| Commission File Number | Registrant; State of Incorporation; | |||
Address; and Telephone Number | IRS Employer Identification No. | |||
| 1-9513 | CMS ENERGY CORPORATION | 38-2726431 | ||
| (A Michigan Corporation) One Energy Plaza, Jackson, Michigan 49201 (517) 788-0550 | ||||
1-5611 | CONSUMERS ENERGY COMPANY | 38-0442310 | ||
(A Michigan Corporation) One Energy Plaza, Jackson, Michigan 49201 (517) 788-0550 | ||||
Securities registered pursuant to Section 12(b) of the Act:
Registrant | Title of Class | |||
| Name of Each Exchange | ||||
on Which Registered | ||||
CMS Energy Corporation | Common Stock, | New York Stock Exchange | ||
Consumers Energy Company | Preferred Stocks, $100 par value: $4.16 Series, $4.50 Series | New York Stock Exchange | ||
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
CMS Energy Corporation:Yes
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
CMS Energy Corporation: Yes o No
Indicate by check mark whether the RegistrantsRegistrant (1) havehas filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants wereRegistrant was required to file such reports), and (2) havehas been subject to such filing requirements for the past 90 days.
CMS Energy
Indicate by check mark whether the Registrants haveRegistrant has submitted electronically and posted on theirits corporate Web sites,site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants wereRegistrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of Registrant’sRegistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large"large accelerated filer,” “accelerated filer”" "accelerated filer" and “smaller"smaller reporting company”company" inRule 12b-2 of the Exchange Act.
Large accelerated filer
(Do not check if a smaller reporting company)
Consumers Energy Company:
Large accelerated filer o Accelerated filer o Non-Accelerated filer [X]ý Smaller reporting companyo
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).
The aggregate market value of CMS Energy voting and non-voting common equity held by non-affiliates was $2.728$6.165 billion for the 225,799,094262,346,966 CMS Energy Common Stock shares outstanding on June 30, 200929, 2012 based on the closing sale price of $12.08$23.50 for CMS Energy Common Stock, as reported by the New York Stock Exchange on such date.
There were 229,772,845265,935,441 shares of CMS Energy Common Stock outstanding on February 25, 2010.8, 2013, including 1,091,320 shares owned by Consumers Energy Company. On February 25, 2010,21, 2013, CMS Energy held all voting and non-voting common equity of Consumers. Documents incorporated by reference in Part III: CMS Energy’sEnergy's proxy statement and Consumers’Consumers' information statement relating to the 20102013 annual meeting of stockholders to be held May 21, 2010.
Consumers Energy Company
Annual Reports onForm 10-K to the Securities and Exchange Commission for the Year Ended
| Page | ||||||||
Glossary | 3 | |||||||
Filing Format | ||||||||
PART I: | ||||||||
| Business | 13 | |||||||
| Risk Factors | ||||||||
| Unresolved Staff Comments | ||||||||
| Properties | ||||||||
| Legal Proceedings | ||||||||
| Mine Safety Disclosures | ||||||||
PART II: | ||||||||
| Market for | ||||||||
47 | ||||||||
Item 6. Selected Financial Data | ||||||||
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||||||
| 48 | ||||||||
Item 7A. Quantitative and Qualitative Disclosures About Market Risk | ||||||||
| 48 | ||||||||
Item 8. Financial Statements and Supplementary Data | ||||||||
| 49 | ||||||||
Item 9. Changes in and Disagreements | ||||||||
Item 9A. Controls and Procedures | ||||||||
| Other Information | ||||||||
PART III: | ||||||||
| Directors, Executive Officers and Corporate Governance | ||||||||
179 | ||||||||
| 11. Executive Compensation | 180 | |||||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | ||||||||
| 180 | ||||||||
Item 13. Certain Relationships and Related Transactions, and Director Independence | ||||||||
| 180 | ||||||||
Item 14. Principal Accountant Fees and Services | ||||||||
PART IV: | ||||||||
| Exhibits and Financial Statement Schedules | ||||||||
181 | ||||||||
(This page intentionally left blank)
2
Table of Contents
| 2008 Energy | Comprehensive energy reform package enacted in | |
| ABATE | Association of Businesses Advocating Tariff Equity | |
| ABO | Accumulated | |
| AFUDC | Allowance for borrowed and equity funds used during construction | |
| Accumulated | ||
| ARO | Asset retirement obligation | |
| ASU | ||
| Bay Harbor | A residential/commercial real estate area located near Petoskey, | |
| bcf | Billion cubic feet | |
| Big Rock | Big Rock Point nuclear power plant, formerly owned by Consumers | |
| Btu | British thermal | |
| CAIR | The Clean Air Interstate Rule | |
| Cantera Gas Company | Cantera Gas Company LLC, a non-affiliated company, formerly known as CMS Field Services | |
| Cantera Natural Gas, Inc. | Cantera Natural Gas, Inc., a non-affiliated company that purchased CMS Field Services | |
| CAO | Chief Accounting Officer | |
| CCR | Coal combustion residual | |
| CEO | Chief Executive Officer | |
| CFO | Chief Financial Officer | |
| C&HR Committees | The Compensation and Human Resources Committees of the Boards of Directors of CMS Energy and Consumers | |
| Clean Air Act | Federal Clean Air Act of 1963, as amended | |
| Clean Water Act | Federal Water Pollution Control Act of 1972, as amended | |
| CMS Capital | CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy | |
| CMS Energy | CMS Energy Corporation, the parent of Consumers and CMS Enterprises |
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| CMS Enterprises | CMS Enterprises Company, a wholly owned subsidiary of CMS Energy | |
| CMS ERM | CMS Energy Resource Management Company, formerly CMS MST, a wholly owned subsidiary of CMS Enterprises | |
| CMS Field Services | CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission | |
| CMS Gas Transmission | CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises | |
| CMS Generation San Nicolas Company | CMS Generation San Nicolas Company, a company in which CMS Enterprises | |
| CMS Land | CMS Land Company, a wholly owned subsidiary of CMS Capital | |
| CMS MST | CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM | |
| CMS Viron | CMS Viron Corporation, a wholly owned subsidiary of CMS ERM | |
| Consumers | Consumers Energy Company, a wholly owned subsidiary of CMS Energy | |
| Consumers Funding | Consumers Funding LLC, a wholly owned consolidated bankruptcy-remote subsidiary of Consumers and | |
| CSAPR | The Cross-State Air Pollution Rule | |
| Customer Choice Act | Customer Choice and Electricity Reliability Act, a Michigan statute | |
| DB SERP | Defined Benefit Supplemental Executive Retirement Plan | |
| DCCP | Defined Company Contribution Plan | |
| DC SERP | Defined Contribution | |
| DIG | Dearborn Industrial Generation, L.L.C., a wholly owned subsidiary of | |
| Dodd-Frank Act | Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 | |
| DOE | U.S. Department of Energy | |
| DOJ | U.S. Department of Justice | |
| DTE Electric | DTE Electric Company, a non-affiliated company | |
| EBITDA | Earnings | |
| EnerBank | EnerBank USA, a wholly owned subsidiary of CMS Capital |
4
| Entergy | Entergy Corporation, a non-affiliated company | |
| EPA | U.S. Environmental Protection Agency | |
| EPS | Earnings per share | |
| Exchange Act | Securities Exchange Act of 1934, as amended | |
| Exeter | Exeter Energy Limited Partnership, sold by CMS Energy to ReEnergy Sterling LLC, a | |
| FDIC | Federal Deposit Insurance Corporation | |
| FERC | The Federal Energy Regulatory Commission | |
| fine particulate matter | Particulate matter that is 2.5 microns or less in diameter | |
| First Mortgage Bond Indenture | The indenture dated as of September 1, 1945 between Consumers and The Bank of New York Mellon, as Trustee, as amended and supplemented | |
| FLI Liquidating Trust | Trust formed in Missouri bankruptcy court to accomplish the liquidation of Farmland Industries, Inc., a non-affiliated entity | |
| FMB | First mortgage bond | |
| FOV | Finding of Violation | |
| GAAP | U.S. Generally Accepted Accounting Principles | |
| GCC | Gas Customer Choice, which allows gas customers to purchase gas from alternative suppliers | |
| GCR | Gas cost recovery | |
| Genesee | Genesee Power Station Limited Partnership, a | |
| Grayling | Grayling Generating Station Limited Partnership, a | |
| VIE in which | ||
| HYDRA-CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises, has a 50 percent interest | ||
| Health Care Acts | Comprehensive health care reform enacted in March 2010, comprising the Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act | |
| IRS | Internal Revenue Service | |
| ISFSI | Independent spent fuel storage installation | |
| kilovolts | Thousand volts, | |
| kVA | Thousand volt-amperes, | |
| kWh | Kilowatt-hour, | |
| LIBOR | The London Interbank Offered Rate | |
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| Ludington | Ludington | |
| MACT | Maximum Achievable Control Technology, which is the emission control that is achieved in practice by the best-controlled similar source | |
| MATS | Mercury and | |
| MBT | Michigan Business Tax | |
| mcf | Thousand cubic feet | |
| MCIT | Michigan Corporate Income Tax | |
| MCV Facility | A 1,500 MW | |
| MCV Partnership | Midland Cogeneration Venture Limited Partnership | |
| MCV PPA | ||
| MD&A | ||
| MDEQ | Michigan Department of Environmental Quality | |
| MDL | A pending multi-district litigation case in Nevada | |
| MGP | Manufactured gas plant | |
| Michigan Mercury Rule | Michigan Air Pollution Control Rules, Part 15, Emission Limitations and Prohibitions — Mercury, addressing mercury emissions from coal-fueled electric generating units | |
| Midwest Energy Market | An energy market developed by | |
| MISO | The Midwest Independent Transmission System Operator, Inc. | |
| mothball | To place a generating unit into a state of extended reserve shutdown in which the unit is inactive and unavailable for service for a specified period, during which the unit can be brought back into service after receiving appropriate notification and completing any necessary maintenance or other work; generation owners in MISO must request approval to mothball a unit, and MISO then evaluates the request for reliability impacts | |
| MPSC | Michigan Public Service Commission | |
| MRV | ||
| MW | Megawatt, | |
| MWh | Megawatt-hour, | |
| NAV | Net asset value | |
| NERC | The North American Electric Reliability Corporation, a non-affiliated company | |
| NOV | Notice of Violation | |
| NPDES | National Pollutant Discharge Elimination System, a permit system for regulating point sources of pollution under the Clean Water Act | |
| NREPA | Part 201 of Michigan Natural Resources and Environmental Protection Act, a statute that covers environmental activities including remediation | |
| NSR | New Source Review, a construction-permitting program under the Clean Air Act | |
| NYMEX | The New York Mercantile Exchange | |
| OPEB | Postretirement benefit plans other than pensions | |
| Palisades | Palisades nuclear power plant, | |
| Panhandle | Panhandle Eastern Pipe Line Company, including its wholly owned subsidiaries Trunkline, Pan Gas Storage Company, Panhandle Storage Company, and Panhandle | |
| PBO |
6
| PCB | Polychlorinated biphenyl | |
| Pension Plan | ||
| PISP | Performance Incentive Stock Plan | |
| PPA | Power purchase agreement | |
| PSCR | Power supply cost recovery | |
| PSD | Prevention of Significant Deterioration | |
| PURPA | Public Utility Regulatory Policies Act of 1978 | |
| REC | Renewable energy credit established under the 2008 Energy Law | |
| ReliabilityFirst Corporation | ReliabilityFirst Corporation, a non-affiliated company responsible for the preservation and enhancement of bulk power system reliability and security | |
| Renewable Operating Permit | Michigan's Title V permitting program under the Clean Air Act | |
| Right to Work | Legislation enacted in December 2012 as Michigan Public Acts 348 and 349, which prohibits collective bargaining agreements between companies and unions that require employees to join unions and pay union dues in order to maintain their employment | |
| RMRR | Routine maintenance, repair, and replacement | |
| ROA | Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to the Customer Choice Act | |
| S&P | Standard | |
| SEC | U.S. Securities and Exchange Commission | |
| Securitization | A financing method authorized by statute and approved by the MPSC which allows a utility to sell its right to receive a portion of the rate payments received from its customers for the repayment of securitization bonds issued by a special-purpose entity affiliated with such utility | |
| Consumers' Smart Energy grid modernization project, which includes the installation of smart meters that transmit and receive data, a two-way communications network, and modifications to Consumers' existing information technology system to manage the data and enable changes to key business processes | ||
| stranded costs | Costs such as owned and purchased generation and regulatory assets that are incurred by utilities | |
| Superfund | Comprehensive Environmental Response, Compensation, and Liability Act of 1980 | |
| Supplemental Environmental | Environmentally beneficial projects | |
| T.E.S. Filer City | T.E.S. Filer City Station Limited Partnership, a |
7
| A | ||
| Trunkline | Trunkline Gas Company, LLC, a | |
| Trust Preferred Securities | Securities representing an undivided beneficial interest in the assets of statutory business trusts, the interests of which have a preference with respect to certain trust distributions over the interests of either CMS Energy or Consumers, as applicable, as owner of the common beneficial interests of the trusts | |
| TSR | Total shareholder return | |
| USW | United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO-CLC | |
| UWUA | Utility Workers Union of America, AFL-CIO | |
| VEBA trust | Voluntary | |
| VIE | Variable interest entity | |
| Zeeland | A 935 MW gas-fueled power plant located in Zeeland, Michigan and owned by Consumers |
8
Table of Contents
This combinedForm 10-K is separately filed by CMS Energy Corporation and Consumers Energy Company.Consumers. Information in this combinedForm 10-K relating to each individual registrant is filed by such registrant on its own behalf. Consumers Energy Company makes no representation regarding information relating to any other companies affiliated with CMS Energy Corporation other than its own subsidiaries. None of CMS Energy, Corporation, CMS Enterprises, Company, nor any of CMS Energy Corporation’sEnergy's other subsidiaries (other than Consumers Energy Company)Consumers) has any obligation in respect of Consumers Energy Company’sConsumers' debt securities and holders of such debt securities should not consider the financial resources or results of operations of CMS Energy, Corporation, CMS Enterprises, Company, nor any of CMS Energy Corporation’sEnergy's other subsidiaries (other than Consumers Energy Company and its own subsidiaries (in relevant circumstances)) in making a decision with respect to Consumers Energy Company’sConsumers' debt securities. Similarly, none of Consumers Energy Company nor any other subsidiary of CMS Energy Corporation has any obligation in respect of debt securities of CMS Energy Corporation.
ThisForm 10-K and other written and oral statements that CMS Energy and Consumers make may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The use of “might,” “may,” “could,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “predicts,” “assumes,”"might," "may," "could," "should," "anticipates," "believes," "estimates," "expects," "intends," "plans," "projects," "forecasts," "predicts," "assumes," and other similar words is intended to identify forward-looking statements that involve risk and uncertainty. This discussion of potential risks and uncertainties is designed to highlight important factors that may impact CMS Energy’sEnergy's and Consumers’Consumers' businesses and financial outlook. CMS Energy and Consumers have no obligation to update or revise forward-looking statements regardless of whether new information, future events, or any other factors affect the information contained in the statements. These forward-looking statements are subject to various factors that could cause CMS Energy’sEnergy's and Consumers’Consumers' actual results to differ materially from the results anticipated in these statements. These factors include, CMS Energy’s and Consumers’ inabilitybut are not limited to, predict or control the following, all of which are potentially significant:• the price of CMS Energy Common Stock, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ postretirement benefit plans, interest costs, and access to the capital markets, including availability of financing (including Consumers’ accounts receivable sales program and CMS Energy’s and Consumers’ revolving credit facilities) to CMS Energy, Consumers, or any of their affiliates, and the energy industry;• the impact of the continued downturn in the economy and the sharp downturn and extreme volatility in the financial and credit markets on CMS Energy, Consumers, or any of their affiliates, including their:• revenues;• capital expenditure programs and related earnings growth;• ability to collect accounts receivable from customers;• cost of capital and availability of capital; and• Pension Plan and postretirement benefit plans assets and required contributions;• changes in the economic and financial viability of CMS Energy’s and Consumers’ suppliers, customers, and other counterparties and the continued ability of these third parties, including third parties in bankruptcy, to meet their obligations to CMS Energy and Consumers;• population growth or decline in the geographic areas where CMS Energy and Consumers conduct business;• changes in applicable laws, rules, regulations, principles or practices, or in their interpretation, including those related to taxes, the environment, and accounting matters, that could have an impact on CMS Energy’s9
10
11
12
Table of Contents
13
GENERAL CMS CMS Energy was formed as a corporation in Michigan in 1987 and is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility, and CMS Enterprises, primarily a domestic CMS Energy manages its businesses by the nature of services each provides and operates, principally in three business segments: electric utility, gas utility, and enterprises, its non-utility operations and investments. For further information about operating revenue, net operating income, and identifiable assets and liabilities attributable to all of CMS CONSUMERS Consumers Consumers' consolidated operating revenue was $6.0 billion in Consumers owns its principal properties in fee, except that most electric lines and gas mains are located below public roads or on land owned by others and are accessed by Consumers through easements and other rights. Almost all of EnergyENERGYIPP.independent power producer. Consumers serves individuals and businesses operating in the alternative energy, automotive, chemical, metal, and food products industries, as well as a diversified group of other industries. CMS Enterprises, through its subsidiaries and equity investments, is engaged primarily in IPPindependent power production and owns power generation facilities fueled mostly by natural gas and biomass.Consumers’Consumers' consolidated operations account for substantially all of CMS Energy’sEnergy's total assets, income, and operating revenue. CMS Energy’sEnergy's consolidated operating revenue was $6.2$6.3 billion in 2009, $6.8 billion in 2008, and2012, $6.5 billion in 2007.Energy’sEnergy's business segments and operations, see Item 8. Financial Statements and Supplementary Data, CMS Energy Corporation’sEnergy's Selected Financial Information, Consolidated Financial Statements, and Notes to the Consolidated Financial Statements.formed in Michigan in 1968 and is the successor to a corporation organizedincorporated in Maine in 1910 that conducted businessand became a Michigan corporation in Michigan from 1915 to 1968. Consumers owns and operates electric distribution and generation facilities and gas transmission, storage, and distribution facilities. It provides electricityand/or natural gas to 6.56.6 million of Michigan’sMichigan's 10 million residents. Consumers’Consumers' rates and certain other aspects of its business are subject to the jurisdiction of the MPSC and the FERC, as described in “CMS"CMS Energy and Consumers Regulation”Regulation" in this Item 1.Consumers’2009, $6.42012, $6.3 billion in 2008,2011, and $6.1$6.2 billion in 2007.2010. For further information about operating revenue, net operating income, and identifiable assets and liabilities attributable to Consumers’Consumers' electric and gas utility operations, see Item 8. Financial Statements and Supplementary Data, Consumers Energy Company’sConsumers' Selected Financial Information, Consolidated Financial Statements, and Notes to the Consolidated Financial Statements.Consumers’Consumers' properties are subject to the lien of its First Mortgage Bond Indenture. For additional information on Consumers’Consumers' properties, see the “Business Segments” section of Consumers Electric Utility – Electric Utility Properties and “Business Segments” section of Consumers Gas Utility – Gas Utility Properties described later in the "Business Segments" section of this Item 1.14
15
CONSUMERS ELECTRIC UTILITY
Consumers Electric Utility
Presented in the following illustration is an illustration of Consumers’ 2009Consumers' 2012 electric utility operating revenue of $4.0 billion by customer class:
Consumers' electric utility operations are not dependent on a single customer, or even a few customers, and the loss of any one or even a few of itsConsumers' largest customers is not reasonably likely to have a material adverse effect on itsConsumers' financial condition.
In 2009, Consumers’each of 2012 and 2011, Consumers' electric deliveries excluding intersystem deliveries, were 36 million MWh,38 billion kWh, which included ROA deliveries of 2 million MWh. In 2008, Consumers’ electric deliveries, excluding intersystem deliveries, were 37 million MWh, which included ROA deliveriesfour billion kWh, resulting in net bundled sales of 2 million MWh. Consumers’34 billion kWh.
Consumers' electric utility operations are seasonal. The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment.
16
Consumers' 2012 summer peak demand was 7,7569,006 MW, which includesincluded ROA loadsdemand of 335619 MW. For the2008-09 2011-2012 winter period, Consumers’Consumers' peak demand was 5,8575,864 MW, which includesincluded ROA loadsdemand of 244500 MW. As required by MISO reserve margin requirements, Consumers owns or controls, through long-term contracts, capacity necessaryrequired to supply most of its projected firm peak load and necessary reserve margin for summer 2010.
17
- •
- 421 miles of high-voltage distribution radial lines operating at 120 kilovolts or above;
- •
- 4,259 miles of high-voltage distribution overhead lines operating at 23 kilovolts, 46 kilovolts, and 69 kilovolts;
- •
- 17 miles of high-voltage distribution underground lines operating at 23 kilovolts and 46 kilovolts;
- •
- 55,965 miles of electric distribution overhead lines;
- •
- 10,162 miles of underground distribution lines; and
- •
- substations with an aggregate transformer capacity of 24 million kVA.
Consumers is interconnected to the interstate high-voltage electric transmission system owned by Michigan Electric Transmission Company, LLC, a non-affiliated company, and operated by MISO, to neighboring utilities, and to other transmission systems.
At December 31, 2009, Consumers’2012, Consumers' electric generating system consisted of the following:
Name and Location (Michigan) | Number of Units and Year Entered Service | 2012 Generation Capacity1 (MW) | 2012 Net Generation (GWh) | ||||||
| Coal generation | |||||||||
J.H. Campbell 1 & 2 – West Olive | 2 Units, 1962-1967 | 615 | 2,747 | ||||||
J.H. Campbell 3 – West Olive2 | 1 Unit, 1980 | 770 | 4,606 | ||||||
B.C. Cobb 4 & 5 – Muskegon3 | 2 Units, 1956-1957 | 312 | 1,564 | ||||||
D.E. Karn 1 & 2 – Essexville | 2 Units, 1959-1961 | 515 | 2,200 | ||||||
J.C. Weadock 7 & 8 – Essexville3 | 2 Units, 1955-1958 | 310 | 1,566 | ||||||
J.R. Whiting 1-3 – Erie3 | 3 Units, 1952-1953 | 324 | 1,344 | ||||||
| Total coal generation | 2,846 | 14,027 | |||||||
| Oil/Gas steam generation | |||||||||
B.C. Cobb 1-3 – Muskegon | 3 Units, 1999-20004 | – | – | ||||||
D.E. Karn 3 & 4 – Essexville | 2 Units, 1975-1977 | 1,276 | 82 | ||||||
Zeeland (combined cycle) – Zeeland | 1 Unit, 2002 | 519 | 2,537 | ||||||
| Total oil/gas steam generation | 1,795 | 2,619 | |||||||
| Hydroelectric | |||||||||
Conventional hydro generation | 13 Plants, 1906-1949 | 76 | 399 | ||||||
Ludington – Ludington | 6 Units, 1973 | 954 | 5 | (295 | )6 | ||||
| Total hydroelectric | 1,030 | 104 | |||||||
| Gas/Oil combustion turbine | |||||||||
Various plants | 7 Plants, 1966-1971 | 40 | 5 | ||||||
Zeeland (simple cycle) – Zeeland | 2 Units, 2001 | 308 | 385 | ||||||
| Total gas/oil combustion turbine | 348 | 390 | |||||||
| Wind generation | |||||||||
Lake Winds® Energy Park7 | 56 Turbines, 2012 | 100 | 34 | ||||||
| Total wind generation | 100 | 34 | |||||||
| Total owned generation | 6,119 | 17,174 | |||||||
| Purchased and interchange power8 | 2,488 | 9 | 18,690 | 10 | |||||
| Total supply | 8,607 | 35,864 | |||||||
| Generation and transmission use/loss | (1,761 | ) | |||||||
| Total net bundled sales | 34,103 | ||||||||
| 2009 | ||||||||||
| Summer Net | ||||||||||
| Number of Units and Year | Demonstrated | 2009 Net | ||||||||
Name and Location (Michigan) | Entering Service | Capability (MW) | Generation (GWh) | |||||||
Coal Generation | ||||||||||
| J H Campbell 1 & 2 — West Olive | 2 Units, 1962-1967 | 615 | 3,303 | |||||||
| J H Campbell 3 — West Olive(a) | 1 Unit, 1980 | 770 | 5,893 | |||||||
| B C Cobb — Muskegon | 2 Units, 1956-1957 | 312 | 1,733 | |||||||
| D E Karn — Essexville | 2 Units, 1959-1961 | 515 | 2,743 | |||||||
| J C Weadock — Essexville | 2 Units, 1955-1958 | 310 | 1,869 | |||||||
| J R Whiting — Erie | 3 Units, 1952-1953 | 328 | 1,714 | |||||||
| Total coal generation | 2,850 | 17,255 | ||||||||
Oil/Gas Generation | ||||||||||
| B C Cobb — Muskegon | 3 Units, 1999-2000(b) | — | — | |||||||
| D E Karn — Essexville | 2 Units, 1975-1977 | 1,276 | 26 | |||||||
| Zeeland — Zeeland | 1 Unit, 2002 | 538 | 388 | |||||||
| Total oil/gas generation | 1,814 | 414 | ||||||||
Hydroelectric | ||||||||||
| Conventional hydro generation | 13 Plants, 1906-1949 | 74 | 466 | |||||||
| Ludington — Ludington | 6 Units, 1973 | 955 | (c) | (303 | )(d) | |||||
| Total hydroelectric | 1,029 | 163 | ||||||||
Gas/Oil Combustion Turbine | ||||||||||
| Various plants | 7 Plants, 1966-1971 | 331 | 37 | |||||||
| Zeeland — Zeeland | 2 Units, 2001 | 330 | 128 | |||||||
| Total gas/oil combustion turbine | 661 | 165 | ||||||||
| Total owned generation | 6,354 | 17,997 | ||||||||
Purchased and Interchange Power(e) | 2,600 | (f) | 18,463 | (g) | ||||||
| Total | 8,954 | 36,460 | ||||||||
| ||
18
- 4
- B.C. Cobb 1-3 are retired coal-fueled units that were converted to gas-fueled units. B.C. Cobb 1-3 were placed back into service in the years indicated, and subsequently mothballed beginning in April 2009. Consumers has received an extension of the mothball period to April 2013 and plans to request a further extension of the mothball period through September 2015.
- 5
- Represents Consumers' 51 percent share of the capacity of Ludington. DTE Electric owns the remaining 49 percent.
- 6
- Represents Consumers' share of net pumped-storage generation. The pumped-storage facility consumes electricity to pump water during off-peak hours for storage in order to generate electricity later during peak-demand hours.
- 7
- Wind generation is
interconnected to METC. METC ownsaninterstate high-voltage electric transmission systemintermittent resource and as a result, the capacity credit associated with wind resources located inMichiganthe MISO service area is less than the generation nameplate capacity. The capacity credit for Lake Winds® Energy Park is 13 MW for 2013. - 8
- Includes purchases from the Midwest Energy Market, long-term purchase contracts, and
is interconnected with neighboring utilities as well as other transmission systems.
MD&A – Outlook, "Consumers Electric Utility Business Outlook and Uncertainties – Balanced Energy Initiative."
As shown in the following illustration, Consumers’ 2009Consumers' 2012 generation capacity of 8,9548,607 MW, including purchased capacity of 2,6002,488 MW, purchased under PPAs, came fromrelied on a variety of fuel sources:
19
GWh | ||||||||||||||||
Net Generation | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||
Owned generation | ||||||||||||||||
Coal | 14,027 | 15,468 | 17,879 | 17,255 | 17,701 | |||||||||||
Gas | 3,003 | 1,912 | 1,043 | 565 | 804 | |||||||||||
Renewable energy | 433 | 425 | 365 | 466 | 454 | |||||||||||
Oil | 6 | 7 | 21 | 14 | 41 | |||||||||||
Net pumped storage1 | (295 | ) | (365 | ) | (366 | ) | (303 | ) | (382 | ) | ||||||
Total owned generation | 17,174 | 17,447 | 18,942 | 17,997 | 18,618 | |||||||||||
Purchased and interchange power | ||||||||||||||||
Purchased renewable energy2 | 1,435 | 1,587 | 1,582 | 1,472 | 1,503 | |||||||||||
Purchased generation – other2 | 13,104 | 11,087 | 10,421 | 10,066 | 12,140 | |||||||||||
Net interchange power3 | 4,151 | 6,825 | 6,045 | 6,925 | 6,653 | |||||||||||
Total purchased and interchange power | 18,690 | 19,499 | 18,048 | 18,463 | 20,296 | |||||||||||
Total supply | 35,864 | 36,946 | 36,990 | 36,460 | 38,914 | |||||||||||
| GWh | ||||||||||||||||||||
Power Generated | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
| Coal | 17,255 | 17,701 | 17,903 | 17,744 | 19,711 | |||||||||||||||
| Gas | 565 | 804 | 129 | 161 | 356 | |||||||||||||||
| Hydro | 466 | 454 | 416 | 485 | 387 | |||||||||||||||
| Oil | 14 | 41 | 112 | 48 | 225 | |||||||||||||||
| Nuclear | — | — | 1,781 | 5,904 | 6,636 | |||||||||||||||
| Net pumped storage | (303 | ) | (382 | ) | (478 | ) | (426 | ) | (516 | ) | ||||||||||
| Total owned generation | 17,997 | 18,618 | 19,863 | 23,916 | 26,799 | |||||||||||||||
| Non-utility generation | 11,538 | 13,643 | 12,502 | 8,594 | 8,999 | |||||||||||||||
| Net interchange power | 6,925 | 6,653 | 8,009 | 7,244 | 1,772 | |||||||||||||||
| Net purchased and interchange power | 18,463 | 20,296 | 20,511 | 15,838 | 10,771 | |||||||||||||||
| Total Net Power Supply | 36,460 | 38,914 | 40,374 | 39,754 | 37,570 | |||||||||||||||
- 1
- Represents Consumers' share of net pumped-storage generation. The pumped-storage facility consumes electricity to pump water during off-peak hours for storage in order to generate electricity later during peak-demand hours.
- 2
- Includes purchases from long-term purchase contracts.
- 3
- Includes purchases from the Midwest Energy Market and seasonal purchases.
The cost of all fuels consumed, shown in the following table, fluctuates with the mix of fuel used.
Cost Per Million Btu | ||||||||||
Fuel Consumed | 2012 | 2011 | 2010 | 2009 | 2008 | |||||
Coal | $ 2.98 | $ 2.94 | $ 2.51 | $ 2.37 | $ 2.01 | |||||
Gas | 3.16 | 4.95 | 5.57 | 6.57 | 10.94 | |||||
Oil | 19.08 | 18.55 | 10.98 | 9.59 | 11.54 | |||||
All fuels1 | $ 3.05 | $ 3.18 | $ 2.71 | $ 2.56 | $ 2.47 | |||||
| Cost per Million Btu | ||||||||||||||||||||
Fuel Consumed | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
| Coal | $ | 2.37 | $ | 2.01 | $ | 2.04 | $ | 2.09 | $ | 1.78 | ||||||||||
| Gas | 6.57 | 10.94 | 10.29 | 8.92 | 9.76 | |||||||||||||||
| Oil | 9.59 | 11.54 | 8.21 | 8.68 | 5.98 | |||||||||||||||
| Nuclear | — | — | 0.42 | 0.24 | 0.34 | |||||||||||||||
| All Fuels(a) | $ | 2.56 | $ | 2.47 | $ | 2.07 | $ | 1.72 | $ | 1.64 | ||||||||||
- 1
- Weighted-average fuel costs
In 2009, Consumers’2012, Consumers' four coal-fueled generating sites burned 98 million tons of coal and produced a combined total of 17,25514,027 GWh of electricity, which represented 9639 percent of the energy generatedprovided by Consumers.
In order to obtain its coal requirements, Consumers enters into long-term and short-term physical coal supply contracts. At December 31, 2009,2012, Consumers had six long-term and three spot-price contracts to purchase low-sulfur western coal through 2012; these contracts total $233 million. Consumers also had four long-term and three spot-price contracts to purchase Appalachian coal through 2012;2015; payment obligations under these contracts totaled $215$214 million. All of Consumers’ long-termConsumers' coal supply contracts have fixed prices. Over the last ten years,At December 31, 2012, Consumers has purchased 60 to 90had 78 percent of its annual coal requirements through long-term contracts. At December 31, 2009, Consumers had 93 percent of its 20102013 expected coal requirements under contract, as well as a47-day 45-day supply of coal on-hand.on hand.
In conjunction with its coal supply contracts, Consumers leases a fleet of rail cars and has long-term transportation contracts with various companies to provide rail and vessel services for delivery of purchased coal to Consumers’Consumers' generating facilities. Consumers’Consumers' coal transportation contracts expire from 20102013 through 2014.
During 2012, Consumers participates inpurchased 52 percent of the electricity it provided to customers through long-term PPAs, seasonal purchases, and the Midwest Energy Market. Consumers offers its generation into the marketMidwest Energy Market on a day-ahead and real-time basis and bids for power in the market to serve the demand of its load.customers. Consumers is a net purchaser of power and supplements its generation capability with purchases from the marketMidwest Energy Market to meet its customerscustomers' needs during peak demand periods.
At December 31, 2009,2012, Consumers had unrecognized future commitments (amounts for which liabilities, in accordance with GAAP, have not been recorded on its balance sheet) to purchase capacity and energy under long-term PPAs with various generating plants. These contracts require monthly capacity payments based on the plants’plants' availability whether or not power is delivered to Consumers, or deliverability. TheseThe payments for 20102013 through 20302040 total $13.2$12.5 billion and range from $780$911 million to $870$964 million annually for each of the next five
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Electric Utility Competition: Consumers' electric utility business is subject to actual and potential competition from many sources, in both the wholesale and retail markets, as well as in electric generation, electric delivery, and retail services.
The Customer Choice Act allows all of Consumers' electric customers to buy electric generation service from Consumers Gas Utilityor from an alternative electric supplier. The 2008 Energy Law revised the Customer Choice Act by limiting alternative electric supply to ten percent of weather-adjusted retail sales for the preceding calendar year. At December 31, 2012, electric deliveries under the ROA program were at the ten percent limit. Alternative electric suppliers were providing 777 MW of generation service to ROA customers.
Consumers also has competition or potential competition from:
- •
- industrial customers relocating all or a portion of their production capacity outside Consumers' service territory for economic reasons;
- •
- municipalities owning or operating competing electric delivery systems; and
- •
- customer self-generation.
Consumers addresses this competition by monitoring activity in adjacent areas and monitoring compliance with the MPSC's and FERC's rules, providing non-energy services, providing value to customers through Consumers' rates and service, and offering tariff-based incentives that support economic development.
CONSUMERS GAS UTILITY
Gas Utility Operations:
$2.0 billion in 2009, $2.82012, $2.3 billion in 2008,2011, and $2.6$2.4 billion in 2007. Consumers’2010. Consumers' gas utility customer base consists of a mix of residential, commercial, and diversified industrial customers in Michigan’sMichigan's Lower Peninsula. The
Presented in the following illustration is an illustration of Consumers’ 2009Consumers' 2012 gas utility operating revenue of $2.0 billion by customer class:
Consumers' gas utility operations are not dependent on a single customer, or even a few customers, and the loss of any one or even a few of itsConsumers' largest customers is not reasonably likely to have a material adverse effect on itsConsumers' financial condition.
In 2009,2012, deliveries of natural gas, soldincluding off-system transportation deliveries, through Consumers’Consumers' pipeline and distribution network, totaled 326329 bcf, which included GCC deliveries of 2749 bcf. In 2008, Consumers’2011, deliveries of natural gas, soldincluding off-system transportation deliveries, through itsConsumers' pipeline and distribution network, totaled 344337 bcf, which included GCC deliveries of 2548 bcf. Consumers’Consumers' gas utility operations are seasonal. Consumers injects natural gas into storage during the summer months for use during the winter months when the demand for natural gas is higher. Peak demand occurs in the winter due to colder temperatures and the resulting use of natural gas as a heating fuel. During 2009, 432012, 42 percent of the natural gas supplied to all customers during the winter months was supplied from storage. Peak demand occurs
Presented in the winter due to colder temperatures
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Gas Utility Properties: Consumers’ Consumers' gas distribution and transmission system located in Michigan’sMichigan's Lower Peninsula consists of:
- •
- 26,720 miles of distribution mains;
- •
- 1,657 miles of transmission lines;
- •
- seven compressor stations with a total of 151,172 installed and available horsepower; and
- •
- 15 gas storage fields with an aggregate storage capacity of 309 bcf and a working storage capacity of 143 bcf.
Gas Utility Supply: In 2009,2012, Consumers purchased 6962 percent of the gas it delivered from United StatesU.S. producers and 189 percent from Canadian producers. AuthorizedThe remaining 29 percent was purchased from authorized GCC suppliers and delivered by Consumers to customers in the GCC program suppliedprogram. Presented in the remaining 13 percent offollowing illustration are the supply arrangements for the gas Consumers delivered to GCC and GCR customers during 2012:
Firm transportation or firm city-gate contracts are those that Consumers delivered.
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Gas Utility Competition:Enterprises — Non-Utility Operations Competition exists in various aspects of Consumers' gas utility business. Competition comes from other gas suppliers taking advantage of direct access to Consumers' customers (GCC) and Investmentsfrom alternative fuels and energy sources, such as propane, oil, and electricity.
ENTERPRISES SEGMENT – NON-UTILITY OPERATIONSAND INVESTMENTS
CMS Energy’sEnergy's enterprises segment, through various subsidiaries and certain equity investments, is engaged primarily in domestic IPPindependent power production and the marketing of IPP. In 2007, enterprises made a significant change in business strategy by exiting the international marketplace and refocusing to concentrate on its independent power business in the United States.
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Location | Primary Fuel Type | Ownership Interest (%) | Gross Capacity (MW) | Gross Capacity Under Long-Term Contract (%) | ||||||||
Dearborn, Michigan | Natural gas | 100 | 710 | 39 | ||||||||
Gaylord, Michigan | Natural gas | 100 | 156 | 47 | ||||||||
Comstock, Michigan | Natural gas | 100 | 68 | 47 | ||||||||
Filer City, Michigan | Coal | 50 | 73 | 100 | ||||||||
Flint, Michigan | Biomass | 50 | 40 | 100 | ||||||||
Grayling, Michigan | Biomass | 50 | 38 | 100 | ||||||||
New Bern, North Carolina | Biomass | 50 | 50 | 100 | ||||||||
Total | 1,135 | |||||||||||
| Percentage of | ||||||||||||||
| Gross Capacity | ||||||||||||||
| Under Long-Term | ||||||||||||||
| Primary | Ownership Interest | Gross Capacity | Contract | |||||||||||
Location | Fuel Type | (%) | (MW) | (%) | ||||||||||
| California | Biomass | 37.8 | 36 | 100 | ||||||||||
| Connecticut(a) | Scrap tire | 100 | 31 | — | ||||||||||
| Michigan | Natural gas | 100 | 710 | 92 | ||||||||||
| Michigan | Natural gas | 100 | 224 | — | ||||||||||
| Michigan | Coal | 50 | 73 | 100 | ||||||||||
| Michigan | Biomass | 50 | 40 | 100 | ||||||||||
| Michigan | Biomass | 50 | 38 | 100 | ||||||||||
| North Carolina | Biomass | 50 | 50 | — | ||||||||||
Total | 1,202 | |||||||||||||
The operating revenue from independent power production included in income from continuing operations in CMS Energy's consolidated financial statements was $16 million in 2012, $17 million in 2011, and $18 million in 2010. The operating revenue from independent power production included in income (loss) from discontinued operations in CMS Energy's consolidated financial statements was less than $1 million in 2011 and was $10 million in 2010. CMS Energy's independent power production business faces competition from generators, marketers and brokers, and utilities marketing power in the wholesale market.
Energy Resource Management: CMS ERM purchases and sells energy commodities in support of CMS Energy’sEnergy's generating facilities.facilities and continues to focus on optimizing CMS Energy's independent power production portfolio. In 2004, CMS ERM discontinued its natural gas retail program as customer contracts expired, and changed its name from CMS MST to CMS ERM.
Natural Gas Transmission:OTHER BUSINESSES
EnerBank: EnerBank, a wholly owned subsidiary of CMS Gas Transmission owned, developed, and managed domestic and international natural gas facilities. In March 2007, CMS Gas Transmission soldEnergy, is a portfolio of its businesses in Argentina and its northern Michigan non-utility natural gas assets to Lucid Energy. In August 2007, CMS Gas Transmission sold its investment in GasAtacama to Endesa S.A. In June 2008, CMS Gas Transmission completed the sale of its investment in TGN. For more information on these asset sales, see Item 8. Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 22, Asset Sales, Discontinued Operations, and Impairment Charges, “Asset Sales.”
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CMS ENERGY AND CONSUMERS REGULATION
CMS Energy, Consumers, and their subsidiaries are subject to regulation by various federal, state, local, and foreign governmental agencies, including those described in the following sections.
FERC
FERC has exercised limited jurisdiction over several independent power plants and exempt wholesale generators in which CMS Enterprises has ownership interests, as well as over CMS ERM, CMS Gas Transmission, and DIG. Among other things, the FERC has jurisdiction over acquisitions, operations, and disposals of certain assets and facilities, services provided and rates charged, conduct among affiliates, and limited jurisdiction over holding company matters with respect to CMS Energy. The FERC, in connection with the NERC and with regional reliability organizations, also regulates generation owners and operators, load serving entities, purchase and sale entities, and others with regard to reliability of the bulk power system. CertainFERC regulates limited aspects of Consumers’Consumers' gas business, are also subject to regulation byprincipally compliance with FERC capacity release rules, shipping rules, the FERC, including a blanket transportation tariff under which Consumers may transport gas in interstate commerce.
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MPSC
Consumers is subject to the jurisdiction of the MPSC, which regulates public utilities in Michigan with respect to retail utility rates, accounting, utility services, certain facilities, corporate mergers, and other matters.
The Michigan Attorney General, ABATE, the MPSC Staff, and certain other parties typically participate in MPSC proceedings concerning Consumers. The Michigan Attorney General, ABATE, and others often appeal significant MPSC orders.
Rate Proceedings:Other Regulation For information regarding open rate proceedings, see Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements, Note 3, Regulatory Matters.
OTHER REGULATION
The U.S. Secretary of Energy regulates imports and exports of natural gas and has delegated various aspects of this jurisdiction to the FERC and the DOE’sDOE's Office of Fossil Fuels.
The U.S. Department of Transportation Office of Pipeline Safety regulates the safety and security of gas pipelines are subject tothrough the Natural Gas Pipeline Safety Act of 1968 and the Pipeline Safety Improvement Act of 2002, which regulate the safety of gas pipelines.
EnerBank is regulated by the State of Utah and the FDIC.
ENERGY LEGISLATION
CMS Energy, Consumers, and their subsidiaries are subject to various legislative-driven matters, including Michigan's 2008 Energy Law. This law requires that at least ten percent of Consumers' electric sales volume come from renewable energy sources by 2015, and includes requirements for specific capacity additions. The 2008 Energy Law also requires Consumers to prepare an energy optimization plan and achieve annual sales reduction targets through at least 2015. The targets are incremental with the goal of achieving a six percent reduction in customers'
electricity use and a four percent reduction in customers' natural gas use by December 31, 2015. The 2008 Energy Law also reformed the Customer Choice Act to limit alternative energy suppliers to supplying no more than ten percent of Consumers' weather-adjusted sales. For additional information regarding Consumers' renewable energy and energy optimization plans and the Customer Choice Act, see Item 8. Financial Statements and Supplementary Data, MD&A, Outlook, "Consumers Electric Utility Business Outlook and Uncertainties."
CMS ENERGY AND CONSUMERS ENVIRONMENTAL COMPLIANCE
CMS Energy, Consumers, and their subsidiaries are subject to various federal, state, and local regulations for environmental quality, including air and water quality, solid waste management, and other matters. For additional information concerning environmental matters, see Item 1A. Risk Factors and Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements, Note 6,4, Contingencies and Commitments.
CMS Energy has recorded a significant liability for its affiliates’affiliates' obligations associated with Bay Harbor.Harbor and Consumers has recorded a significant liability for its obligations at a number of MGP sites. For additional information, see Item 1A. Risk Factors and Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements, Note 6,4, Contingencies and Commitments.
Air: Consumers continues to installstate-of-the-art emissions control equipment at its electric generating plants and to convert electric generating units to burn cleaner fuels. Consumers estimates that it will incur expenditures of $1.4 billion$835 million from 20102013 through 20172018 to comply with currentpresent and future federal and state regulations that will require extensive reductions in nitrogen oxides, sulfur dioxides, particulate matter, and mercury emissions. Consumers’Consumers' estimate may increase if additional or more stringent laws or regulations are adopted or implemented regarding greenhouse gases, including carbon dioxide. For additional information concerning estimated capital expenditures related to environmental compliance, see Item 7. MD&A, Outlook, “Consumers’ Electric Utility Business Outlook and Uncertainties — Electric Environmental Estimates.”
Solid Waste Disposal: Costs related to the construction, operation, and closure of a modern solid waste disposal facilityfacilities for coal ash are significant. To achieve significant reductions in ash field closure costs,Historically, Consumers has worked with others to reuse 30 to 50 percent of ash produced. Consumersproduced by its coal-fueled plants, and sells coal ash for use as a Portland cement replacement in concrete products, as feedstock for the manufacture of Portland cement, and for other environmentally compatiblesustainable uses. Consumers’Consumers' solid waste disposal areas are regulated under Michigan’sMichigan's solid waste rules. Consumers has converted all of its fly ash handling systems to dry systems, which substantially reduce landfill venting.systems. All of Consumers’Consumers' ash facilities have programs designed to protect the environment and are subject to quarterly MDNREMDEQ inspections. Dike integrity and stability have been assessed by an independent consultant. The EPA has been considering the development ofproposed new federal regulations for ash disposal areas for several years.
Water: Consumers uses significant amounts of water to operate and cool its electric generating plants. Water discharge quality is regulated and administered by the MDNREMDEQ under the federal NPDES program. To comply with such regulation, Consumers’Consumers' facilities have discharge monitoring programs. The EPA is developing new regulations related to cooling water intake systems.systems, but these new regulations are not expected to take effect until after 2018. Accordingly, Consumers estimatesdoes not presently expect to incur any significant expenditures of $150 million from 2010 through 2017 to comply with current and future regulations relating to cooling water intake systems.
26
preliminary estimate of expenditures to comply with these expected regulations is $180 million from 2013 through 2018.
For further information concerning estimated capital expenditures related to air, solid waste disposal, and monitoring compliance with the MPSC’swater see Item 8. Financial Statements and the FERC’s rules, providing non-energy services,Supplementary Data, MD&A, Outlook, "Consumers Electric Utility Business Outlook and providing tariff-based incentives that support economic development.
INSURANCE
CMS Energy and its subsidiaries, including Consumers, maintain insurance coverage generally similar to comparable companies in the same lines of business. The insurance policies are subject to terms, conditions, limitations, and exclusions that might not fully compensate CMS Energy or Consumers for all losses. A portion of each loss is generally assumed by CMS Energy or Consumers in the form of deductibles and self-insured retentions that, in some cases, are substantial. As CMS Energy or Consumers renews its policies, it is possible that some of the currentpresent insurance coverage may not be renewed or obtainable on commercially reasonable terms due to restrictive insurance markets.
CMS Energy’sEnergy's and Consumers’ currentConsumers' present insurance program does not cover the risks of certain environmental cleanup costs and environmental damages, such as claims for air pollution, damage to sites owned by CMS Energy or Consumers, and some long-term storage or disposal of wastes.
EMPLOYEES
Presented in the following table are the number of employees of CMS Energy and its wholly owned subsidiaries, including Consumers, had 8,039 full-time equivalent employees. Included in the total are 3,433 full-time operating, maintenance, and construction employees and full-time and part-time call center employees who are represented by the Union.Consumers:
December 31 | 2012 | 2011 | 2010 | |||||||
CMS Energy, including Consumers | ||||||||||
Number of full-time-equivalent employees | 7,514 | 7,727 | 7,822 | |||||||
Consumers | ||||||||||
Number of full-time-equivalent employees | 7,205 | 7,435 | 7,522 | |||||||
27
Name | Position | Period | ||||
John G. Russell | 55 | President and CEO of CMS Energy | ||||
| President and CEO of Consumers | ||||||
| Director of CMS Energy | ||||||
| Director of Consumers | ||||||
| Director of CMS Enterprises | ||||||
| Chairman of the Board, President, and CEO of CMS Enterprises | ||||||
| President and Chief Operating Officer of Consumers | 10/2004-5/2010 | |||||
Thomas J. Webb | Executive Vice President and CFO of CMS Energy | 8/2002-Present | ||||
| Executive Vice President and CFO of Consumers | 8/2002-Present | |||||
| Executive Vice President and CFO of CMS Enterprises | 8/2002-Present | |||||
| Director of CMS Enterprises | 8/2002-Present | |||||
James E. Brunner | Senior Vice President and General Counsel of CMS Energy | |||||
| Senior Vice President and General Counsel of Consumers | ||||||
| Senior Vice President and General Counsel of CMS Enterprises | 11/2007-Present | |||||
| Director of CMS Enterprises | 9/2006-Present | |||||
John M. Butler | 48 | Senior Vice President of CMS Energy | 7/2006-Present | |||
| Senior Vice President of Consumers | 7/2006-Present | |||||
| Senior Vice President of CMS Enterprises | ||||||
David G. Mengebier | ||||||
| Senior Vice President and Chief Compliance Officer of CMS Energy | 11/2006-Present | |||||
| Senior Vice President and Chief Compliance Officer of Consumers | 11/2006-Present | |||||
| Senior Vice President of CMS Enterprises | 3/2003-Present | |||||
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Glenn P. Barba | ||||||||||||
| Vice President, Controller, and | 2/2003-Present | |||||||||||
| Vice President, Controller, and | 1/2003-Present | |||||||||||
| Vice President, | 11/2007-Present | |||||||||||
There are no family relationships among executive officers and directors of CMS Energy.
The term of office of each of the executive officers extends to the first meeting of the Board of Directors of CMS Energy after the next annual election of Directors of CMS Energy (scheduled to be held on May 21, 2010)17, 2013).
CONSUMERS EXECUTIVE OFFICERS (as of February(AS OF FEBRUARY 1, 2010)2013)
Name | Position | Period | ||||
John G. Russell | 55 | President and CEO of CMS Energy | ||||
| President and CEO of Consumers | ||||||
| Director of CMS Energy | ||||||
| Director of Consumers | ||||||
| Director of CMS Enterprises | ||||||
| Chairman of the Board, President, and CEO of CMS Enterprises | ||||||
| President and Chief Operating Officer of Consumers | 10/2004-5/2010 | |||||
Thomas J. Webb | Executive Vice President and CFO of CMS Energy | 8/2002-Present | ||||
| Executive Vice President and CFO of Consumers | 8/2002-Present | |||||
| Executive Vice President and CFO of CMS Enterprises | 8/2002-Present | |||||
| Director of CMS Enterprises | 8/2002-Present | |||||
James E. Brunner | Senior Vice President and General Counsel of CMS Energy | |||||
| Senior Vice President and General Counsel of Consumers | ||||||
| Senior Vice President and General Counsel of CMS Enterprises | 11/2007-Present | |||||
| Director of CMS Enterprises | 9/2006-Present | |||||
John M. Butler | 48 | Senior Vice President of CMS Energy | 7/2006-Present | |||
| Senior Vice President of Consumers | 7/2006-Present | |||||
| Senior Vice President of CMS Enterprises | ||||||
29
David G. Mengebier | ||||||||||||
| Senior Vice President and Chief Compliance Officer of CMS Energy | 11/2006-Present | |||||||||||
| Senior Vice President and Chief Compliance Officer of Consumers | 11/2006-Present | |||||||||||
| Senior Vice President of CMS Enterprises | 3/2003-Present | |||||||||||
Jackson L. Hanson | ||||||||||||
| 56 | Senior Vice President of Consumers | |||||||||||
| Vice President of Consumers | ||||||||||||
Daniel J. Malone | 52 | Senior Vice President of Consumers | ||||||||||
| Vice President of Consumers | 6/2008-5/2010 | |||||||||||
| Site Business Manager of Consumers | 12/2006-6/2008 | |||||||||||
Glenn P. Barba | Vice President, Controller, and | 2/2003-Present | ||||||||||
| Vice President, Controller, and | 1/2003-Present | |||||||||||
| Vice President, | 11/2007-Present | |||||||||||
There are no family relationships among executive officers and directors of Consumers.
The term of office of each of the executive officers extends to the first meeting of the Board of Directors of Consumers after the next annual election of Directors of Consumers (scheduled to be held on May 21, 2010)17, 2013).
CMS Energy’sEnergy's internet address is www.cmsenergy.com. Information contained on CMS Energy’sEnergy's website is not incorporated herein. All of CMS Energy’sEnergy's annual reports onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act are accessible free of charge on CMS Energy’sEnergy's website. These reports are available soon after they are filed electronically with the SEC. Also on CMS Energy’sEnergy's website are its:
- •
- Corporate Governance Principles;
- •
- Codes of Conduct:
- •
- CMS Energy Corporation/Consumers Energy Company Board of Directors Code of Conduct – January 2013,
- •
- Code of Conduct and Guide to Ethical Business Behavior 2010,
- •
- Guide to Ethical Business Behavior Addendum – March 1, 2011, and
- •
- Guide to Ethical Business Behavior Addendum – January 24, 2013;
- •
- Board Committee Charters (including the Audit Committee, the Compensation and Human Resources Committee, the Finance Committee, and the Governance and Public Responsibility Committee); and
- •
- Articles of Incorporation (and amendments) and Bylaws.
CMS Energy will provide this information in print to any stockholder who requests it.
Any materials CMS Energy files with the SEC may also be read and copied at the SEC’sSEC's Public Reference Room at 100 F Street, NE,N.E., Washington DC,D.C., 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address ishttp://www.sec.gov.
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Table of Contents
Actual results in future periods for CMS Energy and Consumers could differ materially from historical results and the forward-looking statements contained in this report. Factors that might cause or contribute to these differences include, but are not limited to, those discussed in the following sections. CMS Energy’sEnergy's and Consumers’Consumers' businesses are influenced by many factors that are difficult to predict, and that involve uncertainties that may materially affect results, and that are often beyond their control. Additional risks and uncertainties not presently known or that the companies’companies' management believes to be immaterial may also adversely affect the companies. The risk factors described in the following sections, as well as the other information included in this report and in other documents filed with the SEC, should be considered carefully before making an investment in securities of CMS Energy or Consumers. Risk factors of Consumers are also risk factors of CMS Energy. All of these risk factors are potentially significant.
CMS Energy depends on dividends from its subsidiaries to meet its debt service obligations.
Due to its holding company structure, CMS Energy depends on dividends from its subsidiaries to meet its debt service and other payment obligations. RestrictionsConsumers' ability to pay dividends or acquire its own stock from CMS Energy is limited by restrictions contained in Consumers’Consumers' preferred stock provisions and potentially by other legal restrictions, such as certain terms in its articles of incorporation, and by FERC requirements, limit Consumers’ ability to pay dividends or acquire its own stock from CMS Energy.requirements. At December 31, 2009,2012, under its articles of incorporation, Consumers had $333$536 million of unrestricted retained earnings available to pay common stock dividends. If sufficient dividends are not paid to CMS Energy by its subsidiaries, CMS Energy may not be able to generate the funds necessary to fulfill its payment obligations, which could have a material adverse effect on CMS Energy’sEnergy's liquidity and financial condition.
CMS Energy has substantial indebtedness that could limit its financial flexibility and hence its ability to meet its debt service obligations.
At December 31, 2009,2012, CMS Energy, including Consumers, had $6.6$7.2 billion aggregate principal amount of indebtedness, including $34 million of subordinated indebtedness relating to its convertible preferred securities.indebtedness. CMS Energy had $1.9$2.4 billion aggregate principal amount of indebtedness at December 31, 2009.2012. At December 31, 2009,2012, there were $25 million ofno borrowings and $3$2 million of letters of credit outstanding under CMS Energy’sEnergy's revolving credit agreement. CMS Energy and its subsidiaries may incur additional indebtedness in the future.
The level of CMS Energy’sEnergy's present and future indebtedness could have several important effects on its future operations, including, among others:
| ||
- •
- CMS Energy's vulnerability to adverse economic and industry conditions could increase; and
- •
- CMS Energy's future credit ratings could fluctuate.
CMS Energy's ability to meet its debt service obligations and to reduce its total indebtedness will depend on its future performance, which will be subject to general economic conditions, industry cycles, changes in laws or regulatory decisions, (including with respect to environmental matters), and financial, business, and other factors affecting its operations, many of which are beyond its control. CMS Energy cannot make assurances that its business will continue to generate sufficient cash flow from operations to service its indebtedness. If CMS Energy is unable to generate sufficient cash flows from operations, it may be required to sell assets or obtain additional
31
CMS Energy cannot predict the outcome of regulatory reviews and claims regarding its participation in the development of Bay Harbor.
32
CMS Energy and Consumers may be subject to liquidity demands under commercial commitments, guarantees, indemnities, and letters of credit. Consumers’credit, and other contingent liabilities. Consumers' capital requirements are expected to be substantial over the next several years as it implements renewable power generation and environmental projects, and suchthose requirements may increase if additional laws or regulations are adopted or implemented regarding greenhouse gases, including carbon dioxide.
CMS Energy and Consumers rely on the capital markets, particularly for publicly offered debt, as well as on the bankingbank syndications, to meet their financial commitments and short-term liquidity needs if internal funds are not available from Consumers' operations and, in the case of CMS Energy’sEnergy, dividends from Consumers and Consumers’ respective operations.its other subsidiaries. CMS Energy and Consumers also use letters of credit issued under certain of their revolving credit facilities to support certain operations and investments.
Longer term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives, or failures of significant financial institutions could adversely affect CMS Energy’sEnergy's and Consumers’Consumers' access to liquidity needed for their respective businesses.businesses, as could Consumers' inability to obtain prior FERC authorization for any securities issuances, including publicly offered debt, as is required under the Federal Power Act. Any disruption or inability to obtain FERC authorization could require CMS Energy and Consumers to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for their business needs can be arranged. These measures could include deferring capital expenditures, changing CMS Energy’sEnergy's and Consumers’Consumers' commodity purchasing strategy to avoid collateral-posting requirements, and reducing or eliminating future share repurchases, dividend payments, or other discretionary uses of cash.
CMS Energy continues to explore financing opportunities to supplement its financial plan. These potential opportunities include refinancingand/or issuing new capital markets debt, preferred stockand/or common equity, and bank financing. Similarly, Consumers plans to seek funds through the capital markets, commercial lenders, and leasing arrangements. Entering into new financings is subject in part to capital market receptivity to utility industry securities in general and to Consumers’CMS Energy's and Consumers' securities issuances in particular. CMS Energy and Consumers cannot
guarantee the capital markets’markets' acceptance of their securities or predict the impact of factors beyond their control, such as actions of rating agencies. If CMS Energy or Consumers is unable to obtain bank financing or access the capital markets to incur or refinance indebtedness, or is unable to obtain commercially reasonable terms for any such financing, there could be a material adverse effect on its liquidity, financial condition, and results of operations.
Certain of CMS Energy’sEnergy's securities and those of its affiliates, including Consumers, are rated by various credit rating agencies. Any reduction or withdrawal of one or more of its credit ratings could have a material adverse impact on CMS Energy’sEnergy's or Consumers’Consumers' ability to access capital on acceptable terms and maintain commodity lines of credit, could make its cost of borrowing higher, and could cause CMS Energy or Consumers to reduce its capital expenditures. If it is unable to maintain commodity lines of credit, CMS Energy or Consumers may have to post collateral or make prepayments to certain of its suppliers under existing contracts. Further, since Consumers provides dividends to CMS Energy, any adverse developments affecting Consumers that result in a lowering of its credit ratings could have an adverse effect on CMS Energy’sEnergy's credit ratings. CMS Energy and Consumers cannot guarantee that any of their currentpresent ratings will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency.
There are risks associated with Consumers' significant capital investment program planned for the next five years.
Consumers' planned investments include the Smart Energy program, new power generation, gas compression, environmental controls, and other electric and gas infrastructure to upgrade delivery systems. The success of these investments depends on or could be affected by a variety of factors including, but not limited to, effective cost and schedule management during implementation, changes in commodity and other prices, operational performance, changes in environmental, legislative and regulatory requirements, and regulatory cost recovery. Consumers cannot predict the impact that any of these factors could have on the success of its capital investment program. It is possible that adverse events associated with these factors could have a material adverse effect on Consumers' liquidity, financial condition, and results of operations.
Electric industry legislation in Michigan, coupled with increased competition in gas and electric markets, could have a material adverse effect on CMS Energy's and Consumers' businesses.
The 2008 Energy Law, among other things, limits alternative electric supply to ten percent of weather-adjusted retail sales for the preceding calendar year. Lower natural gas prices due to a large supply of natural gas on the market, coupled with low capacity prices in the electric supply market, are placing increasing competitive pressure on Consumers' electric supply. Presently, Consumers' electric rates are above the Midwest average, while the ROA level on Consumers' system is at the ten-percent cap and the proportion of Consumers' electric deliveries under the ROA program and on the ROA waiting list is 25 percent. In February 2013, a proposal was made to raise the ROA limit above ten percent. If the bill is enacted, it could have a material adverse effect on Consumers' business. In addition, the Michigan legislature is conducting hearings on the subject of energy competition. If other bills to raise the ROA limit above ten percent are proposed in the future and enacted, they could have a material adverse effect on Consumers' business.
Recently, the Michigan governor announced a process pursuant to which a series of reports are to be completed in December 2013 addressing energy efficiency, renewable energy, the electricity market and customer choice, and other subjects. The process is designed to help the
governor and other lawmakers determine the state's next steps regarding energy policies. A series of public hearings have been scheduled in 2013 to gather input. Consumers expects to participate actively in this process but cannot predict its outcome.
Other new legislation or interpretations could change how the businesses of CMS Energy and Consumers operate, impact Consumers' ability to recover costs through rate increases, or require CMS Energy and Consumers to incur additional expenses.
CMS Energy and Consumers are subject to rate regulation, which could have an adverse effect on financial results.
CMS Energy and Consumers are subject to rate regulation. Electric and gas rates for their utilities are set by the MPSC and cannot be increased without regulatory authorization. While Consumers is permitted by the 2008 Energy Law to self-implement rate changes six months after a rate filing with the MPSC, subject to certain limitations, if a final rate order from the MPSC provides for lower rates than Consumers self-implemented, Consumers must refund the difference, with interest. Also, the MPSC may delay or deny implementation of a rate increase upon showing of good cause. In February 2011, the MPSC found good cause to delay Consumers' self-implementation of its requested gas rate increase. Consumers did not experience delays in self-implementation of rate increases in 2012.
In addition, Consumers' plans for making significant capital investments, including modifications to meet new environmental requirements and investment in new generation, could be affected adversely or could have a material adverse effect on Consumers if rate regulators fail to provide timely rate relief or to approve a Certificate of Necessity for new generation. Regulators seeking to avoid or minimize rate increases could resist raising customer rates sufficiently to permit Consumers to recover the full cost of modifications to meet environmental requirements and other prudent investments. In addition, because certain costs are mandated by state requirements for cost recovery, such as resource additions to meet Michigan's renewable resource standard, regulators could be more inclined to oppose rate increases for other required items and investments. Rate regulators could also face pressure to avoid or limit rate increases for a number of reasons, including failure of Michigan's economy to improve sufficiently or diminishment of Consumers' customer base. In addition to potentially affecting Consumers' investment program, any limitation of cost recovery through rates could have a material adverse effect on Consumers' liquidity, financial condition, and results of operations.
Orders of the MPSC could limit recovery of costs of providing service including, but not limited to, environmental and safety related expenditures for coal-fueled plants and other utility properties, power supply and natural gas supply costs, operating and maintenance expenses, additional utility-based investments, sunk investment in mothballed or retired coal-fueled generating plants, costs associated with the proposed retirement and decommissioning of facilities, depreciation expense, MISO energy and transmission costs, costs associated with energy efficiency investments and state or federally mandated renewable resource standards, Smart Energy program costs, or expenditures subjected to tracking mechanisms. These orders could also result in adverse regulatory treatment of other matters including, but not limited to, prevention or curtailment of shutoffs for non-paying customers, Consumers' gas revenue decoupling mechanism, prevention or curtailment of rights to self-implement rate requests, or refunds of previously self-implemented rates.
FERC authorizes certain subsidiaries of CMS Energy to sell electricity at market-based rates. Failure of CMS Energy and Consumers to obtain adequate rates or regulatory approvals in a
timely manner could have a material adverse effect on CMS Energy's and Consumers' liquidity, financial condition, and results of operations.
The various risks associated with the MPSC and FERC regulation of CMS Energy's and Consumers' businesses, which include the risk of adverse decisions in any number of rate or regulatory proceedings before either agency, as well as judicial proceedings challenging any such agency decisions, could have a substantial negative effect on the companies' investment plans and results of operations.
Electric industry regulation could have a material adverse effect on CMS Energy's and Consumers' businesses.
Federal and state regulation of electric utilities has changed dramatically in the last two decades and could continue to change over the next several years. These changes could have a material adverse effect on CMS Energy's and Consumers' liquidity, financial condition, and results of operations.
CMS Energy and Consumers are subject to, or affected by, extensive federal and state utility regulation. In CMS Energy's and Consumers' business planning and management of operations, they must address the effects of existing and proposed regulation on their businesses and changes in the regulatory framework, including initiatives by federal and state legislatures, regional transmission organizations, utility regulators, and taxing authorities. Adoption of new regulations by federal or state agencies, or changes to present regulations and interpretations of these regulations, could have a material adverse effect on CMS Energy's and Consumers' liquidity, financial condition, and results of operations.
There are multiple proceedings pending before FERC involving transmission matters. CMS Energy and Consumers cannot predict the impact of these electric industry restructuring proceedings on their liquidity, financial condition, and results of operations.
Periodic reviews of the values of CMS Energy's and Consumers' assets could result in impairment charges.
CMS Energy and Consumers are required by GAAP to review periodically the carrying value of their assets, including those that may be sold. Market conditions, the operational characteristics of their assets, and other factors could result in recording impairment charges for their assets, which could have an adverse effect on their stockholders equity and their access to additional financing. In addition, CMS Energy and Consumers may be required to record impairment charges at the time they sell assets, depending on the sale prices they are able to secure and other factors.
CMS Energy and Consumers could incur significant costs to comply with environmental requirements.
CMS Energy, Consumers, and their subsidiaries are subject to costly and increasingly stringent environmental regulations. They believe that environmental laws and regulations related to greenhouse gas emissions, ash disposal,
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In December 2009,2011, the EPA issued an endangerment findingfinalized and promulgated CSAPR as a replacement for greenhouse gases under the Clean Air Act.CAIR. In this finding, which has been challenged inAugust 2012, the U.S. Court of Appeals for the D. C.D.C. Circuit by numerous parties,voided CSAPR and held that CAIR would
remain in place until the EPA determined that current and projected atmospheric concentrations of six greenhouse gases threaten the public health and welfare of current and future generations. The finding alone does not impose any standard or regulation on industry, but it ispromulgated a precursor for finalizing proposed emissions standards. Presently,new rule. A request by the EPA acknowledges that comprehensive federal legislationfor a rehearing of this ruling was denied.
In December 2011, the EPA issued the maximum achievable control technology standard for electric generating units, also known as MATS. This rule is the preferred method of addressing greenhouse gases. In June 2009, the United States House of Representatives passed the American Clean Energy and Security Act, which would require reductions in emissions of greenhouse gases, including carbon dioxide. This or similar legislation is considered likelyexpected to be enacted in some form and could have a significant impact on Consumers' coal-fueled generating fleet.
