CMS ENERGY CORP, 10-Q filed on 10/29/2020
Quarterly Report
v3.20.2
Cover Page - shares
9 Months Ended
Sep. 30, 2020
Oct. 08, 2020
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Commission File Number 1-9513  
Entity Registrant Name CMS ENERGY CORPORATION  
IRS Employer Identification No. 38-2726431  
Entity Incorporation State MI  
Entity Address One Energy Plaza  
City Jackson  
State MI  
Postal Zip Code 49201  
City Area Code 517  
Local Phone Number 788‑0550  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Smaller reporting company false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   286,334,466
Entity Central Index Key 0000811156  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Consumers Energy Company    
Document Information [Line Items]    
Commission File Number 1-5611  
Entity Registrant Name CONSUMERS ENERGY COMPANY  
IRS Employer Identification No. 38-0442310  
Entity Incorporation State MI  
Entity Address One Energy Plaza  
City Jackson  
State MI  
Postal Zip Code 49201  
City Area Code 517  
Local Phone Number 788‑0550  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Smaller reporting company false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   84,108,789
Entity Central Index Key 0000201533  
Common Stock    
Document Information [Line Items]    
Title of each class CMS Energy Corporation Common Stock, $0.01 par value  
Trading Symbol CMS  
Security Exchange Name NYSE  
CMS Energy Corporation 5.625% Junior Subordinated Notes due 2078    
Document Information [Line Items]    
Title of each class CMS Energy Corporation 5.625% Junior Subordinated Notes due 2078  
Trading Symbol CMSA  
Security Exchange Name NYSE  
CMS Energy Corporation 5.875% Junior Subordinated Notes due 2078    
Document Information [Line Items]    
Title of each class CMS Energy Corporation 5.875% Junior Subordinated Notes due 2078  
Trading Symbol CMSC  
Security Exchange Name NYSE  
CMS Energy Corporation 5.875% Junior Subordinated Notes due 2079    
Document Information [Line Items]    
Title of each class CMS Energy Corporation 5.875% Junior Subordinated Notes due 2079  
Trading Symbol CMSD  
Security Exchange Name NYSE  
Consumers Energy Company Cumulative Preferred Stock, $100 par value: $4.50 Series    
Document Information [Line Items]    
Title of each class Consumers Energy Company Cumulative Preferred Stock, $100 par value: $4.50 Series  
Trading Symbol CMS-PB  
Security Exchange Name NYSE  
v3.20.2
Consolidated Statements of Income (Unaudited) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Operating Revenue $ 1,575 $ 1,546 $ 4,882 $ 5,050
Operating Expenses        
Fuel for electric generation 108 130 274 391
Purchased power – related parties 13 19 45 53
Maintenance and other operating expenses 317 313 983 1,010
Depreciation and amortization 228 215 767 729
General taxes 75 70 264 247
Total operating expenses 1,206 1,195 3,872 4,122
Operating Income 369 351 1,010 928
Other Income (Expense)        
Interest income 1 2 3 5
Interest and dividend income – related parties 0 0 7 0
Allowance for equity funds used during construction 1 2 4 7
Income from equity method investees 0 5 1 6
Nonoperating retirement benefits, net 29 22 90 68
Other income 1 0 3 3
Other expense (4) 0 (9) (8)
Total other income 28 31 99 81
Interest Charges        
Interest on long-term debt 124 111 361 327
Interest expense – related parties 3 3 9 6
Other interest expense 17 20 53 55
Allowance for borrowed funds used during construction (1) (1) (2) (3)
Total interest charges 143 133 421 385
Income Before Income Taxes 254 249 688 624
Income Tax Expense 44 42 98 110
Net Income 210 207 590 514
Income (Loss) Attributable to Noncontrolling Interests (8) 0 (7) 1
Net Income Available to Common Stockholders $ 218 $ 207 $ 597 $ 513
Basic earnings per average common share (in dollars per share) $ 0.76 $ 0.73 $ 2.10 $ 1.81
Diluted earnings per average common share (in dollars per share) $ 0.76 $ 0.73 $ 2.09 $ 1.81
Consumers Energy Company        
Operating Revenue $ 1,450 $ 1,429 $ 4,524 $ 4,706
Operating Expenses        
Fuel for electric generation 85 101 207 295
Purchased and interchange power 420 408 1,121 1,132
Purchased power – related parties 13 19 45 53
Cost of gas sold 33 32 383 537
Maintenance and other operating expenses 266 272 846 911
Depreciation and amortization 223 210 753 716
General taxes 72 68 256 240
Total operating expenses 1,112 1,110 3,611 3,884
Operating Income 338 319 913 822
Other Income (Expense)        
Interest income 1 2 3 4
Interest and dividend income – related parties 2 1 4 3
Allowance for equity funds used during construction 1 2 4 7
Nonoperating retirement benefits, net 28 21 85 64
Other income 1 0 3 2
Other expense (4) 0 (9) (8)
Total other income 29 26 90 72
Interest Charges        
Interest on long-term debt 76 69 227 206
Interest expense – related parties 3 3 9 6
Other interest expense 4 4 9 11
Allowance for borrowed funds used during construction (1) (1) (2) (3)
Total interest charges 82 75 243 220
Income Before Income Taxes 285 270 760 674
Income Tax Expense 55 57 135 137
Net Income 230 213 625 537
Preferred Stock Dividends 0 0 1 1
Net Income Available to Common Stockholder 230 213 624 536
Purchased and interchange power        
Operating Expenses        
Cost of sales 430 413 1,149 1,147
Cost of gas sold        
Operating Expenses        
Cost of sales $ 35 $ 35 $ 390 $ 545
v3.20.2
Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Net income $ 210 $ 207 $ 590 $ 514
Retirement Benefits Liability        
Net loss arising during the period, net of tax of $(2), $-, $(2), and $- (5) 0 (5) 0
Settlement arising during the period, net of tax of $- for all periods 1 0 1 0
Amortization of net actuarial loss, net of tax 1 0 3 2
Amortization of prior service credit, net of tax of $- for all periods 0 0 (1) (1)
Derivatives        
Unrealized loss on derivative instruments, net of tax of $-, $-, $(1), and $(1) (1) 0 (5) (3)
Reclassification adjustments included in net income 1 0 1 0
Other Comprehensive Loss (3) 0 (6) (2)
Comprehensive Income 207 207 584 512
Comprehensive Income (Loss) Attributable to Noncontrolling Interests (8) 0 (7) 1
Comprehensive Income Attributable to CMS Energy 215 207 591 511
Consumers Energy Company        
Net income 230 213 625 537
Retirement Benefits Liability        
Amortization of net actuarial loss, net of tax 1 0 1 1
Derivatives        
Other Comprehensive Loss 1 0 1 1
Comprehensive Income $ 231 $ 213 $ 626 $ 538
v3.20.2
Consolidated Statements Of Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Net loss arising during the period, TAX BENEFIT $ (2) $ 0 $ (2) $ 0
Settlement arising during the period, TAX 0 0 0 0
Amortization of net actuarial loss, TAX 0 0 1 0
Amortization of prior service credit, TAX 0 0 0 0
Unrealized loss on derivative instruments, TAX BENEFIT 0 0 (1) (1)
Reclassification adjustments included in net income, TAX 0 0 0 0
Consumers Energy Company        
Amortization of net actuarial loss, TAX $ 0 $ 0 $ 1 $ 0
v3.20.2
Consolidated Statements Of Cash Flows (Unaudited) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash Flows from Operating Activities    
Net income $ 590 $ 514
Adjustments to reconcile net income to net cash provided by operating activities    
Depreciation and amortization 767 729
Deferred income taxes and investment tax credits 140 89
Pension contributions (531) 0
Other non-cash operating activities and reconciling adjustments 24 (11)
Cash provided by (used in) changes in assets and liabilities    
Accounts and notes receivable and accrued revenue 218 297
Inventories (34) (49)
Accounts payable and accrued rate refunds 29 (82)
Other current and non-current assets and liabilities (59) (92)
Net cash provided by operating activities 1,144 1,395
Cash Flows from Investing Activities    
Capital expenditures (excludes assets placed under finance lease) (1,697) (1,570)
Increase in EnerBank notes receivable (480) (328)
Purchase of notes receivable by EnerBank (17) (307)
Proceeds from sale of transmission equipment 0 96
Cost to retire property and other investing activities (104) (103)
Net cash used in investing activities (2,298) (2,212)
Cash Flows from Financing Activities    
Proceeds from issuance of debt 2,353 2,076
Retirement of debt (1,294) (1,170)
Increase in EnerBank certificates of deposit 456 622
Decrease in notes payable (90) (97)
Issuance of common stock, net of issuance costs 107 9
Payment of dividends on common and preferred stock (351) (326)
Proceeds from the sale of membership interest in VIE to tax equity investor 417 0
Contribution from noncontrolling interest 31 0
Other financing costs (74) (39)
Net cash provided by financing activities 1,555 1,075
Net Increase in Cash and Cash Equivalents, Including Restricted Amounts 401 258
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period 157 175
Cash and Cash Equivalents, Including Restricted Amounts, End of Period 558 433
Non-cash transactions    
Capital expenditures not paid 140 135
Consumers Energy Company    
Cash Flows from Operating Activities    
Net income 625 537
Adjustments to reconcile net income to net cash provided by operating activities    
Depreciation and amortization 753 716
Deferred income taxes and investment tax credits 136 37
Pension contributions (518) 0
Other non-cash operating activities and reconciling adjustments (21) (24)
Cash provided by (used in) changes in assets and liabilities    
Accounts and notes receivable and accrued revenue 190 230
Inventories (34) (52)
Accounts payable and accrued rate refunds 29 (76)
