estimated probable NREPA liability.
Consumers is a potentially responsible party at a number of contaminated sites administered under
the Superfund. Superfund liability is joint and several. In addition to Consumers, many other
creditworthy parties with substantial assets are potentially responsible with respect to the
individual sites. In November 2010, Consumers received official notification from the EPA that
identified Consumers as a potentially responsible party at the Kalamazoo River Superfund site. The
notification claimed that the EPA has reason to believe Consumers disposed of PCBs and arranged for
the disposal and treatment of PCB-containing materials at portions of the site. Consumers
responded to the EPA in December 2010, stating that it has no information showing that it disposed
of PCBs or arranged for disposal or treatment of PCB-containing material at portions of the site
and requesting further information from the EPA before Consumers would commit to perform or finance
cleanup activities at the site. In April 2011, Consumers received a follow-up letter from the EPA
requesting that Consumers, as a potentially responsible party at the Kalamazoo River Superfund
site, agree to participate in a removal action plan along with several other companies for an area
of lower Portage Creek. The letter also indicated that under Sections 106 and 107 of Superfund,
Consumers may be liable for reimbursement of the EPAs costs and potential penalties for
noncompliance with any unilateral order that the EPA may issue requiring performance under the
removal
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action plan. All parties, including Consumers, that were asked to participate in the removal
action plan declined to accept liability. In August 2011, the EPA announced that it would proceed
with the removal action plan and would continue to pursue potentially responsible parties to
perform or pay for some or all of the work. The EPA has provided limited information regarding
Consumers potential responsibility for contamination at the site and has not yet given an
indication of the share of any cleanup costs for which Consumers could be held responsible.
Consumers continues to investigate the EPAs claim that it disposed of PCBs or arranged for
disposal or treatment of PCB-containing material at portions of the site. Until further
information is received from the EPA, Consumers is unable to estimate a range of potential
liability for cleanup of the river.
Based on its experience, Consumers estimates that its share of the total liability for other known
Superfund sites will be between $2 million and $8 million. Various factors, including the number
of potentially responsible parties involved with each site, affect Consumers share of the total
liability. At September 30, 2011, Consumers had a recorded liability of $2 million for its share
of the total liability at these sites, the minimum amount in the range of its estimated probable
Superfund liability.
The timing of payments related to Consumers remediation and other response activities at its
Superfund and NREPA sites is uncertain. Consumers periodically reviews these cost estimates. Any
significant change in the underlying assumptions, such as an increase in the number of sites,
different remediation techniques, the nature and extent of contamination, and legal and regulatory
requirements, could affect its estimates of NREPA and Superfund liability.
Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a
component in certain paint, grout, and sealant materials at Ludington. Consumers removed and
replaced part of the PCB material with non-PCB material. Since proposing a plan to take action
with respect to the remaining materials, Consumers has had several communications with the EPA.
Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the
financial impact or outcome of this matter.
Electric Utility Plant Air Permit Issues and Notices of Violation: In 2007, Consumers received an
NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in
their associated air permits. Consumers has responded formally to the NOV/FOV denying the
allegations. In addition, in 2008, Consumers received an NOV for three of its coal-fueled
facilities alleging, among other things, violations of NSR PSD regulations relating to ten projects
from 1986 to 1998 allegedly subject to review under the NSR. The EPA has alleged that some
utilities have classified incorrectly major plant modifications as RMRR rather than seeking permits
from the EPA or state regulatory agencies to modify their plants. Consumers responded to the
information requests from the EPA on this subject in the past. Consumers believes that it has
properly interpreted the requirements of RMRR.
Consumers is engaged in discussions with the EPA on all of these matters. Depending upon the
outcome of these discussions, the EPA could bring legal action against Consumers and/or Consumers
could be required to install additional pollution control equipment at some or all of its
coal-fueled electric generating plants, surrender emission allowances, engage in Supplemental
Environmental Projects, and/or pay fines. Additionally, Consumers would need to assess the
viability of continuing operations at certain plants. The potential costs relating to these
matters could be material and the extent of cost recovery cannot be reasonably estimated. Although
Consumers cannot predict the financial impact or outcome of these matters, Consumers expects that
it would be able to recover some or all of the costs in rates, consistent with the recovery of
other reasonable costs of complying with environmental laws and regulations.
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Nuclear Matters: The matters discussed in this section relate to Consumers previously owned
nuclear generating plants.
In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin accepting deliveries
of spent nuclear fuel for disposal by January 1998. Subsequent U.S. Court of Appeals litigation,
in which Consumers and other utilities participated, has not been successful in producing more
specific relief for the DOEs failure to accept the spent nuclear fuel. A number of court
decisions support the right of utilities to pursue damage claims in the U.S. Court of Claims
against the DOE for failure to take delivery of spent nuclear fuel. Consumers filed a complaint in
2002.
In July 2011, Consumers entered into an agreement with the DOE to settle its claims for $120
million. In September 2011, Consumers filed an application with the MPSC regarding the regulatory
treatment of the settlement amount. For further information, see Note 4, Regulatory Matters,
Consumers Electric Utility Big Rock Decommissioning.
As part of the agreement with the DOE, Consumers settled its liability to the DOE to fund the
disposal of spent nuclear fuel used at Palisades and Big Rock before 1983. This liability, which
totaled $163 million, comprised $44 million collected from customers for spent nuclear disposal
fees and $119 million of interest accrued on those fees, and was to be paid no later than when the DOE
began accepting delivery of spent nuclear fuel. CMS Energy and Consumers classified the liability
as long-term debt in their consolidated balance sheets.
Following the settlement, Consumers terminated its letter of credit to Entergy, which Consumers had
provided as security for its retained obligation to the DOE in connection with its sale of
Palisades and the Big Rock ISFSI to Entergy in 2007.
In its November 2010 electric rate order, the MPSC had directed Consumers to establish an
independent trust fund for the amount payable to the DOE. Following its settlement with the DOE,
Consumers petitioned the MPSC to relieve it of the obligation to fund the trust.
Consumers Gas Utility Contingencies
Gas Environmental Matters: Consumers expects to incur remediation and other response activity
costs at a number of sites under the NREPA. These sites include 23 former MGP facilities.
Consumers operated the facilities on these sites for some part of their operating lives. For some
of these sites, Consumers has no present ownership interest or may own only a portion of the
original site. At September 30, 2011, Consumers estimated its undiscounted remaining remediation
and other response activity costs to be between $28 million and $42 million. Generally, Consumers
has been able to recover most of its costs to date through proceeds from insurance settlements and
customer rates.
At September 30, 2011, Consumers had a recorded liability of $28 million and a regulatory asset of
$54 million that included $26 million of deferred MGP expenditures. The timing of payments related
to the remediation and other response activity at Consumers former MGP sites is uncertain.
Consumers expects its remediation and other response activity costs to average $5 million annually
over the next five years. Consumers periodically reviews these cost estimates. Any significant
change in the underlying assumptions, such as an increase in the number of sites, changes in
remediation techniques, or legal and regulatory requirements, could affect Consumers estimates of
annual response activity costs and the MGP liability.
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Guarantees
Presented in the following table are CMS Energys and Consumers guarantees at September 30,
2011:
In Millions | ||||||||||||||||
Issue | Expiration | Maximum | Carrying | |||||||||||||
Guarantee Description | Date | Date | Obligation | Amount | ||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Indemnity obligations from asset sales and other agreements |
Various | Various through September 2029 | $ | 512 | 1 | $ | 21 | |||||||||
Guarantees and put options2 |
Various | Various through March 2021 | 63 | 1 | ||||||||||||
Consumers |
||||||||||||||||
Guarantees and indemnity obligations |
Various | Various through September 2029 | $ | 30 | $ | 1 | ||||||||||
1 The majority of this amount arises from stock and asset sale agreements under which
CMS Energy or a subsidiary of CMS Energy, other than Consumers, indemnified the purchaser
for losses resulting from various matters, including claims related to tax disputes, claims
related to PPAs, and defects in title to the assets or stock sold to the purchaser by CMS
Energy subsidiaries. Except for items described elsewhere in this note, CMS Energy believes
the likelihood of material loss to be remote for the indemnity obligations not recorded as
liabilities.
2 At September 30, 2011, the carrying amount of CMS Lands put option agreements with
certain Bay Harbor property owners was $1 million. If CMS Land is required to purchase a
Bay Harbor property under a put option agreement, it may sell the property to recover the
amount paid under the put option agreement.