In addition, the operationEPA is continually in the process of tightening standards for air quality. The EPA recently proposed new rules relating to fine particulate matter and cost of existing and future fossil-fueled power plants.
In May 2010, the EPA issued a final rule that addresses greenhouse gas emissions from stationary sources under the Clean Air Act permitting programs. The "tailoring rule" sets thresholds for greenhouse gas emissions that define when permits under the NSR and Title V programs are required for new and existing industrial facilities. This regulation took effect in January 2011. In March 2012, the EPA released its proposed "Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units." The proposed rule applies only to new fossil-fuel-fired steam electric generating units and would require that carbon dioxide emissions not exceed those of a modern, efficient natural gas combined-cycle-plant, regardless of fuel type. The EPA is also expected to propose emissions guidelines within the next one to three years for states to regulate greenhouse gas emissions from existing generating stations. In addition, legislation to regulate, control, or limit greenhouse gases could be enacted in the future by the U.S. Congress.
In 2012, 98 percent of the energy generated by Consumers came from fossil-fueled power plants. The emissionsplants, with 80 percent coming from fossil-fueledcoal-fueled power plants would be subject to greenhouse gas regulations.plants. CMS Enterprises also has interests in fossil-fueled power plants and other types of power plants that produce greenhouse gases. FederalThe aforementioned federal laws and rules, limiting the emission of greenhouse gases or similar stateas well as additional laws and rules, if enacted, as well asand international accords and treaties, could require CMS Energy and Consumers to install additional equipment for emission controls, purchase carbon emissions allowances, curtail operations, invest in non-fossil-fuel generating capacity, or take other significant steps to manage or lower the emission of greenhouse gases.
The following risks related to climate change and emissions could also have a material adverse impact on CMS Energy’sEnergy's and Consumers’Consumers' liquidity, financial condition, and results of operations:
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- litigation originated by third parties against CMS Energy, Consumers, or their subsidiaries due to CMS Energy's or Consumers' greenhouse gas or other emissions;
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- impairment of CMS Energy's or Consumers' reputation due to their greenhouse gas or other emissions and public perception of their response to potential environmental regulations, rules, and legislation; and
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- extreme weather conditions, such as severe storms, that may affect customer demand, company operations,
and financial position:
The EPA is considering regulating coal combustion products,CCRs, such as coal ash, as hazardous wastes under the Resource Conservation and Recovery Act. Michigan already regulates coal combustion productsCCRs as low hazardlow-hazard industrial waste. If coal ash is regulated as a hazardous waste, Consumers would likely cease the beneficial re-use of this product, resulting in significantly more coal ash requiring costly disposal. Additionally, it is possible that existing landfills could be closed if the upgrades to hazardous waste landfill standards are economically prohibitive. Costs associated with this potential regulation could be substantial.
The EPA is revising regulations that govern cooling water intake structures aimed at protecting aquatic life.life and that govern water discharges. Costs associated with these revisions could be material to CMS Energy, Consumers, and CMS Enterprises and result in operational changes or possibly significant impacts on the retirementeconomics of certain generating units.
CMS Energy and Consumers expect to collect fully from their customers, through the ratemaking process, expenditures incurred to comply with environmental regulations.regulations, but cannot guarantee this outcome. If Consumers were unable to recover these expenditures from customers in rates, it could negatively affect CMS Energy’sEnergy's and/or Consumers’Consumers' liquidity, results of operations, and financial condition and CMS Energy and/or Consumers could be required to seek significant additional financing to fund these expenditures.
For additional information regarding compliance with environmental regulations, see Item 1. Business, CMS Energy and Consumers have significant obligations under these plansEnvironmental Compliance and hold significant assetsItem 8. Financial Statements and Supplementary Data, MD&A, Outlook, "Consumers Electric Utility Business Outlook and Uncertainties."
CMS Energy's and Consumers' businesses could be affected adversely by any delay in these trusts. These assets are
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- prevent the construction of new facilities;
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- prevent the continued operation and
Consumers were unable to manage their pension and postretirement plan assets successfully, itsale of energy from existing facilities; - •
- prevent the suspension of operations at existing facilities;
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- prevent the modification of existing facilities; or
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- result in significant additional costs that could have a material adverse effect on their liquidity, financial condition, and results of operations.
Periodic reviewsCMS Energy and Consumers expect to incur additional significant costs related to remediation of legacy environmental sites.
Consumers is presently monitoring or remediating 23 former MGP sites. Consumers is working collaboratively with the MDEQ to agree upon executable remediation plans. About one-third of the values23 sites have been remediated to the extent possible and are now being monitored. The remaining sites are being actively remediated through excavation, treatment at the site, containment, and/or natural reduction; two of these sites require complex remediation plans due to the involvement of surface water.
The MDEQ established a "No Further Action" status for these sites and others like them in late 2010 and is presently overhauling the implementation of the 2010 statutory revisions with a focus on streamlining the process, reasonable and consistent implementation, and risk-based techniques.
CMS Energy’sEnergy and Consumers’Consumers expect to incur additional significant costs related to the remediation of these former MGP sites. Based upon prior MPSC orders, Consumers expects to
be able to recover the costs of these cleanup activities through its gas rates, but cannot guarantee that outcome.
In addition, CMS Energy retained environmental remediation obligations for the collection and treatment of leachate at Bay Harbor after selling its interests in the development in 2002. Leachate is produced when water enters into cement kiln dust piles left over from former cement plant operations at the site. CMS Energy has signed agreements with the EPA and the MDEQ relating to Bay Harbor. If CMS Energy were unable to meet its commitments under these agreements, or if unanticipated events occurred, CMS Energy could incur additional material costs relating to its Bay Harbor remediation obligations.
Consumers also expects to incur remediation and other response activity costs at a number of other sites under NREPA and Superfund. Consumers believes these costs should be recoverable in rates, but cannot guarantee that outcome.
CMS Energy and Consumers could be affected adversely by legacy litigation and retained liabilities.
In 2002, CMS Energy notified appropriate regulatory and governmental agencies that some employees at CMS MST and CMS Field Services appeared to have provided inaccurate information regarding natural gas trades to various energy industry publications which compile and report index prices. CMS Energy has cooperated with the DOJ's investigation regarding this matter. CMS Energy is unable to predict the outcome of the DOJ investigation or the amount of any fines or penalties that may be imposed and what effect, if any, the investigation will have on CMS Energy.
CMS Energy, CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company were named as defendants in various lawsuits arising as a result of alleged false natural gas price reporting. Allegations included manipulation of NYMEX natural gas futures and options prices, price-fixing conspiracies, and artificial inflation of natural gas retail prices in Colorado, Kansas, Missouri, and Wisconsin. CMS Energy cannot predict the outcome of the lawsuits or the amount of damages for which CMS Energy may be liable. It is possible that the outcome in one or more of the lawsuits could have a material adverse effect on CMS Energy's liquidity, financial condition, and results of operations.
The agreements that CMS Energy and Consumers enter into for the sale of assets customarily include provisions whereby they are required to:
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- retain specified preexisting liabilities, such as for taxes, pensions, or environmental conditions;
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- indemnify the buyers against specified risks, including the inaccuracy of representations and warranties that CMS Energy and Consumers make; and
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- make payments to the buyers depending on the outcome of post-closing adjustments, litigation, audits, or other reviews, including claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions.
Many of these contingent liabilities can remain open for extended periods of time after the sales are closed. Depending on the extent to which the buyers may ultimately seek to enforce their rights under these contractual provisions, and the resolution of any disputes concerning them, there could be a material adverse effect on CMS Energy's or Consumers' liquidity, financial condition, and results of operations.
In January 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that CMS Energy owes $142 million in taxes, plus interest, in connection with the sale. CMS Energy has concluded that the government's tax claim is without merit. The government of Equatorial Guinea indicated through a request for arbitration in October 2011 that it still intends to pursue its claim. CMS Energy is vigorously contesting the claim, and cannot predict the financial impact or outcome of this matter. It is possible that the outcome of this matter could have a material adverse effect on CMS Energy's liquidity, financial condition, and results of operations.
CMS Energy's and Consumers' energy sales and operations are affected by seasonal factors and varying weather conditions from year to year.
CMS Energy's and Consumers' businesses are seasonal. Demand for electricity is greater in the summer cooling season and the winter heating season. Demand for natural gas peaks in the winter heating season. Accordingly, their overall results in the future may fluctuate substantially on a seasonal basis. Mild temperatures during the summer cooling season and winter heating season could have a material adverse effect on CMS Energy's and Consumers' liquidity, financial condition, and results of operations.
Consumers is exposed to risks related to general economic conditions in its service territories.
Consumers' electric and gas utility businesses are affected by the economic conditions impacting the customers they serve. Although Consumers believes that economic conditions in Michigan are improving, the economy in Consumers' service territories continues to be affected adversely by the recession and its impact on the state's automotive and real estate sectors and by relatively high unemployment. In addition, Consumers' largest single customer has experienced sharply reduced electric demand. The Michigan economy also has been affected negatively by the uncertainty in the financial and credit markets. If economic conditions in Michigan decline further, Consumers may experience reduced demand for electricity or natural gas that could result in accounting charges.
CMS Energy and Consumers are required by GAAPsubject to review periodically the carrying valueinformation security risks, risks of their assets, including those that may be sold. Market conditions, the operational characteristics of their assets, and other factors could result in recording impairment charges for their assets, which could have an adverse effect on their stockholders’ equity and theirunauthorized access to additional financing. their systems, and technology failures.
In addition,the regular course of business, CMS Energy and Consumers handle a range of sensitive security and customer information. CMS Energy and Consumers are subject to laws and rules issued by various agencies concerning safeguarding and maintaining the confidentiality of this information. A security breach of CMS Energy's and Consumers' information systems could involve theft or the inappropriate release of certain types of information, such as confidential customer information or, separately, system operating information. These events could disrupt operations, subject CMS Energy and Consumers to possible financial liability, damage their reputation and diminish the confidence of customers, and have a material adverse effect on CMS Energy's and Consumers' liquidity, financial conditions, and results of operations.
CMS Energy and Consumers operate in a highly regulated industry that requires the continued operation of sophisticated information technology systems and network infrastructure. Despite implementation of security measures, CMS Energy's and Consumers' technology systems are vulnerable to disability, failures, cyber crime, and unauthorized access. Those failures or breaches could impact the reliability of electric and gas generation and delivery and also subject
CMS Energy and Consumers to financial harm. Cyber crime, which includes the use of malware, computer viruses, and other means for disruption or unauthorized access against companies, including CMS Energy and Consumers, has increased in frequency, scope, and potential impact in recent years. While CMS Energy and Consumers have not been subject to cyber crime incidents that have had a material impact on their operations to date, their security measures in place may be requiredinsufficient to record impairment charges atprevent a major cyber attack in the time they sell assets, depending on the sale prices they arefuture. If CMS Energy's and Consumers' technology systems were to fail or be breached, CMS Energy and Consumers might not be able to securefulfill critical business functions, and sensitive confidential and proprietary data could be compromised, which could have a material adverse effect on CMS Energy's and Consumers' liquidity, financial condition, and results of operations.
A variety of technological tools and systems, including both company-owned information technology and technological services provided by outside parties, support critical functions. The failure of these technologies, or the inability of CMS Energy and Consumers to have these technologies supported, updated, expanded, or integrated into other factors.
CMS Energy’sEnergy's and Consumers’Consumers' businesses have safety risks.
Consumers' electric and gas and electric delivery systems, power plants, gas infrastructure, and energy products could be involved in accidents that result in injury or property loss to customers, employees, or the public. Although CMS Energy and Consumers have insurance coverage for many potential incidents (subject to deductibles and self-insurance amounts that could be material), depending upon the nature or severity of any incident or accident, CMS Energy or Consumers could suffer financial loss, damage to their reputations,its reputation, and negative repercussions from regulatory agencies or other public authorities.
CMS Energy’sEnergy's and Consumers’Consumers' revenues and results of operations are subject to risks that are beyond their control, including but not limited to natural disasters, terrorist attacks or related acts of war, hostile cyber intrusions, or other catastrophic events.
The impact of natural disasters, wars, terrorist acts, cyber intrusions, and other catastrophic events on the facilities and operations of CMS Energy and Consumers could have ana material adverse affecteffect on their liquidity, financial condition, and results of operations. A terrorist attack on physical infrastructure or a major natural disaster could result in severe damage to CMS Energy’sEnergy's and Consumers’Consumers' assets beyond what could be recovered through insurance policies. Hostile cyber intrusions, including those targeting information systems as well as distributed electronic control systems used at the generating plants and for the electric and gas distribution systems, could severely disrupt business operations and result in loss of service to customers, as well as significant expense to repair security breaches or system damage. Terrorist attacks or acts of war could result in the disruption of power and fuel markets that could increase costs or disrupt service. Widespread outages in Consumers' systems as a result of storms, floods, or other natural disasters could result in a prolonged loss of service to customers and significant expense to repair system damages. There is a risk that the regulators could assess Consumers' preparedness or response as inadequate and take adverse actions as a result.
Instability in the financial markets as a result of terrorism, war, natural disasters, credit crises, recessions, or other factors, could have a material adverse effect on CMS Energy’sEnergy's and Consumers’Consumers' liquidity, financial condition, and results of operations.
Consumers is actively engaged in multiple regulatory oversight processes and has a large electric and gas customer base. As a result, Consumers has a highly visible public profile in Michigan. Consumers and CMS Energy could suffer negative impacts to their reputations as a result of operational incidents, violations of corporate compliance policies, regulatory violations, or other events. This could have a material adverse effect on CMS Energy’sEnergy's and Consumers’Consumers' liquidity, financial condition, and results of operations. It could also result in negative customer perception and increased regulatory oversight.
The markets for alternative energy and distributed generation could impact financial results.
Advances in technology could reduce the cost of alternative methods of producing electricity, such as fuel cells, microturbines, windmills, and photovoltaic (solar) cells, to a level that is competitive with that of fossil-fuel technology utilized by CMS Energy and Consumers to produce a majority of their electricity. It is also possible that electric customers could reduce their electric consumption significantly through demand-side energy conservation programs. Changes in technology could also alter the channels through which electric customers buy electricity. Any of these changes could have a material adverse effect on CMS Energy's and Consumers' liquidity, financial condition, or results of operations.
Energy risk management strategies may not be effective in managing fuel and electricity pricing risks, which could result in unanticipated liabilities to ConsumersCMS Energy and CMS EnergyConsumers or increased volatility ofin their earnings.
Consumers is exposed to changes in market prices for natural gas, coal, electricity, emission allowances, and RECs. Prices for natural gas, coal, electricity, emission allowances, and RECs may fluctuate substantially over
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Natural gas prices in particular have been historically volatile. Consumers routinely enters into contracts to mitigate exposure to the risks of demand, market effects of weather, and changes in commodity prices associated with its gas distribution business. These contracts are executed in conjunction with the GCR mechanism, which is designed to allow Consumers to recover prudently incurred costs associated with those positions. If the MPSC determined that any of these contracts or related contracting policies were imprudent, recovery of these costs could be disallowed. Consumers does not always hedge the entire exposure of its operations from commodity price volatility. Furthermore, the ability to hedge exposure to commodity price volatility depends on liquid commodity markets. As a result, to the extent the commodity markets are illiquid, Consumers may not be able to execute its risk management strategies, which could result in greater unhedged positions than preferred at a given time. To the extent that unhedged positions exist, fluctuating commodity prices could have a negative effect on CMS Energy’sEnergy's and Consumers’Consumers' liquidity, financial condition, and results of operations.
Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact CMS Energy’s and Consumers’ results of operations.
CMS Energy and Consumers are exposed to credit risk of counterparties with whom they do business. Adverse economic conditions or financial difficulties experienced by these counterparties could impair the ability of these counterparties to pay for CMS Energy's and Consumers' services or fulfill their contractual obligations, including performance and payment of damages. CMS Energy and Consumers depend on these counterparties to remit payments and perform services timely. Any delay or default in payment or performance of contractual obligations could have a material adverse effect on itsCMS Energy's and Consumers' liquidity, financial condition, and results of operations.
In recent years, the economic conditions of the customers they serve. In Consumers’ service territories in Michigan, the economy has been affected adversely by the continued downturn and uncertainty in the automotive industry and relatively high unemployment. Michigan’s economy has also been affected negatively by the uncertainty in the financialcapital and credit markets. If economic conditions in Michigan or the region continue to decline, Consumers may experience reduced demand for electricity or natural gas that could result in decreased earnings and cash flow. In addition, economic conditions in Consumers’ service territory affect its collections of accounts receivable andmarkets have experienced unprecedented high levels of lost or stolen gas, which in turn impact its liquidity, financial condition,volatility and results of operations.
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Consumers may not be able to obtain an adequate supply of coal or natural gas, which could limit its ability to operate its electric generation facilities or serve its natural gas customers.
Consumers is dependent on coal for a significant portion of its electric generating capacity. While Consumers has coal supply and transportation contracts in place, there can be no assurance that the counterparties to these agreements will fulfill their obligations to supply coal to Consumers. The suppliers under the agreements may experience financial or operational problems that inhibit their ability to fulfill their obligations to Consumers. In addition, suppliers under these agreements may not be required to supply coal to Consumers under certain circumstances, such as in the event of a natural disaster. If Consumers were unable to obtain its coal requirements under existing or future coal supply and transportation contracts, it maymight be required to purchase coal at higher prices or it may be forced to purchase electricity from higher cost generating resources in the Midwest Energy Market, which would increase Consumers’Consumers' working capital requirements.
Consumers has firm interstate transportation and supply agreements in place to facilitate deliveries of natural gas to its customers. There are financial penalties associated withApart from the firm supply agreements that provide Consumers withcontractual and monetary remedies available to Consumers in the event of supply disruptions. There are FERC-approved operational tariffs that cover the interstate natural gas delivery obligations of the interstate pipeline service providers. There area counterparty's failure to perform, there can be no additional assurances that the counterparties to these firm interstate transportation and supply agreements will fulfill their obligations to provide natural gas to Consumers. In addition, suppliers under these agreements may not be required to deliver natural gas to Consumers in certain circumstances, such as in the event of a natural disaster. If Consumers were unable to obtain its natural gas supply requirements under existing or future natural gas supply and transportation contracts, it could be required to purchase natural gas at higher prices from other sources or implement its natural gas curtailment program filed with the MPSC, which would increase Consumers’Consumers' working capital requirements and decrease its natural gas revenues.
Electric industry regulationMarket performance and other changes could decrease the value of employee benefit plan assets, which then could require significant funding.
The performance of the capital markets affects the values of assets that are held in trust to satisfy future obligations under CMS Energy's and Consumers' pension and postretirement benefit plans. CMS Energy and Consumers have an adverse effect onsignificant obligations under these plans and hold significant assets in these trusts. These assets are subject to market fluctuations and will
yield uncertain returns, which may fall below CMS Energy’sEnergy's and Consumers’ businesses.
A work interruption or other union actions could adversely affect Consumers.
Over 40 percent of Consumers' employees are represented by unions. If these employees were to engage in a strike, work stoppage, or other slowdown, or if the terms and conditions in labor agreements were renegotiated, Consumers could experience a significant disruption in its operations and higher ongoing labor costs. Additionally, while Consumers presently has good relationships with the unions representing its employees, Consumers cannot predict the impact of recent Right to Work legislation on union negotiations and relationships when existing union contracts expire.
Failure to attract and retain an appropriately qualified workforce could harm CMS Energy's and Consumers' results of operations.
The 2008 Energy Legislation, among other things, imposed a limit of ten percent on ROA. Proposals have been made to raise that limit, which, if enacted, could have an adverse effect on Consumers’ business. Proposals also have been made to increase the electric sales volume that will be required from renewable energy sources. Other new legislation, regulations, or interpretations could change how the businessesworkforce of CMS Energy and Consumers is aging and a number of employees will become eligible to retire within the next few years. If CMS Energy and Consumers were unable to match skill sets to future needs, they could encounter operating challenges and increased costs. These challenges could include a lack of resources, loss of knowledge, and delays in skill development. Additionally, higher costs could result from the use of contractors to replace employees, loss of productivity, and safety incidents. Failing to train replacement employees adequately and to transfer internal knowledge and expertise could affect CMS Energy's and Consumers' ability to manage and operate impacttheir businesses. If CMS Energy and Consumers were unable to attract and retain an appropriately qualified workforce, their results of operations could be affected negatively.
Unplanned power plant outages could be costly for Consumers.
Unforeseen maintenance of our power plants may be required for many reasons, including catastrophic events such as fires, explosions, floods, or other acts of God, equipment failure, operator error, or to comply with environmental or safety regulations. When unplanned maintenance work is required on power plants or other equipment, Consumers will not only incur unexpected maintenance expenses, but it may also have to make spot market purchases of replacement electricity that exceed Consumers' costs of generation. Additionally, unplanned maintenance work may reduce the ability ofcapacity credit Consumers receives from MISO and may cause Consumers to incur additional capacity costs in future years. If Consumers were unable to recover any of these increased costs through rate increases, in rates, it could have a material adverse effect on Consumers' liquidity, financial condition, and results of operations.
Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact CMS Energy's and Consumers' results of operations.
CMS Energy and Consumers are required to make judgments regarding the potential tax effects of various financial transactions and results of operations in order to estimate their obligations to taxing authorities. The tax obligations include income, real estate, sales and use taxes, employment-related taxes, and ongoing issues related to these tax matters. The judgments include determining reserves for potential adverse outcomes regarding tax positions that have been taken and may be subject to challenge by the IRS and/or requireother taxing authorities. Unfavorable settlements of any of the issues related to these reserves at CMS Energy or Consumers to incur additional expenses.
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CMS Energy and its subsidiaries, including Consumers and EnerBank, must comply with the Dodd-Frank Act and its related regulations, which are exposedsubject to credit riskchange and may involve material costs or affect operations.
In 2010, the Dodd-Frank Act was passed into law. The Dodd-Frank Act is a sweeping piece of those with whom they do business.
The Dodd-Frank Act added a new Section 13 to the Bank Holding Company Act. Known as the Volcker Rule, it generally restricts certain banking entities (such as EnerBank) and their subsidiaries or affiliates from engaging in proprietary trading activities and from owning equity in or sponsoring any private equity or hedge fund. The statutory effective date of the Volcker Rule was July 2012, but it is subject to certain transition periods and exceptions for "permitted activities." In April 2012, the Federal Reserve Board issued a statement clarifying that banks and other financial institutions have until July 2014 to conform fully their activities and investments to the requirements, but final implementing regulations have not yet been issued. Under the statute and based on draft regulations issued in October 2011, the activities of CMS Energy and Consumersits subsidiaries (including EnerBank) are exposednot expected to credit riskbe materially affected; however, they would be restricted from engaging in proprietary trading, investing in third-party hedge or private equity funds, and sponsoring these funds in the future unless CMS Energy qualified for an exemption from the rule. CMS Energy cannot predict the full impact of counterparties with whom they do business. Adverse economic conditions affecting counterparties with whomthe Volcker Rule on CMS Energy's or EnerBank's operations or financial condition until final regulations are issued.
Furthermore, effective July 2011, all companies that directly or indirectly control an FDIC-insured bank are required to serve as a source of financial strength for that institution. As a result, CMS Energy could be called upon by the FDIC to infuse additional capital into EnerBank to the extent that EnerBank fails to satisfy its capital requirements. In addition, CMS
Energy is contractually required (i) to make cash capital contributions to EnerBank in the event that EnerBank does not maintain required minimum capital ratios and (ii) to provide EnerBank financial support, in an amount and duration as may be necessary for EnerBank to meet the cash needs of its depositors and other operations. EnerBank has exceeded these requirements historically and exceeds them as of February 2013.
In addition, the Dodd-Frank Act potentially provides for regulation by the Commodity Futures Trading Commission of certain energy-related contracts. CMS Energy expects that it and its subsidiaries will qualify for an end-user exception, but these regulations could affect the ability of CMS Energy and its subsidiaries to participate in these markets and could add additional regulatory oversight over their contracting activities. Although CMS Energy and Consumers do business, or financial difficulties experienced by these counterparties, could impairnot expect that this will have material impacts on their energy contracting activities, they cannot predict the ability of these counterparties to pay for CMS Energy’s and Consumers’ services or fulfill their contractual obligations, including performance and payment of damages. CMS Energy and Consumers depend on these counterparties to remit payments and perform services timely. Any delay or default in payment or performance of contractual obligations could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.
CMS Energy could be required to pay cash to certain security holders in connection with the optional conversion of their convertible securities.
CMS Energy has issued fouroutstanding one series of cash-convertible securities, of which an aggregate principal amount (or par value in the case of preferred stock) of $839$172 million was outstanding at December 31, 2009.2012. If the trading price of CMS Energy’sEnergy's common stock exceeds a specified amountsamount at the end of a particular fiscal quarter, then holders of one or more series of these convertible securities will have the option to convert their securities in the following fiscal quarter, with the principal amount (or par value) payable in cash by CMS Energy. Accordingly, if thesethe trading price minimums areminimum is satisfied and security holders exercise their conversion rights, CMS Energy may be required to
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CMS Energy's and Consumers' financial statements, including their reported earnings, could be significantly impacted by convergence with International Financial Reporting Standards.
The Financial Accounting Standards Board is expected to make broad changes to GAAP as part of an overall initiative to converge U.S. standards with International Financial Reporting Standards. These changes could have significant impacts on the financial statements of CMS Energy and Consumers. Also, the SEC is considering incorporating International Financial Reporting Standards into the financial reporting system for U.S. registrants. A transition to International Financial Reporting Standards could significantly impact CMS Energy's and Consumers' financial results, since these standards differ from GAAP in many ways. One of the major differences is the lack of special accounting treatment for regulated activities under International Financial Reporting Standards, which could result in greater earnings volatility for CMS Energy and Consumers.
Descriptions of CMS For information regarding CMS CMS Energy, Consumers, and certain of their subsidiaries and affiliates are also parties to routine lawsuits and administrative proceedings incidental to their businesses involving, for example, claims for personal injury and property damage, contractual matters, various taxes, and rates and licensing. Not applicable.Energy’sEnergy's and Consumers’Consumers' properties are found in the following sections of Item 1,1. Business, all of which are incorporated by reference in this Item 2:• Business, Business Segments, Consumers Electric Utility, Electric Utility Properties;• Business, Business Segments, Consumers Gas Utility, Gas Utility Properties; and• Business, Business Segments, IPP, IPP Properties.Energy’s, Consumers’Energy's, Consumers', and their subsidiaries’subsidiaries' significant pending administrative and judicial proceedings involving regulatory, operating, transactional, environmental, and other matters, see Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements, Note 6,3, Regulatory Matters and Note 4, Contingencies and Commitments and Note 7, Utility Rate Matters.CMS EnergyOmitted.ConsumersOmitted.39
Table of Contents
CMS CMS Per Share Period 2012 2011 Information regarding securities authorized for issuance under equity compensation plans is included in CMS Consumers' common stock is privately held by its parent, CMS Energy, and does not trade in the public market. In Millions Period 2012 2011 For additional information regarding dividends and dividend restrictions, see Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Presented in the following table are CMS Energy's repurchases of equity securities for the three months ended December 31, Period October 1, 2012 to October 31, 2012 November 1, 2012 to November 30, 2012 December 1, 2012 to December 31, 2012 Total Selected financial information for CMS Energy and Consumers is contained in Item 8. Financial Statements and Supplementary Data, Management's discussion and analysis of financial condition and results of operations for CMS Energy and Consumers is contained in Item 8. Financial Statements and Supplementary Data, MD&A, which is incorporated by reference herein. Quantitative and qualitative disclosures about market risk for CMS Energy and Consumers are contained in Item 8. Financial Statements and Supplementary Data, MD&A, Critical Accounting Policies Index to Financial Statements: Selected Financial Information CMS Energy Consumers Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated Financial Statements CMS Energy Consumers Notes to the Consolidated Financial Statements CMS Energy Selected Financial Information Operating revenue (in millions) Income (loss) from equity method investees (in millions) Income from continuing operations (in millions)1 Income (loss) from discontinued operations (in millions) Net income available to common stockholders (in millions) Average common shares outstanding (in thousands) Earnings from continuing operations per average common share CMS Energy Earnings per average common share CMS Energy Cash provided by operations (in millions) Capital expenditures, excluding assets placed under capital lease (in millions) Total assets (in millions) Long-term debt, excluding current portion (in millions) Non-current portion of capital and finance lease obligations (in millions) Total preferred stock (in millions) Cash dividends declared per common share Market price of common stock at year-end Book value per common share at year-end Number of employees at year-end (full-time equivalents) Electric Utility Statistics Sales (billions of kWh) Customers (in thousands) Average sales rate per kWh Gas Utility Statistics Sales and transportation deliveries (bcf) Customers (in thousands)2 Average sales rate per mcf This MD&A is a combined report of CMS Energy and Consumers. EXECUTIVE OVERVIEW CMS Energy is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility, and CMS Enterprises, primarily a domestic CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in three business segments: electric utility; gas utility; and enterprises, its non-utility investments and operations. Consumers operates principally in two business segments: electric utility and gas utility. CMS Energy and Consumers earn revenue and generate cash from operations by providing electric and natural gas utility CMS Energy's business strategy SAFE, EXCELLENT OPERATIONS The safety of employees, customers, and CUSTOMER VALUE Consumers is undertaking a number of initiatives that reflect its intensified customer focus. Consumers' planned investments in reliability are aimed at improving safety, reducing customer outage frequency, reducing repetitive outages, and increasing customer satisfaction. Also, in order to minimize increases in customer rates, Consumers has undertaken several initiatives to reduce costs through a voluntary separation plan, accelerated pension funding, health-care cost sharing, negotiated labor agreements, information system efficiencies, and productivity improvement programs. Consumers considers these and other aspects of its customer value initiative to be important to its success. UTILITY INVESTMENT Consumers expects to make capital investments Consumers has limited its capital investment program to those investments it believes are needed to provide safe, reliable, and efficient service to its customers. Consumers' capital investment program is expected to result in annual rate base growth of five to seven percent while allowing Consumers to maintain sustainable customer base rate increases (excluding PSCR and GCR charges) at or below the rate of inflation. Among the key In December 2012, Consumers announced plans to build a 700-MW gas-fueled plant at its Renewable energy projects are another major component of Consumers' Smart Energy program, with an estimated total project capital cost of $0.8 billion, also represents a REGULATION Regulatory matters are a key aspect of CMS Consumers filed a new general electric rate case In this filing, Consumers requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements. Costs associated with these investments represent 85 percent of the total annual rate increase requested. The In February 2013, Consumers filed an application with the MPSC seeking an annual rate increase The filing also seeks approval of several rate adjustment mechanisms, including a mechanism that would reconcile annually Consumers' actual nonfuel revenues with the revenues approved by the MPSC, and a mechanism that would allow recovery of an additional $70 million associated with additional investments in the period July 2014 through December 2015, subject to reconciliation. In November 2012, the Michigan Court of Appeals ruled in an appeal of the MPSC's 2010 order In September 2011, Consumers filed its first reconciliation of the gas revenue decoupling mechanism, requesting recovery of $16 million from customers for the period June 2010 through May 2011. This mechanism was extended through April 2012 and was not affected by the Court of Appeals decision on electric decoupling. The gas revenue decoupling mechanism allowed Consumers to adjust future gas rates to the degree that actual average weather-adjusted sales per customer differed from the rate order. In December 2012, the MPSC approved Consumers' reconciliation of the gas revenue decoupling mechanism for the full amount of its request for the period June 2010 through May 2011. The MPSC authorized recovery over three months beginning in February Consumers filed its final reconciliation of the The 2008 Energy Law limits alternative electric supply to ten percent of Consumers' weather-adjusted retail sales of the preceding calendar year. At December 31, 2012, Consumers' electric deliveries under the ROA program were at the ten percent limit. In Environmental regulation is another area of In Additionally, in February 2012, the EPA published its final MACT emission standards for electric generating units, based on Section 112 of the Clean Air A more detailed discussion of the factors affecting CMS Energy's and Consumers' performance can be found in the CMS Energy and Consumers believe that As Consumers seeks to continue to receive fair and timely regulatory treatment, delivering customer value will remain a key strategic priority. To keep costs down for its utility customers, Consumers has set goals to achieve further annual productivity improvements. Additionally, Consumers will strive to give priority to capital investments that increase customer value or lower costs. Consumers expects to continue to have sufficient capacity to fund its investment-based growth plans. CMS Energy also expects its sources of liquidity RESULTS OF OPERATIONS CMS ENERGY CONSOLIDATED RESULTSOF OPERATIONS In Millions, Except Per Share Amounts Years Ended December 31 Net Income Available to Common Stockholders Basic Earnings Per Share Diluted Earnings Per Share In Millions Years Ended December 31 Electric utility Gas utility Enterprises Corporate interest and other Discontinued operations Net Income Available to Common Stockholders Presented in the In Millions Reasons for the change Electric and gas rate orders Electric sales Recovery of development costs related to canceled coal-fueled plant Gas sales Higher depreciation and property tax Higher operating and maintenance expenses and expenses related to a 2012 Michigan ballot proposal Other regulatory impacts (absence of electric decoupling, offset partially by a gain on DOE settlement) Other Subsidiary earnings of enterprises segment Lower corporate fixed charges, higher EnerBank earnings, and other Charge to write off electric decoupling regulatory asset Absence of tax benefit related to MCIT enactment in 2011 Total change Presented in the following table are specific after-tax changes to net income available to common stockholders In Millions Reasons for the change Electric and gas rate orders Gas sales Electric sales Distribution and service restoration cost Other, including depreciation and property tax Lower subsidiary earnings of enterprises segment Cost of debt retirements and preferred stock redemption Interest expense Other, mainly tax impacts MCIT enactment Absence of 2010 increase in Bay Harbor environmental liability Absence of 2010 insurance settlement recovery Other, including absence of 2010 tax adjustments related to previously sold businesses Total change In Millions Years Ended December 31 Net Income Available to Common Stockholders Reasons for the change Electric deliveries and rate increases Power supply costs and related revenue Other income, net of expenses Maintenance and other operating expenses Depreciation and amortization General taxes Interest charges Income taxes Total change recognized in 2011. Deliveries to end-use customers were 38.1 billion kWh in 2012 and For 2011, electric delivery revenues increased $25 million compared with 2010. This increase was due to additional revenues of Other income, net of expenses: For 2012, other income, net of expenses, decreased $16 million compared with 2011, due primarily to expenses related to a 2012 Michigan ballot proposal associated with renewable energy. For 2011, other income decreased $16 million compared with 2010, due to a reduction For 2011, maintenance and other operating expenses increased Depreciation and amortization: For For General Interest For Income taxes: For 2012, income taxes increased $35 million For 2011, income taxes increased $4 million compared with 2010, due to higher electric utility earnings. CONSUMERS GAS UTILITY RESULTSOF OPERATIONS In Millions Years Ended December 31 Net Income Available to Common Stockholders Reasons for the change Gas deliveries and rate increases Other income, net of expenses Maintenance and other operating expenses Depreciation and amortization General taxes Interest charges Income taxes Total change Gas deliveries and For Other income, net of expenses: For Maintenance and other operating expenses: For 2012, maintenance and other operating expenses decreased $8 For increase Depreciation and amortization: For Interest Income taxes: For For 2011, income taxes increased ENTERPRISES RESULTSOF OPERATIONS In Millions Years Ended December 31 Net Income Available to Common Stockholders For 2012, net income of the enterprises segment decreased $16 million compared with 2011, due to the absence, in 2012, of a $28 million income tax benefit resulting from the enactment of the MCIT in May 2011, offset partially by $6 million of tax benefits due primarily to law changes related to Medicare Part D and by $6 million of additional earnings from an insurance settlement received in 2012 and from improved operating results. For 2011, net income of the enterprises segment decreased $4 million compared with 2010, due to the absence, in 2011, of a For further details about the enactment of CORPORATE INTERESTAND OTHER RESULTSOF OPERATIONS In Millions Years Ended December 31 Net Income (Reduction) Available to Common Stockholders For For 2011, corporate interest and other net expenses decreased $37 million compared with 2010, due to a DISCONTINUED OPERATIONS For For further details regarding discontinued operations, see Note 20, Asset Sales, Discontinued Operations, and Impairment Charges. CASH POSITION, INVESTING, AND FINANCING At December 31, 2012, CMS Energy had $122 million of consolidated cash and cash equivalents, which included $29 million of restricted cash and cash equivalents. At December 31, 2012, Consumers had $33 million of consolidated cash and cash equivalents, which included $28 million of restricted cash and cash equivalents. OPERATING ACTIVITIES Presented in In Millions Years Ended December 31 CMS Energy, including Consumers Net income Non-cash transactions1 Postretirement benefits contributions Changes in core working capital2 Changes in other assets and liabilities, net Net cash provided by operating activities Consumers Net income Non-cash transactions1 Postretirement benefits contributions Changes in core working capital2 Changes in other assets and liabilities, net Net cash provided by operating activities For 2012, net cash provided by operating activities at CMS Energy increased $72 million compared with 2011, and net cash provided by operating activities at Consumers increased $30 million compared with 2011. The increases were due primarily to the absence of a pension fund contribution and the impact of lower gas prices on inventory purchased in 2012, offset partially by lower cash collections resulting from the For 2011, net cash provided by operating activities at CMS Energy increased $210 million compared with 2010, and net cash provided by operating activities at Consumers increased $413 million compared with 2010. The increases were due primarily to lower pension contributions and decreased refunds paid to customers, offset partially by the impact of INVESTING ACTIVITIES Presented in the following table are specific components of net cash used in investing activities for the years ended December 31, 2012, 2011, and 2010: In Millions Years Ended December 31 CMS Energy, including Consumers Capital expenditures Costs to retire property and other Net cash used in investing activities Consumers Capital expenditures Costs to retire property and other Net cash used in investing activities For 2012, net cash used in investing activities at CMS Energy increased $292 million compared with 2011, and net cash used in investing activities at Consumers increased $328 million compared with 2011. The increases were due primarily to increases in capital expenditures under Consumers' capital investment program. At CMS Energy, these increases were offset partially by slower growth in EnerBank consumer lending. For 2011, net cash used in investing activities at CMS Energy increased $55 million compared with 2010, and net cash used in investing activities at Consumers increased $92 million compared with 2010. The changes were due primarily to increases in capital expenditures and costs to retire property. FINANCING ACTIVITIES Presented in the following table are specific components of net cash provided by (used in) financing activities for the years ended December 31, 2012, 2011, and 2010: In Millions Years Ended December 31 CMS Energy, including Consumers Issuance of FMBs, senior notes, and other debt Retirement of debt Common stock issued Redemption of preferred stock Payments of common and preferred stock dividends Other financing activities Net cash provided by (used in) financing activities Consumers Issuance of FMBs Retirement of debt Payments of common and preferred stock dividends Stockholder contribution from CMS Energy Other financing activities Net cash used in financing activities For 2012, net cash provided by financing activities at CMS Energy increased $240 million compared with 2011 and net cash used in financing activities at Consumers decreased $204 million compared with 2011. These changes were due primarily to proceeds from Consumers' revolving accounts receivable sales program and an increase in net debt issuances to fund Consumers' capital investment program. For 2011, net cash used in financing activities at CMS Energy increased $401 million compared with 2010 and net cash used in financing activities at Consumers increased by $339 million compared with 2010. These increases were due primarily to a decrease in net proceeds from borrowings and, at Consumers, a lower stockholder's contribution from CMS Energy in 2011. CAPITAL RESOURCES AND LIQUIDITY CMS Energy uses dividends from its subsidiaries and external financing and capital transactions to invest in its utility and non-utility businesses, retire debt, pay dividends, and fund its other obligations. The ability of CMS Energy's subsidiaries, including Consumers, to pay dividends to CMS Energy depends upon each subsidiary's revenues, earnings, cash needs, and other factors. In addition, Consumers' ability to pay dividends is restricted by certain terms included in its debt covenants and articles of incorporation, and potentially by provisions under the Federal Power Act and the Natural Gas Act and FERC requirements. For additional details on Consumers' dividend restrictions, see Note 5, Financings and Capitalization – Dividend Restrictions. For the year ended December 31, 2012, Consumers paid $393 million in common stock dividends to CMS Energy. In June 2011, CMS Energy entered into a continuous equity offering program under which CMS Energy may sell, from time to time in "at the market" offerings, common stock having an aggregate sales price of up to $50 million. In June 2012 and June 2011, CMS Energy issued common stock under this program and received net proceeds of $15 million in each period. Consumers uses cash flows generated from operations and external financing transactions, as well as stockholder contributions from CMS Energy, to fund capital expenditures, retire debt, pay dividends, contribute to its employee benefit plans, and fund its other obligations. CMS Energy's and Consumers' access to the financial and capital markets depends on their credit ratings and on market conditions. As evidenced by past financing transactions, CMS Energy and Consumers have had ready access to these markets and, barring major market dislocations or disruptions, they expect to continue to have such access. If access to these markets were to become diminished or otherwise restricted, however, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. CMS Energy and Consumers had the following secured revolving credit facilities available at December 31, 2012: In Millions CMS Energy Revolving credit facility1 Consumers Revolving credit facility2 Revolving credit facility2 Revolving credit facility2 CMS Energy and Consumers use these credit facilities for general working capital purposes and to issue letters of credit. An additional source of liquidity is Consumers' revolving accounts receivable sales program, which allows it to transfer up to $250 million of accounts receivable as a secured borrowing. At December 31, 2012, $140 million of accounts receivable were eligible for transfer under this program. Certain of CMS Energy's and Consumers' credit agreements, debt indentures, and other facilities contain covenants that require CMS Energy and Consumers to maintain certain financial ratios, as defined therein. At December 31, 2012, no events of default had occurred with respect to any financial covenants contained in CMS Energy's and Consumers' credit agreements, debt indentures, or other facilities. CMS Energy and Consumers were each in compliance with these limits as of December 31, 2012, as presented in the following table: Credit Agreement, Indenture, or Facility CMS Energy $550 million revolving credit agreement and $180 million term loan credit agreement Senior notes indenture $180 million term loan credit agreement Consumers $500 million, $150 million, and $30 million revolving credit agreements, $35 million and $68 million reimbursement agreements, and $250 million accounts receivable purchase agreement Components of CMS Contractual Obligations: In Millions December 31, 2012 CMS Energy, including Consumers Long-term debt Interest payments on long-term debt Capital and finance leases Interest payments on capital and finance leases Operating leases Asset retirement obligations Deferred investment tax credit Environmental liabilities Purchase obligations1 Purchase obligations – related parties1 Total contractual obligations Consumers Long-term debt Interest payments on long-term debt Capital and finance leases Interest payments on capital and finance leases Operating leases Asset retirement obligations Deferred investment tax credit Environmental liabilities Purchase obligations1 Purchase obligations – related parties1 Total contractual obligations CMS Energy and Consumers also have recognized non-current liabilities for which the timing of payments cannot be reasonably estimated. These items, which are excluded from the table above, include regulatory liabilities, deferred income taxes, workers compensation liabilities, accrued liabilities under renewable energy programs, and other liabilities. Retirement benefits are also not included in the table above. For details related to benefit payments, see Note 12, Retirement Benefits. obligations is not In Millions CMS Energy, including Consumers Consumers Enterprises Total CMS Energy Consumers Electric utility operations1,2 Gas utility operations2 Total Consumers OUTLOOK Several business trends and uncertainties may affect CMS Energy's and Consumers' financial condition and results of operations. These trends and uncertainties could have a material impact on CMS Energy's and Consumers' consolidated income, cash flows, or financial position. For additional details regarding these and other uncertainties, see Forward-Looking Statements and Information; Item 1A. Risk Factors; and Note 4, Contingencies and Commitments. CONSUMERS ELECTRIC UTILITY BUSINESS OUTLOOKAND UNCERTAINTIES Balanced Energy Initiative: Consumers continues to experience increasing demand for electricity due to Michigan's recovering economy and increased use of air conditioning, consumer electronics, and other electric devices, offset partially by the predicted effects of energy efficiency and conservation. In July 2012, customers set a new all-time peak demand record of 9,006 MW. Consumers plans to mothball seven of its smaller coal-fueled units in 2015. Consumers will continue to evaluate its options for the plants, which include: With the potential closure of these plants, Consumers could experience a shortfall in generation capacity of up to In December 2012, Consumers announced plans to build a 700-MW gas-fueled plant at its Thetford complex in Genesee County, Michigan and filed an air permit application with the MDEQ for the proposed plant. Construction of the plant is contingent upon obtaining a Certificate of Necessity from the MPSC and environmental permits. Consumers expects the plant to be operational in 2017. Renewable Energy Plan: Consumers' renewable energy plan details how Consumers will meet REC and capacity standards prescribed by the 2008 Energy Law. This law requires Consumers to obtain RECs in an amount equal to at least ten percent of its electric sales volume (estimated to be 3.5 million RECs annually) in 2015 and each year thereafter. RECs represent proof that the associated electricity was generated from a renewable energy resource. Under its renewable energy plan, Consumers expects to meet its renewable energy requirement each year with a combination of The 2008 Energy Law also requires Consumers to The extension of the tax credits for wind projects for which construction begins prior to December 31, 2013 could reduce significantly the cost of meeting the renewable requirements of the 2008 Energy Law; however, the requirements to qualify for the credit are not yet fully defined. Consumers cannot predict the overall impact of this legislative change. Energy Optimization Plan: The 2008 Energy Law requires Consumers to achieve energy savings equivalent to annual sales reduction targets through at least 2015. The targets are incremental with the goal of achieving a six percent reduction in customers' electricity use and a four percent reduction in customers' natural gas use by December 31, 2015. At December 31, Electric Customer Deliveries and Revenue: Consumers' electric customer deliveries are largely dependent on Michigan's economy, which has suffered from economic and financial instability in the automotive and real estate sectors. Consumers believes economic conditions in Michigan are improving, and expects weather-adjusted electric deliveries to remain stable in 2013 compared with 2012. Consumers expects average electric delivery growth of Electric ROA: The Customer Choice Act allows Consumers' electric customers to buy electric generation service from Consumers or from an alternative electric supplier. The 2008 Energy Law revised the Customer Choice Act by limiting alternative electric supply to ten percent of Consumers' weather-adjusted retail sales of the preceding calendar year. At December 31, 2012, electric deliveries under the ROA program were In February 2013, a bill was introduced to the Michigan Senate that, if enacted, would revise the 2008 Energy Law and allow customers on the ROA program waiting list to switch their service to an alternative electric supplier. Presently, the proportion of Consumers' electric deliveries under the ROA program and on the ROA waiting list is 25 percent. The revision also proposes an increase in the cap of six percentage points per year from 2014 through 2016. Consumers is unable to predict the outcome of this legislative proposal. Electric Transmission: In 2011, FERC issued an order in a rulemaking proceeding concerning regional electric transmission planning and cost allocations. Consumers and several other electric utilities filed a joint petition seeking clarification/rehearing of FERC's order and opposing the allocation methodology. In May 2012, FERC issued an order denying the utilities' clarification/rehearing requests on this order. Following this denial, Consumers and several other electric utilities filed a petition for In a related matter, in 2010, MISO filed and FERC approved a tariff revision proposing a cost allocation methodology for a new category of transmission projects. Under this tariff revision, the cost of these new transmission projects will be spread proportionally across the Midwest Energy Market. Consumers believes that Michigan customers will bear additional costs under MISO's tariff without receiving comparable benefits from these projects. In 2011, Consumers, along with the Michigan Attorney General, ABATE, DTE Electric, and other parties, filed a petition for review of FERC's order with the U.S. Court of Appeals for the Seventh Circuit following FERC's denial of their request for rehearing opposing the allocation methodology in the MISO tariff revision. Regardless of the outcome of this appeal, Consumers expects to continue to recover transmission expenses, including those associated with the MISO tariff revision, through the PSCR process. In May 2012, ReliabilityFirst Corporation informed Consumers that Consumers may not be properly registered to meet certain NERC electric reliability standards. Consumers is assessing its registration status, taking into consideration FERC's December 2012 order on the definition of a bulk electric system. In light of this order, Consumers is reviewing the status of its electric distribution assets under FERC's modified test and also reviewing prior correspondence from ReliabilityFirst Corporation as to the potential classification of its assets as within a bulk electric system for reliability purposes. Consumers presently does not expect the resolution of any issues in this area to result in material unrecoverable costs. Governor's Energy Initiative: Recently, the Michigan governor announced a process pursuant to which Electric Rate Matters: Rate matters are critical to Consumers' electric utility business. For additional details on electric rate matters, see Note 3, Regulatory Matters. Pending Electric Rate Case: In September 2012, Consumers filed an application with the MPSC seeking an annual rate increase of $148 million, based on a 10.5 percent authorized return on equity. In January 2013, Consumers supplemented its electric rate case application to reflect changes to its environmental compliance and generation outage plans, which reduced its requested annual rate increase to $145 million. In this filing, Consumers requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements. Costs associated with these investments represent 85 percent of the total annual rate increase requested. The filing also seeks approval of several rate adjustment mechanisms, including a mechanism that would reconcile annually Consumers' actual nonfuel revenues with the revenues approved by the MPSC, and a mechanism that would allow recovery in 2014 of an additional $82 million associated with incremental 2014 investments, subject to reconciliation. Pending Power Supply Cost Recovery Plan: Consumers submitted its 2013 PSCR plan to the MPSC in September 2012, and in accordance with its proposed plan, self-implemented the 2013 PSCR charge beginning in January 2013. Electric Environmental Estimates: Consumers' operations are subject to various state and federal environmental laws and regulations. Consumers estimates that it will incur expenditures of $1.1 billion from 2013 through 2018 to continue to comply with the Clean Air Act, Clean Water Act, and numerous state and federal environmental regulations. Consumers expects to recover these costs in customer rates, but cannot guarantee this result. Consumers' primary environmental compliance focus includes, but is not limited to, the following matters: Air Quality: In 2011, the EPA released CSAPR, a final replacement rule for CAIR, which requires Michigan and 27 other states to improve air quality by reducing power plant emissions that, according to EPA computer models, contribute to ground-level ozone and fine particle pollution in other downwind states. In August 2012, the U.S. Court of Appeals for the D.C. Circuit voided CSAPR and held that CAIR would remain in place until the EPA promulgated a new rule. A request by the EPA for a rehearing of this ruling was denied. In February 2012, the EPA published its final MACT emission standards for electric generating units, based on Section 112 of the Clean Air Act, calling the final rule MATS. Under MATS, all of Consumers' existing coal-fueled electric generating units are required to add additional controls for hazardous air pollutants. Existing units, unless granted extensions, must meet the standards by mid-April 2015. In October 2012, Consumers requested a one-year extension for the J.H. Campbell facility under both MATS and the Michigan Mercury Rule in order to have adequate time to construct emissions controls. In November 2012, the MDEQ granted that request for MATS only, moving the compliance date to April 2016 for the J.H. Campbell facility. The MDEQ has assured Consumers that an extension will also be granted in writing for the Michigan Mercury Rule, but Consumers has not yet received the extension. In addition, in December 2012 Consumers also submitted one-year MATS and Michigan Mercury Rule extension requests to the MDEQ for the B.C. Cobb, J.C. Weadock, and J.R. Whiting facilities to accommodate the potential for construction to alleviate transmission or reliability concerns. Consumers has not yet received a response from the MDEQ to these requests. Presently, Consumers' strategy to comply with CAIR, CSAPR or its replacement rule, and MATS involves the installation of emission control equipment at some facilities and the suspension of operations at others; however, Consumers continues to evaluate these rules in conjunction with other EPA rulemakings, litigation, and congressional action. This evaluation could result in: The MDEQ renewed and issued the B.C. Cobb Renewable Operating Permit in August 2011 after an extensive review and a public comment period. In October 2011, the Sierra Club and the Natural Resources Defense Council filed a petition with the EPA to object to the MDEQ's issuance of the state Renewable Operating Permit, alleging that the facility is not in compliance with certain provisions of the Clean Air Act, including NSR and Title V. Consumers responded to these allegations in December 2011. The EPA could either deny the petition outright or grant the petition and remand the matter to the MDEQ for further action. The Sierra Club or the Natural Resources Defense Council could also file suit in federal district court seeking EPA action on the petition. Consumers believes these claims are baseless, but is unable to predict the outcome of this petition. Fine Particulate Matter: In December 2012, the EPA finalized a rule that strengthens the air quality standard for fine particulate matter. Consumers expects short-term impacts to be limited, but this new standard could give rise to air quality concerns in states downwind of Michigan and put pressure on Michigan and other Midwestern states to reduce emissions further. Given its present strategy for CAIR and MATS compliance, however, Consumers will already be achieving significant reductions in emissions that contribute to the formation of fine particulate matter. Greenhouse Gases: In the recent past, there have been numerous legislative and regulatory initiatives at the state, regional, and national levels that involve the regulation of greenhouse gases. Consumers continues to monitor and comment on these initiatives and to follow litigation involving greenhouse gases. Consumers believes Congress may eventually pass greenhouse gas legislation, but is unable to predict the form and timing of any final legislation. In 2010, the EPA released its Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, which sets greenhouse gas emissions limits that define when permits are required for new and existing industrial facilities under NSR PSD and Title V Renewable Operating Permit programs. Numerous parties challenged this rule in the U.S. Court of Appeals for the D.C. Circuit. In June 2012, the U.S. Court of Appeals for the D.C. Circuit upheld the Tailoring Rule and dismissed challenges to it and to three other greenhouse gas rules. Rehearing requests for these rules were In March 2012, the EPA released its proposed "Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units" pursuant to Section 111 of the Clean Air Act. This proposed rule applies only to new fossil-fuel-fired steam electric generating units. The standard would require that carbon dioxide emissions not exceed those of a modern, efficient natural gas combined-cycle plant, regardless of fuel type. Consumers submitted comments on the proposed rule in June 2012 and the EPA is scheduled to finalize this rule by April 2013. The EPA is also expected to propose emissions guidelines within the next one to three years for states to regulate greenhouse gas emissions from existing generating units under Section 111(d) of the Clean Air Act. Under the expected schedule, states will be required to submit plans to the EPA within nine months of issuance of the final rule and guidelines. Consumers will continue to monitor activity regarding any proposed regulations involving new source performance standards. Litigation, as well as federal laws, EPA regulations regarding greenhouse gases, or similar treaties, state laws, or rules, if enacted or ratified, could require Consumers to replace equipment, install additional emission control equipment, purchase emission allowances, curtail operations, arrange for alternative sources of supply, or take other steps to manage or lower the emission of greenhouse gases. Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material and cost recovery cannot be assured, Consumers expects to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations. In 2012, carbon dioxide emissions from fossil-fueled power plants owned by Consumers, excluding the portion of Campbell Unit 3 that is owned by others, were 16 million metric tons. During the same period, coal-fueled plants owned by the enterprises segment emitted 620,000 metric tons of carbon dioxide. CCRs: In June 2010, the EPA proposed rules regulating CCRs, such as coal ash, under the Resource Conservation and Recovery Act. Recent communications from the EPA stress the need to coordinate CCR rulemaking guidelines for steam electric generating plants under the Clean Water Act. A final CCR rule could be issued in 2014. Michigan already regulates CCRs as low-hazard industrial waste. The EPA proposed a range of alternatives for regulating CCRs, including regulation as either a non-hazardous waste or a hazardous waste. If coal ash were regulated as a hazardous waste, Consumers would likely cease the beneficial reuse of this product, which would result in a significant increase in the amount of coal ash requiring costly disposal. Additionally, if the cost of upgrading existing coal ash disposal areas to meet hazardous waste landfill standards were to become economically prohibitive, existing coal ash disposal areas could close, requiring Consumers to find costly alternative arrangements for disposal. Consumers is unable to predict the impacts from this wide range of possible outcomes, but significant expenditures are likely. Water: In March 2011, the EPA issued a proposed rule to regulate existing electric generating plant cooling water intake systems under Section 316(b) of the Clean Water Act aimed at reducing alleged harmful impacts on fish and shellfish. Consumers continues to evaluate this proposed rule and its potential impacts on Consumers' plants. A final rule is expected in June 2013. Consumers also expects the EPA to propose new regulations in 2013 for wastewater discharges from electric generating plants that will require physical and/or chemical treatment facilities for all wastewater. A final rule is expected in 2014. PCBs: In April 2010, the EPA issued an Advance Notice of Proposed Rulemaking, indicating that it is considering a variety of regulatory actions with respect to PCBs. One approach would aim to phase out equipment containing PCBs by 2025. Another approach would eliminate an exemption for small equipment containing PCBs. To comply with any such regulatory actions, Consumers could incur substantial costs associated with existing electrical equipment potentially containing PCBs. A proposed rule is expected in 2013. Other electric environmental matters could have a major impact on Consumers' outlook. For additional details on other electric environmental matters, see Note 4, Contingencies and Commitments – Consumers Electric Utility Contingencies – Electric Environmental Matters. CONSUMERS GAS UTILITY BUSINESS OUTLOOKAND UNCERTAINTIES Gas Deliveries: Consumers expects weather-adjusted gas deliveries in 2013 to grow by about two percent compared with 2012. Over the next five years, Consumers expects average gas deliveries to remain stable. This outlook reflects modest growth in gas demand offset by the predicted effects of energy efficiency and conservation. Actual delivery levels from year to year may vary from this trend due to: Gas Transmission: In January 2013, Consumers announced plans to build a 24-mile, 36-inch natural gas pipeline in St. Joseph and Branch Counties, Michigan. Consumers expects to spend $150 million for this project. Construction of the pipeline is contingent upon obtaining approval from the MPSC and environmental permits. Consumers expects the pipeline to be operational by the end of 2014. Gas Transportation: In July 2012, Trunkline filed a proposal with FERC to cease transporting natural gas through one of its two main transmission pipelines serving Michigan. More than 60 percent of the natural gas supplied to Consumers' gas customers is delivered by Trunkline's two main transmission pipelines. In August 2012, Consumers filed a motion with FERC to protest against the proposed abandonment on the grounds that it would negatively impact customers and that it could hamper the development of gas-fueled electric generation in Michigan. The Governor, the MPSC, and various other parties have also filed protests with FERC. If Trunkline's proposal is granted, the abandonment could result in higher gas prices and reduced availability for Michigan gas customers. Gas Rate Matters: Rate matters are critical to Consumers' gas utility business. For additional details on Consumers' gas rate matters, see Note 3, Regulatory Matters. Pending Gas Rate Case: In February 2013, Consumers filed an application with the MPSC seeking an annual rate increase of $49 million, based on a 10.5 percent authorized return on equity. The filing requested authority to recover new investments in customer reliability, deliverability, safety, and system enhancements. Costs associated with these investments represent 120 percent of the total annual rate increase requested; this amount is offset partially by reductions in the revenue requirement associated with working capital. The filing also seeks approval of several rate adjustment mechanisms, including a mechanism that would reconcile annually Consumers' actual nonfuel revenues with the revenues approved by the MPSC, and a mechanism that would allow recovery of an additional $70 million associated with additional investments in the period July 2014 through December 2015, subject to reconciliation. Gas Depreciation: In August 2012, the MPSC approved a settlement agreement in Consumers' gas depreciation case. The depreciation rates, which became effective in January 2013, will result in a $5 million decrease in annual gas depreciation expense for Consumers. Pending Gas Cost Recovery Plan: Consumers submitted its 2013-2014 GCR plan to the MPSC in December 2012, and in accordance with its proposed plan, expects to self-implement the 2013-2014 GCR charge beginning in April 2013. Gas Pipeline Safety: In January 2012, President Obama signed the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011. The law reauthorizes existing federal pipeline safety programs of the Pipeline and Hazardous Materials Safety Administration through 2015 and it contains provisions mandating: Consumers continues to comply with laws and regulations governing natural gas pipeline safety. These laws and regulations could cause Consumers to incur significant additional costs related to its natural gas pipeline safety programs. Consumers expects that it would be able to recover the costs in rates, consistent with the recovery of other reasonable costs of complying with laws and regulations. Gas Environmental Estimates: Consumers expects to incur response activity costs at a number of sites, including 23 former MGP sites. For additional details, see Note 4, Contingencies and Commitments – Consumers Gas Utility Contingencies – Gas Environmental Matters. The Mandatory Reporting of Greenhouse Gases Rule requires facilities engaging in the distribution of natural gas to collect data on greenhouse gas emissions resulting from the combustion of natural gas. In 2012, Consumers estimated that carbon dioxide emissions from its customers were 17 million metric tons. CONSUMERS OTHER OUTLOOKAND UNCERTAINTIES Smart Energy: Consumers' grid modernization effort continues. In August 2012, Consumers began installing smart meters in Muskegon County, Michigan. One of the functions of smart meters is to allow customers to monitor and manage their energy usage, which should help reduce demand during critical peak times, resulting in lower peak capacity requirements. The installation of smart meters should also provide for both operational and customer benefits. At December 31, 2012, Consumers had upgraded 53,000 residential and small business customers in Muskegon County, Michigan to smart meters. Consumers expects to install about 175,000 smart meters throughout western Michigan in each of the years 2013 and 2014. By mid-2013, Consumers should be able to begin reading meters remotely; further functionality will be added in 2013 and 2014. Consumers also plans to install communication modules on gas meters in areas where Consumers provides both electricity and natural gas to customers. ENTERPRISES OUTLOOKAND UNCERTAINTIES The primary focus with respect to CMS Energy's remaining non-utility businesses is to optimize cash flow and maximize the value of their assets. Trends, uncertainties, and other matters that could have a material impact on CMS Energy's consolidated income, cash flows, or financial position include: For additional details regarding the enterprises segment's uncertainties, see Note 4, Contingencies and Commitments. OTHER OUTLOOKAND UNCERTAINTIES EnerBank: EnerBank, a wholly owned subsidiary of CMS Capital, is a Utah state-chartered, FDIC-insured industrial bank providing unsecured home improvement loans. EnerBank represented two percent of CMS Energy's net assets at December 31, 2012, and four percent of CMS Energy's net income available to common stockholders for the year ended December 31, 2012. The carrying value of EnerBank's loan portfolio was $544 million at December 31, 2012. Its loan portfolio was funded primarily by deposit liabilities of $527 million. Twelve-month rolling average default rates on loans held by EnerBank have declined from 0.9 percent at December 31, 2011 to 0.8 percent at December 31, 2012. CMS Energy is required both by law and by contract to provide financial support, including infusing additional capital, to ensure that EnerBank satisfies mandated capital requirements and has sufficient liquidity to operate. EnerBank has exceeded these requirements historically and exceeds them as of February 2013. Voluntary Separation Program: In April 2012, CMS Energy announced a voluntary separation program for its salaried employees. The separation date for the majority of employees who participated in the program was July 1, 2012. Management approved 232 employees for early separation and CMS Energy recorded a charge of $12 million related to this program during the year ended December 31, 2012. Litigation: CMS Energy, Consumers, and certain of their subsidiaries are named as parties in various litigation matters, as well as in administrative proceedings before various courts and governmental agencies, arising in the ordinary course of business. For additional details regarding these and other legal matters, see Note 4, Contingencies and Commitments and Note 3, Regulatory Matters. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The following accounting policies and related information are important to an understanding of CMS In the preparation of CMS Contingencies:CMS Energy and Consumers Fair Value Measurements: CMS Energy and Consumers have Income Taxes: Long-Lived Assets and The estimates CMS Energy and Consumers use may change over time, which could have a material impact on Unbilled Revenues: CMS Energy's and Consumers' customers are billed monthly in cycles having billing dates that do not generally coincide with the end of ACCOUNTINGFORTHE EFFECTSOF INDUSTRY REGULATION Because Consumers has regulated operations, it uses regulatory accounting to Alternative-Revenue Programs: The MPSC's 2009 gas rate case order authorized Consumers to implement a gas revenue decoupling mechanism. This mechanism, which was extended through April 2012 in the 2010 gas rate case order, allowed Consumers to adjust future gas rates to the degree that actual average weather-adjusted sales per customer differed from the rate order. Consumers accounted for this program as an alternative-revenue program that met the criteria for recognizing the effects of decoupling adjustments on revenue as gas is delivered. In 2009, the MPSC approved an energy optimization incentive mechanism that provides a financial incentive if the energy savings of Consumers' customers exceed annual targets established by the MPSC. Consumers accounts for this program as an alternative-revenue program that meets the criteria for recognizing revenue related to the incentive as soon as energy savings exceed the annual targets established by the MPSC. Revenue Subject to Refund: Unless prohibited by the MPSC upon a showing of good cause, Consumers is allowed to self-implement new energy rates six months after a new rate case filing; however, the rates that Consumers self-implements may be subject to refund, with interest. Consumers recognizes revenue associated with self-implemented rates. If Consumers considers it probable that it will be required to refund a portion of its self-implemented rates, it records a provision for revenue subject to refund. A final rate order could differ materially from Consumers' estimates underlying its self-implemented rates, giving rise to accounting adjustments. Under accounting rules for prior period adjustments, CMS Energy and Consumers may need to record such differences, if they are specifically identifiable to prior interim periods, as revisions to those periods. For additional details, see Note 3, Regulatory Matters. FINANCIALAND DERIVATIVE INSTRUMENTSAND MARKET RISK INFORMATION Financial Instruments: Debt and equity securities classified as available for sale are reported at fair value as determined from quoted market prices or other observable, market-based inputs. Unrealized gains and losses resulting from changes in fair value of these securities are reported, net of tax, in equity as part of AOCI, except that unrealized losses determined to be other than temporary are reported in earnings. Derivative Instruments: CMS Energy and Consumers account for certain contracts as derivative instruments. The criteria used to determine if an instrument qualifies for derivative accounting are complex and often require significant judgment in application. If a contract is a derivative and does not qualify for the normal purchases and sales exception, it is recorded on the consolidated balance sheets at its fair value. Each quarter, the resulting asset or liability is adjusted to reflect any change in the fair value of the contract. The fair values calculated for CMS Energy's and Consumers' derivatives may change significantly as commodity prices and volatilities change. The cash returns actually realized on derivatives may be different from their estimated fair values. For additional details on CMS Energy's and Consumers' derivatives and how the fair values of derivatives are determined, see Note 6, Fair Value Measurements. Market Risk Information: CMS Energy and Consumers are exposed to market risks including, but not limited to, changes in interest rates, commodity prices, and investment security prices. They may enter into various risk management contracts to limit exposure to these risks, including swaps, options, futures, and forward contracts. CMS Energy and Consumers enter into these contracts using established policies and procedures, under the direction of an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers. The following risk sensitivities illustrate the potential loss in fair value, cash flows, or future earnings from financial instruments, assuming a hypothetical adverse change in market rates or prices of ten percent. Potential losses could exceed the amounts shown in the sensitivity analyses if changes in market rates or prices were to exceed ten percent. Interest-Rate Risk: CMS Energy and Consumers are exposed to interest-rate risk resulting from issuing fixed-rate and variable-rate financing instruments. CMS Energy and Consumers use a combination of these instruments, and may also enter into interest-rate swap agreements, in order to manage this risk and to achieve a reasonable cost of capital. Interest-Rate Risk Sensitivity Analysis (assuming an adverse change in market interest rates of ten percent): In Millions December 31 Fixed-rate financing – potential loss in fair value CMS Energy, including Consumers Consumers The fair value losses in the above table could be realized only if CMS Energy and Consumers transferred all of their fixed-rate financing to other creditors. The annual earnings exposure related to variable-rate financing was insignificant for both CMS Energy and Consumers at December 31, Investment Securities Price Risk: Through investments in equity securities, CMS Energy and Consumers are exposed to equity price fluctuations. The following table shows the potential effect of adverse changes in equity prices on CMS Energy's and Consumers' available-for-sale investments. Investment Securities Price Risk Sensitivity Analysis (assuming an adverse change in market prices of ten percent): In Millions December 31 CMS Energy, including Consumers Potential reduction in fair value of available-for-sale securities DB SERP Mutual funds Consumers Potential reduction in fair value of available-for-sale securities DB SERP Mutual funds CMS Energy common stock Notes Receivable Risk: CMS Energy is exposed to interest-rate risk resulting from EnerBank's fixed-rate installment loans. EnerBank provides these loans to homeowners to finance home improvements. Notes Receivable Sensitivity Analysis (assuming an adverse change in market interest rates of ten percent): In Millions December 31 CMS Energy, including Consumers Potential reduction in fair value Notes receivable The fair value losses in the above table could be realized only if EnerBank sold its loans to other parties. For additional details on financial instruments, see Note 7, Financial Instruments. RETIREMENT BENEFITS Pension: CMS Energy and Consumers have external trust funds to provide retirement pension benefits to their employees under a non-contributory, defined benefit Pension Plan. On September 1, 2005, the defined benefit Pension Plan was closed to new participants and CMS Energy and Consumers implemented the qualified DCCP, which provides an employer contribution of six percent of base pay to the 401(k): CMS Energy and Consumers provide an employer match in their 401(k) plan equal to OPEB: CMS Energy and Consumers provide postretirement health and life benefits under their OPEB plan to qualifying retired employees. CMS Energy and Consumers record liabilities for pension and OPEB on their consolidated balance sheets at the present value of the future obligations, net of any plan assets. The calculation of the liabilities and associated expenses requires the expertise of actuaries, and requires many assumptions, including: A change in these assumptions could change significantly CMS Energy's and Consumers' recorded liabilities and associated expenses. Presented in the following table are estimates of CMS Energy's and Consumers' pension cost, OPEB cost, and cash contributions through 2015: In Millions CMS Energy, including Consumers 2013 2014 2015 Consumers 2013 2014 2015 Contribution estimates include amounts required and discretionary contributions. Consumers' pension and OPEB costs are recoverable through its general ratemaking process. Actual future pension cost and contributions will depend on future investment performance, changes in future discount rates, and various other factors related to the populations participating in the Pension Plan. Lowering the expected long-term rate of return on the Pension Plan assets by 0.25 percentage point (from 7.75 percent to 7.50 percent) would increase estimated pension cost for 2013 by $4 million for both CMS Energy and Consumers. Lowering the discount rate by 0.25 percentage point (from 4.10 percent to 3.85 percent) would increase estimated pension cost for 2013 by $5 million for both CMS Energy and Consumers. For additional details on postretirement benefits, see Note 12, Retirement Benefits. NEW ACCOUNTING STANDARDS For details regarding the implementation of new accounting standards In Millions Years Ended December 31 Operating Revenue Operating Expenses Fuel for electric generation Purchased and interchange power Purchased power – related parties Cost of gas sold Maintenance and other operating expenses Depreciation and amortization General taxes Insurance settlement Gain on asset sales, net Total operating expenses Operating Income Other Income (Expense) Interest income Allowance for equity funds used during construction Income from equity method investees Other income Other expense Total other income Interest Charges Interest on long-term debt Other interest expense Allowance for borrowed funds used during construction Total interest charges Income Before Income Taxes Income Tax Expense Income From Continuing Operations Income (Loss) From Discontinued Operations, Net of Tax of $4, $–, and $2 Net Income Income Attributable to Noncontrolling Interests Net Income Attributable to CMS Energy Charge for Deferred Issuance Costs on Preferred Stock Preferred Stock Dividends Net Income Available to Common Stockholders In Millions, Except Per Share Amounts Years Ended December 31 Net Income Attributable to Common Stockholders Amounts attributable to continuing operations Amounts attributable to discontinued operations Net income available to common stockholders Income Attributable to Noncontrolling Interests Amounts attributable to continuing operations Amounts attributable to discontinued operations Income attributable to noncontrolling interests Basic Earnings Per Average Common Share Basic earnings from continuing operations Basic earnings (loss) from discontinued operations Basic earnings attributable to common stock Diluted Earnings Per Average Common Share Diluted earnings from continuing operations Diluted earnings (loss) from discontinued operations Diluted earnings attributable to common stock Dividends Declared Per Common Share In Millions Years Ended December 31 Net Income Retirement Benefits Liability Net loss arising during the period, net of tax benefit of $(7), $(7), and $(6) Amortization of net actuarial loss, net of tax of $1, $1, and $– Prior service credit adjustment, net of tax of $–, $–, and $1 Investments Unrealized gain on investments, net of tax of $1, $–, and $– Other Comprehensive Loss Comprehensive Income Comprehensive Income Attributable to Noncontrolling Interests Comprehensive Income Attributable to CMS Energy (This page intentionally left blank) In Millions Years Ended December 31 Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Deferred income taxes and investment tax credit Postretirement benefits expense Bad debt expense Other non-cash operating activities Postretirement benefits contributions Cash provided by (used in) changes in assets and liabilities Accounts receivable, notes receivable, and accrued revenue Inventories Accounts payable Accrued expenses Other current and non-current assets and liabilities Net cash provided by operating activities Cash Flows from Investing Activities Capital expenditures (excludes assets placed under capital lease) Cost to retire property Cash effect of deconsolidation of partnership Increase in EnerBank loans receivable Other investing activities Net cash used in investing activities Cash Flows from Financing Activities Proceeds from issuance of long-term debt Proceeds from EnerBank notes, net Issuance of common stock Retirement of long-term debt Payment of DOE liability Payment of common and preferred stock dividends Redemption of preferred stock Payment of capital lease obligations and other financing costs Increase (decrease) in notes payable Net cash provided by (used in) financing activities In Millions Years Ended December 31 Net Increase (Decrease) in Cash and Cash Equivalents, Including Assets Held for Sale Increase (Decrease) in Cash and Cash Equivalents included in Assets Held for Sale Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Period Cash and Cash Equivalents, End of Period Other cash flow activities and non-cash investing and financing activities Cash transactions Interest paid (net of amounts capitalized) Income taxes paid Non-cash transactions Capital expenditures not paid Other assets placed under capital lease ASSETS In Millions December 31 Current Assets Cash and cash equivalents Restricted cash and cash equivalents Accounts receivable and accrued revenue, less allowances of $32 in 2012 and $35 in 2011 Notes receivable Accounts receivable – related parties Accrued power supply revenue Inventories at average cost Gas in underground storage Materials and supplies Generating plant fuel stock Deferred income taxes Deferred property taxes Regulatory assets Prepayments and other current assets Total current assets Plant, Property, and Equipment Plant, property, and equipment, gross Less accumulated depreciation and amortization Plant, property, and equipment, net Construction work in progress Total plant, property, and equipment Other Non-current Assets Regulatory assets Accounts and notes receivable, less allowances of $5 in 2012 and 2011 Investments Other Total other non-current assets Total Assets LIABILITIES AND EQUITY In Millions December 31 Current Liabilities Current portion of long-term debt, capital and finance lease obligations Notes payable Accounts payable Accounts payable – related parties Accrued rate refunds Accrued interest Accrued taxes Deferred income taxes Regulatory liabilities Other current liabilities Total current liabilities Non-current Liabilities Long-term debt Non-current portion of capital and finance lease obligations Regulatory liabilities Postretirement benefits Asset retirement obligations Deferred investment tax credit Deferred income taxes Other non-current liabilities Total non-current liabilities Commitments and Contingencies (Notes 3, 4, 5, and 7) Equity Common stockholders equity Common stock, authorized 350.0 shares; outstanding 264.1 shares in 2012 and 254.1 shares in 2011 Other paid-in capital Accumulated other comprehensive loss Accumulated deficit Total common stockholders equity Noncontrolling interests Total equity Total Liabilities and Equity In Millions, Except Number of Shares in Thousands Years Ended December 31 Total Equity at Beginning of Period Common Stock At beginning of period Common stock issued At end of period Other Paid-in Capital At beginning of period Common stock issued Common stock reissued Common stock repurchased Common stock reacquired Charge for deferred issuance costs At end of period Accumulated Other Comprehensive Loss At beginning of period Retirement benefits liability At beginning of period Net loss arising during the period Amortization of net actuarial loss Prior service credit adjustment At end of period Investments At beginning of period Unrealized gain on investments At end of period Derivative instruments At beginning and end of period At end of period Accumulated Deficit At beginning of period Net income attributable to CMS Energy Common stock dividends declared Preferred stock dividends declared Charge for deferred issuance costs At end of period Preferred Stock At beginning of period Conversion of preferred stock At end of period Noncontrolling Interests At beginning of period Income attributable to noncontrolling interests Distributions and other changes in noncontrolling interests At end of period Total Equity at End of Period The accompanying notes are an integral part of these statements. In Millions Years Ended December 31 Operating Revenue Operating Expenses Fuel for electric generation Purchased and interchange power Purchased power – related parties Cost of gas sold Maintenance and other operating expenses Depreciation and amortization General taxes Total operating expenses Operating Income Other Income (Expense) Interest income Interest and dividend income – related parties Allowance for equity funds used during construction Other income Other expense Total other income (expense) Interest Charges Interest on long-term debt Other interest expense Allowance for borrowed funds used during construction Total interest charges Income Before Income Taxes Income Tax Expense Net Income Preferred Stock Dividends Net Income Available to Common Stockholder In Millions Years Ended December 31 Net Income Retirement Benefits Liability Net loss arising during the period, net of tax benefit $(5), $(3), and $(3) Amortization of net actuarial loss, net of tax of $1, $1, and $– Investments Unrealized gain on investments, net of tax of $2, $–, and $2 Reclassification adjustments included in net income, net of tax of $(2), $–, and $– Other Comprehensive Loss Comprehensive Income (This page intentionally left blank) In Millions Years Ended December 31 Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Deferred income taxes and investment tax credit Postretirement benefits expense Bad debt expense Other non-cash operating activities Postretirement benefits contributions Cash provided by (used in) changes in assets and liabilities Accounts receivable, notes receivable, and accrued revenue Inventories Accounts payable Accrued expenses Other current and non-current assets and liabilities Net cash provided by operating activities Cash Flows from Investing Activities Capital expenditures (excludes assets placed under capital lease) Cost to retire property Other investing activities Net cash used in investing activities In Millions Years Ended December 31 Cash Flows from Financing Activities Proceeds from issuance of long-term debt Retirement of long-term debt Payment of DOE liability Payment of common and preferred stock dividends Stockholder contribution Payment of capital lease obligations and other financing costs Increase in notes payable Net cash used in financing activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Period Cash and Cash Equivalents, End of Period Other cash flow activities and non-cash investing and financing activities Cash transactions Interest paid (net of amounts capitalized) Income taxes paid Non-cash transactions Capital expenditures not paid Other assets placed under capital lease ASSETS In Millions December 31 Current Assets Cash and cash equivalents Restricted cash and cash equivalents Accounts receivable and accrued revenue, less allowances of $30 in 2012 and $33 in 2011 Notes receivable Accounts receivable – related parties Accrued power supply revenue Inventories at average cost Gas in underground storage Materials and supplies Generating plant fuel stock Deferred property taxes Regulatory assets Prepayments and other current assets Total current assets Plant, Property, and Equipment Plant, property, and equipment, gross Less accumulated depreciation and amortization Plant, property, and equipment, net Construction work in progress Total plant, property, and equipment Other Non-current Assets Regulatory assets Accounts and notes receivable Investments Other Total other non-current assets Total Assets LIABILITIES AND EQUITY In Millions December 31 Current Liabilities Current portion of long-term debt, capital and finance lease obligations Notes payable Accounts payable Accounts payable – related parties Accrued rate refunds Accrued interest Accrued taxes Deferred income taxes Regulatory liabilities Other current liabilities Total current liabilities Non-current Liabilities Long-term debt Non-current portion of capital and finance lease obligations Regulatory liabilities Postretirement benefits Asset retirement obligations Deferred investment tax credit Deferred income taxes Other non-current liabilities Total non-current liabilities Commitments and Contingencies (Notes 3, 4, 5, and 7) Equity Common stockholder equity Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods Other paid-in capital Accumulated other comprehensive loss Retained earnings Total common stockholder equity Preferred stock Total equity Total Liabilities and Equity The accompanying notes are an integral part of these statements. In Millions Years Ended December 31 Total Equity at Beginning of Period Common Stock At beginning and end of period Other Paid-in Capital At beginning of period Stockholder contribution At end of period Accumulated Other Comprehensive Loss At beginning of period Retirement benefits liability At beginning of period Net loss arising during the period Amortization of net actuarial loss At end of period Investments At beginning of period Unrealized gain on investments Reclassification adjustments included in net income At end of period At end of period Retained Earnings At beginning of period Net income Common stock dividends declared Preferred stock dividends declared At end of period Preferred Stock At beginning and end of period Total Equity at End of Period The accompanying notes are an integral part of these statements. 