Other current and non-current assets and liabilities (75) (117)
Net cash provided by operating activities 1,085 1,251
Cash Flows from Investing Activities    
Capital expenditures (excludes assets placed under finance lease) (1,595) (1,559)
Proceeds from sale of transmission equipment 0 76
Cost to retire property and other investing activities (105) (100)
Net cash used in investing activities (1,700) (1,583)
Cash Flows from Financing Activities    
Proceeds from issuance of debt 1,528 918
Retirement of debt (773) (528)
Decrease in notes payable (90) (97)
Stockholder contribution 650 675
Payment of dividends on common and preferred stock (450) (397)
Other financing costs (55) (11)
Net cash provided by financing activities 810 560
Net Increase in Cash and Cash Equivalents, Including Restricted Amounts 195 228
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period 28 56
Cash and Cash Equivalents, Including Restricted Amounts, End of Period 223 284
Non-cash transactions    
Capital expenditures not paid $ 156 $ 123
v3.20.2
Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Current Assets    
Cash and cash equivalents $ 519 $ 140
Restricted cash and cash equivalents 39 17
Accounts receivable and accrued revenue, less allowance of $30 in 2020 and $20 in 2019 648 886
Notes receivable, less allowance of $35 in 2020 and $33 in 2019 272 242
Accounts and notes receivable – related parties 21 17
Inventories at average cost    
Gas in underground storage 420 399
Materials and supplies 154 140
Generating plant fuel stock 65 66
Deferred property taxes 199 305
Regulatory assets 9 33
Prepayments and other current assets 148 86
Total current assets 2,494 2,331
Plant, Property, and Equipment    
Plant, property, and equipment, gross 27,036 25,390
Less accumulated depreciation and amortization 7,845 7,360
Plant, property, and equipment, net 19,191 18,030
Construction work in progress 1,439 896
Total plant, property, and equipment 20,630 18,926
Other Non-current Assets    
Regulatory assets 2,745 2,489
Accounts and notes receivable, less allowance 2,655 2,281
Investments 68 71
Other 688 739
Total other non-current assets 6,156 5,580
Total Assets 29,280 26,837
Current Liabilities    
Current portion of long-term debt, finance leases, and other financing 1,799 1,130
Notes payable 0 90
Accounts payable 662 622
Accounts payable – related parties 5 13
Accrued rate refunds 28 35
Accrued interest 108 104
Accrued taxes 128 437
Regulatory liabilities 69 87
Other current liabilities 193 186
Total current liabilities 2,992 2,704
Non-current Liabilities    
Long-term debt 13,275 11,951
Non-current portion of finance leases and other financing 61 76
Regulatory liabilities 3,796 3,742
Postretirement benefits 382 674
Asset retirement obligations 510 477
Deferred investment tax credit 116 120
Deferred income taxes 1,821 1,655
Other non-current liabilities 429 383
Total non-current liabilities 20,390 19,078
Commitments and contingencies
Common stockholders’ equity    
Common stock 3 3
Other paid-in capital 5,225 5,113
Accumulated other comprehensive loss (79) (73)
Retained earnings (accumulated deficit) 171 (25)
Total common stockholders’ equity 5,320 5,018
Noncontrolling interests 578 37
Total equity 5,898 5,055
Total Liabilities and Equity 29,280 26,837
Consumers Energy Company    
Current Assets    
Cash and cash equivalents 199 11
Restricted cash and cash equivalents 24 17
Accounts receivable and accrued revenue, less allowance of $30 in 2020 and $20 in 2019 620 827
Accounts and notes receivable – related parties 8 9
Inventories at average cost    
Gas in underground storage 420 399
Materials and supplies 149 135
Generating plant fuel stock 62 63
Deferred property taxes 199 305
Regulatory assets 9 33
Prepayments and other current assets 126 73
Total current assets 1,816 1,872
Plant, Property, and Equipment    
Plant, property, and equipment, gross 25,893 24,963
Less accumulated depreciation and amortization 7,747 7,272
Plant, property, and equipment, net 18,146 17,691
Construction work in progress 1,422 879
Total plant, property, and equipment 19,568 18,570
Other Non-current Assets    
Regulatory assets 2,745 2,489
Accounts and notes receivable, less allowance 26 29
Accounts and notes receivable – related parties 106 102
Other 575 637
Total other non-current assets 3,452 3,257
Total Assets 24,836 23,699
Current Liabilities    
Current portion of long-term debt, finance leases, and other financing 557 221
Notes payable 0 90
Accounts payable 626 593
Accounts payable – related parties 10 20
Accrued rate refunds 28 35
Accrued interest 78 67
Accrued taxes 134 481
Regulatory liabilities 69 87
Other current liabilities 124 118
Total current liabilities 1,626 1,712
Non-current Liabilities    
Long-term debt 7,458 7,048
Non-current portion of finance leases and other financing 61 76
Regulatory liabilities 3,796 3,742
Postretirement benefits 339 622
Asset retirement obligations 486 474
Deferred investment tax credit 116 120
Deferred income taxes 2,042 1,864
Other non-current liabilities 349 304
Total non-current liabilities 14,647 14,250
Commitments and contingencies
Common stockholders’ equity    
Common stock 841 841
Other paid-in capital 6,024 5,374
Accumulated other comprehensive loss (27) (28)
Retained earnings (accumulated deficit) 1,688 1,513
Total common stockholders’ equity 8,526 7,700
Cumulative preferred stock, $4.50 series 37 37
Total equity 8,563 7,737
Total Liabilities and Equity $ 24,836 $ 23,699
v3.20.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Accounts receivable and accrued revenue ALLOWANCE $ 30 $ 20
Notes receivable – current ALLOWANCE 35 33
Accounts and notes receivable – non-current ALLOWANCE $ 81 $ 0
Common stock, authorized (in shares) 350,000,000.0 350,000,000.0
Common stock, outstanding (in shares) 286,300,000 283,900,000
Consumers Energy Company    
Accounts receivable and accrued revenue ALLOWANCE $ 30 $ 20
Common stock, authorized (in shares) 125,000,000 125,000,000
Common stock, outstanding (in shares) 84,100,000 84,100,000
Preferred stock, par value (in dollars per share) $ 4.50 $ 4.50
v3.20.2
Consolidated Statements of Changes In Equity (Unaudited) - USD ($)
$ in Millions
Total
Common Stock
Other Paid-in Capital
Accumulated Other Comprehensive Loss
Retirement benefits liability
Derivative instruments
Retained Earnings (Accumulated Deficit)
Noncontrolling Interests
Consumers Energy Company
Consumers Energy Company
Common Stock
Consumers Energy Company
Other Paid-in Capital
Consumers Energy Company
Accumulated Other Comprehensive Loss
Consumers Energy Company
Retirement benefits liability
Consumers Energy Company
Retained Earnings (Accumulated Deficit)
Consumers Energy Company
Preferred Stock
Cumulative effect of change in accounting principle
Retained Earnings (Accumulated Deficit)
Total Equity at Beginning of Period at Dec. 31, 2018 $ 4,792 $ 3 $ 5,088 $ (65) $ (63) $ (2) $ (271) $ 37 $ 6,920 $ 841 $ 4,699 $ (21) $ (21) $ 1,364 $ 37 $ 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Common stock issued     25                          
Net loss arising during the period 0       0                      
Settlement arising during the period 0       0                      
Common stock repurchased     (9)                          
Stockholder contribution                     675          
Amortization of net actuarial loss 2       2       1       1      
Amortization of prior service credit (1)       (1)                      
Unrealized loss on derivative instruments (3)         (3)                    
Reclassification adjustments included in net income 0         0                    
Net income 514           513 1 537         537    
Dividends declared on common stock             (325)             (396)    
Dividends declared on preferred stock                           (1)    
Impact of purchase and consolidation of VIE               0                
Sale of membership interest in VIE to tax equity investor               0                
Contribution from noncontrolling interest               0                
Distributions and other changes in noncontrolling interests               (1)                
Total Equity at End of Period at Sep. 30, 2019 $ 4,994 3 5,104 (67) (62) (5) (83) 37 7,736 841 5,374 (20) (20) 1,504 37  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Dividends declared per common share (in dollars per share) $ 1.1475                              
Total Equity at Beginning of Period at Jun. 30, 2019 $ 4,888 3 5,097 (67) (62) (5) (182) 37 7,647 841 5,374 (20) (20) 1,415 37 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Common stock issued     8                          
Net loss arising during the period 0       0                      
Settlement arising during the period 0       0                      
Common stock repurchased     (1)                          
Stockholder contribution                     0          
Amortization of net actuarial loss 0       0       0       0      
Amortization of prior service credit 0       0                      
Unrealized loss on derivative instruments 0         0                    
Reclassification adjustments included in net income 0         0                    
Net income 207           207 0 213         213    
Dividends declared on common stock             (108)             (124)    
Dividends declared on preferred stock                           0    
Impact of purchase and consolidation of VIE               0                
Sale of membership interest in VIE to tax equity investor               0                