Presented in the following table is additional information regarding CMS Energys and
Consumers guarantees:
Guarantee Description | How Guarantee Arose | Events That Would Require Performance | ||
CMS Energy, including Consumers |
||||
Indemnity obligations
from asset sales and
other agreements
|
Stock and asset sale agreements | Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances | ||
Guarantees
|
Normal operating activity | Nonperformance or non-payment by a subsidiary under a related contract |
||
Put options
|
Bay Harbor remediation efforts |
Owners exercising put options requiring CMS Land to purchase property | ||
Consumers |
||||
Guarantees and indemnity
obligations
|
Normal operating activity | Nonperformance or claims made by third party under a related contract |
||
CMS Energy, Consumers, and certain other subsidiaries of CMS Energy also enter into various
agreements containing tax and other indemnity provisions for which they are unable to estimate the
maximum potential obligation. These factors include unspecified exposure under certain agreements.
CMS Energy and Consumers consider the likelihood that they would be required to perform or incur
substantial losses related to these indemnities to be remote.
Other Contingencies
Michigan Single Business Tax: The State of Michigan completed its audit of CMS Energys and
Consumers combined Michigan single business tax returns for the years 2004 through 2007, and
identified a tax deficiency that was less than the amount CMS Energy had previously accrued. As a
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result, in September 2011 CMS Energy recognized a reduction in general taxes of $17 million,
which included $10 million recognized by Consumers.
Other: In addition to the matters disclosed in this note and Note 4, Regulatory Matters, there are
certain other lawsuits and administrative proceedings before various courts and governmental
agencies arising in the ordinary course of business to which CMS Energy, Consumers, and certain
other subsidiaries of CMS Energy are parties. These other lawsuits and proceedings may involve
personal injury, property damage, contracts, environmental matters, federal and state taxes, rates,
licensing, employment, and other matters. Further, CMS Energy and Consumers occasionally
self-report certain regulatory non-compliance matters that may or may not eventually result in
administrative proceedings. CMS Energy and Consumers believe that the outcome of any one of these
proceedings will not have a material adverse effect on their consolidated results of operations,
financial condition, or liquidity.
4: REGULATORY MATTERS
Rate matters are critical to Consumers. Depending upon the specific issues, the outcomes of
rate cases and proceedings could have a material adverse effect on CMS Energys and Consumers
liquidity, financial condition, and results of operations. Consumers cannot predict the outcome of
these proceedings.
Consumers Electric Utility
Electric Rate Cases: The MPSC, in its 2010 electric rate case order, authorized Consumers to
increase its rates by $146 million annually, $4 million less than the rate increase
self-implemented by Consumers in July 2010. In June 2011, the MPSC approved a settlement
agreement, finding that no refund of self-implemented rates to customers is required.
In June 2011, Consumers filed an application with the MPSC seeking an annual rate increase of $195
million, based on a 10.7 percent authorized return on equity. The filing requested authority to
recover new investment in system reliability, environmental compliance, and technology
enhancements. Presented in the following table are the components of the requested rate increase:
In Millions | ||||
Components of the rate increase |
||||
Investment in rate base |
$ | 81 | ||
Depreciation and property taxes |
70 | |||
Impact of sales declines |
50 | |||
Impact of reduced funding for customer assistance programs1 |
13 | |||
Reduced operating and maintenance costs |
(17 | ) | ||
Cost of capital |
(2 | ) | ||
Total |
$ | 195 | ||
1 Consumers projects electric uncollectible expense to increase by $13 million in 2012
due to an anticipated reduction in federal funding for customer assistance programs. Due to
the uncertainty surrounding federal funding for such programs and the resulting impact on
uncollectible expense, Consumers also requested that the MPSC approve an uncollectible
expense true-up mechanism.
Power Supply Cost Recovery: The PSCR process is designed to allow Consumers to recover all of
its power supply 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 billing factor monthly in order to minimize the overrecovery or
underrecovery amount in the annual PSCR reconciliation.
PSCR Plan: In September 2010, Consumers submitted its 2011 PSCR plan to the MPSC. In accordance
with its proposed plan, Consumers self-implemented the 2011 PSCR charge beginning in January 2011.
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In October 2011, the administrative law judge recommended that the MPSC approve Consumers 2011
PSCR Plan, with minor exceptions.
In September 2011, Consumers submitted its 2012 PSCR plan to the MPSC. In accordance with its
proposed plan, Consumers expects to self-implement the 2012 PSCR charge beginning in January 2012.
PSCR Reconciliation: Presented in the following table is the PSCR reconciliation filing pending
with the MPSC:
PSCR Year | Date Filed | Net Underrecovery | PSCR Cost of Power Sold | |||
2010
|
March 2011 | $15 million | $1.7 billion | |||
In June 2011, the MPSC issued an order approving Consumers 2009 PSCR reconciliation, as
modified by the order, and authorized Consumers to include an underrecovery of $31 million in its
2010 PSCR reconciliation.
Electric Revenue Decoupling Mechanism: The MPSCs 2009 electric rate case order authorized
Consumers to implement an electric revenue decoupling mechanism, subject to certain conditions.
This decoupling mechanism, which was extended through November 2011 in the 2010 electric rate case
order, allows Consumers to adjust future electric rates to compensate for changes in sales volumes
resulting from the difference between the level of average sales per customer adopted in the order
and actual average sales per customer. Various parties have filed appeals concerning the electric
decoupling mechanism.
In March 2011, Consumers filed its first reconciliation of the electric revenue decoupling
mechanism with the MPSC, requesting recovery of $27 million from customers for the period December
2009 through November 2010. The MPSC Staff and intervenors are opposing this recovery.
At September 30, 2011, Consumers had a $55 million non-current regulatory asset recorded for
electric decoupling, which included the $27 million balance referred to above.
Uncollectible Expense Tracking Mechanism: In March 2011, Consumers filed its reconciliation of the
uncollectible expense tracking mechanism with the MPSC, requesting recovery of $3 million from
customers for November 2009 through November 2010, the entire period of the tracker. The
uncollectible expense tracking mechanism, authorized by the MPSC in its 2009 electric rate order,
allowed future rates to be adjusted to collect or refund 80 percent of the difference between the
level of electric uncollectible expense included in rates and actual uncollectible expense. During
2009, various parties filed appeals concerning the uncollectible expense tracking mechanism. In
its 2010 electric rate order, the MPSC terminated the uncollectible expense tracking mechanism as
of November 2010.
Electric Operation and Maintenance Expenditures Show-Cause Order: In 2005, the MPSC ordered
Consumers to spend certain amounts on future tree-trimming and line-clearing activities, as well as
on the operation and maintenance of Consumers fossil-fueled power plants. In 2009, the MPSC
issued a show-cause order alleging that, in 2007, Consumers spent $14 million less on forestry and
fossil-fueled plant operation and maintenance activity than the amount ordered by the MPSC and that
Consumers had not refunded this amount to customers. Consumers response indicated that the total
amount it spent on forestry and fossil-fueled plant operation and maintenance activity for the
years 2006 through 2009 exceeded the total amounts included in rates for these activities. In June
2011, the MPSC found that Consumers violated the 2005 order, but that customers were not affected
significantly by the violation. The MPSC levied a $65,200 penalty on Consumers, but concluded that
no refund was required.
Big Rock Decommissioning: The MPSC and FERC regulate the recovery of Consumers costs to
decommission Big Rock. Subsequent to 2000, Consumers stopped funding a Big Rock trust fund because
the collection period for an MPSC-authorized decommissioning surcharge expired. The level of funds
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provided by the trust fell short of the amount needed to complete decommissioning and Consumers
provided $44 million of corporate contributions for decommissioning costs.
In an order issued in February 2010, the MPSC concluded that certain revenues collected during a
statutory rate freeze from 2001 through 2003 should have been deposited in a decommissioning trust
fund. The MPSC agreed that Consumers was entitled to recover $44 million of decommissioning costs,
but concluded that Consumers had collected this amount previously through the rates in effect
during the rate freeze. In April 2010, the MPSC ordered Consumers to refund $85 million of revenue
collected in excess of decommissioning costs plus interest. Consumers completed this refund in
January 2011. Consumers filed an appeal with the Michigan Court of Appeals in March 2010 to
dispute the MPSCs conclusion that the collections received during the rate freeze should be
subject to refund.
