CMS ENERGY CORP, 10-Q filed on 10/25/2018
Quarterly Report
v3.10.0.1
Document And Entity Information - shares
9 Months Ended
Sep. 30, 2018
Oct. 09, 2018
Document Information [Line Items]    
Entity Registrant Name CMS Energy Corporation  
Trading Symbol cms  
Entity Central Index Key 0000811156  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business false  
Document Type 10-Q  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   283,331,416
Consumers Energy Company    
Document Information [Line Items]    
Entity Registrant Name Consumers Energy Company  
Entity Central Index Key 0000201533  
Entity Filer Category Non-accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Common Stock, Shares Outstanding   84,108,789
v3.10.0.1
Consolidated Statements of Income (Unaudited) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Operating Revenue $ 1,599 $ 1,527 $ 5,044 $ 4,805
Operating Expenses        
Fuel for electric generation 150 144 397 386
Purchased power – related parties 21 21 59 64
Maintenance and other operating expenses 366 304 1,002 909
Depreciation and amortization 206 193 689 652
General taxes 67 62 222 209
Total operating expenses 1,305 1,197 4,132 3,846
Operating Income 294 330 912 959
Other Income (Expense)        
Interest income 2 3 8 10
Allowance for equity funds used during construction 2 1 4 5
Income (loss) from equity method investees (1) 3 6 10
Nonoperating retirement benefits, net 22 3 68 10
Other income 1 2 2 4
Other expense (4) (2) (15) (6)
Total other income 22 10 73 33
Interest Charges        
Interest on long-term debt 101 101 304 304
Other interest expense 14 10 35 26
Allowance for borrowed funds used during construction (1) 0 (2) (2)
Total interest charges 114 111 337 328
Income Before Income Taxes 202 229 648 664
Income Tax Expense 33 57 98 200
Net Income 169 172 550 464
Income Attributable to Noncontrolling Interests 0 0 1 1
Net Income Available to Common Stockholders $ 169 $ 172 $ 549 $ 463
Basic earnings per average common share (in dollars per share) $ 0.60 $ 0.61 $ 1.95 $ 1.65
Diluted earnings per average common share (in dollars per share) 0.59 0.61 1.94 1.65
Dividends declared per common share (in dollars per share) $ 0.3575 $ 0.3325 $ 1.0725 $ 0.9975
Consumers Energy Company        
Operating Revenue $ 1,502 $ 1,437 $ 4,752 $ 4,536
Operating Expenses        
Fuel for electric generation 122 115 310 304
Purchased and interchange power 440 424 1,206 1,124
Purchased power – related parties 22 23 61 67
Cost of gas sold 45 42 530 479
Maintenance and other operating expenses 334 274 914 824
Depreciation and amortization 203 191 681 646
General taxes 65 60 216 203
Total operating expenses 1,231 1,129 3,918 3,647
Operating Income 271 308 834 889
Other Income (Expense)        
Interest income 2 2 6 8
Allowance for equity funds used during construction 2 1 4 5
Interest and dividend income – related parties 1 0 1 0
Nonoperating retirement benefits, net 21 3 63 8
Other income 0 1 1 15
Other expense (4) (2) (9) (6)
Total other income 22 5 66 30
Interest Charges        
Interest on long-term debt 69 66 203 198
Other interest expense 5 4 14 11
Allowance for borrowed funds used during construction (1) 0 (2) (2)
Total interest charges 73 70 215 207
Income Before Income Taxes 220 243 685 712
Income Tax Expense 40 62 111 216
Net Income 180 181 574 496
Preferred Stock Dividends 0 0 1 1
Net Income Available to Common Stockholders 180 181 573 495
Purchased and interchange power        
Operating Expenses        
Cost of sales 447 426 1,222 1,132
Cost of gas sold        
Operating Expenses        
Cost of sales $ 48 $ 47 $ 541 $ 494
v3.10.0.1
Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Net income $ 169 $ 172 $ 550 $ 464
Retirement Benefits Liability        
Amortization of net actuarial loss, net of tax of $- for all periods 1 0 3 1
Amortization of prior service credit 0 0 (1) 0
Investments        
Unrealized gain (loss) on investments 0 1 (1) 2
Reclassification adjustments included in net income 1 0 1 0
Other Comprehensive Income 2 1 2 3
Comprehensive Income 171 173 552 467
Comprehensive Income Attributable to Noncontrolling Interests 0 0 1 1
Comprehensive Income Attributable to CMS Energy 171 173 551 466
Consumers Energy Company        
Net income 180 181 574 496
Retirement Benefits Liability        
Amortization of net actuarial loss, net of tax of $- for all periods 1 0 2 1
Investments        
Unrealized gain (loss) on investments 0 0 (1) 2
Reclassification adjustments included in net income 1 0 1 (8)
Other Comprehensive Income 2 0 2 (5)
Comprehensive Income $ 182 $ 181 $ 576 $ 491
v3.10.0.1
Consolidated Statements Of Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Amortization of net actuarial loss TAX $ 0 $ 1 $ 0 $ 1
Amortization of prior service credit TAX 0 0 0 0
Unrealized gain (loss) on investments TAX 0 0 0 1
Reclassification adjustments included in net income TAX 0 0 0 0
Consumers Energy Company        
Amortization of net actuarial loss TAX 0 0 0 0
Unrealized gain (loss) on investments TAX 0 0 0 1
Reclassification adjustments included in net income TAX $ 0 $ 0 $ 0 $ (5)
v3.10.0.1
Consolidated Statements Of Cash Flows (Unaudited) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Cash Flows from Operating Activities    
Net income $ 550 $ 464
Adjustments to reconcile net income to net cash provided by operating activities    
Depreciation and amortization 689 652
Deferred income taxes and investment tax credit 90 198
Other non-cash operating activities and reconciling adjustments 47 78
Cash provided by (used in) changes in assets and liabilities    
Accounts and notes receivable and accrued revenue 299 185
Inventories (76) (161)
Accounts payable and accrued refunds (46) (6)
Other current and non-current assets and liabilities 12 (211)
Net cash provided by operating activities 1,565 1,199
Cash Flows from Investing Activities    
Capital expenditures (excludes assets placed under capital lease) (1,572) (1,208)
Increase in EnerBank notes receivable (200) (87)
Purchase of notes receivable by EnerBank (87) 0
Proceeds from DB SERP investments 146 0
Proceeds from the sale of EnerBank notes receivable 0 19
Cost to retire property and other investing activities (102) (78)
Net cash used in investing activities (1,815) (1,354)
Cash Flows from Financing Activities    
Proceeds from issuance of debt 1,044 1,108
Retirement of debt (705) (668)
Increase in EnerBank certificates of deposit 288 40
Increase (decrease) in notes payable 110  
Increase (decrease) in notes payable   (168)
Issuance of common stock 39 80
Payment of dividends on common and preferred stock (305) (282)
Payment of capital lease obligations and other financing costs (59) (39)
Net cash provided by financing activities 412 71
Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts 162 (84)
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period 204 257
Cash and Cash Equivalents, Including Restricted Amounts, End of Period 366 173
Non-cash transactions    
Capital expenditures not paid 159 153
Consumers Energy Company    
Cash Flows from Operating Activities    
Net income 574 496
Adjustments to reconcile net income to net cash provided by operating activities    
Deferred income taxes and investment tax credit 40 204
Other non-cash operating activities and reconciling adjustments 33 71
Cash provided by (used in) changes in assets and liabilities    
Accounts and notes receivable and accrued revenue 178 184
Inventories (75) (161)
Accounts payable and accrued refunds (48) (10)
Other current and non-current assets and liabilities (128) (221)
Net cash provided by operating activities 1,255 1,209
Cash Flows from Investing Activities    
Capital expenditures (excludes assets placed under capital lease) (1,339) (1,196)
Proceeds from DB SERP investments 106 0
DB SERP investment in note receivable - related party (106) 0
Cost to retire property and other investing activities (96) (82)
Net cash used in investing activities (1,435) (1,278)
Cash Flows from Financing Activities    
Proceeds from issuance of debt 544 534
Retirement of debt (330) (443)
Increase (decrease) in notes payable 110  
Increase (decrease) in notes payable   (168)
Stockholder contribution 250 450
Payment of dividends on common and preferred stock (393) (348)
Payment of capital lease obligations and other financing costs (28) (23)
Net cash provided by financing activities 153 2
Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts (27) (67)
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period 65 152
Cash and Cash Equivalents, Including Restricted Amounts, End of Period 38 85
Non-cash transactions    
Capital expenditures not paid $ 128 $ 140
v3.10.0.1
Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Millions
Sep. 30, 2018
Dec. 31, 2017
Current Assets    
Cash and cash equivalents $ 323 $ 182
Restricted cash and cash equivalents [1] 42 17
Accounts receivable and accrued revenue, less allowance of $20 in both periods 710 1,032
Notes receivable, less allowance of $23 in 2018 and $20 in 2017 237 198
Notes receivable held for sale 26 2
Accounts receivable – related parties 15 12
Inventories at average cost    
Gas in underground storage 551 458
Materials and supplies 140 133
Generating plant fuel stock 50 81
Deferred property taxes 167 257
Regulatory assets 10 20
Prepayments and other current assets 103 83
Total current assets 2,374 2,475
Plant, Property, and Equipment    
Plant, property, and equipment, gross 23,751 22,506
Less accumulated depreciation and amortization 6,909 6,510
Plant, property, and equipment, net 16,842 15,996
Construction work in progress 948 765
Total plant, property, and equipment 17,790 16,761
Other Non-current Assets    
Regulatory assets 1,655 1,764
Accounts and notes receivable 1,393 1,187
Investments 72 64
Other 629 799
Total other non-current assets 3,749 3,814
Total Assets 23,913 23,050
Current Liabilities    