Contribution from noncontrolling interest               0                
Distributions and other changes in noncontrolling interests               0                
Total Equity at End of Period at Sep. 30, 2019 $ 4,994 3 5,104 (67) (62) (5) (83) 37 7,736 841 5,374 (20) (20) 1,504 37  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Dividends declared per common share (in dollars per share) $ 0.3825                              
Total Equity at Beginning of Period at Dec. 31, 2019 $ 5,055 3 5,113 (73) (69) (4) (25) 37 7,737 841 5,374 (28) (28) 1,513 37 (51)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Common stock issued     125                          
Net loss arising during the period (5)       (5)                      
Settlement arising during the period 1       1                      
Common stock repurchased     (13)                          
Stockholder contribution                     650          
Amortization of net actuarial loss 3       3       1       1      
Amortization of prior service credit (1)       (1)                      
Unrealized loss on derivative instruments (5)         (5)                    
Reclassification adjustments included in net income 1         1                    
Net income 590           597 (7) 625         625    
Dividends declared on common stock             (350)             (449)    
Dividends declared on preferred stock                           (1)    
Impact of purchase and consolidation of VIE               101                
Sale of membership interest in VIE to tax equity investor               417                
Contribution from noncontrolling interest               31                
Distributions and other changes in noncontrolling interests               (1)                
Total Equity at End of Period at Sep. 30, 2020 $ 5,898 3 5,225 (79) (71) (8) 171 578 8,563 841 6,024 (27) (27) 1,688 37  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Dividends declared per common share (in dollars per share) $ 1.2225                              
Total Equity at Beginning of Period at Jun. 30, 2020 $ 5,251 3 5,217 (76) (68) (8) 70 37 8,505 841 6,024 (28) (28) 1,631 37 $ 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Common stock issued     8                          
Net loss arising during the period (5)       (5)                      
Settlement arising during the period 1       1                      
Common stock repurchased     0                          
Stockholder contribution                     0          
Amortization of net actuarial loss 1       1       1       1      
Amortization of prior service credit 0       0                      
Unrealized loss on derivative instruments (1)         (1)                    
Reclassification adjustments included in net income 1         1                    
Net income 210           218 (8) 230         230    
Dividends declared on common stock             (117)             (173)    
Dividends declared on preferred stock                           0    
Impact of purchase and consolidation of VIE               101                
Sale of membership interest in VIE to tax equity investor               417                
Contribution from noncontrolling interest               31                
Distributions and other changes in noncontrolling interests               0                
Total Equity at End of Period at Sep. 30, 2020 $ 5,898 $ 3 $ 5,225 $ (79) $ (71) $ (8) $ 171 $ 578 $ 8,563 $ 841 $ 6,024 $ (27) $ (27) $ 1,688 $ 37  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Dividends declared per common share (in dollars per share) $ 0.4075                              
v3.20.2
New Accounting Standards
9 Months Ended
Sep. 30, 2020
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
New Accounting Standards New Accounting Standards
Implementation of New Accounting Standards
ASU 2016‑13, Measurement of Credit Losses on Financial Instruments: This standard, which was effective on January 1, 2020 for CMS Energy and Consumers, provides new guidance for measuring and recognizing credit losses on financial instruments. The standard applies to financial assets that are not measured at fair value through net income as well as to certain off‑balance-sheet credit exposures. CMS Energy and Consumers were required to apply the standard using a modified retrospective approach, under which the initial impacts of the standard are recorded through a cumulative‑effect adjustment to beginning retained earnings on the effective date.
The standard required an increase to the allowance for loan losses at EnerBank. Prior to the standard, the allowance reflected expected credit losses over a 12‑month period, but the new guidance requires the allowance to reflect expected credit losses over the entire life of the loans. As a result, CMS Energy recorded a $65 million increase to its expected credit loss reserves on January 1, 2020, with the offsetting adjustment recorded to retained earnings, net of taxes of $14 million. The standard also requires an increase in the initial provision for loan losses recognized in net income for new loans originated in 2020 and beyond. The adoption of this standard resulted in a $15 million reduction to CMS Energy’s income before income taxes for the nine months ended September 30, 2020. For further information on EnerBank’s loans and the related allowance for loan losses, see Note 7, Notes Receivable. At Consumers, the standard applies to the allowance for uncollectible accounts, but did not result in any significant changes to the allowance methodology and did not have a material impact on Consumers’ consolidated financial statements.
ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting: This standard, which was effective as of March 12, 2020 for CMS Energy and Consumers, provides optional guidance intended to ease the potential burden in accounting for the expected discontinuation of LIBOR as a reference rate in the financial markets. The guidance can be applied to modifications made to certain
contracts to replace LIBOR with a new reference rate. The guidance, if elected, will permit entities to treat such modifications as the continuation of the original contract, without any required accounting reassessments or remeasurements. The guidance will also facilitate the continuation of hedge accounting for derivatives that may have to be modified to incorporate a new rate. The guidance is effective through December 31, 2022. CMS Energy and Consumers presently have various contracts that reference LIBOR and they are assessing how this standard may be applied to specific contract modifications.
Consumers Energy Company  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
New Accounting Standards New Accounting Standards
Implementation of New Accounting Standards
ASU 2016‑13, Measurement of Credit Losses on Financial Instruments: This standard, which was effective on January 1, 2020 for CMS Energy and Consumers, provides new guidance for measuring and recognizing credit losses on financial instruments. The standard applies to financial assets that are not measured at fair value through net income as well as to certain off‑balance-sheet credit exposures. CMS Energy and Consumers were required to apply the standard using a modified retrospective approach, under which the initial impacts of the standard are recorded through a cumulative‑effect adjustment to beginning retained earnings on the effective date.
The standard required an increase to the allowance for loan losses at EnerBank. Prior to the standard, the allowance reflected expected credit losses over a 12‑month period, but the new guidance requires the allowance to reflect expected credit losses over the entire life of the loans. As a result, CMS Energy recorded a $65 million increase to its expected credit loss reserves on January 1, 2020, with the offsetting adjustment recorded to retained earnings, net of taxes of $14 million. The standard also requires an increase in the initial provision for loan losses recognized in net income for new loans originated in 2020 and beyond. The adoption of this standard resulted in a $15 million reduction to CMS Energy’s income before income taxes for the nine months ended September 30, 2020. For further information on EnerBank’s loans and the related allowance for loan losses, see Note 7, Notes Receivable. At Consumers, the standard applies to the allowance for uncollectible accounts, but did not result in any significant changes to the allowance methodology and did not have a material impact on Consumers’ consolidated financial statements.
ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting: This standard, which was effective as of March 12, 2020 for CMS Energy and Consumers, provides optional guidance intended to ease the potential burden in accounting for the expected discontinuation of LIBOR as a reference rate in the financial markets. The guidance can be applied to modifications made to certain
contracts to replace LIBOR with a new reference rate. The guidance, if elected, will permit entities to treat such modifications as the continuation of the original contract, without any required accounting reassessments or remeasurements. The guidance will also facilitate the continuation of hedge accounting for derivatives that may have to be modified to incorporate a new rate. The guidance is effective through December 31, 2022. CMS Energy and Consumers presently have various contracts that reference LIBOR and they are assessing how this standard may be applied to specific contract modifications.