Consumers paid $30 million to Entergy to assume ownership and responsibility for the Big Rock
ISFSI. Consumers also incurred $55 million at Big Rock for nuclear fuel storage costs as a result
of the DOEs failure to accept spent nuclear fuel. Consumers has an $85 million regulatory asset
recorded on its consolidated balance sheets for these costs. Consumers had filed a complaint
against the DOE in 2002 for its failure to accept spent nuclear fuel, and in July 2011, Consumers
entered into an agreement with the DOE to settle its claims for $120 million. In September 2011,
Consumers filed an application with the MPSC requesting authority to utilize $85 million of the DOE
settlement amount as recovery of its regulatory asset, and to refund to customers $23 million
previously collected through rates for spent nuclear fuel costs. If the MPSC concludes that
Consumers may retain any portion of the remaining $12 million of the DOE settlement amount,
Consumers will recognize that amount in earnings. For further information, see Note 3,
Contingencies and Commitments, Consumers Electric Utility Contingencies Nuclear Matters.
Renewable Energy Plan: In 2010, Consumers filed with the MPSC its first annual report and
reconciliation for its renewable energy plan, requesting approval of Consumers reconciliation of
renewable energy plan costs for 2009. In June 2011, the administrative law judge issued a proposal
for decision, recommending that the MPSC issue an order finding that Consumers met its 2009
renewable portfolio standards and that actual 2009 renewable energy expenses and revenues fell
within MPSC-authorized levels. The administrative law judge also recommended, however, that the
MPSC exclude from recovery through the renewable surcharge $3 million of capital expenditures,
along with related carrying costs, that Consumers incurred prior to enactment of the 2008 Energy
Law.
Consumers filed its second annual report and reconciliation with the MPSC in June 2011, requesting
approval of its reconciliation of renewable energy plan costs for 2010.
In May 2011, the MPSC issued an order approving Consumers amended renewable energy plan, with
slight modifications. The amended plan reduces the renewable energy surcharge that will be billed
to customers by an annual amount of $54 million. The reduction is a result of
lower-than-anticipated costs to comply with the renewable energy requirements prescribed by the
2008 Energy Law.
In October 2011, Consumers filed an application for the biennial review and approval of its
renewable energy plan. The plan further reduces the renewable energy surcharge that will be billed to
customers by an annual amount of $3 million.
Energy Optimization Plan: In May 2011, the MPSC issued an order approving Consumers
reconciliation of energy optimization plan costs for 2009. The MPSC also authorized Consumers to
collect $6 million from customers as an incentive payment for exceeding savings targets under both
its gas and electric energy optimization plans during 2009. Consumers will collect the incentive
over 12 months beginning June 2011.
In April 2011, Consumers filed with the MPSC its second annual report and reconciliation for its
energy optimization plan, requesting approval of Consumers reconciliation of energy optimization
plan costs for 2010.
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Consumers also requested approval to collect $8 million from customers as an
incentive payment for exceeding savings targets under both its gas and electric energy optimization
plans during 2010.
As one of the conditions to the continuation of the electric and gas decoupling mechanisms,
Consumers must exceed the statutory savings targets for 2012 through 2015 specified in the 2008
Energy Law. In August 2011, Consumers filed an amended energy optimization plan with the MPSC,
requesting approval of the additional spending necessary to exceed these savings targets.
Electric Depreciation: In June 2011, the MPSC approved a settlement agreement in Consumers
February 2010 electric depreciation case, authorizing a $19 million increase in annual depreciation
expense. The new depreciation rates will go into effect with a final order in Consumers next
electric rate case.
In February 2010, Consumers filed an electric depreciation case for Ludington, the pumped-storage
plant jointly owned by Consumers and Detroit Edison. This case, filed jointly with Detroit Edison,
requests an increase in annual depreciation expense. Consumers share of this increase is $9
million annually. In October 2011, a settlement agreement among all parties was submitted to the
MPSC for approval.
Consumers Gas Utility
Gas Rate Case: In August 2010, Consumers filed an application with the MPSC seeking an annual
rate increase of $55 million based on an 11 percent authorized return on equity. The filing
requested recovery for investments made to enhance safety, system reliability, and operational
efficiencies that improve service to customers.
Consumers filed testimony and exhibits with the MPSC in January 2011, supporting a self-implemented
annual gas rate increase of $48 million, subject to refund with interest. In February, Consumers
filed a letter with the MPSC reducing the proposed self-implemented increase to $29 million. The
MPSC then issued an order delaying Consumers self-implementation in order to give other parties to
the proceeding an opportunity to respond to Consumers revised self-implementation filing.
In May 2011, the MPSC approved a partial settlement agreement authorizing Consumers to increase its
rates by $31 million annually, based on a 10.5 percent authorized return on equity. Matters not
addressed in the settlement agreement included the decoupling mechanism, the Smart Grid program,
and contributions to the low-income and energy efficiency fund. Presented in the following table
are the components of the rate increase authorized by the MPSC and the rate increase originally
requested by Consumers:
In Millions | ||||||||||||
Increase Originally | ||||||||||||
Increase Authorized | Requested by | |||||||||||
Components of the rate increase | by the MPSC | Consumers | Difference | |||||||||
Investment in rate base |
$ | 29 | $ | 30 | $ | (1 | ) | |||||
Impact of sales declines |
15 | 4 | 11 | |||||||||
Operating and maintenance costs |
2 | 16 | (14 | ) | ||||||||
Cost of capital |
(15 | ) | 5 | (20 | ) | |||||||
Total |
$ | 31 | $ | 55 | $ | (24 | ) | |||||
In August 2011, the MPSC authorized the continuation of the decoupling mechanism and the
collection of low-income and energy efficiency funds, but denied recovery of costs associated with
the Smart Grid program related to Consumers gas utility. Consumers filed a petition for rehearing
in this case, stating that disallowance of Smart Grid costs was contrary to the settlement
agreement approved in May 2011. In its petition, Consumers recognized the MPSCs concerns
regarding the Smart Grid program related to the gas utility and stated that it would remove all costs associated with the gas Smart Grid
program from its next general rate case application. In October 2011, the MPSC granted Consumers
petition for
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rehearing, allowing Consumers to recover costs that the gas utility has incurred
associated with the Smart Grid program.
In September 2011, Consumers filed an application with the MPSC seeking an annual rate increase of
$49 million based on a 10.7 percent authorized return on equity. The filing requested recovery for
investments made to enhance safety, system reliability, and operational efficiencies that improve
service to customers. Presented in the following table are the components of the requested rate
increase:
In Millions | ||||
Components of the rate increase |
||||
Investment in rate base |
$ | 22 | ||
Impact of reduced funding for customer assistance programs1 |
19 | |||
Cost of capital |
10 | |||
Impact of sales declines |
2 | |||
Reduced operating and maintenance costs |
(4 | ) | ||
Total |
$ | 49 | ||
1 Consumers projects gas uncollectible expense to increase by $19 million in 2012 due
to an anticipated reduction in federal and state funding for customer assistance programs.
Due to the uncertainty surrounding federal and state funding for such programs and the
resulting impact on uncollectible expense, Consumers also requested that the MPSC approve an
uncollectible expense true-up mechanism.
Gas Cost Recovery: The GCR process is designed to allow Consumers to recover all of its
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 GCR billing factor monthly in order to minimize the overrecovery or
underrecovery amount in the annual GCR reconciliation.
GCR Plan: In December 2010, Consumers submitted its 2011-2012 GCR plan to the MPSC. In accordance
with its proposed plan, Consumers self-implemented the 2011-2012 GCR charge beginning in April
2011. In September 2011, the administrative law judge recommended that the MPSC approve Consumers
2011-2012 GCR plan, with certain adjustments to its fixed-price purchase guidelines.
GCR Reconciliations: Presented in the following table are the GCR reconciliation filings pending
with the MPSC:
GCR Year | Date Filed | Net Overrecovery | GCR Cost of Gas Sold | |||
2009-2010
|
June 2010 | $1 million | $1.3 billion | |||
2010-2011
|
June 2011 | 6 million | 1.2 billion | |||
Gas Revenue Decoupling Mechanism: The MPSCs 2009 gas rate case order authorized Consumers to
implement a gas revenue decoupling mechanism, subject to certain conditions. This decoupling
mechanism, which was extended in the 2010 gas rate case order, allows Consumers to adjust future
gas rates to compensate for changes in sales volumes resulting from the difference between the
level of average sales per customer adopted in the order and actual average weather-adjusted sales
per customer. In September 2011, Consumers filed its first reconciliation of the gas revenue
decoupling mechanism with the MPSC, requesting recovery of $16 million from customers for the
period June 2010 through May 2011. At September 30, 2011, Consumers had a $16 million non-current
regulatory asset recorded for gas decoupling.