Current portion of long-term debt, capital leases, and financing obligation 1,971 1,103
Notes payable 279 170
Accounts payable 680 725
Accounts payable – related parties 9 15
Accrued rate refunds 14 33
Accrued interest 83 103
Accrued taxes 107 360
Regulatory liabilities 165 80
Other current liabilities 134 195
Total current liabilities 3,442 2,784
Non-current Liabilities    
Long-term debt 8,869 9,123
Non-current portion of capital leases and financing obligation 75 91
Regulatory liabilities 3,745 3,715
Postretirement benefits 797 766
Asset retirement obligations 421 430
Deferred investment tax credit 101 87
Deferred income taxes 1,382 1,269
Other non-current liabilities 295 307
Total non-current liabilities 15,685 15,788
Commitments and contingencies
Common stockholders’ equity    
Common stock, authorized 350.0 shares; outstanding 283.3 shares in 2018 and 281.6 shares in 2017 3 3
Other paid-in capital 5,083 5,019
Accumulated other comprehensive loss (59) (50)
Accumulated deficit (278) (531)
Total common stockholders’ equity 4,749 4,441
Noncontrolling interests 37 37
Total equity 4,786 4,478
Total Liabilities and Equity 23,913 23,050
Consumers Energy Company    
Current Assets    
Cash and cash equivalents 9 44
Restricted cash and cash equivalents [1] 28 17
Accounts receivable and accrued revenue, less allowance of $20 in both periods 686 885
Notes receivable, less allowance of $23 in 2018 and $20 in 2017 17 17
Accounts receivable – related parties 8 2
Inventories at average cost    
Gas in underground storage 551 458
Materials and supplies 135 128
Generating plant fuel stock 44 76
Deferred property taxes 167 257
Regulatory assets 10 20
Prepayments and other current assets 90 71
Total current assets 1,745 1,975
Plant, Property, and Equipment    
Plant, property, and equipment, gross 23,322 22,318
Less accumulated depreciation and amortization 6,834 6,441
Plant, property, and equipment, net 16,488 15,877
Construction work in progress 937 753
Total plant, property, and equipment 17,425 16,630
Other Non-current Assets    
Regulatory assets 1,655 1,764
Accounts and notes receivable 22 22
Notes receivable – related party 100 0
Other 545 708
Total other non-current assets 2,322 2,494
Total Assets 21,492 21,099
Current Liabilities    
Current portion of long-term debt, capital leases, and financing obligation 898 365
Notes payable 279 170
Accounts payable 636 701
Accounts payable – related parties 13 19
Accrued rate refunds 14 33
Accrued interest 58 67
Accrued taxes 148 542
Regulatory liabilities 165 80
Other current liabilities 96 159
Total current liabilities 2,307 2,136
Non-current Liabilities    
Long-term debt 5,239 5,561
Non-current portion of capital leases and financing obligation 75 91
Regulatory liabilities 3,745 3,715
Postretirement benefits 741 711
Asset retirement obligations 417 429
Deferred investment tax credit 101 87
Deferred income taxes 1,711 1,640
Other non-current liabilities 233 241
Total non-current liabilities 12,262 12,475
Commitments and contingencies
Common stockholders’ equity    
Common stock, authorized 350.0 shares; outstanding 283.3 shares in 2018 and 281.6 shares in 2017 841 841
Other paid-in capital 4,699 4,449
Accumulated other comprehensive loss (27) (12)
Accumulated deficit 1,373 1,173
Total common stockholders’ equity 6,886 6,451
Preferred stock 37 37
Total equity 6,923 6,488
Total Liabilities and Equity $ 21,492 $ 21,099
[1] 1 All assets and liabilities were classified as Level 1 with the exception of some commodity contracts, which were classified as Level 3.
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Sep. 30, 2018
Dec. 31, 2017
Accounts receivable and accrued revenue ALLOWANCE $ 20 $ 20
Accounts and notes receivable ALLOWANCE $ 23 $ 20
Common Stock, Shares Authorized (in shares) 350,000,000.0 350,000,000.0
Common Stock, Shares, Outstanding 283,300,000 281,600,000
Consumers Energy Company    
Accounts receivable and accrued revenue ALLOWANCE $ 20 $ 20
Common Stock, Shares Authorized (in shares) 125,000,000 125,000,000
Common Stock, Shares, Outstanding 84,100,000 84,100,000
v3.10.0.1
Consolidated Statements of Changes In Equity (Unaudited) - USD ($)
$ in Millions
Total
Common Stock
Other Paid-in Capital
Accumulated Other Comprehensive Loss
Retirement benefits liability
Investments
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
Investments
Consumers Energy Company
Accumulated Deficit
Consumers Energy Company
Preferred Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Cumulative effect of change in accounting principle         $ 0   $ 0           $ 0 $ 0 $ 0  
Total Equity at Beginning of Period at Dec. 31, 2016 $ 4,290 $ 3 $ 4,916 $ (50) (50) $ 0 (616) $ 37 $ 5,939 $ 841 $ 3,999 $ (3) (21) 18 1,065 $ 37
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Common stock issued     95                          
Common stock repurchased     (13)                          
Common stock reissued     15                          
Stockholder contribution                     450          
Amortization of net actuarial loss 1       1       1       1      
Amortization of prior service credit 0       0                      
Unrealized gain (loss) on investments 2         2     2         2    
Reclassification adjustments included in net income 0         0     (8)         (8)    
Net income 464           463 1 496           496  
Dividends declared on common stock             (281)               (347)  
Dividends declared on preferred stock                             (1)  
Distributions and other changes in noncontrolling interests               (1)                
Total Equity at End of Period at Sep. 30, 2017 4,572 3 5,013 (47) (49) 2 (434) 37 6,532 841 4,449 (8) (20) 12 1,213 37
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Cumulative effect of change in accounting principle         0   0           0 0 0  
Total Equity at Beginning of Period at Jun. 30, 2017 4,486 3 5,006 (48) (49) 1 (512) 37 6,462 841 4,449 (8) (20) 12 1,143 37
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Common stock issued     7                          
Common stock repurchased     0                          
Common stock reissued     0                          
Stockholder contribution                     0          
Amortization of net actuarial loss 0       0       0       0      
Amortization of prior service credit 0       0                      
Unrealized gain (loss) on investments 1         1     0         0    
Reclassification adjustments included in net income 0         0     0         0    
Net income 172           172 0 181           181  
Dividends declared on common stock             (94)               (111)  
Dividends declared on preferred stock                             0  
Distributions and other changes in noncontrolling interests               0                
Total Equity at End of Period at Sep. 30, 2017 4,572 3 5,013 (47) (49) 2 (434) 37 6,532 841 4,449 (8) (20) 12 1,213 37
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Cumulative effect of change in accounting principle         (11)   8           (5) (12) 19  
Total Equity at Beginning of Period at Dec. 31, 2017 4,478 3 5,019 (50) (50) 0 (531) 37 6,488 841 4,449 (12) (24) 12 1,173 37
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Common stock issued     54                          
Common stock repurchased     (10)                          
Common stock reissued     20                          
Stockholder contribution                     250          
Amortization of net actuarial loss 3       3       2       2      
Amortization of prior service credit (1)       (1)                      
Unrealized gain (loss) on investments (1)         (1)     (1)         (1)    
Reclassification adjustments included in net income 1         1     1         1    
Net income 550           549 1 574           574  
Dividends declared on common stock             (304)               (392)  
Dividends declared on preferred stock                             (1)  
Distributions and other changes in noncontrolling interests               (1)                
Total Equity at End of Period at Sep. 30, 2018 4,786 3 5,083 (59) (59) 0 (278) 37 6,923 841 4,699 (27) (27) 0 1,373 37
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Cumulative effect of change in accounting principle         0   0           0 0 0  
Total Equity at Beginning of Period at Jun. 30, 2018 4,709 3 5,076 (61) (60) (1) (346) 37 6,888 841 4,699 (29) (28) (1) 1,340 37
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Common stock issued     7                          
Common stock repurchased     0                          
Common stock reissued     0                          
Stockholder contribution                     0          
Amortization of net actuarial loss 1       1       1       1      
Amortization of prior service credit 0       0                      
Unrealized gain (loss) on investments 0         0     0         0    
Reclassification adjustments included in net income 1         1     1         1    
Net income 169           169 0 180           180  
Dividends declared on common stock             (101)               (147)  
Dividends declared on preferred stock                             0  
Distributions and other changes in noncontrolling interests               0                
Total Equity at End of Period at Sep. 30, 2018 $ 4,786 $ 3 $ 5,083 $ (59) $ (59) $ 0 $ (278) $ 37 $ 6,923 $ 841 $ 4,699 (27) $ (27) $ 0 $ 1,373 $ 37
Increase (Decrease) in Stockholders' Equity [Roll Forward]                                
Cumulative effect of change in accounting principle                       $ (19)        
v3.10.0.1
New Accounting Standards
9 Months Ended
Sep. 30, 2018
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
New Accounting Standards
New Accounting Standards
Implementation of New Accounting Standards