v3.20.2
Regulatory Matters
9 Months Ended
Sep. 30, 2020
Public Utilities, General Disclosures [Line Items]  
Regulatory Matters Regulatory Matters
Regulatory matters are critical to Consumers. The Michigan Attorney General, ABATE, the MPSC Staff, and certain other parties typically participate in MPSC proceedings concerning Consumers, such as Consumers’ rate cases and PSCR and GCR processes. These parties often challenge various aspects of those proceedings, including the prudence of Consumers’ policies and practices, and seek cost disallowances and other relief. The parties also have appealed significant MPSC orders. Depending upon the specific issues, the outcomes of rate cases and proceedings, including judicial proceedings challenging MPSC orders or other actions, could negatively affect CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. Consumers cannot predict the outcome of these proceedings.
There are multiple appeals pending that involve various issues concerning cost recovery from customers, the adequacy of the record of evidence supporting the recovery of Smart Energy investments, and other matters. Consumers is unable to predict the outcome of these appeals.
COVID‑19 Costs Accounting Deferral: In April 2020, the MPSC issued an order authorizing Consumers to defer uncollectible accounts expense incurred beginning March 24, 2020 that are in excess of the amount used to set existing rates. At September 30, 2020, Consumers had recorded $5 million of incremental uncollectible accounts expense as a non‑current regulatory asset.
Voluntary Transmission Asset Sale Gain Share: In September 2019, Consumers completed a sale of a portion of its electric utility’s substation transmission equipment to METC. In December 2019, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with customers; this application was approved by the MPSC in April 2020. As a result, Consumers deferred $17 million of the gain as a regulatory liability in December 2019 and shared that gain with customers in 2020.
Energy Waste Reduction Plan Incentive: Consumers filed its 2019 waste reduction reconciliation in June 2020, requesting the MPSC’s approval to collect from customers the maximum performance incentive of $34 million for exceeding its statutory savings targets in 2019. Consumers recognized incentive revenue under this program of $34 million in 2019.
Consumers Energy Company  
Public Utilities, General Disclosures [Line Items]  
Regulatory Matters Regulatory Matters
Regulatory matters are critical to Consumers. The Michigan Attorney General, ABATE, the MPSC Staff, and certain other parties typically participate in MPSC proceedings concerning Consumers, such as Consumers’ rate cases and PSCR and GCR processes. These parties often challenge various aspects of those proceedings, including the prudence of Consumers’ policies and practices, and seek cost disallowances and other relief. The parties also have appealed significant MPSC orders. Depending upon the specific issues, the outcomes of rate cases and proceedings, including judicial proceedings challenging MPSC orders or other actions, could negatively affect CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. Consumers cannot predict the outcome of these proceedings.
There are multiple appeals pending that involve various issues concerning cost recovery from customers, the adequacy of the record of evidence supporting the recovery of Smart Energy investments, and other matters. Consumers is unable to predict the outcome of these appeals.
COVID‑19 Costs Accounting Deferral: In April 2020, the MPSC issued an order authorizing Consumers to defer uncollectible accounts expense incurred beginning March 24, 2020 that are in excess of the amount used to set existing rates. At September 30, 2020, Consumers had recorded $5 million of incremental uncollectible accounts expense as a non‑current regulatory asset.
Voluntary Transmission Asset Sale Gain Share: In September 2019, Consumers completed a sale of a portion of its electric utility’s substation transmission equipment to METC. In December 2019, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with customers; this application was approved by the MPSC in April 2020. As a result, Consumers deferred $17 million of the gain as a regulatory liability in December 2019 and shared that gain with customers in 2020.
Energy Waste Reduction Plan Incentive: Consumers filed its 2019 waste reduction reconciliation in June 2020, requesting the MPSC’s approval to collect from customers the maximum performance incentive of $34 million for exceeding its statutory savings targets in 2019. Consumers recognized incentive revenue under this program of $34 million in 2019.
v3.20.2
Contingencies and Commitments
9 Months Ended
Sep. 30, 2020
Site Contingency [Line Items]  
Contingencies and Commitments 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 negatively affect CMS Energy’s 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 Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, were named as defendants in four class action lawsuits and one individual lawsuit arising as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations include price‑fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in Kansas, Missouri, and Wisconsin. In 2016, CMS Energy entities reached a settlement with the plaintiffs in the Kansas and Missouri class action cases for an amount that was not material to CMS Energy. In 2017, the federal district court approved the settlement. Plaintiffs made claims for treble damages, full consideration damages, exemplary damages, costs, interest, and/or attorneys’ fees.
After removal to federal court, all of the cases were transferred to a single federal district court pursuant to the multidistrict litigation process. In 2010 and 2011, all claims against CMS Energy defendants were dismissed by the district court based on FERC preemption.
In 2013, the U.S. Court of Appeals for the Ninth Circuit reversed the district court decision. The appellate court found that FERC preemption does not apply under the facts of these cases. The appellate court affirmed the district court’s denial of leave to amend to add federal antitrust claims. The matter was appealed to the U.S. Supreme Court, which in 2015 upheld the Ninth Circuit’s decision. The cases were remanded back to the federal district court.
In 2016, the federal district court granted the defendants’ motion for summary judgment in the individual lawsuit filed in Kansas based on a release in a prior settlement involving similar allegations; the order of summary judgment was subsequently appealed. In 2018, the U.S. Court of Appeals for the Ninth Circuit reversed the lower court’s ruling and remanded the case back to the federal district court.
In 2017, the federal district court denied plaintiffs’ motion for class certification in the two pending class action cases in Wisconsin. The plaintiffs appealed that decision to the U.S. Court of Appeals for the Ninth Circuit and in 2018, the Ninth Circuit Court of Appeals reversed and remanded the matter back to the federal district court for further consideration.
In January 2019, the judge in the multidistrict litigation granted motions filed by plaintiffs for Suggestion of Remand of the actions back to the respective transferor courts in Wisconsin and Kansas for further handling. In the Kansas action, the Judicial Panel on Multidistrict Litigation ordered the remand and the case has been transferred. In the Wisconsin actions, oppositions to the remand were filed, but the Judicial Panel on Multidistrict Litigation granted the remand in June 2019.
In 2019, CMS Energy and the plaintiffs in each of the Kansas and the Wisconsin actions engaged in settlement discussions and CMS Energy recorded a $30 million liability at December 31, 2019 as the probable estimate to settle the two cases. The parties executed a settlement agreement in the Kansas case in February 2020, and that case is now complete. In the Wisconsin case, a settlement agreement was approved in August 2020 and that case is now complete.
Bay Harbor: CMS Land retained environmental remediation obligations for the collection and treatment of leachate at Bay Harbor after selling its interests in the development in 2002. Leachate is produced when water enters into cement kiln dust piles left over from former cement plant operations at the site. In 2012, CMS Land and EGLE finalized an agreement that established the final remedies and the future water quality criteria at the site. CMS Land completed all construction necessary to implement the remedies required by the agreement and will continue to maintain and operate a system to discharge treated leachate into Little Traverse Bay under an NPDES permit, which is valid through September 2020.
CMS Land submitted a renewal request for the permit in April 2020. CMS Land is allowed to continue operating under the previous NPDES permit until a response is received from EGLE.
At September 30, 2020, CMS Energy had a recorded liability of $44 million for its remaining obligations for environmental remediation. 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. The undiscounted amount of the remaining obligation is $55 million. CMS Energy expects to pay the following amounts for long‑term leachate disposal and operating and maintenance costs during the remainder of 2020 and in each of the next five years:
In Millions
 