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5: FINANCINGS
Presented in the following table is a summary of major long-term debt transactions during the
nine months ended September 30, 2011:
Principal | Issue/Retirement | |||||||||||||||
(In Millions) | Interest Rate | Date | Maturity Date | |||||||||||||
Debt Issuances |
||||||||||||||||
CMS Energy |
||||||||||||||||
Senior notes |
$ | 250 | 2.75 | % | May 2011 | May 2014 | ||||||||||
Consumers |
||||||||||||||||
Tax-exempt bonds1 |
68 | Variable | May 2011 | April 2018 | ||||||||||||
Tax-exempt bonds1 |
35 | Variable | May 2011 | April 2035 | ||||||||||||
Total |
$ | 353 | ||||||||||||||
Debt Retirements |
||||||||||||||||
CMS Energy |
||||||||||||||||
Senior notes |
$ | 146 | 8.5 | % | April 2011 | April 2011 | ||||||||||
Consumers |
||||||||||||||||
Nuclear fuel disposal liability2 |
163 | Variable | July 2011 | | ||||||||||||
Tax-exempt bonds1 |
68 | Variable | May 2011 | April 2018 | ||||||||||||
Tax-exempt bonds1 |
35 | Variable | May 2011 | April 2035 | ||||||||||||
Total |
$ | 412 | ||||||||||||||
1 In May 2011, Consumers utilized the Michigan Strategic Fund for the issuance of $68
million and $35 million of tax-exempt Michigan Strategic Fund Variable Rate Limited
Obligation Revenue Bonds. The initial interest rate, which resets weekly, was 0.26 percent
for the $68 million bond issuance and 0.28 percent for the $35 million bond issuance. The
bonds, which are backed by letters of credit and collateralized by FMBs, are subject to
optional tender by the holders that would result in remarketing. Consumers used the
proceeds to redeem $103 million of tax-exempt bonds in May 2011.
2 In July 2011, Consumers settled its nuclear fuel disposal liability with the DOE.
For additional details, see the Consumers Electric Utility Contingencies Nuclear
Matters section in Note 3, Contingencies and Commitments.
In September 2011, CMS Energy called $50 million principal amount of its 6.3 percent senior
notes due in 2012 for redemption in October 2011.
Revolving Credit Facilities: The following secured revolving credit facilities with banks were
available at September 30, 2011:
In Millions | ||||||||||||||||
Letters of Credit | ||||||||||||||||
Expiration Date | Amount of Facility | Amount Borrowed | Outstanding | Amount Available | ||||||||||||
CMS Energy |
||||||||||||||||
March 31, 20161 |
$ | 550 | $ | | $ | 3 | $ | 547 | ||||||||
Consumers | ||||||||||||||||
March 31, 20162, 3 |
$ | 500 | $ | | $ | 1 | $ | 499 | ||||||||
August 9, 20133 |
150 | | | 150 | ||||||||||||
September 9, 20143,4 |
30 | | 30 | | ||||||||||||
1 On March 31, 2011, CMS Energy entered into a $550 million secured revolving credit
facility with a consortium of banks. This facility has a five-year term and replaces CMS
Energys revolving credit facility that was set to expire in 2012. Obligations under this
facility are secured by Consumers common stock.
CMS Energys average borrowings during the nine months ended September 30, 2011 totaled $14
million, with a weighted-average annual interest rate of 2.22 percent, representing LIBOR plus
2.00 percent
2 On March 31, 2011, Consumers entered into a $500 million secured revolving credit
facility with a consortium of banks. This facility has a five-year term and replaces Consumers revolving credit facility
that was set to expire in 2012.
3 Obligations under this facility are secured by FMBs of Consumers.
4 Secured revolving letter of credit facility.
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Short-term Borrowings: Under Consumers revolving accounts receivable sales program,
Consumers may transfer up to $250 million of accounts receivable, subject to certain eligibility
requirements. These transactions are accounted for as short-term secured borrowings. At September
30, 2011, $250 million of accounts receivable were eligible for transfer, and no accounts
receivable had been transferred under the program. During the nine months ended September 30,
2011, Consumers had no borrowings under this program.
Contingently Convertible Securities: Presented in the following table are the significant terms of
CMS Energys contingently convertible securities at September 30, 2011:
Outstanding | Adjusted Conversion | Adjusted | ||||||||||||||
Security | Maturity | (In Millions) | Price | Trigger Price | ||||||||||||
2.875% senior notes |
2024 | $ | 288 | $ | 12.67 | $ | 15.20 | |||||||||
5.50% senior notes |
2029 | 172 | 14.26 | 18.54 | ||||||||||||
During 20 of the last 30 trading days ended September 30, 2011, the adjusted trigger-price
contingencies were met for both series of the contingently convertible senior notes, and as a
result, the senior notes are convertible at the option of the security holders for the three months
ending December 31, 2011.
Presented in the following table are details about conversions of contingently convertible
securities during the nine months ended September 30, 2011:
3.375%contingently | Conversion Value | Cash Paid on | ||||||||||||||||
convertible senior | Principal Converted | per $1,000 of | Common Stock Issued | Settlement | ||||||||||||||
notes due 2023 | Conversion Date | (In Millions) | principal | on Settlement | (In Millions) | |||||||||||||
Voluntary conversion
|
January 2011 | $ | 4 | $ | 1,994.21 | 197,472 | $ | 4 |
Dividend Restrictions: Under provisions of CMS Energys senior notes indenture, at September
30, 2011, payment of common stock dividends by CMS Energy was limited to $1.2 billion.
Under the provisions of its articles of incorporation, at September 30, 2011, Consumers had $510
million of unrestricted retained earnings available to pay common stock dividends to CMS Energy.
Provisions of the Federal Power Act and the Natural Gas Act appear to restrict dividends payable by
Consumers to the amount of Consumers retained earnings. Several decisions from FERC suggest that
under a variety of circumstances common stock dividends from Consumers would not be limited to
amounts in Consumers retained earnings. Any decision by Consumers to pay common stock dividends
in excess of retained earnings would be based on specific facts and circumstances and would result
only after a formal regulatory filing process.
For the nine months ended September 30, 2011, CMS Energy received $292 million of common stock
dividends from Consumers.
Issuance of Common Stock: On June 15, 2011, CMS Energy entered into a continuous equity offering
program under which CMS Energy may sell, from time to time in at the market offerings, common
stock having an aggregate sales price of up to $50 million. In June 2011, under this program, CMS
Energy issued 762,925 shares of common stock at an average price of $19.66 per share, resulting in
net proceeds of $15 million.
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6: EARNINGS PER SHARE CMS ENERGY
Presented in the following table are CMS Energys basic and diluted EPS computations based on
income from continuing operations:
In Millions, Except Per Share Amounts | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Income Available to Common Stockholders |
||||||||||||||||
Income from continuing operations |
$ | 140 | $ | 146 | $ | 374 | $ | 335 | ||||||||
Less income attributable to noncontrolling interests |
1 | 1 | 2 | 3 | ||||||||||||
Less charge for deferred issuance costs on
preferred stock |
| 8 | | 8 | ||||||||||||
Less preferred stock dividends |
| 3 | | 8 | ||||||||||||
Income from Continuing Operations Available
to Common Stockholders Basic and Diluted |
$ | 139 | $ | 134 | $ | 372 | $ | 316 | ||||||||
Average Common Shares Outstanding |
||||||||||||||||
Weighted average shares basic |
251.3 | 229.0 | 250.5 | 228.4 | ||||||||||||
Add dilutive contingently convertible securities |
11.3 | 24.9 | 11.4 | 21.3 | ||||||||||||
Add dilutive non-vested stock awards and options |
0.6 | 0.2 | 0.4 | 0.1 | ||||||||||||
Add dilutive convertible debentures |
0.7 | 0.6 | | | ||||||||||||
Weighted average shares diluted |
263.9 | 254.7 | 262.3 | 249.8 | ||||||||||||
Income from Continuing Operations per Average Common
Share Available to Common Stockholders |
||||||||||||||||
Basic |
$ | 0.55 | $ | 0.58 | $ | 1.48 | $ | 1.38 | ||||||||
Diluted |
0.53 | 0.53 | 1.42 | 1.26 | ||||||||||||
Contingently Convertible Securities
When CMS Energy has earnings from continuing operations, its contingently convertible
securities dilute EPS to the extent that the conversion value of a security, which is based on the
average market price of CMS Energy common stock, exceeds the principal value of that security.
Stock Options and Warrants
For the three months and nine months ended September 30, 2011, outstanding options
to purchase 0.1 million shares of CMS Energy common stock had no impact on diluted EPS, since the
exercise price was greater than the average market price of CMS Energy common stock. These stock
options have the potential to dilute EPS in the future.