ASU 2014-09, Revenue from Contracts with Customers: This standard, which was effective on January 1, 2018 for CMS Energy and Consumers, provides new guidance for recognizing revenue from contracts with customers. A primary objective of the standard is to provide a single, comprehensive revenue recognition model that will be applied across entities, industries, and capital markets. The new guidance replaced most of the previous revenue recognition requirements in GAAP, although certain guidance specific to rate-regulated utilities was retained. CMS Energy and Consumers had the option to apply the standard retrospectively to all prior periods presented or retrospectively with the cumulative effect of the standard recorded as an adjustment to beginning retained earnings. They also had the option to apply the standard only to contracts existing on the effective date. CMS Energy and Consumers applied the standard retrospectively to contracts existing on the effective date, and recorded an immaterial cumulative-effect reduction to beginning retained earnings for certain contract costs that can no longer be deferred under the new guidance.
The implementation of this standard did not have a material impact on CMS Energy’s or Consumers’ consolidated net income, cash flows, or financial position. CMS Energy and Consumers did not identify any significant changes to their revenue recognition practices that were required by the new guidance, but in accordance with the standard, they have provided additional disclosures about their revenues in Note 11, Revenue.
ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities: This standard, which was effective on January 1, 2018 for CMS Energy and Consumers, is intended to improve the accounting for financial instruments. The standard requires investments in equity securities to be measured at fair value, with changes in fair value recognized in net income, except for certain investments such as those that qualify for equity-method accounting. The standard no longer permits unrealized gains and losses for certain equity investments to be recorded in AOCI. There are other targeted changes as well. Entities must apply the standard using a modified retrospective approach, with the cumulative effect of the standard recorded as an adjustment to beginning retained earnings.
The implementation of the standard had no impact on CMS Energy’s consolidated financial statements. In accordance with the standard, as of January 1, 2018, Consumers removed a $19 million unrealized gain and the associated deferred taxes on its investment in CMS Energy common stock from AOCI and recorded the gain in retained earnings. In January 2018, Consumers transferred substantially all of its shares in CMS Energy common stock to a related charitable foundation and, in accordance with this standard, recognized all unrealized gains and losses on its remaining shares in net income for the three and nine months ended September 30, 2018. The accounting treatment for this investment is reflected in Consumers’ consolidated financial statements only, and had no impact on CMS Energy’s consolidated financial statements. For further details on CMS Energy’s and Consumers’ investments in debt and equity securities, see Note 6, Financial Instruments.
ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income: This standard addresses the income tax effects stranded in AOCI as a result of the TCJA. Existing GAAP requires that the remeasurement of deferred tax assets and liabilities resulting from a change in tax laws or rates be presented in net income from continuing operations, even if the deferred taxes were associated with items that were originally recognized in AOCI. As a result, upon recognizing the effects of the TCJA, the tax effects of items in AOCI (referred to as stranded tax effects) no longer reflected the current income tax rate. To address this matter, this standard permits companies to reclassify to retained earnings the stranded tax effects of the TCJA. The standard is effective on January 1, 2019 for CMS Energy and Consumers, but early adoption is permitted. The new guidance is to be applied either in the period of adoption or retrospectively to each prior period in which the effect of the TCJA was recognized. CMS Energy and Consumers elected to adopt this standard early. Accordingly, as of January 1, 2018, CMS Energy reclassified $11 million of stranded tax effects from AOCI to retained earnings, which included $5 million reclassified at Consumers. At September 30, 2018, CMS Energy and Consumers did not have any material stranded tax effects remaining in AOCI.
New Accounting Standards Not Yet Effective
ASU 2016-02, Leases: This standard establishes a new accounting model for leases. The standard will require entities to recognize lease assets and liabilities on the balance sheet for all leases with a term of more than one year, including operating leases, which are not recorded on the balance sheet under existing standards. The new guidance will also amend the definition of a lease to require that a lessee control the use of a specified asset, and not simply control or take the output of the asset. On the income statement, leases that meet existing capital lease criteria will generally be accounted for under a financing model, while operating leases will generally be accounted for under a straight-line expense model. The standard will be effective on January 1, 2019 for CMS Energy and Consumers, but early adoption is permitted.
CMS Energy and Consumers are not adopting the standard early and will elect certain practical expedients permitted by the standard, under which they will not be required to perform lease assessments or reassessments for agreements existing on the effective date. They also will elect a transition method under which they will initially apply the standard on January 1, 2019, without adjusting amounts presented for prior periods. Under this method, the cumulative effect of applying the standard must be recorded as an adjustment to beginning retained earnings. CMS Energy and Consumers will recognize additional lease assets and liabilities for their operating leases under the standard. CMS Energy and Consumers are continuing to evaluate the standard; however, they do not expect that it will have a material impact on their consolidated net income or cash flows.
ASU 2016-13, Measurement of Credit Losses on Financial Instruments: This standard, which will be effective January 1, 2020 for CMS Energy and Consumers, provides new guidance for estimating and recording credit losses on financial instruments. The standard will apply to the recognition of loan losses at EnerBank as well as to the recognition of uncollectible accounts expense at Consumers. Entities will apply the standard using a modified retrospective approach, with a cumulative-effect adjustment recorded to beginning retained earnings on the effective date. CMS Energy and Consumers are evaluating the impact of the standard on their consolidated financial statements.
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 2014-09, Revenue from Contracts with Customers: This standard, which was effective on January 1, 2018 for CMS Energy and Consumers, provides new guidance for recognizing revenue from contracts with customers. A primary objective of the standard is to provide a single, comprehensive revenue recognition model that will be applied across entities, industries, and capital markets. The new guidance replaced most of the previous revenue recognition requirements in GAAP, although certain guidance specific to rate-regulated utilities was retained. CMS Energy and Consumers had the option to apply the standard retrospectively to all prior periods presented or retrospectively with the cumulative effect of the standard recorded as an adjustment to beginning retained earnings. They also had the option to apply the standard only to contracts existing on the effective date. CMS Energy and Consumers applied the standard retrospectively to contracts existing on the effective date, and recorded an immaterial cumulative-effect reduction to beginning retained earnings for certain contract costs that can no longer be deferred under the new guidance.
The implementation of this standard did not have a material impact on CMS Energy’s or Consumers’ consolidated net income, cash flows, or financial position. CMS Energy and Consumers did not identify any significant changes to their revenue recognition practices that were required by the new guidance, but in accordance with the standard, they have provided additional disclosures about their revenues in Note 11, Revenue.
ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities: This standard, which was effective on January 1, 2018 for CMS Energy and Consumers, is intended to improve the accounting for financial instruments. The standard requires investments in equity securities to be measured at fair value, with changes in fair value recognized in net income, except for certain investments such as those that qualify for equity-method accounting. The standard no longer permits unrealized gains and losses for certain equity investments to be recorded in AOCI. There are other targeted changes as well. Entities must apply the standard using a modified retrospective approach, with the cumulative effect of the standard recorded as an adjustment to beginning retained earnings.
The implementation of the standard had no impact on CMS Energy’s consolidated financial statements. In accordance with the standard, as of January 1, 2018, Consumers removed a $19 million unrealized gain and the associated deferred taxes on its investment in CMS Energy common stock from AOCI and recorded the gain in retained earnings. In January 2018, Consumers transferred substantially all of its shares in CMS Energy common stock to a related charitable foundation and, in accordance with this standard, recognized all unrealized gains and losses on its remaining shares in net income for the three and nine months ended September 30, 2018. The accounting treatment for this investment is reflected in Consumers’ consolidated financial statements only, and had no impact on CMS Energy’s consolidated financial statements. For further details on CMS Energy’s and Consumers’ investments in debt and equity securities, see Note 6, Financial Instruments.
ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income: This standard addresses the income tax effects stranded in AOCI as a result of the TCJA. Existing GAAP requires that the remeasurement of deferred tax assets and liabilities resulting from a change in tax laws or rates be presented in net income from continuing operations, even if the deferred taxes were associated with items that were originally recognized in AOCI. As a result, upon recognizing the effects of the TCJA, the tax effects of items in AOCI (referred to as stranded tax effects) no longer reflected the current income tax rate. To address this matter, this standard permits companies to reclassify to retained earnings the stranded tax effects of the TCJA. The standard is effective on January 1, 2019 for CMS Energy and Consumers, but early adoption is permitted. The new guidance is to be applied either in the period of adoption or retrospectively to each prior period in which the effect of the TCJA was recognized. CMS Energy and Consumers elected to adopt this standard early. Accordingly, as of January 1, 2018, CMS Energy reclassified $11 million of stranded tax effects from AOCI to retained earnings, which included $5 million reclassified at Consumers. At September 30, 2018, CMS Energy and Consumers did not have any material stranded tax effects remaining in AOCI.
New Accounting Standards Not Yet Effective
ASU 2016-02, Leases: This standard establishes a new accounting model for leases. The standard will require entities to recognize lease assets and liabilities on the balance sheet for all leases with a term of more than one year, including operating leases, which are not recorded on the balance sheet under existing standards. The new guidance will also amend the definition of a lease to require that a lessee control the use of a specified asset, and not simply control or take the output of the asset. On the income statement, leases that meet existing capital lease criteria will generally be accounted for under a financing model, while operating leases will generally be accounted for under a straight-line expense model. The standard will be effective on January 1, 2019 for CMS Energy and Consumers, but early adoption is permitted.
CMS Energy and Consumers are not adopting the standard early and will elect certain practical expedients permitted by the standard, under which they will not be required to perform lease assessments or reassessments for agreements existing on the effective date. They also will elect a transition method under which they will initially apply the standard on January 1, 2019, without adjusting amounts presented for prior periods. Under this method, the cumulative effect of applying the standard must be recorded as an adjustment to beginning retained earnings. CMS Energy and Consumers will recognize additional lease assets and liabilities for their operating leases under the standard. CMS Energy and Consumers are continuing to evaluate the standard; however, they do not expect that it will have a material impact on their consolidated net income or cash flows.
ASU 2016-13, Measurement of Credit Losses on Financial Instruments: This standard, which will be effective January 1, 2020 for CMS Energy and Consumers, provides new guidance for estimating and recording credit losses on financial instruments. The standard will apply to the recognition of loan losses at EnerBank as well as to the recognition of uncollectible accounts expense at Consumers. Entities will apply the standard using a modified retrospective approach, with a cumulative-effect adjustment recorded to beginning retained earnings on the effective date. CMS Energy and Consumers are evaluating the impact of the standard on their consolidated financial statements.
v3.10.0.1
Regulatory Matters
9 Months Ended
Sep. 30, 2018
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 evidence supporting the recovery of Smart Energy investments, and other matters. Consumers is unable to predict the outcome of these appeals.
Electric Rate Case: In March 2017, Consumers filed an application with the MPSC seeking an annual rate increase of $173 million, based on a 10.5 percent authorized return on equity. The filing requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements. In September 2017, Consumers reduced its requested annual rate increase to $148 million. In October 2017, Consumers self-implemented an annual rate increase of $130 million, subject to refund with interest and potential penalties. The MPSC issued an order in March 2018, authorizing an annual rate increase of $66 million, based on a 10.0 percent authorized return on equity. In June 2018, as a result of a petition for rehearing filed by Consumers, the MPSC issued an order adjusting the authorized annual rate increase to $72 million by allowing recovery of additional retirement benefit plan costs. In July 2018, Consumers filed a reconciliation of total revenues collected during self-implementation to those that would have been collected under final rates. The reconciliation indicated that a $36 million refund would be required, which was recorded on Consumers’ consolidated balance sheets as a current regulatory liability at September 30, 2018.
Gas Rate Case: In October 2017, Consumers filed an application with the MPSC seeking an annual rate increase of $178 million, based on a 10.5 percent authorized return on equity. In March 2018, Consumers reduced its requested revenue requirement to $145 million, before taking into consideration any impact of the TCJA. Consumers further reduced its requested revenue requirement to $83 million to reflect the impact of the TCJA, offset partially by an increase in the authorized return on equity to 10.75 percent to compensate for the anticipated negative effects of tax reform on Consumers’ cash flows from operating activities. In July 2018, Consumers reduced its requested revenue requirement to $60 million, based on a 10.0 percent authorized return on equity.
In August 2018, the MPSC approved a settlement agreement authorizing an annual rate increase of $11 million, based on a 10.0 percent authorized return on equity. The settlement agreement did not incorporate recommendations by the MPSC Staff and administrative law judge to disallow cost recovery for certain historical capital expenditures.
The MPSC also approved two rate adjustment mechanisms: a revenue decoupling mechanism and an investment recovery mechanism. The revenue decoupling mechanism will annually reconcile Consumers’ actual weather-normalized non-fuel revenues with the revenues approved by the MPSC. The investment recovery mechanism will provide for an additional annual rate increase of $9 million beginning in July 2019 and another $10 million beginning in July 2020 for incremental investments that Consumers plans to make in those years, subject to reconciliation. The investment recovery surcharge will remain in effect until rates are reset in a subsequent general rate case.
Tax Cuts and Jobs Act: The TCJA, which changed existing federal tax law and included numerous provisions that affect businesses, was signed into law in December 2017. In February 2018, the MPSC ordered Consumers to file various proceedings to determine the reduction in its electric and gas revenue requirements as a result of the TCJA. The MPSC also ordered Consumers to implement bill credits to reflect that reduction until customer rates are adjusted through Consumers’ general rate cases. Consumers filed the first of these proceedings in March 2018, requesting a $49 million reduction in its annual gas revenue requirement. The MPSC approved this reduction in June 2018, with credits to customer bills beginning in July 2018; this credit ended with the settlement of the gas rate case in August 2018. Consumers filed the second proceeding in April 2018, requesting a $113 million reduction in its annual electric revenue requirement. The MPSC approved this reduction in July 2018, with credits to customer bills beginning in August 2018. These credits reduce rates prospectively for the impact of the TCJA but do not include potential refunds associated with Consumers’ remeasurement of its deferred income taxes.
Consumers filed two more proceedings to address amounts collected from customers during 2018 through the implementation of the first two proceedings. Consumers filed the first of these proceedings in August 2018, requesting to refund $31 million to gas customers over six months beginning in December 2018. Consumers filed the second proceeding in September 2018, requesting to refund $70 million to electric customers over six months beginning in January 2019. Consumers has recorded a liability in an amount reflecting these proposed refunds.
In October 2018, Consumers filed an application to address the December 31, 2017 remeasurement of its deferred income taxes and other impacts of the TCJA on customers. The application requested approval to begin returning $0.4 billion of net regulatory tax liabilities through the rates determined in Consumers’ next gas rate case and $1.2 billion through the rates determined in Consumers’ next-filed electric rate case. Consumers’ total $1.6 billion of net regulatory tax liabilities comprises:
A regulatory tax liability of $1.7 billion associated with plant assets that are subject to normalization, which is governed by the Internal Revenue Code. This requires that the regulatory tax liability be returned over the remaining book life of the related plant assets, the average of which is 44 years for gas plant assets and 36 years for electric plant assets.
A regulatory tax asset of $0.3 billion associated with plant assets that are not subject to normalization. Consumers proposed to collect this over 44 years from gas customers and over 27 years from electric customers.
A regulatory tax liability of $0.2 billion, which does not relate to plant assets. Consumers proposed to refund this amount to customers over 15 years.
For additional details on the remeasurement, see Note 9, Income Taxes.
Energy Waste Reduction Plan Incentive: Consumers filed its 2017 energy waste reduction reconciliation in May 2018, requesting the MPSC’s approval to collect from customers the maximum performance incentive of $31 million for exceeding its statutory savings targets in 2017. Consumers recognized incentive revenue under this program of $31 million in 2017.
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 evidence supporting the recovery of Smart Energy investments, and other matters. Consumers is unable to predict the outcome of these appeals.
Electric Rate Case: In March 2017, Consumers filed an application with the MPSC seeking an annual rate increase of $173 million, based on a 10.5 percent authorized return on equity. The filing requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements. In September 2017, Consumers reduced its requested annual rate increase to $148 million. In October 2017, Consumers self-implemented an annual rate increase of $130 million, subject to refund with interest and potential penalties. The MPSC issued an order in March 2018, authorizing an annual rate increase of $66 million, based on a 10.0 percent authorized return on equity. In June 2018, as a result of a petition for rehearing filed by Consumers, the MPSC issued an order adjusting the authorized annual rate increase to $72 million by allowing recovery of additional retirement benefit plan costs. In July 2018, Consumers filed a reconciliation of total revenues collected during self-implementation to those that would have been collected under final rates. The reconciliation indicated that a $36 million refund would be required, which was recorded on Consumers’ consolidated balance sheets as a current regulatory liability at September 30, 2018.
Gas Rate Case: In October 2017, Consumers filed an application with the MPSC seeking an annual rate increase of $178 million, based on a 10.5 percent authorized return on equity. In March 2018, Consumers reduced its requested revenue requirement to $145 million, before taking into consideration any impact of the TCJA. Consumers further reduced its requested revenue requirement to $83 million to reflect the impact of the TCJA, offset partially by an increase in the authorized return on equity to 10.75 percent to compensate for the anticipated negative effects of tax reform on Consumers’ cash flows from operating activities. In July 2018, Consumers reduced its requested revenue requirement to $60 million, based on a 10.0 percent authorized return on equity.
In August 2018, the MPSC approved a settlement agreement authorizing an annual rate increase of $11 million, based on a 10.0 percent authorized return on equity. The settlement agreement did not incorporate recommendations by the MPSC Staff and administrative law judge to disallow cost recovery for certain historical capital expenditures.
The MPSC also approved two rate adjustment mechanisms: a revenue decoupling mechanism and an investment recovery mechanism. The revenue decoupling mechanism will annually reconcile Consumers’ actual weather-normalized non-fuel revenues with the revenues approved by the MPSC. The investment recovery mechanism will provide for an additional annual rate increase of $9 million beginning in July 2019 and another $10 million beginning in July 2020 for incremental investments that Consumers plans to make in those years, subject to reconciliation. The investment recovery surcharge will remain in effect until rates are reset in a subsequent general rate case.
Tax Cuts and Jobs Act: The TCJA, which changed existing federal tax law and included numerous provisions that affect businesses, was signed into law in December 2017. In February 2018, the MPSC ordered Consumers to file various proceedings to determine the reduction in its electric and gas revenue requirements as a result of the TCJA. The MPSC also ordered Consumers to implement bill credits to reflect that reduction until customer rates are adjusted through Consumers’ general rate cases. Consumers filed the first of these proceedings in March 2018, requesting a $49 million reduction in its annual gas revenue requirement. The MPSC approved this reduction in June 2018, with credits to customer bills beginning in July 2018; this credit ended with the settlement of the gas rate case in August 2018. Consumers filed the second proceeding in April 2018, requesting a $113 million reduction in its annual electric revenue requirement. The MPSC approved this reduction in July 2018, with credits to customer bills beginning in August 2018. These credits reduce rates prospectively for the impact of the TCJA but do not include potential refunds associated with Consumers’ remeasurement of its deferred income taxes.
Consumers filed two more proceedings to address amounts collected from customers during 2018 through the implementation of the first two proceedings. Consumers filed the first of these proceedings in August 2018, requesting to refund $31 million to gas customers over six months beginning in December 2018. Consumers filed the second proceeding in September 2018, requesting to refund $70 million to electric customers over six months beginning in January 2019. Consumers has recorded a liability in an amount reflecting these proposed refunds.
In October 2018, Consumers filed an application to address the December 31, 2017 remeasurement of its deferred income taxes and other impacts of the TCJA on customers. The application requested approval to begin returning $0.4 billion of net regulatory tax liabilities through the rates determined in Consumers’ next gas rate case and $1.2 billion through the rates determined in Consumers’ next-filed electric rate case. Consumers’ total $1.6 billion of net regulatory tax liabilities comprises:
A regulatory tax liability of $1.7 billion associated with plant assets that are subject to normalization, which is governed by the Internal Revenue Code. This requires that the regulatory tax liability be returned over the remaining book life of the related plant assets, the average of which is 44 years for gas plant assets and 36 years for electric plant assets.
A regulatory tax asset of $0.3 billion associated with plant assets that are not subject to normalization. Consumers proposed to collect this over 44 years from gas customers and over 27 years from electric customers.
A regulatory tax liability of $0.2 billion, which does not relate to plant assets. Consumers proposed to refund this amount to customers over 15 years.
For additional details on the remeasurement, see Note 9, Income Taxes.
Energy Waste Reduction Plan Incentive: Consumers filed its 2017 energy waste reduction reconciliation in May 2018, requesting the MPSC’s approval to collect from customers the maximum performance incentive of $31 million for exceeding its statutory savings targets in 2017. Consumers recognized incentive revenue under this program of $31 million in 2017.
v3.10.0.1
Contingencies and Commitments
9 Months Ended
Sep. 30, 2018
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 August 2017, the federal district court approved the settlement. Plaintiffs are making claims for the following: 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 March 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 March 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 August 2018, the Ninth Circuit Court of Appeals reversed and remanded the matter back to the federal district court for further consideration. In June 2017, an unaffiliated company that is also a defendant in these cases filed for bankruptcy, which could increase the risk of loss to CMS Energy.
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 Energy’s reasonably possible loss would be based on widely varying models previously untested in this context. If the outcome after appeals is unfavorable, these cases could negatively affect CMS Energy’s liquidity, financial condition, and results of operations.
Bay Harbor: CMS Land retained environmental remediation obligations for the collection and treatment of leachate, a liquid consisting of water and other substances, 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 the MDEQ 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 issued in 2010 and renewed in 2016. The renewed NPDES permit is valid through September 2020.
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. CMS Land and other parties have received a demand for payment from the EPA in the amount of $8 million, plus interest and costs. The EPA is seeking recovery under CERCLA of response costs allegedly incurred at Bay Harbor. These costs exceed what was agreed to in a 2005 order between CMS Land and the EPA and CMS Land believes that the claim was made beyond the appropriate statute of limitations. CMS Land has communicated to the EPA that it does not believe that this is a valid claim. The EPA has filed a lawsuit to collect these costs.
At September 30, 2018, CMS Energy had a recorded liability of $46 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 $58 million. CMS Energy expects to pay the following amounts for long-term liquid disposal and operating and maintenance costs during the remainder of 2018 and in each of the next five years:
In Millions
 