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025
 
CMS Energy
 
 
 
 
 
 
 
 
 
 
 
 
Long‑term leachate disposal and operating and maintenance costs
 
$
1

 
$
4

 
$
4

 
$
4

 
$
4

 
$
4


CMS Energy’s estimate of response activity costs and the timing of expenditures could change if there are changes in circumstances or assumptions used in calculating the liability. 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 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that, in connection with the sale, CMS Energy owes $152 million in taxes, plus substantial penalties and interest that could be up to or exceed the amount of the taxes claimed. In 2015, the matter was proceeding to formal arbitration; however, since then, the government of Equatorial Guinea has stopped communicating. CMS Energy has concluded that the government’s tax claim is without merit and will continue to contest the claim, but cannot predict the financial impact or outcome of the matter. An unfavorable outcome could have a material adverse effect on CMS Energy’s liquidity, financial condition, and results of operations.
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 the NREPA. Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome. Consumers estimates that its liability for NREPA sites for which it can estimate a range of loss will be between $3 million and $4 million. At September 30, 2020, Consumers had a recorded liability of $3 million, the minimum amount in the range of its estimated probable NREPA liability, as no amount in the range was considered a better estimate than any other amount.
Consumers is a potentially responsible party at a number of contaminated sites administered under CERCLA. CERCLA liability is joint and several. In 2010, Consumers received official notification from the EPA that identified Consumers as a potentially responsible party for cleanup of PCBs at the Kalamazoo River CERCLA site. The notification claimed that the EPA has reason to believe that Consumers disposed of PCBs and arranged for the disposal and treatment of PCB‑containing materials at portions of the site. In 2011, Consumers received a follow‑up letter from the EPA requesting that Consumers agree to participate in a removal action plan along with several other companies for an area of lower Portage Creek, which is connected to the Kalamazoo River. All parties, including Consumers, that were asked to participate in the removal action plan declined to accept liability. 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 known CERCLA sites will be between $3 million and $8 million. Various factors, including the number and creditworthiness of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At September 30, 2020, Consumers had a recorded liability of $3 million for its share of the total liability at these sites, the minimum amount in the range of its estimated probable CERCLA liability, as no amount in the range was considered a better estimate than any other amount.
The timing of payments related to Consumers’ remediation and other response activities at its CERCLA and NREPA sites is uncertain. Consumers periodically reviews these cost estimates. A 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 CERCLA liability.
Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout, and sealant materials at the Ludington pumped-storage plant. Consumers removed part of the PCB material and replaced it with non‑PCB material. Consumers has had several communications with the EPA regarding this matter, but cannot predict the financial impact or outcome.
MCV PPA: In 2017, the MCV Partnership initiated arbitration against Consumers, asserting a breach of contract associated with the MCV PPA. Under this PPA, Consumers pays the MCV Partnership a fixed energy charge based on Consumers’ annual average baseload coal generating plant operating and maintenance cost, fuel inventory, and administrative and general expenses. The MCV Partnership asserts that, under the Clean Air Act, Consumers should have installed pollution control equipment on coal‑fueled electric generating units years before they were retired. The MCV Partnership also asserts that Consumers should have installed pollution control equipment earlier on its remaining coal‑fueled electric generating units. Additionally, the MCV Partnership claims that Consumers improperly characterized certain costs included in the calculation of the fixed energy charge.
In January 2019, an arbitration panel issued an order concluding that the MCV Partnership is not entitled to any damages associated with its claim against Consumers related to the Clean Air Act; the majority of the MCV Partnership’s claim, which estimated damages and interest in excess of $270 million, was related to this dismissed claim. In April 2020, the MCV Partnership and Consumers signed a term sheet outlining a settlement in principle of all outstanding disputes between the parties. The settlement and associated agreements will require MPSC approval. Once those are approved, the parties will dismiss this matter with prejudice. If settlement is not approved, the arbitration panel will issue an order. Consumers believes that the MCV Partnership’s claims are without merit, but cannot predict the financial impact or outcome of the matter.
Underwater Cables in Straits of Mackinac: Consumers owns certain underwater electric cables in the Straits of Mackinac, which were de‑energized and retired in 1990. Consumers was notified that some of these cables were damaged as a result of vessel activity in 2018. Following the notification, Consumers located, inspected, sampled, capped, and returned the damaged retired cables to their original location on the lake bottom, and did not find any substantive evidence of environmental contamination. After collaborating with the State of Michigan, local Native American tribes, and other stakeholders, Consumers submitted a permit application and removal work plan with EGLE and the U.S. Army Corps of Engineers in December 2019 for partial removal of all Consumers-owned cables. In March 2020, EGLE issued a permit for the removal work and, as a result, Consumers recorded an ARO liability of
$5 million for the cost to remove partially its cables. Removal work was completed in September 2020. Consumers recovers the cost of recorded AROs through MPSC-approved depreciation rates.
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, 2020, Consumers had a recorded liability of $57 million for its remaining obligations for these sites. This amount represents the present value of long‑term projected costs, using a discount rate of 2.57 percent and an inflation rate of 2.5 percent. The undiscounted amount of the remaining obligation is $62 million. Consumers expects to pay the following amounts for remediation and other response activity costs during the remainder of 2020 and in each of the next five years:
In Millions
 
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025
 
Consumers
 
 
 
 
 
 
 
 
 
 
 
 
Remediation and other response activity costs
 
$
1

 
$
2

 
$
8

 
$
23

 
$
10

 
$
1


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.
Pursuant to orders issued by the MPSC, Consumers defers its MGP‑related remediation costs and recovers them from its customers over a ten‑year period. At September 30, 2020, Consumers had a regulatory asset of $122 million related to the MGP sites.
Consumers estimates that its liability to perform remediation and other response activities at NREPA sites other than the MGP sites could reach $3 million. At September 30, 2020, Consumers had a recorded liability of less than $1 million, the minimum amount in the range of its estimated probable liability, as no amount in the range was considered a better estimate than any other amount.
Ray Compressor Station: On January 30, 2019, Consumers experienced a fire at the Ray Compressor Station, which resulted in the Ray Storage Field being off‑line or operating at significantly reduced capacity, which negatively affected Consumers’ natural gas supply and delivery capacity. This incident, which occurred during the extreme polar vortex weather condition, required Consumers to request voluntary reductions in customer load, to implement contingency gas supply purchases, and to implement a curtailment of natural gas deliveries for industrial and large commercial customers pursuant to Consumers’ MPSC curtailment tariff. The curtailment and request for voluntary reductions of customer loads were canceled as of midnight, February 1, 2019. Consumers investigated the cause of the incident, and filed a report on the incident with the MPSC in April 2019. In response, the MPSC issued an order in July 2019, directing Consumers to file additional reports regarding the incident and to include detail of the resulting costs in a future rate proceeding. The compressor station is presently operating at full capacity.
In September 2020, the MPSC disallowed the recovery of $7 million in incremental gas purchases related to the fire. Consumers could be subject to disallowances of costs associated with the repair and
modification of the Ray Compressor Station. At September 30, 2020, Consumers had incurred capital expenditures of $17 million to restore and modify the compressor station.
In May 2020, the MPSC approved an administrative settlement agreement between Consumers and the MPSC Staff, which resulted in a $10,000 civil penalty in connection with the fire. Consumers may also be subject to various claims from impacted customers and claims for damages. At this time, Consumers cannot predict the outcome of these matters or other gas-related incidents and a reasonable estimate of a total loss cannot be made, but they could have a material adverse effect on Consumers’ results of operations, financial condition, or liquidity, and could subject Consumers’ gas utility to increased regulatory scrutiny.
Guarantees
Presented in the following table are CMS Energy’s and Consumers’ guarantees at September 30, 2020:
In Millions
 