Non-vested Stock Awards
CMS Energys non-vested stock awards are composed of participating and non-participating
securities. The participating securities accrue cash dividends when common stockholders receive
dividends. Since the recipient is not required to return the dividends to CMS Energy if the
recipient forfeits the award, the non-vested stock awards are considered participating securities.
As such, the participating non-vested stock awards were included in the computation of basic EPS.
The non-participating securities accrue stock dividends that vest concurrently with the stock
award. If the recipient forfeits the award, the stock dividends accrued on the non-participating
securities are also forfeited. Accordingly, the non-participating awards and stock dividends were
included in the computation of diluted EPS, but not basic EPS.
Convertible Debentures
For the nine months ended September 30, 2011 and the nine months ended September 30, 2010, CMS
Energys 7.75 percent convertible subordinated debentures would have increased diluted earnings
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per share had they been included in the calculation. Using the if-converted method, the
debentures would have had the following impacts on the calculation of diluted EPS:
In Millions | ||||||||
Nine Months Ended | ||||||||
September 30 | 2011 | 2010 | ||||||
Increase to numerator from assumed reduction
in interest expense |
$ | 1 | $ | 1 | ||||
Increase to denominator from assumed
conversion of debentures into common shares |
0.7 | 0.7 | ||||||
CMS Energy can revoke the conversion rights if certain conditions are met.
7: FINANCIAL INSTRUMENTS
The carrying amounts of CMS Energys and Consumers cash, cash equivalents, current accounts
and notes receivable, short-term investments, and current liabilities approximate their fair values
because of their short-term nature. Presented in the following table are the cost or carrying
amounts and fair values of CMS Energys and Consumers long-term financial instruments:
In Millions | ||||||||||||||||
September 30, 2011 | December 31, 2010 | |||||||||||||||
Cost or | Cost or | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Securities held to maturity |
$ | 7 | $ | 8 | $ | 5 | $ | 6 | ||||||||
Securities available for sale |
113 | 113 | 90 | 90 | ||||||||||||
Notes receivable1 |
439 | 459 | 386 | 407 | ||||||||||||
Long-term debt2 |
7,153 | 8,093 | 7,174 | 7,861 | ||||||||||||
Consumers |
||||||||||||||||
Securities available for sale |
$ | 81 | $ | 105 | $ | 64 | $ | 90 | ||||||||
Long-term debt3 |
4,335 | 4,901 | 4,525 | 4,891 | ||||||||||||
1 Includes current portion of notes receivable of $16 million at September 30, 2011
and $11 million at December 31, 2010.
2 Includes current portion of long-term debt of $1,116 million at September 30, 2011
and $726 million at December 31, 2010.
3 Includes current portion of long-term debt of $338 million at September 30, 2011 and
$37 million at December 31, 2010.
Notes receivable consist of EnerBanks fixed-rate installment loans. EnerBank estimates the
fair value of these loans using a discounted cash flows technique that incorporates market interest
rates as well as assumptions about the remaining life of the loans and credit risk. Fair values
for impaired loans are estimated using discounted cash flows or underlying collateral values.
CMS Energy and Consumers estimate the fair value of their long-term debt using quoted prices from
market trades of the debt, if available. In the absence of quoted prices, CMS Energy and Consumers
calculate market yields and prices for the debt using a matrix method that incorporates market data
for similarly rated debt. Depending on the information available, other valuation techniques may
be used that rely on internal assumptions and models. CMS Energy includes the value of the
conversion features in estimating the fair value of its convertible debt, and incorporates, as appropriate, information on
the market prices of CMS Energy common stock.
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The effects of third-party credit enhancements are excluded from the fair value measurements of
long-term debt. At September 30, 2011 and December 31, 2010, CMS Energys long-term debt included
$103 million principal amount that was supported by third-party credit enhancements. This entire
principal amount was at Consumers.
Presented in the following table are CMS Energys and Consumers investment securities:
In Millions | ||||||||||||||||||||||||||||||||
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | Unrealized | |||||||||||||||||||||||||||||
Cost | Gains | Losses | Fair Value | Cost | Gains | Losses | Fair Value | |||||||||||||||||||||||||
CMS Energy, including consumers | ||||||||||||||||||||||||||||||||
Available for sale |
||||||||||||||||||||||||||||||||
SERP |
||||||||||||||||||||||||||||||||
Mutual fund |
$ | 88 | $ | | $ | 1 | $ | 87 | $ | 62 | $ | | $ | | $ | 62 | ||||||||||||||||
State and
municipal
bonds |
25 | 1 | | 26 | 28 | | | 28 | ||||||||||||||||||||||||
Held to maturity |
||||||||||||||||||||||||||||||||
Debt securities |
7 | 1 | | 8 | 5 | 1 | | 6 | ||||||||||||||||||||||||
Consumers |
||||||||||||||||||||||||||||||||
Available for sale |
||||||||||||||||||||||||||||||||
SERP |
||||||||||||||||||||||||||||||||
Mutual fund |
$ | 57 | $ | | $ | | $ | 57 | $ | 39 | $ | | $ | | $ | 39 | ||||||||||||||||
State and
municipal
bonds |
17 | | | 17 | 17 | | | 17 | ||||||||||||||||||||||||
CMS Energy common
stock |
7 | 24 | | 31 | 8 | 26 | | 34 | ||||||||||||||||||||||||
The mutual fund classified as available for sale is a short-term, fixed-income fund. During
the nine months ended September 30, 2011, CMS Energy contributed $27 million to the SERP, which
included a contribution of $20 million by Consumers. The contributions were used to acquire
additional shares in the mutual fund. State and municipal bonds classified as available for sale
consist of investment grade state and municipal bonds. Debt securities classified as held to
maturity consist primarily of mortgage-backed securities held by EnerBank, as well as state and
municipal bonds held by EnerBank.
Presented in the following table is a summary of the sales activity for CMS Energys and Consumers
investment securities:
In Millions | ||||||||||||||
Three months ended | Nine months ended | |||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||
CMS Energy, including Consumers |
||||||||||||||
Proceeds from sales of investment securities1
|
$ | 1 | $
|
$ | 2 | $ | 1 | |||||||
Consumers |
||||||||||||||
Proceeds from sales of investment securities1
|
$ | 1 | $
|
$ | 1 | $ | | |||||||
1
All of the proceeds related to sales of investments that were held within the SERP
and classified as available for sale. Realized losses on these sales were less than $1
million for both CMS Energy and Consumers during each period.
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Presented in the following table are the fair values of the SERP state and municipal bonds by
contractual maturity at September 30, 2011:
In Millions | ||||||||
CMS Energy, | ||||||||
including Consumers | Consumers | |||||||
Due one year or less |
$ | 2 | $ | 1 | ||||
Due after one year through five years |
9 | 6 | ||||||
Due after five years through ten years |
12 | 8 | ||||||
Due after ten years |
3 | 2 | ||||||
Total |
$ | 26 | $ | 17 | ||||
8: DERIVATIVE INSTRUMENTS
In order to limit exposure to certain market risks, primarily changes in commodity prices,
interest rates, and foreign exchange rates, CMS Energy and Consumers may enter into various risk
management contracts, such as forward contracts, futures, options, and swaps. Neither CMS Energy
nor Consumers enters into any derivatives for trading purposes.
The contracts used to manage market risks may qualify as derivative instruments. If a contract is
a derivative and does not qualify for the normal purchases and sales exception, the contract is
recorded on the balance sheet at its fair value. Each reporting period, the resulting asset or
liability is adjusted to reflect any change in the fair value of the contract. Since none of CMS
Energys or Consumers derivatives has been designated as an accounting hedge, all changes in fair
value are reported in earnings. For a discussion of how CMS Energy and Consumers determine the
fair value of their derivatives, see Note 2, Fair Value Measurements.
Commodity Price Risk: In order to support ongoing operations, CMS Energy and Consumers enter into
contracts for the future purchase and sale of various commodities, such as electricity, natural
gas, and coal. These forward contracts are generally long-term in nature and result in physical
delivery of the commodity at a contracted price. Most of these contracts are not subject to
derivative accounting because:
| 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; or | ||
| there is not an active market for the commodity. |
Consumers coal purchase contracts are not derivatives because there is not an active market for
the coal they purchase. If an active market for coal develops in the future, some of these
contracts may qualify as derivatives. Since Consumers is subject to regulatory accounting, the
resulting fair value gains and losses would be deferred as regulatory assets or liabilities and
would not affect net income.