 
2018
 
2019
 
2020
 
2021
 
2022
 
2023
 
CMS Energy
 
 
 
 
 
 
 
 
 
 
 
 
Long-term liquid 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 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, 2018, 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, 2018, 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 Ludington. 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 December 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 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. The assertion claims that these changes would have increased Consumers’ costs to operate and maintain the facilities and, thereby, the fixed energy charge paid to the MCV Partnership. Additionally, the MCV Partnership claims that Consumers improperly characterized certain costs included in the calculation of the fixed energy charge.
The claim estimates damages and interest in excess of $270 million, the majority of which is related to the claim on the installation of pollution control equipment. Consumers believes that the MCV Partnership’s claim is 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 April 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. Consumers is collaborating with the State of Michigan, local Native American tribes, and other stakeholders to evaluate the status of the cables and to determine if any additional action is advisable. Consumers cannot predict the outcome of this matter, but if Consumers is required to remove all the cables, it could incur additional costs of up to $10 million. Consumers has filed suit against the companies that own the vessels that allegedly caused the damage. Consumers will seek recovery from customers of any costs incurred.
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, 2018, Consumers had a recorded liability of $78 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 $83 million. Consumers expects to pay the following amounts for remediation and other response activity costs during the remainder of 2018 and in each of the next five years: 
In Millions
 
 
2018
 
2019
 
2020
 
2021
 
2022
 
2023
 
Consumers
 
 
 
 
 
 
 
 
 
 
 
 
Remediation and other response activity costs
 
$
6

 
$
12

 
$
16

 
$
21

 
$
7

 
$
2


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, 2018, Consumers had a regulatory asset of $135 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, 2018, 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.
Guarantees
Presented in the following table are CMS Energy’s and Consumers’ guarantees at September 30, 2018:
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

 
$
3

Guarantees2
 
Various
 
Indefinite
 
39

 