Guarantee Description
Issue Date
Expiration Date
Maximum Obligation
 
Carrying Amount
 
CMS Energy, including Consumers
 
 
 
 
 
 
Indemnity obligations from stock and asset sale agreements¹
various
indefinite
 
$
153

 
$
2

Guarantee²
July 2011
indefinite
 
30

 

Consumers
 
 
 
 
 
 
Guarantee²
July 2011
indefinite
 
$
30

 
$

1 
These obligations arose from stock and asset sale agreements under which CMS Energy or a subsidiary of CMS Energy indemnified the purchaser for losses resulting from various matters, primarily claims related to taxes. The maximum obligation amount is mostly related to the Equatorial Guinea tax claim discussed in the CMS Energy Contingencies section of this Note. CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.
2 
This obligation comprises a guarantee provided by Consumers to the U.S. Department of Energy in connection with a settlement agreement regarding damages resulting from the department’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers.
Additionally, in the normal course of business, CMS Energy, Consumers, and certain other subsidiaries of CMS Energy have entered into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. The carrying value of these indemnity obligations is $1 million. 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
In addition to the matters disclosed in this Note and Note 2, Regulatory Matters, there are certain other lawsuits and administrative proceedings before various courts and governmental agencies, as well as unasserted claims that may result in such proceedings, arising in the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These other lawsuits, proceedings, and unasserted claims 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 and potential claims will not have a material negative effect on their consolidated results of operations, financial condition, or liquidity.
Consumers Energy Company  
Site Contingency [Line Items]  
Contingencies and Commitments 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 negatively affect CMS Energy’s 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 Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, were named as defendants in four class action lawsuits and one individual lawsuit arising as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations include price‑fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in Kansas, Missouri, and Wisconsin. In 2016, CMS Energy entities reached a settlement with the plaintiffs in the Kansas and Missouri class action cases for an amount that was not material to CMS Energy. In 2017, the federal district court approved the settlement. Plaintiffs made claims for treble damages, full consideration damages, exemplary damages, costs, interest, and/or attorneys’ fees.
After removal to federal court, all of the cases were transferred to a single federal district court pursuant to the multidistrict litigation process. In 2010 and 2011, all claims against CMS Energy defendants were dismissed by the district court based on FERC preemption.
In 2013, the U.S. Court of Appeals for the Ninth Circuit reversed the district court decision. The appellate court found that FERC preemption does not apply under the facts of these cases. The appellate court affirmed the district court’s denial of leave to amend to add federal antitrust claims. The matter was appealed to the U.S. Supreme Court, which in 2015 upheld the Ninth Circuit’s decision. The cases were remanded back to the federal district court.
In 2016, the federal district court granted the defendants’ motion for summary judgment in the individual lawsuit filed in Kansas based on a release in a prior settlement involving similar allegations; the order of summary judgment was subsequently appealed. In 2018, the U.S. Court of Appeals for the Ninth Circuit reversed the lower court’s ruling and remanded the case back to the federal district court.
In 2017, the federal district court denied plaintiffs’ motion for class certification in the two pending class action cases in Wisconsin. The plaintiffs appealed that decision to the U.S. Court of Appeals for the Ninth Circuit and in 2018, the Ninth Circuit Court of Appeals reversed and remanded the matter back to the federal district court for further consideration.
In January 2019, the judge in the multidistrict litigation granted motions filed by plaintiffs for Suggestion of Remand of the actions back to the respective transferor courts in Wisconsin and Kansas for further handling. In the Kansas action, the Judicial Panel on Multidistrict Litigation ordered the remand and the case has been transferred. In the Wisconsin actions, oppositions to the remand were filed, but the Judicial Panel on Multidistrict Litigation granted the remand in June 2019.
In 2019, CMS Energy and the plaintiffs in each of the Kansas and the Wisconsin actions engaged in settlement discussions and CMS Energy recorded a $30 million liability at December 31, 2019 as the probable estimate to settle the two cases. The parties executed a settlement agreement in the Kansas case in February 2020, and that case is now complete. In the Wisconsin case, a settlement agreement was approved in August 2020 and that case is now complete.
Bay Harbor: CMS Land retained environmental remediation obligations for the collection and treatment of leachate at Bay Harbor after selling its interests in the development in 2002. Leachate is produced when water enters into cement kiln dust piles left over from former cement plant operations at the site. In 2012, CMS Land and EGLE finalized an agreement that established the final remedies and the future water quality criteria at the site. CMS Land completed all construction necessary to implement the remedies required by the agreement and will continue to maintain and operate a system to discharge treated leachate into Little Traverse Bay under an NPDES permit, which is valid through September 2020.
CMS Land submitted a renewal request for the permit in April 2020. CMS Land is allowed to continue operating under the previous NPDES permit until a response is received from EGLE.
At September 30, 2020, CMS Energy had a recorded liability of $44 million for its remaining obligations for environmental remediation. 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. The undiscounted amount of the remaining obligation is $55 million. CMS Energy expects to pay the following amounts for long‑term leachate disposal and operating and maintenance costs during the remainder of 2020 and in each of the next five years:
In Millions
 
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025
 
CMS Energy
 
 
 
 
 
 
 
 
 
 
 