Consumers also uses FTRs to manage price risk related to electricity transmission congestion. An
FTR is a financial instrument that entitles its holder to receive compensation or requires its
holder to remit payment for congestion-related transmission charges. FTRs are accounted for as
derivatives. Under regulatory accounting, all changes in fair value associated with these
instruments are deferred as regulatory assets or liabilities until the instruments are settled.
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CMS ERM has not designated its contracts to purchase and sell electricity and natural gas as normal
purchases and sales and, therefore, CMS Energy accounts for those contracts as derivatives. To
manage commodity price risks associated with these forward purchase and sale contracts, CMS ERM
uses various financial instruments, such as futures, options, and swaps. At September 30, 2011,
CMS ERM held the following derivative contracts:
| a forward contract for the physical sale of 574 GWh of electricity through 2015 on behalf of one of CMS Energys non-utility generating plants; | ||
| forward contracts to purchase 4.4 bcf and sell 7.5 bcf of natural gas through 2012 in CMS ERMs role as a marketer of natural gas for third-party producers; and | ||
| an option to sell 151 GWh of electricity through 2011. |
Presented in the following table are the fair values of CMS Energys and Consumers derivative
instruments:
In Millions | ||||||||||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||
Balance | Fair Value at | Balance | Fair Value at | |||||||||||||||||||||
Sheet | September 30, | December 31, | Sheet | September 30, | December 31, | |||||||||||||||||||
Location | 2011 | 2010 | Location | 2011 | 2010 | |||||||||||||||||||
CMS Energy, including Consumers | ||||||||||||||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||||||||||
Commodity contracts1 |
Other assets | $ | 2 | $ | 1 | Other liabilities2 | $ | 3 | $ | 4 | ||||||||||||||
Consumers |
||||||||||||||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||||||||||
Commodity contracts |
Other assets | $ | 2 | $ | 1 | Other liabilities | $ | | $ | | ||||||||||||||
1
Assets and liabilities are presented gross and exclude the impact of offsetting
derivative assets and liabilities under master netting agreements, which was less than $1
million at September 30, 2011 and December 31, 2010.
2
Liabilities exclude the impact of offsetting cash margin deposits paid by CMS ERM to
other parties, which was less than $1 million at September 30, 2011 and December 31, 2010.
CMS Energy presents these liabilities net of these impacts on its consolidated balance
sheets.
Presented in the following table is the effect on CMS Energys consolidated statements of
income of its derivatives not designated as hedging instruments:
In Millions | ||||||||||||||||
Amount of Gain (Loss) on Derivatives Recognized in Income | ||||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
Location of Gain (Loss) on Derivatives Recognized in Income |
2011 | 2010 | 2011 | 2010 | ||||||||||||
CMS Energy |
||||||||||||||||
Commodity contracts |
||||||||||||||||
Operating revenue |
$ | (1 | ) | $ | 2 | $ | (1 | ) | $ | 5 | ||||||
Fuel for electric generation |
| 1 | | 3 | ||||||||||||
Purchased and interchange power |
| 1 | | 2 | ||||||||||||
Total CMS Energy |
$ | (1 | ) | $ | 4 | $ | (1 | ) | $ | 10 | ||||||
Consumers losses on FTRs deferred as regulatory assets were $1 million for the three months
ended September 30, 2011 and its gains on FTRs deferred as regulatory liabilities were $3 million
for the three months ended September 30, 2010. Consumers gains on FTRs deferred as regulatory liabilities were
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$2 million for the nine months ended September 30, 2011 and $4 million for the nine months ended
September 30, 2010.
CMS Energys derivative liabilities subject to credit-risk-related contingent features were less
than $1 million at September 30, 2011 and were $1 million at December 31, 2010.
Credit Risk: CMS Energys swaps, options, and forward contracts contain credit risk, which is the
risk that a counterparty will fail to meet its contractual obligations.
CMS ERM enters into contracts primarily with companies in the electric and gas industry. This
industry concentration may have a positive or negative impact on CMS Energys exposure to credit
risk based on how similar changes in economic conditions, the weather, or other conditions affect
these counterparties. CMS ERM reduces its credit risk exposure by using industry-standard
agreements that allow for netting positive and negative exposures associated with the same
counterparty. Typically, these agreements also allow each party to demand adequate assurance of
future performance from the other party, when there is reason to do so.
At September 30, 2011, if counterparties within this industry concentration all failed to meet
their contractual obligations, the loss to CMS Energy on contracts accounted for as derivatives
would be less than $1 million. CMS Energy does not expect a material adverse effect on its
consolidated balance sheets and consolidated statements of income as a result of counterparty
nonperformance, given CMS Energys credit policies, current exposures, and credit reserves.
9: NOTES RECEIVABLE
EnerBank provides unsecured consumer installment loans for financing home improvements. These
loans totaled $439 million, net of an allowance for loan losses of $5 million, at September 30,
2011, and $386 million, net of an allowance for loan losses of $5 million, at December 31, 2010.
At September 30, 2011, $16 million of EnerBanks loans were classified as current notes receivable
and $423 million were classified as non-current notes receivable on CMS Energys consolidated
balance sheets. At December 31, 2010, $11 million of EnerBanks loans were classified as current
notes receivable and $375 million were classified as non-current notes receivable on CMS Energys
consolidated balance sheets.
The allowance for loan losses is a valuation allowance to reflect estimated credit losses. The
allowance is increased by the provision for loan losses and decreased by loan charge-offs net of
recoveries. Management estimates the allowance balance required by taking into consideration
historical loan loss experience, the nature and volume of the portfolio, economic conditions, and
other factors. Loan losses are charged against the allowance when the loss is confirmed, but no
later than the point at which a loan becomes 120 days past due.
Presented in the following table are the changes in the allowance for loan losses:
In Millions | ||||||||
Three months ended | Nine months ended | |||||||
September 30 | 2011 | 2011 | ||||||
Allowance for loan losses, at beginning of period |
$ | 5 | $ | 5 | ||||
Charge-offs |
(1 | ) | (4 | ) | ||||
Recoveries |
| 1 | ||||||
Provision for loan losses |
1 | 3 | ||||||
Allowance for loan losses, at end of period |
$ | 5 | $ | 5 | ||||
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Loans that are 30 days or more past due are considered delinquent. Presented in the following
table is the delinquency status of EnerBanks consumer loans at September 30, 2011:
In Millions | ||||||||||||||||||||
Past Due | Past Due | Past Due | Total | Total | ||||||||||||||||
30-59 Days | 60-89 Days | Over 90 Days | Delinquent | Current | Outstanding | |||||||||||||||
$ 1 |
$ | 1 | $ | | $ | 2 | $ | 437 | $ | 439 | ||||||||||
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10: RETIREMENT BENEFITS
CMS Energy and Consumers provide pension, OPEB, and other retirement benefits to employees.
Presented in the following tables are the costs and other changes in plan assets and benefit
obligations incurred in CMS Energys and Consumers retirement benefits plans:
In Millions | ||||||||||||||||
Pension | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Net periodic pension cost |
||||||||||||||||
Service cost |
$ | 12 | $ | 11 | $ | 36 | $ | 33 | ||||||||
Interest expense |
25 | 25 | 75 | 74 | ||||||||||||
Expected return on plan assets |
(28 | ) | (24 | ) | (84 | ) | (70 | ) | ||||||||
Amortization of: |
||||||||||||||||
Net loss |
16 | 13 | 47 | 39 | ||||||||||||
Prior service cost |
1 | 1 | 4 | 4 | ||||||||||||
Net periodic pension cost |
$ | 26 | $ | 26 | $ | 78 | $ | 80 | ||||||||
Regulatory adjustment1 |
| 7 | | 30 | ||||||||||||
Net periodic pension cost after
regulatory adjustment |
$ | 26 | $ | 33 | $ | 78 | $ | 110 | ||||||||
Consumers |
||||||||||||||||
Net periodic pension cost |
||||||||||||||||
Service cost |
$ | 12 | $ | 11 | $ | 35 | $ | 32 | ||||||||
Interest expense |
24 | 23 | 73 | 71 | ||||||||||||
Expected return on plan assets |
(27 | ) | (22 | ) | (82 | ) | (67 | ) | ||||||||
Amortization of: |
||||||||||||||||
Net loss |
15 | 13 | 46 | 38 | ||||||||||||
Prior service cost |
1 | 1 | 4 | 4 | ||||||||||||
Net periodic pension cost |
$ | 25 | $ | 26 | $ | 76 | $ | 78 | ||||||||
Regulatory adjustment1 |
| 7 | | 30 | ||||||||||||
Net periodic pension cost after
regulatory adjustment |
$ | 25 | $ | 33 | $ | 76 | $ | 108 | ||||||||
1
Regulatory adjustments are the differences between amounts included in rates and the
periodic benefit cost calculated. These regulatory adjustments were offset by surcharge
revenues, resulting in no impact to net income for the periods presented.