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. CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.
2 
At Consumers, this obligation comprises a guarantee provided to the U.S. Department of Energy in connection with a settlement agreement regarding damages resulting from the department’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers. At CMS Energy, the guarantee obligations comprise Consumers’ guarantee to the U.S. Department of Energy and CMS Energy’s 1994 guarantee of non-recourse revenue bonds issued by Genesee.
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 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 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 August 2017, the federal district court approved the settlement. Plaintiffs are making claims for the following: 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 March 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 March 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 August 2018, the Ninth Circuit Court of Appeals reversed and remanded the matter back to the federal district court for further consideration. In June 2017, an unaffiliated company that is also a defendant in these cases filed for bankruptcy, which could increase the risk of loss to CMS Energy.
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 Energy’s reasonably possible loss would be based on widely varying models previously untested in this context. If the outcome after appeals is unfavorable, these cases could negatively affect CMS Energy’s liquidity, financial condition, and results of operations.
Bay Harbor: CMS Land retained environmental remediation obligations for the collection and treatment of leachate, a liquid consisting of water and other substances, 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 the MDEQ 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 issued in 2010 and renewed in 2016. The renewed NPDES permit is valid through September 2020.
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. CMS Land and other parties have received a demand for payment from the EPA in the amount of $8 million, plus interest and costs. The EPA is seeking recovery under CERCLA of response costs allegedly incurred at Bay Harbor. These costs exceed what was agreed to in a 2005 order between CMS Land and the EPA and CMS Land believes that the claim was made beyond the appropriate statute of limitations. CMS Land has communicated to the EPA that it does not believe that this is a valid claim. The EPA has filed a lawsuit to collect these costs.
At September 30, 2018, CMS Energy had a recorded liability of $46 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 $58 million. CMS Energy expects to pay the following amounts for long-term liquid disposal and operating and maintenance costs during the remainder of 2018 and in each of the next five years:
In Millions
 
 
2018
 
2019
 
2020
 
2021
 
2022
 
2023
 
CMS Energy
 
 
 
 
 
 
 
 
 
 
 
 
Long-term liquid 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 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, 2018, 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, 2018, 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 Ludington. 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 December 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 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. The assertion claims that these changes would have increased Consumers’ costs to operate and maintain the facilities and, thereby, the fixed energy charge paid to the MCV Partnership. Additionally, the MCV Partnership claims that Consumers improperly characterized certain costs included in the calculation of the fixed energy charge.
The claim estimates damages and interest in excess of $270 million, the majority of which is related to the claim on the installation of pollution control equipment. Consumers believes that the MCV Partnership’s claim is 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 April 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. Consumers is collaborating with the State of Michigan, local Native American tribes, and other stakeholders to evaluate the status of the cables and to determine if any additional action is advisable. Consumers cannot predict the outcome of this matter, but if Consumers is required to remove all the cables, it could incur additional costs of up to $10 million. Consumers has filed suit against the companies that own the vessels that allegedly caused the damage. Consumers will seek recovery from customers of any costs incurred.
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, 2018, Consumers had a recorded liability of $78 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 $83 million. Consumers expects to pay the following amounts for remediation and other response activity costs during the remainder of 2018 and in each of the next five years: 
In Millions
 
 
2018
 
2019
 
2020
 
2021
 
2022
 
2023
 
Consumers
 
 
 
 
 
 
 
 
 
 
 
 
Remediation and other response activity costs
 
$
6

 
$
12

 
$
16

 
$
21

 
$
7

 
$
2


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, 2018, Consumers had a regulatory asset of $135 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, 2018, 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.
Guarantees
Presented in the following table are CMS Energy’s and Consumers’ guarantees at September 30, 2018:
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

 
$
3

Guarantees2
 
Various
 
Indefinite
 
39

 

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. CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.
2 
At Consumers, this obligation comprises a guarantee provided to the U.S. Department of Energy in connection with a settlement agreement regarding damages resulting from the department’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers. At CMS Energy, the guarantee obligations comprise Consumers’ guarantee to the U.S. Department of Energy and CMS Energy’s 1994 guarantee of non-recourse revenue bonds issued by Genesee.
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 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 negative effect on their consolidated results of operations, financial condition, or liquidity.
v3.10.0.1
Financings And Capitalization
9 Months Ended
Sep. 30, 2018
Debt Instrument [Line Items]  
Financings And Capitalization
Financings and Capitalization
Financings: Presented in the following table is a summary of major long-term debt transactions during the nine months ended September 30, 2018.
 
Principal
 (In Millions)
 
Interest Rate

Issue/Retirement
Date
Maturity Date
Debt issuances
 
 
 
 
 
CMS Energy, parent only
 
 
 
 
 
Junior subordinated notes1
 
$
200

5.625
%
March 2018
March 2078
Junior subordinated notes1

250

5.875
%
September 2018
October 2078
Total CMS Energy, parent only
 
$
450

 
 
 
Consumers
 
 
 
 
 
First mortgage bonds
 
$
550

4.05
%
May 2018
May 2048
Total Consumers
 
$
550

 
 
 
Total CMS Energy
 
$
1,000

 
 
 
Debt retirements
 
 
 
 
 
CMS Energy, parent only
 
 
 
 
 
Term loan facility
 
$
180

variable

March 2018
December 2018
Senior notes2
 
100

8.75
%
June 2018
June 2019
Term loan facility

45

variable

August 2018
December 2018
Total CMS Energy, parent only
 
$
325

 
 
 
Consumers
 
 
 
 
 
Tax-exempt pollution control revenue bonds
 
$
68

various

April 2018
April 2018
First mortgage bonds
 
250

5.65
%
May 2018
September 2018
Total Consumers
 
$
318

 
 
 
Total CMS Energy
 
$
643

 
 
 
1 
These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness.
2 
CMS Energy retired these senior notes at a premium and recorded a loss on extinguishment of $5 million in other expense on its consolidated statements of income.
In October 2018, under the over-allotment option included in a September 2018 underwriting agreement, CMS Energy issued and sold an additional $30 million of its 5.875 percent junior subordinated notes due 2078. Also in October 2018, CMS Energy redeemed $300 million of its 6.25 percent senior notes due 2020. CMS Energy retired this debt at a premium and recorded a loss on extinguishment of $11 million in other expense on its consolidated statements of income.
In July 2018, Consumers entered into a bond purchase agreement to issue an aggregate principal amount of $500 million in first mortgage bonds through a private placement. In October 2018, the following first mortgage bonds were issued and funded:
$100 million of 3.68 percent first mortgage bonds due 2027
$215 million of 4.01 percent first mortgage bonds due 2038
$185 million of 4.28 percent first mortgage bonds due 2057
Revolving Credit Facilities: The following revolving credit facilities with banks were available at September 30, 2018:
In Millions
 
Expiration Date
Amount of Facility
 
Amount Borrowed
 
Letters of Credit Outstanding
 
Amount Available
 
CMS Energy, parent only
 
 
 
 
 
 
 
 
June 5, 20231
 
$
550

 
$

 
$
9

 
$
541

Consumers
 
 
 
 
 
 
 
 
June 5, 20232,3
 
$
850

 
$

 
$
7

 
$
843

November 23, 20193
 
250

 