 
Long‑term leachate disposal and operating and maintenance costs
 
$
1

 
$
4

 
$
4

 
$
4

 
$
4

 
$
4


CMS Energy’s estimate of response activity costs and the timing of expenditures could change if there are changes in circumstances or assumptions used in calculating the liability. 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 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that, in connection with the sale, CMS Energy owes $152 million in taxes, plus substantial penalties and interest that could be up to or exceed the amount of the taxes claimed. In 2015, the matter was proceeding to formal arbitration; however, since then, the government of Equatorial Guinea has stopped communicating. CMS Energy has concluded that the government’s tax claim is without merit and will continue to contest the claim, but cannot predict the financial impact or outcome of the matter. An unfavorable outcome could have a material adverse effect on CMS Energy’s liquidity, financial condition, and results of operations.
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 the NREPA. Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome. Consumers estimates that its liability for NREPA sites for which it can estimate a range of loss will be between $3 million and $4 million. At September 30, 2020, Consumers had a recorded liability of $3 million, the minimum amount in the range of its estimated probable NREPA liability, as no amount in the range was considered a better estimate than any other amount.
Consumers is a potentially responsible party at a number of contaminated sites administered under CERCLA. CERCLA liability is joint and several. In 2010, Consumers received official notification from the EPA that identified Consumers as a potentially responsible party for cleanup of PCBs at the Kalamazoo River CERCLA site. The notification claimed that the EPA has reason to believe that Consumers disposed of PCBs and arranged for the disposal and treatment of PCB‑containing materials at portions of the site. In 2011, Consumers received a follow‑up letter from the EPA requesting that Consumers agree to participate in a removal action plan along with several other companies for an area of lower Portage Creek, which is connected to the Kalamazoo River. All parties, including Consumers, that were asked to participate in the removal action plan declined to accept liability. 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 known CERCLA sites will be between $3 million and $8 million. Various factors, including the number and creditworthiness of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At September 30, 2020, Consumers had a recorded liability of $3 million for its share of the total liability at these sites, the minimum amount in the range of its estimated probable CERCLA liability, as no amount in the range was considered a better estimate than any other amount.
The timing of payments related to Consumers’ remediation and other response activities at its CERCLA and NREPA sites is uncertain. Consumers periodically reviews these cost estimates. A 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 CERCLA liability.
Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout, and sealant materials at the Ludington pumped-storage plant. Consumers removed part of the PCB material and replaced it with non‑PCB material. Consumers has had several communications with the EPA regarding this matter, but cannot predict the financial impact or outcome.
MCV PPA: In 2017, the MCV Partnership initiated arbitration against Consumers, asserting a breach of contract associated with the MCV PPA. Under this PPA, Consumers pays the MCV Partnership a fixed energy charge based on Consumers’ annual average baseload coal generating plant operating and maintenance cost, fuel inventory, and administrative and general expenses. The MCV Partnership asserts that, under the Clean Air Act, Consumers should have installed pollution control equipment on coal‑fueled electric generating units years before they were retired. The MCV Partnership also asserts that Consumers should have installed pollution control equipment earlier on its remaining coal‑fueled electric generating units. Additionally, the MCV Partnership claims that Consumers improperly characterized certain costs included in the calculation of the fixed energy charge.
In January 2019, an arbitration panel issued an order concluding that the MCV Partnership is not entitled to any damages associated with its claim against Consumers related to the Clean Air Act; the majority of the MCV Partnership’s claim, which estimated damages and interest in excess of $270 million, was related to this dismissed claim. In April 2020, the MCV Partnership and Consumers signed a term sheet outlining a settlement in principle of all outstanding disputes between the parties. The settlement and associated agreements will require MPSC approval. Once those are approved, the parties will dismiss this matter with prejudice. If settlement is not approved, the arbitration panel will issue an order. Consumers believes that the MCV Partnership’s claims are without merit, but cannot predict the financial impact or outcome of the matter.
Underwater Cables in Straits of Mackinac: Consumers owns certain underwater electric cables in the Straits of Mackinac, which were de‑energized and retired in 1990. Consumers was notified that some of these cables were damaged as a result of vessel activity in 2018. Following the notification, Consumers located, inspected, sampled, capped, and returned the damaged retired cables to their original location on the lake bottom, and did not find any substantive evidence of environmental contamination. After collaborating with the State of Michigan, local Native American tribes, and other stakeholders, Consumers submitted a permit application and removal work plan with EGLE and the U.S. Army Corps of Engineers in December 2019 for partial removal of all Consumers-owned cables. In March 2020, EGLE issued a permit for the removal work and, as a result, Consumers recorded an ARO liability of
$5 million for the cost to remove partially its cables. Removal work was completed in September 2020. Consumers recovers the cost of recorded AROs through MPSC-approved depreciation rates.
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, 2020, Consumers had a recorded liability of $57 million for its remaining obligations for these sites. This amount represents the present value of long‑term projected costs, using a discount rate of 2.57 percent and an inflation rate of 2.5 percent. The undiscounted amount of the remaining obligation is $62 million. Consumers expects to pay the following amounts for remediation and other response activity costs during the remainder of 2020 and in each of the next five years:
In Millions
 
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025
 
Consumers
 
 
 
 
 
 
 
 
 
 
 
 
Remediation and other response activity costs
 
$
1

 
$
2

 
$
8

 
$
23

 
$
10

 
$
1


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.
Pursuant to orders issued by the MPSC, Consumers defers its MGP‑related remediation costs and recovers them from its customers over a ten‑year period. At September 30, 2020, Consumers had a regulatory asset of $122 million related to the MGP sites.
Consumers estimates that its liability to perform remediation and other response activities at NREPA sites other than the MGP sites could reach $3 million. At September 30, 2020, Consumers had a recorded liability of less than $1 million, the minimum amount in the range of its estimated probable liability, as no amount in the range was considered a better estimate than any other amount.
Ray Compressor Station: On January 30, 2019, Consumers experienced a fire at the Ray Compressor Station, which resulted in the Ray Storage Field being off‑line or operating at significantly reduced capacity, which negatively affected Consumers’ natural gas supply and delivery capacity. This incident, which occurred during the extreme polar vortex weather condition, required Consumers to request voluntary reductions in customer load, to implement contingency gas supply purchases, and to implement a curtailment of natural gas deliveries for industrial and large commercial customers pursuant to Consumers’ MPSC curtailment tariff. The curtailment and request for voluntary reductions of customer loads were canceled as of midnight, February 1, 2019. Consumers investigated the cause of the incident, and filed a report on the incident with the MPSC in April 2019. In response, the MPSC issued an order in July 2019, directing Consumers to file additional reports regarding the incident and to include detail of the resulting costs in a future rate proceeding. The compressor station is presently operating at full capacity.
In September 2020, the MPSC disallowed the recovery of $7 million in incremental gas purchases related to the fire. Consumers could be subject to disallowances of costs associated with the repair and
modification of the Ray Compressor Station. At September 30, 2020, Consumers had incurred capital expenditures of $17 million to restore and modify the compressor station.
In May 2020, the MPSC approved an administrative settlement agreement between Consumers and the MPSC Staff, which resulted in a $10,000 civil penalty in connection with the fire. Consumers may also be subject to various claims from impacted customers and claims for damages. At this time, Consumers cannot predict the outcome of these matters or other gas-related incidents and a reasonable estimate of a total loss cannot be made, but they could have a material adverse effect on Consumers’ results of operations, financial condition, or liquidity, and could subject Consumers’ gas utility to increased regulatory scrutiny.
Guarantees
Presented in the following table are CMS Energy’s and Consumers’ guarantees at September 30, 2020:
In Millions
 
Guarantee Description
Issue Date
Expiration Date
Maximum Obligation
 
Carrying Amount
 
CMS Energy, including Consumers
 
 
 
 
 
 
Indemnity obligations from stock and asset sale agreements¹
various
indefinite
 
$
153

 
$
2

Guarantee²
July 2011
indefinite
 
30

 

Consumers
 
 
 
 
 
 
Guarantee²
July 2011
indefinite
 
$
30

 
$

1 
These obligations arose from stock and asset sale agreements under which CMS Energy or a subsidiary of CMS Energy indemnified the purchaser for losses resulting from various matters, primarily claims related to taxes. The maximum obligation amount is mostly related to the Equatorial Guinea tax claim discussed in the CMS Energy Contingencies section of this Note. CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.
2 
This obligation comprises a guarantee provided by Consumers to the U.S. Department of Energy in connection with a settlement agreement regarding damages resulting from the department’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers.
Additionally, in the normal course of business, CMS Energy, Consumers, and certain other subsidiaries of CMS Energy have entered into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. The carrying value of these indemnity obligations is $1 million. 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
In addition to the matters disclosed in this Note and Note 2, Regulatory Matters, there are certain other lawsuits and administrative proceedings before various courts and governmental agencies, as well as unasserted claims that may result in such proceedings, arising in the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These other lawsuits, proceedings, and unasserted claims 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 and potential claims will not have a material negative effect on their consolidated results of operations, financial condition, or liquidity.
v3.20.2
Financings and Capitalization
9 Months Ended
Sep. 30, 2020
Debt Instrument [Line Items]  
Financings and Capitalization Financings and Capitalization
Financings: Presented in the following table is a summary of major long‑term debt issuances during the nine months ended September 30, 2020:
 
Principal (In Millions)
 
Interest Rate

Issuance Date
Maturity Date
CMS Energy, parent only
 
 
 
 
 
Term loan facility¹
 
$
300

variable

February
February 2021
Junior subordinated notes²
 
500

4.750
%
May
June 2050
Total CMS Energy, parent only
 
$
800

 
 