CMS Energys and Consumers expected long-term rate of return on Pension Plan assets is eight
percent. For the twelve months ended September 30, 2011, the actual return on Pension Plan assets
was 2.0 percent, and for the twelve months ended September 30, 2010, the actual return was 11.6
percent. The expected rate of return is an assumption about long-term asset performance that CMS
Energy and Consumers review annually for reasonableness and appropriateness.
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In Millions | ||||||||||||||||
OPEB | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Net periodic OPEB cost |
||||||||||||||||
Service cost |
$ | 7 | $ | 7 | $ | 20 | $ | 20 | ||||||||
Interest expense |
20 | 20 | 58 | 61 | ||||||||||||
Expected return on plan assets |
(17 | ) | (16 | ) | (50 | ) | (45 | ) | ||||||||
Amortization of: |
||||||||||||||||
Net loss |
7 | 8 | 23 | 24 | ||||||||||||
Prior service cost |
(5 | ) | (5 | ) | (15 | ) | (12 | ) | ||||||||
Net periodic OBEB cost |
$ | 12 | $ | 14 | $ | 36 | $ | 48 | ||||||||
Regulatory adjustment1 |
| (1 | ) | | 5 | |||||||||||
Net periodic OPEB cost after regulatory
adjustment |
$ | 12 | $ | 13 | $ | 36 | $ | 53 | ||||||||
Consumers |
||||||||||||||||
Net periodic OPEB cost |
||||||||||||||||
Service cost |
$ | 7 | $ | 6 | $ | 20 | $ | 19 | ||||||||
Interest expense |
19 | 19 | 56 | 59 | ||||||||||||
Expected return on plan assets |
(15 | ) | (14 | ) | (46 | ) | (42 | ) | ||||||||
Amortization of: |
||||||||||||||||
Net loss |
7 | 8 | 23 | 24 | ||||||||||||
Prior service cost |
(5 | ) | (5 | ) | (15 | ) | (11 | ) | ||||||||
Net periodic OPEB cost |
$ | 13 | $ | 14 | $ | 38 | $ | 49 | ||||||||
Regulatory adjustment1 |
| (1 | ) | | 5 | |||||||||||
Net periodic OPEB cost after regulatory
adjustment |
$ | 13 | $ | 13 | $ | 38 | $ | 54 | ||||||||
1 Regulatory adjustments are the differences between amounts included in rates and the
periodic benefit cost calculated. These regulatory adjustments were offset by surcharge
revenues, resulting in no impact to net income for the periods presented.
11: INCOME TAXES
Presented in the following table is a reconciliation of the statutory U.S. federal income tax
rate to the effective income tax rate from continuing operations, excluding noncontrolling
interests:
Nine Months Ended September 30 | 2011 | 2010 | ||||||
CMS Energy, Including Consumers |
||||||||
U.S. federal income tax rate |
35.0 | % | 35.0 | % | ||||
Increase (decrease) in income taxes from: |
||||||||
MCIT law change, net of federal expense |
(5.9 | ) | | |||||
State and local income taxes, net of federal benefit |
3.4 | 4.0 | ||||||
Medicare Part D exempt income, net of law change |
(0.9 | ) | (0.9 | ) | ||||
Income tax credit amortization |
(0.6 | ) | (0.6 | ) | ||||
Other, net |
0.1 | 0.9 | ||||||
Effective income tax rate |
31.1 | % | 38.4 | % | ||||
Consumers |
||||||||
U.S. federal income tax rate |
35.0 | % | 35.0 | % | ||||
Increase (decrease) in income taxes from: |
||||||||
State and local income taxes, net of federal benefit |
3.1 | 3.5 | ||||||
Medicare Part D exempt income, net of law change |
(0.8 | ) | (1.3 | ) | ||||
Plant basis differences |
0.2 | 0.3 | ||||||
Income tax credit amortization |
(0.5 | ) | (0.5 | ) | ||||
Other, net |
(0.3 | ) | (0.2 | ) | ||||
Effective income tax rate |
36.7 | % | 36.8 | % | ||||
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CMS Energys effective tax rate for the nine months ended September 30, 2011, was reduced due
to a one-time non-cash reduction in tax expense resulting from a change in Michigan tax law. In
May 2011, Michigan enacted the MCIT, effective January 1, 2012. The MCIT, a simplified six percent
corporate income tax, will replace the MBT, which is a complex multi-part business tax. Both the
MBT and the MCIT are income taxes for financial reporting purposes, for which deferred income tax
assets and liabilities are recorded. CMS Energy and Consumers remeasured their Michigan deferred
income tax assets and liabilities at June 30, 2011 to reflect this change in law. Unlike the MBT,
the MCIT does not allow future tax deductions to offset the book-tax differences that existed upon
enactment of the tax. Due primarily to the elimination of these future tax deductions, Consumers
eliminated $134 million of net deferred tax assets associated with its utility book-tax temporary
differences, recognizing a $134 million regulatory asset (not including the effects of income tax
gross-ups), and in addition to the amounts related to Consumers, CMS Energy eliminated $32 million
of net deferred tax liabilities associated with its non-utility book-tax temporary differences,
recognizing a $32 million deferred income tax benefit.
For the nine months ended September 30, 2010, CMS Energy recognized deferred tax expense of $3
million to reflect the enactment of the Health Care Acts. The law change prospectively repealed
the tax deduction for the portion of the health care costs reimbursed by the Medicare Part D
subsidy for taxable years beginning after December 31, 2012.
12: REPORTABLE SEGMENTS
Reportable segments consist of business units defined by the products and services they offer.
CMS Energy and Consumers evaluate the performance of each segment based on its contribution to net
income available to CMS Energys common stockholders. The reportable segments for CMS Energy and
Consumers are:
CMS Energy:
| electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan; | ||
| gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; | ||
| enterprises, consisting of various subsidiaries engaging primarily in domestic independent power production; and | ||
| other, including EnerBank, corporate interest and other expenses, and discontinued operations. |
Consumers:
| electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan; | ||
| gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; and | ||
| other, including a consolidated special-purpose entity for the sale of accounts receivable. |
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Presented in the following tables is financial information by reportable segment:
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Operating Revenue |
||||||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Electric utility |
$ | 1,180 | $ | 1,154 | $ | 3,026 | $ | 2,967 | ||||||||
Gas utility |
217 | 216 | 1,662 | 1,569 | ||||||||||||
Enterprises |
56 | 63 | 161 | 186 | ||||||||||||
Other |
11 | 10 | 34 | 28 | ||||||||||||
Total Operating Revenue CMS Energy |
$ | 1,464 | $ | 1,443 | $ | 4,883 | $ | 4,750 | ||||||||
Consumers |
||||||||||||||||
Electric utility |
$ | 1,180 | $ | 1,154 | $ | 3,026 | $ | 2,967 | ||||||||
Gas utility |
217 | 216 | 1,662 | 1,569 | ||||||||||||
Total Operating Revenue Consumers |
$ | 1,397 | $ | 1,370 | $ | 4,688 | $ | 4,536 | ||||||||
Net Income Available to Common
Stockholders |
||||||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Electric utility |
$ | 159 | $ | 156 | $ | 309 | $ | 283 | ||||||||
Gas utility |
(5 | ) | 2 | 88 | 69 | |||||||||||
Enterprises |
4 | 9 | 36 | 51 | ||||||||||||
Discontinued operations |
| | 2 | (17 | ) | |||||||||||
Other |
(19 | ) | (33 | ) | (61 | ) | (87 | ) | ||||||||
Total Net Income Available to Common
Stockholders CMS Energy |
$ | 139 | $ | 134 | $ | 374 | $ | 299 | ||||||||
Consumers |
||||||||||||||||
Electric utility |
$ | 159 | $ | 156 | $ | 309 | $ | 283 | ||||||||
Gas utility |
(5 | ) | 2 | 88 | 69 | |||||||||||
Other |
| 1 | 1 | 1 | ||||||||||||
Total Net Income Available to Common
Stockholder Consumers |
$ | 154 | $ | 159 | $ | 398 | $ | 353 | ||||||||
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In Millions | ||||||||
September 30, 2011 | December 31, 2010 | |||||||
Plant, Property, and Equipment, Gross |
||||||||
CMS Energy, including Consumers |
||||||||
Electric utility1 |
$ | 10,311 | $ | 9,944 | ||||
Gas utility1 |
4,149 | 4,063 | ||||||
Enterprises |
109 | 102 | ||||||
Other |
38 | 36 | ||||||
Total Plant, Property, and Equipment, Gross CMS Energy |
$ | 14,607 | $ | 14,145 | ||||
Consumers |
||||||||
Electric utility1 |
$ | 10,311 | $ | 9,944 | ||||
Gas utility1 |
4,149 | 4,063 | ||||||
Other |
15 | 15 | ||||||
Total Plant, Property, and Equipment, Gross Consumers |
$ | 14,475 | $ | 14,022 | ||||
Assets |
||||||||
CMS Energy, including Consumers |
||||||||
Electric utility1 |
$ | 9,607 | $ | 9,321 | ||||
Gas utility1 |
4,852 | 4,614 | ||||||
Enterprises |
170 | 191 | ||||||
Other |
1,329 | 1,490 | ||||||
Total Assets CMS Energy |
$ | 15,958 | $ | 15,616 | ||||
Consumers |
||||||||
Electric utility1 |
$ | 9,607 | $ | 9,321 | ||||
Gas utility1 |
4,852 | 4,614 | ||||||
Other |
599 | 904 | ||||||
Total Assets Consumers |
$ | 15,058 | $ | 14,839 | ||||
1 Amounts include a portion of Consumers other common assets attributable to both the
electric and the gas utility businesses.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CMS ENERGY
There have been no material changes to market risk as previously disclosed in Part II, Item 7A.