1: SIGNIFICANT ACCOUNTING POLICIES Corporate Structure: CMS Energy is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility, and CMS Enterprises, primarily a domestic Principles of Consolidation: CMS Energy and Consumers prepare their consolidated financial statements in conformity with GAAP. CMS Use of Estimates: CMS Energy and Consumers are required to make estimates using assumptions that may affect reported amounts and disclosures. Actual results could differ from those estimates. Revenue Recognition Policy: CMS Energy and Consumers recognize revenue from deliveries of electricity and natural gas, and from the transportation, processing, and storage of natural gas, when services are provided. CMS Energy and Consumers record unbilled revenue for the estimated amount of energy delivered to customers but not yet billed. CMS Energy and Consumers record sales tax net and exclude it from revenue. CMS Energy recognizes revenue on sales of marketed electricity, natural gas, and other energy products at delivery. Alternative-Revenue In 2009, the MPSC approved an energy optimization incentive mechanism that provides a financial incentive if the energy savings of Consumers' customers exceed annual targets established by the MPSC. Consumers accounts for this program as an alternative-revenue program Table of Self-Implemented Rates: Unless prohibited by the MPSC upon a showing of good cause, Consumers is allowed to self-implement new energy rates six months after a new rate case filing if the MPSC has not issued an order in the case. The MPSC then has another six months to issue a final order. If the MPSC does not issue Cash and Cash Equivalents: Cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less. Contingencies: CMS Energy and Consumers record estimated liabilities for contingencies on their consolidated financial statements when it is probable that a liability has been incurred and when the amount of loss can be reasonably estimated. CMS Energy and Consumers expense legal fees as incurred; fees incurred but not yet billed are accrued based on estimates of work performed. This policy also applies to any fees incurred on behalf of employees and officers under indemnification agreements; such fees are billed directly to CMS Energy or Consumers. Derivative Instruments: In order to support ongoing operations, CMS Energy and Consumers enter into contracts for the future purchase and sale of various commodities, such as electricity, natural gas, and coal. These forward contracts are generally long-term in nature and result in physical delivery of the commodity at a contracted price. Most of these contracts are not subject to derivative accounting because: Consumers' coal purchase contracts are not derivatives because there is not an active market for the coal it purchases. If an active market for coal develops in the future, some of these contracts may qualify as derivatives. Since Consumers is subject to regulatory accounting, the resulting fair value gains and losses would be deferred as regulatory assets or liabilities and would not affect net CMS Energy and Consumers record Determination of Pension and OPEB MRV of Plan Assets: CMS Energy and Consumers determine the MRV for Earnings Per Share: CMS Energy calculates basic and diluted EPS using the weighted-average number of shares of common stock and dilutive potential common stock outstanding during the period. Potential common stock, for purposes of determining diluted EPS, includes the effects of dilutive stock options, warrants, and convertible securities. CMS Energy computes the effect on potential common stock using the treasury stock method or the if-converted method, as applicable. Diluted EPS excludes the impact of antidilutive securities, which are those securities resulting in an increase in EPS or a decrease in loss per share. For EPS computations, see Note Financial Instruments: CMS Energy and Consumers record debt and equity securities classified as available for sale at fair value as determined Impairment of Long-Lived Assets and Equity Method Investments:CMS Energy and Consumers perform tests of impairment if certain triggering events occur, or if there has been a decline in value that may be other than temporary. CMS Energy and Consumers evaluate long-lived assets held in use for impairment by calculating the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the undiscounted future cash flows are less than the carrying amount, CMS Energy and Consumers recognize an impairment loss equal to the amount by which the carrying amount exceeds the fair value. CMS Energy and Consumers estimate the fair value of the asset using quoted market prices, market prices of similar assets, or discounted future cash flow analyses. CMS Energy also assesses equity method investments for impairment whenever there has been a decline in value that is other than temporary. This assessment requires CMS Energy to determine the fair value of the equity method investment. CMS Energy determines fair value using valuation methodologies, including discounted cash flows, and assesses the ability of the investee to sustain an earnings capacity that justifies the carrying amount of the For additional details, see Note CMS Energy and Consumers CMS Energy and Consumers use the Reclassifications: CMS Energy and Consumers have reclassified certain prior-period amounts on their Restricted 2: NEW ACCOUNTING STANDARDS ASU 2011-05, Presentation of Comprehensive Income: This standard, which became effective January 1, 2012 for CMS Energy and Consumers, ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs: This standard, which became effective January 1, 2012 for CMS Energy and Consumers, 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 have a material adverse effect on 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 allocation among customers, the allocation of refunds among customer groups, 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. REGULATORY ASSETSAND LIABILITIES Because Consumers is subject to the actions of the MPSC and Presented in the following table are the regulatory assets and liabilities on Consumers' consolidated balance sheets: In Millions December 31 Regulatory assets Current Gas revenue decoupling mechanism Energy optimization plan incentive Cancelled coal-fueled plant costs1 Other1 Total current regulatory assets Non-current Postretirement benefits2 Securitized costs3 MGP sites3 ARO4 Unamortized debt costs3 Gas revenue decoupling mechanism Energy optimization plan incentive Gas storage inventory adjustments3 Cancelled coal-fueled plant costs1 Major maintenance1 Big Rock nuclear decommissioning3 Electric revenue decoupling mechanism Stranded costs1 Other1 Total non-current regulatory assets Total regulatory assets Regulatory liabilities Current DOE settlement Other Total current regulatory liabilities Non-current Cost of removal Income taxes, net Renewable energy plan ARO Energy optimization plan Other Total non-current regulatory liabilities Total regulatory liabilities REGULATORY ASSETS Gas Revenue Decoupling Mechanism: The MPSC's 2009 gas rate case order authorized Consumers to implement a gas revenue decoupling mechanism. This mechanism, which was extended through April 2012 in the 2010 gas rate case order, allowed Consumers to adjust future gas rates to the degree that actual average weather-adjusted sales per customer differed from the rate order. This mechanism was not affected by a separate Michigan Court of Appeals decision on electric revenue decoupling. In September 2011, Consumers filed its first reconciliation of the gas revenue decoupling mechanism with the MPSC, requesting recovery of $16 million from customers for the period June 2010 through May 2011. In December 2012, the MPSC approved Consumers' reconciliation for the full amount of its request and authorized recovery over three months beginning in February 2013. In January 2013, ABATE filed an appeal with the Michigan Court of Appeals to dispute the MPSC's order in this case that Consumers is eligible to recover the portion of this amount allocated to transport customers. Consumers filed its final reconciliation of the gas revenue decoupling mechanism in August 2012, requesting recovery of $17 million from customers for the period June 2011 through April 2012. Energy Optimization Plan Incentive: The MPSC has authorized Consumers to collect $15 million as an incentive payment for exceeding savings targets under both its gas and electric optimization plans during 2011. The incentive will be collected over seven months beginning in June 2013. During 2012, Consumers achieved 123 percent of its electric savings target and 132 percent of its gas savings target. For achieving these savings levels, Consumers will request the MPSC's approval to collect $17 million, the maximum incentive, in the energy optimization reconciliation to be filed in May 2013. Cancelled Coal-Fueled Plant Costs: In its June 2012 order in Consumers' electric rate case, the MPSC authorized recovery of $14 million of development costs associated with Consumers' proposed 830-MW coal-fueled plant. The MPSC authorized Consumers to recover these costs over a three-year period. In September 2012, a party in Consumers' electric rate case filed an appeal with the Michigan Court of Appeals to dispute the MPSC's conclusion that authorized Consumers to recover these costs. Postretirement Benefits: As part of the ratemaking process, the MPSC allows Consumers to defer the impact of actuarial gains and losses and prior service costs associated with postretirement benefits as a regulatory asset and to recover these costs from customers. The asset will decrease as the deferred items are amortized and recognized as components of net periodic benefit cost. Securitized Costs: In 2000, the MPSC authorized recovery of securitization and tax charges related to Consumers' Securitization bonds over a period of up to 15 years. MGP Sites: Consumers expects to incur environmental remediation and other response activity costs at 23 former MGP facilities. The MPSC allows Consumers to recover from its natural gas customers over a ten-year period the costs incurred to remediate the MGP sites. ARO: The recovery of the underlying asset investments and related removal costs of recorded AROs are approved by the MPSC in depreciation rate cases. Consumers records a regulatory asset and a regulatory liability for timing differences between the recognition of AROs for financial reporting purposes and the recovery of these costs from customers. Unamortized Debt Costs: Under regulatory accounting, any unamortized debt costs related to debt redeemed with the proceeds of new debt are capitalized and amortized over the life of the new debt. Gas Storage Inventory Adjustments: Consumers incurs inventory expenses related to the loss of gas from its natural gas storage fields. The MPSC allows Consumers to recover these costs from its natural gas customers over a five-year period. Major Maintenance: In its June 2012 order in Consumers' electric rate case, the MPSC allowed Consumers to defer major maintenance costs associated with certain plants in excess of the costs approved in the rate order and recover these excess costs from customers, subject to MPSC approval. Big Rock Nuclear Decommissioning and DOE Settlement: Consumers had recorded an $85 million regulatory asset for $30 million it paid to Entergy to assume ownership responsibility for the Big Rock ISFSI and for $55 million of nuclear fuel storage costs it incurred as a result of the DOE's failure to accept nuclear fuel. Consumers filed a complaint against the DOE in 2002 for this failure. In July 2011, Consumers entered into an agreement with the DOE to settle its claims for $120 million. In September 2011, Consumers filed an application with the MPSC requesting authority to utilize $85 million of the settlement amount as recovery of its regulatory asset, and to refund to customers $23 million previously collected through rates for spent nuclear fuel costs. In December 2012, the MPSC approved this treatment. Consumers will refund $23 million to customers over a six-month period beginning in January 2013. Consumers recognized the remaining $12 million of the settlement as a reduction of maintenance and other operating expenses. Electric Revenue Decoupling Mechanism: The MPSC's 2009 electric rate case order authorized Consumers to implement an electric revenue decoupling mechanism. This decoupling mechanism allowed Consumers to adjust future electric rates to the degree that actual average sales per customer differed from the rate order. At December 31, 2011, Consumers had recorded a $59 million regulatory asset related to this mechanism. In April 2012, the Michigan Court of Appeals ruled in an appeal filed by ABATE that disputed the MPSC's decision to authorize an electric revenue decoupling mechanism for DTE Electric. The Court concluded that the MPSC lacks statutory authority to approve or direct the use of a revenue decoupling mechanism for electric providers. As a result, Consumers determined that it no longer met the accounting criteria for recognition of a regulatory asset under an alternative revenue program, and wrote off its $59 million electric revenue decoupling mechanism regulatory asset at March 31, 2012. In November 2012, the Michigan Court of Appeals ruled in an appeal of the MPSC's 2010 order in Consumers' electric rate case; this appeal had been filed by the Attorney General and ABATE. In light of the Court's previous ruling that the MPSC does not have authority to authorize electric decoupling, the Court reversed the portion of the 2010 order related to Consumers' electric revenue decoupling mechanism, substantiating Consumers' decision to write off its associated regulatory asset in March 2012. In addition, the Court remanded this portion of the electric rate case to the MPSC for further proceedings. Stranded Costs: These costs represent fixed generation costs that were incurred in 2002 and 2003 to serve customers who elected to receive electricity from alternative energy suppliers. In 2004, the MPSC approved the recovery of stranded costs from these customers. Consumers completed its recovery of the stranded cost surcharge in December 2012. REGULATORY LIABILITIES Cost of Removal: These amounts have been collected from customers to fund future asset removal activities. This regulatory liability is reduced as costs of removal are incurred. Income Taxes, Net: These costs represent the difference between deferred income taxes recognized for financial reporting purposes and amounts previously reflected in Consumers' rates. This net balance will decrease over the remaining life of the related temporary differences and flow through current income tax benefit. In December 2012, Consumers assigned $792 million of assets in the VEBA trust to pay future prescription drug costs. This preserved the tax benefits lost upon enactment of the Health Care Acts. As a result, Consumers remeasured its deferred income taxes and Renewable Energy Plan: At December 31, 2012 and 2011, surcharges collected from customers to fund Consumers' renewable energy plan exceeded Consumers' spending. This regulatory liability is amortized as costs are incurred to operate and depreciate Consumers' wind farms and as Consumers purchases RECs under renewable energy purchase agreements. Energy Optimization Plan: At December 31, 2012 and 2011, surcharges collected from customers to fund Consumers' energy optimization plan exceeded Consumers' spending. The associated regulatory liability is amortized as costs are incurred under Consumers' energy optimization plan. OTHER RATE MATTERS CONSUMERS' ELECTRIC UTILITY Electric Rate Case: In June 2012, the MPSC authorized an annual rate increase of $118 million, based on The annual rate increase authorized by the MPSC included a $20 million increase in annual depreciation expense resulting from the new depreciation rates that the MPSC approved in June 2011 in Consumers' electric depreciation case. These new depreciation rates went into effect with the June 2012 electric rate case order. CONSUMERS' GAS UTILITY Gas Rate Case: In September 2011, Consumers filed an application with the MPSC seeking an annual rate increase of $49 million, based on a 10.7 percent authorized return on equity, in order to recover investments made to enhance safety, system reliability, and operational efficiencies that improve service to customers. Consumers self-implemented an annual rate increase of $23 million in March 2012, subject to refund with interest. In June 2012, the MPSC authorized an annual rate increase of $16 million, based on a 10.3 percent authorized return on equity. In January 2013, the MPSC approved Consumers' reconciliation of the total revenues collected during self-implementation to those that would have been collected under final rates. As a result of the reconciliation, which found that a refund was required, Consumers had a $2 million regulatory liability recorded at December 31, 2012. Consumers will refund this amount to customers in March 2013. POWER SUPPLY COST RECOVERYAND GAS COST RECOVERY The PSCR and GCR processes are designed to allow Consumers to recover all of its power supply and purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and reconciliation proceedings. Consumers adjusts its PSCR and GCR billing factors monthly in order to minimize the overrecovery or underrecovery amount in the annual reconciliations. PSCR Plans: In July 2012, the MPSC approved Consumers' 2011 PSCR plan, authorizing the 2011 PSCR charge that Consumers self-implemented beginning in January 2011. Consumers submitted its 2012 PSCR plan to the MPSC in September 2011, and in accordance with its proposed plan, self-implemented the 2012 PSCR charge beginning in January 2012. In February 2012, Consumers filed a revised 2012 PSCR plan, which significantly reduced costs. PSCR Reconciliations: Presented in the following table are details about the PSCR reconciliation filing pending with the MPSC: PSCR Year 2011 In December 2012, the MPSC issued an order in Consumers' 2010 PSCR reconciliation, approving full recovery of $1.7 billion of power costs and authorizing Consumers to roll into its 2011 PSCR plan the underrecovery of $11 million. GCR Plans: In March 2012, the MPSC approved Consumers' 2011-2012 GCR plan, authorizing the 2011-2012 GCR charge that Consumers self-implemented beginning in April 2011. Consumers submitted its 2012-2013 GCR plan to the MPSC in December 2011, and in accordance with its proposed plan, self-implemented the 2012-2013 GCR charge beginning in April 2012. GCR Reconciliations: Presented in the following table are details about the GCR reconciliation filing pending with the MPSC: GCR Year 2011-2012 Consumers reflected the following In Millions December 31 Accrued power supply revenue Accrued rate refunds CMS Energy and Consumers CMS ENERGY CONTINGENCIES Gas Index Price Reporting Investigation: In 2002, CMS Energy notified appropriate regulatory and governmental agencies that some employees at CMS MST and CMS Field Services appeared to have request for information occurred in 2003, and CMS Energy completed its response to this request in 2004. CMS Energy is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on CMS Energy. Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, are named as defendants in various lawsuits arising as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations include manipulation of NYMEX natural gas futures and options prices, price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in Colorado, Kansas, Missouri, and Wisconsin. The following provides more detail on these proceedings: After removal to federal court, all of the cases described above were transferred to the 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 possible loss would be based on widely varying models previously untested in this context. If the outcome after appeals is unfavorable, these cases could have a material adverse impact on CMS Energy's liquidity, financial condition, and results of operations. Bay Harbor: CMS Energy retained environmental remediation obligations for the collection and treatment of leachate at Bay Harbor after selling its interests in the development in 2002. Leachate is produced when water enters into cement kiln dust piles left over from former cement plant operations at the site. In June 2012, CMS Energy and the MDEQ finalized an agreement that established the final remedies and the future release criteria at the site. CMS Energy is in the process of completing 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. This permit requires renewal every five years. Various claims have been brought against CMS Land or its affiliates, including CMS Energy, alleging environmental damage to property, loss of property value, insufficient disclosure of environmental matters, breach of agreement relating to access, or other matters. In October 2010, CMS Land and other parties received a demand for payment from the EPA in the amount of $7 million, plus interest, whereby the EPA is seeking recovery, as allowed under Superfund, of the EPA's response costs incurred at the Bay Harbor site. CMS Land communicated to the EPA in November 2010 that it does not believe that this is a valid claim. CMS Energy has recorded a cumulative charge related to Bay Harbor of $227 million, which includes accretion expense. At December 31, 2012, CMS Energy had a recorded liability of $61 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.34 percent and an inflation rate of one percent on annual operating and maintenance costs. CMS Energy based the discount rate on the interest rate for 30-year U.S. Treasury securities at December 31, 2010. The undiscounted amount of the remaining obligation is $80 million. CMS Energy expects to pay $12 million in 2013, $4 million in each of 2014, 2015, 2016, and 2017, and the remaining amount thereafter on long-term liquid disposal and operating and maintenance costs. CMS Energy's estimate of response activity costs and the timing of expenditures could change if there are additional major changes in circumstances or assumptions, including but not limited to: Depending on the size of any indemnity obligation or liability under environmental laws, an adverse outcome of this matter could have a material adverse effect on CMS Energy's liquidity and financial condition and could negatively affect CMS Energy's financial results. Although a liability for its present estimate of remaining response activity costs has been recorded, CMS Energy cannot predict the ultimate financial impact or outcome of this matter. Equatorial Guinea Tax Claim: In January 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that CMS Energy owes $142 million in taxes, plus interest, in connection with the sale. CMS Energy has concluded that the government's tax claim is without merit. The government of Equatorial Guinea indicated through a request for arbitration in October 2011 that it still intends to pursue its claim. CMS Energy is vigorously contesting the claim, and cannot predict the financial impact or outcome of this matter. Panhandle Tax Indemnification: CMS Energy recorded a liability in 2003 for an indemnification provided in conjunction with the sale of Panhandle. As of March 31, 2012 the statute of limitations had expired for this indemnification. Accordingly, CMS Energy eliminated the liability during the year ended December 31, 2012 and recognized an after-tax benefit of $7 million in discontinued 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 NREPA. Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome. Consumers estimates that its liability for NREPA sites will be between $4 million and $6 million. At December 31, 2012, Consumers had a recorded liability of $4 million, the minimum amount in the range of its estimated probable NREPA liability. Consumers is a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund liability is joint and several. In 2010, Consumers received official notification from the EPA that identified Consumers as a potentially responsible party for cleanup of PCBs at the Kalamazoo River Superfund 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 April 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. In August 2011, the EPA announced that it would proceed with the removal action plan and would continue to pursue potentially responsible parties to perform or pay for some or all of the work. Until further information is received from the EPA, Consumers is unable to estimate a range of potential liability for cleanup of the river. Based on its experience, Consumers estimates that its share of the total liability for other known Superfund sites will be between $2 million and $8 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers' share of the total liability. At December 31, 2012, Consumers had a recorded liability of $2 million for its share of the total liability at these sites, the minimum amount in the range of its estimated probable Superfund liability. The timing of payments related to Consumers' remediation and other response activities at its Superfund and NREPA sites is uncertain. Consumers periodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, different remediation techniques, the nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and Superfund liability. Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout, and sealant materials at Ludington. Consumers removed and replaced part of the PCB material with non-PCB material. Consumers has had several communications with the EPA regarding this matter. Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the financial impact or outcome of this matter. Electric Utility Plant Air Permit Issues and Notices of Violation: In 2007, Consumers received an NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in their Consumers is engaged in discussions with the EPA on all of these matters. Depending upon the outcome of these discussions, the EPA could bring legal action against Consumers and/or Consumers could be required to install additional pollution control equipment at some or all of its coal-fueled electric generating plants, surrender emission allowances, engage in Supplemental Environmental Projects, and/or pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants. The potential costs relating to these matters could be material. Consumers expects that it would be able to recover some or all of the costs in rates, consistent with the recovery of other reasonable costs of complying with environmental laws and Nuclear Matters: The matters discussed in this section relate to Consumers' previously owned nuclear generating plants. In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent U.S. Court of Appeals litigation, in which Consumers and other utilities participated, had not been successful in producing more specific relief for the DOE's failure to accept the spent nuclear fuel. A number of court decisions have supported the right of utilities to pursue damage claims in the U.S. Court of Claims against the DOE. Consumers filed a complaint in 2002 for damages resulting from the DOE's failure to accept spent nuclear fuel from Palisades and Big Rock. In July 2011, Consumers entered into an agreement with the DOE to settle its claims for $120 million. As part of this agreement, Consumers also settled its liability to the DOE to fund the disposal of spent nuclear fuel used at Palisades and Big Rock before 1983. In December 2012, the MPSC issued an order establishing the regulatory treatment of the settlement amount. In this order, the MPSC also relieved Consumers of its obligation to establish an independent trust fund for the amount that was payable to the DOE prior to the settlement. For further information on this order, see Note 3, Regulatory Matters. In September 2012, Entergy, which purchased Palisades and the Big Rock ISFSI from Consumers in 2007, filed a lawsuit against the DOE for damages resulting from the DOE's delay in receiving spent nuclear fuel from those plants, dating from the close of the sale. Under Consumers' sales agreement relating to Big Rock and Palisades, Consumers paid Entergy $30 million to assume ownership and responsibility for the Big Rock ISFSI, and Consumers also reserved any claim against the DOE for the first $30 million in damages related to the Big Rock ISFSI that occurred following the sale close. Entergy's damages claim, as presently stated, includes a claim for this Big Rock amount. Although Consumers believes Entergy has no valid claim for the $30 million Big Rock amount, in the event that Entergy were successful in recovering the $30 million from the DOE, the DOE would have the ability to recoup the payment from Consumers. In order to protect its interests, Consumers has filed a motion to intervene in Entergy's lawsuit against the DOE. Consumers cannot predict the outcome of this matter. 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 December 31, 2012, Consumers had a recorded liability of $122 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. Consumers based the discount rate on the interest rate for 20-year U.S. Treasury securities at December 31, 2011. The undiscounted amount of the remaining obligation is $134 million. Consumers expects to incur remediation and other response activity costs in each of the next five years as follows: In Millions Consumers Remediation and other response activity costs 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 December 31, 2012, Consumers had a regulatory asset of $152 million related to the MGP sites. CONSUMERS OTHER CONTINGENCIES Other Environmental Matters: Consumers initiated preliminary investigations during 2012 at a number of potentially contaminated sites it presently owns with the intention of determining whether any contamination exists and the extent of any identified contamination. The sites being investigated include combustion turbine sites, generating sites, compressor stations, and above-ground storage tanks. Consumers will continue its preliminary investigations at potentially contaminated sites through 2013. Consumers cannot predict an outcome at this stage of the investigations. GUARANTEES Presented in the following table are CMS Energy's and Consumers' guarantees at December 31, 2012: In Millions Guarantee Description CMS Energy, including Consumers Indemnity obligations from asset sales and other agreements Guarantees Consumers Indemnity obligations and other guarantees Presented in the following table is additional information regarding CMS Energy's and Consumers' guarantees: Indemnity obligations and other guarantees CMS Energy, Consumers, and certain other subsidiaries of CMS Energy also enter into various agreements containing tax and other indemnity provisions for which OTHER CONTINGENCIES Other: In addition CONTRACTUAL COMMITMENTS Purchase Obligations: Presented in the following table are Purchase obligations arise from long-term contracts for the purchase of commodities and related In Millions Consumers Purchase obligations Purchase obligations – related parties The MCV PPA: Consumers has a 35-year PPA that began in 1990 with the MCV Partnership to purchase 1,240 MW of electricity. The MCV PPA, as amended and restated, provides for: The Palisades PPA: Consumers has a PPA expiring in 2022 with Entergy to purchase all of 5: FINANCINGS AND CAPITALIZATION Presented in the following table is CMS Energy's long-term debt at December 31: In Millions CMS Energy Senior notes Total CMS Energy senior notes Term loan facility Total CMS Energy parent Consumers Other CMS Energy subsidiaries EnerBank certificates of deposits Trust preferred securities Total other CMS Energy subsidiaries Total CMS Energy principal amount outstanding Current amounts Net unamortized discounts Total CMS Energy long-term debt Presented in the following table is Consumers' long-term debt at December 31: In Millions Consumers FMBs1 Senior notes Securitization bonds Tax-exempt pollution control revenue bonds Total Consumers principal amount outstanding Current amounts Net unamortized discounts Total Consumers long-term debt Financings: Presented in the following table is a summary of major long-term debt transactions during the year ended December 31, Debt issuances CMS Energy Senior notes Term loan facility1 Total CMS Energy parent Consumers FMB Term loan facility2 Tax-exempt bonds3 Tax-exempt bonds3 FMB FMB FMB Total Consumers Total debt issuances Debt retirements CMS Energy Contingently convertible senior notes4 Trust Preferred Securities Senior notes Total CMS Energy parent Consumers FMB FMB Tax-exempt bonds3 Tax-exempt bonds3 Term loan facility2 Total Consumers Total debt retirements FMBs: Regulatory Authorization for Financings: FERC has authorized Consumers to have outstanding at any one time, up to $500 million of secured and unsecured short-term securities for general corporate purposes. The remaining availability was Securitization Bonds: Certain regulatory assets owned by Consumers' subsidiary Consumers Funding collateralize Consumers' Securitization bonds. The bondholders have no In Millions CMS Energy, including Consumers Long-term debt Consumers Long-term debt Revolving Credit Facilities: The following secured revolving credit facilities with banks were available at December 31, 2012: In Millions Expiration Date CMS Energy December 21, 20171 Consumers December 21, 20172 April 18, 20172 September 9, 20142 Short-term Borrowings: Under Consumers' revolving accounts receivable sales program, Consumers may transfer up to $250 million of accounts receivable, subject to certain eligibility requirements. These transactions are accounted for as short-term secured borrowings. At December 31, 2012, $140 million of accounts receivable were eligible for transfer, and $110 million had been transferred under the program. During the year ended December 31, 2012, Consumers' average short-term borrowings totaled $20 million, with a weighted-average annual interest rate of 0.94 percent. Contingently Convertible Securities: Presented in the following table are the significant terms of CMS Energy's contingently convertible securities at December 31, 2012: Security 5.50% senior notes The securities become convertible for a calendar quarter if the price of CMS Energy's common stock remains at or CMS Energy's contingently convertible securities, if converted, require CMS Energy to pay cash up to the principal amount of the securities. Any conversion value in excess of the principal amount can be paid in cash or in shares of CMS Energy's common stock, at the election of CMS Energy. Presented in the following table are details about conversions of contingently convertible securities during the year ended December 31, 2012: 2.875% senior notes due 2024 Dividend Restrictions: Under provisions of CMS Energy's senior notes indenture, at December 31, 2012, payment of common stock dividends by CMS Energy was limited to $1.4 billion. Under the dividends payable by Consumers to the amount of Consumers' retained earnings. Several decisions from For the year ended December 31, 2012, CMS Energy Capitalization: The authorized capital stock of Issuance of December 31, 2012 and 2011 Cumulative, $100 par value, authorized 7,500,000 shares, with no mandatory redemption Total preferred stock of Consumers 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: To the extent possible, CMS Energy and Consumers use quoted market prices or other observable market pricing data in valuing assets and liabilities measured at fair value. If this information is unavailable, they use market-corroborated data or reasonable estimates about market participant assumptions. CMS Energy and Consumers classify fair value measurements within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement in its entirety. In Millions December 31, 2012 CMS Energy, including Consumers Assets Cash equivalents Restricted cash equivalents Nonqualified deferred compensation plan assets DB SERP Cash equivalents Mutual funds Derivative instruments Commodity contracts Total Liabilities Nonqualified deferred compensation plan liabilities Derivative instruments Commodity contracts Total Consumers Assets Restricted cash equivalents CMS Energy common stock Nonqualified deferred compensation plan assets DB SERP Cash equivalents Mutual funds Derivative instruments Commodity contracts Total Liabilities Nonqualified deferred compensation plan liabilities Total In Millions December 31, 2011 CMS Energy, including Consumers Assets Cash equivalents Restricted cash equivalents Nonqualified deferred compensation plan assets DB SERP Cash equivalents Mutual funds Derivative instruments Commodity contracts Total Liabilities Nonqualified deferred compensation plan liabilities Derivative instruments Commodity contracts Total Consumers Assets Cash equivalents Restricted cash equivalents CMS Energy common stock Nonqualified deferred compensation plan assets DB SERP Cash equivalents Mutual funds Derivative instruments Commodity contracts Total Liabilities Nonqualified deferred compensation plan liabilities Total Nonqualified Deferred Compensation Plan DB SERP Assets: CMS Energy and Consumers value their DB SERP assets using a market approach that incorporates quoted market prices. The DB SERP cash equivalents consist of a money market fund with daily liquidity. The DB SERP invests in mutual Derivative Instruments: CMS Energy and Consumers value their derivative instruments using either a market approach that incorporates information from market transactions, or an income approach that discounts future expected cash flows to a present value amount. ASSETSAND LIABILITIES MEASUREDAT FAIR VALUEONA RECURRING BASISUSING SIGNIFICANT LEVEL 3 INPUTS Presented in the In Millions Years Ended December 31 CMS Energy, including Consumers Balance at beginning of period Total gains included in earnings1 Total gains offset through regulatory accounting Purchases Sales Settlements Balance at end of period Unrealized gains included in earnings relating to assets and liabilities still held at end of period1 Consumers Balance at beginning of period Total gains offset through regulatory accounting Purchases Settlements Balance at end of period Table of In Millions CMS Energy, including Consumers Assets held for sale In 2010, CMS Energy wrote down assets held for sale from their carrying amount of $11 million 7: FINANCIAL INSTRUMENTS Presented in the In Millions CMS Energy, including Consumers Securities held to maturity Notes receivable1 Long-term debt2 Consumers Long-term debt3 Notes receivable CMS Energy and Consumers estimate the fair value of their long-term debt using quoted prices from market trades of the debt, if available. In the absence of quoted prices, CMS Energy and Consumers calculate market yields and prices for the debt using a matrix method that incorporates market data for similarly rated debt. Depending on the information available, other valuation techniques and models may be used that rely on The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt. At December 31, 2012 and December 31, 2011, CMS Presented in the In Millions CMS Energy, including Consumers Available for sale DB SERP Mutual funds Held to maturity Debt securities Consumers Available for sale DB SERP Mutual funds CMS Energy common stock The mutual Table of Presented in the In Millions Years Ended December 31 CMS Energy, including Consumers Proceeds from sales of investment securities Consumers Proceeds from sales of investment securities The sales proceeds for all periods represent sales of Consumers recognized gains of $5 million in 2012 and $4 million in 2011 from 8: NOTES RECEIVABLE Presented in the following table are details of CMS Energy's and Consumers' current and non-current notes receivable: In Millions CMS Energy, including Consumers Current EnerBank notes receivable, net of allowance for loan losses Other Non-current EnerBank notes receivable, net of allowance for loan losses Other Total notes receivable Consumers Current Other Non-current Other Total notes receivable EnerBank notes receivable are unsecured consumer installment loans for financing home improvements. The allowance for loan losses is a valuation allowance to reflect estimated credit losses. The allowance is increased by the provision for loan losses and decreased by loan charge-offs net of recoveries. Management estimates the allowance balance required by taking into consideration historical loan loss experience, the nature and volume of the portfolio, economic conditions, and other factors. Loan losses are charged against the allowance when the loss is confirmed, but no later than the point at which a loan becomes 120 days past due. Presented in the following table are the changes in the allowance for loan losses: In Millions Years Ended December 31 Balance at beginning of period Charge-offs Recoveries Provision for loan losses Balance at end of period Loans that are 30 days or more past due are considered delinquent. The balances of EnerBank's consumer loans that were delinquent at December 31, 2012 and 2011 were insignificant. At December 31, 2012 and December 31, 2011, $1 million of EnerBank's loans had been modified as troubled debt restructurings. 9: PLANT, PROPERTY, AND EQUIPMENT Presented in the following table are details of CMS Energy's and Consumers' plant, property, and equipment: In Millions Years Ended December 31 CMS Energy, including Consumers Electric Generation Distribution Other Capital and finance leases Gas Distribution Transmission Underground storage facilities1 Other Capital leases Enterprises Independent power production Other Other Construction work in progress Less accumulated depreciation and amortization Net plant, property, and equipment2 Consumers Electric Generation Distribution Other Capital and finance leases Gas Distribution Transmission Underground storage facilities1 Other Capital leases Other non-utility property Construction work in progress Less accumulated depreciation and amortization Net plant, property, and equipment2 Presented in the following table is further detail on changes in Consumers' capital and finance leases: In Millions Years Ended December 31 Consumers Balance at beginning of period Additions Net retirements and other adjustments Balance at end of period Capital and finance leases presented are gross amounts. Accumulated amortization of capital and finance leases was $108 million at December 31, 2012 and $87 million at December 31, 2011 for Consumers. Presented in the following table is further detail on CMS Energy's and Consumers' accumulated depreciation and amortization: In Millions Years Ended December 31 CMS Energy, including Consumers Utility plant assets Non-utility plant assets Consumers Utility plant assets Non-utility plant assets Maintenance and Depreciation: CMS Energy and Consumers record property repairs and minor property replacement as maintenance expense. CMS Energy and Consumers record planned major maintenance activities as operating expense unless the cost represents the acquisition of additional long-lived assets or the replacement of an existing long-lived asset. Consumers depreciates utility property on an asset-group basis, in which it applies a single MPSC-approved depreciation rate to the gross investment in a particular class of property within the electric and gas segments. Consumers performs depreciation studies periodically to determine appropriate group lives. Presented in the following table are the composite depreciation rates for Consumers' segment properties: Years Ended December 31 Electric utility property Gas utility property Other property CMS Energy and Consumers record plant, property, and equipment at original cost when placed into service. The cost includes labor, material, applicable taxes, overhead such as pension and other benefits, and AFUDC, if applicable. Consumers' plant, property, and equipment is generally recoverable through its general rate making process. For additional details, see Note 3, Regulatory Matters. When utility property is mothballed, the property stays in rate base and continues to be depreciated at the same rate as before the mothball period. When utility property is retired or otherwise disposed of in the ordinary course of business, Consumers records the original cost to accumulated depreciation, along with associated cost of removal, net of salvage. CMS Energy and Consumers recognize gains or losses on the retirement or disposal of non-regulated assets in income. Consumers records cost of removal collected from customers, but not spent, as a regulatory liability. Consumers capitalizes AFUDC on regulated major construction projects, except pollution control facilities on its fossil-fueled power plants. AFUDC represents the estimated cost of debt and authorized return-on-equity funds used to finance construction additions. Consumers records the offsetting credit as a reduction of interest for the amount representing the borrowed funds component and as other income for the equity funds component on the consolidated statements of income. When construction is completed and the property is placed in service, Consumers depreciates and recovers the capitalized AFUDC from customers over the life of the related asset. Presented in the following table are Consumers' composite AFUDC capitalization rates: Years Ended December 31 AFUDC capitalization rate CMS Energy and Consumers capitalize the purchase and development of internal-use computer software. These costs are expensed evenly over the estimated useful life of the internal-use computer software. If computer software is integral to computer hardware, then its cost is capitalized and depreciated with the hardware. The types of costs capitalized are consistent for all periods presented by the financial statements. Intangible Assets: Included in net In Millions Years Ended December 31 Description CMS Energy, including Consumers Software development Plant acquisition adjustments Rights of way Leasehold improvements Franchises and consents Other intangibles Total Consumers Software development Plant acquisition adjustments Rights of way Leasehold improvements Franchises and consents Other intangibles Total Presented in the following table is CMS Energy's and In Millions Years Ended December 31 2012 2011 2010 Amortization of intangible assets is expected to range between $46 million and $56 million per year over the next five years. Table of JOINTLY OWNED REGULATED UTILITY FACILITIES Presented in the following table are Consumers' investments in jointly owned regulated utility facilities at December 31, 2012: In Millions, Except Ownership Share Ownership share Utility plant in service Accumulated depreciation Construction work-in-progress Net investment Consumers includes its share of 10: LEASES CMS Energy Operating leases for coal-carrying railcars have lease terms expiring without extension provisions over the next 11 years and with extension provisions over the next 14 years. These leases contain fair market value extension and buyout provisions, with some providing for predetermined extension period rentals. Capital leases for Consumers' vehicle fleet operations have a maximum term of 120 months with some having end-of-lease rental adjustment clauses based on the proceeds received from Consumers has capital leases for gas transportation pipelines to the Karn generating complex and Zeeland. The capital lease for the gas transportation pipeline into the Karn generating complex has a term of 15 years with a provision to extend the contract from month to month. The remaining term of the contract was nine years at December 31, 2012. The capital lease for the gas transportation pipeline to Zeeland, which had a term of 12 years, was extended in Presented in In Millions Years Ended December 31 Consumers Minimum operating lease expense PPAs Other agreements Contingent rental expense1 In Millions Consumers 2013 2014 2015 2016 2017 2018 and thereafter Total minimum lease payments Less imputed interest Present value of net minimum lease payments Less current portion Non-current portion Palisades remains on Consumers' consolidated balance sheets and Consumers continues to depreciate it. Consumers recorded the related proceeds as a finance obligation with payments recorded to interest expense and the finance obligation based on the amortization of the obligation over the life of the Palisades PPA. The value of the finance obligation was determined based on an allocation of the transaction proceeds to the fair values of the fair value of the plant asset under the financing. Total amortization and interest charges under the financing were $20 million for the year ended December 31, 11: CMS Energy and Consumers If a reasonable estimate of fair value cannot be made in Presented below are the No assets have been restricted for Presented in the In Millions CMS Energy, including Consumers Gas treating plant and gas wells Consumers Total CMS Energy Consumers Coal ash disposal areas Wells at gas storage fields Asbestos abatement Gas distribution cut, purge, and cap Wind farm Total Consumers In Millions CMS Energy, including Consumers Gas treating plant and gas wells Consumers Total CMS Energy Consumers Coal ash disposal areas Wells at gas storage fields Indoor gas services relocations Asbestos abatement Gas distribution cut, purge, and cap Total Consumers Table of CMS Energy and Consumers provide pension, OPEB, and other retirement CMS Energy and Consumers Participants in the cash balance Pension Plan, DB SERP: The DB SERP is a non-qualified plan as defined by the Internal Revenue Code. DB SERP benefits are paid from a rabbi trust established in 1988. DB SERP In Millions In Millions Trust assets Trust assets DC SERP:On April 1, 2006, CMS Energy and Consumers implemented a DC SERP and froze further new participation in the 401(k):The The In Millions Years Ended December 31 CMS Energy, including Consumers Effect on total service and interest cost component Effect on PBO Consumers Effect on total service and interest cost component Effect on PBO Assumptions: Presented in the December 31 CMS Energy, including Consumers Weighted average for benefit obligations Discount rate1 Mortality table2 Rate of compensation increase Pension DB SERP Weighted average for net periodic benefit cost obligations Discount rate1 Expected long-term rate of return on plan assets3 Mortality table2 Rate of compensation increase Pension DB SERP Costs: Presented in the In Millions Years Ended December 31 CMS Energy, including Consumers Net periodic pension and DB SERP cost Service cost Interest expense Expected return on plan assets Amortization of: Net loss Prior service cost Net periodic pension and DB SERP cost Regulatory adjustment1 Net periodic pension and DB SERP cost after regulatory adjustment Consumers Net periodic pension and DB SERP cost Service cost Interest expense Expected return on plan assets Amortization of: Net loss Prior service cost Net periodic pension and DB SERP cost Regulatory adjustment1 Net periodic pension and DB SERP cost after regulatory adjustment In Millions Years Ended December 31 CMS Energy, including Consumers Net periodic OPEB cost Service cost Interest expense Expected return on plan assets Amortization of: Net loss Prior service credit Net periodic OPEB cost Regulatory adjustment1 Net periodic OPEB cost after regulatory adjustment Consumers Net periodic OPEB cost Service cost Interest expense Expected return on plan assets Amortization of: Net loss Prior service credit Net periodic OPEB cost Regulatory adjustment1 Net periodic OPEB cost after regulatory adjustment CMS Energy and Consumers amortize net gains and losses in excess of ten percent of the greater of the The estimated period of amortization of these new prior service credits for CMS Energy and Consumers Reconciliations: In Millions Years Ended December 31 CMS Energy, including Consumers Benefit obligation at beginning of period Service cost Interest cost Actuarial loss Benefits paid Benefit obligation at end of period Plan assets at fair value at beginning of period Actual return on plan assets Company contribution Actual benefits paid Plan assets at fair value at end of period Funded status1 In Millions Years Ended December 31 CMS Energy, including Consumers Benefit obligation at beginning of period Service cost Interest cost Actuarial loss Benefits paid Benefit obligation at end of period Plan assets at fair value at beginning of period Actual return on plan assets Company contribution Actual benefits paid Plan assets at fair value at end of period Funded status Consumers Benefit obligation at beginning of period Service cost Interest cost Actuarial loss Benefits paid Benefit obligation at end of period Plan assets at fair value at beginning of period Actual return on plan assets Company contribution Actual benefits paid Plan assets at fair value at end of period Funded status At December 31, 2012, CMS Energy classified $7 million of DB SERP liabilities as current liabilities, and $627 million of Pension Plan, $137 million of DB SERP, and $682 million of OPEB liabilities as non-current liabilities on its consolidated balance sheets. At December 31, 2011, CMS Energy classified $7 million of DB SERP liabilities as current liabilities, and $446 million of Pension Plan, $120 million of DB SERP, and $717 million of OPEB liabilities as non-current liabilities on its consolidated balance sheets. At December 31, 2012, Consumers classified $4 million of DB SERP liabilities as current liabilities, and $590 million of Pension Plan, $96 million of DB SERP, and $692 million of OPEB liabilities as non-current liabilities on its consolidated balance sheets. At December 31, 2011, Consumers classified $4 million of DB SERP liabilities as current liabilities, and $414 million of Pension Plan, $81 million of DB SERP, and $724 million of OPEB liabilities as non-current liabilities on its consolidated balance sheets. Presented in the following table are the Pension Plan In Millions Years Ended December 31 CMS Energy, including Consumers Pension PBO Pension ABO Fair value of Pension Plan assets Items Not Yet Recognized as a Component of Net Periodic Benefit Cost: In Millions Years Ended December 31 CMS Energy, including Consumers Regulatory assets Net loss Prior service cost (credit) AOCI Net loss (gain) Prior service cost (credit) Total amounts recognized in regulatory assets and AOCI Consumers Regulatory assets Net loss Prior service cost (credit) AOCI Net loss Total amounts recognized in regulatory assets and AOCI In Millions December 31, 2012 CMS Energy, including Consumers Asset category Cash and short-term investments1 U.S. government and agencies securities2 Corporate debt3 State and municipal bonds5 Foreign corporate bonds6 Mutual funds8 Pooled funds9 Total In Millions December 31, 2011 CMS Energy, including Consumers Asset category Cash and short-term investments1 U.S. government and agencies securities2 Corporate debt3 State and municipal bonds5 Foreign corporate bonds6 Mutual funds8 Pooled funds9 Total In Millions December 31, 2012 CMS Energy, including Consumers Asset category Cash and short-term investments1 U.S. government and agencies securities2 Corporate debt4 State and municipal bonds5 Foreign corporate bonds6 Common stocks7 Mutual funds8 Pooled funds10 Total Consumers Asset category Cash and short-term investments1 U.S. government and agencies securities2 Corporate debt4 State and municipal bonds5 Foreign corporate bonds6 Common stocks7 Mutual funds8 Pooled funds10 Total In Millions December 31, 2011 CMS Energy, including Consumers Asset category Cash and short-term investments1 U.S. government and agencies securities2 Corporate debt4 State and municipal bonds5 Foreign corporate bonds6 Common stocks7 Mutual funds8 Pooled funds10 Total Consumers Asset category Cash and short-term investments1 U.S. government and agencies securities2 Corporate debt4 State and municipal bonds5 Foreign corporate bonds6 Common stocks7 Mutual funds8 Pooled funds10 Total Presented in the following table In Millions In Millions OPEB1 Pension2 OPEB1 Pension2 Contributions include required and discretionary amounts. Actual future contributions will depend on future investment performance, changes in discount rates, and various factors related to the populations participating in the plans. In CMS Energy and Consumers established union and non-union VEBA trusts to fund their future retiree health and life insurance benefits. These trusts are funded through the ratemaking process for Consumers and through direct contributions from the non-utility subsidiaries. In 2012, CMS Energy and Consumers are diversified across absolute return investment approaches and global tactical asset allocation. CMS Energy and Consumers Benefit Payments: In Millions CMS Energy, including Consumers 2013 2014 2015 2016 2017 2018 - 2022 Consumers 2013 2014 2015 2016 2017 2018 - 2022 Collective Bargaining Agreements: At December 31, CMS Energy and Consumers provide a PISP to key employees and non-employee directors based on their contributions to the successful management of the company. The PISP has a five-year term, expiring in May 2014. TSR restricted stock vesting is contingent on meeting a three-year service requirement and a specific market Restricted stock awards granted to officers in For awards granted prior to August 1, 2010, restricted The PISP also allows for stock options, stock appreciation rights, phantom shares, Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6 million shares from June 2009 through May 2014, nor may such awards to any recipient exceed 500,000 shares in any fiscal year. CMS Energy and Consumers may issue awards of up to Year Ended December 31, 2012 CMS Energy, including Consumers Nonvested at beginning of period Granted1 Vested Forfeited Nonvested at end of period Consumers Nonvested at beginning of period Granted1 Vested Forfeited Nonvested at end of period CMS Energy and Consumers charge the fair value of the awards to expense over the required service period. As a result, for awards granted prior to August 1, 2010, CMS Energy and Consumers recognize all compensation expense for share-based awards that have accelerated service provisions upon retirement by the period in which the employee becomes eligible to retire. TSR restricted stock awards granted after August 1, 2010 have graded vesting features, and CMS Energy and Consumers recognize expense for those awards on a graded vesting schedule over the required service period. Expense for time-lapse awards is recognized on a straight-line basis over the required service period. CMS Energy and Consumers calculate the fair value of time-lapse restricted stock based on the price of CMS The risk-free rate for each valuation was based on the three-year U.S. Treasury yield at the award grant date. Expected volatility Expected dividend yield Risk-free rate Years Ended December 31 CMS Energy, including Consumers Weighted-average grant-date fair value per share Consumers Weighted-average grant-date fair value per share Presented in the following table are amounts related to restricted stock awards: In Millions Years Ended December 31 CMS Energy, including Consumers Fair value of shares that vested during the year Compensation expense recognized Income tax benefit recognized Consumers Fair value of shares that vested during the year Compensation expense recognized Income tax benefit recognized At December 31, Presented in the following table Year Ended December 31, 2012 CMS Energy, including Consumers Outstanding at beginning of period Cancelled or expired Outstanding at end of period Consumers Outstanding at beginning of period Cancelled or expired Outstanding at end of period Stock options give the holder the right to purchase common stock at the market price on the grant date. Stock options are exercisable upon grant, and expire up to ten years and one month from the grant date. CMS Energy and Consumers issue new shares when recipients exercise stock options. No stock options were exercised for CMS Energy or Consumers during 2012. The total intrinsic value of stock options exercised for CMS Energy and Consumers was for each of the years ended December 31, 2011 and Since CMS Energy has utilized tax loss carryforwards, CMS Energy was unable to realize excess tax benefits upon exercise of stock options and vesting of restricted stock. Therefore, CMS Energy did not recognize the related excess tax benefits in equity. As of December 31, CMS Energy and its subsidiaries file a consolidated U.S. federal income tax return and a unitary Michigan income tax return. Income taxes are allocated based on each company's separate taxable income in accordance with the CMS Energy tax sharing agreement. In Millions, Except Tax Rate Years Ended December 31 CMS Energy, including Consumers Income from continuing operations before income taxes Income tax expense at statutory rate Increase (decrease) in income taxes from: MCIT law change, net of federal effect1 State and local income taxes, net of federal effect Medicare Part D exempt income law change2 Other, net Income tax expense Effective tax rate Consumers Income from continuing operations before income taxes Income tax expense at statutory rate Increase (decrease) in income taxes from: State and local income taxes, net of federal effect Other, net Income tax expense Effective tax rate Presented in the following table are the significant components of income tax expense on continuing operations: In Millions Years Ended December 31 CMS Energy, including Consumers Current income taxes Federal State and local Deferred income taxes Federal State and local MCIT law change Deferred income tax credit Tax expense Consumers Current income taxes Federal State and local Deferred income taxes Federal State and local Deferred income tax credit Tax expense Presented in the following table are the principal components of deferred income tax assets (liabilities) recognized: In Millions December 31 CMS Energy, including Consumers Employee benefits Gas inventory Plant, property, and equipment Net regulatory tax liability Reserves and accruals Securitized costs Tax loss and credit carryforwards Other Less valuation allowance Total net deferred income tax liabilities Deferred tax assets, net of valuation reserves Deferred tax liabilities Total net deferred income tax liabilities Consumers Employee benefits Gas inventory Plant, property, and equipment Net regulatory tax liability Reserves and accruals Securitized costs Tax loss and credit carryforwards Other Less valuation allowance Total net deferred income tax liabilities Deferred tax assets, net of valuation reserves Deferred tax liabilities Total net deferred income tax liabilities Deferred tax assets and Presented in the following table are the tax loss and credit carryforwards at December 31, 2012: In Millions CMS Energy, including Consumers Federal net operating loss carryforward Local net operating loss carryforwards State capital loss carryforward Alternative minimum tax credits Charitable contribution carryover General business credits Total tax attributes Consumers Federal net operating loss carryforward State capital loss carryforward Alternative minimum tax credits Charitable contribution carryover Total tax attributes CMS Energy has provided a valuation allowance of $1 million for the local tax loss carryforward, a valuation allowance of $1 million for the state capital loss carryforward, and a valuation allowance of $1 million for general business credits. Consumers has provided a valuation allowance of $1 million for the state capital loss carryforward. CMS Energy and Consumers Presented in the In Millions Years Ended December 31 CMS Energy, including Consumers Balance at beginning of period Reductions for prior-year tax positions Additions for prior-year tax positions Balance at end of period Consumers Balance at beginning of period Reductions for prior-year tax positions Additions for prior-year tax positions Balance at end of period CMS Energy, including Consumers, had uncertain tax benefits of CMS Energy and Consumers In November 2010, the IRS concluded its audit of CMS Energy and its subsidiaries, which increased taxable income by $132 million for the years ended December 31, 2002 through December 31, 2007. Of this amount, $82 million resulted in a decrease to In May 2012, the IRS completed its audit of CMS Energy and its subsidiaries for 2008 and 2009, as well as its audit of research and development tax credit claims for 2001 through 2009. The audits resulted in a $45 million increase in the net operating loss carryforward. The impact to net income as a result of the CMS Energy's federal income tax returns for 2010 and subsequent years remain subject to examination by the IRS. CMS Energy's MBT returns for 2008 and subsequent years remain subject to examination by the State of Michigan. The amount of income taxes paid is subject to ongoing audits by federal, state, local, and foreign tax authorities, which can result in proposed assessments. CMS Energy's and Consumers' estimate of the potential outcome for any uncertain tax issue is highly judgmental. CMS Energy and Consumers believe that their accrued tax liabilities at December 31, 2012 were adequate for all years. 15: EARNINGS PER SHARE – CMS ENERGY Presented in the following table are CMS Energy's basic and diluted EPS computations based on income from continuing operations: In Millions, Except Per Share Amounts Years Ended December 31 Income available to common stockholders Income from continuing operations Less income attributable to noncontrolling interests Less charge for deferred issuance costs on preferred stock Less preferred stock dividends Income from continuing operations available to common stockholders – basic and diluted Average common shares outstanding Weighted-average shares – basic Add dilutive contingently convertible securities Add dilutive non-vested stock awards and options Weighted-average shares – diluted Income from continuing operations per average common share available to common stockholders Basic Diluted CONTINGENTLY CONVERTIBLE SECURITIES When CMS Energy has earnings from continuing operations, its contingently convertible securities dilute EPS to the extent that the conversion value of NON-VESTED STOCK AWARDS CMS Energy's non-vested stock awards are composed of participating and non-participating securities. The participating securities accrue cash dividends when common stockholders receive dividends. Since the CONVERTIBLE DEBENTURES CMS Energy redeemed all of its outstanding 7.75 percent Trust Preferred Securities in February 2012. For each of the years ended December 31, the if-converted method, the debentures would have had the following impacts on the calculation of diluted EPS: In Millions Years Ended December 31 Increase to numerator from assumed reduction in interest expense Increase to denominator from assumed conversion of debentures into common shares In Millions Years Ended December 31 Other income CMS Energy, including Consumers Regulatory return on capital expenditures Return on stranded and security costs All other Total other income Consumers Regulatory return on capital expenditures Gain on CMS Energy common stock Return on stranded and security costs All other Total other income Years Ended December 31 Other expense CMS Energy, including Consumers Loss on reacquired and extinguished debt Donations Civic and political expenditures All other Total other expense Consumers Donations Civic and political expenditures All other Total other expense CMS Energy: Consumers: Accounting policies for CMS Inter-segment sales and transfers are accounted for at current market prices and are eliminated in consolidated net income In Millions Years Ended December 31 CMS Energy, including Consumers Operating revenue Electric utility Gas utility Enterprises Other Total operating revenue – CMS Energy Consumers Operating revenue Electric utility Gas utility Total operating revenue – Consumers CMS Energy, including Consumers Depreciation and amortization Electric utility Gas utility Enterprises Other Total depreciation and amortization – CMS Energy Consumers Depreciation and amortization Electric utility Gas utility Total depreciation and amortization – Consumers CMS Energy, including Consumers Income from equity method investees1 Enterprises Total income from equity method investees – CMS Energy CMS Energy, including Consumers Interest charges Electric utility Gas utility Other Total interest charges – CMS Energy Consumers Interest charges Electric utility Gas utility Other Total interest charges – Consumers In Millions Years Ended December 31 CMS Energy, including Consumers Income tax expense (benefit) Electric utility Gas utility Enterprises Other Total income tax expense – CMS Energy Consumers Income tax expense Electric utility Gas utility Total income tax expense – Consumers CMS Energy, including Consumers Net income (loss) available to common stockholders Electric utility Gas utility Enterprises Other Total net income available to common stockholders – CMS Energy Consumers Net income available to common stockholder Electric utility Gas utility Other Total net income available to common stockholder – Consumers CMS Energy, including Consumers Plant, property, and equipment, gross Electric utility Gas utility Enterprises Other Total plant, property, and equipment – CMS Energy Consumers Plant, property, and equipment, gross Electric utility Gas utility Other Total plant, property, and equipment – Consumers CMS Energy, including Consumers Investments in equity method investees1 Enterprises Other Total investments in equity method investees – CMS Energy In Millions Years Ended December 31 CMS Energy, including Consumers Total assets Electric utility2 Gas utility2 Enterprises Other Total assets – CMS Energy Consumers Total assets Electric utility2 Gas utility2 Other Total assets – Consumers CMS Energy, including Consumers Capital expenditures3 Electric utility Gas utility Enterprises Other Total capital expenditures – CMS Energy Consumers Capital expenditures3 Electric utility Gas utility Total capital expenditures – Consumers CMS Energy and Consumers had no international operating revenues or operating income for each of the years ended December 31, 2012, 2011, and 2010. CMS Energy had international assets of less than $1 million at December 31, 2012, $1 million at December 31, 2011, and $3 million at December 31, 2010. Consumers had no international assets for any of the years presented. 18: RELATED-PARTY TRANSACTIONS – CONSUMERS Transactions involving power supply purchases from certain affiliates of CMS Enterprises are based on avoided costs under PURPA, state law, and competitive bidding. The payment of parent company overhead costs is based on the use of accepted industry allocation methodologies. These payments are for costs that occur in the normal course of business. Presented in the following table are Consumers' recorded income and expense from related parties as of December 31: In Millions Description Purchases of capacity and energy Amounts payable to related parties for purchased power and other services were $11 million at December 31, 2012 and 2011. Consumers owned 1.3 million shares of CMS Energy common stock with a fair value of $32 million at December 31, 2012. For additional details on Consumers' investment in CMS Energy common stock, see Note 7, Financial Instruments. 19: VARIABLE INTEREST ENTITIES Variable interests are contractual, ownership, or other interests in an entity that change as the fair value of the VIE's net assets, excluding variable interests, changes. An entity is considered to be a VIE when its capital is insufficient to permit it to finance its activities without additional subordinated financial support or its equity investors, as a group, lack the characteristics of having a controlling financial interest. Entities that are VIEs must be consolidated if the reporting entity determines that it has a controlling financial interest. The entity that is required to consolidate the VIE is called the primary beneficiary. The primary beneficiary is the entity that has both (1) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE. CMS Energy consolidates CMS Energy Trust I because CMS Energy is the variable interest holder that designed the entity and, through the design, has the power to direct the activities of CMS Energy Trust I that most significantly impact the trust's economic performance. The sole assets of the trust consisted of subordinated notes issued by CMS Energy, and the sole liabilities of the trust consisted of Trust Preferred Securities. CMS Energy guaranteed payment of the Trust Preferred Securities. CMS Energy redeemed all of the securities in February 2012. CMS Energy has variable interests in T.E.S. Filer City, Grayling, and Genesee. CMS Energy is not the primary beneficiary of any of these partnerships because power is shared among unrelated parties, and no one party has the power to direct the activities that most significantly impact the entities' economic performance. The partners must agree on all major decisions for each of the partnerships. Presented in the following table is information about these partnerships: CMS Energy has operating and management contracts with Grayling and Genesee, and Consumers is the primary purchaser of power from each partnership through long-term PPAs. Consumers also has reduced dispatch agreements with Grayling and Genesee, which allow these facilities to be dispatched based on the market price of wood waste. This results in fuel cost savings that each partnership shares with Consumers' customers. CMS Energy's investment in these partnerships is included in investments on its consolidated balance sheets in the amount of $56 million as of 20: ASSET SALES, DISCONTINUED OPERATIONS, AND IMPAIRMENT CHARGES ASSET SALES The impacts of asset sales are included in gain on asset sales, net and In 2010, CMS Enterprises exercised its option to sell its stock interest in CMS Generation San Nicolas Company and CMS Enterprises also sold a cost-method investment with a carrying value of zero, and recognized a $3 million gain. DISCONTINUED OPERATIONS Discontinued operations are a component of the enterprises segment. CMS Energy included the following amounts in In Millions Years Ended December 31 Revenues Discontinued operations Pretax income (loss) from discontinued operations Income tax expense Income (loss) from discontinued operations, net of tax expense Also includes disposal-related losses of $10 million in additional tax expense resulting from an IRS audit adjustment related to a 2003 asset sale, a $6 million ($4 million net of tax) loss for the write down of CMS Energy's investment in Exeter, a $5 million ($3 million net of tax) loss for the increase in a liability for a 2007 asset sale, and a $5 million ($3 million net of tax) loss on the settlement of a 2002 asset sale indemnity. Discontinued operations include a provision for closing costs and a portion of CMS Energy's parent company interest expense. CMS Energy allocated no interest expense in 2012 and allocated less than $1 million of interest expense in each of 2011 and 2010. CMS Energy allocates its CMS Energy sold its interest in Exeter in January 2011. Major classes of assets and liabilities of Exeter classified as held for sale on CMS Energy's consolidated balance sheet at December 31, 2010 were insignificant. IMPAIRMENT CHARGES In 2010, CMS Energy wrote down its investment in Exeter from its carrying amount of $11 million to Exeter's fair value of $5 million. This valuation was based on the price that CMS Energy received for the sale of Exeter, which closed in January 2011. The impairment resulted in a loss of $6 million, which was recorded in earnings as part of discontinued operations In May 2010, Consumers announced plans to deemed not to have long-term value in connection with the potential future construction of the plant. The project's air permit, issued by the MDEQ in December 2009, was set to expire in August 2011 if construction of the coal plant had not commenced or if Consumers had not been granted an extension of the air permit. In December 2010, Consumers determined that it would not begin construction before August 2011 as a means of preserving the air permit. As a result, the likelihood that the plant would be constructed had diminished significantly. In December 2010, in accordance with accounting standards governing impairment of plant costs for regulated utilities, Consumers recorded an additional charge of $19 million to write off the remaining previously capitalized development costs associated with CMS Energy and Consumers recorded no other impairments of long-lived assets for the 21: QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION (UNAUDITED) In Millions, Except Per Share Amounts and Stock Prices Quarters Ended CMS Energy, including Consumers Operating revenue Operating income Income from continuing operations Income from discontinued operations Net income Income attributable to noncontrolling interests Net income attributable to CMS Energy Net income available to common stockholders Earnings from continuing operations per average common share – basic1 Earnings from continuing operations per average common share – diluted1 Basic earnings per average common share1 Diluted earnings per average common share1 Common stock prices2 High Low Consumers Operating revenue Operating income Net income Preferred stock dividends Net income available to common stockholder In Millions, Except Per Share Amounts and Stock Prices Quarters Ended CMS Energy, including Consumers Operating revenue Operating income Income from continuing operations Income from discontinued operations Net income Income attributable to noncontrolling interests Net income attributable to CMS Energy Net income available to common stockholders Earnings from continuing operations per average common share – basic1 Earnings from continuing operations per average common share – diluted1 Basic earnings per average common share1 Diluted earnings per average common share1 Common stock prices2 High Low Consumers Operating revenue Operating income Net income Preferred stock dividends Net income available to common stockholder In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, A Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of comprehensive income, of cash flows, and of changes in equity present fairly, in all material respects, the financial position of Consumers Energy Company and its subsidiaries at December 31, A Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Detroit, Michigan None. CMS ENERGY Conclusion Regarding the Effectiveness of Disclosure Controls and Management, including its CEO and CFO, does not expect that its internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. In addition, any evaluation of the effectiveness of controls is subject to risks that those internal controls may become inadequate in future periods because of changes in business conditions, or that the degree of compliance with the policies or procedures deteriorates. Under the supervision and with the participation of management, including its CEO and CFO, CMS Energy conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, independent registered public accounting firm, as stated in their report which appears under Item 8. Changes in Internal Control over Financial Reporting: There have been no changes in CMS Management, including its CEO and CFO, does not expect that its internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. In addition, any evaluation of the effectiveness of controls is subject to risks that those internal controls may become inadequate in future periods because of changes in business conditions, or that the degree of compliance with the policies or procedures deteriorates. Under the supervision and with the participation of management, including its CEO and CFO, Consumers conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, registered public accounting firm, as stated in their report which appears under Item 8. Changes in Internal Control over Financial Reporting: There have been no changes in CMS Information that is required in Item 10 regarding executive officers is included in the Item Information that is required in Item 10 regarding directors, executive officers, and corporate governance is included in CMS CMS Energy adopted a code of ethics that applies to its CEO, CFO, and CAO, as well as all other officers and employees of CMS Energy and its affiliates, including Consumers. CMS Energy has also adopted a code of conduct that applies to its directors, entitled Information that is required in Item 10 regarding executive officers is included in the Item Information that is required in Item 10 regarding Consumers adopted a code of ethics that applies to its CEO, CFO, and CAO, as well as all other officers and employees of Consumers and its affiliates. Consumers has also adopted a code of conduct that applies to its directors, entitled Information that is required in Item 11 regarding executive compensation of CMS Information that is required in Item 13 regarding certain relationships and related transactions, and director independence regarding CMS Energy and Consumers is included in CMS Information that is required in Item 14 regarding principal accountant fees and services relating to CMS Energy and Consumers is included in CMS ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Schedule I Condensed Financial Information of Registrant CMS Condensed Statements of Income Condensed Statements of Cash Flows Condensed Balance Sheets Notes to the Condensed Financial Statements Schedule II Valuation and Qualifying Accounts and Reserves CMS Energy Consumers Report of Independent Registered Public Accounting Firm CMS Energy Consumers The agreements included as exhibits to thisForm 10-K filing are included solely to The representations and warranties may not describe the actual state of affairs of the parties to each agreement. Additional information about CMS Energy and Consumers may be found in this filing, at www.cmsenergy.com, at www.consumersenergy.com, and through the Exhibits listed above that have heretofore been filed with the SEC pursuant to various acts administered by the SEC, and which were designated as noted above, are hereby incorporated herein by reference and made a part hereof with the same effect as if filed herewith. In Millions Years Ended December 31 Operating Expenses Other operating expenses General taxes Total operating expenses Operating Loss Other Income (Expense) Equity earnings of subsidiaries Interest income Other expense Total other income Interest Charges Interest on long-term debt Intercompany interest expense and other Total interest charges Income Before Income Taxes Income Tax Benefit Income From Continuing Operations Loss From Discontinued Operations Net Income Charge for Deferred Issuance Costs on Preferred Stock Preferred Stock Dividends Net Income Available to Common Stockholders The accompanying In Millions Years Ended December 31 Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities Equity earnings of subsidiaries Dividends received from subsidiaries Cash provided by (used in) changes in assets and liabilities Accounts and notes receivable Accounts payable Other current and non-current assets and liabilities Net cash provided by operating activities Cash Flows from Investing Activities Investment in subsidiaries Net cash used in investing activities Cash Flows from Financing Activities Proceeds from issuance of long-term debt Issuance of common stock Retirement of long-term debt Payment of common stock dividends Payment of preferred stock dividends Redemption of preferred stock Debt issuance costs and financing fees Increase (decrease) in notes payable Net cash used in financing activities Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Period Cash and Cash Equivalents, End of Period The accompanying ASSETS In Millions December 31 Current Assets Cash and cash equivalents Notes and accrued interest receivable Accounts receivable, including intercompany and related parties Accrued taxes Deferred income taxes Total current assets Plant, Property, and Equipment Plant, property, and equipment, gross Less accumulated depreciation and amortization Total plant, property, and equipment Other Non-current Assets Deferred income taxes Investments in subsidiaries Other investments – DB SERP Other Total other non-current assets Total Assets LIABILITIES AND EQUITY In Millions December 31 Current Liabilities Current portion of long-term debt Accounts and notes payable, including intercompany and related parties Accrued interest, including intercompany Other current liabilities Total current liabilities Non-current Liabilities Long-term debt Notes payable – related party Unamortized discount Postretirement benefits Other non-current liabilities Total non-current liabilities Equity Common stockholders equity Total Liabilities and Equity The accompanying 1: BASIS OF CMS 2: GUARANTEES CMS Energy has issued guarantees with a In Millions Description Allowance for uncollectible accounts1 2012 2011 2010 Deferred tax valuation allowance 2012 2011 2010 Allowance for notes receivable1 2012 2011 2010 In Millions Description Allowance for uncollectible accounts1 2012 2011 2010 Deferred tax valuation allowance 2012 2011 2010 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of CMS Energy Corporation and in the capacities indicated and on the Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of Consumers Energy Company and in the capacities indicated and on the REGISTRANT’SREGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIESEnergyENERGYEnergy’s Common StockEnergy's common stock is traded on the New York Stock Exchange. Market prices for CMS Energy’s Common StockEnergy's common stock and related security holder matters are contained in Item 7. MD&A and Item 8. Financial Statements and Supplementary Data, MD&A and Notes to the Consolidated Financial Statements, Note 24,21, Quarterly Financial and Common Stock Information (Unaudited), which are incorporated by reference herein. At February 25, 2010,8, 2013, the number of registered holders of CMS Energy Common StockEnergy's common stock totaled 44,599,38,206, based on the number of record holders. On January 25, 2008,Presented in the Board of Directors approved a quarterly dividendfollowing table are CMS Energy's dividends on CMS Energy Common Stock of $0.09 per share. On January 23, 2009, the Board of Directors increased the quarterly dividend on CMS Energy Common Stock to $0.125 per share. On January 29, 2010, the Board of Directors increased the quarterly dividend on CMS Energy Common Stock to $0.15 per share. its common stock: February May August November $ 0.24 $ 0.24 $ 0.24 $ 0.24 0.21 0.21 0.21 0.21 Energy’sEnergy's definitive proxy statement, which is incorporated by reference herein.Statements.ConsumersCONSUMERSConsumers’ThePresented in the following table summarizes Consumers’are Consumers' cash dividends on its common stock.stock: February May August November $ 115 $ 43 $ 144 $ 91 104 92 96 82 In millions February May August November 2009 $ 72 $ 58 $ 103 $ 52 2008 113 55 70 59 Statements.Statements, Note 5, Financings and Capitalization.For2009, there2012: Total Number
of Shares
Purchased1 Average Price
Paid per Share Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs Maximum
Number of
Shares That
May Yet Be
Purchased
Under Publicly
Announced
Plans or
Programs 444 $ 23.43 – – – – – – – – – – 444 $ 23.43 – – no repurchases of equity securities by CMS Energy. Periodically, CMS Energy repurchases certain restricted shares upon vesting underpurchased to satisfy the PISP from participants in this plan, equal to CMS Energy’s minimum statutory income tax withholding obligation.obligation for common shares that have vested under the PISP. Shares repurchased have a value based on the market price on the vesting date.Unregistered Sales of Equity SecuritiesOn November 3, 2009, CMS Energy issued 6,634 shares of its Common Stock and paid $250,000 in cash in exchange for $250,000 aggregate principal amount of its 3.375 percent Convertible Senior Notes Due 2023, Series B, tendered for conversion on October 14, 2009, in accordance with the terms and provisions of the Indenture of CMS Energy dated as of September 15, 1992, as supplemented by the Sixteenth Supplemental Indenture dated as of December 16, 2004. Such shares of Common Stock were issued based on the conversion rate of 99.5288 shares per $1,000 principal amount of convertible note. The foregoing issuance, an exchange of securities with an existing securities holder, was exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.40
None.CMS EnergyCMS Energy Corporation’s Selected Financial Information, which is incorporated by reference herein.ConsumersSelected financial information is contained in Item 8. Financial Statements and Supplementary Data, Consumers Energy Company’s Selected Financial Information, which is incorporated by reference herein.