 
Consumers
 
 
 
 
 
Term loan facility³
 
$
300

variable

January
January 2021
First mortgage bonds
 
575

3.500
%
March
August 2051
First mortgage bonds
 
525

2.500
%
May
May 2060
First mortgage bonds4
 
134

variable

May
May 2070
Total Consumers
 
$
1,534

 
 
 
Total CMS Energy
 
$
2,334

 
 
 

1 
At September 30, 2020, the interest rate on the balance of this term loan facility was 0.606 percent, based on an interest rate of one-week LIBOR plus 0.500 percent.
2 
These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness. On June 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 4.116 percent.
3 
At September 30, 2020, the interest rate on the balance of this term loan facility was 0.556 percent, based on an interest rate of one‑week LIBOR plus 0.450 percent.
4 
The variable-rate bonds bear interest quarterly at a rate of three-month LIBOR minus 0.300 percent, subject to a zero‑percent floor (zero percent at September 30, 2020).
In October 2020, Consumers issued $127 million in variable-rate first mortgage bonds that mature in October 2070 and bear interest at a rate of three-month LIBOR minus 0.300 percent, subject to a zero‑percent floor.
Presented in the following table is a summary of major long‑term debt retirements during the nine months ended September 30, 2020:
 
Principal (In Millions)
 
Interest Rate

Retirement Date
Maturity Date
Consumers
 
 
 
 
 
First mortgage bonds
 
$
100

3.770
%
April
October 2020
First mortgage bonds
 
250

5.300
%
June
September 2022
First mortgage bonds
 
375

2.850
%
September
May 2022
Total Consumers
 
$
725

 
 
 
Total CMS Energy
 
$
725

 
 
 

In July 2020, Consumers purchased, in lieu of redemption, $35 million of variable-rate tax-exempt revenue bonds due April 2035. At September 30, 2020, Consumers held the variable-rate tax-exempt revenue bonds and may remarket the bonds or replace them with debt instruments of an equivalent value.
Credit Facilities: The following credit facilities with banks were available at September 30, 2020:
In Millions
 
Expiration Date
Amount of Facility
 
Amount Borrowed
 
Letters of Credit Outstanding
 
Amount Available
 
CMS Energy, parent only
 
 
 
 
 
 
 
 
June 5, 2023
 
$
550

 
$

 
$
5

 
$
545

CMS Enterprises, including subsidiaries
 
 
 
 
 
 
 
 
September 25, 2025¹
 
$
39

 
$

 
$
39

 
$

September 30, 2025²
 
18

 

 
8

 
10

Consumers³
 
 
 
 
 
 
 
 
June 5, 2023
 
$
850

 
$

 
$
7

 
$
843

November 19, 2021
 
250

 

 
1

 
249

April 18, 2022
 
30

 

 
30

 


1 
This letter of credit facility is available to Aviator Wind Equity Holdings. For information regarding the acquisition of Aviator Wind Equity Holdings, see Note 15, Purchase of Variable Interest Entity.
2 
Under this facility, $8 million is available solely for the purpose of issuing letters of credit. Obligations under this facility are secured by the collateral accounts with the lending bank.
3 
Obligations under these facilities are secured by first mortgage bonds of Consumers.
Short‑term Borrowings: Under Consumers’ commercial paper program, Consumers may issue, in one or more placements, investment-grade commercial paper notes with maturities of up to 365 days at market interest rates. These issuances are supported by Consumers’ revolving credit facilities and may have an aggregate principal amount outstanding of up to $500 million. While the amount of outstanding commercial paper does not reduce the available capacity of the revolving credit facilities, Consumers does not intend to issue commercial paper in an amount exceeding the available capacity of the facilities. At September 30, 2020, there were no commercial paper notes outstanding under this program.
Dividend Restrictions: At September 30, 2020, payment of dividends by CMS Energy on its common stock was limited to $5.3 billion under provisions of the Michigan Business Corporation Act of 1972.
Under the provisions of its articles of incorporation, at September 30, 2020, Consumers had $1.6 billion of unrestricted retained earnings available to pay dividends on its common stock 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, dividends from Consumers on its common stock would not be limited to amounts in Consumers’ retained earnings. Any decision by Consumers to pay dividends on its common stock in excess of retained earnings would be based on specific facts and circumstances and would be subject to a formal regulatory filing process.
For the nine months ended September 30, 2020, Consumers paid $449 million in dividends on its common stock to CMS Energy.
Issuance of Common Stock: In 2018 and 2020, CMS Energy entered into equity offering programs under which it may sell, from time to time, shares of CMS Energy common stock. Under both programs, CMS Energy may sell its common stock in privately negotiated transactions, in “at the market” offerings, through forward sales transactions or otherwise.
During 2018 and 2019, CMS Energy entered into forward sales contracts having an aggregate sales price of $250 million, the maximum allowed under the 2018 program. In March 2020, CMS Energy settled one of these contracts by issuing 2,017,783 shares of common stock for $47.95 per share, resulting in net proceeds of $97 million.
Under the 2020 program, CMS Energy may sell shares of its common stock having an aggregate sales price of up to $500 million. In September 2020, CMS Energy entered into a forward sales contract having an aggregate sale price of $52 million.
Presented in the following table are details of CMS Energy’s remaining forward sales contracts under these programs at September 30, 2020:
 
 
 
Forward Price Per Share
Contract Date
Maturity Date
Number of Shares

Initial
 
September 30, 2020
 
November 20, 2018
March 31, 2021
777,899

 
$
50.91

 
$
48.83

February 21, 2019
March 31, 2021
2,083,340

 
52.27

 
50.39

September 15, 2020
December 31, 2021
846,759

 
$
61.06

 
$
61.04


These contracts allow CMS Energy to either physically settle the contracts by issuing shares of its common stock at the then‑applicable forward sale price specified by the agreement or net settle the contracts through the delivery or receipt of cash or shares. CMS Energy may settle the contracts at any time through their maturity dates, and presently intends to physically settle the contracts by delivering shares of its common stock.
The initial forward price in the forward equity sale contracts includes a deduction for commissions and will be adjusted on a daily basis over the term based on an interest rate factor and decreased on certain dates by certain predetermined amounts to reflect expected dividend payments. No amounts are recorded on CMS Energy’s consolidated balance sheets until settlements of the forward equity sale contracts occur. If CMS Energy had elected to net share settle the contracts as of September 30, 2020, CMS Energy would have been required to deliver 538,335 shares.
Consumers Energy Company  
Debt Instrument [Line Items]  
Financings and Capitalization Financings and Capitalization
Financings: Presented in the following table is a summary of major long‑term debt issuances during the nine months ended September 30, 2020:
 
Principal (In Millions)
 
Interest Rate

Issuance Date
Maturity Date
CMS Energy, parent only
 
 
 
 
 
Term loan facility¹
 
$
300

variable

February
February 2021
Junior subordinated notes²
 
500

4.750
%
May
June 2050
Total CMS Energy, parent only
 
$
800

 
 
 
Consumers
 
 
 
 
 
Term loan facility³
 
$
300

variable

January
January 2021
First mortgage bonds
 
575

3.500
%
March
August 2051
First mortgage bonds
 
525

2.500
%
May
May 2060
First mortgage bonds4
 
134

variable

May
May 2070
Total Consumers
 
$
1,534

 
 
 
Total CMS Energy
 
$
2,334

 
 
 

1 
At September 30, 2020, the interest rate on the balance of this term loan facility was 0.606 percent, based on an interest rate of one-week LIBOR plus 0.500 percent.
2 
These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness. On June 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 4.116 percent.
3 
At September 30, 2020, the interest rate on the balance of this term loan facility was 0.556 percent, based on an interest rate of one‑week LIBOR plus 0.450 percent.
4 
The variable-rate bonds bear interest quarterly at a rate of three-month LIBOR minus 0.300 percent, subject to a zero‑percent floor (zero percent at September 30, 2020).
In October 2020, Consumers issued $127 million in variable-rate first mortgage bonds that mature in October 2070 and bear interest at a rate