Quantitative and Qualitative Disclosures About Market Risk, in the 2010 Form 10-K.
CONSUMERS
There have been no material changes to market risk as previously disclosed in Part II, Item 7A.
Quantitative and Qualitative Disclosures About Market Risk, in the 2010 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
CMS ENERGY
Disclosure Controls and Procedures: CMS Energys management, with the participation of its CEO and
CFO, has evaluated the effectiveness of its disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this report. Based on such evaluation, CMS Energys CEO and CFO have concluded that, as
of the end of such period, its disclosure controls and procedures are effective.
Internal Control Over Financial Reporting: There have not been any changes in CMS Energys
internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, its internal control over financial reporting.
CONSUMERS
Disclosure Controls and Procedures: Consumers management, with the participation of its CEO and
CFO, has evaluated the effectiveness of its disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this report. Based on such evaluation, Consumers CEO and CFO have concluded that, as
of the end of such period, its disclosure controls and procedures are effective.
Internal Control Over Financial Reporting: There have not been any changes in Consumers internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, its internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CMS Energy and Consumers are parties to various lawsuits and regulatory matters in the
ordinary course of business. For information regarding material legal proceedings, including
updates to information reported under Item 3 of Part I of the 2010 Form 10-K, see Part I, Item 1,
Note 3, Contingencies and Commitments, and Note 4, Regulatory Matters.
ITEM 1A. RISK FACTORS
There have been no material changes to the Risk Factors as previously disclosed in Part I,
Item 1A. Risk Factors, in the 2010 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Unregistered Sales of Equity Securities
None. |
(c) Issuer Repurchases of Equity Securities
Presented in the following table are CMS Energys repurchases of equity securities for the three
months ended September 30, 2011:
Total Number of | Total Number of Shares Purchased as | Maximum Number of Shares that May | ||||||||||||||
Shares | Average Price Paid | Part of Publicly Announced Plans or | Yet Be Purchased Under Publicly | |||||||||||||
Period | Purchased1 | per Share | Programs | Announced Plans or Programs | ||||||||||||
July 1 31, 2011 |
| $ | | | | |||||||||||
August 1 31, 2011 |
223,836 | 18.27 | | | ||||||||||||
September 1 30,
2011 |
2,536 | 19.56 | | | ||||||||||||
Total |
226,372 | $ | 18.28 | | | |||||||||||
1 Common shares were purchased to satisfy CMS Energys minimum statutory income tax
withholding obligation for common shares that have vested under the performance incentive
stock plan. Shares repurchased have a value based on the market price on the vesting date.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. REMOVED AND RESERVED
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
The agreements included as exhibits to this Form 10-Q filing are included solely to provide
information regarding the terms of the agreements and are not intended to provide any other factual
or disclosure information about CMS Energy, Consumers, or other parties to the agreements. The
agreements may contain representations and warranties made by each of the parties to each of the
agreements that were made exclusively for the benefit of the parties involved in each of the
agreements and should not be treated as statements of fact. The representations and warranties
were made as a way to allocate risk if one or more of those statements prove to be incorrect. The
statements were qualified by disclosures of the parties to each of the agreements that may not be
reflected in each of the agreements. The agreements may apply standards of materiality that are
different than standards applied to other investors. Additionally, the statements were made as of
the date of the agreements or as specified in the agreements and have not been updated. The
representations and warranties may not describe the actual state of affairs of the parties to each
agreement.
Additional information about CMS Energy and Consumers may be found in this filing, at
www.cmsenergy.com, at www.consumersenergy.com, and through the SECs website at www.sec.gov.
Exhibits | Description | |||
4.1
|
| One Hundred Sixteenth Supplemental Indenture dated as of September 1, 2011 between Consumers and The Bank of New York Mellon, Trustee | ||
10.1
|
| Consumers and other CMS Energy Companies Retired Executives Survivor Benefit Plan for Management/ Executive Employees, distributed July 1, 2011 | ||
12.1
|
| Statement regarding computation of CMS Energys Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends | ||
12.2
|
| Statement regarding computation of Consumers Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends | ||
31.1
|
| CMS Energys certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2
|
| CMS Energys certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.3
|
| Consumers certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.4
|
| Consumers certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32.1
|
| CMS Energys certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
32.2
|
| Consumers certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
101.INS1
|
| XBRL Instance Document | ||
101.SCH1
|
| XBRL Taxonomy Extension Schema | ||
101.CAL1
|
| XBRL Taxonomy Extension Calculation Linkbase | ||
101.DEF1
|
| XBRL Taxonomy Extension Definition Linkbase | ||
101.LAB1
|
| XBRL Taxonomy Extension Labels Linkbase | ||
101.PRE1
|
| XBRL Taxonomy Extension Presentation Linkbase |
1 In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 shall
be deemed to be furnished and not filed. The financial information contained in the
XBRL-related information is unaudited and unreviewed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The
signature for each undersigned company shall be deemed to relate only to matters having reference
to such company or its subsidiary.
CMS ENERGY CORPORATION (Registrant) |
||||
Dated: October 27, 2011 | By: | /s/ Thomas J. Webb | ||
Thomas J. Webb | ||||
Executive Vice President and
Chief Financial Officer |
||||
CONSUMERS ENERGY COMPANY (Registrant) |
||||
Dated: October 27, 2011 | By: | /s/ Thomas J. Webb | ||
Thomas J. Webb | ||||
Executive Vice President and
Chief Financial Officer |
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EXHIBITS
Table of Contents
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CMS ENERGYS AND CONSUMERS EXHIBIT INDEX
Exhibits | Description | |||
4.1
|
| One Hundred Sixteenth Supplemental Indenture dated as of September 1, 2011 between Consumers and The Bank of New York Mellon, Trustee | ||
10.1
|
| Consumers and other CMS Energy Companies Retired Executives Survivor Benefit Plan for Management/ Executive Employees, distributed July 1, 2011 | ||
12.1
|
| Statement regarding computation of CMS Energys Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends | ||
12.2
|
| Statement regarding computation of Consumers Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends | ||
31.1
|
| CMS Energys certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2
|
| CMS Energys certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.3
|
| Consumers certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.4
|
| Consumers certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32.1
|
| CMS Energys certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
32.2
|
| Consumers certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
101.INS1
|
| XBRL Instance Document | ||
101.SCH1
|
| XBRL Taxonomy Extension Schema | ||
101.CAL1
|
| XBRL Taxonomy Extension Calculation Linkbase | ||
101.DEF1
|
| XBRL Taxonomy Extension Definition Linkbase | ||
101.LAB1
|
| XBRL Taxonomy Extension Labels Linkbase | ||
101.PRE1
|
| XBRL Taxonomy Extension Presentation Linkbase |
1 In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 shall
be deemed to be furnished and not filed. The financial information contained in the
XBRL-related information is unaudited and unreviewed.