ITEM 7. MANAGEMENT’S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONSCMS EnergyManagement’sConsumersManagement’s discussion and analysis of financial condition and results of operations is contained in Item 8. Financial Statements and Supplementary Data, MD&A, which is incorporated by reference herein.CMS Energy“Financialand Estimates, "Financial and Derivative Instruments and Market Risk Information,”" which is incorporated by reference herein.ConsumersQuantitative and qualitative disclosures about market risk are contained in Item 8. Financial Statements and Supplementary Data, MD&A, Critical Accounting Policies, “Financial and Derivative Instruments and Market Risk Information,” which is incorporated by reference herein.41
Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Page50Index to Financial Statements: 51 52 Selected Financial Information 86 95 44103 4547Consolidated Financial Statements768493Firm 172 42
2009 Consolidated Financial Statementsand
2009 Consolidated Financial Statements43175 Selected Financial InformationConsumersCMS Energy Corporation176 2009 2008 2007 2006 2005 Operating revenue (in millions) ($) 6,205 6,807 6,451 6,117 5,869 Income (loss) from equity method investees (in millions) ($) (2 ) 5 40 89 125 Income (loss) from continuing operations (in millions)(c)(d) ($) 220 301 (120 ) (244 ) (590 ) Income (loss) from discontinued operations (in millions) ($) 20 1 (110 ) 60 61 Net income (loss) available to common stockholders (in millions)(c) ($) 218 284 (234 ) (96 ) (99 ) Average common shares outstanding (in thousands) 227,169 225,671 224,473 221,618 213,335 Net income (loss) from continuing operations per average common share CMS Energy — Basic(c) ($) 0.87 1.25 (0.65 ) (0.67 ) (0.73 ) - Diluted(c) ($) 0.83 1.20 (0.65 ) (0.67 ) (0.73 ) Net income (loss) per average common share CMS Energy — Basic(c) ($) 0.96 1.25 (1.04 ) (0.43 ) (0.47 ) - Diluted(c) ($) 0.91 1.20 (1.04 ) (0.43 ) (0.47 ) Cash provided by operations (in millions) ($) 848 557 23 688 599 Capital expenditures, excluding assets placed under capital lease (in millions) ($) 818 792 1,263 670 593 Total assets (in millions)(a)(c) ($) 15,256 14,901 14,180 15,324 15,974 Long-term debt, excluding current portion (in millions)(a)(c) ($) 5,861 5,837 5,355 6,160 6,728 Long-term debt-related parties, excluding current portion (in millions) ($) 34 178 178 178 178 Non-current portion of capital and finance lease obligations (in millions) ($) 197 206 225 42 308 Total preferred stock (in millions) ($) 283 287 294 305 305 Cash dividends declared per common share ($) 0.50 0.36 0.20 — — Market price of common stock at year-end ($) 15.66 10.11 17.38 16.70 14.51 Book value per common share at year-end ($) 11.42 10.93 9.54 10.14 10.67 Number of employees at year-end (full-time equivalents) 8,039 7,970 7,898 8,640 8,713 Sales (billions of kWh) 36 37 39 38 39 Customers (in thousands) 1,796 1,814 1,799 1,797 1,789 Average sales rate per kWh (¢) 9.81 9.48 8.65 8.46 6.73 Sales and transportation deliveries (bcf) 319 338 340 309 350 Customers (in thousands)(b) 1,708 1,713 1,710 1,714 1,708 Average sales rate per mcf ($) 10.73 11.25 10.66 10.44 9.61 CMS Energy Corporation 2012 2011 2010 2009 2008 ($) 6,253 6,503 6,432 6,205 6,807 ($) 17 9 11 (2 ) 5 ($) 377 415 366 220 301 ($) 7 2 (23 ) 20 1 ($) 382 415 324 218 284 260,678 250,824 231,473 227,169 225,671 – Basic ($) 1.43 1.65 1.50 0.87 1.25 – Diluted ($) 1.39 1.57 1.36 0.83 1.20 – Basic ($) 1.46 1.66 1.40 0.96 1.25 – Diluted ($) 1.42 1.58 1.28 0.91 1.20 ($) 1,241 1,169 959 848 557 ($) 1,227 882 821 818 792 ($) 17,131 16,452 15,616 15,256 14,901 ($) 6,710 6,040 6,448 5,895 6,015 ($) 153 167 188 197 206 ($) – – – 239 243 ($) 0.96 0.84 0.66 0.50 0.36 ($) 24.38 22.08 18.60 15.66 10.11 ($) 12.09 11.92 11.19 11.42 10.93 7,514 7,727 7,822 8,039 7,970 38 38 38 36 37 1,786 1,791 1,792 1,796 1,814 (¢) 10.94 10.80 10.54 9.81 9.48 329 337 317 319 338 1,715 1,713 1,711 1,708 1,713 ($) 9.55 9.98 10.60 10.73 11.25 44
Table of ContentsSelected Financial InformationConsumers Energy Company 2009 2008 2007 2006 2005 Operating revenue (in millions) ($) 5,963 6,421 6,064 5,721 5,232 Income from equity method investees (in millions) ($) — — — 1 1 Net income (loss) (in millions) ($) 293 364 312 186 (96 ) Net income (loss) available to common stockholder (in millions) ($) 291 362 310 184 (98 ) Cash provided by operations (in millions) ($) 922 873 440 474 639 Capital expenditures, excluding assets placed under capital lease (in millions) ($) 811 789 1,258 646 572 Total assets (in millions)(a) ($) 14,622 14,246 13,401 12,845 13,178 Long-term debt, excluding current portion (in millions)(a) ($) 4,063 3,908 3,692 4,127 4,303 Non-current portion of capital and finance lease obligations (in millions) ($) 197 206 225 42 308 Total preferred stock (in millions) ($) 44 44 44 44 44 Number of preferred stockholders at year-end 1,531 1,584 1,641 1,728 1,823 Number of employees at year-end (full-time equivalents) 7,755 7,697 7,614 8,026 8,114 Sales (billions of kWh) 36 37 39 38 39 Customers (in thousands) 1,796 1,814 1,799 1,797 1,789 Average sales rate per kWh (¢) 9.81 9.48 8.65 8.46 6.73 Sales and transportation deliveries (bcf) 319 338 340 309 350 Customers (in thousands)(b) 1,708 1,713 1,710 1,714 1,708 Average sales rate per mcf ($) 10.73 11.25 10.66 10.44 9.61 (a)Until their sale in November 2006, Consumers was the primary beneficiary of the MCV Partnership and the First Midland Limited Partnership. As a result, Consumers consolidated their assets, liabilities and activities into its consolidated financial statements as of and for the year ended December 31, 2005. These partnerships had third-party obligations totaling $482 million at December 31, 2005. Property, plant and equipment serving as collateral for these obligations had a carrying value of $224 million at December 31, 2005.(b)Excludes off-system transportation customers.45(This page intentionally left blank)46
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSIPP. Consumers’independent power producer. Consumers' electric utility operations include the generation, purchase, distribution, and sale of electricity, and Consumers’Consumers' gas utility operations include the purchase, transmission, storage, distribution, and sale of natural gas. Consumers’Consumers' customer base consists of a mix of residential, commercial, and diversified industrial customers. CMS Enterprises, through its subsidiaries and equity investments, owns and operates power generation facilities.services,services; electric distribution and generation,generation; gas transmission, storage, and distribution,distribution; and other energy-related services. Their businesses are affected primarily by:• regulation and regulatory matters;• economic conditions;• weather, especially during the heating season;• energy commodity prices;• interest rates; and• CMS Energy’s and Consumers’ securities credit ratings.During the past several years, Energy’sEnergy's and Consumers' securities' credit ratings.has emphasized improving its consolidated balance sheetemphasizes the key elements depicted below:
maintaining focus on its core strength, which is Consumers’ utilitythe general public remains a priority of CMS Energy and Consumers. Accordingly, CMS Energy and Consumers have worked to integrate a set of safety principles into their business operations and service.Consumers’ forecast calls forculture. These principles include complying with applicable safety, health, and security regulations and implementing programs and processes aimed at continually improving safety and security conditions. From 2006 to 2012, Consumers achieved a 76 percent reduction in the annual number of recordable safety incidents.in excess of about $7 billion from 20102013 through 2014, with a2017, as presented in the following illustration:
aspectcomponents of its strategy being the balanced energy initiative. The balanced energy initiative is a comprehensive energy resource plan to meet Consumers’ projected short-term and long-term electric power requirements with energy efficiency; demand management; expanded use of renewable energy; development of new power plants; pursuit of additional PPAs to complement existing generating sources; and potential retirement of older, less efficient generating units.Among Consumers’ largestConsumers' investment program are projects that will enhance customer value. Consumers' planned base capital investments isof $3.2 billion comprise $2.1 billion of electric utility projects to improve reliability and increase capacity and $1.1 billion of gas utility projects to increase capacity and deliverability and enhance pipeline integrity. An additional $1.4 billion of planned reliability investments at Consumers are aimed at reducing outages and improving customer satisfaction; these investments comprise $0.7 billion at the electric utility to strengthen circuits and substations, replace poles, and upgrade the Ludington pumped-storage plant, and $0.7 billion at the gas utility to replace mains and enhance transmission and storage systems. Consumers also expects to spend $1.1 billion on environmental investments needed to comply with state and federal laws and regulations.proposed new 830 MW coal-fueled power plant. In September 2009,Thetford complex in Genesee County, Michigan and filed an air permit application with the MPSC staff issued a report to the MDNRE on Consumers’needs-and-alternatives analysisMDEQ for the proposed coal-fueledplant. Construction of the plant, concluding thatat an estimated cost of $750 million, is contingent upon obtaining a Certificate of Necessity from the long-term capacity need was unjustified withoutMPSC and environmental permits. Consumers expects the retirementplant to be operational in 2017.certain existing coal-fueled power plants from its fleet and that the proposed coal-fueled plant is only one alternative out of a range of alternatives that Consumers may use to fill the projected capacity need. In December 2009, the MDNRE issued an air permit for the proposed coal-fueled plant, with the condition that Consumers retire 638 MW of its existing coal-fueled generation, and potentially an additional 320 MW, depending on customer needs. The MDNRE’s condition regarding plant retirements is consistent with Consumers’ balanced energy initiative.Consumers’Consumers' planned capital investments also includeinvestments. Consumers expects to spend $0.3 billion on renewable energy projects.investments, under an MPSC-approved renewable energy plan, from 2013 through 2017. The 2008 Energy LegislationLaw requires that at least ten percent of Consumers’Consumers' electric sales volume come from renewable energy sources by 2015, and it includes requirements for specific capacity additions. In complianceConsumers has historically included renewable resources as part of its portfolio, with this legislation, Consumers filedabout eight percent of its present power supply coming from such renewable sources as hydroelectric, landfill gas, biomass, and wind.47renewable energy plan with the MPSC in February 2009 outlining its plans to build or contract for additional renewable energy capacity. At the same time, Consumers filed an energy optimization plan, also called for by the 2008 Energy Legislation, under which Consumers will promote energy efficiency and provide incentives to reduce customer usage. In May 2009, the MPSC approved the energy optimization plan and, with minor exceptions, the renewable energy plan.Another significant planned major capital investment is Consumers’investment. The full-scale deployment of advanced metering infrastructure system, which will provide enhanced controls overbegan in August 2012 and information about energy usage, as well as timely notification of service interruptions.is planned to continue through 2019. Consumers is usinghas spent $0.2 billion through 2012 on its Smart Energy program, and expects to spend an additional $0.3 billion, following a phased implementation approach, that will allow it to analyze, test, and pilot the new technology prior to widespread investment and deployment.Energy’sEnergy's and Consumers’Consumers' businesses, particularly Consumers’Consumers' rate cases and regulatory proceedings withbefore the MPSC. TheImportant regulatory events and developments are summarized below.issued itsauthorized an annual rate increase of $118 million, based on a 10.3 percent authorized return on equity. Consumers filed an application in September 2012 to reconcile the total revenues collected under rates self-implemented in December 2011 to those that would have been collected under final order in Consumers’ 2008rates. This reconciliation requests that the MPSC find that no refund is required.authorizingwith the MPSC in September 2012, seeking an annual rate increase of $148 million, based on a 10.5 percent authorized return on equity. In January 2013, Consumers supplemented its electric rate case application to reflect changes to its environmental compliance and generation outage plans, which reduced its requested annual rate increase its rates by $134 million annually.to $145 million.orderfiling also requires Consumers to refund the remaining $73 millionseeks approval of proceeds from the April 2007 sale of Palisades. The order adoptsseveral rate adjustment mechanisms, including a “pilot” decoupling mechanism that went into effect December 1, 2009,would reconcile annually Consumers' actual nonfuel revenues with the revenues approved by the MPSC, and which,a mechanism that would allow recovery in 2014 of an additional $82 million associated with incremental 2014 investments, subject to certain conditions, will allow rates to be adjusted to collect or refundreconciliation.change in marginal revenue arising from the difference between the level of average sales per customer adopted in the order and actual average sales per customer. The order also adoptsMPSC authorized an uncollectible expense tracking mechanism, effective January 1, 2009. Additionally, in November 2009, Consumers self-implemented a gasannual rate increase of $16 million, based on a 10.3 percent authorized return on equity. In January 2013, the MPSC approved Consumers' reconciliation of the total revenues under rates self-implemented in March 2012 to those that would have been collected under the annualfinal rates. As a result of the reconciliation, which found that a refund was required, Consumers had a $2 million regulatory liability recorded at December 31, 2012. Consumers will refund this amount of $89 million, subject to refund with interest. Consumers expects to receive a final MPSC rate ordercustomers in its gas rate case in May 2010. Further, in January 2010,March 2013.in electric revenue of $178$49 million, based on an 11a 10.5 percent authorized return on equity.issuedin Consumers' electric rate case; this appeal had been filed by the Attorney General and ABATE. In light of the Court's previous ruling that the MPSC does not have authority to authorize electric decoupling, the Court reversed the portion of the 2010 order related to Consumers' electric revenue decoupling mechanism, substantiating Consumers' decision to write off its associated regulatory asset in March 2012. In addition, the Court remanded this portion of the electric rate case to the MPSC for further proceedings.2010,2013.MPSC concluded that Big Rock decommissioning surcharges collected during a statutory rate freezegas revenue decoupling mechanism in August 2012, requesting recovery of $17 million from 2001customers for the period June 2011 through 2003 should have been deposited in a decommissioning trust fund.April 2012. At December 31, 2012, Consumers had a $33 million regulatory asset recorded for gas revenue decoupling for the period June 2010 through April 2012.2008 forJanuary 2013. The MPSC also authorized Consumers to utilize $85 million of the settlement amount as recovery of a $44 millionConsumers' regulatory asset for the Big Rock decommissioning shortfall from customers.ISFSI.its February order, the MPSC agreed that Consumers2013, a bill was entitledintroduced to the $44 million decommissioning shortfall, but concludedMichigan Senate that, if enacted, would revise the 2008 Energy Law and allow customers on the ROA program waiting list to switch their service to an alternative electric supplier. Presently, the proportion of Consumers' electric deliveries under the ROA program and on the ROA waiting list is 25 percent. The revision also proposes an increase in the cap of six percentage points per year from 2014 through 2016. Consumers had collected this amount previously throughis unable to predict the decommissioning surcharge in effect during the rate freeze. To reflect the impactsoutcome of this MPSC rate order, Consumers has recognized an $86 million regulatory liability on its Consolidated Balance Sheets at December 31, 2009, and a charge to income of $130 million.Another significantlegislative proposal.regulationimportance for CMS Energy and Consumers, is environmental regulation. There is uncertainty associated with federaland they are monitoring numerous legislative and regulatory proposalsinitiatives, including initiatives to regulate greenhouse gases, and related to the regulation of carbon dioxide emissions, particularly associated with fossil-fueled generation. Federal legislation is being considered to establish a cap and trade system, or alternatively, to tax carbon dioxide emissions. litigation.addition, in December 2009,2011, the EPA finalized CSAPR, which was intended to replace CAIR; however, due to litigation surrounding CSAPR, the U.S. Court of Appeals for the D.C. Circuit issued an endangerment findinga stay of CSAPR, stating that greenhouse gases, including carbon dioxide, contribute to air pollutionCAIR would remain in place while the court considers the issues. In August 2012, the Court voided CSAPR and held that may endangerCAIR would remain in place until the public health and welfare, thus settingEPA promulgated a new rule. A request by the stageEPA for regulationa rehearing of carbon dioxide emissions underthis ruling was denied.Act. The EPAAct, calling the final rule MATS. Although numerous parties, including the State of Michigan, have sought to extend the deadline of MATS, it is considering regulating coal combustion products, such as coal ash, as hazardous wastes under the Resource Conservation and Recovery Act.expected to take effect in 2015. CMS Energy and Consumers are monitoringcontinuing to assess the impact and cost associated with these developments for potential effects on their plansrules and operations.developments.• investing in Consumers’ utility system;• growing earnings and operating cash flow while controlling operating and fuel costs; and• maintaining principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance.In executing this strategy, CMS EnergyEnergy's net income available to common stockholders was $382 million, and Consumers will needdiluted EPS were $1.42. This compares with net income available to overcome a Michigan economy that has been impacted adversely by the continued downturncommon stockholders of $415 million and uncertaintydiluted EPS of $1.58 in Michigan’s automotive industry marked by the bankruptcies of GM and Chrysler as well as high unemployment rates.2011. The financial market crisis, the effects of which became evident in a global economic downturn during the fourth quarter of 2008, continues to result in a negative economic outlook. A range of possible outcomes exists duemain factors contributing to the uncertain financial market environment48and ongoing government policy responses. Consumers expects thatdecline in earnings in 2012 were the “pilot”write-off of Consumers' electric revenue decoupling mechanism regulatory asset, as discussed above, and the uncollectible expense tracking mechanism adoptedabsence of a tax benefit recognized in 2011 related to the enactment of the MCIT, offset partially by improved operating results at Consumers.November 2009 MPSC electric rate order will mitigate partially the impactsResults of these economic conditions on the electric utility. While Operations section that follows this Executive Overview.theireconomic conditions in Michigan are improving. Although Michigan's economy continues to be affected by the recession and its impact on the state's automotive industry and by high unemployment rates, there are indications that the recession has eased in Michigan. Consumers expects its electric sales to increase by about 0.5 to 1.0 percent annually through 2017, driven largely by the continued rise in industrial production. Excluding the impacts of energy efficiency programs, Consumers expects its electric sales to increase by about 1.0 to 1.5 percent annually through 2017. Consumers is projecting that its gas sales will remain stable through 2017. This outlook reflects growth in gas demand offset by energy efficiency and conservation.will beto remain sufficient to meet their requirements, theyits cash requirements. CMS Energy and Consumers will continue to monitor developments in the financial and credit markets, andas well as government policy responses to those developments, for potential implications for CMS Energy’s and Consumers’their businesses and their future financial needs. 2012 2011 2010 $ 382 $ 415 $ 324 $ 1.46 $ 1.66 $ 1.40 $ 1.42 $ 1.58 $ 1.28 CMS Energy’s Consolidated Results of Operations 2012 2011 Change 2011 2010 Change $ 325 $ 333 $ (8) $ 333 $ 303 $ 30 110 130 (20) 130 127 3 16 32 (16) 32 36 (4) (76) (82) 6 (82) (119) 37 7 2 5 2 (23) 25 $ 382 $ 415 $ (33) $ 415 $ 324 $ 91 2009 2008 2007 In Millions (except for Per Share Amounts) Net Income (Loss) Available to Common Stockholders $ 218 $ 284 $ (234 ) Basic Earnings (Loss) Per Share $ 0.96 $ 1.25 $ (1.04 ) Diluted Earnings (Loss) Per Share $ 0.91 $ 1.20 $ (1.04 ) 2009 2008 Change 2008 2007 Change In Millions Electric Utility $ 194 $ 271 $ (77 ) $ 271 $ 196 $ 75 Gas Utility 96 89 7 89 87 2 Enterprises (7 ) 13 (20 ) 13 (412 ) 425 Corporate Interest and Other (85 ) (90 ) 5 (90 ) (16 ) (74 ) Discontinued Operations 20 1 19 1 (89 ) 90 Net Income (Loss) Available to Common Stockholders $ 218 $ 284 $ (66 ) $ 284 $ (234 ) $ 518 In 2009, net income available to common stockholders was $218 million, compared with $284 million for 2008. Combined net income available to common stockholders for Consumers’ electric and gas utility segments decreased asBig Rock decommissioning refund, decreased deliveries, and increased operating expenses more than offset the positive impact of rate orders and a favorable sales mix. Further decreasing net income available to common stockholders was an increase in projected Bay Harbor remediation costs. These decreases were offset partially by the expiration of an indemnity obligation related to discontinued operations.49Specificfollowing table are specific after-tax changes to net income available to common stockholders for 20092012 versus 2008 are:2011: 2009 Over/(Under) 2008 (In Millions) • increase in electric and gas revenues at Consumers due primarily to rate orders $ 139 • increase from discontinued operations due primarily to a benefit from the expiration of an indemnity obligation, offset partially by operating losses from assets held for sale 19 • absence of an impairment charge on SERP investments recorded in 2008 15 • change in corporate interest and other due primarily to impacts from early retirement of debt 10 • decrease in other net expenses at enterprises due primarily to reduced maintenance expense 5 • decrease at Consumers’ electric utility due to the Big Rock nuclear decommissioning refund (79 ) • decrease in electric and gas revenues due to unfavorable weather (34 ) • increase in other net expenses at Consumers related primarily to higher interest and higher forestry and tree-trimming costs (31 ) • increase in projected Bay Harbor remediation costs (22 ) • increase in plant maintenance expense at Consumers (20 ) • increase in pension and OPEB expenses at Consumers (19 ) • decrease in electric and gas revenues at Consumers due to unfavorable economic conditions, offset partially by a favorable sales mix (14 ) • absence of gains from the sale of sulfur dioxide credits recognized at Consumers in 2008 (12 ) • other net decrease at enterprises and corporate and other due primarily to lower gains on asset sales and the absence of benefits related to the reduction of certain tax valuation allowances (12 ) • absence of RCP savings recorded in 2008 at Consumers related to the MCV PPA (11 ) Total change $ (66 ) 2012 better/(worse) than 2011 $ 90 19 9 (33 ) (31 ) (12 ) (13 ) (13 ) $ 16 9 10 (36 ) (32 ) $ (33 ) In 2008,was $284 million, compared with a net loss available to common stockholders of $234 million for 2007. Combined net income available to common stockholders from Consumers’ electric and gas utility segments increased reflecting the positive impact of rate orders and the elimination of certain costs associated with the MCV PPA, offset partially by lower electric deliveries and increased depreciation expense. Further increasing net income available to common stockholders were the absence of activities associated with assets sold in 2007, the absence of costs associated with the termination of contracts in 2007, and a reduction in corporate interest expense.2011 versus 2010: 2011 better/(worse) than 2010 $ 72 18 4 (37 ) (31 ) $ 26 (22 ) 13 10 10 33 32 25 (31 ) 28 54 $ 91 50CONSUMERS ELECTRIC UTILITY RESULTSOF OPERATIONSSpecific after-tax changes to net income (loss) available to common stockholders for 2008 versus 2007 are: 2012 2011 Change 2011 2010 Change $ 325 $ 333 $ (8) $ 333 $ 303 $ 30 $ 81 $ 25 2 9 (16) (16) 5 (31) (47) 38 (10) 1 12 8 (35) (4) $ (8) $ 30 2008 Over/(Under) 2007 (In Millions) • absence of costs incurred by CMS ERM due to the termination of certain electricity sales agreements and the rescission of a contract with Quicksilver $ 217 • absence of impairment charges related to international businesses sold in 2007 133 • increase in electric and gas revenues at Consumers due primarily to favorable rate orders 129 • absence of a net loss on the disposal of discontinued operations in 2007 90 • other net increase at enterprises and corporate and other due primarily to reduced interest and operating and maintenance expense, and the absence of early debt retirement premiums paid in 2007 38 • elimination of certain costs at Consumers from the MCV PPA 29 • absence of an increase in the provision for environmental remediation costs at Bay Harbor 29 • absence of a 2007 net tax benefit, associated with the sale of assets, recorded at enterprises and corporate and other (53 ) • decreased electric deliveries at Consumers (51 ) • decrease due to a charge that recognized another-than-temporary decline in the fair value of SERP investments in 2008 which replaced a gain on the sale of SERP assets in 2007 (30 ) • other combined net decrease at Consumers due primarily to higher depreciation expense offset by a reduction in nuclear operating and maintenance costs (13 ) Total change $ 518 Consumers’ Electric Utility Results of Operations 2009 2008 Change 2008 2007 Change In Millions Net Income Available to Common Stockholders $ 194 $ 271 $ (77 ) $ 271 $ 196 $ 75 Reasons for the change: Electric deliveries and rate increase $ (6 ) $ 90 Power supply costs and related revenue (1 ) 18 Other income, net of expenses 14 (46 ) Maintenance and other operating expenses (77 ) 78 Depreciation and amortization (2 ) (38 ) General taxes (10 ) 15 Interest charges (42 ) 11 Income taxes 47 (53 ) Total change $ (77 ) $ 75 increase:increases: For 2009,2012, electric delivery revenues decreased $6increased $81 million compared with 2008. The largest component of this decrease2011. This increase was a $99 million reduction in revenue due to the order received from the MPSC to refund revenue collected for Big Rock decommissioning. For more details regarding the Big Rock decommissioning order, see Note 7, Utility Rate Matters. This decrease was offset by a combined $153 million of additional revenues of $106 million resulting primarily from the June 20082012 rate order and from the November 2009 rate order for which aConsumers' self-implemented rate increase was self-implemented in May 2009. Also includedDecember 2011, $19 million from higher deliveries in the $153 million of additional revenues were other rate-related items, including the elimination of2012, and a regulatory reserve. These items51were offset partially by a decrease in revenues resulting from a new rate design structure that provides lower winter and higher summer rates to encourage conservation.These rate-related variances, together with a $30$46 million increase in other revenues, primarily from a favorable sales mix, were offset partially by $87 million in lower deliveries. Deliveries to end-use customers were 35.8 billion kWh, a decrease of 1.7 billion kWh or 4.5 percent compared with 2008, reflecting unfavorable economic conditions in Michigan.Additionally, surcharge revenues and related reserves decreased $3 million in 2009, reflecting the absence of $12 million of retirement benefits expense recovered in revenue in 2008. Also contributing to the decrease in surcharge revenues were $10 million associated with the expiration of the surcharge for the electric restructuring implementation plan and a $7 million reduction in surcharge revenue related to the Customer Choice Act. These variances were offset partially by a $26 million increase in surcharge revenues resulting from the implementation of the energy optimization program in June 2009.For 2008, electric delivery revenues increased $90 million compared with 2007 due to additional revenue of $168 million from the inclusion of Zeeland in rates and from the June 2008 rate order. This increase was offset partially by $59 million in lower deliveries, a $20 million decrease due to an unfavorable sales mix, and a $14 million decrease in non-commodity revenue due primarily to the absence, in 2008, of METC transmission services revenue. The METC transmission service agreement expired in April 2007. Deliveries to end-use customers were 37.5 billion kWh, a decrease of 1.3 billion kWh or 3.4 percent compared with 2007. Additionally, surcharge revenue increased $15 million due primarily to the April 2008 rate order allowing recovery of retirement benefits expense.Power supply costs and related revenue: For 2009, PSCR revenue decreased $1 million compared with 2008, due to a decrease in wholesale fuel recovery revenue.For 2008, PSCR revenue increased $18 million compared with 2007. The increase primarily reflects the absence of a 2007 reduction to revenue made in response to the MPSC’s position that PSCR discounts given to Consumers’ transitional primary rate customers could not be recovered under the PSCR mechanism.Other income, net of expenses: For 2009, other income increased $14 million compared with 2008. The increase was due to the absence, in 2009, of an $11 million impairment charge that recognized another-than-temporary decline in the fair value of Consumers’ SERP investments, and $9 million in gains from land sales in 2009.renewable energy programs. These increases were offset partially by a decrease$59 million charge to write off Consumers' electric decoupling mechanism regulatory asset, and the absence, in interest income2012, of $31 million of electric decoupling revenuesrelated items37.8 billion kWh in 2011.$6$92 million primarily reflecting lower levels of short-term cash investmentsresulting from a November 2010 rate increase and a $20 million increase in other revenues, offset largely by the absence, in 2011, of $87 million of surcharges in 2010 to recover retirement benefit expenses and certain regulatory assets. Deliveries to end-use customers were 37.8 billion kWh in 2011 and 37.7 billion kWh in 2010.of interest recordedin the return on certain regulatory assets.For 2008, other income decreased $46 million compared with 2007. The decrease was due to reduced interest incomeassets as a result of $22 million, primarily reflecting lower levels of short-term cash investments, and an $11 million impairment charge in 2008 that recognized antheir declining balances.other-than-temporary decline in the fair value of Consumers’ SERP investments. Also contributing to the decrease was the absence, in 2008, of a $7 million gain recognized on Consumers’ SERP investments in 2007 and $6 million in related items reported in other income.2009,2012, maintenance and other operating expenses decreased $5 million compared with 2011. This decrease reflected the authorized recovery of $14 million associated with Consumers' cancelled coal-fueled plant, an $11 million decrease in service restoration costs, a $12 million benefit related to Consumers' settlement with the DOE, and an $8 million decrease in uncollectible accounts expense. These decreases were offset partially by an $18 million increase in energy optimization program costs, a $14 million increase in other operating expenses, including higher costs related to system reliability, and an $8 million increase associated with voluntary separation program expenses.$77$31 million compared with 2008. The2010. This increase was due to cost increases for plant maintenance$28 million of $24higher service restoration costs, caused by a series of unusually severe storms in 2011, a $15 million $23 million associated with the implementation of theincrease in energy optimization program in 2009,costs, and an $18$11 million increase in expenses foruncollectible accounts expense. Additionally, forestry, plant maintenance, and tree-trimming services, and the absence of an $18 million benefit from the sale of sulfur dioxide credits recognized in 2008. Also contributing to the increase was the absence of $17 million of RCP savings recorded in 2008 related to the MCV PPA. Additionally, pension and OPEBother operating expenses increased $7$31 million as a $19 million expense increase due to the unfavorable market performance of retirement benefit plan assets more than offset the absence of $12 million of expense associated with retirement benefits recovered in revenue in 2008.2011. These increases were offset partially by a $24 million decrease in storm restoration, outside services, and other net expenses and a $6 million decrease in uncollectible accounts expense, which reflects the benefits of the tracking mechanism authorized in the November 2009 rate order.52For 2008, maintenance and other operating expenses decreased $78 million compared with 2007. The decrease was due to the absence, in 2008,2011, of $44$32 million of costsretirement benefit expenses that were no longer incurred under the MCV PPArecovered in revenues in 2010 and $35a $22 million of operating expensesimpairment charge recorded in 2010 associated with Palisades, which was sold in April 2007. Also contributing to the decrease were an $18 million benefit from the sale of sulfur dioxide credits in 2008 and a reduction in other net expenses of $1 million. These decreases were offset partially by $12 million of higher retirement benefits expense resulting from the April 2008 MPSC order allowing recovery of certain costs through a surcharge and $8 million of higher uncollectible accounts expense.2009,2012, depreciation and amortization expense increased $2$47 million compared with 2008. The increase was2011, due primarily to higher depreciation expense of $11 million fromincreased plant in service and an increase in plantdepreciation expense authorized in service, offset partially due to lower amortization expense of $9 million on certain regulatory assets.2008,2011, depreciation and amortization expense increaseddecreased $38 million compared with 2007. The increase was2010, due to higher depreciation expense of $27a $54 million from an increasedecrease in plant in service. Also contributing to the increase were $8 million due to higher amortization expense on certain regulatory assets, andoffset partially by a $3$16 million increase in other related expenses.taxes:Taxes: For 2009,2012, general taxes increased $10 million compared with 2008. The increase was2011, due to increased property taxes, reflecting higher capital spending, offset partially by a reduction in sales and use tax.For 2008, general taxes decreased $15 million compared with 2007. The decrease was dueprimarily to the absence, in 2008,2012, of $23 million ofa favorable outcome to a Michigan Single Business Tax, which was replaced with the MBT effective January 1, 2008. The MBT issingle business tax audit recorded within income taxes. The decrease was offset partially by $8 million of higher property tax expense, reflecting primarily higher capital spending.charges:Charges: For 2009,2012, interest charges increased $42decreased $12 million compared with 2008. The increase resulted from higher expenses of $31 million due to the order received from the MPSC to refund revenue collected for Big Rock decommissioning, with interest. For more details regarding the Big Rock decommissioning order, see Note 7, Utility Rate Matters. Also contributing to the increase was $16 million associated with the issuance of debt in 2009, offset partially by a $5 million reduction in other interest expenses, including $4 million associated with the elimination of a reserve related to a transmission tariff.For 2008, interest charges decreased $11 million compared with 2007, due to lower interest expense of $9 million associated with amounts to be refunded to customers as a result of the sale of Palisades. The MPSC order approving the Palisades PPA with Entergy directed Consumers to record interest on the unrefunded balances. Also contributing to the decrease was the absence, in 2008, of interest charges related to an IRS settlement of $4 million, offset partially by $2 million2011, due to lower average debt levels and lower average interest rates in 2008.Income taxes:2012.2009, income taxes2011, interest charges decreased $47$8 million compared with 2008, reflecting $452010, primarily from the absence, in 2011, of interest expense on a Michigan use tax assessment.associatedcompared with lower2011. This increase was due to higher electric utility earnings, in 2009. Also contributinga change from the MBT to the decrease wereMCIT in January 2012, and the absence, in 2012, of a $7$4 million reduction in expenses related to research tax credits and a $2 million decreasebenefit related to the tax treatment of property, plantMedicare Part D Subsidy. 2012 2011 Change 2011 2010 Change $ 110 $ 130 $ (20) $ 130 $ 127 $ 3 $ (29) $ 64 (2) (9) 8 (34) (4) (8) (7) (3) 8 3 6 (10) $ (20) $ 3 equipment, as required by MPSC orders.rate increases: For 2012, gas delivery revenues decreased $29 million compared with 2011. This decrease reflected a $43 million reduction resulting from lower customer deliveries, due primarily to milder weather in early 2012, and a $5 million decrease in other revenues. These decreases were offset partially by a $7 million increase in the MBT.For 2008, income taxes increased $53 million compared with 2007. The increase reflects $47 million associated with higher utility earnings and $6 million due to the inclusion of the MBT.53Consumers’ Gas Utility Results of Operations 2009 2008 Change 2008 2007 Change In Millions Net Income Available to Common Stockholders $ 96 $ 89 $ 7 $ 89 $ 87 $ 2 Reasons for the change: Gas deliveries and rate increase $ 29 $ 44 Other income, net of expenses 13 (28 ) Maintenance and other operating expenses (32 ) (24 ) Depreciation and amortization 18 (8 ) General taxes (4 ) 7 Interest charges (5 ) 9 Income taxes (12 ) 2 Total change $ 7 $ 2 Gas deliveries and rate increase: For 2009, gas delivery revenue increased $29 million compared with 2008. The increase resulted from a combined $32$19 million of additional revenuerevenues from the December 2008 gas rate order and the November 2009 self-implemented rate increase. Also contributing to the increase was $12 million from a favorable sales mix. Additionally, surcharge revenues increased $16 million due to the implementation of the energy optimization program in June 2009. These increases were offset partially by lower deliveries of $31 million.increases. Gas deliveries, including miscellaneous transportation to end-use customers, were 284.3259 bcf in 2012, a decrease of 19.428 bcf, or 6.4ten percent, compared with 2008.2008,2011, gas delivery revenuerevenues increased $44$64 million compared with 2007. The2010. This increase reflected $11 million in additional revenues from a May 2011 rate increase and $28 million from higher customer usage, of which $16 million was due to additional revenue of $33 million from the August 2007colder weather in 2011. In addition, surcharge and December 2008 gas rate orders. Also contributing to the increase were higher deliveries of $6 million and a favorable sales mix of $5other miscellaneous revenues increased $25 million. Gas deliveries, including miscellaneous transportation to end-use customers, were 303.7287 bcf in 2011, an increase of 4.114 bcf, or 1.4five percent, compared with 2007.2009,2011, other income increased $13decreased $9 million compared with 2008. The increase was2010, due primarily to the absence,a reduction in 2009, of a $5 million impairment charge that recognized another-than-temporary decline in the fair value of Consumers’ SERP investments, and increased interest income ofrelated to secured lending agreements. million in 2009 relating to Consumers’ gas segment’s secured borrowing agreements.For 2008, other income decreased $28 million compared with 2007. The2011. This decrease was due to lower interest income of $16an $8 million reflecting lower short-term investments, and decreased interest income from Consumers’ gas segment’s secured borrowing agreements. Also contributing to the decrease were a $5 million impairment chargereduction in 2008 that recognized another-than-temporary decline in the fair value of Consumers’ SERP investments, a decrease due to the absence, in 2008, of a $3 million gain recognized on Consumers’ SERP investments in 2007,uncollectible accounts expense and a $4 million decreasereduction in other income related items.Maintenance and other operating expenses:expenses, offset partially by a $4 million increase associated with voluntary separation program expenses.2009,2011, maintenance and other operating expenses increased $32$34 million compared with 2008. The2010. This increase was due to additional expenses$24 million of $14 million related to the implementation of thehigher energy optimization program in 2009. Also contributing to the costs, a $6 millionwere higher OPEB expense of $12 million, reflecting unfavorable market performance of Consumers’ retirement benefit plan assets, and higherin uncollectible accounts expense, of $6 million.For 2008, maintenance and other$4 million in higher distribution operating expenses increased $24 million compared with 2007. The increase was due to higher operating expenses across Consumers’ storage, transmission, and distribution systems of $15 million, and higher uncollectible accounts expense of $9 million.2009,2012, depreciation and amortization expense decreased $18increased $4 million compared with 2008, due primarily to the December 2008 gas rate order, which reduced depreciation expense2011, and delayed collection of an equal amount of depreciation in rates.For 2008,for 2011, depreciation and amortization expense increased $8 million compared with 20072010. Both increases were due primarily to higher depreciation expense associated with an increase infrom increased plant in service.54taxes:Taxes: For 2009,2012, general taxes increased $4 million compared with 2008, due to increased property taxes, reflecting higher capital spending, offset partially by a reduction in sales and use tax.For 2008, general taxes decreased $7 million compared with 2007. The decrease was2011, due primarily to the absence, in 2008,2012, of thea favorable outcome to a Michigan Single Business Tax, which was replaced by the MBT effective January 1, 2008. The MBT issingle business tax audit recorded within income taxes.charges:Charges: For 2009,2012, interest charges increased $5decreased $8 million compared with 2008,2011, due primarily to the issuance of debt in 2009.For 2008, interest charges decreased $9 million compared with 2007 due primarily to lower average debt levels and a lower average interest raterates in 2008.2009,2012, income taxes decreased $6 million compared with 2011, due primarily to lower gas utility earnings.$12$10 million compared with 2008. The increase reflects $8 million associated with2010, due to higher gas utility earnings and the absence, in 20092011, of a $3 million benefit related to the Medicare Part D subsidy. 2012 2011 Change 2011 2010 Change $ 16 $ 32 $ (16) $ 32 $ 36 $ (4) $4$31 million insurance settlement recovery and the absence of a $9 million benefit related to the MBT, lower electric revenues of $14 million, and lower mark-to-market gains of $3 million. These after-tax decreases were offset largely by a $28 million income tax benefit resulting from the enactment of the MCIT in May 2011 and by the absence, in 2011, of a $25 million increase in the MBT.For 2008, income taxes decreased $2 million compared with 2007. The decrease reflects $3 million related to the tax treatment of items related to property, plant, and equipment, as required by the MPSC orders. This decrease was offset partially by a $1 million increase due to the inclusion of the MBT.Enterprises Results of Operations 2009 2008 Change 2008 2007 Change In Millions Net Income (Loss) Available to Common Stockholders $ (7 ) $ 13 $ (20 ) $ 13 $ (412 ) $ 425 For 2009, enterprises recorded a net loss available to common stockholders of $7 million compared with net income available to common stockholders of $13 million in 2008. The change reflects an after-tax expense of $22 million resulting from an increase in projected future environmental remediation costsliability associated with Bay Harbor and $3 millionHarbor.lower earnings due to depressed power demand and prices. These variances were offset partially by a $5 million increase to net income due primarily to lower operating and maintenance expense and the absence, in 2009, of a 2008 impairment charge that recognized another-than-temporary decline in the fair value of enterprises’ SERP investments.2008, enterprises recorded net income available to common stockholders of $13 million compared with a net loss available to common stockholders of $412 million in 2007. The change reflects the absence of $217 million of costs incurred for the termination of certain electricity sales agreements and the rescission of a contract with Quicksilver recorded in 2007, and $33 million in cost savings in 2008 resulting from the absence of certain sales and supply contracts, offset partially by an $8 million net decrease inmark-to-market activity, all at CMS ERM. Activities associated with the sale of international assets in 2007 further increased net income available to common stockholders in 2008 by $164 million, due to the absence of $122 million in net impairment charges and $46 million of tax expense on deferred earnings recognized in 2007. In addition, the absence, in 2008, of a $29 million after-tax expense resulting from an increase in projected future environmental remediation costs associated withdetails regarding Bay Harbor, in 2007 was offset partially by a $9 million change associated with SERP investment activity, as a $4 million impairment charge that recognized ansee Note 4, Contingencies and Commitments.other-than-temporary decline in the fair valueTable of enterprises’ SERP investments was recognized in 2008, compared with a $5 million gain on SERP investments in 2007.Contents 2012 2011 Change 2011 2010 Change $ (76 ) $ (82) $ 6 $ (82) $ (119) $ 37 Corporate Interest and Other Results of Operations 2009 2008 Change 2008 2007 Change In Millions Net Income (Loss) Available to Common Stockholders $ (85 ) $ (90 ) $ 5 $ (90 ) $ (16 ) $ (74 ) 2009,2012, corporate interest and other net expenses decreased $5$6 million compared with 2011, due primarily to higher net earnings at EnerBank.gain recognized$10 million after-tax decrease in interest expense, reflecting reduced borrowings at lower interest rates, the absence, in 2011, of an $8 million after-tax charge recorded in 2010 for deferred issuance costs on the early retirementconversion of CMS Energy’s long-term debt to related partiespreferred stock, and lower fixed charges due to lower average debt levels. These items were offset partially bya $5 million after-tax reduction in premiums paid on the early retirement of CMS Energy senior notes, the55absence of benefits recorded in 2008 relateddebt. Also contributing to the reduction of certain tax valuation allowances, and an increase indecrease were lower income tax expense due to legislation related toresulting partially from the MBT.For 2008, corporate interest and other net expenses increased $74 million, reflecting the absence of tax benefits related to the sale of CMS Energy’s international operations recognized in 2007 and reduced interest income in 2008. These items were offset partially by the absence, in 2008,enactment of the reductionMCIT in fair value of notes receivableMay 2011 and a $4 million benefit from GasAtacama and premiums paid on the early retirement of CMS Energy debt in 2007, as well as reduced interest expense due to lower debt levels in 2008.Discontinued OperationsFor 2009, net income available to common stockholders from discontinued operations was $20 million, reflecting the expirationimpact of a $28 million indemnity obligation related tofinal Michigan single business tax assessment for the years 2004 through 2007 that resulted in a 2007 asset sale, offset partially by a loss of $8 million resulting primarily fromtax deficiency less than the reclassification of an enterprises IPP located in Connecticut as held for sale.2008, net2012, income from discontinued operations was $1$7 million, reflecting the reclassificationelimination of an enterprises IPP located in Connecticut as held fora liability associated with a prior asset sale. The $89 million net loss available to common stockholdersFor 2011, income from discontinued operations was $2 million, due to a favorable legal settlement related to previously sold business. For 2010, the loss from discontinued operations of $23 million was related to prior asset sales.2007 represents the following table are specific components of net losscash provided by operating activities for the years ended December 31, 2012, 2011, and 2010: 2012 2011 Change 2011 2010 Change $ 384 $ 417 $ (33 ) $ 417 $ 343 $ 74 1,085 981 104 981 1,112 (131 ) 1,469 1,398 71 1,398 1,455 (57 ) (72 ) (323 ) 251 (323 ) (463 ) 140 (48 ) 135 (183 ) 135 54 81 (108 ) (41 ) (67 ) (41 ) (87 ) 46 $ 1,241 $ 1,169 $ 72 $ 1,169 $ 959 $ 210 $ 439 $ 467 $ (28 ) $ 467 $ 434 $ 33 993 947 46 947 1,103 (156 ) 1,432 1,414 18 1,414 1,537 (123 ) (68 ) (315 ) 247 (315 ) (447 ) 132 (31 ) 138 (169 ) 138 57 81 20 86 (66 ) 86 (237 ) 323 $ 1,353 $ 1,323 $ 30 $ 1,323 $ 910 $ 413 disposalincrease in accumulated credits applied to customer accounts in 2012.international businesseslower gas prices on inventory sold in 2007.2011. Additionally, at Consumers, net cash provided by operating activities increased due to lower income tax payments to CMS Energy in 2011. 2012 2011 Change 2011 2010 Change $ (1,227 ) $ (882 ) $ (345 ) $ (882 ) $ (821 ) $ (61 ) (123 ) (176 ) 53 (176 ) (182 ) 6 $ (1,350 ) $ (1,058 ) $ (292 ) $ (1,058 ) $ (1,003 ) $ (55 ) $ (1,222 ) $ (876 ) $ (346 ) $ (876 ) $ (815 ) $ (61 ) (57 ) (75 ) 18 (75 ) (44 ) (31 ) $ (1,279 ) $ (951 ) $ (328 ) $ (951 ) $ (859 ) $ (92 ) 2012 2011 Change 2011 2010 Change $ 2,017 $ 725 $ 1,292 $ 725 $ 1,704 $ (979 ) (1,829 ) (708 ) (1,121 ) (708 ) (1,033 ) 325 30 29 1 29 10 19 – – – – (239 ) 239 (252 ) (211 ) (41 ) (211 ) (162 ) (49 ) 75 (34 ) 109 (34 ) (78 ) 44 $ 41 $ (199 ) $ 240 $ (199 ) $ 202 $ (401 ) $ 1,075 $ – $ 1,075 $ – $ 600 $ (600 ) (1,064 ) (80 ) (984 ) (80 ) (482 ) 402 (395 ) (376 ) (19 ) (376 ) (360 ) (16 ) 150 125 25 125 250 (125 ) 80 (27 ) 107 (27 ) (27 ) – $ (154 ) $ (358 ) $ 204 $ (358 ) $ (19 ) $ (339 ) Amount of
Facility Amount
Borrowed Letters of Credit
Outstanding Amount
Available Expiration
Date $ 550 $ – $ 2 $ 548 December 2017 $ 500 $ – $ 2 $ 498 December 2017 150 – – 150 April 2017 30 – 30 – September 2014 December 31, 2012 Description Limit Actual Debt to EBITDA £ 6.0 to 1.0 4.7 to 1.0 Interest Coverage > 1.6 to 1.0 4.1 to 1.0 Interest Coverage > 2.0 to 1.0 4.1 to 1.0 Debt to Capital £ 0.65 to 1.0 0.49 to 1.0 Energy’sEnergy's and Consumers’Consumers' cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing opportunities, if needed. Recent major financing transactions and commitments are as follows:• In February 2009, Consumers retired $200 million of FMBs at maturity;• In March 2009, Consumers issued $500 million in FMBs;• In June 2009, CMS Energy issued $173 million in convertible senior notes and $300 million in senior notes, and early retired $144 million of its $178 million of long-term debt to related parties;• In July 2009, CMS Energy repurchased and early retired $233 million principal amount of the senior notes due 2010 and $87 million principal amount of the senior notes due 2011;• In August 2009, Consumers retired $150 million of FMBs at maturity;• In December 2009, CMS Energy’s $239 million preferred stock and $139 million 3.375 percent senior notes became convertible at the holders’ option for the first quarter of 2010; and• In January 2010, CMS Energy issued $300 million of 6.25 percent senior notes due 2020.Despite present market volatility, CMS Energy and Consumers expect to continue to have access to the financial and capital markets. Recent and upcoming credit renewals and maturities are as follows:• Consumers renewed its accounts receivable sales program in February 2010 through February 2011;• Consumers renewed its $150 million364-day revolving credit facility in August 2009;• Consumers renewed its letter of credit facility in the amount of $30 million in September 2009;• Consumers’ $500 million revolving credit facility is planned for renewal in 2012;• Consumers’ FMBs maturities are $250 million in 2010 and $300 million in 2012;• Consumers’ tax-exempt pollution control revenue bond maturities are $58 million in 2010;• CMS Energy’s senior notes maturities are $67 million in 2010, $214 million in 2011, and $150 million in 2012; and• CMS Energy’s $550 million revolving credit facility is planned for renewal in 2012.56meet cash requirements. If access to the capital markets were to become diminished or otherwise restricted, CMS Energyfund their contractual obligations for 2013 and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. For additional details, see Note 4, New Accounting Standards and Note 8, Financings and Capitalization.Cash Position, Investing, and FinancingAt December 31, 2009, CMS Energy had $122 million of consolidated cash and cash equivalents, which included $32 million of restricted cash and cash equivalents and $8 million of cash and cash equivalents held by consolidated VIEs. At December 31, 2009, Consumers had $61 million of consolidated cash and cash equivalents, which included $22 million of restricted cash and cash equivalents.CMS Energy’s primary ongoing source of cash is dividends and other distributions from its subsidiaries. Consumers paid $285 million in common stock dividends and CMS Enterprises paid $55 million in common stock dividends to CMS Energy for the year ended December 31, 2009. For details on dividend restrictions, see Note 8, Financings and Capitalization.Operating Activities: Specific components of net cash provided by operating activities for the years ended December 31, 2009 and 2008 were: 2009 2008 Change In Millions • Net income $ 240 $ 302 $ (62 ) • Non-cash transactions(a) 865 907 (42 ) $ 1,105 $ 1,209 $ (104 ) • Sale of gas purchased in prior year 845 915 (70 ) • Purchase of gas in current year (718 ) (963 ) 245 • Electric sales contract termination payment — (275 ) 275 • Accounts receivable sales, net (120 ) 170 (290 ) • Postretirement benefits contribution (262 ) (51 ) (211 ) • Change in other core working capital(b) (62 ) (278 ) 216 • Other changes in assets and liabilities, net 60 (170 ) 230 Net cash provided by operating activities $ 848 $ 557 $ 291 • Net income $ 293 $ 364 $ (71 ) • Non-cash transactions(a) 841 956 (115 ) $ 1,134 $ 1,320 $ (186 ) • Sale of gas purchased in prior year 845 915 (70 ) • Purchase of gas in current year (718 ) (963 ) 245 • Accounts receivable sales, net (120 ) 170 (290 ) • Postretirement benefits contribution (254 ) (50 ) (204 ) • Change in other core working capital(b) (58 ) (289 ) 231 • Other changes in assets and liabilities, net 93 (230 ) 323 Net cash provided by operating activities $ 922 $ 873 $ 49 (a)Non-cash transactions comprise depreciation and amortization, changes in deferred income taxes, postretirement benefits expense, and other non-cash items.(b)Other core working capital comprises other changes in accounts receivable and accrued revenues, inventories, and accounts payable.For the year ended December 31, 2009, net cash provided by operating activities at CMS Energy increased $291 million compared with 2008. This increase was due primarily to the absence in 2009 of a payment made by CMS ERM in 2008 to terminate electricity sales agreements and the changes affecting Consumers’ cash provided by operating activities described Presented in the following paragraph.57For the year ended December 31, 2009, net cash provided by operating activities at Consumers increased $49 million compared with 2008. This increase was due primarily to the impact of lower gas prices on inventory purchased in 2009, increased billings due to recent regulatory actions, the absence, in 2009, of refunds to customers of excess Palisades decommissioning funds,table are CMS Energy's and other timing differences. These changes were offset partially by the pension contribution of $199 million and lower sales of accounts receivable in 2009.Specific components of net cash provided by operating activities for the years ended December 31, 2008 and 2007 were: 2008 2007 Change In Millions • Net income (loss) $ 302 $ (230 ) $ 532 • Non-cash transactions(a) 907 1,078 (171 ) $ 1,209 $ 848 $ 361 • Sale of gas purchased in prior year 915 823 92 • Purchase of gas in current year (963 ) (818 ) (145 ) • Electric sales contract termination payment (275 ) — (275 ) • Accounts receivable sales 170 — 170 • Postretirement benefits contribution (51 ) (184 ) 133 • Change in other core working capital(b) (278 ) (511 ) 233 • Shareholder class action settlement payment — (125 ) 125 • Other changes in assets and liabilities, net (170 ) (10 ) (160 ) Net cash provided by operating activities $ 557 $ 23 $ 534 • Net income $ 364 $ 312 $ 52 • Non-cash transactions(a) 956 747 209 $ 1,320 $ 1,059 $ 261 • Sale of gas purchased in prior year 915 823 92 • Purchase of gas in current year (963 ) (818 ) (145 ) • Accounts receivable sales 170 — 170 • Postretirement benefits contribution (50 ) (173 ) 123 • Change in other core working capital(b) (289 ) (475 ) 186 • Other changes in assets and liabilities, net (230 ) 24 (254 ) Net cash provided by operating activities $ 873 $ 440 $ 433 (a)Non-cash transactions comprise depreciation and amortization, changes in deferred income taxes, postretirement benefits expense, electric contract sales termination, and other non-cash items.(b)Other core working capital comprises other changes in accounts receivable and accrued revenues, inventories, and accounts payable.For the year ended December 31, 2008, net cash provided by operating activities at CMS Energy increased $534 million compared with 2007. This increase was due primarily to increased earnings and the absence of CMS Energy’s payment to settle a shareholder class action lawsuit, offset partially by a payment made by CMS ERM, in 2008, to terminate electric sales contracts, and the changes affecting Consumers’ cash provided by operating activities described in the following paragraph.For the year ended December 31, 2008, net cash provided by operating activities at Consumers increased $433 million compared with 2007. This increase was due primarily to the sale of accounts receivable in 2008 and lower postretirement benefit contributions, offset partially by refunds to customers of excess Palisades decommissioning funds.58Investing Activities: Specific components of cash used in investing activities for the years ended December 31, 2009 and 2008 were: 2009 2008 Change In Millions • Capital expenditures $ (818 ) $ (792 ) $ (26 ) • Increase in non-current notes receivable (83 ) (19 ) (64 ) • Proceeds from the sale of assets 7 3 4 • Costs to retire property and other (41 ) (31 ) (10 ) Net cash used in investing activities $ (935 ) $ (839 ) $ (96 ) • Capital expenditures $ (811 ) $ (789 ) $ (22 ) • Proceeds from sale of assets 7 — 7 • Costs to retire property and other (46 ) (34 ) (12 ) Net cash used in investing activities $ (850 ) $ (823 ) $ (27 ) For the year ended December 31, 2009, net cash used in investing activities at CMS Energy increased $96 million compared with 2008. For the year ended December 31, 2009, net cash used in investing activities at Consumers increased $27 million compared with 2008. These increases at CMS Energy were due primarily to increases in lending to EnerBank customers and in capital expenditures.Specific components of net cash provided by (used in) investing activities for the years ended December 31, 2008 and 2007 were: 2008 2007 Change In Millions • Capital expenditures $ (792 ) $ (1,263 ) $ 471 • Proceeds from nuclear decommissioning funds, net — 332 (332 ) • Proceeds from the sale of assets 3 1,717 (1,714 ) • Cash relinquished from the sale of assets — (113 ) 113 • Increase in non-current notes receivable (19 ) (32 ) 13 • Costs to retire property and other (31 ) 21 (52 ) Net cash provided by (used in) investing activities $ (839 ) $ 662 $ (1,501 ) • Capital expenditures $ (789 ) $ (1,258 ) $ 469 • Proceeds from nuclear decommissioning funds, net — 332 (332 ) • Proceeds from sale of assets — 337 (337 ) • Costs to retire property and other (34 ) 6 (40 ) Net cash used in investing activities $ (823 ) $ (583 ) $ (240 ) For the year ended December 31, 2008, net cash used in investing activities at CMS Energy increased $1.5 billion compared with 2007. For the year ended December 31, 2008, net cash used in investing activities at Consumers increased $240 million compared with 2007. These increases were due primarily to the absence, in 2008, of proceeds from asset sales and Consumers’ nuclear decommissioning funds. These increases were partially offset by a decrease in capital expenditures resulting from the absence, in 2008, of the Zeeland purchase.59Financing Activities: Specific components of net cash provided by (used in) financing activities for the years ended December 31, 2009 and 2008 were: 2009 2008 Change In Millions • Issuance of FMBs, convertible senior notes, senior notes, and other debt $ 1,129 $ 796 $ 333 • Borrowings on revolving credit facility 245 600 (355 ) • Retirement of debt and other debt maturity payments (946 ) (570 ) (376 ) • Payments on revolving credit facility (325 ) (560 ) 235 • Payments of common and preferred stock dividends (125 ) (93 ) (32 ) • Other financing activities (13 ) (26 ) 13 Net cash provided by (used in) financing activities $ (35 ) $ 147 $ (182 ) • Issuance of FMBs $ 500 $ 600 $ (100 ) • Retirement of debt and other debt maturity payments (387 ) (444 ) 57 • Payments of common and preferred stock dividends (287 ) (299 ) 12 • Stockholder’s contribution from CMS Energy 100 — 100 • Other financing activities (28 ) (33 ) 5 Net cash used in financing activities $ (102 ) $ (176 ) $ 74 For the year ended December 31, 2009, net cash used in financing activities at CMS Energy increased by $182 million compared with 2008. The increase in net cash used in financing activities was due primarily to an increase in net debt retirements.For the year ended December 31, 2009, net cash used in financing activities at Consumers decreased $74 million compared with 2008. This decrease was due primarily to a stockholder’s contribution from CMS Energy, offset partially by a decrease in net proceeds from borrowings. 2008 2007 Change In Millions • Issuance of FMBs, convertible senior notes, senior notes and other debt $ 796 $ 515 $ 281 • Borrowings on revolving credit facility 600 — 600 • Retirement of debt and other debt maturity payments (570 ) (1,095 ) 525 • Payments on revolving credit facility (560 ) — (560 ) • Payments of common and preferred stock dividends (93 ) (56 ) (37 ) • Other financing activities (26 ) (54 ) 28 Net cash provided by (used in) financing activities $ 147 $ (690 ) $ 837 • Issuance of FMBs $ 600 $ — $ 600 • Retirement of debt and other debt maturity payments (444 ) (34 ) (410 ) • Payments of common and preferred stock dividends (299 ) (252 ) (47 ) • Stockholder’s contribution from CMS Energy — 650 (650 ) • Other financing activities (33 ) (63 ) 30 Net cash provided by (used in) financing activities $ (176 ) $ 301 $ (477 ) For the year ended December 31, 2008, net cash provided by financing activities at CMS Energy increased $837 million compared with 2007. This increase was due primarily to an increase in proceeds from long-term debt issuances combined with a decrease in long-term debt retirements.60For the year ended December 31, 2008, net cash used in financing activities at Consumers increased $477 million compared with 2007. This increase was due primarily to the absence of contributions from CMS Energy in 2008, offset partially by an increase in net proceeds from long-term debt issuances.For additional details on long-term debt activity, see Note 8, Financings and Capitalization.Restrictive Covenants: CMS Energy’s senior notes indenture requires it to maintain a minimum interest coverage ratio, as defined. CMS Energy’s $550 million revolving credit agreement requires it to maintain a maximum debt to EBITDA ratio, as defined, and a minimum interest coverage ratio, as defined. Consumers’ credit agreements require it to maintain a maximum debt to capital ratio, as defined. At December 31, 2009, no events of default had occurred with respect to any debt covenants, and CMS Energy and Consumers were each in compliance with these requirements as detailed in the following table:(1) MinimumResult at(2)MaximumDecember 31,Credit agreement or facilityRatioRequirement2009CMS Energy’s senior notes indentureInterest Coverage(1)1.7 to 1.03.10 to 1.0CMS Energy’s revolving credit agreementDebt to EBITDA(2)7.0 to 1.05.43 to 1.0CMS Energy’s revolving credit agreementInterest Coverage(1)1.2 to 1.03.05 to 1.0Consumers’ credit agreementsDebt to Capital(2)0.7 to 1.00.52 to 1.0Credit Ratings: CMS Energy’s and Consumers’ access to capital markets and costs of financing are influenced by the ratings of their securities. The following table displays CMS Energy’s and Consumers’ securities ratings as of January 31, 2010. The ratings outlook from S&P, Moody’s, and Fitch on all securities is stable.IssuerSecuritiesS&PMoody’sFitchCMS EnergySenior unsecured debtBB+Ba1BB+CMS EnergySecured bank credit facilities −Baa3BBB-CMS EnergyTrust preferred securitiesBBBa2BB-(Long-term debt - related parties)CMS EnergyPreferred stockBBBa2BB-ConsumersSenior secured debt (FMBs)BBBA3BBB+ConsumersSenior unsecured debtBBB-Baa2BBBConsumersPreferred stockBBBaa3BB+ConsumersSecuritization bondsAAAAaaAAAConsumersTax exempt bondsBBBA3 −ConsumersTax exempt bonds, letter of credit backedAAAa2AAFor additional details on long-term debt activity, see Note 8, Financings and Capitalization.Obligations And CommitmentsContractual Obligations: The following table summarizes CMS Energy’s and Consumers’Consumers' contractual cash obligations for each of the periods presented. The table shows the timing of the obligations and their expected effect on CMS Energy’s and Consumers’ liquidity and cash flow in future periods. The table excludes all amounts61Energy’sEnergy's and Consumers’ Consolidated Balance Sheets,Consumers' consolidated balance sheets, other than the current portion of long-term debt and capital and finance leases. Payments Due Less Than One to Three to More Than Total One Year Three Years Five Years Five Years In Millions Long-term debt(a) $ 6,609 $ 533 $ 840 $ 845 $ 4,391 Interest payments on long-term debt(b) 2,873 346 618 519 1,390 Capital and finance leases(c) 219 22 49 40 108 Interest payments on capital and finance leases(d) 128 17 28 23 60 Operating leases(e) 250 28 56 47 119 Purchase obligations(f) 14,217 1,978 2,853 1,534 7,852 Total contractual obligations $ 24,296 $ 2,924 $ 4,444 $ 3,008 $ 13,920 Long-term debt(a) $ 4,411 $ 343 $ 376 $ 659 $ 3,033 Interest payments on long-term debt(b) 1,923 226 427 359 911 Capital and finance leases(c) 219 22 49 40 108 Interest payments on capital and finance leases(d) 128 17 28 23 60 Operating leases(e) 250 28 56 47 119 Purchase obligations(f) 14,217 1,978 2,853 1,534 7,852 Purchase obligations — related parties(f) 1,737 79 169 186 1,303 Total contractual obligations $ 22,885 $ 2,693 $ 3,958 $ 2,848 $ 13,386 Payments Due Total Less Than
One Year One to
Three Years Three to
Five Years More Than
Five Years $ 7,245 $ 347 $ 1,321 $ 1,193 $ 4,384 2,764 357 669 561 1,177 175 24 45 37 69 74 10 19 16 29 180 26 49 38 67 312 12 25 26 249 43 – 6 6 31 161 – 40 29 92 12,326 1,878 2,018 1,722 6,708 1,469 89 182 188 1,010 $ 24,749 $ 2,743 $ 4,374 $ 3,816 $ 13,816 $ 4,341 $ 41 $ 567 $ 700 $ 3,033 1,901 223 414 358 906 175 24 45 37 69 74 10 19 16 29 180 26 49 38 67 311 12 25 26 248 43 – 6 6 31 111 – 31 21 59 12,326 1,878 2,018 1,722 6,708 1,469 89 182 188 1,010 $ 20,931 $ 2,303 $ 3,356 $ 3,112 $ 12,160 (a)Principal amounts due on outstanding debt obligations, current and long-term, at December 31, 2009. For additional details on long-term debt, see Note 8, Financings and Capitalization.(b)Scheduled interest payments on both variable-rate and fixed-rate long-term debt, current and long-term. Variable interest payments are based on contractual rates in effect at December 31, 2009.(c)Principal portion of lease payments under capital and finance leases, comprising mainly leased service vehicles and certain PPAs.(d)Imputed interest on capital and finance leases.(e)Minimum noncancelable lease payments under leases of railroad cars and miscellaneous office buildings and equipment, which are accounted for as operating leases.(f) commodities and services. These obligations include operating contracts used to ensure adequate supply from generating facilities that meet PURPA requirements.These commodities and related services, and construction and technology services. The commodities and related services include natural gas and associated transportation, electricity, and coal and associated transportation.CMS Energy’s and Consumers’ purchase obligations include long-term PPAs with various generating plants, which require CMS Energy and Consumers to make monthly capacity payments based on the plants’ availability or deliverability. These payments will approximate $36 million per month during 2010 for CMS Energy and $40 million per month during 2010 for Consumers. If a plant is not available to deliver electricity, CMS Energy and Consumers will not be obligated to make these payments for that period. For additional details on power supply costs, see “Consumers’ Electric Utility Results of Operations” within this MD&A, Note 6, Contingencies and Commitments, “Contractual Commitments,” and Note 7, Utility Rate Matters, “Consumers’ Electric Utility Rate Matters — Power Supply Cost Recovery.”Revolving Credit Facilities: For details on CMS Energy’s and Consumers’ revolving credit facilities, see Note 8, Financings and Capitalization.62Dividend Restrictions: For details on CMS Energy’s and Consumers’ dividend restrictions, see Note 8, Financings and Capitalization.Capital Expenditures: For planning purposes, CMS Energy and Consumers forecast capital expenditures over a three-year period. They may revise these estimates periodically due to a number of factors, including environmental regulations, business opportunities, market volatility, economic trends, and the ability to access capital. The following is a summary of CMS Energy’s and Consumers’ estimated capital expenditures, including lease commitments, for 2010 through 2012: Three 2010 2011 2012 Years Total In Millions Consumers $ 1,090 $ 1,020 $ 1,560 $ 3,670 Enterprises 2 1 1 4 Total $ 1,092 $ 1,021 $ 1,561 $ 3,674 Electric utility operations(a)(b) $ 790 $ 760 $ 1,330 $ 2,880 Gas utility operations(b) 300 260 230 790 Total Consumers $ 1,090 $ 1,020 $ 1,560 $ 3,670 (a)These amounts include estimates for capital expenditures that may be required by current environmental laws, regulations, or potential consent decrees.(b)These amounts include estimates for capital expenditures related to information technology projects, facility improvements, and vehicle leasing.63The following is an illustration of CMS Energy’s and Consumers’ planned capital spending for 2010 through 2012:
Off-Balance-Sheet Arrangementsestimable.estimable; the maximum obligation under indemnities for which such amounts were estimable was $512 million at December 31, 2012. While CMS Energy and Consumers believe it is unlikely that they will incur any material losses related to indemnities they have not recorded as liabilities, they cannot predict the impact of these contingent obligations on their liquidity and financial condition. For additional details on these and other guarantee arrangements, see Note 6,4, Contingencies and Commitments “Guarantees.”Sale of Accounts Receivable:Capital Expenditures: Under Consumers’ revolving accounts receivable sales program, Over the next five years, CMS Energy and Consumers expect to make capital investments about $7 billion, including $750 million for Consumers' proposed new gas-fueled plant. CMS Energy and Consumers may sellrevise their forecasts of capital expenditures periodically due to a number of factors, including environmental regulations, business opportunities, market volatility, economic trends, and the ability to access capital. Presented in the following table are CMS Energy's and Consumers' estimated capital expenditures, including lease commitments, for 2013 through 2017: 2013 2014 2015 2016 2017 Total $ 1,400 $ 1,500 $ 1,600 $ 1,300 $ 1,200 $ 7,000 6 4 1 1 1 13 $ 1,406 $ 1,504 $ 1,601 $ 1,301 $ 1,201 $ 7,013 $ 1,000 $ 1,100 $ 1,300 $ 1,000 $ 800 $ 5,200 400 400 300 300 400 1,800 $ 1,400 $ 1,500 $ 1,600 $ 1,300 $ 1,200 $ 7,000 $2501,500 MW in 2015. In order to address future capacity requirements and growing electric demand in Michigan, Consumers updated its balanced energy initiative, a comprehensive energy resource plan designed to meet the short-term and long-term electricity needs of its customers through:accounts receivable, subjectnewly generated RECs and previously generated RECs carried over from prior years.certain eligibility requirements.obtain 500 MW of capacity from renewable energy resources by the end of 2015, either through generation resources owned by Consumers or through agreements to purchase capacity from other parties. To meet its renewable capacity requirements, Consumers expects to add more than 500 MW of owned or contracted renewable capacity. Through December 2012, Consumers has contracted for the purchase of 299 MW of nameplate capacity from renewable energy suppliers and owns 100 MW of nameplate capacity at its recently constructed Lake Winds® Energy Park. The combination of the contracted and owned capacity represents 80 percent of the 2015 renewable capacity requirement. Consumers expects to meet the balance of the requirement through the completion of its Cross Winds® Energy Park in Tuscola County, Michigan, which is scheduled to begin operations in late 2015.2009, $2502012, Consumers had met 61 percent of its electric goal and 68 percent of its natural gas goal. Under its energy optimization plan, Consumers provides its customers with incentives to reduce usage by offering energy audits, rebates and discounts on purchases of highly efficient appliances, and other incentives and programs. Consumers estimates that, through its gas and electric energy optimization programs, its customers realized $184 million in energy savings during 2012.accounts receivableabout 0.5 to 1.0 percent annually over the next five years. This increase reflects growth in electric demand, offset partially by the predicted effects of energy efficiency programs and appliance efficiency standards. Actual deliveries will depend on:eligibleat the ten percent limit and alternative electric suppliers were providing 777 MW of generation service to ROA customers. Based on 2012 weather-adjusted retail sales, Consumers expects 2013 electric deliveries under the ROA program to be at a similar level to 2012.sale,review of FERC's order with the U.S. Court of Appeals.$50a series of reports are to be completed in December 2013 addressing energy efficiency, renewable energy, the electricity market and customer choice, and other subjects. The process is designed to help the governor and other lawmakers determine the state's next steps regarding energy policies. A series of public hearings have been scheduled in 2013 to gather input. Consumers expects to participate actively in this process but cannot predict its outcome.sold.denied. Consumers does not expect to incur significant expenditures to comply with this rule.Energy’sEnergy's and Consumers’Consumers' results of operations and financial condition and should be considered an integral part of their MD&A.condition. For additional accounting policies, see Note 1, Significant Accounting Policies.Use of Estimates and AssumptionsUSEOF ESTIMATESAND ASSUMPTIONSEnergy’sEnergy's and Consumers’Consumers' consolidated financial statements, estimates and assumptions are used that may affect reported amounts and disclosures. CMS Energy and Consumers use64indemnifications,indemnities, and contingencies. Actual results may differ from estimated results due to changes in the regulatory environment, regulatory decisions, lawsuits, competition, and other factors. CMS Energy and Consumers consider all relevant factors in making these assessments.Fair Value Measurements: CMS Energy and Consumers have assets and liabilities that are accounted for or disclosed at fair value. Fair value measurements incorporate assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. DevelopmentThe most material of CMS Energy’s and Consumers’ fair value measurements are of the SERP assets, derivative instruments, and pension and OPEB plan assets. For a detailed discussion of the methods used to calculate fair value measurements, see Note 5, Fair Value Measurements.Income Taxes: The amount of income taxes paid by CMS Energy is subject to ongoing audits by federal, state, and foreign tax authorities, which can result in proposed assessments. An estimate of the potential outcome of any uncertain tax issue is highly judgmental. CMS Energy believes adequate reserves have been provided for these exposures; however, future results may include favorable or unfavorable adjustments to the estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, CMS Energy’s judgment as to the ability to recover its deferred tax assets may change. CMS Energy believes the valuation allowances related to its deferred tax assets are adequate, but future results may include favorable or unfavorable adjustments. As a result, CMS Energy’s effective tax rate may fluctuate significantly over time.Long-Lived Assets and Equity Method Investments: CMS Energy and Consumers assess the recoverability of their long-lived assets and equity method investments by performing impairment tests if certain triggering events occur or if there has been a decline in value that may be other than temporary. CMS Energy and Consumers base their evaluations of impairment on such indicators as:• the nature of the assets;• projected future economic benefits;• regulatory and political environments;• historical and future cash flow and profitability measurements; and• other external market conditions and factors.The estimates CMS Energy and Consumers use may change over time, which could have a material impact on their consolidated financial statements. For additional details, see Note 22, Asset Sales, Discontinued Operations, and Impairment Charges.Unbilled Revenues: CMS Energy and Consumers estimate unbilled revenues by applying an average billed rate for each customer class based on actual billed volume distributions. Unbilled revenues, which are recorded as Accounts receivable on CMS Energy’s and Consumers’ Consolidated Balance Sheets, were $477 million at December 31, 2009 and $507 million at December 31, 2008.Accounting for the Effects of Industry RegulationContentsBecause Consumers has regulated operations, it uses regulatory accounting to recognize the effects of the regulators’ decisions on its financial statements. Consumers continually assesses whether future recovery of its regulatory assets is probable by considering communications and experience with its regulators and changes in the regulatory environment. If Consumers determined that recovery of a regulatory asset were not probable, Consumers would be required to write off the asset and immediately recognize the expense to earnings.Consumers is allowed to self-implement new energy rates six months after a new rate case filing; however, the rates that Consumers self-implements may be subject to refund, with interest. Consumers recognizes revenue65associated with self-implemented rates. If Consumers considers it probable that it will be required to refund a portion of its self-implemented rates, it records a provision for revenue subject to refund. A final rate order could differ materially from Consumers’ estimates underlying its self-implemented rates, giving rise to accounting adjustments. Under accounting rules for prior period adjustments, CMS Energy and Consumers may need to record such differences, if they are specifically identifiable to prior interim periods, as revisions to those periods.For additional details, see Note 3, Utility Regulation.Financial and Derivative Instruments and Market Risk InformationFinancial Instruments: Debt and equity securities classified asavailable-for-sale are reported at fair value determined from quoted market prices. Unrealized gains and losses resulting from changes in fair value ofavailable-for-sale debt and equity securities are reported, net of tax, in equity as part of AOCL. Unrealized losses are excluded from earnings unless the related changes in fair value are determined to be other than temporary.Derivative Instruments: CMS Energy and Consumers account for certain contracts as derivative instruments. The criteria used to determine if an instrument qualifies for derivative accounting are complex and often require significant judgment in application. If a contract is a derivative and does not qualify for the normal purchases and sales exception, it is recorded on the consolidated balance sheet at its fair value. Each quarter, the resulting asset or liability is adjusted to reflect any change in the fair value of the contract. For additional details on CMS Energy’s and Consumers’ derivatives, see Note 11, Derivative Instruments.CMS Energy and Consumers generally use information from external sources, such as quoted market prices and other valuation information to determine the fair value of their derivatives. For certain contracts, this information is not available and mathematical models are used to value the derivatives. The most material of CMS Energy’s derivative liabilities, an electricity sales agreement held by CMS ERM, extends beyond the term for which quoted electricity prices are available. Thus, to value this derivative, CMS Energy uses a valuation model that incorporates a proprietary forward pricing curve for electricity based on forward natural gas prices and an implied heat rate. The model incorporates discounting, credit, and modeling risks. The model is sensitive to electricity and natural gas forward prices, and the fair value of this derivative liability will increase as these forward prices increase. The model is adjusted each quarter to incorporate market data as it becomes available.The fair values calculated for CMS Energy’s and Consumers’ derivatives may change significantly as commodity prices and volatilities change. The cash returns actually realized on derivatives may be different from their estimated fair values. For derivatives in an asset position, calculations of fair value include reserves of less than $1 million to reflect the credit risk of CMS Energy’s and Consumers’ counterparties. For derivatives in a liability position, calculations include reserves of less than $1 million to reflect CMS Energy’s and Consumers’ own credit risk. For additional details on how the fair values of derivatives are determined, see Note 5, Fair Value Measurements.The types of contracts typically classified as derivatives are interest rate swaps, financial transmission rights, fixed price fuel contracts, natural gas futures, electricity swaps, and forward and option contracts for electricity, natural gas, and foreign currencies. Most of CMS Energy’s and Consumers’ commodity purchase and sale contracts are not subject to derivative accounting because:• they do not have a notional amount (that is, a number of units specified in a derivative instrument, such as MWh of electricity or bcf of natural gas);• they qualify for the normal purchases and sales exception; or• there is not an active market for the commodity.CMS Energy’s and Consumers’ coal purchase contracts are not derivatives because there is not an active market for the coal they purchase. If an active market for coal develops in the future, some of these contracts may qualify as derivatives. For Consumers, which is subject to regulatory accounting, the resultingmark-to-market gains and losses would be offset by changes in regulatory assets and liabilities and would not affect net income. For other subsidiaries, CMS Energy does not believe the resultingmark-to-market impact on earnings would be material.66Market Risk Information: CMS Energy and Consumers are exposed to market risks including, but not limited to, changes in interest rates, commodity prices, and equity security prices. They may enter into various risk management contracts to limit exposure to these risks, including swaps, options, futures, and forward contracts. CMS Energy and Consumers enter into these contracts using established policies and procedures, under the direction of an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers.These contracts contain credit risk, which is the risk that the counterparties will fail to meet their contractual obligations. CMS Energy and Consumers reduce this risk using established policies and procedures, such as evaluating counterparties’ credit quality and setting collateral requirements as necessary. If terms permit, standard agreements are used that allow for the netting of positive and negative exposures associated with the same counterparty. Given these policies, current exposures, and credit reserves, CMS Energy and Consumers do not expect a material adverse effect on their financial position or future earnings because of counterparty nonperformance.The following risk sensitivities illustrate the potential loss in fair value, cash flows, or future earnings from financial instruments, including derivative contracts, assuming a hypothetical adverse change in market rates or prices of ten percent. Potential losses could exceed the amounts shown in the sensitivity analyses if changes in market rates or prices were to exceed ten percent.Interest Rate Risk: CMS Energy and Consumers are exposed to interest rate risk resulting from issuing fixed-rate and variable-rate financing instruments, and from interest rate swap agreements. A combination of these instruments are used to manage this risk as deemed appropriate, based upon market conditions. These strategies are designed to provide and maintain a balance between risk and the lowest cost of capital.Interest Rate Risk Sensitivity Analysis (assuming an increase in market interest rates of ten percent): 2009 2008 In Millions Variable-rate financing — before-tax annual earnings exposure $ — $ 1 183 208 Variable-rate financing — before-tax annual earnings exposure $ — $ 1 122 136 (a)Fair value reduction could be realized only if CMS Energy and Consumers transferred all of their fixed-rate financing to other creditors.Commodity Price Risk: CMS Energy and Consumers are exposed to commodity price risk, which arises from fluctuations in the price of electricity, natural gas, coal, and other commodities. Commodity prices are influenced by a number of factors, including weather, changes in supply and demand, and liquidity of commodity markets. In order to manage commodity price risk, they may enter into various non-trading derivative contracts, such as forward purchase and sale contracts, options, and swaps.Commodity Price Risk Sensitivity Analysis (assuming an adverse change in market prices of ten percent): 2009 2008 In Millions Fixed price fuel contracts $ — $ 1 Electricity swaps and futures 1 — Natural gas swaps and futures 1 1 Investment Securities Price Risk: Through investments in debt and equity securities, CMS Energy and Consumers are exposed to changes in interest rates and price fluctuations in equity markets. The following table67shows the potential effect of adverse changes in interest rates and fluctuations in equity prices on CMS Energy’s and Consumers’available-for-sale investments.Investment Securities Price Risk Sensitivity Analysis (assuming an adverse change in market prices of ten percent): 2009 2008 In Millions Mutual funds $ — $ 4 Municipal bonds 1 1 (Primarily SERP investments) $ 3 $ 4 For additional details on market risk, financial instruments, and derivatives, see Note 10, Financial Instruments and Note 11, Derivative Instruments.Retirement BenefitsPension: CMS Energy and Consumers have external trust funds to provide retirement pension benefits to their employees under a non-contributory, defined benefit Pension Plan. On September 1, 2005, the defined benefit Pension Plan was closed to new participants and CMS Energy and Consumers implemented the qualified DCCP, which provides an employer contribution of five percent of base pay to the existing 401(k) plan. An employee contribution is not required to receive the plan’s employer cash contribution. All employees hired on or after September 1, 2005 participate in this plan as part of their retirement benefit program. Previous cash balance Pension Plan participants also participate in the DCCP as of September 1, 2005. Additional pay credits under the cash balance Pension Plan were discontinued as of that date.401(k): CMS Energy and Consumers provide an employer match in their 401(k) plan equal to 60 percent on eligible contributions up to the first six percent of an employee’s wages.OPEB: CMS Energy and Consumers provide postretirement health and life benefits under their OPEB plan to qualifying retired employees.CMS Energy and Consumers record liabilities for pension and OPEB on their consolidated balance sheets at the present value of the future obligations, net of any plan assets. The calculation of the liabilities and associated expenses requires the expertise of actuaries, and requires many assumptions, including:• life expectancies;• discount rates;• expected long-term rate of return on plan assets;• rate of compensation increases; and• anticipated health care costs.A change in these assumptions could change significantly CMS Energy’s and Consumers’ recorded liabilities and associated expenses.68The following table provides an estimate of CMS Energy’s and Consumers’ pension cost, OPEB cost, and cash contributions for the next three years: Pension Cost OPEB Cost Pension Contribution OPEB Contribution In Millions 2010 $ 112 $ 74 $ 19 $ 71 2011 112 71 179 71 2012 105 67 142 71 2010 $ 109 $ 75 $ 18 $ 70 2011 108 73 173 70 2012 102 69 137 70 Contribution estimates include amounts required and discretionary contributions. Consumers’ pension and OPEB costs are recoverable through its general ratemaking process. Actual future pension cost and contributions will depend on future investment performance, changes in future discount rates, and various other factors related to the populations participating in the Pension Plan.Lowering the expected long-term rate of return on the Pension Plan assets by 0.25 percentage point (from 8.00 percent to 7.75 percent) would increase estimated pension cost for 2010 by $3 million for both CMS Energy and Consumers. Lowering the discount rate by 0.25 percentage point (from 5.85 percent to 5.60 percent) would increase estimated pension cost for 2010 by $5 million for both CMS Energy and Consumers.For additional details on postretirement benefits, see Note 12, Retirement Benefits.ObligationsObligations:did not include market risk premiumsmake judgments regarding the future outcome of various matters that give rise to contingent liabilities. For such matters, they record liabilities when they are considered probable and reasonably estimable, based on all available information. In particular, CMS Energy and Consumers are participating in their ARO fair valuevarious environmental remediation projects for which they have recorded liabilities. The recorded amounts represent estimates since reasonable estimates could not be made. If a five percent market risk premium were assumed, CMS Energy’sthat may take into account such considerations as the number of sites, the anticipated scope, cost, and Consumers’ ARO liability at December 31, 2009 would increase by $11 million.If a reasonable estimatetiming of fair value cannot be made inremediation work, the periodavailable technology, applicable regulations, and the requirements of governmental authorities. For remediation projects in which the AROtiming of estimated expenditures is incurred, such as for assets with indeterminate lives,considered reliably determinable, CMS Energy and Consumers record the liability at its net present value, using a discount rate equal to the interest rate on monetary assets that are essentially risk-free and have maturities comparable to that of the environmental liability. The amount recorded for any contingency may differ from actual costs incurred when the contingency is recognized when a reasonable estimate of fair value can be made.resolved.not recordedassets and liabilities that are accounted for assetsor disclosed at fair value. Fair value measurements incorporate assumptions that have insignificant cumulative disposal costs, such as substation batteries.market participants would use in pricing an asset or liability, including assumptions about risk. Development of these assumptions may require significant judgment. For additional details,a detailed discussion of the valuation techniques and inputs used to calculate fair value measurements, see Note 17, Asset6, Fair Value Measurements. Details about the fair value measurements for the Pension Plan and OPEB plan assets are included in Note 12, Retirement Obligations.OUTLOOKSeveral business trends The amount of income taxes paid by CMS Energy is subject to ongoing audits by federal, state, and uncertaintiesforeign tax authorities, which can result in proposed assessments. An estimate of the potential outcome of any uncertain tax issue is highly judgmental. CMS Energy believes adequate reserves have been provided for these exposures; however, future results may affectinclude favorable or unfavorable adjustments to the estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, CMS Energy’sEnergy's judgment as to the ability to recover its deferred tax assets may change. CMS Energy believes the valuation allowances related to its deferred tax assets are adequate, but future results may include favorable or unfavorable adjustments. As a result, CMS Energy's effective tax rate may fluctuate significantly over time.Consumers’ financial conditionEquity Method Investments: CMS Energy and resultsConsumers assess the recoverability of operations. These trendstheir long-lived assets and uncertaintiesequity method investments by performing impairment tests if certain triggering events occur or if there has been a decline in value that may be other than temporary. CMS Energy and Consumers base their evaluations of impairment on such indicators as:CMS Energy’s and Consumers’their consolidated income, cash flows, or financial position. For additional details regarding these and other uncertainties, see “Forward-Looking Statements and Information”, Item 1A. Risk Factors, and Note 6, Contingencies and Commitments.Consumers’ Electric Utility Business Outlook and UncertaintiesBalanced Energy Initiative: Consumers’ balanced energy initiative is a comprehensive energy resource plan designed to meet its projected short-term and long-term electric power requirements through:• energy efficiency;69• demand management;• expanded use of renewable energy;• development of new power plants and pursuit of additional PPAs to complement existing generating sources; and• retirement of older, less efficient generating units.Consumers’ balanced energy initiative includes plans to build an 830 MW coal-fueled plant at its Karn/Weadock generating complex near Bay City, Michigan. Consumers expects the plant to be in operation in 2017 and plans to use five-eighths of the plant’s output to serve its own customers, with the remaining output to be committed to others.In December 2009, the MDNRE approved an air permit for Consumers’ proposed coal-fueled plant. As outlined in the air permit, Consumers agreed to retire up to seven of its older, less-efficient generating units; this is consistent with Consumers’ balanced energy initiative. Consumers plans to retire five units or 638 MW within six months of commencement of operation of the new coal plant, with retirement of the additional two units or 320 MW dependent on customer need.The 2008 Energy Legislation provided guidelines for the MPSC’s review and approval of energy resource plans and proposed power plants through the issuance of a certificate of need. Consumers plans to file a new case with the MPSC seeking a certificate of need that conforms to the 2008 Energy Legislation in 2010.Renewable Energy Plan: The 2008 Energy Legislation requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and includes requirements for specific capacity additions. Consumers’ renewable energy plan details how Consumers will meet these renewable energy standards for energy and capacity, with wind generation as Consumers’ primary resource. Consumers plans to build or contract for additional renewable energy capacity of 200 MW by December 31, 2013, and an additional 300 MW of renewable energy capacity by December 31, 2015. Under Consumers’ plan, half of the new renewable capacity will be obtained through long-term agreements to purchase power from third parties, with the remaining capacity to be supplied by facilities built and owned by Consumers.Consumers has secured more than 58,000 acres of land easements in Michigan’s Tuscola and Mason Counties for potential wind generation development and is collecting wind speed and other meteorological data at the sites. Consumers will continue to seek opportunities for wind generation development in support of the renewable energy standard. Consumers has also executed agreements with six small-scale renewable energy suppliers for the purchase of 9.4 MW of renewable capacity and an estimated two percent of its long-term renewable energy needs. The MPSC has approved these agreements, enabling Consumers to recover the full costs of these contracts from its customers. Additionally, Consumers is in the process of reviewing proposals for capacity and energy from larger projects to meet its renewable capacity and energy needs through 2015.Energy Optimization Plan: The 2008 Energy Legislation also requires Consumers to achieve annual sales reduction targets through at least 2015. The targets are incremental with the goal of achieving a six percent reduction in customers’ electricity use and a four percent reduction in customers’ natural gas use by December 31, 2015. Consumers’ energy optimization plan details its proposals for energy cost savings among all customer classes through incentives to reduce customer usage by offering customer energy audits, rebates and discounts on purchase of highly efficient appliances, and other incentives and programs. In July 2009, Consumers launched its energy optimization program for residential customers.Electric Customer Deliveries and Revenue: Consumers’ electric customer deliveries are largely dependent on Michigan’s economy, which has suffered from economic and financial instability in the automotive and real estate sectors. Volatility in the financial and credit markets has also harmed the Michigan economy.Consumers expects weather-adjusted electric deliveries to decrease in 2010 by one percent compared with 2009. Consumers’ outlook for 2010 includes continuing growth in deliveries to its largest customer, which produces semiconductor and solar energy components. Excluding this customer’s growth, Consumers expects weather-adjusted electric deliveries in 2010 to decrease three percent compared with 2009. Consumers’ outlook reflects70reduced deliveries associated with its investment in energy efficiency programs included in the 2008 Energy Legislation, as well as recent projections of Michigan’s economic conditions.Consumers expects economic conditions to stabilize by the end of 2010, resulting in electric deliveries remaining essentially unchanged through 2014. This reflects growth in electric deliveries offset by the predicted effects of energy efficiency programs and appliance efficiency standards. Actual deliveries will depend on:• energy conservation measures and results of energy efficiency programs;• fluctuations in weather; and• changes in economic conditions, including utilization and expansion or contraction of manufacturing facilities, population trends, and housing activity.In its November 2009 order in Consumers’ electric rate case, the MPSC authorized Consumers to adopt a “pilot” decoupling mechanism beginning December 1, 2009. This mechanism, subject to certain conditions, allows Consumers to adjust its rates to collect or refund the change in marginal revenue arising from the difference between the level of average sales per customer adopted in the order and actual average sales per customer. The order also adopts an uncollectible expense tracking mechanism, effective January 1, 2009, that allows rates to be adjusted to collect or refund 80 percent of the difference between the level of uncollectible expense included in rates and actual uncollectible expense. Consumers expects these mechanisms to mitigate partially the effects of weather fluctuations, the economy, and energy efficiency programs on Consumers’ electric revenue in future periods. For details on this rate order, see Note 7, Utility Rate Matters, “Consumers’ Electric Utility Rate Matters.”Electric ROA: The Customer Choice Act allows Consumers’ electric customers to buy electric generation service from Consumers or from an alternative electric supplier. The 2008 Energy Legislation limited alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. During 2009, customer enrollment in the ROA program reached the ten percent limit. At December 31, 2009, alternative electric suppliers were contracted to provide 854 MW of generation service to ROA customers.Electric Environmental Estimates: Consumers’ operations are subject to various state and federal environmental laws and regulations. Generally, Consumers has been able to recover in customer rates its costs to operate its facilities in compliance with these laws and regulations.Clean Air Act: Consumers continues to focus on complying with the federal Clean Air Act and numerous state and federal environmental regulations, including CAIR, and state mercury air rules. Consumers estimates expenditures of $1.4 billion from 2010 through 2017 to comply with these regulations. Consumers expects to recover these costs in customer rates.Clean Air Interstate Rule: At this time, CAIR remains in effect, pending EPA revision. While the impacts of this revision are unknown, Consumers expects the EPA to propose stricter standards. A draft rule is expected in 2010. Consumers’ strategy to comply with CAIR involves the installation ofstate-of-the-art emission control equipment.State and Federal Mercury Air Rules: In 2005, the EPA issued CAMR, which required initial reductions of mercury emissions from coal-fueled electric generating plants by 2010 and further reductions by 2018. A number of states and other entities appealed certain portions of CAMR to the U.S. Court of Appeals for the District of Columbia. In 2008, the U.S. Court of Appeals for the District of Columbia determined that the rules developed by the EPA were not consistent with the Clean Air Act. The EPA has initiated the development of a revised rule based on Maximum Achievable Control Technology, which is a method for establishing strict emissions limits based on the best performing controlled sources of air contaminants. A proposed rule is expected in 2010, at which time Consumers will have a better understanding of the potential impact.In 2006, Michigan’s governor proposed a plan that would result in mercury emissions reductions of 90 percent by 2015. In response to the governor’s proposal, the MDNRE promulgated a rule that became effective in October 2009. Consumers has a plan in place to comply with this rule.Greenhouse Gases: In June 2009, the United States House of Representatives passed the American Clean Energy and Security Act, which would require reductions in emissions of greenhouse gases, including carbon71dioxide. The bill proposes to reduce carbon dioxide and other greenhouse gas emissions by 3 percent below 2005 levels by 2012, 17 percent below 2005 levels by 2020, and 42 percent below 2005 levels by 2030. The bill also contains provisions for the direct granting of substantial free greenhouse gas emission allowances to load-serving entities, which would mitigate some of the price impact to Consumers’ customers. Consumers believes Congress may pass greenhouse gas legislation, but the form and timing of any final bill is difficult to predict. These laws, EPA regulations regarding greenhouse gases, or similar treaties, state laws, or rules, if enacted, could require Consumers to replace equipment, install additional equipment for emission controls, purchase allowances, curtail operations, arrange for alternative sources of supply, or take other steps to manage or lower the emission of greenhouse gases.In September 2009, the EPA finalized the Mandatory Reporting of Greenhouse Gases Rule. This rule will require facilities producing 25,000 metric tons or more of greenhouse gases to collect emissions data under a new reporting system. The first reports will be due to the EPA on March 31, 2011. The rule covers carbon dioxide, methane, nitrous oxide, hydro fluorocarbons, and other fluorinated gases. The purpose of the rule is to collect accurate and timely data on greenhouse gas emissions that can be used to inform future climate change policy decisions.In December 2009, the EPA issued an endangerment finding for greenhouse gases under the Clean Air Act. In this finding, which has been challenged in the U.S. Court of Appeals for the D. C. Circuit by numerous parties, the EPA determined that current and projected atmospheric concentrations of six greenhouse gases threaten the public health and welfare of current and future generations. The finding alone does not impose any standard or regulation on industry, but it is a precursor for finalizing proposed emissions standards. Presently, the EPA acknowledges that comprehensive federal legislation is the preferred method of addressing greenhouse gases. In 2009, carbon dioxide emissions from fossil-fueled power plants owned by Consumers, excluding the portion of Campbell Unit 3 that is owned by others, exceeded 17 million metric tons of carbon dioxide. During the same period, coal-fueled plants owned by enterprises emitted 620,000 metric tons of carbon dioxide.Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material and cost recovery cannot be assured, Consumers expects to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.Water: In 2004, the EPA issued rules that govern existing electric generating plant cooling water intake systems. These rules require a significant reduction in the number of fish harmed by cooling water intake structures at existing power plants. The EPA compliance options in the rule were challenged before the U.S. Court of Appeals for the Second Circuit, which remanded the bulk of the rule back to the EPA for reconsideration in 2007. In April 2009, the U.S. Supreme Court ruled in favor of the utility industry’s position that the EPA can rely on a cost-benefit analysis in setting the national performance standards for fish protection. The EPA has announced plans to issue a revised draft rule in 2010. Consumers estimates capital expenditures of $150 million to comply with these regulations.Other electric environmental matters, including routine maintenance classification, could have a major impact on Consumers’ outlook. For additional details on these and other electric environmental matters, see Note 6, Contingencies and Commitments, “Consumers’ Electric Utility Contingencies — Electric Environmental Matters.”Electric Rate Matters: Rate matters are critical to Consumers’ electric utility business. For details on Consumers’ PSCR, electric rate case and self-implemented rates, electric operation and maintenance expenditures show-cause order, Big Rock decommissioning proceedings, and electric depreciation case, see Note 7, Utility Rate Matters, “Consumers’ Electric Utility Rate Matters.”Consumers’ Gas Utility Business Outlook and UncertaintiesGas Deliveries: Consumers expects weather-adjusted gas deliveries to decline in 2010 by two percent compared with 2009, due to continuing conservation and overall economic conditions in Michigan. In addition, Consumers expects weather-adjusted gas deliveries to decline an average of two percent annually from 201172through 2015, which includes expected effects of energy efficiency programs. Actual delivery levels from year to year may vary from this trend due to:• fluctuations in weather;• use by IPP;• availability and development of renewable energy sources;• changes in gas prices;• Michigan economic conditions including population trends and housing activity;• the price of competing energy sources or fuels; and• energy efficiency and conservation.Gas Environmental Estimates: Consumers expects to incur investigation and remedial action costs at a number of sites, including 23 former manufactured gas plant sites.statements. For additional details, see Note 6, Contingencies20, Asset Sales, Discontinued Operations, and Commitments, “Consumers’ Gas Utility Contingencies — Gas Environmental Matters.”The Mandatory ReportingImpairment Charges.Greenhouse Gases Rule requires facilities engaginga calendar month. This results in customers having received electricity or gas that they have not been billed for as of the distribution of natural gasmonth-end. Consumers estimates its unbilled revenues by applying an average billed rate to collect data on greenhouse gas emissions resulting from the combustion of natural gas. In 2009, Consumers estimated that carbon dioxide emissions from its customers were 16 million metric tons.Gas Rate Matters: Rate matterstotal unbilled deliveries for each customer class. Unbilled revenues, which are critical to Consumers’ gas utility business. For details on Consumers’ GCR, gas depreciation, and gas rate case, see Note 7, Utility Rate Matters, “Consumers’ Gas Utility Rate Matters.”Enterprises’ Outlook and UncertaintiesThe primary focus with respect to CMS Energy’s remaining non-utility businesses is to optimize cash flow and maximize the value of their assets.Trends and uncertainties that could have a material impactrecorded as accounts receivable on CMS Energy’sEnergy's and Consumers' consolidated income, cash flows, or financial position include:• the impact of indemnity and environmental remediation obligations at Bay Harbor;• the outcome of certain legal proceedings;• the impact of lower electricity prices, caused primarily by lower natural gas prices, unseasonably cool weather in the summer, and decreased industrial production, on the profitability of enterprises’ generating units;• the impact of representations, warranties, and indemnities provided by CMS Energy or its subsidiaries in connection with the sales of assets;• the impact of changes in commodity prices and interest rates on certain derivative contracts that do not qualify for hedge accounting and must be marked to market through earnings; and• the impact of economic conditions in Michigan, including population trends and housing activity.For additional details regarding enterprises’ uncertainties, see Note 6, Contingencies and Commitments.Other Outlook and UncertaintiesSmart Grid: Consumers’ development of a smart grid is proceeding as planned. The foundation of the smart grid program is an advanced metering infrastructure. The program will include electric and gas smart meters that are capable of transmitting and receiving data, a two-way communications network, and modifications to Consumers’ existing systems to manage the data. It is intended to enable customers to monitor and manage their energy usage and help reduce demand during critical peak times, resulting in higher energy efficiency and environmental benefits. Due to this system’s complexity and relative market immaturity, Consumers is using a phased implementation approach that will allow it to analyze, test, and pilot the new technology prior to widespread73investment and deployment. Consumers will also make certain modifications to its software to enable the new system. Consumers intends to begin mass deployment of the system and installation of new meters in 2012.Employee Separation Program: In November 2009, Consumers announced a voluntary separation program for all salaried and union employees. Decisions to accept or deny employees’ requests for voluntary separation, and communication of those decisions to the affected employees, occurred in January 2010. A total of 177 salaried employees and 120 union employees have been approved for early separation. Further, in February 2010, Consumers announced the lay-off of an additional 76 union employees. Consumers expects to recognize a charge of $11 million in 2010 related to the voluntary and involuntary components of this program.Litigation: CMS Energy, Consumers, and certain of their subsidiaries are named as parties in various litigation matters, as well as in administrative proceedings before various courts and governmental agencies arising in the ordinary course of business. For additional details regarding these and other legal matters, see Note 6, Contingencies and Commitments and Note 7, Utility Rate Matters.EnerBank: EnerBank, a wholly owned subsidiary of CMS Capital that represents one percent of CMS Energy’s net assets, is a state-chartered, FDIC-insured industrial bank providing unsecured home improvement loans. The carrying value of EnerBank’s loan portfolio was $269balance sheets, were $403 million at December 31, 2009. Its loan portfolio was funded primarily by deposit liabilities of $2142012 and $387 million and borrowings from the U.S. Federal Reserve Bank of $40 million. Twelve-month rolling average default rates on loans held by EnerBank have risen from 1.4 percent at December 31, 20082011.2.1 percentrecognize the effects of the regulators' decisions on its financial statements. Consumers continually assesses whether future recovery of its regulatory assets is probable by considering communications and experience with its regulators and changes in the regulatory environment. If Consumers determined that recovery of a regulatory asset were not probable, Consumers would be required to write off the asset and immediately recognize the expense in earnings. 2012 2011 $ 127 $ 154 84 82 2009. Due2012 and 2011, assuming an adverse change in market interest rates of ten percent. 2012 2011 $ 13 $ 11 $ 9 $ 7 3 3 2012 2011 $ 9 $ 7 economic downturn, EnerBank expectsexisting 401(k) plan. An employee contribution is not required to receive the levelplan's employer cash contribution. All employees hired on or after September 1, 2005 participate in this plan as part of loan defaultstheir retirement benefit program. Previous cash balance Pension Plan participants also participate in the DCCP as of September 1, 2005. Additional pay credits under the cash balance Pension Plan were discontinued as of that date.remain elevated throughout 2010, returning60 percent on eligible contributions up to lower levels thereafter.the first six percent of an employee's wages. Pension
Cost OPEB
Cost Pension
Contribution OPEB
Contribution $ 120 $ 60 $ 50 $ 74 114 76 58 60 93 70 158 76 $ 117 $ 62 $ 49 $ 73 111 78 57 59 91 72 154 75 and new accounting standards issued that are not yet effective,during the year ended December 31, 2012, see Note 4,2, New Accounting Standards.74
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Consolidated Statements of Income 2012 2011 2010 $ 6,253 $ 6,503 $ 6,432 598 636 604 1,364 1,282 1,239 87 82 85 1,150 1,512 1,590 1,225 1,237 1,206 598 546 576 229 205 210 – – (50) (1) – (6) 5,250 5,500 5,454 1,003 1,003 978 5 9 19 8 6 5 17 9 11 11 16 32 (33) (22) (24) 8 18 43 372 396 394 21 23 40 (4) (4) (3) 389 415 431 622 606 590 245 191 224 377 415 366 7 2 (23) 384 417 343 2 2 3 382 415 340 – – 8 – – 8 $ 382 $ 415 $ 324 CONSOLIDATED STATEMENTS OF INCOME (LOSS) Years Ended December 31 2009 2008 2007 In Millions $ 6,205 $ 6,807 $ 6,451 (2 ) 5 40 Fuel for electric generation 541 600 523 Purchased and interchange power 1,163 1,335 1,407 Cost of gas sold 1,866 2,277 2,172 Electric sales contract termination — — 279 Other operating expenses 943 827 966 Maintenance 220 192 199 Depreciation and amortization 570 588 539 General taxes 217 203 222 Asset impairment charges — — 204 Gain on asset sales, net (13 ) (9 ) (21 ) 5,507 6,013 6,490 696 799 1 Interest and dividends 24 30 96 Allowance for equity funds used during construction 26 33 31 Other income 54 15 41 Other expense (30 ) (37 ) (39 ) 74 41 129 Interest on long-term debt 383 371 405 Other interest 56 33 48 Allowance for borrowed funds used during construction (4 ) (4 ) (6 ) 435 400 447 335 440 (317 ) 115 139 (197 ) 220 301 (120 ) 20 1 (110 ) 240 302 (230 ) 11 7 (8 ) 229 295 (222 ) 11 11 11 — — 1 $ 218 $ 284 $ (234 ) 2012 2011 2010 $ 375 $ 413 $ 347 7 2 (23 ) $ 382 $ 415 $ 324 $ 2 $ 2 $ 3 – – – $ 2 $ 2 $ 3 $ 1.43 $ 1.65 $ 1.50 0.03 0.01 (0.10 ) $ 1.46 $ 1.66 $ 1.40 $ 1.39 $ 1.57 $ 1.36 0.03 0.01 (0.08 ) $ 1.42 $ 1.58 $ 1.28 $ 0.96 $ 0.84 $ 0.66 76 Years Ended December 31 2009 2008 2007 In Millions, Except Per Share Amounts Income (Loss) from Continuing Operations $ 198 $ 283 $ (145 ) Income (Loss) from Discontinued Operations 20 1 (89 ) Net Income (Loss) Available to Common Stockholders $ 218 $ 284 $ (234 ) Income from Continuing Operations $ 11 $ 7 $ 13 Loss from Discontinued Operations — — (21 ) Income (Loss) Attributable to Noncontrolling Interests $ 11 $ 7 $ (8 ) Income (Loss) from Continuing Operations $ 0.87 $ 1.25 $ (0.65 ) Income (Loss) from Discontinued Operations 0.09 — (0.39 ) Net Income (Loss) Attributable to Common Stock $ 0.96 $ 1.25 $ (1.04 ) Income (Loss) from Continuing Operations $ 0.83 $ 1.20 $ (0.65 ) Income (Loss) from Discontinued Operations 0.08 — (0.39 ) Net Income (Loss) Attributable to Common Stock $ 0.91 $ 1.20 $ (1.04 ) $ 0.50 $ 0.36 $ 0.20 77
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Consolidated Statements of Comprehensive Income 2012 2011 2010 $ 384 $ 417 $ 343 (10 ) (11 ) (9) 2 2 1 – – 1 2 – – (6 ) (9 ) (7) 378 408 336 2 2 3 $ 376 $ 406 $ 333 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 2009 2008 2007 In Millions Net income (loss) $ 240 $ 302 $ (230 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 570 589 545 Deferred income taxes and investment tax credit 122 126 (226 ) Postretirement benefits expense 181 144 131 Electric sales contract termination — — 279 Asset impairment charges — — 204 Allowance for equity funds used during construction (26 ) (33 ) (31 ) Capital lease and other amortization 42 44 67 Bad debt expense 54 51 37 Gain due to expiration of indemnification (50 ) — — (Loss) Gain on sale of assets, net (8 ) (9 ) 112 Gain on extinguishment of long-term debt (10 ) — — Loss (income) from equity method investees 2 (5 ) (40 ) Cash distributions from equity method investees — 4 18 Postretirement benefits contributions (262 ) (51 ) (184 ) Electric sales contract termination payment — (275 ) — Shareholder class action settlement payment — — (125 ) Changes in other assets and liabilities: Increase in accounts receivable and accrued revenues (91 ) (80 ) (451 ) Decrease (increase) in accrued power supply and gas revenue (41 ) 35 99 Decrease (increase) in inventories 86 (71 ) (10 ) Decrease in accounts payable (50 ) (5 ) (45 ) Decrease in accrued expenses (6 ) (31 ) (31 ) Decrease in other current and non-current assets 59 12 37 Increase (decrease) in current and non-current regulatory liabilities 102 (178 ) (114 ) Decrease in other current and non-current liabilities (66 ) (12 ) (19 ) Net cash provided by operating activities 848 557 23 Capital expenditures (excludes assets placed under capital lease) (818 ) (792 ) (1,263 ) Cost to retire property (49 ) (34 ) (28 ) Proceeds from nuclear decommissioning trust funds, net — — 332 Proceeds from sale of assets 7 3 1,717 Cash relinquished from sale of assets — — (113 ) Decrease in restricted cash and cash equivalents 4 1 49 Increase in non-current notes receivable (83 ) (19 ) (32 ) Other investing activities 4 2 — Net cash provided by (used in) investing activities (935 ) (839 ) 662 78 Years Ended December 31 2009 2008 2007 In Millions Proceeds from issuance of notes, bonds, and other long-term debt 1,218 1,265 400 Proceeds from EnerBank notes, net 39 23 28 Issuance of common stock 9 9 15 Retirement of bonds and other long-term debt, including related parties (1,120 ) (990 ) (977 ) Payments on securitization bonds (34 ) (32 ) (31 ) Redemption of preferred stock (4 ) (1 ) (32 ) Payment of common stock dividends (114 ) (82 ) (45 ) Payment of preferred stock dividends (11 ) (11 ) (11 ) Increase in notes payable 40 — — Payment of capital lease and finance lease obligations (23 ) (26 ) (20 ) Debt issuance costs, financing fees, and other (35 ) (8 ) (17 ) Net cash provided by (used in) financing activities (35 ) 147 (690 ) — — 2 5 (2 ) 100 (122 ) (135 ) (3 ) 207 344 247 $ 90 $ 207 $ 344 Interest paid (net of amounts capitalized) $ 422 $ 372 $ 441 Income taxes paid (net of refunds of $-, $2, and $-) 17 3 14 Other assets placed under capital lease $ 16 $ 5 $ 229 79
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Consolidated Statements of Cash Flows 2012 2011 2010 $ 384 $ 417 $ 343 598 546 576 227 167 227 187 161 213 57 74 57 16 33 39 (72 ) (323 ) (463) (147 ) 119 (72) 104 (14 ) 133 (5 ) 30 (7) (38 ) (34 ) 22 (70 ) (7 ) (109) 1,241 1,169 959 (1,227 ) (882 ) (821) (49 ) (54 ) (43) – – (10) (63 ) (100 ) (131) (11 ) (22 ) 2 (1,350 ) (1,058 ) (1,003) 1,650 375 1,400 65 98 149 30 29 10 (1,527 ) (413 ) (878) – (43 ) – (252 ) (211 ) (162) – – (239) (35 ) (34 ) (38) 110 – (40) 41 (199 ) 202 CONSOLIDATED BALANCE SHEETS 2012 2011 2010 (68 ) (88 ) 158 – 2 (1) (68 ) (86 ) 157 161 247 90 $ 93 $ 161 $ 247 $ 377 $ 397 $ 405 19 27 14 110 92 56 9 4 16 December 31 2009 2008 In Millions Cash and cash equivalents $ 90 $ 207 Restricted cash and cash equivalents 32 35 Accounts receivable and accrued revenue, less allowances of $23 in 2009 and $26 in 2008 948 850 Notes receivable 81 95 Accrued power supply and gas revenue 48 7 Inventories at average cost Gas in underground storage 1,043 1,168 Materials and supplies 118 110 Generating plant fuel stock 158 127 Deferred property taxes 172 165 Regulatory assets 19 19 Assets held for sale 2 7 Prepayments and other 31 37 2,742 2,827 Plant, property & equipment, gross 13,716 12,960 Less accumulated depreciation, depletion and amortization 4,540 4,387 Plant, property & equipment, net 9,176 8,573 Construction work in progress 506 608 9,682 9,181 Regulatory assets 2,291 2,419 Notes receivable, less allowances of $6 in 2009 and $34 in 2008 269 186 Investments 9 11 Assets held for sale 9 10 Other 254 267 2,832 2,893 $ 15,256 $ 14,901 80 December 31 2009 2008 In Millions Current portion of long-term debt, capital and finance lease obligations $ 694 $ 514 Notes payable 40 — Accounts payable 509 516 Accrued rate refunds 21 7 Accrued interest 96 107 Accrued taxes 283 289 Deferred income taxes 43 100 Regulatory liabilities 145 120 Other 123 210 1,954 1,863 Regulatory liabilities 1,991 1,868 Postretirement benefits 1,460 1,502 Asset retirement obligation 229 206 Deferred investment tax credit 51 54 Deferred income taxes 231 55 Other 310 317 4,272 4,002 Commitments and Contingencies (Notes 6, 7, 8, 10 and 11) Long-term debt 5,895 6,015 Non-current portion of capital and finance lease obligations 197 206 Common stockholders’ equity Common stock, authorized 350.0 shares; outstanding 227.9 shares in 2009 and 226.4 shares in 2008 2 2 Other paid-in capital 4,560 4,533 Accumulated other comprehensive loss (33 ) (28 ) Accumulated deficit (1,927 ) (2,031 ) Total common stockholders’ equity 2,602 2,476 Preferred stock 239 243 Noncontrolling interests 97 96 Total equity 2,938 2,815 9,030 9,036 $ 15,256 $ 14,901 81
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CMS Energy Corporation
Consolidated Balance Sheets 2012 2011 $ 93 $ 161 29 27 855 869 41 49 10 10 32 – 820 929 96 92 168 166 – 24 190 187 35 1 53 50 2,422 2,565 15,592 14,751 5,121 4,901 10,471 9,850 1,080 783 11,551 10,633 2,287 2,466 521 462 57 50 293 276 3,158 3,254 $ 17,131 $ 16,452 CONSOLIDATED STATEMENTS OF CHANGES IN Years Ended December 31 Number of Shares in Thousands In Millions At beginning and end of period $ 2 $ 2 $ 2 At beginning of period 226,414 225,146 222,783 4,533 4,517 4,505 Common stock issued 1,793 1,751 2,339 17 17 30 Common stock repurchased (78 ) (38 ) (318 ) (1 ) (1 ) (5 ) Common stock reacquired (238 ) (445 ) (19 ) — — — Common stock reissued — — 361 — — 6 Conversion option on convertible debt — — — 11 — — Redemption of preferred stock — — — — — (19 ) At end of period 227,891 226,414 225,146 4,560 4,533 4,517 Retirement benefits liability At beginning of period (27 ) (15 ) (23 ) Net gain (loss) arising during the period(a) (6 ) (12 ) 7 Amortization of net actuarial loss(a) 1 — 1 At end of period (32 ) (27 ) (15 ) Investments At beginning of period — — 14 Unrealized gain (loss) on investments(a) 5 (15 ) 1 Reclassification adjustments included in net income (loss)(a) (5 ) 15 (15 ) At end of period — — — Derivative instruments At beginning of period (1 ) (1 ) (12 ) Unrealized loss on derivative instruments(a) — — (3 ) Reclassification adjustments included in net income (loss)(a) — — 14 At end of period (1 ) (1 ) (1 ) Foreign currency translation At beginning of period — (128 ) (297 ) Sale of interests in TGN(a) — 128 — Sale of Argentine assets(a) — — 128 Sale of Brazilian assets(a) — — 36 Other foreign currency translations(a) — — 5 At end of period — — (128 ) At end of period (33 ) (28 ) (144 ) At beginning of period (2,031 ) (2,227 ) (1,930 ) Effects of changing the retirement plans measurement date Service cost, interest cost, and expected return on plan assets for December 1 through December 31, 2007, net of tax — (4 ) — Additional loss from December 1 through December 31, 2007, net of tax — (2 ) — Adjustment to initially apply accounting for uncertain tax positions — — (18 ) Net income (loss) attributable to CMS Energy(a) 229 295 (222 ) Preferred stock dividends declared (11 ) (11 ) (11 ) Common stock dividends declared (114 ) (82 ) (45 ) Redemption of preferred stock(a) — — (1 ) At end of period (1,927 ) (2,031 ) (2,227 ) At beginning of period 243 250 261 Conversion of preferred stock (4 ) (7 ) (11 ) At end of period 239 243 250 At beginning of period 96 97 95 Income (loss) attributable to noncontrolling interests 11 7 (8 ) Distributions and other changes in noncontrolling interests (10 ) (8 ) 10 At end of period 97 96 97 $ 2,938 $ 2,815 $ 2,495 2012 2011 $ 541 $ 1,057 110 – 512 575 9 9 6 30 95 101 279 282 68 – 25 125 152 159 1,797 2,338 6,710 6,040 153 167 2,101 1,875 1,451 1,289 312 254 43 46 1,015 1,035 311 336 12,096 11,042 3 3 4,669 4,627 (55) (49) (1,423) (1,553) 3,194 3,028 44 44 3,238 3,072 $ 17,131 $ 16,452 82 Years Ended December 31 2009 2008 2007 In Millions Net income (loss) $ 240 $ 302 $ (230 ) Income (loss) attributable to noncontrolling interests 11 7 (8 ) Net income (loss) attributable to CMS Energy 229 295 (222 ) Retirement benefits liability: Net gain (loss) arising during the period, net of tax (tax benefit) of ($3) in 2009, ($6) in 2008 and $5 in 2007 (6 ) (12 ) 7 Amortization of net actuarial loss, net of tax of $- in 2009 and 2007 1 — 1 Investments: Unrealized gain (loss) on investments, net of tax (tax benefit) of $3 in 2009, ($9) in 2008, and $- in 2007 5 (15 ) 1 Reclassification adjustments included in net income (loss), net of tax (tax benefit) of ($3) in 2009, $9 in 2008 and ($7) in 2007 (5 ) 15 (15 ) Derivative instruments: Unrealized loss on derivative instruments, net of tax of $- in 2009, $- in 2008, and $2 in 2007 — — (3 ) Reclassification adjustments included in net income (loss), net of tax of $- in 2009, $- in 2008, and $7 in 2007 — — 14 Foreign currency translation: Sale of interests in TGN, net of tax of $69 — 128 — Sale of Argentine assets, net of tax of $68 — — 128 Sale of Brazilian assets, net of tax of $20 — — 36 Other foreign currency translations, net of tax of $- in 2009, $- in 2008, and $2 in 2007 — — 5 Total Comprehensive Income (Loss) $ 224 $ 411 $ (48 ) 83
Table of ContentsConsumers
CMS Energy CompanyCorporation
Consolidated Statements of Changes in Equity Number of Shares 2012 2011 2010 2012 2011 2010 $ 3,072 $ 2,837 $ 2,938 3 2 2 – 1 – 3 3 2 254,100 249,628 227,891 4,627 4,588 4,560 10,107 4,541 22,090 45 40 22 272 269 – 6 5 – (389) (323) (148) (9) (6) (2) (18) (15) (205) – – – – – – – – 8 264,072 254,100 249,628 4,669 4,627 4,588 (49) (40) (33) (48) (39) (32) (10) (11) (9) 2 2 1 – – 1 (56) (48) (39) – – – 2 – – 2 – – (1) (1) (1) (55) (49) (40) (1,553) (1,757) (1,927) 382 415 340 (252) (211) (154) – – (8) – – (8) (1,423) (1,553) (1,757) – – 239 – – (239) – – – 44 44 97 2 2 3 (2) (2) (56) 44 44 44 $ 3,238 $ 3,072 $ 2,837 Years Ended December 31 2009 2008 2007 In Millions $ 5,963 $ 6,421 $ 6,064 Fuel for electric generation 460 483 385 Purchased and interchange power 1,151 1,313 1,370 Purchased power — related parties 81 75 79 Cost of gas sold 1,778 2,079 1,918 Other operating expenses 839 766 808 Maintenance 206 169 183 Depreciation and amortization 559 574 524 General taxes 209 195 217 Loss (gain) on asset sales, net (9 ) 1 (2 ) 5,274 5,655 5,482 689 766 582 Interest and dividends 23 26 70 Allowance for equity funds used during construction 26 33 31 Other income 21 12 32 Other expense (11 ) (28 ) (14 ) 59 43 119 Interest on long-term debt 250 229 236 Other interest 46 22 34 Allowance for borrowed funds used during construction (4 ) (4 ) (6 ) 292 247 264 456 562 437 163 198 125 293 364 312 2 2 2 $ 291 $ 362 $ 310 84
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Consolidated Statements of Income 2012 2011 2010 $ 6,013 $ 6,253 $ 6,156 517 559 520 1,339 1,267 1,224 86 81 84 1,110 1,438 1,516 1,162 1,175 1,109 592 542 572 223 206 205 5,029 5,268 5,230 984 985 926 4 7 18 1 2 – 8 6 5 16 19 31 (33 ) (20 ) (15 ) (4 ) 14 39 232 251 246 16 18 34 (4 ) (4 ) (3 ) 244 265 277 736 734 688 297 267 254 439 467 434 2 2 2 $ 437 $ 465 $ 432 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 2009 2008 2007 In Millions Net income $ 293 $ 364 $ 312 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization (includes nuclear decommissioning of $-, $-, and $4) 559 574 524 Deferred income taxes and investment tax credit 67 196 55 Allowance for equity funds used during construction (26 ) (33 ) (31 ) Postretirement benefits expense 177 141 124 Capital lease and other amortization 26 30 44 Bad debt expense 47 47 33 Loss (gain) on sale of assets, net (9 ) 1 (2 ) Postretirement benefits contributions (254 ) (50 ) (173 ) Changes in assets and liabilities: Increase in accounts receivable, notes receivable and accrued revenue (92 ) (79 ) (442 ) Decrease (increase) in accrued power supply and gas revenue (41 ) 35 99 Decrease (increase) in inventories 91 (89 ) (5 ) Increase (decrease) in accounts payable (50 ) 1 (23 ) Increase (decrease) in accrued expenses 14 (15 ) (15 ) Increase (decrease) in accrued taxes (12 ) (64 ) 80 Decrease (increase) in other current and non-current assets 60 14 (7 ) Increase (decrease) in other current and non-current regulatory liabilities 101 (178 ) (114 ) Decrease in other current and non-current liabilities (29 ) (22 ) (19 ) Net cash provided by operating activities 922 873 440 Capital expenditures (excludes assets placed under capital lease) (811 ) (789 ) (1,258 ) Cost to retire property (49 ) (34 ) (28 ) Decrease in restricted cash and cash equivalents 3 — 32 Proceeds from nuclear decommissioning trust funds, net — — 332 Proceeds from sale of assets 7 — 337 Other investing — — 2 Net cash used in investing activities (850 ) (823 ) (583 ) 86 Years Ended December 31 2009 2008 2007 In Millions Proceeds from issuance of long-term debt 500 600 — Retirement of long-term debt (353 ) (412 ) (3 ) Payments on securitization bonds (34 ) (32 ) (31 ) Payment of common stock dividends (285 ) (297 ) (251 ) Payment of capital and finance lease obligations (23 ) (26 ) (20 ) Stockholder’s contribution 100 — 650 Payment of preferred stock dividends (2 ) (2 ) (1 ) Decrease in notes payable — — (42 ) Debt issuance and financing costs (5 ) (7 ) (1 ) Net cash provided by (used in) financing activities (102 ) (176 ) 301 (30 ) (126 ) 158 69 195 37 $ 39 $ 69 $ 195 Interest paid (net of amounts capitalized) $ 276 $ 223 $ 242 Income taxes paid (net of refunds, $-, $-, and $98) 104 84 — Other assets placed under capital lease $ 16 $ 5 $ 229 87
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Consumers Energy Company
Consolidated Statements of Comprehensive IncomeCONSOLIDATED BALANCE SHEETS December 31 2009 2008 In Millions Cash and cash equivalents $ 39 $ 69 Restricted cash and cash equivalents 22 25 Accounts receivable and accrued revenue, less allowances of $21 in 2009 and $24 in 2008 935 829 Notes receivable 79 93 Accrued power supply and gas revenue 48 7 Accounts receivable — related parties 2 2 Inventories at average cost Gas in underground storage 1,038 1,168 Materials and supplies 111 103 Generating plant fuel stock 148 118 Deferred property taxes 172 165 Regulatory assets 19 19 Prepayments and other 23 30 2,636 2,628 Plant, property & equipment, gross 13,352 12,602 Less accumulated depreciation, depletion, and amortization 4,386 4,242 Plant, property & equipment, net 8,966 8,360 Construction work in progress 505 607 9,471 8,967 Regulatory assets 2,291 2,419 Investments 29 19 Other 195 213 2,515 2,651 $ 14,622 $ 14,246 2012 2011 2010 $ 439 $ 467 $ 434 (8 ) (4 ) (5 ) 2 1 – 3 1 3 (3 ) – – (6 ) (2 ) (2 ) $ 433 $ 465 $ 432 88 December 31 2009 2008 In Millions Current portion of long-term debt, capital and finance lease obligations $ 365 $ 408 Accounts payable 490 494 Accrued rate refunds 21 7 Accounts payable — related parties 11 14 Accrued interest 70 69 Accrued taxes 277 289 Deferred income taxes 206 277 Regulatory liabilities 145 120 Other 86 101 1,671 1,779 Regulatory liabilities 1,991 1,868 Postretirement benefits 1,396 1,436 Asset retirement obligations 228 205 Deferred investment tax credit 51 54 Deferred income taxes 926 792 Other 241 249 4,833 4,604 Commitments and Contingencies (Notes 6, 7, 8, 10 and 11) Long-term debt 4,063 3,908 Non-current portion of capital and finance lease obligations 197 206 Common stockholder’s equity Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods 841 841 Other paid-in capital 2,582 2,482 Accumulated other comprehensive income (loss) 2 (1 ) Retained earnings 389 383 Total common stockholder’s equity 3,814 3,705 Preferred stock 44 44 Total equity 3,858 3,749 8,118 7,863 $ 14,622 $ 14,246 89
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Consumers Energy Company
Consolidated Statements of Cash Flows 2012 2011 2010 $ 439 $ 467 $ 434 592 542 572 150 161 246 184 158 208 53 70 53 14 16 24 (68 ) (315 ) (447 ) (145 ) 112 (59 ) 107 (17 ) 132 7 43 (16 ) 51 74 (83 ) (31 ) 12 (154 ) 1,353 1,323 910 (1,222 ) (876 ) (815 ) (49 ) (56 ) (43 ) (8 ) (19 ) (1 ) (1,279 ) (951 ) (859 ) CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 2012 2011 2010 1,075 – 600 (1,064 ) (37 ) (482 ) – (43 ) – (395 ) (376 ) (360 ) 150 125 250 (30 ) (27 ) (27 ) 110 – – (154 ) (358 ) (19 ) (80 ) 14 32 85 71 39 $ 5 $ 85 $ 71 $ 224 $ 253 $ 259 63 8 149 110 92 56 9 4 16 Years Ended December 31 2009 2008 2007 In Millions At beginning and end of period(a) $ 841 $ 841 $ 841 At beginning of period 2,482 2,482 1,832 Stockholder’s contribution 100 — 650 At end of period 2,582 2,482 2,482 Retirement benefits liability At beginning of period (7 ) (15 ) (8 ) Retirement benefits liability adjustments(b) — 6 — Net gain (loss) arising during the period(b) (4 ) 2 (7 ) At end of period (11 ) (7 ) (15 ) Investments At beginning of period 6 15 23 Unrealized gain (loss) on investments(b) 10 (19 ) (1 ) Reclassification adjustments included in net income(b) (3 ) 10 (7 ) At end of period 13 6 15 At end of period 2 (1 ) — At beginning of period 383 324 270 Effects of changing the retirement plans measurement date Service cost, interest cost, and expected return on plan assets for December 1 through December 31, 2007, net of tax — (4 ) — Additional loss from December 1 through December 31, 2007, net of tax — (2 ) — Adjustment to initially apply accounting for uncertain tax positions — — (5 ) Net income(b) 293 364 312 Common stock dividends declared (285 ) (297 ) (251 ) Preferred stock dividends declared (2 ) (2 ) (2 ) At end of period 389 383 324 At beginning and end of period 44 44 44 $ 3,858 $ 3,749 $ 3,691 90 Years Ended December 31 2009 2008 2007 In Millions Net income $ 293 $ 364 $ 312 Retirement benefits liability Retirement benefits liability adjustments, net of tax of $2 in 2008 — 6 — Net gain (loss) arising during the period, net of tax (tax benefit) of $(2) in 2009, $1 in 2008 and $(4) in 2007 (4 ) 2 (7 ) Investments Unrealized gain (loss) on investments, net of tax (tax benefit) of $6 in 2009, $(10) in 2008, and $(1) in 2007 10 (19 ) (1 ) Reclassification adjustments included in net income, net of tax (tax benefit) of $(2) in 2009, $6 in 2008 and $(3) in 2007 (3 ) 10 (7 ) Total Comprehensive Income $ 296 $ 363 $ 297 91
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Consumers Energy Company
Consolidated Balance Sheets(This page intentionally left blank) 2012 2011 $ 5 $ 85 28 26 844 860 – 23 1 1 32 – 816 929 92 88 167 164 190 187 35 1 45 43 2,255 2,407 15,456 14,621 5,061 4,846 10,395 9,775 1,080 782 11,475 10,557 2,287 2,466 17 1 32 35 209 196 2,545 2,698 $ 16,275 $ 15,662 2012 2011 $ 63 $ 363 110 – 501 561 11 11 6 30 65 73 376 287 144 73 25 125 109 119 1,410 1,642 4,297 3,987 153 167 2,101 1,875 1,385 1,225 311 253 43 46 1,741 1,817 252 256 10,283 9,626 841 841 3,107 2,957 (8) (2) 598 554 4,538 4,350 44 44 4,582 4,394 $ 16,275 $ 15,662 92
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Consumers Energy Company
Consolidated Statements of Changes in Equity 2012 2011 2010 $ 4,394 $ 4,180 $ 3,858 841 841 841 2,957 2,832 2,582 150 125 250 3,107 2,957 2,832 (2) – 2 (19) (16) (11) (8) (4) (5) 2 1 – (25) (19) (16) 17 16 13 3 1 3 (3) – – 17 17 16 (8) (2) – 554 463 389 439 467 434 (393) (374) (358) (2) (2) (2) 598 554 463 44 44 44 $ 4,582 $ 4,394 $ 4,180