 
25

 
225

September 9, 20193
 
30

 

 
30

 

1 
In June 2018, CMS Energy amended this revolving credit facility, eliminating the security provided by Consumers common stock, and extending the expiration date to June 2023.
2 
In June 2018, Consumers amended this revolving credit facility by increasing its borrowing capacity to $850 million and extending the expiration date to June 2023.
3 
Obligations under this facility are secured by first mortgage bonds of Consumers.
Short-term Borrowings: Under Consumers’ commercial paper program, Consumers may issue, in one or more placements, commercial paper notes with maturities of up to 365 days and that bear interest at fixed or floating 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, 2018, $279 million in commercial paper notes were outstanding under this program.
Dividend Restrictions: At September 30, 2018, payment of dividends by CMS Energy on its common stock was limited to $4.7 billion under provisions of the Michigan Business Corporation Act of 1972.
Under the provisions of its articles of incorporation, at September 30, 2018, Consumers had $1.3 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, 2018, Consumers paid $392 million in dividends on its common stock to CMS Energy.
Issuance of Common Stock: In March 2017, CMS Energy entered into an updated continuous equity offering program permitting it to sell, from time to time in “at the market” offerings, common stock having an aggregate sales price of up to $100 million. Presented in the following table are the transactions that CMS Energy entered into under the program:
 
 
Number of Shares Issued

Average Price Per Share

Net Proceeds
(In Millions)

May 2018
 
638,898

$
45.83

$
29

June 2017
 
1,494,371

47.31

70


In August 2018, CMS Energy entered into an equity offering program under which it may sell, from time to time, shares of CMS Energy common stock having an aggregate sales price of up to $250 million. Under this program, CMS Energy may sell its common stock in privately negotiated “at the market” offerings, through forward purchases or otherwise. There was no activity under the new program in the third quarter of 2018.
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 transactions during the nine months ended September 30, 2018.
 
Principal
 (In Millions)
 
Interest Rate

Issue/Retirement
Date
Maturity Date
Debt issuances
 
 
 
 
 
CMS Energy, parent only
 
 
 
 
 
Junior subordinated notes1
 
$
200

5.625
%
March 2018
March 2078
Junior subordinated notes1

250

5.875
%
September 2018
October 2078
Total CMS Energy, parent only
 
$
450

 
 
 
Consumers
 
 
 
 
 
First mortgage bonds
 
$
550

4.05
%
May 2018
May 2048
Total Consumers
 
$
550

 
 
 
Total CMS Energy
 
$
1,000

 
 
 
Debt retirements
 
 
 
 
 
CMS Energy, parent only
 
 
 
 
 
Term loan facility
 
$
180

variable

March 2018
December 2018
Senior notes2
 
100

8.75
%
June 2018
June 2019
Term loan facility

45

variable

August 2018
December 2018
Total CMS Energy, parent only
 
$
325

 
 
 
Consumers
 
 
 
 
 
Tax-exempt pollution control revenue bonds
 
$
68

various

April 2018
April 2018
First mortgage bonds
 
250

5.65
%
May 2018
September 2018
Total Consumers
 
$
318

 
 
 
Total CMS Energy
 
$
643

 
 
 
1 
These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness.
2 
CMS Energy retired these senior notes at a premium and recorded a loss on extinguishment of $5 million in other expense on its consolidated statements of income.
In October 2018, under the over-allotment option included in a September 2018 underwriting agreement, CMS Energy issued and sold an additional $30 million of its 5.875 percent junior subordinated notes due 2078. Also in October 2018, CMS Energy redeemed $300 million of its 6.25 percent senior notes due 2020. CMS Energy retired this debt at a premium and recorded a loss on extinguishment of $11 million in other expense on its consolidated statements of income.
In July 2018, Consumers entered into a bond purchase agreement to issue an aggregate principal amount of $500 million in first mortgage bonds through a private placement. In October 2018, the following first mortgage bonds were issued and funded:
$100 million of 3.68 percent first mortgage bonds due 2027
$215 million of 4.01 percent first mortgage bonds due 2038
$185 million of 4.28 percent first mortgage bonds due 2057
Revolving Credit Facilities: The following revolving credit facilities with banks were available at September 30, 2018:
In Millions
 
Expiration Date
Amount of Facility
 
Amount Borrowed
 
Letters of Credit Outstanding
 
Amount Available
 
CMS Energy, parent only
 
 
 
 
 
 
 
 
June 5, 20231
 
$
550

 
$

 
$
9

 
$
541

Consumers
 
 
 
 
 
 
 
 
June 5, 20232,3
 
$
850

 
$

 
$
7

 
$
843

November 23, 20193
 
250

 

 
25

 
225

September 9, 20193
 
30

 

 
30

 

1 
In June 2018, CMS Energy amended this revolving credit facility, eliminating the security provided by Consumers common stock, and extending the expiration date to June 2023.
2 
In June 2018, Consumers amended this revolving credit facility by increasing its borrowing capacity to $850 million and extending the expiration date to June 2023.
3 
Obligations under this facility are secured by first mortgage bonds of Consumers.
Short-term Borrowings: Under Consumers’ commercial paper program, Consumers may issue, in one or more placements, commercial paper notes with maturities of up to 365 days and that bear interest at fixed or floating 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, 2018, $279 million in commercial paper notes were outstanding under this program.
Dividend Restrictions: At September 30, 2018, payment of dividends by CMS Energy on its common stock was limited to $4.7 billion under provisions of the Michigan Business Corporation Act of 1972.
Under the provisions of its articles of incorporation, at September 30, 2018, Consumers had $1.3 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, 2018, Consumers paid $392 million in dividends on its common stock to CMS Energy.
Issuance of Common Stock: In March 2017, CMS Energy entered into an updated continuous equity offering program permitting it to sell, from time to time in “at the market” offerings, common stock having an aggregate sales price of up to $100 million. Presented in the following table are the transactions that CMS Energy entered into under the program:
 
 
Number of Shares Issued

Average Price Per Share

Net Proceeds
(In Millions)

May 2018
 
638,898

$
45.83

$
29

June 2017
 
1,494,371

47.31

70


In August 2018, CMS Energy entered into an equity offering program under which it may sell, from time to time, shares of CMS Energy common stock having an aggregate sales price of up to $250 million. Under this program, CMS Energy may sell its common stock in privately negotiated “at the market” offerings, through forward purchases or otherwise. There was no activity under the new program in the third quarter of 2018.
v3.10.0.1
Fair Value Measurements
9 Months Ended
Sep. 30, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Fair Value Measurements
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.
Level 2 inputs are observable, market-based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, and inputs derived from or corroborated by observable market data.
Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities.
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 Energy’s and Consumers’ assets and liabilities recorded at fair value on a recurring basis:
In Millions
 
 
CMS Energy, including Consumers
 
Consumers
 
September 30
2018
 
December 31
2017
 
 
September 30
2018
 
December 31
2017
 
Assets1
 
 
 
 
 
 
 
 
 
Cash equivalents
 
$
139

 
$
74

 
 
$

 
$

Restricted cash equivalents
 
42

 
17

 
 
28

 
17

CMS Energy common stock
 

 

 
 
1

 
21

Nonqualified deferred compensation plan assets
 
14

 
14

 
 
11

 
10

DB SERP