CMS ENERGY CORPORATIONEnergy CorporationCONSUMERS ENERGY COMPANYIPP.independent power producer. CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in three business segments: electric utility; gas utility; and enterprises, its non-utility investments and operations. Consumers operates principally in two business segments: electric utility and gas utility.Energy’sEnergy's consolidated financial statements comprise CMS Energy, Consumers, CMS Enterprises, and all other entities in which CMS Energy has a controlling financial interest or is the primary beneficiary. Consumers’Consumers' consolidated financial statements comprise Consumers and all other entities in which it has a controlling financial interest or is the primary beneficiary. CMS Energy uses the equity method of accounting for investments in companies and partnerships that are not consolidated, where they have significant influence over operations and financial policies but are not the primary beneficiary. CMS Energy and Consumers eliminate intercompany transactions and balances.CMS Energy and Consumers record estimated liabilities for contingencies in their consolidated financial statements when it is probable that a liability has been incurred and when the amount of loss can be reasonably estimated. For additional details, see Note 6, Contingencies and Commitments.Program:Programs: Under an electric The MPSC's 2009 gas rate case order issued by the MPSC in November 2009,authorized Consumers was granted authority to implement a gas revenue decoupling mechanism. This mechanism, that adjusts customerwhich was extended through April 2012 in the 2010 gas rate case order, allowed Consumers to adjust future gas rates to collect or refund the change in marginal revenue arising from the difference between the level ofdegree that actual average weather-adjusted sales per customer adopted indiffered from the order and actual average sales per customer.rate order. Consumers accounted for this program as an alternative-revenue program that meets the criteria for recognizing the effects of decoupling adjustments on revenue as gas is delivered. For details on Consumers' decoupling mechanisms, see Note 3, Regulatory Matters.and, accordingly, recognizesthat meets the effectscriteria for recognizing revenue related to the incentive as soon as energy savings exceed the annual targets established by the MPSC.decoupling adjustments on revenue as electricity is delivered.ana final order within that period, the filed rates are considered approved. If the MPSC issues ana final order within that period, the rates that Consumers self-implemented may be subject to refund, with interest. Consumers recognizes revenue associated with self-implemented rates. If Consumers considers it probable that it will be required to refund a portion of its self-implemented rates, then Consumers records a provision for revenue subject to refund. For details on Consumers’Consumers' self-implemented rates, see Note 7, Utility Rate3, Regulatory Matters.AccountingAccounts Receivable: Accounts receivable comprise trade receivables and unbilled receivables. CMS Energy and Consumers record their accounts receivable at cost, which approximates fair value. CMS Energy and Consumers establish an allowance for Legal Fees:uncollectible accounts based on historical losses, management's assessment of existing economic conditions, customer trends, and other factors. CMS Energy and Consumers assess late payment fees on trade receivables based on contractual past-due terms established with customers. CMS Energy and Consumers charge off accounts deemed uncollectible to operating expense.Accounting for MISO Transactions:Debt Issuance Costs, Discounts, Premiums, and Refinancing Costs: MISO requires CMS Energy and Consumers defer issuance costs, discounts, and premiums associated with long-term debt and amortize those amounts over the submission of hourly day-ahead and real-time bids and offers for energy at locations across the MISO region. Consumers and CMS ERM account for MISO93CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)transactions on a net hourly basis in eachterms of the real-timedebt issues. For the non-regulated portions of CMS Energy's and day-ahead markets,Consumers' businesses, refinancing costs are expensed as incurred. For the regulated portions of CMS Energy's and Consumers' businesses, any remaining unamortized issuance costs, discounts, and premiums associated with refinanced debt are amortized over the term of the newly issued debt.transactions across all MISO energy market locations. income.netderivative contracts that do not qualify for the normal purchases and sales exception at fair value on their consolidated balance sheets. Each reporting period, the resulting asset or liability is adjusted to reflect any change in a single hourthe fair value of the contract. Since none of CMS Energy's or Consumers' derivatives has been designated as an accounting hedge, all changes in Purchased and interchange power and net salesfair value are reported in a single hour in Operating Revenue on the Consolidated Statements of Income (Loss).earnings. CMS Energy and Consumers record net sale billing adjustments upon invoice receipt. CMS Energydid not have significant amounts recorded as derivative assets or liabilities at December 31, 2012 or 2011. Additionally, the gains and Consumers record expense accrualslosses recognized in earnings were not significant for future net purchases adjustments based on historical experience, and reconcile accruals to actual expenses upon invoice receipt.Cash and Cash Equivalents: Cash and cash equivalents include short-term, highly liquid investments with original maturities of three monthsthe years ended December 31, 2012, 2011, or less.pension planPension Plan assets as the fair value of plan assets on the measurement date, adjusted by the gains or losses that will not be admitted into the MRV until future years. CMS Energy and Consumers reflect each year’syear's gain or loss in the MRV in equal amounts over a five-year period beginning on the date the original amount was determined. CMS Energy and Consumers determine the MRV for OPEB plan assets as the fair value of assets on the measurement date. CMS Energy and Consumers use the MRV in the calculation of net pension and OPEB costs.Derivative Instruments: CMS Energy and Consumers record derivative contracts that do not qualify for the normal purchases and sales exception at fair value on the Consolidated Balance Sheets. If a derivative qualifies for cash flow hedge accounting, changes in the fair value are recorded in AOCL; otherwise, changes are reported in earnings. For additionalfurther details, regarding derivative instruments, see Note 11, Derivative Instruments.9,15, Earnings Per Share —– CMS Energy. primarily from quoted market prices. Onprices or other observable, market-based inputs. Unrealized gains and losses resulting from changes in fair value of these securities are determined on a specific identification basis,specific-identification basis. CMS Energy and Consumers report unrealized gains and losses from changes in fair value of certainavailable-for-sale debt and equityon these securities, net of tax, in equity as part of AOCL. CMS Energy and Consumers excludeAOCI, except that unrealized losses from earnings unless the related changes in fair value are determined to be other than temporary.temporary are reported in earnings. For additional details regarding financial instruments, see Note 10,7, Financial Instruments.94CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)22,20, Asset Sales, Discontinued Operations, and Impairment Charges.International Operations and Foreign Currency:Inventory: CMS Energy completed the sale of its international assets in 2007. Previously, CMS Energy subsidiaries and affiliates whose functional currency was not the U.S. dollar translated their assets and liabilities into U.S. dollars at the exchange rates in effect at the end of the fiscal period. CMS Energy translated revenue and expense accounts of these subsidiaries and affiliates into U.S. dollars at the average exchange rates that prevailed during the period. CMS Energy showed these foreign currency translation adjustments in the stockholders’ equity section on its Consolidated Balance Sheets. For additional details on the sale of CMS Energy’s international assets, see Note 22, Asset Sales, Discontinued Operations, and Impairment Charges.CMS Energy includes exchange rate fluctuations on transactions denominated in a currency other than the functional currency, except those that are hedged, in determining net income.Inventory: CMS Energy and Consumers use the weighted-average cost method for valuing working gas, recoverable cushionbase gas in underground storage facilities, and materials and supplies inventory. CMS Energy and Consumers also use this method for valuing coal inventory, and they classify these amounts as generating plant fuel stock on their Consolidated Balance Sheets.classify renewable energy creditsaccount for RECs and emission allowances as materials and supplies inventory and use the averageweighted-average cost method to remove amounts from inventory as the renewable energy creditsinventory. RECs and emission allowances are used to generatesatisfy compliance obligations related to the generation of power.lower of cost or marketlower-of-cost-or-market method to evaluate inventory for impairment.MaintenanceMISO Transactions: MISO requires the submission of hourly day-ahead and Depreciation:real-time bids and offers for energy at locations across the MISO region. CMS Energy and Consumers account for MISO transactions on a net hourly basis in each of the real-time and day-ahead markets, netted across all MISO energy market locations. CMS Energy and Consumers record property repairsnet hourly purchases in purchased and minor property replacement as maintenance expense. CMS Energyinterchange power and Consumersnet hourly sales in operating revenue on their consolidated statements of income. They record planned major maintenance activities as operating expense unless the cost represents the acquisitionnet billing adjustments upon receipt of additional components or the replacementsettlement statements, record accruals for future net purchases and sales adjustments based on historical experience, and reconcile accruals to actual expenses and sales upon receipt of an existing component.Consumers depreciates utility property using a composite method, in which it applies a single MPSC-approved depreciation rate to the gross investment in a particular class of property within the electric and gas segments. Consumers performs depreciation studies periodically to determine appropriate group lives. The composite depreciation rates for Consumers’ properties are as follows: 2009 2008 2007 Electric utility property 3.0 % 3.0 % 3.0 % Gas utility property 2.9 % 3.6 % 3.6 % Other property 7.6 % 8.5 % 8.7 % Property, Plant, and Equipment: CMS Energy and Consumers record property, plant, and equipment at original cost when placed into service. The cost includes labor, material, applicable taxes, pension, other benefits, and AFUDC, if applicable. Consumers’ property, plant, and equipment is recoverable through its general rate making process. For additional details see Note 7, Utility Rate Matters.When utility property is retired or otherwise disposed of in the ordinary course of business, Consumers records the original cost to accumulated depreciation, along with associated cost of removal, net of salvage. CMS Energy and Consumers recognize gains or losses on the retirement or disposal of non-regulated assets in income. Cost of removal collected from customers, but not spent, is recorded as a regulatory liability.Consumers capitalizes AFUDC on regulated major construction projects, except pollution control facilities on its fossil-fueled power plants and where financing costs are specifically approved by the MPSC in rates. AFUDC95CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)represents the estimated cost of debt and authorized return on equity funds used to finance construction additions. Consumers records the offsetting credit as a reduction of interest for the amount representing the borrowed funds component and as other income for the equity funds component on the Consolidated Statements of Income. When construction is completed and the property is placed in service, Consumers depreciates and recovers the capitalized AFUDC from customers over the life of the related asset. The following table shows Consumers’ electric, gas and common composite AFUDC capitalization rates: 2009 2008 2007 AFUDC capitalization rate 7.6 % 7.7 % 7.4 % CMS Energy and Consumers capitalize the purchase and development of internal-use computer software. These costs are expensed evenly over the estimated useful life of the internal-use computer software. If computer software is integral to computer hardware, then its cost is capitalized and depreciated with the hardware.The types of costs capitalized are consistent for all periods presented by the financial statements. For additional details on property, plant, and equipment see Note 16, Property, Plant, and Equipment.Consumers’Consumers' real and personal property assessed by local taxing authorities. Consumers records property tax expense over the fiscal year of the taxing authority for which the taxes are levied based on Consumers’Consumers' budgeted customer sales. The deferred property tax balance represents the amount of Consumers’Consumers' accrued property tax that will be recognized over future governmental fiscal periods.Consolidated Financial Statementsconsolidated financial statements to conform to the presentation for the current period. These reclassifications did not affect consolidated net income (loss) or cash flows for the periods presented.Cash:Cash and Cash Equivalents: CMS Energy and Consumers classifyhave restricted cash and cash equivalents dedicated for repayment of Securitization bonds and for payment under performance guarantees. CMS Energy and Consumers classify these amounts as a current asset as the relatedif they relate to payments that could or will occur within one year.Trade Receivables and Notes Receivable:IMPLEMENTATIONOF NEW ACCOUNTING STANDARDS Accounts receivable comprise trade receivables and unbilled receivables.record their accounts receivable at cost, which approximates fair value.eliminates the option of reporting other comprehensive income and its components on the statement of changes in equity. Prior to the implementation of this standard, both CMS Energy and Consumers establish an allowanceused this option for uncollectible accountstheir consolidated financial statements. Under the standard, entities are required to present either a single continuous statement of comprehensive income, containing both net income and loan losses based on historical losses, management’s assessmentcomponents of existing economic conditions, customer trends, and other factors.comprehensive income, or two separate consecutive statements. CMS Energy and Consumers assess late payment feeshave chosen to present two separate consecutive statements. This standard affects only the presentation of comprehensive income on trade receivables based on contractual past-due terms established with customers.CMS Energy's and Consumers' consolidated financial statements.charge off accounts deemed uncollectible to operating expense.Non-current notes receivable consistedis the result of EnerBank’s consumer loans totaling $269 million, net of an allowance for loan losses of $6 million at December 31, 2009, and $186 million, net of an allowance for loan losses of $4 million at December 31, 2008. EnerBank provides unsecured, fixed-rate installment loans to homeowners to finance home improvements.Unamortized Debt Premium, Discount, and Expense: CMS Energy and Consumers defer premiums, discounts, and issuance costs of long-term debt and amortize those costs over the termsa joint project of the debt issues. ForFinancial Accounting Standards Board and the non-regulated portions of CMS Energy’s and Consumers’ businesses, refinancing costs are expensed as incurred. For the regulated portions of CMS Energy’s and Consumers’ businesses, any remaining unamortized premiums, discounts, and issuance costs associated with refinanced debt are amortized over the termInternational Accounting Standards Board. The primary objective of the newly issued debt.96CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2: OTHER INCOME AND OTHER EXPENSEThe following table shows the components of Other income and Other expense at CMS Energy and Consumers: 2009 2008 2007 In Millions Other income: Gain on early retirement of long-term debt $ 28 $ — $ — Gain on SERP investment 8 — 22 Gain on investment — — 7 Return on stranded and security costs 5 5 6 Electric restructuring return — 1 2 Foreign currency gain — 2 1 All other 13 7 3 Total other income $ 54 $ 15 $ 41 Other expense: Loss on reacquired and extinguished debt $ (18 ) $ — $ (22 ) Unrealized investment loss — (24 ) — Abandoned project — — (8 ) Derivative loss on debt tender offer — — (3 ) Civic and political expenditures (3 ) (5 ) (2 ) All other (9 ) (8 ) (4 ) Total other expense $ (30 ) $ (37 ) $ (39 ) Other income: Gain on SERP investment $ 5 $ — $ 10 Gain on investment — — 7 Return on stranded and security costs 5 5 6 Gain on CMS Energy common stock — — 4 Electric restructuring return — 1 2 All other 11 6 3 Total other income $ 21 $ 12 $ 32 Other expense: Unrealized investment loss $ — $ (16 ) $ — Abandoned project — — (8 ) Civic and political expenditures (3 ) (5 ) (2 ) All other (8 ) (7 ) (4 ) Total other expense $ (11 ) $ (28 ) $ (14 ) UTILITY REGULATIONREGULATORY MATTERSthe FERC, andConsumers prepares its consolidated financial statements in accordance with the provisions of regulatory accounting. A utility must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated services. Under regulatory accounting,97CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)revenueexpense or expenserevenue by non-regulated businesses.CMS Energy and Consumers reflected End of Recovery
or Refund Period 2012 2011 2013 $ 16 $ – 2013 15 – 2013 4 – 2012 – 1 $ 35 $ 1 various $ 1,700 $ 1,665 2016 192 252 various 152 156 various 123 114 various 55 44 2014 17 21 2014 17 26 various 15 14 2015 7 – various 5 – 2012 – 85 n/a – 59 2012 – 23 various 4 7 $ 2,287 $ 2,466 $ 2,322 $ 2,467 2013 $ 23 $ 120 2013 2 5 $ 25 $ 125 various $ 1,441 $ 1,364 various 336 181 2028 175 161 various 103 113 2014 34 45 various 12 11 $ 2,101 $ 1,875 $ 2,126 $ 2,000 non-current amounts,recognized an offsetting $151 million increase in regulatory liabilities.their Consolidated Balance Sheets.a 10.3 percent authorized return on equity. Consumers filed an application in September 2012 to reconcile the total revenues collected during self-implementation to those that would have been collected under final rates. This reconciliation requests that the MPSC find that no refund is required. Date Filed Net Overrecovery
(In Millions) PSCR Cost of
Power Sold
(In Billions) March 2012 $ 8 $ 1.8 End of recovery or refund period 2009 2008 In Millions Assets Earning a Return(a): Stranded Costs 2013 $ 67 $ 71 Customer Choice Act 2013 42 90 MGP sites (Note 6) 2020 28 31 Energy optimization plan(b)(c) various 10 — Uncollectible expense tracker (Note 7) n/a 6 — Decoupling mechanism (Note 7) n/a 5 — Electric restructuring implementation plan 2009 — 3 Other(d) various 37 44 Assets Not Earning a Return: Postretirement benefits (Note 12) various 1,464 1,450 Securitized costs (Note 8) 2015 364 416 Big Rock nuclear decommissioning and related costs (Note 7) n/a 85 129 ARO (Note 17) various 100 92 Unamortized debt costs n/a 56 66 MGP sites (Note 6) n/a 35 38 Other(d) various 11 8 Total regulatory assets(e) $ 2,310 $ 2,438 Cost of removal (Note 17) n/a $ 1,247 $ 1,203 Income taxes, net (Note 13) n/a 529 519 ARO (Note 17) various 130 137 Big Rock nuclear decommissioning and related costs (Note 7) 2011 86 — Palisades refund (Note 7)(f) 2010 85 120 Renewable energy plan(g) n/a 25 — Self-implemented electric rate refund (Note 7) 2010 17 — Energy optimization plan(b) n/a 6 — Other(d) various 11 9 Total regulatory liabilities(e) $ 2,136 $ 1,988 Date Filed Net Overrecovery
(In Millions) GCR Cost of
Gas Sold
(In Billions) June 2012 $ 2 $ 0.9 (a)The MPSC has authorized Consumers to recover a 10.7 percent return on equity for regulatory assets specific to Consumers’ electric business in its electric rates and a 10.6 percent return on equity for regulatory assets specific to Consumers’ gas business in its gas rates.(b)In order to achieve annual sales reduction targets mandated by the 2008 Energy Legislation, Consumers launched an energy optimization plan, which is funded through a customer surcharge authorized by the MPSC. At December 31, 2009, for certain customer classes, Consumers’ spending exceeded surcharges collected; accordingly, Consumers recorded a regulatory asset of $4 million for these amounts. For other customer classes, total surcharges collected exceeded Consumers’ spending; this excess amount of $6 million is reported98
In September 2012, the MPSC issued an order in Consumers' 2010-2011 GCR reconciliation, approving full recovery of $1.2 billion in gas costs and authorizing Consumers to roll into its 2011-2012 GCR plan an overrecovery of $6 million.CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)as a regulatory liability. These amounts are reported in non-current regulatory assets and liabilities, because the period in which Consumers will collect and spend the surcharges is beyond one year.(c)The MPSC has approved an energy optimization incentive mechanism that provides a financial incentive if Consumers’ energy savings exceed annual targets established by the MPSC. Consumers will request $6 million, the maximum incentive, from the MPSC through the energy optimization reconciliation case to be filed in March 2010. Consumers reported the incentive in non-current regulatory assets.(d)At December 31, 2009 and 2008, other regulatory assets included a gas inventory regulatory asset and OPEB and pension expense incurred in excess of the MPSC-approved amount. Consumers will recover the OPEB and pension regulatory assets from its customers by 2011. Other regulatory liabilities included AFUDC collected in excess of the MPSC-approved amount and a provision for revenue subject to refund related to Consumers’ self-implemented gas rates.(e)At December 31, 2009, Consumers classified $19 million of regulatory assets as current regulatory assets and $145 million of regulatory liabilities as current regulatory liabilities. At December 31, 2008, Consumers classified $19 million of regulatory assets as current regulatory assets and $120 million of regulatory liabilities as current regulatory liabilities.(f)The Palisades and Big Rock ISFSI sale transaction resulted in $390 million of excess sales proceeds and decommissioning amounts. The 2007 MPSC order approving the sale transaction required that Consumers credit $255 million of that amount to its retail customers by December 2008. In 2008, the MPSC instructed Consumers to offset the remaining $135 million of excess sales proceeds and decommissioning fund balances with $26 million of transaction costs from the sale. In May 2009, the MPSC required Consumers to distribute to customers $36 million of proceeds from the sale. In Consumers’ 2009 electric rate order, the MPSC ordered Consumers to refund the remaining $73 million of excess sales proceeds and decommissioning fund balances to customers. At December 31, 2009, the Palisades regulatory liability of $85 million comprised $73 million of excess sales proceeds and the remaining unpaid balance of the $36 million of proceeds, and it was reported in current regulatory liabilities, as the proceeds will be credited to customers within one year.(g)The 2008 Energy Legislation requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and includes requirements for specific renewable capacity additions. Under Consumers’ renewable energy plan, it will meet this requirement by entering into long-term agreements to purchase power from third parties and by building its own renewable energy generating facilities. The MPSC authorized Consumers to implement a customer surcharge to fund its renewable energy plan. At December 31, 2009, total surcharges collected from gas and electric customers exceeded Consumers’ spending. This excess amount is reported in the non-current portion of regulatory liabilities as the period Consumers will spend the surcharges collected is beyond one year.Consumers’Consumers' PSCR and GCR mechanisms also represent probable future revenues that will be recovered from customers or previously collected revenues that will be refunded to customers through the ratemaking process. Underrecoveries are included in Accruedaccrued power supply and gas revenue and overrecoveries are included in Accruedaccrued rate refunds on CMS Energy’s and Consumers’ Consolidated Balance Sheets. For additional details on Consumers’ PSCR and GCR mechanisms, see Note 7, Utility Rate Matters.CMS Energy and Consumers' consolidated balance sheets. regulatory assets and liabilities for PSCR and GCR underrecoveries and overrecoveries on its Consolidated Balance Sheets:consolidated balance sheets: 2009 2008 In Millions Regulatory assets for PSCR and GCR underrecoveries $ 48 $ 7 Regulatory liabilities for PSCR and GCR overrecoveries $ 21 $ 7 2012 2011 $ 32 $ – 6 30 99CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)NEW ACCOUNTING STANDARDSCONTINGENCIES AND COMMITMENTSImplementation of New Accounting StandardsSFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles,codified inASC105-10, Generally Accepted Accounting Principles:This standard, which was effective for July 1, 2009, establishesare involved in various matters that give rise to contingent liabilities. Depending on the ASC asspecific issues, the single sourceresolution of authoritative nongovernmental GAAP, except for SEC rulesthese contingencies could have a material effect on CMS Energy's and interpretive releases, which are also authoritative GAAP for SEC registrants. The ASC supersedes all existing non-SEC accountingConsumers' liquidity, financial condition, and reporting standards.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.included referencesprovided inaccurate information regarding natural gas trades to various energy industry publications which compile and report index prices. Although CMS Energy has not received any formal notification that the DOJ has completed its investigation, the DOJ's lastASCMDL. CMS Energy was dismissed from the Learjet, Heartland, and J.P. Morgan cases in 2009, but other CMS Energy defendants remained parties. All CMS Energy defendants were dismissed from the Breckenridge case in 2009. In 2010, CMS Energy and Cantera Gas Company were dismissed from the Newpage case and the Arandell (Wisconsin) case was reinstated against CMS ERM. In July 2011, all claims against remaining CMS Energy defendants in the MDL cases were dismissed based on FERC preemption. Plaintiffs have filed appeals in all of the cases. The issues on appeal are whether the district court erred in dismissing the cases based on FERC preemption and denying the plaintiffs' motions for leave to amend their complaints to add a federal Sherman Act antitrust claim. The plaintiffs did not appeal the dismissal of CMS Energy as a defendant in these cases, but other CMS Energy entities remain as defendants. Oral argument on the appeal was held before the Ninth Circuit Court of Appeals in San Francisco in October 2012.Consolidated Financial Statementsassociated air permits. Consumers has responded formally to the NOV/FOV denying the allegations. In addition, in 2008, Consumers received an NOV for three of its coal-fueled facilities alleging, among other things, violations of NSR PSD regulations relating to ten projects from 1986 to 1998 allegedly subject to review under the NSR. The EPA has alleged that some utilities have classified incorrectly major plant modifications as RMRR rather than seeking permits from the EPA or state regulatory agencies to modify their plants. Consumers responded to the information requests from the EPA on this subject in the past. Consumers believes that it has properly interpreted the requirements of RMRR.notes where appropriate.regulations, but cannot reasonably estimate the extent of cost recovery. Although Consumers cannot predict the financial impact or outcome of the entirety of these discussions, it does not expect any future loss from civil penalties and/or Supplemental Environmental Projects to be material. 2013 2014 2015 2016 2017 $ 11 $ 11 $ 20 $ 11 $1 0 SFAS No. 160, Noncontrolling Interests Issue Date Expiration Date Maximum
Obligation Carrying
Amount Various Various through September 2029 $ 512 1 $ 15 Various Various through March 2021 60 1 Various Various through September 2029 $ 30 $ 1 Consolidated Financial Statements — an amendmenttitle to ARB No. 51,codifiedthe assets or stock sold to the purchaser by CMS Energy subsidiaries. Except for items described elsewhere inASC810-10, Consolidation:Under this standard,Note, CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.Guarantee Description How Guarantee Arose Events That Would Require
PerformanceCMS Energy, including Consumers Indemnity obligations from asset sales and other agreements Stock and asset sale agreements Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances Guarantees Normal operating activity Nonperformance or non-payment by a subsidiary under a related contract Consumers Normal operating activity Nonperformance or claims made by a third party under a related contract was effective forthey are unable to estimate the maximum potential obligation. These factors include unspecified exposure under certain agreements. CMS Energy and Consumers January 1, 2009, ownership interests in subsidiaries held by third parties, previously referredconsider the likelihood that they would be required to as minority interests, are presented as noncontrolling interests and shown separately on the parent’s balance sheet within equity.perform or incur substantial losses related to these indemnities to be remote.net income attributable to noncontrolling interests is includedthe matters disclosed in net income onthis Note and Note 3, Regulatory Matters, there are certain other lawsuits and administrative proceedings before various courts and governmental agencies arising in the income statement.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 have applied these provisions to current and prior periods presentedoccasionally self-report certain regulatory non-compliance matters that may or may not eventually result in their Consolidated Financial Statements.SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133,codified inASC815-10, Derivatives and Hedging:This standard, which was effective foradministrative proceedings. CMS Energy and Consumers January 1, 2009, requires enhanced disclosures about how and why derivativesbelieve that the outcome of any one of these proceedings will not have a material adverse effect on their consolidated results of operations, financial condition, or liquidity.used, how derivativesConsumers' contractual purchase obligations at December 31, 2012 for each of the periods shown. CMS Energy did not have any contractual purchase obligations at December 31, 2012 that were not included in Consumers' reported amounts.hedged items are accountedservices, and construction and technology services. The commodities and related services include natural gas and associated transportation, electricity, and coal and associated transportation. Payments Due Total 2013 2014 2015 2016 2017 Beyond 2017 $ 12,326 $ 1,878 $ 1,084 $ 934 $ 869 $ 853 $ 6,708 1,469 89 91 91 93 95 1,010 and how derivatives and any related hedged items affect financial position, financial performance, and cash flows. This standard did not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position. For additional details on CMS Energy’s and Consumers’ derivatives, see Note 11, Derivative Instruments.FSP APB14-1, Accounting for Convertible Debt Instruments That May Be Settled In Cash Upon Conversion (Including Partial Cash Settlement),codified inASC470-20, Debt with Conversion and Other Options:This standard, which was effective for CMS Energy and Consumers January 1, 2009, requires CMS Energy to account for the liability and equity components of its convertible debt securities separately and in a mannerall delivered energy that reflects CMS Energy’s borrowing ratethe MCV Partnership's cost of production;nonconvertible debt. The following table summarizesConsumers to extend the effectsMCV PPA for five years or purchase the MCV Facility at the conclusion of adopting this standard on CMS Energy’s Consolidated Financial Statements: In Millions, Except Per Share Amounts 2009 2008 2007 Twelve Months Ended December 31 Interest on long-term debt $ 8 $ 8 $ 9 Income tax expense (3 ) (3 ) (2 ) Net income $ (5 ) $ (5 ) $ (7 ) Basic $ (0.02 ) $ (0.02 ) $ (0.03 ) Diluted $ (0.02 ) $ (0.02 ) $ (0.03 ) 100CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, January 1, 2008 2008 Non-current deferred income tax assets $ — $ (12 ) Long-term debt $ (22 ) $ (30 ) Non-current deferred income tax liabilities 9 — Total $ (13 ) $ (30 ) Other paid-in capital $ 37 $ 37 Accumulated deficit 24 19 Total $ 13 $ 18 This standard had no impact on Consumers’ Consolidated Financial Statements. For additional details about CMS Energy’s convertible debt instruments, see Note 8, FinancingsCapacity and Capitalization.FSPEITF 03-6-1, Determining Whether Instruments Grantedenergy charges under the MCV PPA were $319 million in Share-Based Payment Transactions Are Participating Securities,codified2012, $292 million inASC260-10, Earnings per Share:This standard, which was effective for CMS Energy 2011, and $285 million in 2010. Consumers January 1, 2009, applies to CMS Energy’s outstanding unvested restricted stock awards. Under this standard, these awards are considered participating securitiesestimates that capacity and thusenergy charges under the MCV PPA will average $250 million annually. These amounts are included in the computationtable above.basic EPS. Implementationthe capacity and energy produced by Palisades, up to the annual average capacity of this standard for798 MW. Consumers estimates that capacity and energy payments under the Palisades PPA will average $360 million annually. A portion of these amounts is included in the table above. Consumers' total purchases of capacity and energy under the PPA were $331 million in 2012, $311 million in 2011, and $286 million in 2010. For further details about Palisades, see Note 10, Leases. Interest Rate
(%) Maturity 2012 2011 variable 1 2013 $ – $ 150 2.750 2014 250 250 6.875 2015 125 125 4.250 2015 250 250 6.550 2017 250 250 5.050 2018 250 250 8.750 2019 300 300 6.250 2020 300 300 5.050 2022 300 – 2.875 2 2024 – 226 5.500 2 2029 172 172 $ 2,197 $ 2,273 variable 3 2016 180 – $ 2,377 $ 2,273 $ 4,341 $ 4,329 1.164 4 2013-2020 $ 527 $ 462 7.750 5 2027 – 29 $ 527 $ 491 $ 7,245 $ 7,093 (519 ) (1,033 ) (16 ) (20 ) $ 6,710 $ 6,040 reduced basicretired these notes.diluted EPS by $0.01April 2012. See the "Contingently Convertible Securities" section in this Note for further discussion of the twelve monthsconversion features. Interest Rate
(%) Maturity 2012 2011 5.000 2012 $ – $ 300 5.375 2 2013 – 375 6.000 2014 200 200 5.000 2015 225 225 2.600 2015 50 50 5.500 2016 350 350 5.150 2017 250 250 3.210 2017 100 100 5.650 2018 250 250 6.125 2019 350 350 6.700 2019 500 500 5.650 2020 300 300 3.770 2020 100 100 5.300 2022 250 250 2.850 2022 375 – 3.190 2024 52 – 3.390 2027 35 – 5.800 2035 175 175 6.170 2040 50 50 4.970 2040 50 50 4.310 2042 263 – $ 3,925 $ 3,875 6.875 2018 180 180 5.718 3 2013-2015 133 171 various 2018-2035 103 103 $ 4,341 $ 4,329 (41) (339) (3) (3) $ 4,297 $ 3,987 2009, 2008,2012: Principal
(In Millions) Interest Rate Issue/Retirement
Date Maturity Date $ 300 5.050 % March 2012 March 2022 180 variable February 2012 and July 2012 December 2016 480 375 2.850 % May 2012 May 2022 350 variable July 2012 March 2013 68 variable August 2012 April 2018 35 variable August 2012 April 2035 52 3.190 % December 2012 December 2024 35 3.390 % December 2012 December 2027 263 4.310 % December 2012 December 2042 1,178 $ 1,658 $ 226 2.875 % January 2012 and April 2012 December 2024 29 7.750 % February 2012 July 2027 150 variable July 2012 January 2013 405 300 5.000 % February 2012 February 2012 375 5.375 % May 2012 April 2013 68 variable August 2012 April 2018 35 variable August 2012 April 2035 350 variable December 2012 March 2013 1,128 $ 1,533 2007.floating-rate senior notes due January 2013. In February 2013, the term loan facility was amended, reducing the annual interest rate to LIBOR plus 2.00 percent.standard had no impact on Consumers’ Consolidated Financial Statements.FSPagreement was terminated using proceeds from FMBs issued in December 2012.FAS 157-4,3 Determining Fair Value WhenVolume and Level of ActivityMichigan Strategic Fund for the Asset or Liability Have Significantly Decreasedissuance of $68 million and Identifying Transactions That Are Not Orderly,codified inASC820-10, Fair Value Measurements$35 million of tax-exempt Michigan Strategic Fund revenue bonds. The bonds, which are backed by letters of credit and Disclosures:collateralized by Consumers' FMBs, are subject to optional tender by the holders that would result in remarketing. Consumers used the proceeds to redeem $103 million of tax-exempt bonds in August 2012.This standard, which Consumers secures its FMBs by a mortgage and lien on substantially all of its property. Consumers' ability to issue FMBs is restricted by certain provisions in the First Mortgage Bond Indenture and the need for regulatory approvals under federal law. Restrictive issuance provisions in the First Mortgage Bond Indenture include achieving a two-times interest coverage ratio and having sufficient unfunded net property additions.effective$500 million at December 31, 2012. FERC has also authorized Consumers to issue and sell up to $1.9 billion of secured and unsecured long-term securities for CMS Energy and Consumers April 1, 2009, provides guidance on determining whether there has been a significant decrease in market activity for an asset or liability and whether quoted prices may reflect distressed transactions. This guidance indicates that entities should not rely on distressed prices in determining fair value, but may instead use alternative valuation techniques, such as discounting future cash flows assuming an orderly transaction. This standard also requires quarterly disclosures about the inputs and valuation techniques used in fair value measurements. Previously, only annual disclosures about valuation techniques were required. See Note 5, Fair Value Measurements,general corporate purposes. The remaining availability was $1.6 billion at December 31, 2012. The authorizations are for the required disclosures. This standard hadperiod ending June 30, 2014. Any long-term issuances during the authorization period are exempt from FERC's competitive bidding and negotiated placement requirements.impact on CMS Energy’srecourse to Consumers' other assets. Through its rate structure, Consumers bills customers for Securitization surcharges to fund the payment of principal, interest, and other related expenses. The surcharges collected are remitted to a trustee and are not available to creditors of Consumers or Consumers’ consolidated income, cash flows, or financial position.FSPFAS 115-2 andFAS 124-2, Recognition and Presentation ofOther-Than-Temporary Impairments, codified inASC320-10, Investments — Debt and Equity Securities:Maturities:This standard, which was effective for CMS Energy and Consumers April 1, 2009, amends the guidance for determining whether another-than-temporary impairment has occurred for debt securities. Entities no longer need to assert both the intent and ability to hold an impaired debt security until recovery to avoid recording another-than-temporary impairment. Instead, an entity must consider whether it intends to sell the security or whether it is more likely than not that it will be required to sell the security prior to recovery. If either of these criteria are met, the full impairment should be recognized in earnings. If neither criterion is met, only impairments due to credit losses should be recorded in earnings, while impairments related to other factors should be recorded in other comprehensive income. This standard also includes additional disclosure requirements. This standard had no impact on CMS Energy’s or Consumers’ Consolidated Financial Statements; however, this new guidance will be incorporated in future assessments ofother-than-temporary impairments of debt securities.101CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets,codified inASC715-20, Compensation — Retirement Benefits — Defined Benefit Plans — General:This standard, which was effective for CMS Energy and Consumers At December 31, 2009, requires expanded2012, the aggregate annual disclosures about postretirement benefit plan assets. This standard did not impactcontractual maturities for long-term debt for the next five years were: 2013 2014 2015 2016 2017 $ 347 $ 583 $ 738 $ 563 $ 630 $ 41 $ 243 $ 324 $ 350 $ 350 Amount of
Facility Amount
Borrowed Letters of Credit
Outstanding Amount
Available $ 550 $ – $ 2 $ 548 $ 500 $ – $ 2 $ 498 150 – – 150 30 – 30 – Energy’sEnergy's average borrowings during the year ended December 31, 2012 were $12 million, with a weighted-average annual interest rate of 2.26 percent, representing LIBOR plus 2.00 percent. Maturity Outstanding
(In Millions) Adjusted
Conversion
Price Adjusted
Trigger Price 2029 $ 172 $ 13.94 $ 18.12 Consumers’ consolidated income, cash flows, or financial position. See Note 12, Retirement Benefits,above the trigger price for further information20 of 30 consecutive trading days ending on the accountinglast trading day of the previous quarter. The trigger price at which these securities become convertible is 130 percent of the conversion price. The conversion and trigger prices are subject to adjustments in certain circumstances, including payments or distributions to CMS Energy's common stockholders. The conversion and trigger price adjustment is made when the cumulative change in conversion and trigger prices is one percent or more. During 20 of the last 30 trading days ended December 31, 2012, the adjusted trigger-price contingencies were met for postretirement benefit plans and for disclosures about postretirement benefit plan assets.EITF Issue07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock,codified inASC815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity: This standard, which was effective for CMS Energy and Consumers January 1, 2009, establishes new criteria for determining whether freestanding instruments or embedded features are considered “indexed to an entity’s own stock” for the purpose of assessing potential derivative accounting or balance sheet classification. This guidance applies to the equity conversion features in CMS Energy’s contingently convertible senior notes, and preferred stock. as a result, the senior notes are convertible at the option of the note holders for the three months ending March 31, 2013. Conversion Date Principal
Converted
(In Millions) Conversion
Value per
$1,000 of
Principal Shares
of Common
Stock Issued
on Settlement Cash Paid on
Settlement
(In Millions) January 2012 $ 73 $ 1,738.99 2,464,138 $ 73 April 2012 153 1,774.98 5,381,349 153 new criteria, these features remain exemptprovisions of its articles of incorporation, at December 31, 2012, Consumers had $536 million of unrestricted retained earnings available to pay common stock dividends to CMS Energy. Provisions of the Federal Power Act and the Natural Gas Act appear to restrictderivative accounting,FERC suggest that under a variety of circumstances common stock dividends from Consumers would not be limited to amounts in Consumers' retained earnings. Any decision by Consumers to pay common stock dividends in excess of retained earnings would be based on specific facts and thus, this standard had no impact on CMS Energy’s or Consumers’ Consolidated Financial Statements.EITF Issue08-5, Issuer’s Accounting for Liabilities Measured at Fair Value withcircumstances and would result only after a Third-Party Credit Enhancement,codified inASC820-10, Fair Value Measurements and Disclosures:This standard, which was effective forformal regulatory filing process.and Consumers January 1, 2009, concludes that the fair value measurementreceived $393 million of a liability should not consider the effectcommon stock dividends from Consumers. a third-party credit enhancement or guarantee supporting the liability. To comply with this standard, CMS Energy and Consumers adjusted the methods they use to determine the fair valuesconsists of: certain long-term debt instruments for their fair value disclosures. For the fair value disclosures, see Note 10, Financial Instruments. This standard had no impact on CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.New Accounting Standards Not Yet EffectiveSFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140, codified throughASUNo. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets:This standard, which was effective for CMS Energy Common Stock, par value $0.01 per share, and Consumers January 1, 2010, removes the concepta QSPE from guidance relating to transfersCMS Energy Preferred Stock, par value $0.01 per share.financial assets and extinguishments of liabilities. It also removes the exceptions from applying guidance relating to VIEs to QSPEs. This standard revises and clarifies when an entity is required to derecognize a financial asset that it has transferred to another entity. It further clarifies how to measure beneficial interests received as proceeds in connection with a transfer of a financial asset, and introduces the concept of a “participating interest,” the conditions of which must be met for a partial asset transfer to qualify for sale accounting treatment. This standard also requires enhanced disclosures related to continuing involvement with transferred financial assets. Under this standard, future transactionsCommon Stock: In June 2011, CMS Energy entered into a continuous equity offering program under Consumers’ revolving accounts receivable sales program, discussed in Note 8, Financings and Capitalization, would be accounted for as secured borrowings rather than as sales.which CMS Energy and Consumers would present outstanding amountsmay sell, from time to time in "at the market" offerings, common stock having an aggregate sales price of up to $50 million. In June 2012, under thethis program, as short-term debt collateralized by accounts receivable.SFAS No. 167, Amendments to FASB Interpretation No. 46(R),codified throughASUNo. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities:This standard, which was effective for CMS Energy and Consumers January 1, 2010, amends the criteria used to determine which enterprise, if any, has a controlling financial interestissued 650,235 shares of common stock at an average price of $23.07 per share, resulting in a VIE. It replaces the quantitative calculationnet proceeds of risks and rewards with a qualitative approach focused on identifying which enterprise (1) has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) has the obligation to absorb losses of the entity or the right to receive benefits from the entity. This standard also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE.$15 million. CMS Energy and Consumers are evaluating the impacthas issued a total of 1,413,160 shares of common stock under this standard on their Consolidated Financial Statements.102CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)ASUNo. 2010-06, Improving Disclosures about Fair Value Measurements:This standard expands the required quarterly disclosures about fair value measurements that are included in Note 5, Fair Value Measurements. This standard requires information on transfers in and outPreferred Stock of Levels 1 and 2 of the fair value hierarchy. In addition, this standard requires gross reporting of purchases, sales, issuances, and settlementsSubsidiary: Presented in the reconciliation of Level 3 fair values, rather than reporting this activity as one net amount. This standard also clarifies certain existing disclosure requirements. This standard was effective for CMS Energy and Consumers January 1, 2010, except for the gross reporting of Level 3 fair value activity, which will be effective January 1, 2011. This standard will not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.following table are details about Consumers' preferred stock outstanding: Series Optional
Redemption
Price Number of
Shares
Outstanding Balance
Outstanding
In Millions $ 4.16 $ 103.25 68,451 $ 7 4.50 110.00 373,148 37 $ 44 5:6: FAIR VALUE MEASUREMENTS• Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.• Level 2 inputs are observable, market-based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, interest rates and yield curves observable at commonly quoted intervals, credit risks, default rates, and inputs derived from or corroborated by observable market data.• Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities.103
ASSETSAND LIABILITIES MEASUREDAT FAIR VALUEONA RECURRING BASISENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AssetsEnergy's and Liabilities Measured at Fair Value on a Recurring BasisThe following table summarizes,Consumers' assets and liabilities, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reportedrecorded at fair value on a recurring basis at December 31, 2009:basis: Total Level 1 Level 2 Level 3 $ 53 $ 53 $ – $ – 14 14 – – 5 5 – – 2 2 – – 126 126 – – 3 – – 3 $ 203 $ 200 $ – $ 3 $ 5 $ 5 $ – $ – 4 – 3 1 $ 9 $ 5 $ 3 $ 1 $ 13 $ 13 $ – $ – 32 32 – – 4 4 – – 1 1 – – 85 85 – – 2 – – 2 $ 137 $ 135 $ – $ 2 $ 4 $ 4 $ – $ – $ 4 $ 4 $ – $ – Total Level 1 Level 2 Level 3 In Millions Assets: Cash equivalents $ 57 $ 57 $ — $ — Restricted cash equivalents 12 12 — — Nonqualified deferred compensation plan assets 5 5 — — Cash equivalents 49 49 — — State and municipal bonds 27 — 27 — Derivative instruments(a) 1 — 1 — Total $ 151 $ 123 $ 28 $ — Liabilities: Nonqualified deferred compensation plan liabilities $ 5 $ 5 $ — $ — Derivative instruments(b) 10 1 1 8 Total(c) $ 15 $ 6 $ 1 $ 8 Assets: Cash equivalents $ 31 $ 31 $ — $ — Restricted cash equivalents 5 5 — — CMS Energy Common Stock 29 29 — — Nonqualified deferred compensation plan assets 4 4 — — Cash equivalents 30 30 — — State and municipal bonds 16 — 16 — Total $ 115 $ 99 $ 16 $ — Liabilities: Nonqualified deferred compensation plan liabilities $ 4 $ 4 $ — $ — Total(c) $ 4 $ 4 $ — $ — Total Level 1 Level 2 Level 3 $ 109 $ 109 $ – $ – 15 15 – – 4 4 – – 1 1 – – 113 113 – – 3 1 – 2 $ 245 $ 243 $ – $ 2 $ 4 $ 4 $ – $ – 7 – 3 4 $ 11 $ 4 $ 3 $ 4 $ 56 $ 56 $ – $ – 14 14 – – 35 35 – – 3 3 – – 1 1 – – 74 74 – – 2 – – 2 $ 185 $ 183 $ – $ 2 $ 3 $ 3 $ – $ – $ 3 $ 3 $ – $ – (a)This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements.(b)This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $1 million impact of offsetting cash margin deposits paid by CMS ERM to other parties.(c)At December 31, 2009, CMS Energy’s liabilities classified as Level 3 represented 53 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3.104CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The following table summarizes, by level within the fair value hierarchy, CMS Energy’s and Consumers’ assets and liabilities reported at fair value on a recurring basis at December 31, 2008: Total Level 1 Level 2 Level 3 In Millions Assets: Cash equivalents $ 176 $ 176 $ — $ — Restricted cash equivalents 5 5 — — Nonqualified deferred compensation plan assets 5 5 — — Mutual fund 39 39 — — State and municipal bonds 29 — 29 — Derivative instruments(a) 1 — 1 — Total $ 255 $ 225 $ 30 $ — Liabilities: Nonqualified deferred compensation plan liabilities $ 5 $ 5 $ — $ — Derivative instruments(b) 20 2 2 16 Total(c) $ 25 $ 7 $ 2 $ 16 Assets: Cash equivalents $ 56 $ 56 $ — $ — Restricted cash equivalents 5 5 — — CMS Energy Common Stock 19 19 — — Nonqualified deferred compensation plan assets 3 3 — — Mutual fund 25 25 — — State and municipal bonds 19 — 19 — Total $ 127 $ 108 $ 19 $ — Liabilities: Nonqualified deferred compensation plan liabilities $ 3 $ 3 $ — $ — Derivative instruments 1 — 1 — Total(c) $ 4 $ 3 $ 1 $ — (a)This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements.(b)This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements and the $2 million impact of offsetting cash margin deposits paid by CMS ERM to other parties.(c)At December 31, 2008, CMS Energy’s liabilities classified as Level 3 represented 64 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3.105CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The funds invest in U.S. Treasury notes, other government-backed securities, and repurchase agreements collateralized by U.S. Treasury notes.Assets: CMS Energy’sAssets and Consumers’Liabilities: The nonqualified deferred compensation plan assets consist of mutual funds, which are investedvalued using the daily quoted NAVs that are publicly available and are the basis for transactions to buy or sell shares in variouseach fund. CMS Energy and Consumers value their nonqualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect what is owed to the plan participants in accordance with their investment elections. CMS Energy and Consumers report the assets in other non-current assets and the liabilities in other non-current liabilities on their consolidated balance sheets.funds.funds that hold primarily fixed-income instruments of varying maturities. In order to meet their investment objectives, the funds hold investment-grade debt securities, and may invest a portion of their assets in high-yield securities, foreign debt, and derivative instruments. CMS Energy and Consumers value these assets using a market approach,funds using the daily quoted NAV provided by the fund managersNAVs that are publicly available and are the basis for transactions to buy or sell shares in each fund. CMS Energy and Consumers report thesetheir DB SERP assets in Otherother non-current assets on their Consolidated Balance Sheets.SERP Assets: CMS Energy and Consumers value their SERP assets using a market approach, incorporating prices and other relevant information from market transactions.The SERP cash equivalents consist of a money market fund with daily liquidity, which invests in state and municipal securities. At December 31, 2008, the SERP held an investment in an S&P 500 Index mutual fund. The fund’s equity securities were listed on an active exchange. The fair value of the SERP mutual fund was based on the quoted NAV of the mutual fund, derived from the daily closing prices of the equity securities held by the fund. The NAV was the basis for transactions to buy or sell shares in the fund. In November 2009, CMS Energy and Consumers sold their interests in the fund and invested the sales proceeds in the money market fund.CMS Energy and Consumers value their SERP state and municipal bonds using a matrix pricing model that incorporates Level 2 market-based information. The fair value of the bonds is derived from various observable inputs, including benchmark yields, reported securities trades, broker/dealer quotes, bond ratings, and general information on market movements for investment grade state and municipal securities normally considered by market participants when pricing such debt securities. CMS Energy and Consumers report their SERP assets in Other non-current assets on their Consolidated Balance Sheets.consolidated balance sheets. For additional details about DB SERP securities, see Note 10,7, Financial Instruments.Nonqualified Deferred Compensation Plan Liabilities: CMS Energy and Consumers value their non-qualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect what CMS Energy and Consumers owe the plan participants in accordance with their investment elections. CMS Energy reports these liabilities, except for liabilities related to its DSSP, in Other non-current liabilities on its Consolidated Balance Sheets; its DSSP liability is included in Non-current postretirement benefits. Consumers reports all of its nonqualified deferred compensation plan liabilities in Other non-current liabilities on its Consolidated Balance Sheets.They use various inputs to value the derivatives depending on the type of contract and the availability of market data. CMS Energy hasvalues its exchange-traded derivative contracts that are valued based on Level 1 quoted prices in actively traded markets, as well asand values other derivatives that are valued using Level 2 inputs, including commodity market prices, interest rates, credit ratings, default rates, and market-based seasonality factors. CMS Energy also has derivative instruments that extend beyond time periods in which quoted prices are available. For these instruments, CMS Energy uses modeling methods to project future prices. Such fair value measurements are classified in Level 3 unless modeling was required only for an insignificant portion of the total derivative value.CMS Energy’s derivatives include an electricity sales agreement held by CMS ERM. This agreement, classified as Level 3, extends beyond the term for which quoted electricity prices are available. To value this agreement, CMS Energy uses a proprietary forward power pricing curve that is based on forward gas prices and an implied heat rate. CMS Energy also increases the fair value of the liability for this agreement by an amount that reflects the uncertainty of its model.106CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)For all fair values other than Level 1 prices,credit risk factors. CMS Energy and Consumers incorporate adjustments forhave classified certain derivatives as Level 3 since the risk of nonperformance. For derivative assets, a credit adjustment is applied against the asset based on the published default rate for the credit rating that CMS Energy and Consumers assign to the counterparty based on an internal credit-scoring model. This model considers various inputs, including the counterparty’s financial statements, credit reports, trade press, and other information that would be available to market participants. To the extent that the internal ratings are comparable to credit ratings published by independent rating agencies, the resulting credit adjustment is classified within Level 2. If the internal model results in a rating that is outside of the range of ratings given by the independent agencies and the credit adjustment is significant to the overall valuation, the derivative fair value is classified as Level 3. CMS Energy and Consumers adjust their derivative liabilities downward to reflectmeasurements incorporate assumptions that cannot be observed or confirmed through market transactions. risk of their own nonperformance, based on their published credit ratings. Adjustments for credit risk using the approach outlined within this paragraph are not materially different from the adjustments that would result from using credit default swap rates for the contracts presently held. For further details about derivative contracts, see Note 11, Derivative Instruments.Assets and Liabilities Measured at Fair Value on a Recurring Basis using Significant Level 3 InputsThe following table is a reconciliationare reconciliations of changes in the fair values of Level 3 assets and liabilities at CMS Energy:Energy and Consumers: 2009 2008 In Millions Balance at January 1 $ (16 ) $ (19 ) Total gains included in earnings(a) 17 2 Purchases, sales, issuance, and settlements (net) (9 ) 1 Balance at December 31 (8 ) (16 ) Unrealized gains included in earnings for the twelve months ended December 31 relating to assets and liabilities still held at December 31(a) $ 6 $ 3 2012 2011 2010 $ (2 ) $ (3 ) $ (8 ) 3 2 5 6 2 3 1 1 1 – (4 ) (1 ) (6 ) – (3 ) $ 2 $ (2 ) $ (3 ) $ 2 $ 2 $ 4 $ 2 $ 1 $ – 6 2 3 1 1 1 (7 ) (2 ) (3 ) $ 2 $ 2 $ 1 (a)CMS Energy records realized and unrealized gains and losses for Level 3 recurring fair values in earnings as a component of Operating Revenue or Other operating expenses on its Consolidated Statements of Income (Loss).6: CONTINGENCIES AND COMMITMENTS1ContingenciesGas Index Price Reporting Investigation: In 2002, CMS Energy notified appropriate regulatoryrecords realized and governmental agencies that some employees at CMS MSTunrealized gains and CMS Field Services appeared to have provided inaccurate information regarding natural gas trades to various energy industry publications, which compile and report index prices. CMS Energy cooperated with an investigation by the DOJ regarding this matter. Although CMS Energy has not received any formal notification that the DOJ has completed its investigation, the DOJ’s last requestlosses for information occurredLevel 3 recurring fair value measurements in 2003, and CMS Energy completed its response to this request in 2004. CMS Energy is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on CMS Energy.Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, are named as defendants in various class action and individual lawsuits arisingearnings as a resultcomponent of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations include manipulation of NYMEX natural gas futures and options prices, price-fixing107CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in California, Colorado, Kansas, Missouri, Tennessee, and Wisconsin. The following provides more detail on these proceedings:• In 2005, CMS MST was served with a summons and complaint that named CMS Energy, CMS MST, and CMS Field Services as defendants in a putative class action filed in Kansas state court, Learjet, Inc., et al. v. Oneok, Inc., et al. The complaint alleges that during the putative class period, January 1, 2000 through October 31, 2002, the defendants engaged in a scheme to violate the Kansas Restraint of Trade Act. The plaintiffs, who allege they purchased natural gas from the defendants and others for their facilities, are seeking statutory full consideration damages consisting of the full consideration paid by plaintiffs for natural gas.• In 2007, a class action complaint, Heartland Regional Medical Center, et al. v. Oneok, Inc. et al., was filed in Missouri state court alleging violations of Missouri antitrust laws. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Missouri antitrust law in connection with their natural gas price reporting activities.• A class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in 2006 in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 1, 2000 and October 31, 2002. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute. The plaintiffs are seeking full consideration damages, plus exemplary damages, and attorneys’ fees. After dismissal on jurisdictional grounds in February 2009, plaintiffs filed a new Arandell case in Michigan. The CMS Energy defendants filed a motion to dismiss the new case onstatute-of-limitations grounds and that motion remains pending. Also pending before the court is plaintiffs’ motion for reconsideration of the dismissal of the Wisconsin case.• Another class action complaint, Newpage Wisconsin System v. CMS ERM, CMS Energy, and Cantera Gas Company, was filed in March 2009 in circuit court in Wood County, Wisconsin, against CMS Energy defendants and 19 other non-CMS Energy companies. The plaintiff is seeking consideration damages, treble damages, costs, interest, and attorneys’ fees. After removal to federal court in Wisconsin, the case was transferred to the MDL case. CMS Energy defendants have filed motions to dismiss for lack of jurisdiction and based on the statute of limitations and that motion remains pending.• In 2005, J.P. Morgan Trust Company, in its capacity as Trustee of the FLI Liquidating Trust, filed an action in Kansas state court against a number of energy companies, including CMS Energy, CMS MST, and CMS Field Services. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is seeking statutory full consideration damages for its purchases of natural gas between January 1, 2000 and December 31, 2001. This case is part of the MDL proceeding, but is not a class action.After removal to federal court, the Learjet, Heartland, both Arandell cases, Newpage, and J.P. Morgan cases were transferred to the MDL case. CMS Energy was dismissed from the Learjet, Heartland, and J.P. Morgan cases in February 2009, but other CMS Energy defendants remain parties. Pending before the court in all of the MDL cases are the defendants’ renewed motions for summary judgment based on FERC preemption and the plaintiffs’ motion for leave to amend their complaint to add a federal Sherman Act antitrust claim. In all but the J.P. Morgan case, there are also pending plaintiffs’ motion for class certification. These motions are not yet decided.• In 2005, Samuel D. Leggett, et al. v. Duke Energy Corporation, et al., a class action complaint brought on behalf of retail and business purchasers of natural gas in Tennessee, was filed in the Chancery Court of Fayette County, Tennessee. The defendants include CMS Energy, CMS MST, and CMS Field Services. The complaint contains claims for violations of the Tennessee Trade Practices Act. The complaint seeks statutory full consideration damages and attorneys’ fees and injunctive relief regulating defendants’ future conduct. In 2007, the state court in Tennessee granted the motion to dismiss filed by the CMS Energy defendants. In 2008, the Tennessee Court of Appeals reversed the trial court and remanded the case for trial. The Tennessee108CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Supreme Court granted the defendants’ application for leave to appeal and all further proceedings in the trial court have been stayed until that appeal is resolved. Oral argument on the appeal took place in Tennessee Supreme Court in November 2009. This issue is not yet decided.• In 2006, CMS Energy and CMS MST were each served with a summons and complaint which named CMS Energy, CMS MST, and CMS Field Services as defendants in an action filed in Missouri state court, titled Missouri Public Service Commission v. Oneok, Inc. alleging violation of the Missouri antitrust law, fraud, and unjust enrichment. In January 2009, all defendants were dismissed for lack of standing. In December 2009, the Missouri Court of Appeals affirmed the dismissal.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 possible loss would be based on widely varying models previously untested in this context. Defenses are being pursued vigorously, which could result in the dismissal of the cases completely, but CMS Energy is unable to predict the outcome of these matters. If the outcome is unfavorable, these cases could have a material adverse impact on CMS Energy’s financial condition and results of operations.Bay Harbor: As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, and under an agreement with the MDNRE, third parties constructed a golf course and park over several abandoned CKD piles left over from the former cement plant operations on the Bay Harbor site. The third parties also undertook a series of remedial actions, including constructing a leachate collection system at an identified seep. Leachate is produced when water enters into the CKD piles. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under environmental indemnities entered into at the start of the project.In 2005, the EPA, along with CMS Land and CMS Capital, voluntarily executed an AOC under Superfund and approved a Removal Action Work Plan to address contamination issues at Bay Harbor. Collection systems required under the plan have been installed and effectiveness monitoring of the systems at the shoreline is ongoing. CMS Land, CMS Capital, and the EPA agreed upon augmentation measures to address areas where pH measurements were not satisfactory. The augmentation measures were implemented and completed in the second quarter of 2009.In 2008, the MDNRE and the EPA granted permits for CMS Landoperating revenue or its affiliate, Beeland, to construct and operate a deep injection well in Antrim County, Michigan, to dispose of leachate from Bay Harbor. Certain environmental groups, a local township, and a local county filed lawsuits appealing the permits. The legal proceeding was stayed in the third quarter of 2009 and can be renewed by either party at any time. CMS Land and CMS Capital continue to seek a lower cost long-term water disposal option including using deep injection wells, permitted discharge to surface water, and disposal with a local municipal water treatment facility.CMS Land and CMS Capital, the MDNRE, the EPA,maintenance and other parties are negotiating the long-term remedy for the Bay Harbor sites, including:• the disposal of leachate;• the capping and excavation of CKD;• the location and design of collection lines and upstream diversion of water;• potential flow of leachate below the collection system;• applicable criteria for various substances such as mercury; and• other matters that are likely to affect the scope of remedial work that CMS Land and CMS Capital may be obligated to undertake.CMS Energy has recorded a cumulative charge related to Bay Harbor of $179 million, of which $37 million was recorded in 2009, $1 million was recorded in 2008, and $45 million was recorded in 2007 in Other operating109CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Consolidated Statementsconsolidated statements of Income (Loss). Several factors contributed to the revised remediation cost estimates in 2009, including increased costs related to the disposalincome.collected leachate and delays in identifying and securing a long-term water management solution. In addition, CMS Land and CMS Capital are projecting higher costs for operating and maintaining the existing collection system.At December 31, 2009, CMS Energy had a recorded liability of $78 million for its remaining obligations. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.32 percent and an inflation rate of one percent on annual operating and maintenance costs. CMS Energy based the discount rate on the interest rate for30-yearContents U.S. Treasury securities on June 30, 2009. The undiscounted amount of the remaining obligation is $101 million. CMS Energy expects to pay $18 million in 2010, $9 million in 2011, $7 million in 2012, $5 million in 2013, and the remainder on long-term liquid disposal and operating and maintenance costs.CMS Energy’s estimate of remedial action costs and the timing of expenditures could change if there are additional major changes in circumstances or assumptions, including but not limited to:• inability to secure a suitable long-term water disposal option at a reasonable cost;• further increases in water disposal costs under existing options;• delays in developing a long-term water disposal option;• an increase in the number of contamination areas;• different remediation techniques;• the nature and extent of contamination;• continued inability to reach agreement with the MDNRE or the EPA over required remedial actions;• delays in the receipt of requested permits;• delays following the receipt of any requested permits due to legal appeals of third parties;• additional or new legal or regulatory requirements; or• new or different landowner claims.Depending on the size of any indemnity obligation or liability under environmental laws, an adverse outcome of this matter could have a material adverse effect on CMS Energy’s liquidity and financial condition and could negatively affect CMS Energy’s financial results. CMS Energy cannot predict the financial impact or outcome of this matter.State Street Bank and TSU Litigation: In 2002, State Street Bank sued CMS Viron in the District Court of Harris County, Texas, claiming primarily a breach of representations and warranties and seeking $9 million plus interest from CMS Viron. During the same year, CMS Viron filed a counterclaim, as well as third-party actions against TSU, Academic Capital Group, Inc., and Academic Services, Inc. for breach of contract and fiduciary duties and conversion. In December 2009, the jury rendered a verdict in favor of CMS Viron and a final judgment was rendered on January 15, 2010 awarding CMS Viron $8 million plus prejudgment interest from TSU and another $3 million plus prejudgment interest and attorneys’ fees against Academic Capital Group, Inc. and Academic Services, Inc., collectively. This verdict is affected by an agreement under which CMS Viron agreed to pay $3 million to State Street Bank regardless of the verdict. In addition, State Street Bank agreed to assign certain rights of indemnification under a lease agreement to CMS Viron in return for a two-thirds stake in any ultimate recovery from TSU. At December 31, 2009, CMS Energy had a recorded liability of $3 million for its potential obligation related to this matter.110
ASSETSAND LIABILITIES MEASUREDAT FAIR VALUEONA NONRECURRING BASISCMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Equatorial Guinea Tax Claim: In 2004, CMS Energy received a request for indemnification from the purchaser of CMS Oil and Gas. The indemnity claim relates to the sale of CMS Energy’s oil, gas, and methanol projects in Equatorial Guinea and the claim of the government of Equatorial Guinea that CMS Energy owes $142 million in taxes in connection with that sale. CMS Energy concluded that the government’s tax claim is without merit and the purchaser of CMS Oil and Gas submitted a response to the government rejecting the claim. The government of Equatorial Guinea has indicated that it still intends to pursue its claim. CMS Energy cannot predict the financial impact or outcome of this matter.Moroccan Tax Claim: In 2007, CMS Energy sold its 50 percent interest in Jorf Lasfar. As part of the sale agreement, CMS Energy agreed to indemnify the purchaser for 50 percent of any tax assessments on Jorf Lasfar attributable to tax years prior to the sale. In 2007, the Moroccan tax authority concluded its audit of Jorf Lasfar for tax years 2003 through 2005. The audit asserted deficiencies in certain corporate and withholding taxes. In January 2009, CMS Energy paid $18 million, which it charged against a tax indemnification liability established when it recorded the sale of Jorf Lasfar, and accordingly, the payment did not affect earnings. The Moroccan tax authority may also assess taxes for 2006. CMS Energy cannot predict the outcome of this matter. At December 31, 2009, CMS Energy had a recorded liability of $4 million for its potential indemnity obligation for corporate and withholding taxes for 2006.Marathon Indemnity Claim regarding F.T. Barr Claim:In 2001, F. T. Barr filed a lawsuit in Harris County District Court in Texas against CMS Energy, CMS Oil and Gas, and other defendants alleging that his overriding royalty payments related to Alba field production were improperly calculated. In 2004, all parties signed a confidential settlement agreement that resolved claims between Barr and the defendants. The CMS Energy defendants reserved all defenses to any indemnity claim relating to the settlement.In April 2009, certain Marathon entities filed a case in the United States District Court for the Southern District of Texas against CMS Enterprises for indemnification in connection with this matter. CMS Energy entities dispute Marathon’s claim, and will vigorously oppose it. CMS Energy entities also will assert that Marathon has suffered minimal, if any, damages. CMS Energy cannot predict the outcome of this matter. If Marathon’s claim were sustained, it would have a material effect on CMS Energy’s future earnings and cash flow.Consumers’ Electric Utility ContingenciesElectric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Generally, Consumers has been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations.Cleanup and Solid Waste: Under NREPA, Consumers will ultimately incur remediation and other response activity costs at a number of sites. Consumers believes that these costs should be recoverable in rates under current ratemaking policies, but cannot guarantee that outcome. At December 31, 2009, Consumers had a recorded liability of $1 million, its estimated probable NREPA liability, in accordance with applicable accounting standards.Consumers is a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund liability is joint and several. In addition to Consumers, many other creditworthy parties with substantial assets are potentially responsible with respect to the individual sites. Based on its experience, Consumers estimates that its share of the total liability for known Superfund sites will be between $2 million and $8 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At December 31, 2009, Consumers had a recorded liability of $2 million, the minimum amount in the range of its estimated probable Superfund liability.The timing of payments related to Consumers’ remediation and other response activities at its Superfund and NREPA sites is uncertain. Periodically, Consumers receives information about new sites, which leads it to review its cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites,111CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)different remediation techniques, nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and Superfund liability.Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout, and sealant materials at Ludington. Consumers removed and replaced part of the PCB material with non-PCB material. Since proposing a plan to take action with respect to the remaining materials, Consumers has had several communications with the EPA. Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the financial impact or outcome of this matter.Electric Utility Plant Air Permit Issues and Notices of Violation:In 2007, Consumers received a NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in their associated air permits. Consumers has responded formally to the NOV/FOV denying the allegations. In addition, the EPA has alleged that some utilities have classified incorrectly major plant modifications as RMRR rather than seeking permits from the EPA or state regulatory agencies to modify their plants. Consumers responded to information requests from the EPA on this subject in the past. Consumers believes that it has properly interpreted the requirements of RMRR. In 2008, Consumers received a NOV for three of its coal-fueled facilities alleging, among other things, violations of NSR and PSD regulations relating to ten projects from 1986 to 1998 allegedly subject to NSR review.Consumers is engaged in discussions with the EPA on all of these matters. Depending upon the outcome of these discussions, the EPA could bring legal action against Consumersand/or Consumers could be required to install additional pollution control equipment at some or all of its coal-fueled electric generating plants, surrender emission allowances, engage in Supplemental Environmental Programs,and/or pay fines. Additionally, Consumers would need to assess the viability of continuing operations at certain plants. Consumers cannot predict the financial impact or outcome of these matters. Although the potential costs relating to these matters could be material and cost recovery cannot be assured, Consumers expects that it would be able to recover such costs in rates, consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.Nuclear Matters:DOE Litigation: In 1997, a United States Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent United States Court of Appeals litigation, in which Consumers and other utilities participated, has not been successful in producing more specific relief for the DOE’s failure to accept the spent nuclear fuel.A number of court decisions support the right of utilities to pursue damage claims in the United States Court of Claims against the DOE for failure to take delivery of spent nuclear fuel. Consumers filed a complaint in 2002. If Consumers’ litigation against the DOE is successful, Consumers plans to use any recoveries as reimbursement for the incurred costs of spent nuclear fuel storage during Consumers’ ownership of Palisades and Big Rock. Consumers cannot predict the financial impact or outcome of this matter. The sale of Palisades and the Big Rock ISFSI did not transfer the right to any recoveries from the DOE related to costs of spent nuclear fuel storage incurred during Consumers’ ownership of Palisades and Big Rock.Nuclear Fuel Disposal Cost: Consumers has a recorded liability of $163 million for amounts it collected from customers before 1983 to fund the disposal of spent nuclear fuel. This amount, which includes interest of $119 million, is payable to the DOE when it begins to accept delivery of spent nuclear fuel. In conjunction with the sale of Palisades and the Big Rock ISFSI in 2007, Consumers retained this obligation and provided a letter of credit to Entergy as security for this obligation.112CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Consumers’ Gas Utility ContingenciesGas 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 current ownership or may own only a portion of the original site. At December 31, 2009, Consumers estimated its undiscounted remaining remediation and other response activity costs to be between $35 million and $49 million. Generally, Consumers has been able to recover most of its costs to date through proceeds from insurance settlements and customer rates.At December 31, 2009, Consumers had a recorded liability of $35 million and a regulatory asset of $63 million that included $28 million of deferred MGP expenditures. The timing of payments related to the remediation and other response activity at Consumers’ former MGP sites is uncertain. Consumers expects its remediation and other response activity costs to average $6 million annually over the next five years. Consumers periodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, changes in remediation techniques, or legal and regulatory requirements, could affect Consumers’ estimates of annual response activity costs and MGP liability.FERC Investigation: In 2008, Consumers received a data request relating to an investigation the FERC is conducting into possible violations of the FERC’s posting and competitive bidding regulations related to releases of firm capacity on natural gas pipelines. Consumers responded to the FERC’s first data request in the first quarter of 2008. The FERC has also taken depositions and Consumers has responded to additional data requests. In August 2009, Consumers received a letter presenting the preliminary view of the FERC staff that Consumers violated a regulation in connection with certain capacity release transactions from August 2005 through October 2007. Consumers submitted a response and defense of its views to the FERC in September 2009. In February 2010, the FERC Office of Enforcement informed Consumers that it was closing the investigation without any sanctions.GuaranteesThe following table describes CMS Energy’s guarantees at December 31, 2009: Maximum Carrying Issue Date Expiration Date Obligation Amount In Millions Indemnity obligations from asset sales and other agreements Various Various through
June 2022 $ 856 (a) $ 16 Surety bonds and other indemnity obligations(b) Various Various through
May 2022 12 — Guarantees and put options(c) Various Various through
September 2023 3 1 (a)The majority of this amount arises from stock and asset sales agreements under which CMS Energy indemnified the purchaser for losses resulting from various matters, including claims related to tax disputes, claims related to PPAs, and defects in title to the assets or stock sold to the purchaser by CMS Energy subsidiaries. Except for items described elsewhere in this Note, CMS Energy believes the likelihood of loss to be remote for the indemnity obligations not recorded as liabilities.(b)In the normal course of business, CMS Energy issues surety bonds and indemnifications to counterparties to facilitate commercial transactions. CMS Energy would be required to pay a counterparty if the counterparty incurred losses due to a breach of contract terms or nonperformance under the contract.113CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)(c)At December 31, 2009, the carrying amount of CMS Energy’s put option agreements with certain Bay Harbor property owners was $1 million. If CMS Energy is required to purchase a Bay Harbor property under a put option agreement, it may sell the property to recover the amount paid under the put option agreement.At December 31, 2009, the maximum obligation and carrying amounts for Consumers’ guarantees were immaterial.The following table provides additional information regarding CMS Energy’s guarantees:Guarantee DescriptionHow Guarantee AroseEvents That Would Require PerformanceIndemnity obligations from asset sales and other agreementsStock and asset sales agreementsFindings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstancesSurety bonds and other indemnity obligationsNormal operating activity, permits and licensesNonperformanceGuarantees and put optionsNormal operating activityNonperformance or non-payment by a subsidiary under a related contractBay Harbor remediation effortsOwners exercising put options requiring CMS Land and CMS Capital to purchase propertyCMS Energy and Consumers also enter into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. These factors include unspecified exposure under certain agreements. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities to be remote.Other ContingenciesIn addition to the matters disclosed in this Note and Note 7, Utility Rate Matters, there are certain lawsuits and administrative proceedings before various courts and governmental agencies arising from the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These lawsuits and proceedings may involve personal injury, property damage, contracts, environmental issues, federal and state taxes, rates, licensing, and other matters. Further, CMS Energy and Consumers occasionally self-report certain regulatory non-compliance matters that may or may not eventually result in administrative proceedings. CMS Energy and Consumers believe that the outcome of any one of these proceedings will not have a material adverse effect on their consolidated results of operations, financial position, or cash flows.114CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Contractual CommitmentsPurchase Obligations: The following table summarizes CMS Energy’s and Consumers’ contractual cash obligations for each of the periods presented. At December 31, 2009 Payments Due Less Than One to Three to More Than Total One Year Three Years Five Years Five Years In Millions Purchase obligations $ 14,217 $ 1,978 $ 2,853 $ 1,534 $ 7,852 Purchase obligations $ 14,217 $ 1,978 $ 2,853 $ 1,534 $ 7,852 Purchase obligations — related parties 1,737 79 169 186 1,303 Purchase obligations are long-term contracts for the purchase of commodities and services. These obligations include operating contracts used to ensure adequate supply with generating facilities that meet PURPA requirements. The commodities and services include natural gas and associated transportation, electricity, and coal and associated transportation.The MCV PPA: Consumers has a35-year PPA that began in 1990 with the MCV Partnership to purchase 1,240 MW of electricity. The MCV PPA provides for:• a capacity charge of $10.14 per MWh of available capacity;• a fixed energy charge based on Consumers’ annual average base load coal generating plant operating and maintenance cost;• a variable energy charge for all delivered energy that reflects the MCV Partnership’s cost of production;• a $5 million annual contribution by the MCV Partnership to a renewable resources program; and• an option for Consumers to extend the MCV PPA for five years or purchase the MCV Facility at the conclusion of the MCV PPA’s term in March 2025.Capacity and energy charges, net of RCP replacement energy and benefits, under the MCV PPA were $246 million in 2009, $320 million in 2008, and $464 million in 2007. Based on a 2008 contract amendment and approval by the MPSC that allows Consumers to manage the contract more cost effectively, Consumers estimates that capacity and energy charges under the MCV PPA will range from $240 million to $330 million annually.The Palisades PPA: Consumers has a PPA expiring in 2022 with Entergy to purchase all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW. Consumers estimates that capacity and energy payments under the Palisades PPA will average $320 million annually. Consumers’ total purchases of capacity and energy under the PPA were $276 million in 2009, $298 million in 2008, and $180 million in 2007. For further details about Palisades, see Note 15, Leases.7: UTILITY RATE MATTERSConsumers’ Electric Utility Rate MattersPower Supply Cost Recovery: The PSCR process is designed to allow Consumers to recover all of its power supply costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs,115CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)policies, and practices in annual plan and reconciliation proceedings. Consumers adjusts its PSCR billing factor monthly in order to minimize the over- or underrecovery amount in the annual PSCR reconciliation.The following table summarizes the PSCR reconciliation filings pending with the MPSC:Net Over/PSCR Cost ofPSCR YearDate Filed(Under) recoveryPower Sold2007March 2008$(42) million(a)$1.6 billion2008March 2009$2 million(b)$1.7 billion(a)In the 2007 PSCR Plan, Consumers expected to offset power supply costs by including a $44 million credit for proceeds due to customers from the Palisades sale; however, the MPSC directed that those proceeds be refunded outside of the PSCR process. For additional details on the refunding of the Palisades sale proceeds, see Note 3, Utility Regulation. In May 2009, the ALJ’s proposal for decision recommended no PSCR recovery for economic development discounts of $3 million and disallowance of $4 million of net replacement power costs associated with a crane incident at Consumers’ Campbell Plant.(b)In February 2010, the ALJ’s proposal for decision recommended no PSCR recovery for $3 million of economic development discounts.PSCR Plans: Consumers submitted to the MPSC its 2009 PSCR plan in September 2008 and its 2010 PSCR plan in September 2009. Under both of these plans, Consumers requested the MPSC’s approval to apply PSCR factors that include recovery of an economic development discount provided to a large industrial customer. The MPSC approved this discount in 2005 to promote long-term investments in the industrial infrastructure of Michigan.In January 2010, the MPSC approved Consumers’ 2009 PSCR plan with the exception of the recovery of the discount for the large industrial customer. It was determined in the November 2009 electric rate case order that recovery of this discount should be provided through the electric general rates that Consumers self-implemented in May 2009. That order, however, did not address the recovery of the discount provided from January 2009 through self-implementation, which totaled $4 million. Consumers cannot predict the outcome of this matter, but will oppose any attempt to prevent recovery of the unrecovered discount.Also in the November 2009 electric rate case order, the MPSC increased the amount of base-PSCR costs Consumers may recover in its electric general rates. As a result of this, and the MPSC’s decision to allow for recovery of the economic development discount through general rates rather than through the PSCR, Consumers filed notice with the MPSC in November, revising its proposed maximum PSCR factor for 2010. Consumers self-implemented this revised 2010 PSCR charge beginning in January 2010. While Consumers expects to recover all of its PSCR costs, it cannot predict the financial impact or outcome of this proceeding.Electric Rate Cases and Self-Implemented Rates: In November 2008, Consumers filed an application with the MPSC seeking an annual increase in revenue of $214 million based on an 11 percent authorized return on equity. The filing sought recovery of costs associated with new plant investments including Clean Air Act investments, higher operating and maintenance costs, and the approval to recover costs associated with Consumers’ smart grid program.This was the first electric rate case under the new streamlined regulatory process enacted by the 2008 Energy Legislation. The new provisions generally allow utilities to self-implement rates six months after filing, subject to refund with interest, unless the MPSC finds good cause to prohibit self-implementation. The rate of interest to be charged on refunded amounts is LIBOR plus five percent for the appropriate period. For any portion of a refund that exceeds 25 percent of the annual revenue increase approved by the MPSC in its final order, the rate of interest charged would be Consumers’ authorized rate of return on equity. The new provisions require the MPSC to issue an order 12 months after filing, or the rates, as filed, become permanent.116CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)In April 2009, Consumers filed tariff sheets indicating that it planned to self-implement an electric rate increase in the annual amount of $179 million beginning in May 2009. The MPSC issued an order in May 2009 requiring that, if Consumers self-implemented the $179 million electric rate increase, it must simultaneously distribute to customers $36 million of proceeds from the April 2007 sale of Palisades. Accordingly, in May 2009, Consumers self-implemented an annual electric rate increase of $179 million, subject to refund with interest, and also implemented a one-time distribution of $36 million to customers.In November 2009, the MPSC issued its final order in this case, authorizing Consumers to increase its rates by $139 million annually, $40 million less than the rate increase self-implemented by Consumers. The order reflects an authorized return on equity of 10.7 percent and the exclusion from rate base of amounts associated with an obligation to the DOE for nuclear fuel disposal. The order also requires Consumers to refund $73 million of proceeds remaining from the April 2007 sale of Palisades. The order adopts a “pilot” decoupling mechanism effective December 1, 2009, and which, subject to certain conditions, will allow rates to be adjusted to collect or refund the change in marginal revenue arising from the difference between the level of average sales per customer adopted in the order and actual average sales per customer. The order also adopts an uncollectible expense tracking mechanism that will allow rates to be adjusted to collect or refund 80 percent of the difference between the level of uncollectible expense included in rates and actual uncollectible expense.The MPSC directed Consumers to refund to customers the difference between the rates it self-implemented in May and the rates authorized in this order, plus interest, subject to a reconciliation proceeding. As of December 31, 2009, CMS Energy and Consumers had a recorded regulatory liability of $17 million related to this refund.In January 2010, the MPSC granted a petition for rehearing filed by an intervener. This petition contended that, while the MPSC removed the accrued interest associated with an obligation to the DOE for nuclear fuel disposal from rate base, it failed to deduct the principal of that obligation of $44 million. The MPSC agreed and revised its calculation of Consumers’ rate base, which resulted in a $5 million decrease in Consumers’ annual electric rates. Effectively, the MPSC, through its final order and rehearing in this case, has authorized Consumers to increase its rates by $134 million annually.In January 2010, Consumers filed an application with the MPSC seeking an annual increase in revenue of $178 million based on an 11 percent authorized return on equity. The filing seeks authority to recover new investments in system reliability, environmental compliance, and technology advancements. The following table details the components of the requested increase in revenue: Components of the increase in revenue In Millions Investment in rate base $ 106 Operating and maintenance 49 Cost of capital 18 Gross margin 5 Total $ 178 Electric Operation and Maintenance Expenditures Show-Cause Order:In December 2005, the MPSC authorized Consumers to increase its electric rates. In the same order, the MPSC ordered Consumers to spend certain amounts on future tree-trimming and line-clearing activities, as well as on the operation and maintenance of Consumers’ fossil-fueled power plants. At that time, the MPSC also ordered Consumers to establish mechanisms to track these expenditures and stated that the rate increase was subject to refund with interest if the specified amounts were not spent on these activities.In October 2009, the MPSC issued a show-cause order alleging that, in 2007, Consumers spent $14 million less on forestry and fossil-fueled plant operation and maintenance activity than the amount ordered by the MPSC and117CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)that Consumers has not refunded this amount to customers. The October 2009 show-cause order directed Consumers to explain why it should not be found in violation of the MPSC’s December 2005 order and subject to applicable sanctions, and why the refunds required by that order have not yet occurred. Consumers’ response indicated that the total amount it spent on forestry and fossil-fueled plant operation and maintenance activity forno nonrecurring fair value measurements during the years 2006 through 2009 approximated the total amounts included in the December 2005 order for these activities. While it cannot predict the outcome of this proceeding, Consumers does not consider it probable that it will be required to provide a refund to customers. Accordingly, Consumers has not recorded a provision for revenue subject to refund.Big Rock Decommissioning: The MPSC and the FERC regulate the recovery of Consumers’ costs to decommission Big Rock. Subsequent to 2000, Consumers stopped funding a Big Rock trust fund because the collection period for an MPSC-authorized decommissioning surcharge expired on that date. The level of funds provided by the trust fell short of the amount needed to complete decommissioning. As a result, Consumers provided $44 million of corporate contributions for decommissioning costs and recorded this amount as a regulatory asset on its Consolidated Balance Sheets.In 2008, Consumers filed an application with the MPSC seeking to recover the $44 million Big Rock decommissioning shortfall from customers. In an order issued in February 2010, the MPSC concluded that decommissioning surcharges collected during a statutory rate freeze from 2001 through 2003 should have been deposited in the decommissioning trust fund. The MPSC agreed that Consumers was entitled to the $44 million decommissioning shortfall, but concluded that Consumers had collected this amount previously through the decommissioning surcharge in effect during the rate freeze. The MPSC ordered Consumers to refund the $64 million of revenue collected in excess of decommissioning costs, plus interest of $22 million, over eighteen months. To reflect the impacts of this MPSC rate order, Consumers has recognized an $86 million regulatory liability on its Consolidated Balance Sheets atended December 31, 2009,2012 and a charge to income of $130 million, which comprises $99 million of revenue collected during the rate freeze and $31 million of interest.Consumers has paid $30 million to Entergy to assume ownership and responsibility for the Big Rock ISFSI, and has incurred $55 million for nuclear fuel storage costs as a result of the DOE’s failure to accept spent nuclear fuel. At December 31, 2009, Consumers had an $85 million regulatory asset recorded on its Consolidated Balance Sheets for these costs.Electric Depreciation: In February 2010, Consumers filed an electric depreciation case. As ordered by the MPSC, Consumers prepared a traditionalcost-of-removal study, which supported a $46 million increase in annual depreciation.Also in February 2010, Consumers filed an electric depreciation case for Ludington. This case, filed jointly with Detroit Edison, requests an increase in annual depreciation. Consumers’ share of this increase is $9 million. Consumers cannot predict the financial impact or outcome of these proceedings.Consumers’ Gas Utility Rate MattersGas Cost Recovery: The GCR process is designed to allow Consumers to recover all of its purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and reconciliation proceedings. Consumers adjusts its GCR billing factor monthly in order to minimize the over- or underrecovery amount in the annual GCR reconciliation.The following table summarizes the GCR reconciliation filings pending with the MPSC:GCR Cost ofGCR YearDate FiledNet UnderrecoveryGas Sold2008-2009June 2009$15 million$1.8 billion118CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)GCR Reconciliation for2007-2008: In December 2009, the MPSC issued an order in Consumers’2007-2008 GCR reconciliation approving full recovery of $1.7 billion in gas costs and authorized Consumers to roll into its2008-2009 GCR plan the overrecovery of $17 million.GCR Plans: In December 2008, Consumers filed an application with the MPSC seeking approval of a GCR plan for its2009-2010 GCR plan year. Using the base GCR ceiling factor it proposed in this plan, Consumers self-implemented the2009-2010 GCR charge in April 2009.In December 2009, Consumers filed an application with the MPSC seeking approval of a GCR plan for its2010-2011 GCR plan year. While Consumers expects to recover all of its GCR costs, it cannot predict the financial impact or outcome of these proceedings.Gas Depreciation: In September 2009, the MPSC issued a final order in Consumers’ gas depreciation case, authorizing the use of depreciation rates filed by Consumers in August 2008. These rates, previously approved by the MPSC on an interim basis in December 2008, reduced Consumers’ depreciation expense, and its recovery of that expense, by $20 million per year. The MPSC also ordered Consumers to adopt certain standard retirement units by January 1, 2010. Consumers estimates that the use of these standard retirement units will increase maintenance expense, and recovery of that expense, by $10 million annually. In February 2010, the MPSC directed Consumers to begin implementation of the new standard retirement units at the same time it implements the final rates approved in its pending gas rate case in the spring of 2010.Gas Rate Case: In May 2009, Consumers filed an application with the MPSC seeking an annual increase in revenue of $114 million based on an 11 percent authorized return on equity. The following table details the components of the requested increase in revenue: Components of the increase in revenue In Millions Impact of sales declines $ 41 Investment in rate base 40 Recovery of operating and maintenance costs 25 Return on equity 8 Total $ 114 Under the new streamlined regulatory process described in the “Consumers’ Electric Utility Rate Matters — Electric Rate Case and Self-Implemented Rates” section of this Note, utilities may be allowed to self-implement rates six months after filing, subject to refund with interest, unless the MPSC finds good cause to prohibit self-implementation. In November 2009, Consumers self-implemented a gas rate increase in the annual amount of $89 million, subject to refund with interest. Consumers does not consider it probable that it will be required to refund a material portion of its self-implemented rates.119CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)8: FINANCINGS AND CAPITALIZATIONLong-term debt at December 31 follows: Interest Rate (%) Maturity 2009 2008 In Millions Senior notes 7.750 2010 $ 67 $ 300 8.500 2011 214 300 6.300 2012 150 150 Variable (a) 2013 150 150 6.875 2015 125 125 6.550 2017 250 250 8.750 2019 300 — 3.375 (b) 2023 139 140 2.875 (b) 2024 288 288 5.500 (b) 2029 173 — $ 1,856 $ 1,703 Revolving credit facility 25 105 Total — CMS Energy $ 1,881 $ 1,808 $ 4,411 $ 4,297 EnerBank brokered certificates of deposit 2.727 (c) 2010-2018 214 176 Genesee tax exempt bonds 7.500 2010-2021 54 57 Grayling tax exempt bonds Variable (d) 2010-2012 15 19 Total — other CMS Energy subsidiaries $ 283 $ 252 $ 34 $ 178 Total CMS Energy principal amount outstanding $ 6,609 $ 6,535 Current amounts (672 ) (489 ) Net unamortized discount (42 ) (31 ) Total CMS Energy Long-term debt $ 5,895 $ 6,015 120CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Long-term debt at December 31 follows: Interest Rate (%) Maturity 2009 2008 In Millions FMBs(e) 4.800 2009 $ — $ 200 4.400 2009 — 150 4.000 2010 250 250 5.000 2012 300 300 5.375 2013 375 375 6.000 2014 200 200 5.000 2015 225 225 5.500 2016 350 350 5.150 2017 250 250 5.650 2018 250 250 6.125 2019 350 350 6.700 2019 500 — 5.650 2020 300 300 5.650 2035 139 142 5.800 2035 175 175 $ 3,664 $ 3,517 Senior notes 6.875 2018 180 180 Securitization bonds 5.566 (f) 2010-2015 243 277 Nuclear fuel disposal liability (g) 163 162 Tax-exempt pollution control revenue bonds Various 2010-2035 161 161 Total Consumers principal amount outstanding $ 4,411 $ 4,297 Current amounts (343 ) (383 ) Net unamortized discount (5 ) (6 ) Total Consumers Long-term debt $ 4,063 $ 3,908 (a)CMS Energy’s variable rate senior notes bear interest at three-month LIBOR plus 95 basis points (1.234 percent at December 31, 2009 and 5.703 percent at December 31, 2008).(b)CMS Energy’s contingently convertible notes. See the “Contingently Convertible Securities” section in this Note for further discussion of the conversion features.(c)The weighted average interest rate for EnerBank’s brokered certificates of deposit was 2.727 percent at December 31, 2009 and 4.374 percent at December 31, 2008. EnerBank sells these deposits through investment brokers in large pools, with each certificate within the pool having a face value of $1,000. They cannot be withdrawn until maturity, except in the case of death or incompetence of the holder.(d)The interest rate for Grayling’s variable-rate tax-exempt bonds was 0.270 percent at December 31, 2009 and 0.910 percent at December 31, 2008.(e)The weighted-average interest rate for Consumers’ FMBs was 5.583 percent at December 31, 2009 and 5.329 percent at December 31, 2008.(f)The weighted-average interest rate for Consumers’ Securitization bonds was 5.566 percent at December 31, 2009 and 5.495 percent at December 31, 2008.(g)The maturity date of the nuclear fuel disposal liability is uncertain.121CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Financings: The following is a summary of significant long-term debt transactions during 2009: Principal Interest Rate (%) Issue/Retirement Date Maturity Date (In Millions) Convertible senior notes $ 173 5.50 % June 2009 June 2029 Senior notes 300 8.75 % June 2009 June 2019 FMBs 500 6.70 % March 2009 September 2019 Long-term debt — related parties(a) $ 144 7.75 % June 2009 July 2027 Senior notes(b) 233 7.75 % July 2009 August 2010 Senior notes(b) 87 8.50 % July 2009 April 2011 FMBs 200 4.80 % February 2009 February 2009 FMBs 150 4.40 % August 2009 August 2009 (a)CMS Energy retired this debt at a discount, and recorded a gain on extinguishment of debt of $28 million in Other income on its Consolidated Statements of Income (Loss).(b)CMS Energy retired this debt at a premium, and recorded a loss on extinguishment of debt of $18 million in Other expense on its Consolidated Statements of Income (Loss).In January 2010, CMS Energy issued an aggregate of $300 million of 6.25 percent senior notes due in 2020.FMBs: Consumers secures its FMBs by a mortgage and lien on substantially all of its property. Consumers’ ability to issue FMBs is restricted by certain provisions in the First Mortgage Bond Indenture and the need for regulatory approvals under federal law. Restrictive issuance provisions in the First Mortgage Bond Indenture include achieving a two-times interest coverage ratio and having sufficient unfunded net property additions.Regulatory Authorization for Financings: The FERC has authorized Consumers to have outstanding at any one time, up to $1.0 billion of secured and unsecured short-term securities for general corporate purposes. The remaining availability is $520 million at December 31, 2009. The FERC has also authorized Consumers to issue and sell up to $2.1 billion of secured and unsecured long-term securities for general corporate purposes. The remaining availability is $1.0 billion at December 31, 2009. The authorizations are for the period ending June 30, 2010. Any long-term issuances during the authorization period are exempt from the FERC’s competitive bidding and negotiated placement requirements.Securitization Bonds: Certain regulatory assets owned by Consumers’ subsidiary, Consumers Funding, collateralize Consumers’ Securitization bonds. The bondholders have no recourse to Consumers’ other assets. Through its rate structure, Consumers bills customers for Securitization surcharges to fund the payment of principal, interest, and other related expenses. The surcharges collected are remitted to a trustee and are not available to creditors of Consumers or creditors of Consumers’ affiliates other than Consumers Funding. Securitization surcharges totaled $46 million in 2009 and $53 million in 2008.Long-Term Debt — Related Parties: CMS Energy formed a statutory wholly owned business trust for the sole purpose of issuing preferred securities and lending the gross proceeds to itself. The sole assets of the trust122CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)consists of the debentures describedPresented in the following table. These debentures have terms similar to those oftable are CMS Energy's assets, by level within the mandatorily redeemable preferred securities the trust issued. Under current accounting rules, CMS Energy does not hold the controlling financial interest in the trust preferred security structure. Accordingly, this entity is reflected in Long-term debt. Under ASUNo. 2009-17, which is effective for CMS Energy and Consumers January 1, 2010, CMS Energy expects to consolidate CMS Energy Trust I, the issuer of the Trust Preferred Securities. For additional detailsfair value hierarchy, reported at fair value on ASUNo. 2009-17, see Note 4, New Accounting Standards.The following is a summary of related party long-term debt at December 31: Interest Rate (%) Maturity 2009 2008 In Millions Convertible subordinated debentures, CMS Energy Trust I 7.75 2027 $ 34 $ 178 Interest expense was $8 million in 2009, $14 million in 2008, and $14 million in 2007.In the event of default, holders of the Trust Preferred Securities would be entitled to exercise and enforce the trust’s creditor rights against CMS Energy, which may include acceleration of the principal amount due on the debentures. CMS Energy has issued certain guarantees with respect to payments on the preferred securities. These guarantees, when taken together with CMS Energy’s obligations under the debentures, related indenture, and trust documents, provide full and unconditional guarantees for the trust’s obligations under the preferred securities. CMS Energy’s maximum exposure for the trust’s obligations is included on CMS Energy’s Consolidated Balance Sheets as Long-term debt in the amount of $34 million.Debt Maturities: At December 31, 2009, the aggregate annual contractual maturities for long-term debt for the next five years were: Payments Due 2010 2011 2012 2013 2014 In Millions Long-term debt $ 533 $ 297 $ 543 $ 587 $ 258 Long-term debt $ 343 $ 37 $ 339 $ 416 $ 243 Revolving Credit Facilities: The following secured revolving credit facilities with banks were available at December 31, 2009: Letters of Amount of Amount Credit Amount Expiration Date Facility Borrowed Outstanding Available In Millions CMS Energy(a) April 2, 2012 $ 550 $ 25 $ 3 $ 522 Consumers March 30, 2012 500 — 335 165 Consumers(b) November 30, 2010 30 — 30 — Consumers August 17, 2010 150 — — 150 (a)CMS Energy’s average borrowingsnonrecurring basis during the year ended December 31, 2009, totaled $61 million, with a weighted average annual interest rate of 1.2 percent, at LIBOR plus 0.75 percent.(b)Secured revolving letter of credit facility123CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Sale of Accounts Receivable: Under a revolving accounts receivable sales program, Consumers may sell eligible accounts receivable to a wholly owned, consolidated, bankruptcy-remote special-purpose entity. In turn, the special-purpose entity may sell an undivided interest in up to $250 million of the receivables, subject to certain eligibility requirements. At December 31, 2009, $250 million of accounts receivable were eligible for sale, of which $50 million were sold. At December 31, 2008, $250 million of accounts receivable were eligible for sale, of which $170 million were sold.The purchaser of the receivables has no recourse against Consumers’ other assets for failure of a debtor to pay when due and no right to any receivables not sold. Consumers and the special-purpose entity have accounted for these transfers as sales because the transferred receivables have been legally isolated from the transferor, the transferee could pledge or exchange the receivables, and the transferor did not maintain effective control over the receivables. Consumers has not recorded a gain or loss on the receivables sold nor retained any interest in the receivables sold. Consumers continues to service the receivables sold to the special-purpose entity.The following table summarizes certain cash flows under Consumers’ accounts receivable sales program: 2009 2008 In Millions Administrative fees $ 3 $ 1 Net cash flow as a result of accounts receivable sales (120 ) 170 Collections from customers 6,024 6,060 Contingently Convertible Securities: At December 31, 2009, the significant terms of CMS Energy’s contingently convertible securities were as follows: Adjusted Adjusted Maturity Outstanding Conversion Price Trigger Price (In Millions) 4.50% preferred stock — $ 239 $ 9.14 $ 10.96 3.375% senior notes 2023 139 9.86 11.83 2.875% senior notes 2024 288 13.62 16.35 5.50% senior notes 2029 173 14.46 18.80 CMS Energy has the right to require the 4.50 percent preferred stock to be converted if the closing price of its common stock remains at or above $11.88 for 20 of any 30 consecutive trading days, including the most recent trading day, prior to exercise. This required condition was met at December 31, 2009.The holders of the 3.375 percent senior notes have the right to require CMS Energy to purchase the notes at par on July 15, 2013 and 2018. The holders of the 2.875 percent senior notes have the right to require CMS Energy to purchase the notes at par on December 1, 2011, 2014, and 2019.The securities become convertible for a calendar quarter if the price of CMS Energy’s common stock remains at or above the trigger price for 20 of 30 consecutive trading days ending on the last trading day of the previous quarter. The trigger price at which these securities become convertible is 120 percent of the conversion price (130 percent for the 5.5 percent senior notes). The conversion and trigger prices are subject to adjustment in certain circumstances, including payments or distributions to CMS Energy’s common stockholders. The conversion and trigger price adjustment is made when the cumulative change in conversion and trigger prices is one percent or more. During December 2009, trigger price contingencies were met for the 4.50 percent preferred stock and 3.375 percent senior notes.124CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)All of CMS Energy’s contingently convertible securities, if converted, require CMS Energy to pay cash up to the principal (or par) amount of the securities. Any conversion value in excess of that amount is paid in shares of CMS Energy’s common stock.In December 2008, 125,000 shares of 4.50 percent preferred stock were tendered for conversion which resulted in the issuance of 84,592 shares of common stock and payment of $6 million in January 2009. In September 2009, 84,000 shares of 4.50 percent preferred stock were tendered for conversion which resulted in the issuance of 136,712 shares of common stock and payment of $4 million in October 2009. In October 2009, 250 ($250,000 aggregate principal amount) of its 3.375 percent convertible senior notes were tendered for conversion which resulted in the issuance of 6,634 shares of common stock and the payment of less than $1 million in November 2009.Dividend Restrictions: Under provisions of CMS Energy’s senior notes indenture, at December 31, 2009, payment of common stock dividends by CMS Energy was limited to $699 million.Under the provisions of its articles of incorporation, at December 31, 2009, Consumers had $333 million of unrestricted retained earnings available to pay common stock dividends to CMS Energy. Provisions of the Federal Power Act and the Natural Gas Act appear to restrict dividends payable by Consumers to the amount of Consumers’ retained earnings. Several decisions from the FERC suggest that under a variety of circumstances common stock dividends from Consumers would not be limited to amounts in Consumers’ retained earnings. Any decision by Consumers to pay common stock dividends in excess of retained earnings would be based on specific facts and circumstances and would result only after a formal regulatory filing process.During 2009, CMS Energy received $285 million of common stock dividends from Consumers.Capitalization: The authorized capital stock of CMS Energy consists of:• 350 million shares of CMS Energy Common Stock, par value $0.01 per share, and• 10 million shares of CMS Energy Preferred Stock, par value $0.01 per share.Preferred Stock: Details about CMS Energy’s preferred stock outstanding follow: Number of Shares 2009 2008 2009 2008 In Millions 4.50% convertible, authorized 10,000,000 shares 4,769,000 4,978,000 $ 239 $ 249 Preferred Stock of Subsidiary: Details about Consumers’ preferred stock outstanding follow: Optional Redemption Number of Shares Series Price 2009 2008 2009 2008 In Millions Cumulative $100 par value, Authorized 7,500,000 shares, with no mandatory redemption $ 4.16 $ 103.25 68,451 68,451 $ 7 $ 7 $ 4.50 $ 110.00 373,148 373,148 37 37 Total Preferred stock of subsidiary $ 44 $ 44 125CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)9: EARNINGS PER SHARE — CMS ENERGYThe following table presents CMS Energy’s basic and diluted EPS computations based on Income (Loss) from Continuing Operations: 2009 2008 2007 In Millions, Except Per Share Amounts Income (Loss) from Continuing Operations $ 220 $ 301 $ (120 ) Less Income (Loss) Attributable to Noncontrolling Interests (11 ) (7 ) (13 ) Less Preferred Dividends and Redemption Premiums (11 ) (11 ) (12 ) Income (Loss) from Continuing Operations Available to Common Stockholders Basic and Diluted $ 198 $ 283 $ (145 ) Weighted Average Shares — Basic 227.2 225.7 224.5 Add dilutive impact of Contingently Convertible Securities 10.6 10.3 — Add dilutive Options and Warrants 0.1 0.2 — Weighted Average Shares — Diluted 237.9 236.2 224.5 Basic $ 0.87 $ 1.25 $ (0.65 ) Diluted $ 0.83 $ 1.20 $ (0.65 ) Contingently Convertible Securities: When CMS Energy has earnings from continuing operations, its contingently convertible securities dilute EPS to the extent that the conversion value of a security, which is based on the average market price of CMS Energy’s common stock, exceeds the principal value of that security. Had there been positive income from continuing operations for the year ended December 31, 2007, contingently convertible securities would have contributed an additional 19.72010: Level 1 Level 2 Level 3 Losses $ – $ 5 $ – $ (6 ) shares to their fair value of $5 million, resulting in a loss of $6 million, which was recorded in earnings as part of discontinued operations. The fair value was determined based on the calculationprice that CMS Energy received for the sale of diluted EPS. For additional details on contingently convertible securities, see Note 8, Financingsthese assets, which closed in January 2011. CMS Energy had no other nonrecurring fair value measurements and Capitalization.Stock Options and Warrants: ForConsumers had no nonrecurring fair value measurements during the year ended December 31, 2009, outstanding options to purchase 0.4 million shares of common stock had no impact on diluted EPS, since the exercise price was greater than the average market price of common stock. These stock options have the potential to dilute EPS2010.future. Had there been positive income from continuing operations forfollowing table are the year ended December 31, 2007, options and warrants to purchase 0.3 million shares of common stock would have been included in the calculation of diluted EPS.Unvested Restricted Stock Awards: CMS Energy’s unvested restricted stock awards accrue cash dividends when common stockholders receive dividends. Since the recipient is not required to return the dividends to the company if the recipient forfeits the award, they are considered participating securities. As such, unvested restricted stock awards were included in the computation of basic EPS.Convertible Debentures: For the years ended December 31, 2009, 2008, and 2007, there was no impact on diluted EPS from CMS Energy’s 7.75 percent convertible subordinated debentures. Using the if-converted method, the debentures would have:• increased the numerator of diluted EPS by $5 million for the year ended December 31, 2009 and by $9 million for each of the years ended December 31, 2008 and 2007, from an assumed reduction of interest expense, net of tax; and126CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)• increased the denominator of diluted EPS by 2.3 million shares for the year ended December 31, 2009 and by 4.2 million shares for each of the years ended December 31, 2008 and 2007.CMS Energy can revoke the conversion rights if certain conditions are met.10: FINANCIAL INSTRUMENTSThe carrying amounts and fair values, by level within the fair value hierarchy, of CMS Energy’sEnergy's and Consumers’Consumers' financial instruments that are not recorded at fair value. The table does not include information on cash, currentcash equivalents, short-term accounts and notes receivable, short-term investments, and current liabilities since the carrying amount of these items approximate their fair values because of their short-term nature. The cost or carrying amountsFor information about assets and liabilities recorded at fair valuesvalue and for additional details regarding the fair value hierarchy, see Note 6, Fair Value Measurements. December 31, 2012 December 31, 2011 Carrying Fair Value Carrying Amount Total Level 1 Level 2 Level 3 Amount Fair Value $ 9 $ 10 $ – $ 10 $ – $ 7 $ 7 544 581 – – 581 480 504 7,229 8,347 – 7,321 1,026 7,073 8,025 $ 4,338 $ 5,015 $ – $ 3,989 $ 1,026 $ 4,326 $ 4,882 CMS Energy’snotes receivable of $40 million at December 31, 2012 and Consumers’$19 million at December 31, 2011.financial instruments were as follows:debt of $519 million at December 31, 2012 and $1,033 million at December 31, 2011. 2009 2008 Cost or Cost or Carrying Carrying Amount Fair Value Amount Fair Value In Millions Securities held to maturity $ 4 $ 4 $ 3 $ 3 Securities available for sale 26 27 68 68 Notes receivable, net 269 279 186 201 Long-term debt(a) 6,567 7,013 6,504 6,069 Securities available for sale $ 24 $ 45 $ 52 $ 63 Long-term debt(b) 4,406 4,635 4,291 4,073 (a)Includes current portion of long-term debt of $672 million at December 31, 2009 and $489 million at December 31, 2008.(b)Includes current portion of long-term debt of $343 million at December 31, 2009 and $383 million at December 31, 2008.net consist of EnerBank’sEnerBank's fixed-rate installment loans. EnerBank estimates the fair value of these loans using a discounted cash flows technique that incorporates current market interest rates as well as assumptions about the remaining life of the loans and credit risk. Fair values for impaired loans are estimated using discounted cash flows or underlying collateral values.internal assumptions and models. Forthat cannot be observed or confirmed through market transactions. CMS Energy includes the value of the conversion features in estimating the fair value of its convertible securities, CMS Energydebt, and incorporates, as appropriate, information on the market prices of CMS Energy’sEnergy common stock.Energy’sEnergy's long-term debt includes $286included $103 million principal amount that iswas supported by third-party insurance or other credit enhancements. Of this amount, $271 millionThis entire principal amount iswas at Consumers. The effects of this third-party credit support were excluded from measurement of fair value at December 31, 2009, resulting in a minor reduction to the fair value amount.127CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The following table summarizesare CMS Energy’sEnergy's and Consumers’Consumers' investment securities: 2009 2008 Unrealized Unrealized Fair Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value In Millions Available for sale: SERP: Mutual fund $ — $ — $ — $ — $ 39 $ — $ — $ 39 Municipal bonds 26 1 — 27 29 — — 29 Held to maturity: Debt securities 4 — — 4 3 — — 3 Available for sale: SERP: Mutual fund $ — $ — $ — $ — $ 25 $ — $ — $ 25 Municipal bonds 16 — — 16 19 — — 19 Common stock of CMS Energy 8 21 — 29 8 11 — 19 The mutual fundsecurities classified as available for sale consisted of an investment in an S&P 500 Indexor held to maturity: December 31, 2012 December 31, 2011
Cost Unrealized
Gains Unrealized
Losses Fair
Value
Cost Unrealized
Gains Unrealized
Losses Fair
Value $ 123 $ 3 $ – $ 126 $ 113 $ – $ – $ 113 9 1 – 10 7 – – 7 $ 83 $ 2 $ – $ 85 $ 74 $ – $ – $ 74 6 26 – 32 7 28 – 35 fund. Municipal bondsfunds classified as available for sale consistedhold primarily fixed-income instruments of investment-grade state and municipal bonds.varying maturities. During the year ended December 31, 2012, CMS Energy contributed $13 million to the DB SERP, which included a contribution of $9 million by Consumers. The contributions were used to acquire additional shares in the mutual funds. Debt securities classified as held to maturity consistedconsist primarily of municipal bonds and mortgage-backed securities held by EnerBank.During 2008, the fair valueCMS Energy’s SERP investmentContentsmutual fund declined from $63 million to $39 million. These amounts includefollowing table is a summary of the decline in fair valuesales activity for CMS Energy's and Consumers' investment securities: 2012 2011 2010 $ 3 $ 29 $ 1 $ 2 $ 19 $ – Consumers’investments that were held within the DB SERP investment in equity securities from $41 million to $25 million.and classified as available for sale. Realized gains and losses on the sales were not significant for either CMS Energy or Consumers during each period. In 2011, CMS Energy and Consumers determined that these declinessold their DB SERP investments in fair value were other than temporary. Accordingly, CMS Energy reclassified net unrealized losses of $24 million ($15 million net of tax) from AOCL to Other expense on the Consolidated Statements of Income (Loss)state and established a new cost basis of $39 million for these investments, which was equal to fair value at December 31, 2008. Consumers reclassified net unrealized losses of $16 million ($10 million net of tax) from AOCL to Other expense on the Consolidated Statements of Incomemunicipal bonds, and established a new cost basis of $25 million for these investments, which was equal to fair value at December 31, 2008.During 2009,reinvested the proceeds from CMS Energy’s salesin a mutual fund that holds fixed-income instruments of SERP securities were $53 million, and $8 million of gross gains were realized. These amounts include proceeds from Consumers’ sales of SERP securities of $32 million, and $5 million of realized gross gains. CMS Energy reclassified netvarying maturities.AOCLtransferring shares of CMS Energy common stock to a related charitable foundation. The gains reflected the excess of fair value over cost of the stock donated and were included thisin income. Consumers did not transfer any shares of CMS Energy common stock in 2010. December 31, 2012 December 31, 2011 $ 40 $ 19 1 30 504 461 16 1 $ 561 $ 511 $ – $ 23 16 1 $ 16 $ 24 2012 2011 $ 5 $ 5 (5) (5) 1 1 4 4 $ 5 $ 5 Estimated
Depreciable
Life in Years 2012 2011 22 - 125 $ 4,254 $ 3,936 23 - 75 5,831 5,538 5 - 50 677 651 279 275 30 - 80 2,861 2,754 13 - 75 770 722 30 - 65 339 322 5 - 50 424 403 6 5 3 - 30 89 89 3 - 40 24 20 1 - 51 38 36 1,080 783 (5,121 ) (4,901 ) $ 11,551 $ 10,633 22 - 125 $ 4,254 $ 3,936 23 - 75 5,831 5,538 5 - 50 677 651 279 275 30 - 80 2,861 2,754 13 - 75 770 722 30 - 65 339 322 5 - 50 424 403 6 5 8 - 51 15 15 1,080 782 (5,061 ) (4,846 ) $ 11,475 $ 10,557 2012 2011 $ 280 $ 278 9 4 (4 ) (2 ) $ 285 $ 280 2012 2011 $ 5,060 $ 4,844 61 57 $ 5,060 $ 4,844 1 2 2012 2011 2010 3.2 % 3.0 % 3.0 % 2.9 % 2.9 % 2.9 % 7.2 % 7.4 % 7.4 % 2012 2011 2010 7.3 % 7.6 % 7.6 % incomeplant, property, and equipment are intangible assets. Presented in 2009. This amount includes Consumers’ reclassification of net gains of $3the following table are CMS Energy's and Consumers' intangible assets: 2012 2011 Amortization
Life in years Gross Cost1 Accumulated
Amortization Gross Cost1 Accumulated
Amortization 3 - 15 $ 466 $ 172 $ 361 $ 142 40 - 46 214 27 214 22 50 - 75 130 40 128 38 various2 13 10 11 9 5 - 30 14 6 15 7 various 18 14 19 14 $ 855 $ 269 $ 748 $ 232 3 - 15 $ 464 $ 172 $ 360 $ 141 40 - 46 214 27 214 22 50 - 75 130 40 128 38 various2 13 10 11 9 5 - 30 14 6 15 7 various 18 14 18 14 $ 853 $ 269 $ 746 $ 231 from AOCL, which was included in net income in 2009.During 2008, the proceeds from CMS Energy’s and Consumers’ sales of SERP securities were $2 million, and gross gains and losses were immaterial.During 2007, the proceeds from CMS Energy’s sales of SERP securities were $64 million,during 2012 and $23 million during 2011 and primarily represented software development costs.gross gainsthe lease, which may change whenever the lease is renewed or extended.$1Consumers' amortization expense related to intangible assets: CMS Energy,
including Consumers Consumers Total
Amortization
Expense Software
Amortization
Expense Total
Amortization
Expense Software
Amortization
Expense $ 39 $ 31 $ 38 $ 30 32 24 32 24 28 19 27 19 gross losses were realized. These amounts include proceeds from Consumers’ salesContents Campbell Unit 3 Ludington Distribution 93.3 % 51.0 % various $ 1,080 $ 175 $ 182 (431 ) (147 ) (56 ) 84 87 5 $ 733 $ 115 $ 131 SERP securitiesthe direct expenses of $29 million, $11 millionthe jointly owned plants in operating expenses. Consumers shares operation, maintenance, and other expenses of realized gross gains, and $1 millionthese jointly owned utility facilities in proportion to each participant's undivided ownership interest. Consumers is required to provide only its share of realized gross losses. financing for the jointly owned utility facilities.reclassified net gainsand Consumers lease various assets, including service vehicles, railcars, gas pipeline capacity, and buildings. In addition, CMS Energy and Consumers account for a number of $15 milliontheir PPAs as capital and operating leases.AOCLthe sale or disposition of the vehicles, and included this amountothers having fixed percentage purchase options.net loss2012 for five years pursuant to the renewal provision at the end of the contract. At December 31, 2012, the remaining term of the contract was five years with a renewal provision of five years at the end of the contract. The remaining terms of Consumers' long-term PPAs accounted for as leases range between one and 20 years. Most of these PPAs contain provisions at the end of the initial contract terms to renew the agreements annually.2007. This amountthe following table are Consumers' minimum lease expense and contingent rental expense. For each of the years ended December 31, 2012, 2011, and 2010, all of CMS Energy's minimum lease expense and contingent rental expense were attributable to Consumers. 2012 2011 2010 $ 6 $ 10 $ 5 23 22 22 33 11 14 128
Presented in the following table are the minimum annual rental commitments under Consumers' non-cancelable leases at December 31, 2012. All of CMS Energy's non-cancelable leases at December 31, 2012 were attributable to Consumers.CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANY Capital
Leases Finance
Lease1 Operating
Leases $ 14 $ 20 $ 26 13 19 25 14 18 24 10 17 19 9 17 19 36 62 67 $ 96 $ 153 $ 180 43 31 $ 53 $ 122 9 13 $ 44 $ 109 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)includes Consumers’ reclassificationnet gainsthe capacity and energy then capable of $7 million from AOCL whichbeing produced by Palisades. Consumers has continuing involvement with Palisades through security provided to Entergy for Consumers' PPA obligation and other arrangements. Because of these ongoing arrangements, Consumers accounted for the transaction as a financing of Palisades and not a sale. Accordingly, no gain on the sale of Palisades was included in net income in 2007.SERP municipal bonds by contractual maturity atnet assets sold and2009 were as follows:2012, $21 million for the year ended December 31, 2011, and $22 million for the year ended December 31, 2010. CMS Energy, including Consumers Consumers In Millions Due one year or less $ 1 $ 1 Due after one year through five years 11 7 Due after five years through ten years 11 6 Due after ten years 4 2 Total $ 27 $ 16 DERIVATIVE INSTRUMENTSASSET RETIREMENT OBLIGATIONSIn order to limit exposure to certain market risks, primarily changes in commodity prices, interest rates, and foreign exchange rates, may enter into various risk management contracts, such as forward contracts, futures, options, and swaps. In entering into these contracts, they follow established policies and procedures under the direction of an executive oversight committee consisting of senior management representatives and a risk committee consisting of business unit managers. Neither CMS Energy nor Consumers holds any of its derivatives for trading purposes.The contracts used to manage market risks may qualify as derivative instruments. If a contract is a derivative and does not qualify for the normal purchases and sales exception, the contract is recorded on the balance sheet at its fair value. Each quarter, the resulting asset or liability is adjusted to reflect any change inrecord the fair value of the contract. Since nonecost to remove assets at the end of their useful lives, if there is a legal obligation to remove them. No market risk premiums were included in CMS Energy’s or Consumers’ derivatives have been designated as accounting hedges, all changes inEnergy's and Consumers' ARO fair value are reportedestimates since reasonable estimates could not be made. If a five percent market risk premium were assumed, CMS Energy's and Consumers' ARO liabilities at December 31, 2012 would increase by $16 million and at December 31, 2011 would increase by $13 million. In 2012, Consumers updated the ARO for coal ash disposal areas to reflect a revised estimate of future obligations, and recorded the initial estimate for the Lake Winds® Energy Park ARO.earnings. Forthe period in which the ARO is incurred, such as for assets with indeterminate lives, the liability is recognized when a discussionreasonable estimate of howfair value can be made. CMS Energy and Consumers determinehave not recorded liabilities for assets that have insignificant cumulative disposal costs, such as substation batteries.fair valuecategories of their derivatives, see Note 5, Fair Value Measurements.Commodity Price Risk: In order to support ongoing operations,assets that CMS Energy and Consumers enter into contractshave legal obligations to remove at the end of their useful lives and for the future purchase and sale of various commodities, such as electricity, natural gas, and coal. These forward contracts are generally long-term in nature and result in physical delivery of the commodity at a contracted price. Most of these contracts are not subject to derivative accounting because:which they have an ARO liability recorded: •
Company and ARO Descriptionthey do not have a notional amount (that is, a number of units specified in a derivative instrument, such as MWh of electricity or bcf of natural gas);In-Service
Date
Long-Lived Assets CMS Energy, including Consumers • they qualify for the normal purchasesClosure of gas treating plant and sales exception; orgas wellsVarious Gas transmission and storage Closure of coal ash disposal areas Various Generating plants coal ash areas Closure of wells at gas storage fields Various Gas storage fields Indoor gas services equipment relocations Various Gas meters located inside structures Asbestos abatement 1973 Electric and gas utility plant Gas distribution cut, purge, and cap Various Gas distribution mains and services Closure of wind farm 2012 Wind generation facilities Consumers • there is not an active market for the commodity.Closure of coal ash disposal areas Various Generating plants coal ash areas Closure of wells at gas storage fields Various Gas storage fields Indoor gas services equipment relocations Various Gas meters located inside structures Asbestos abatement 1973 Electric and gas utility plant Gas distribution cut, purge, and cap Various Gas distribution mains and services Closure of wind farm 2012 Wind generation facilities CMS Energy’s and Consumers’ coal purchase contracts are not derivatives because there is not an active marketthe coal they purchase. If an active market for coal developspurposes of settling AROs.future, some of these contracts may qualify as derivatives. For Consumers, which is subject to regulatory accounting,following tables are the resulting fair value gains and losses would be offset by changes in regulatoryCMS Energy's and Consumers' ARO liabilities:
Company and ARO Description ARO
Liability
12/31/11
Incurred
Settled
Accretion Cash
flow
Revisions ARO
Liability
12/31/12 $ 1 $ – $ – $ – $ – $ 1 253 7 (8) 19 40 311 $ 254 $ 7 $ (8) $ 19 $ 40 $ 312 $ 70 $ – $ (3) $ 7 $ 40 $ 114 1 – (1) – – – 42 – (1) 2 – 43 140 4 (3) 10 – 151 – 3 – – – 3 $ 253 $ 7 $ (8) $ 19 $ 40 $ 311
Company and ARO Description ARO
Liability
12/31/10
Incurred
Settled
Accretion Cash
flow
Revisions ARO
Liability
12/31/11 $ 1 $ – $ – $ – $ – $ 1 244 (2) (7) 18 – 253 $ 245 $ (2) $ (7) $ 18 $ – $ 254 $ 66 $ – $ (2) $ 6 $ – $ 70 1 – – – – 1 1 – (1) – – – 40 – (1) 3 – 42 136 (2) (3) 9 – 140 $ 244 $ (2) $ (7) $ 18 $ – $ 253 and would not affect net income. For other subsidiaries, CMS Energy does not believe the impact on earnings would be material.CMS ERM has not designated its contracts to purchase and sell electricity and natural gas as normal purchases and sales and, therefore, CMS Energy accounts for those contracts as derivatives. To manage commodity price risks associated with these forward purchase and sale contracts, CMS ERM uses various financial instruments, such as swaps, options, and futures. At December 31, 2009, CMS ERM held a forward contract for the physical sale of 799129CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)GWh of electricity through 2015 on behalf of one of CMS Energy’s non-utility generating plants. CMS ERM also held futures contracts through 2011 as an economic hedge of 40 percent of the generating plant’s natural gas requirements needed to serve a steam sales contract, for a total of 0.72 bcf of natural gas. In its role as a marketercomponent of natural gas for third-party producers,net cash provided by operating activities in CMS ERM held forward contracts to purchase 5.6 bcfEnergy's and sell 5.4 bcfConsumers' consolidated statements of natural gas through 2010 and a financial contract to sell 0.75 bcfcash flow.natural gas as an economic hedge of gas storage sales in 2010. At December 31, 2009, CMS ERM held financial contracts through 2010 as an economic hedge against tolling arrangements with a purchase of 260 GWh of electricity and a sale of 1.67 bcf of gas.Interest rate risk: In order to mitigate its exposure to changes in interest rates, Grayling executed an interest rate collar as an economic hedge of the variable interest rate charged on its outstanding revenue bonds. At December 31, 2009, the notional amount of this contract was $15 million.At December 31, 2009, the fair value of Consumers’ derivative instruments was less than $1 million. The following table summarizes the fair values of CMS Energy’s derivative instruments: Derivative Assets Derivative Liabilities Balance Sheet Balance Sheet Location Fair Value Location Fair Value In Millions Commodity contracts(a) Other assets $ 1 Other liabilities $ 9 Interest rate contracts Other assets — Other liabilities 1 Total CMS Energy Derivatives $ 1 $ 10 (a)Assets and liabilities are presented gross and exclude the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. The liability also excludes the $1 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. CMS Energy presents these assets and liabilities net of these impacts on its Consolidated Balance Sheets.130CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The following table summarizes the effect of CMS Energy’s and Consumers’ derivative instruments on their Consolidated Statements of Income (Loss): Location of Gain (Loss) Amount of Gain (Loss) Recognized in Income on Recognized in Income Derivatives on Derivatives In Millions Commodity contracts Operating Revenue $ 7 Fuel for electric generation (3 ) Cost of gas sold (2 ) Other income 9 Interest rate contracts Other expense (1 ) Foreign exchange contracts(a) Other expense (1 ) Total CMS Energy $ 9 Commodity contracts Other income $ 9 (a)This derivative loss relates to a foreign-exchange forward contract CMS Energy held at December 31, 2008. CMS Energy settled this obligation and the related derivative in January 2009.At December 31, 2009, CMS Energy’s derivative liabilities subject to credit-risk-related contingent features were less than $1 million.Credit Risk: CMS Energy’s swaps, options, and forward contracts contain credit risk, which is the risk that a counterparty will fail to meet its contractual obligations. CMS Energy reduces this risk through established policies and procedures. CMS Energy assesses credit quality by considering credit ratings, financial condition, and other available information for counterparties. A credit limit is established for counterparties based on the evaluation of its credit quality. Exposure to potential loss under each contract is monitored and action is taken when appropriate.CMS ERM enters into contracts primarily with companies in the electric and gas industry. This industry concentration may have a positive or negative impact on CMS Energy’s exposure to credit risk based on how similar changes in economic conditions, the weather, or other conditions affect these counterparties. CMS ERM reduces its credit risk exposure by using industry-standard agreements that allow for netting positive and negative exposures associated with the same counterparty. Typically, these agreements also allow each party to demand adequate assurance of future performance from the other party, when there is reason to do so.At December 31, 2009, if counterparties within this industry concentration all failed to meet their contractual obligations, the loss to CMS Energy on contracts accounted for as derivatives would be less than $1 million.benefit plansbenefits to employees under a number of different plans. These plans including:
include:• a non-contributory, qualified defined benefit Pension Plan (closed to new non-union participants as of July 1, 2003 and closed to new union participants as of September 1, 2005);131CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)• a qualified cash balance Pension Plan for certain employees hired between July 1, 2003 and August 31, 2005;• a non-contributory, qualified DCCP for employees hired on or after September 1, 2005;• benefits to certain management employees under a non-contributory, nonqualified defined benefit SERP (closed to new participants as of March 31, 2006);• benefits to certain management employees under a non-contributory, nonqualified DC SERP hired on or after April 1, 2006;• health care and life insurance benefits under an OPEB plan;• benefits to a selected group of management under a non-contributory, nonqualified EISP; and• a contributory, qualified defined contribution 401(k) plan. The Participants in the Pension Plan includes funds for most ofinclude CMS Energy’sEnergy's and Consumers’ currentConsumers' present employees, the employees of their subsidiaries, and employees of Panhandle, a former CMS Energy subsidiary. The Pension Plan’sPlan trust assets are not distinguishable by company.On September 1, 2005, implemented the DCCP. The DCCP providesprovide an employer contribution of five percent of base pay to the existing employees’DCCP 401(k) plan. No employee contribution is required in order to receive the plan’s employer contribution. Allplan for employees hired on or after September 1, 2005 participate2005. On January 1, 2011, the employer contribution was increased to six percent. Employees are not required to contribute in this plan. order to receive the plan's employer contribution.in effect fromeffective July 1, 2003 to September 1,August 31, 2005, also participate in the DCCP as of September 1, 2005. Additional pay credits under the cash balance Pension Plan were discontinued as of that date. TheSeptember 1, 2005. DCCP expense for both CMS Energy and Consumers was $4$8 million for the year ended December 31, 2009, $32012, $7 million for the year ended December 31, 2008,2011, and $2$5 million for the year ended December 31, 2007.is not a qualified plan under the Internal Revenue Code. SERPrabbi trust earnings are taxable andtaxable. Presented in the following table are the fair value of trust assets, are included in CMS Energy’sABO, and Consumers’ consolidated assets. The following table provides information regarding the SERP trustcontributions for CMS EnergyEnergy's and Consumers.Consumers' DB SERP: SERP 2009 2008 2007 2012 2011 In Millions Trust assets(a) $ 77 $ 69 $ 95 $ 128 $ 114 ABO 93 80 83 130 117 Contributions 2 — 25 13 27 Trust assets(a) $ 50 $ 45 $ 53 $ 87 $ 75 ABO 54 47 48 86 76 Contributions 1 — 21 9 20 (a)The assets are classified as Other non-current assets on the Consolidated Balance Sheets.defined benefitDB SERP. The DC SERP provides participants benefits ranging from 5 percent to 15 percent of total compensation. The DC SERP requires a minimum of five years of participation before vesting. CMS Energy’sEnergy's and Consumers’Consumers' contributions to the plan, if any, will beare placed in a grantor trust. For CMS Energy and Consumers, trust132CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) less than $1 million at December 31, 20092012 and 2008. TheDecember 31, 2011. DC SERP assets are classified as Otherincluded in other non-current assets on their respective Consolidated Balance Sheets. TheCMS Energy's and Consumers' consolidated balance sheets. CMS Energy's and Consumers' DC SERP expense for CMS Energy and Consumers was less than $1 million for each of the years ended December 31, 2009, 2008,2012, 2011, and 2007. employer’s match for the 401(k) plan isemployer match equals 60 percent onof eligible contributions up to the first six percent of an employee’semployee's wages. The total 401(k) plan cost for CMS Energy, including Consumers, was $16 million for each of the years ended December 31, 20092012, 2011, and 2008, and $14 million for the year ended December 31, 2007.2010. The total 401(k) plan cost for Consumers was $15$16 million for each of the years ended December 31, 20092012 and 2008,2011 and $14$15 million for the year ended December 31, 2007.EISP:OPEB: CMS Energy and Consumers implemented a nonqualified EISP Participants in 2002 to provide flexibility in separation of employment by officers, a selected group of management, or other highly compensated employees. Terms of the plan may include payment of a lump sum, payment of monthly benefits for life, payment of premiums for continuation of health care, or any other legally permissible term deemed to be in CMS Energy’s and Consumers’ best interest to offer. The EISP expense for CMS Energy and Consumers was less than $1 million for each of the years ended December 31, 2009, 2008, and 2007. The ABO for the EISP for CMS Energy, including Consumers, was $4 million at December 31, 2009 and 2008. The ABO for the EISP for Consumers was $1 million at December 31, 2009 and 2008.OPEB: The OPEB plan coversinclude all regular full-time employees who are covered by the employee health care plan on the day before they retireretirement from the companyeither CMS Energy or Consumers at age 55 or older and who havewith at least ten full years of applicable continuous service. Regular full-time employees who qualify for a Pension Plan disability retirement and have 15 years of applicable continuous service aremay also eligible.participate in the OPEB plan. Retiree health care costs were based on the assumption that costs would increase 8.58.0 percent for those under 65 and 8.07.5 percent for those over 65 in 20092013 and 2010.7.5 percent in 2012 for all retirees. The rate of increase iswas assumed to slowdecline to five percent for those underall retirees by 2019 and over 65 by 2017 and thereafter.health care cost-trend rate assumption affects the estimated costs recorded. A change of one percentage pointassumptions used in the health care cost-trend assumption would haverate affect service, interest, and PBO costs. Presented in the following effects: One Percentage One Percentage Point Increase Point Decrease In Millions Effect on total service and interest cost component $ 18 $ (15 ) Effect on postretirement benefit obligation $ 199 $ (174 ) Effect on total service and interest cost component $ 17 $ (15 ) Effect on postretirement benefit obligation $ 193 $ (169 ) In 1992, Consumers recordedtable are the effects of a liability of $466 million for the accumulated transition obligation and a corresponding regulatory asset for anticipated recovery in utility rates. The MPSC authorized recovery of the electric utility portion of these costs in 1994 over 18 years and the gas utility portion in 1996 over 16 years.Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans Amendments:In September 2006, the FASB issued an amended standard for accounting for employers’ defined benefit pension and other postretirement plans. This standard required CMS Energy and Consumers to recognize the funded status of their defined benefit postretirement plans on their Consolidated Balance Sheets at December 31, 2006. The standard also required CMS Energy and Consumers to recognize changesone-percentage-point change in the funded statushealth care cost-trend assumption: One Percentage
Point Increase One Percentage
Point Decrease $ 23 $ (19 ) 281 (242 ) $ 22 $ (18 ) 273 (235 ) year in which the changes occur. In addition, the standard required that CMS Energy and Consumers change their plan measurement date from November 30 to December 31, effective December 31, 2008. In the first quarter of 2008, CMS Energy and Consumers recorded the measurement date change, which resulted in a $6 million133CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)net-of-tax decrease to retained earnings, a $4 million reduction to regulatory assets, a $7 million increase in Postretirement benefit liabilities, and a $5 million increase in Deferred tax assets on its Consolidated Balance Sheets.In April 2008, the MPSC issued an order in Consumers’ PSCR case that allowed Consumers to collect a one-time surcharge under a pension and OPEB equalization mechanism. For 2008, Consumers collected $10 million of pension and $2 million of OPEB surcharge revenue in electric rates. Consumers recorded a reduction of $12 million of equalization regulatory assets on its Consolidated Balance Sheets and an increase of $12 million of expense on its Consolidated Statements of Income. Thus, Consumers’ collection of the equalization mechanism surcharge had no impact on net income for the year ended December 31, 2008.Assumptions: The following tables providetable are the weighted-average assumptions used in CMS Energy’sEnergy's and Consumers’Consumers' retirement benefits plans to determine benefit obligations and net periodic benefit cost: Pension and DB SERP OPEB 2012 2011 2010 2012 2011 2010 4.10 % 4.90 % 5.40 % 4.40 % 5.10 % 5.60 % 2000 2000 2000 2000 2000 2000 3.00 % 3.50 % 4.00 % 5.50 % 5.50 % 5.50 % 4.90 % 5.40 % 5.85 % 5.10 % 5.60 % 6.00 % 7.75 % 8.00 % 8.00 % 7.25 % 7.50 % 7.50 % 2000 2000 2000 2000 2000 2000 3.50 % 4.00 % 4.00 % 5.50 % 5.50 % 5.50 % Weighted Average1Benefit Obligations:cash funding valuations under the Pension Protection Act of 2006. Pension and SERP OPEB 2009 2008 2007 2009 2008 2007 Discount rate(a) 5.85 % 6.50 % 6.40 % 6.00 % 6.50 % 6.50 % Expected long-term rate of return on plan assets(b) 8.00 % 8.25 % 8.25 % 7.50 % 7.75 % 7.75 % Mortality table(c) 2000 2000 2000 2000 2000 2000 Rate of compensation increase: Pension 4.00 % 4.00 % 4.00 % SERP 5.50 % 5.50 % 5.50 % Weighted Average for Net Periodic Benefit Cost: Pension and SERP OPEB 2009 2008 2007 2009 2008 2007 Discount rate(a) 6.50 % 6.40 % 5.65 % 6.50 % 6.50 % 5.65 % Expected long-term rate of return on plan assets(b) 8.25 % 8.25 % 8.25 % 7.75 % 7.75 % 7.75 % Mortality table(c) 2000 2000 2000 2000 2000 2000 Rate of compensation increase: Pension 4.00 % 4.00 % 4.00 % SERP 5.50 % 5.50 % 5.50 % (a)The discount rate is set to reflect the rates at which benefits be effectively settled. It is set equal to the equivalent single rate that results from a yield curve analysis incorporating projected benefit payments specific to CMS Energy’s and Consumers’ pension and other postretirement benefit plans and the yields on high quality corporate bonds rated Aa or better.(b)CMS Energy and Consumers determine their long-term rate of return by considering historical market returns, the current and expected future economic environment, the capital market principles of risk and return, and the expert opinions of individuals and firms with financial market knowledge. CMS Energy and Consumers consider the asset allocation of the portfolio in forecasting the future expected total return of the portfolio. The goal is to determine a long-term rate of return that can be incorporated into the planning of future cash flow requirements in conjunction with the change in the liability. Annually, CMS Energy and Consumers review for reasonableness and appropriateness the forecasted returns for various classes of assets used to construct an expected return model. CMS Energy's and Consumers' expected long-term rate of return on Pension Plan assets was 7.75 percent in 2012. The actual return on Pension Plan assets was 14.1 percent in 2012, four percent in 2011, and 13 percent in 2010. liability. Annually, CMS Energy and Consumers review for134CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)reasonableness and appropriateness the forecasted returns for various classes of assets used to construct an expected return model. CMS Energy’s and Consumers’ expected long-term rate of return on Pension Plan assets was 8.25 percent in 2009. The 2009 actual return on Pension Plan assets was 21 percent, and for 2008 the actual return was a negative 23 percent.(c)The mortality assumption is based on the RP-2000 mortality tables with projection of future mortality improvements using Scale AA, which aligns with the IRS prescriptions for cash funding valuations under the Pension Protection Act.Costs: The following tables summarizeare the costs and other changes in plan assets and benefit obligations incurred in CMS Energy’sEnergy's and Consumers’Consumers' retirement benefits plans: Pension and DB SERP 2012 2011 2010 $ 49 $ 49 $ 45 105 106 104 (125 ) (112 ) (92 ) 79 65 52 5 5 5 $ 113 $ 113 $ 114 – – 30 $ 113 $ 113 $ 144 $ 48 $ 48 $ 44 100 101 99 (122 ) (109 ) (89 ) 77 63 50 5 5 5 $ 108 $ 108 $ 109 – – 30 $ 108 $ 108 $ 139 Pension and SERP 2009 2008 2007 In Millions Net periodic pension cost Service cost $ 41 $ 43 $ 50 Interest expense 102 101 91 Expected return on plan assets (86 ) (81 ) (79 ) Amortization of: Net loss 41 41 46 Prior service cost 6 6 7 Net periodic pension cost 104 110 115 Regulatory adjustment(a) — 4 (22 ) Net periodic pension cost after regulatory adjustment $ 104 $ 114 $ 93 Net periodic pension cost Service cost $ 40 $ 41 $ 47 Interest expense 97 96 84 Expected return on plan assets (83 ) (78 ) (75 ) Amortization of: Net loss 40 40 44 Prior service cost 5 6 7 Net periodic pension cost 99 105 107 Regulatory adjustment(a) — 4 (22 ) Net periodic pension cost after regulatory adjustment $ 99 $ 109 $ 85 OPEB 2012 2011 2010 $ 32 $ 27 $ 26 82 77 80 (66 ) (66 ) (60 ) 46 30 32 (20 ) (20 ) (17 ) $ 74 $ 48 $ 61 – – 5 $ 74 $ 48 $ 66 $ 31 $ 26 $ 25 79 74 77 (61 ) (61 ) (56 ) 47 31 33 (20 ) (20 ) (16 ) $ 76 $ 50 $ 63 – – 5 $ 76 $ 50 $ 68 135ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OPEB 2009 2008 2007 In Millions Net periodic OPEB cost Service cost $ 24 $ 22 $ 25 Interest expense 80 72 69 Expected return on plan assets (50 ) (66 ) (62 ) Amortization of: Net loss 33 9 22 Prior service credit (10 ) (10 ) (10 ) Net periodic OPEB cost 77 27 44 Regulatory adjustment(a) — 3 (6 ) Net periodic OPEB cost after regulatory adjustment $ 77 $ 30 $ 38 Net periodic OPEB cost Service cost $ 24 $ 21 $ 24 Interest expense 77 69 65 Expected return on plan assets (46 ) (61 ) (57 ) Amortization of: Net loss 33 10 23 Prior service credit (10 ) (10 ) (10 ) Net periodic OPEB cost 78 29 45 Regulatory adjustment(a) — 3 (6 ) Net periodic OPEB cost after regulatory adjustment $ 78 $ 32 $ 39 (a)Regulatory adjustments areEnergy, the differences between amounts included in rates and the periodic benefit cost calculated. The pension regulatory asset had a balance of $29 million at December 31, 2009 and 2008. The OPEB regulatory asset had a balance of $5 million at December 31, 2009 and 2008.The estimated net loss and prior service cost for the defined benefit Pension Plans that will be amortized into net periodic benefit cost in 2010 for CMS Energy2013 from the regulatory asset is $55$98 million and from AOCLAOCI is $3$2 million. TheFor Consumers, the estimated net loss and prior service cost for the defined benefit Pension Plans that will be amortized into net periodic benefit cost in 2010 for Consumers2013 from the regulatory asset is $55$98 million. TheFor CMS Energy, the estimated net loss and prior service credit for the OPEB plans that will be amortized into net periodic benefit cost in 2010 for CMS Energy2013 from the regulatory asset is $23 million, andwith a decrease from AOCLAOCI of $1 million. TheFor Consumers, the estimated net loss and prior service credit for the OPEB plans that will be amortized into net periodic benefit cost in 2010 for Consumers2013 from the regulatory asset is $23 million.benefit obligation andPBO or the MRV over the average remaining service period. The estimated timeperiod of amortization of gains and losses for CMS Energy and Consumers iswas 11 years for pension and 13 years for OPEB for each of the years ended December 31, 2012 and 2011 and 12 years for pension and 14 years for OPEB.OPEB for the year ended December 31, 2010. Prior service cost amortization is established in the yearsyear in which the prior service cost first occurred, and areis based on the same amortization period infor all future years until the prior service costs are fully recognized. The estimated time of136ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)amortization ofEnergy and Consumers had new prior service costscredits for OPEB in 2010.is 12 years for pension andwas ten years for OPEB. The Presented in the following tables reconcileare reconciliations of the funded status of CMS Energy’sEnergy's and Consumers’Consumers' retirement benefits plans with their retirement benefits plans’plans' liabilities: Pension Plan 2012 2011 $ 2,072 $ 1,896 48 48 99 100 249 107 (114 ) (79 ) 2,354 2,072 $ 1,626 $ 1,401 215 54 – 250 (114 ) (79 ) 1,727 1,626 $ (627 ) $ (446 ) Pension Plan 2009 2008 In Millions Benefit obligation at beginning of period $ 1,524 $ 1,565 Service cost 40 45 Interest cost 96 103 Actuarial loss (gain) 145 (66 ) Benefits paid (88 ) (123 ) Benefit obligation at end of period(a) 1,717 1,524 Plan assets at fair value at beginning of period 724 1,078 Actual return on plan assets 165 (231 ) Company contribution 206 — Actual benefits paid(b) (88 ) (123 ) Plan assets at fair value at end of period 1,007 724 Funded status at December 31(c)(d) $ (710 ) $ (800 ) 137CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANY DB SERP OPEB 2012 2011 2012 2011 $ 127 $ 118 $ 1,641 $ 1,410 1 1 32 27 6 6 82 77 16 8 25 180 (6 ) (6 ) (51 )2 (53 )2 $ 144 $ 127 $ 1,729 3 $ 1,641 3 $ – $ – $ 924 $ 887 – – 108 23 6 6 65 67 (6 ) (6 ) (50 )2 (53 )2 $ – $ – $ 1,047 $ 924 $ (144 ) $ (127 ) $ (682 ) $ (717 ) $ 85 $ 77 $ 1,585 $ 1,358 1 1 31 26 4 4 79 74 13 6 24 178 (3 ) (3 ) (49 )2 (51 )2 $ 100 $ 85 $ 1,670 3 $ 1,585 3 $ – $ – $ 861 $ 825 – – 101 21 3 3 64 66 (3 ) (3 ) (48 )2 (51 )2 $ – $ – $ 978 $ 861 $ (100 ) $ (85 ) $ (692 ) $ (724 ) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SERP OPEB 2009 2008 2009 2008 In Millions Benefit obligation at beginning of period $ 95 $ 95 $ 1,266 $ 1,136 Service cost 1 1 24 24 Interest cost 6 7 80 78 Actuarial loss (gain) 9 (3 ) 106 81 Benefits paid (5 ) (5 ) (53 ) (53 ) Benefit obligation at end of period(a) 106 95 1,423 1,266 Plan assets at fair value at beginning of period — — 662 852 Actual return on plan assets — — 117 (201 ) Company contribution 5 5 56 64 Actual benefits paid(b) (5 ) (5 ) (53 ) (53 ) Plan assets at fair value at end of period — — 782 662 Funded status at December 31(c) $ (106 ) $ (95 ) $ (641 ) $ (604 ) Benefit obligation at beginning of period $ 62 $ 61 $ 1,219 $ 1,082 Service cost 1 1 24 23 Interest cost 4 4 77 74 Actuarial loss (gain) 6 (2 ) 104 91 Transfer (4 ) — — — Benefits paid (2 ) (2 ) (51 ) (51 ) Benefit obligation at end of period(a) 67 62 1,373 1,219 Plan assets at fair value at beginning of period — — 612 785 Actual return on plan assets — — 108 (185 ) Company contribution 2 2 55 62 Actual benefits paid(b) (2 ) (2 ) (50 ) (50 ) Plan assets at fair value at end of period — — 725 612 Funded status at December 31(c) $ (67 ) $ (62 ) $ (648 ) $ (607 ) (a)The Medicare Prescription Drug, Improvement and Modernization Act of 2003 establishes a prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy, which is tax-exempt, to sponsors of retiree health care benefit plans that provide a benefit that is actuarially equivalent to Medicare Part D. The Medicare Part D annualized reduction in net OPEB cost for CMS Energy was $19 million for 2009 and $25 million for 2008 and for Consumers was $18 million for 2009 and $24 million for 2008. The reduction for CMS Energy and Consumers includes $6 million for 2009 and $7 million for 2008 in capitalized OPEB costs.(b)CMS Energy received payments of $4 million in 2009 and $6 million in 2008 for the Medicare Part D subsidies. Consumers received payments of $4 million in 2009 and $5 million in 2008 for the Medicare Part D subsidies.138CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)(c)CMS Energy’s liabilities for retirement benefits comprised $1.5 billion classified as non-current and $6 million classified as current for the year ended December 31, 2009, and $1.5 billion classified as non-current and $5 million classified as current for the year ended December 31, 2008. Consumers’ liabilities for retirement benefits comprised $1.4 billion classified as non-current and $3 million classified as current for the year ended December 31, 2009, and $1.4 billion classified as non-current and $2 million classified as current for the year ended December 31, 2008.(d)Of the $710 million unfunded at December 31, 2009, $675 million was attributable to Consumers based on allocation of expenses. Of the $800 million unfunded status of the Pension Plan at December 31, 2008, $762 million was attributable to Consumers.The following table provides pension PBO, ABO, and fair value of plan assets: 2012 2011 $ 2,354 $ 2,072 2,054 1,765 1,727 1,626 2009 2008 In Millions Pension PBO $ 1,717 $ 1,524 Pension ABO 1,393 1,240 Fair value of Pension Plan assets 1,007 724 The Presented in the following table summarizesare the amounts recognized in regulatory assets and AOCLAOCI that have not been recognized as components of net periodic benefit cost. For additional details on regulatory assets, see Note 3, Utility Regulation.Regulatory Matters. Pension and DB SERP OPEB 2012 2011 2012 2011 $ 1,095 $ 1,014 $ 704 $ 766 13 17 (112 ) (132 ) 98 81 (7 ) (5 ) – 2 (3 ) (3 ) $ 1,206 $ 1,114 $ 582 $ 626 $ 1,095 $ 1,014 $ 704 $ 766 13 17 (112 ) (132 ) 38 27 – – $ 1,146 $ 1,058 $ 592 $ 634 Pension and SERP OPEB 2009 2008 2009 2008 In Millions Regulatory assets Net loss $ 860 $ 835 $ 604 $ 595 Prior service cost (credit) 27 33 (68 ) (78 ) AOCL Net loss (gain) 58 50 (11 ) (9 ) Prior service cost (credit) 3 3 (3 ) (3 ) Total amounts recognized in regulatory assets and AOCL $ 948 $ 921 $ 522 $ 505 Regulatory assets Net loss $ 860 $ 835 $ 604 $ 595 Prior service cost (credit) 27 33 (68 ) (78 ) AOCL Net loss 14 8 — — Prior service cost 1 1 — — Total amounts recognized in regulatory assets and AOCL $ 902 $ 877 $ 536 $ 517 139CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Presented in the following tables summarizeare the fair valuevalues of CMS Energy’sEnergy's and Consumers’Consumers' Pension Plan and OPEB plan assets, at December 31, 2009, by asset category and by level within the fair value hierarchy. For additional details aboutregarding the fair value hierarchy, see Note 5,6, Fair Value Measurements. Pension Plan Total Level 1 Level 2 $ 33 $ 33 $ – 26 – 26 277 – 277 8 – 8 27 – 27 319 319 – 1,037 – 1,037 $ 1,727 $ 352 $ 1,375 Pension Plan Total Level 1 Level 2 In Millions Asset Category: Cash and short-term investments(a) $ 65 $ 65 $ — U.S. government and agencies securities(b) 40 — 40 Corporate debt(c) 145 — 145 State and municipal bonds(e) 4 — 4 Foreign corporate debt(f) 17 — 17 Mutual funds(h) 117 117 — Pooled funds(i) 619 — 619 Total $ 1,007 $ 182 $ 825 Pension Plan Total Level 1 Level 2 $ 241 $ 241 $ – 24 – 24 236 – 236 10 – 10 23 – 23 257 257 – 835 – 835 $ 1,626 $ 498 $ 1,128 OPEB Plan Total Level 1 Level 2 In Millions Asset Category: Cash and short-term investments(a) $ 29 $ 29 $ — U.S. government and agencies securities(b) 157 — 157 Corporate debt(d) 21 — 21 State and municipal bonds(e) 51 — 51 Foreign corporate debt(f) 2 — 2 Common stocks(g) 134 134 — Mutual funds(h) 17 17 — Pooled funds(j) 371 — 371 Total $ 782 $ 180 $ 602 OPEB Plan Total Level 1 Level 2 $ 118 $ 118 $ – 4 – 4 38 – 38 1 – 1 4 – 4 75 75 – 300 300 – 507 – 507 $ 1,047 $ 493 $ 554 $ 111 $ 111 $ – 3 – 3 35 – 35 1 – 1 3 – 3 70 70 – 281 281 – 474 – 474 $ 978 $ 462 $ 516 OPEB Plan Total Level 1 Level 2 $ 64 $ 64 $ – 203 – 203 28 – 28 71 – 71 3 – 3 113 113 – 31 31 – 411 – 411 $ 924 $ �� 208 $ 716 $ 60 $ 60 $ – 189 – 189 26 – 26 66 – 66 3 – 3 105 105 – 29 29 – 383 – 383 $ 861 $ 194 $ 667 (a)Cash and short-term investments consist of money market funds with daily liquidity.(b)U.S. government and agencies securities consist of U.S. Treasury notes and other debt securities backed by the U.S. government and related agencies. These securities are valued based on quoted market prices.(c)Corporate debt investments in the Pension Plan represent both investment grade bonds (63 percent) and non-investment grade, high yield bonds (37 percent) of U.S. issuers from diverse industries. These securities are valued based on quoted market prices, when available, or yields presently available on comparable securities of issuers with similar credit ratings.(d)Corporate debt investments in the OPEB plan represent investment grade bonds (62 percent) and non-investment grade, high-yield bonds (38 percent) of U.S. issuers from diverse industries. These securities are valued based on quoted market prices, when available, or yields presently available on comparable securities of issuers with similar credit ratings.140CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)(e)State and municipal bonds are valued using a matrix pricingThe fair value of the bonds is derived from various observable inputs, including benchmark yields, reported securities trades, broker/dealer quotes, bond ratings, and general information on market movements for investment grade state and municipal securities normally considered by market participants when pricing such debt securities.(f)Foreign corporate debt securities are valued based on quoted market prices, when available, or on yields presently available on comparable securities of issuers with similar credit ratings.(g)Common stocks in the OPEB plan consist of equity securities with low transaction costs that are actively managed and that track the S&P 500 Index. These securities are valued at their quoted closing prices.(h)Mutual funds represent shares in registered investment companies that are priced based on the quoted NAV that is the basis for transactions to buy or sell shares in the funds.(i)Pooled funds in the Pension Plan include both common and collective trust funds as well as special funds that contain only employee benefit plan assets from two or more unrelated benefit plans. These funds include investments in U.S. equity securities (56 percent), foreign equity securities (22 percent), foreign fixed-income securities (16 percent), U.S. fixed-income securities (3 percent), and alternative investments (3 percent). These investments are valued at the quoted NAV provided by the fund managers that is the basis for transactions to buy or sell shares in the funds.(j)Pooled funds in the OPEB plan include both common and collective trust funds as well as special funds that contain only employee benefit plan assets from two or more unrelated benefit plans. These funds include investments in U.S. equity securities (89 percent), foreign equity securities (5 percent), foreign fixed-income securities (4 percent), U.S. fixed-income securities (1 percent) and alternative investments (1 percent). These investments are valued at the quoted NAV provided by the fund managers that is the basis for transactions to buy or sell shares in the funds.classified as Level 3 atfrom two or more unrelated benefit plans. At December 31, 2009 was less than $1 million.2012, these funds comprised investments in U.S. equity securities (65 percent), foreign equity securities (21 percent), foreign fixed-income securities (nine percent), U.S. fixed-income securities (three percent), and alternative investments (two percent). At December 31, 2011, these funds comprised investments in U.S. equity securities (88 percent), foreign equity securities (six percent), foreign fixed-income securities (four percent), U.S. fixed-income securities (one percent), and alternative investments (one percent). These investments are valued at the quoted NAV provided by the fund managers that is the basis for transactions to buy or sell shares in the funds.Thesummarizesare the contributions to CMS Energy’sEnergy's and Consumers’Consumers' OPEB plan and Pension Plan: 2009 2008 2012 2011 In Millions VEBA trust $ 40 $ 41 $ 45 $ 48 401(h) component 16 10 20 19 $ 56 $ 51 $ 65 $ 67 Pension(b) $ 206 $ — $ – $ 250 VEBA trust $ 39 $ 40 $ 45 $ 47 401(h) component 16 10 19 19 $ 55 $ 50 $ 64 $ 66 Pension(b) $ 199 $ — $ – $ 245 (a)CMS Energy plans to contribute $71 million to its OPEB plan in 2010 and Consumers plans to contribute $70 million to its OPEB plan in 2010.141ENERGY CORPORATIONEnergy, including Consumers, plans to contribute $74 million to the OPEB plan in 2013, of which Consumers plans to contribute $73 million.CONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)(b)CMS Energy plans to contribute $19 million to its Pension Plan in 2010 and Consumers plans to contribute $18 million to its Pension Plan in 2010.2008,2011, CMS Energy adjustedreached its target asset allocation for Pension Plan assets toof 50 percent equity, 30 percent fixed income, and 20 percent alternative-strategy investments from the previous target of 60 percent equity, 30 percent fixed income, and 10 percent alternative-strategy investments. This adjustment is being made gradually by the allocation of contributions into alternative assets and the drawdown of equities to cover plan benefit payments and distributions. This revised target asset allocation is expected to continue to maximize the long-term return on plan assets, while maintaining a prudent level of risk. The level of acceptable risk is a function of the liabilities of the plan. Equity investments are diversified mostly across the S&P 500 Index, with lesser allocations to the S&P MidCap and SmallCap Indexes and Foreign Equity Funds. Fixed-income investments are diversified across investment grade instruments of government and corporate issuers as well as high-yield and global bond funds. Alternative strategies are diversified across absolute return investment approaches and global tactical asset allocation. CMS Energy and Consumers use annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocation.have aadjusted their target asset allocation of 60to 50 percent equity, 20 percent fixed income, and 4030 percent fixed-incomealternative-strategy investments. This target allocation is expected to continue to maximize the long-term return on plan assets, while maintaining a prudent level of risk. The level of acceptable risk is a function of the liabilities of the plan. Equity investments are diversified mostly across the S&P 500 Index, with lesser allocations to the S&P SmallCap Index and Foreign Equity Funds. Fixed-income investments are diversified across investment grade instruments of government and corporate issuers. Alternative strategiesinvestuse annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the equity portions ofneed for adjustments to the union and non-union health care VEBA trusts in a S&P 500 Index fund. CMS Energy and Consumers invest the fixed-income portion of the union health care VEBA trust in domestic investment grade taxable instruments. CMS Energy and Consumers invest the fixed-income portion of the non-union health care VEBA trust in a diversified mix of domestic tax-exempt securities. The investment selections of each VEBA trust are influenced by the tax consequences, as well as the objective of generating asset returns that will meet the medical and life insurance costs of retirees. The Presented in the following table are the expected benefit payments for each of the next five years and the five-year period thereafter are as follows:thereafter: Pension DB SERP OPEB1 $ 120 $ 7 $ 61 128 8 65 138 8 70 144 8 74 149 8 79 793 46 451 $ 117 $ 4 $ 59 125 4 63 134 4 67 140 4 71 146 4 76 773 20 432 Pension SERP OPEB(a) In Millions 2010 $ 78 $ 6 $ 62 2011 86 6 65 2012 96 6 68 2013 106 6 71 2014 114 6 75 2015-2019 715 40 439 2010 $ 76 $ 2 $ 59 2011 83 2 62 2012 92 2 65 2013 101 2 68 2014 111 2 72 2015-2019 691 12 419 142ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)(a)CMS Energy’s and Consumers’Energy's and Consumers' OPEB benefit payments are net of employee contributions and expected Medicare Part D prescription drug subsidy payments. For CMS Energy, subsidies to be received are estimated to be $6 million for each of 2010 and 2011, $7 million for 2012, $8 million for each of 2013 and 2014, and $50 million combined for 2015 through 2019. For Consumers, subsidies to be received are estimated to be $5 million for 2010, $6 million for 2011, $7 million for each of 2012 and 2013, $8 million for 2014, and $48 million combined for 2015 through 2019.13: INCOME TAXESand its subsidiaries file a consolidated federal income tax return and a unitary Michigan income tax return. Income taxes generallysubsidies to be received are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing agreement.Deferred tax accounting is used for temporary differences. These occur when there are differences between the book and tax carrying amounts of assets and liabilities. ITC has been deferred and is being amortized over the estimated service lives of the related properties.AMT paid generally becomes a tax credit that CMS Energy can carry forward indefinitely to reduce regular tax liabilities in future periods when regular taxes paid exceed the tax calculated for AMT. At December 31, 2009, CMS Energy had AMT credit carryforwards of $273 million. As these carryforwards do not expire, no valuation allowance was required.CMS Energy also had federal tax loss carryforwards of $1.3 billion and a local tax loss carryforward of $433 million. These carryforwards expire from 2023 through 2028. Consumers’ portion of the federal tax loss carryforward was $73 million. CMS Energy and Consumers expect to use the federal tax loss carryforward prior to its expiration; thus, no valuation allowance was required. A valuation allowance of $2 million was provided for the local tax loss carryforward.In addition, CMS Energy had general business credit carryforwards of $35 million that expire from 2010 through 2030, of which $11 million was Consumers’ portion. A valuation allowance of $2 million was provided for these items. It is reasonably possible that further adjustments will be made to the valuation allowance within one year.Furthermore, at December 31, 2009, CMS Energy had a net benefit of $166$6 million for future Michigan tax deductions granted as part of the MBT legislation of 2007. This benefit comprises a $194 million benefit at Consumers, offset partially by $28 million related to CMS Energy.143CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The significant components of income tax expense (benefit) on continuing operations consisted of: 2009 2008 2007 In Millions Current income taxes: Federal $ 11 $ 4 $ 229 State and local 17 9 1 Income tax benefit of operating loss carryforwards (23 ) — (209 ) 5 13 21 Deferred income taxes: Federal 86 134 (216 ) State and local 28 (4 ) 2 114 130 (214 ) Deferred ITC, net (4 ) (4 ) (4 ) Tax expense (benefit) $ 115 $ 139 $ (197 ) Current income taxes: Federal $ 72 $ (10 ) $ 114 State and local 24 12 — Income tax benefit of operating loss carryforwards — — (44 ) 96 2 70 Deferred income taxes: Federal 66 200 59 State and local 5 — — 71 200 59 Deferred ITC, net (4 ) (4 ) (4 ) Tax expense (benefit) $ 163 $ 198 $ 125 Current tax expense reflects the settlement of income tax audits for prior years, as well as the provision for the current year’s income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts in CMS Energy’s consolidated financial statements. Deferred tax assets and liabilities are classified as current or non-current according to the classification of the related assets or liabilities. Deferred tax assets and liabilities not related to assets or liabilities are classified according to the expected reversal date of the temporary differences.The amount of income taxes paid is subject to ongoing audits by federal, state, and foreign tax authorities, which can result in proposed assessments. CMS Energy’s and Consumers’ estimate of the potential outcome for any uncertain tax issue is highly judgmental. CMS Energy and Consumers believe that their accrued tax liabilities at December 31, 2009 are adequate for all years. The years 2002 through 2007 are under audit by the IRS.144CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The principal components of deferred income tax assets (liabilities) recognized on CMS Energy’s and Consumers’ Consolidated Balance Sheets are as follows: 2009 2008 In Millions Current assets (liabilities): Employee benefits $ (31 ) $ (96 ) Gas inventory (201 ) (219 ) Nuclear decommissioning (including unrecovered costs) 15 — Reserves and accruals 33 20 Tax loss and credit carryforwards 153 148 Other (12 ) 47 Net current liability (43 ) (100 ) Noncurrent assets (liabilities): Employee benefits 96 101 Foreign investments inflation indexing 30 30 Nuclear decommissioning (including unrecovered costs) 17 (20 ) Property (1,145 ) (968 ) Reserves and accruals 50 43 Securitized costs (141 ) (161 ) Regulatory tax liability 209 205 Tax loss and credit carryforwards 766 775 Valuation allowance (34 ) (32 ) Other (79 ) (28 ) Net non-current liability $ (231 ) $ (55 ) Total deferred income tax liability $ (274 ) $ (155 ) 145CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2009 2008 In Millions Current assets (liabilities): Employee benefits $ (33 ) $ (100 ) Gas inventory (201 ) (219 ) Nuclear decommissioning (including unrecovered costs) 15 — Reserves and accruals 18 — Tax loss and credit carryforwards 9 8 Other (14 ) 34 Net current liability (206 ) (277 ) Noncurrent assets (liabilities): Employee benefits 61 80 Nuclear decommissioning (including unrecovered costs) 17 (20 ) Property (1,237 ) (1,056 ) Reserves and accruals 11 — Securitized costs (141 ) (161 ) Regulatory tax liability 209 205 Tax loss and credit carryforwards 223 213 Other (69 ) (53 ) Net non-current liability $ (926 ) $ (792 ) Total deferred income tax liability $ (1,132 ) $ (1,069 ) 146CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The actual income tax expense (benefit) on continuing operations differs from the amount computed by applying the statutory federal tax rate of 35 percent to income (loss) before income taxes as follows: 2009 2008 2007 In Millions Net income (loss) available to common stockholders $ 218 $ 284 $ (234 ) Discontinued operations, net of tax (20 ) (1 ) 89 Net income (loss) from continuing operations 198 283 (145 ) Preferred stock dividends 11 11 11 Redemption premium on preferred stock — — 1 Income tax expense (benefit) on continuing operations 115 139 (197 ) Income (loss) from continuing operations before income taxes 324 433 (330 ) Expected income tax expense (benefit) at statutory federal rate 114 152 (116 ) Increase (decrease) in income taxes from: Income tax effect of foreign investments — — 46 ITC amortization (4 ) (4 ) (4 ) Medicare Part D exempt income (6 ) (9 ) (10 ) Property differences 1 3 9 Research and development credit, net (9 ) — — State and local income taxes, net of federal benefit 21 3 — Valuation allowance 2 (6 ) (121 ) Other, net (4 ) — (1 ) Income tax expense (benefit) $ 115 $ 139 $ (197 ) Effective tax rate 35.5 % 32.1 % 59.7 % Income from continuing operations before income taxes $ 456 $ 562 $ 437 Expected income tax expense (benefit) at statutory federal rate 160 197 153 Increase (decrease) in taxes from: ITC amortization (4 ) (4 ) (4 ) Medicare Part D exempt income (6 ) (8 ) (9 ) Property differences 1 3 9 Research and development credit, net (7 ) — — State and local income taxes, net of federal benefit 19 8 — Valuation allowance — — (23 ) Other, net — 2 (1 ) Income tax expense $ 163 $ 198 $ 125 Effective tax rate 35.7 % 35.2 % 28.6 % All income from continuing operations before income taxes is from domestic operations, except for 2007, which had a $197 million foreign loss.147CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Prior to 2007, U.S. income taxes were not recorded on the undistributed earnings of foreign subsidiaries that had been or were intended to be reinvested indefinitely. During the first quarter of 2007, CMS Energy announced plans to sell substantially all of the foreign assets or subsidiaries. These sales resulted in the recognition in 2007 of $71 million of U.S. income tax expense associated with the change in assumption regarding permanent reinvestment of these undistributed earnings, with $46 million of this amount reflected in income from continuing operations and $25 million in discontinued operations. Additionally, gains on the sales of CMS Energy’s international investments resulted in the release of $121 million of valuation allowance during 2007.A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 2009 2008 2007 In Millions Balance at beginning of period $ 65 $ 51 $ 151 Reductions for prior year tax positions (6 ) — (101 ) Additions for prior year tax positions 2 12 1 Additions for current year tax positions 1 2 — Balance at end of period $ 62 $ 65 $ 51 Balance at beginning of period $ 55 $ 41 $ 51 Reductions for prior year tax positions (1 ) — (11 ) Additions for prior year tax positions 2 12 1 Additions for current year tax positions 1 2 — Balance at end of period $ 57 $ 55 $ 41 Included in the balance at December 31, 2009 were $54 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. This entire amount related to Consumers. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. CMS Energy had unrecognized tax benefits of $8 million at December 31, 2009, $10 million at December 31, 2008, and $8 million at December 31, 2007 that if recognized would affect the annual effective tax rate in future years. At December 31, 2009, $3 million of such unrecognized tax benefits related to Consumers. There were no uncertain tax benefits that would reduce Consumers’ effective tax rate at December 31, 2008 and 2007. It is reasonably possible that, within the next twelve months, a settlement will be reached with the IRS on Consumers’ capitalized overhead cost methodology, a timing issue. An estimate of a settlement range cannot be made at this point.CMS Energy and Consumers recognize accrued interest and penalties, where applicable, related to uncertain tax benefits as part of income tax expense. CMS Energy recognized less than $1 million of interest for the year ended December 31, 2009, $1 million for the year ended December 31, 2008, and $2 million for the year ended December 31, 2007. No interest has been recognized at Consumers related to uncertain tax benefits. CMS Energy had accrued interest recorded of $32013, $7 million for each of the years ended2014 and 2015, $8 million for each of 2016 and 2017, and $51 million combined for 2018 through 2022. For Consumers, subsidies to be received are estimated to be $6 million for each of 2013 and 2014, $7 million for each of 2015 and 2016, $8 million for 2017, and $48 million combined for 2018 through 2022.20092012, unions represented 43 percent of CMS Energy's employees and 2008.14:13: STOCK-BASED COMPENSATION148CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2009, 2008,2012, 2011, and 20072010 were in the form of TSR restricted stock and time-lapse restricted stock. Restricted stock recipients receive shares of CMS Energy Common Stock thatcommon stock. Restricted stock shares granted prior to August 1, 2010 have full dividend and voting rights. The TSR restricted stock shares granted after August 1, 2010 continue to have full voting rights. In lieu of cash dividend payments, however, the TSR restricted stock shares granted after August 1, 2010 receive additional restricted shares equal to the value of the dividend. These additional restricted shares are subject to the same vesting conditions as the underlying restricted stock shares.conditions. For awards granted in 2008 and 2007, half of thecondition. The market condition is based on the achievement of specified levels of TSR over a three-year period and half is basedentirely on a comparison of CMS Energy’sEnergy's TSR with the median total stockholders’ returnTSR of a peer group over the same three-year period. Depending on the performanceoutcome of the market a recipient may earn a total award ranging from zero to 150 percent of the initial grant. For awards granted in 2009, the market condition, is based entirely on a comparison of CMS Energy’s TSR with the median stockholders’ return of a peer group over the same three-year period. Depending on the performance of the market, a recipient may earn a total award ranging from zero to 200 percent of the initial grant. Time-lapse restricted stock vests after a service period of three years.20072012 and 20082011 were 8075 percent TSR restricted stock and 2025 percent time-lapsedtime-lapse restricted stock. Awards granted to officers in 20092010 were 67 percent TSR restricted stock and 33 percent time-lapse restricted stock.Allstock awards are subject to forfeitureshares may vest fully upon retirement, disability, or change of control of CMS Energy if employment terminates before the end of the vesting period. If, however, certain minimum service requirements are met or are waived by action of the Compensation and Human Resources CommitteeC&HR Committees. If employment terminates for any other reason (other than death) or the minimum service requirements are not met or waived, the restricted shares will be fully forfeited. For awards granted after August 1, 2010, a pro-rata portion of the Boardaward equal to the portion of Directors, restricted shares maythe service period served between the award grant date and the employee's termination date will vest upon termination of an employee due to retirement, disability, or change of control of CMS Energy. For TSR awards, this vesting is contingent upon the outcome of the market condition. The remaining portion of the award will be forfeited. All awards vest fully upon:• retirement;• disability; or• change of control of CMS Energy, as defined by the individual award or, in the absence of such definition, as defined by the PISP.and performance units, and incentive options, none of which werewas granted in 2009, 2008,2012, 2011, or 2007.5,285,9932,972,977 shares of common stock under the PISP at December 31, 2009.2012. Shares for which payment or exercise is in cash, as well as forfeited shares or stock options forfeited for any reason other than failure to meet a market condition, may be awarded or granted again under the PISP.149CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)ThePresented in the following table summarizesis restricted stock activity under the PISP: Weighted-Average Grant Number of Shares Date Fair Value per Share Nonvested at December 31, 2008 1,804,300 $ 12.10 Granted(a) 799,007 13.49 Vested (345,530 ) 12.73 Forfeited(b) (238,000 ) 12.27 Nonvested at December 31, 2009 2,019,777 $ 12.52 Nonvested at December 31, 2008 1,567,920 $ 12.03 Granted(a) 711,147 13.44 Vested (281,305 ) 12.60 Forfeited(b) (187,775 ) 12.00 Nonvested at December 31, 2009 1,809,987 $ 12.50 Number of
Shares Weighted-Average Grant
Date Fair Value per Share 1,848,068 $ 16.29 929,127 12.32 (1,104,225 ) 8.61 (18,194 ) 19.79 1,654,776 $ 19.15 1,689,997 $ 16.36 889,070 12.28 (1,014,450 ) 8.36 (17,494 ) 19.94 1,547,123 $ 19.22 (a)During 2009, CMS Energy granted 407,000 TSR shares and 392,007 time-lapse shares of restricted stock. During 2009, Consumers granted 351,800 TSR shares and 359,347 time-lapse shares of restricted stock.(b)During 2009, 224,000 TSR shares granted by CMS Energy in 2006 were forfeited due to the failure to meet the specific market conditions. During 2009, 173,775 TSR shares granted by Consumers in 2006 were forfeited due to the failure to meet the specific market conditions.Energy’sEnergy's common stock on the grant date. CMS Energy and Consumers calculate the fair value of TSR restricted stock awards on the grant date using a Monte Carlo simulation. CMS Energy and Consumers base expected volatilities on the historical volatility of the price of CMS Energy Common Stock.ThePresented in the following table summarizesare the significant assumptions used to estimate the fair value of the TSR restricted stock awards: 2012 2011 2010 20.3 % 29.6 % 30.1 % 4.1 4.6 2.4 0.3 1.0 0.9 2009 2008 2007 Expected volatility 29.79 % 19.70 % 19.11 % Expected dividend yield 1.96 % 2.67 % 1.20 % Risk-free rate 1.75 % 2.83 % 4.59 % 150CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)ThePresented in the following table summarizesis the weighted-average grant-date fair value of awards under the PISP: 2012 2011 2010
Restricted stock granted $ 12.32 $ 13.89 $ 16.22
Restricted stock granted $ 12.28 $ 14.17 $ 16.27 2012 2011 2010 $ 10 $ 7 $ 7 12 10 9 5 4 4 $ 8 $ 7 $ 6 11 10 9 4 4 3 2009 2008 2007 In Millions Fair value of shares vested $ 4 $ 2 $ 15 Compensation expense recognized 9 8 10 Income tax benefit recognized 3 3 3 Fair value of shares vested $ 4 $ 2 $ 10 Compensation expense recognized 8 7 7 Income tax benefit recognized 3 2 2 2009, there2012, $10 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $9 million of total unrecognized compensation cost related to restricted stock for CMS Energy and $8 million of total unrecognized compensation costwas related to restricted stock for Consumers. CMS Energy and Consumers expect to recognize this cost over a weighted-average period of 1.41.7 years.Thesummarizesis stock option activity under the PISP: Options Outstanding,
Fully Vested, and
Exercisable Weighted-Average Exercise
Price per Share 65,580 $ 22.20 (65,580 ) 22.20 – $ – 61,500 $ 22.20 (61,500 ) 22.20 – $ – Options Weighted- Weighted- Outstanding, Average Average Aggregate Fully Vested, Exercise Remaining Intrinsic and Price per Contractual Value Exercisable Share Term (In millions) Outstanding at December 31, 2008 807,540 $ 21.58 2.8 years $ (9 ) Granted — — Exercised (58,500 ) 6.71 Cancelled or Expired (168,000 ) 32.94 Outstanding at December 31, 2009 581,040 19.79 2.0 years $ (2 ) Outstanding at December 31, 2008 497,786 $ 19.81 2.9 years $ (1 ) Granted — — Exercised (33,000 ) $ 6.99 Cancelled or Expired (86,000 ) 33.89 Outstanding at December 31, 2009 378,786 17.74 2.3 years $ (1 ) less than $1 million in 2009, $1 million in 2008,$9 million in 2007. The total intrinsic value of2010. Neither CMS Energy nor Consumers has any stock options exercised for Consumers was less than $1 million in 2009 and 2008 and $6 million in 2007. Cash received from exercise of these stock options in 2009 was less than $1 million for CMS Energy and less than $1 million for Consumers.2009,2012, CMS Energy has $18$49 million of unrealized excess tax benefits.151
14: INCOME TAXESCMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)ThePresented in the following table summarizesis the weighted average grant date fair value:difference between actual income tax expense on continuing operations, excluding noncontrolling interests, and income tax expense computed by applying the statutory U.S. federal income tax rate: 2009 2008 2007 Weighted average grant date fair value per share Restricted stock granted $ 13.49 $ 10.38 $ 14.18 Stock options granted(a) — — — Weighted average grant date fair value per share Restricted stock granted $ 13.44 $ 10.43 $ 14.12 Stock options granted(a) — — — 2012 2011 2010 $ 620 $ 604 $ 587 217 211 205 – (32 ) – 27 21 26 – – 3 1 (9 ) (10 ) $ 245 $ 191 $ 224 39.5 % 31.6 % 38.2 % $ 736 $ 734 $ 688 258 257 241 36 24 26 3 (14 ) (13 ) $ 297 $ 267 $ 254 40.4 % 36.4 % 36.9 % (a)No stock options were granted in 2009, 2008, or 2007.15: LEASESlease variousremeasured their Michigan deferred income tax assets and liabilities due to the enactment in May 2011 of the MCIT, which became effective January 1, 2012. The MCIT, a simplified six percent corporate income tax, replaced the MBT, a complex multi-part tax. CMS Energy recognized a one-time non-cash deferred tax benefit of $32 million as a result of this remeasurement. Consumers recognized a $128 million regulatory asset (not including service vehicles, railcars, gas pipeline capacity,the effects of income tax gross-ups) related to this change in tax law. 2012 2011 2010 $ 1 $ 2 $ (21 ) 21 24 26 $ 22 $ 26 $ 5 $ 205 $ 207 $ 210 21 11 13 – (49 ) – $ 226 $ 169 $ 223 (3 ) (4 ) (4 ) $ 245 $ 191 $ 224 $ 110 $ 74 $ (17 ) 37 32 25 $ 147 $ 106 $ 8 $ 134 $ 159 $ 236 19 6 14 $ 153 $ 165 $ 250 (3 ) (4 ) (4 ) $ 297 $ 267 $ 254 2012 2011 $ 3 $ (126 ) (147 ) (155 ) (1,783 ) (1,668 ) 131 70 71 86 (73 ) (96 ) 733 806 (15 ) 92 $ (1,080 ) $ (991 ) (3 ) (20 ) $ (1,083 ) $ (1,011 ) $ 935 $ 1,034 (2,018 ) (2,045 ) $ (1,083 ) $ (1,011 ) $ (36 ) $ (158 ) (147 ) (155 ) (1,848 ) (1,742 ) 131 70 41 44 (73 ) (96 ) 61 67 (13 ) 81 $ (1,884 ) $ (1,889 ) (1 ) (1 ) $�� (1,885 ) $ (1,890 ) $ 232 $ 261 (2,117 ) (2,151 ) $ (1,885 ) $ (1,890 ) buildings. In addition,liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts on CMS Energy's and Consumers' consolidated financial statements. Deferred tax assets and liabilities are classified as current or non-current according to the classification of the related assets or liabilities. Deferred tax assets and liabilities not related to assets or liabilities are classified according to the expected reversal date of the temporary differences. Gross Amount Tax Attribute Expiration $ 1,194 $ 418 2024 - 2031 433 4 2024 - 2031 18 1 2014 - 2015 270 270 No expiration 6 2 2016 38 38 2018 - 2031 $ 733 $ 163 $ 56 2024 - 2031 10 1 2014 - 2015 2 2 No expiration 6 2 2016 $ 61 accountexpect to utilize fully tax loss and credit carryforwards for a number of their PPAs as capital and operating leases.Operating leases for coal-carrying railcars have lease terms expiring over the next 15 years. These leases contain fair market value extension and buyout provisions, with some providing for predetermined extension period rentals. Capital leases for Consumers’ vehicle fleet operations have a maximum term of 120 months and TRACend-of-life provisions.Consumerswhich no valuation has capital leases for gas transportation pipelinesbeen provided. It is reasonably possible that further adjustments will be made to the Karn generating complex and Zeeland. The capital lease forvaluation allowances within one year.gas transportation pipeline into the Karn generating complex hasfollowing table is a term of 15 years with a provision to extend the contract from month to month. The capital lease for the gas transportation pipeline to Zeeland has a lease term of 12 years with a renewal provision at the endreconciliation of the contract. The remaining termsbeginning and ending amount of Consumers’ long-term PPAs range between 1 and 21 years. Mostuncertain tax benefits: 2012 2011 2010 $ 4 $ 4 $ 62 (4 ) (1 ) (58 ) 1 1 – $ 1 $ 4 $ 4 $ 4 $ 3 $ 57 (4 ) – (54 ) 1 1 – $ 1 $ 4 $ 3 these PPAs contain provisions at the end of the initial contract terms to renew the agreements annually.Consumers is authorized by the MPSC to record both capital and operating lease payments as operating expense and recover the total cost from customers. The following table summarizes CMS Energy’s and Consumers’ capital and operating lease expenses: 2009 2008 2007 In Millions Capital lease expense $ 38 $ 46 $ 34 Operating lease expense 34 28 25 Income from subleases — (1 ) (2 ) Capital lease expense $ 38 $ 46 $ 34 Operating lease expense 34 27 23 152CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Minimum annual rental commitments under CMS Energy’s and Consumers’ non-cancelable leases$1 million at December 31, 2009 are:2012 and $4 million at December 31, 2011 and 2010 that, if recognized, would affect the annual effective tax rate in future years. Consumers had uncertain tax benefits of $1 million at December 31, 2012, $4 million at December 31, 2011, and $3 million at December 31, 2010 that, if recognized, would affect the annual effective tax rate in future years. Capital Finance Operating Leases Lease(a) Leases In Millions 2010 $ 18 $ 22 $ 28 2011 17 21 28 2012 20 20 28 2013 12 20 24 2014 10 19 23 2015 and thereafter 54 114 119 Total minimum lease payments 131 216 $ 250 Less imputed interest 73 55 Present value of net minimum lease payments 58 161 Less current portion 9 13 Non-current portion $ 49 $ 148 2010 $ 18 $ 22 $ 28 2011 17 21 28 2012 20 20 28 2013 12 20 24 2014 10 19 23 2015 and thereafter 54 114 119 Total minimum lease payments 131 216 $ 250 Less imputed interest 73 55 Present value of net minimum lease payments 58 161 Less current portion 9 13 Non-current portion $ 49 $ 148 (a)In April 2007, Consumers sold Palisades to Entergy and entered into a15-year PPA to buy all of the capacity and energy produced by Palisades. Consumers has continuing involvement with Palisades through security provided to Entergy for Consumers’ PPA obligation, Consumers’ DOE liability, and other forms of involvement. Because of these ongoing arrangements, Consumers accounted for the transaction as a financing of Palisades and not a sale. Accordingly, no gain on the sale of Palisades was recognized on the Consolidated Statements of Income. Consumers accounted for the remaining non-real-estate assets and liabilities associated with the transaction as a sale.Palisades remains on Consumers’ Consolidated Balance Sheetscontinues to depreciate it.recognize accrued interest and penalties, where applicable, as part of income tax expense. CMS Energy, including Consumers, recordedrecognized no interest for the related proceedsyears ended December 31, 2012 and 2011 and less than $1 million for the year ended December 31, 2010. In 2010, CMS Energy settled with the IRS and, as a finance obligation with payments recordedresult, paid $6 million of accrued interest.interest expensethe existing net operating loss carryforward and the finance obligationremaining $50 million increased taxable income. As a result, CMS Energy paid $15 million in tax and accrued interest. Most of the adjustments related to the timing of deductions, not the disallowance of deductions. The tax adjustments were allocated based on the amortizationcompanies' separate taxable income, in accordance with CMS Energy's tax sharing agreement. The impact to net income was less than $1 million.obligation over the lifecompletion of the Palisades PPA. audits was a decrease of $1 million. 2012 2011 2010 $ 377 $ 415 $ 366 2 2 3 – – 8 – – 8 $ 375 $ 413 $ 347 260.7 250.8 231.5 6.8 12.2 21.3 1.1 0.4 0.1 268.6 263.4 252.9 $ 1.43 $ 1.65 $ 1.50 1.39 1.57 1.36 the finance obligation was determineda security, which is based on an allocationthe average market price of CMS Energy common stock, exceeds the transaction proceeds to the fair values of the net assets sold and fairprincipal value of that security.plant asset underrecipient is not required to return the financing. Total amortizationdividends to CMS Energy if the recipient forfeits the award, the non-vested stock awards are considered participating securities. As such, the participating non-vested stock awards were included in the computation of basic EPS. The non-participating securities accrue stock dividends that vest concurrently with the stock award. If the recipient forfeits the award, the stock dividends accrued on the non-participating securities are also forfeited. Accordingly, the non-participating awards and interest charges understock dividends were included in the financing were $23 million forcomputation of diluted EPS, but not basic EPS.20092012, 2011, and 2008.2010, the Trust Preferred Securities would have increased diluted EPS had they been included in the calculation. Using 2012 2011 2010 $ – $ 1 $ 1 0.1 0.7 0.7 153CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)16: PROPERTY, PLANT, AND EQUIPMENTThePresented in the following table summarizes CMS Energy’stables are the components of other income and Consumers’ property, plant, and equipment: Estimated Depreciable Life in Years 2009 2008 In Millions Electric: Generation 18-85 $ 3,671 $ 3,357 Distribution 12-75 4,991 4,766 Other 7-40 574 551 Capital and finance leases(a) 289 291 Gas: Underground storage facilities(b) 30-65 299 270 Transmission 13-75 573 473 Distribution 30-80 2,557 2,460 Other 5-50 366 398 Capital leases(a) 17 21 Enterprises: IPP 3-45 329 329 Other 3-40 16 11 Other: 2-71 34 33 Construction work in progress 506 608 Less accumulated depreciation, depletion, and amortization(c) 4,540 4,387 Net property, plant, and equipment(d) $ 9,682 $ 9,181 Electric: Generation 18-85 $ 3,671 $ 3,357 Distribution 12-75 4,991 4,766 Other 7-40 574 551 Capital and finance leases(e) 289 291 Gas: Underground storage facilities(b) 30-65 299 270 Transmission 13-75 573 473 Distribution 30-80 2,557 2,460 Other 5-50 366 398 Capital leases(e) 17 21 Other non-utility property 7-71 15 15 Construction work in progress 505 607 Less accumulated depreciation, depletion, and amortization(f) 4,386 4,242 Net property, plant, and equipment(d) $ 9,471 $ 8,967 (a)Capital and finance leases presented in this table are gross amounts. Accumulated amortization of capital and finance leases was $84 millionother expense at December 31, 2009 and $79 million at December 31, 2008. Additions were $16 million and net retirements and adjustments were $22 million during 2009. Additions were $6 million and net retirements and adjustments were $3 million during 2008.154CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)(b)Included base natural gas in underground storage of $26 million at December 31, 2009 and 2008, which is not subject to depreciation.(c)At December 31, 2009, accumulated depreciation, depletion, and amortization included $4.4 billion from Consumers’ utility plant assets and $155 million from other plant assets. At December 31, 2008, accumulated depreciation, depletion, and amortization included $4.2 billion from Consumers’ utility plant assets and $187 million from other plant assets.(d)At December 31, 2009, utility plant additions were $928 million and utility plant retirements, including other plant adjustments, were $171 million. At December 31, 2008, utility plant additions were $629 million and utility plant retirements, including other plant adjustments, were $60 million.(e)Capital and finance leases presented in this table are gross amounts. Accumulated amortization of capital and finance leases was $84 million at December 31, 2009 and $79 million at December 31, 2008. Additions were $16 million and net retirements and adjustments were $22 million during 2009. Additions were $5 million and net retirements and adjustments were $3 million during 2008.(f)At December 31, 2009, accumulated depreciation, depletion, and amortization included $4.4 billion from Consumers’ utility plant assets and $1 million from non-utility plant assets. At December 31, 2008, accumulated depreciation, depletion, and amortization included $4.2 billion from Consumers’ utility plant assets and $1 million from non-utility plant assets.Intangible Assets: Included in net property, plant, and equipment are intangible assets. The following table summarizes CMS Energy’s and Consumers’ intangible assets: Amortization 2009 2008 Years Ended December 31 Life Accumulated Accumulated in years Gross Cost(a) Amortization Gross Cost(a) Amortization In Millions Software development 7-15 $ 303 $ 105 $ 370 $ 192 Plant acquisition adjustments 40 214 11 214 6 Rights of way 50-75 134 35 118 33 Leasehold improvements various 13 9 11 9 Franchises and consents n/a 15 6 14 6 Other intangibles various 28 21 28 17 Total $ 707 $ 187 $ 755 $ 263 Software development 7-15 $ 303 $ 105 $ 370 $ 192 Plant acquisition adjustments 40 214 11 214 6 Rights of way 50-75 134 35 118 33 Leasehold improvements various 13 9 11 9 Franchises and consents n/a 15 6 14 6 Other intangibles n/a 18 13 18 13 Total $ 697 $ 179 $ 745 $ 259 (a)Intangible asset additions for Consumers’ utility plant were $62 million during 2009. Intangible asset additions for Consumers’ utility plant were $163 million during 2008, which included $161 million related to the installation and operation of a new integrated business software system. Retirements were $110 million during 2009. There were no intangible asset retirements during 2008.155CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Amortization expense related to intangible assets for CMS Energy (including Consumers) and Consumers was $30 million in 2009, $32 million in 2008, and $21 million in 2007. Included in total amortization expense for intangible assets was computer software amortization expense for CMS Energy (including Consumers) of $22 million in 2009, $27 million in 2008, and $21 million in 2007. Consumers’ computer software amortization expense was $22 million in 2009, $23 million in 2008, and $18 million in 2007. Amortization of intangible assets is expected to range between $30 million and $33 million per year over the next five years.17: ASSET RETIREMENT OBLIGATIONSAccounting for Asset Retirement Obligations: CMS Energy and Consumers record the fair valueConsumers: 2012 2011 2010 $ 1 $ – $ 17 1 3 4 9 13 11 $ 11 $ 16 $ 32 $ 1 $ – $ 17 5 4 – 1 3 4 9 12 10 $ 16 $ 19 $ 31
In Millions 2012 2011 2010 $ – $ (1 ) $ (8 ) (11 ) (11 ) (6 ) (17 ) (3 ) (3 ) (5 ) (7 ) (7 ) $ (33 ) $ (22 ) $ (24 ) $ (11 ) $ (11 ) $ (6 ) (17 ) (3 ) (3 ) (5 ) (6 ) (6 ) $ (33 ) $ (20 ) $ (15 ) If a reasonable estimate of fair value cannot be made in the period in which the ARO is incurred, such as for assets with indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made. CMS Energy and Consumers have not recorded liabilities for assets that have insignificant cumulative disposal costs, such as substation batteries.The following table lists the assets that CMS Energy and Consumers have legal obligations to remove at the end of their useful lives and for which they have an ARO liability recorded:In-ServiceCompany and ARO DescriptionDateLong-Lived AssetsCMS Energy, Including ConsumersContentsClose gas treating plant and gas wellsVariousGas transmission and storageClosure of coal ash disposal areasVariousGenerating plants coal ash areasClosure of wells at gas storage fieldsVariousGas storage fieldsIndoor gas services equipment relocationsVariousGas meters located inside structuresAsbestos abatement1973Electric and gas utility plantGas distribution cut, purge and capVariousGas distribution mains and servicesConsumersClosure of coal ash disposal areasVariousGenerating plants coal ash areasClosure of wells at gas storage fieldsVariousGas storage fieldsIndoor gas services equipment relocationsVariousGas meters located inside structuresAsbestos abatement1973Electric and gas utility plantGas distribution cut, purge and capVariousGas distribution mains and servicesNo assets have been restricted for purposes of settling AROs.156
17: REPORTABLE SEGMENTSCMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The following tables summarize the changes in the ARO liability: ARO ARO Liability Cash flow Liability 12/31/08 Incurred Settled(a) Accretion Revisions 12/31/09 In Millions Close gas treating plant and gas wells $ 1 $ — $ — $ — $ — $ 1 205 15 (8 ) 16 — 228 Total CMS Energy $ 206 $ 15 $ (8 ) $ 16 $ — $ 229 Coal ash disposal areas $ 62 $ — $ (4 ) $ 6 $ — $ 64 Wells at gas storage fields 1 — — — — 1 Indoor gas services relocations 1 — — — — 1 Asbestos abatement 36 — (1 ) 3 — 38 Gas distribution cut, purge, cap 105 15 (3 ) 7 — 124 Total Consumers $ 205 $ 15 $ (8 ) $ 16 $ — $ 228 ARO ARO Liability Cash flow Liability 12/31/07 Incurred Settled(a) Accretion Revisions 12/31/08 In Millions Close gas treating plant and gas wells $ — $ — $ — $ 1 $ — $ 1 198 (1 ) (7 ) 15 — 205 Total CMS Energy $ 198 $ (1 ) $ (7 ) $ 16 $ — $ 206 Coal ash disposal areas $ 59 $ — $ (3 ) $ 6 $ — $ 62 Wells at gas storage fields 1 — — — — 1 Indoor gas services relocations 1 — — — — 1 Asbestos abatement 36 — (2 ) 2 — 36 Gas distribution cut, purge, cap 101 (1 ) (2 ) 7 — 105 Total Consumers $ 198 $ (1 ) $ (7 ) $ 15 $ — $ 205 (a)Cash payments of $8 million in 2009 and $7 million in 2008 were included in the Other current and non-current liabilities line in Net cash provided by operating activities on CMS Energy’s and Consumers’ Consolidated Statements of Cash Flows.157CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)18: JOINTLY OWNED REGULATED UTILITY FACILITIESConsumers has investments in jointly owned regulated utility facilities, as shown in the following table: Ownership Accumulated Construction Share Net Investment(a) Depreciation Work in Progress (%) 2009 2008 2009 2008 2009 2008 In Millions Campbell Unit 3 93.3 $ 662 $ 675 $ 387 $ 360 $ 14 $ 19 Ludington 51.0 62 61 111 107 5 7 Distribution Various 105 96 43 41 7 3 (a)Net investment is the amount of utility plant in service less accumulated depreciation.Consumers includes its share of the direct expenses of the jointly owned plants in Operating Expenses. Consumers shares operation, maintenance, and other expenses of these jointly owned utility facilities in proportion to each participant’s undivided ownership interest. Consumers is required to provide only its share of financing for the jointly owned utility facilities.19: EQUITY METHOD INVESTMENTSCMS Energy accounts for certain investments in other companies and partnerships using the equity method when it has significant influence, typically when ownership is more than 20 percent but less than a majority. Losses from equity method investments were $2 million in 2009, and earnings from equity method investments were $5 million in 2008 and $40 million in 2007. The amount of consolidated retained earnings that represents undistributed earnings from these equity method investments was $1 million at December 31, 2008 and $22 million at December 31, 2007.If assets or income from continuing operations associated with any of CMS Energy’s individual equity method investments, or on an aggregate basis by any combination of equity method investments, exceed ten percent of its consolidated assets or income, then CMS Energy must present summarized financial data of that subsidiary or combination of subsidiaries. At December 31, 2009 and 2008, no individual equity method investment or combination of investments exceeded the ten percent threshold.The following is summarized financial information for equity method investments that exceeded the ten percent threshold at December 31, 2007: In Millions Operating revenue $ 598 Operating expenses 448 Operating income 150 Other expense, net 69 Net income $ 81 (a) (a)Amounts include financial data from equity method investments through the date of sale.158CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)20: CONSOLIDATION OF VARIABLE INTEREST ENTITIESEntities that are VIEs must be consolidated if the reporting company determines that it will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s residual returns, or both. The company that is required to consolidate the VIE is called the primary beneficiary. Variable interests are contractual, ownership, or other interests in an entity that change as the fair value of the entity’s net assets, excluding variable interests, change. An entity is considered to be a VIE when its capital is insufficient to permit it to finance its activities without additional subordinated financial support or its equity investors, as a group, lack the characteristics of having a controlling financial interest. CMS Energy and Consumers examine the following factors when determining whether they are the primary beneficiary of a VIE:• related party agreements such as operating and maintenance agreements, power purchase agreements, and leases;• ownership interest; and• allocation of expected losses and return based on discounted cash flows at a weighted-average cost of capital.CMS Energy is the primary beneficiary of three VIEs through its interests in the following partnerships:TotalNature ofGeneratingName (Ownership Interest)the EntityFinancing of PartnershipCapacityT.E.S. Filer City (50)%Coal-fueledpower generatorNon-recourse long-term debt that matured in December 2007.73 MWGrayling (50)%Wood waste- fueledpower generatorSale of revenue bonds that mature in November 2012 and bear interest at variable rates. The debt is recourse to the partnership, but not the individual partners, and secured by a letter of credit equal to the outstanding balance.40 MWGenesee (50)%Wood waste- fueledpower generatorSale of revenue bonds that mature in 2021 and bear interest at fixed rates. The debt is non-recourse to the partnership and secured by a CMS Energy guarantee capped at $3 million annually.38 MWTotal151 MWCMS Energy consolidated these entities for all periods presented. Total assets of these VIEs were $189 million as of December 31, 2009 and $196 million as of December 31, 2008. Total liabilities of these VIEs were $92 million as of December 31, 2009 and $99 million as of December 31, 2008.CMS Energy has operating and management contracts with these partnerships and Consumers is the primary purchaser of power from each partnership through long-term PPAs. Consumers also has reduced dispatch agreements with Grayling and Genesee, which allow the relative facilities to be dispatched based on the market price of wood waste. This results in fuel cost savings that each partnership shares with Consumers’ customers.The partnerships have third-party debt obligations totaling $70 million at December 31, 2009 and $76 million at December 31, 2008. Property, plant, and equipment serving as collateral for these obligations have a carrying value of $137 million at December 31, 2009 and $145 million at December 31, 2008. The creditors of these partnerships do not have recourse to the general credit of CMS Energy or Consumers, except through outstanding letters of credit of $2 million and a guarantee of $3 million annually. CMS Energy has deferred collections on certain receivables owed by Genesee. CMS Energy’s maximum exposure to loss from these receivables is159CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)$6 million. Consumers has not provided any financial or other support during the periods presented that was not previously contractually required.Additionally, through CMS Energy’s trust preferred security structure, CMS Energy holds an interest in a VIE in which CMS Energy is not the primary beneficiary. CMS Energy’s maximum exposure to loss through its interest is limited to its related party long-term debt balance of $34 million. For additional information, see Note 8, Financings and Capitalization, “Long-Term Debt — Related Parties.”21: RELATED PARTY TRANSACTIONS — CONSUMERSConsumers enters into a number of significant transactions with related parties. These transactions include:• purchase and sale of electricity from and to CMS Enterprises;• payment of parent company overhead costs to CMS Energy; and• investment in CMS Energy Common Stock.Transactions involving power supply purchases from certain affiliates of CMS Enterprises are based on avoided costs under PURPA, state law, and competitive bidding. The payment of parent company overhead costs is based on the use of accepted industry allocation methodologies. These payments are for costs that occur in the normal course of business. Consumers recorded income and expense from related parties as follows: 2009 2008 2007 In Millions Dividend income CMS Energy $ 1 $ 1 $ 1 Type of Expense: Electric generating capacity and energy Affiliates of CMS Enterprises
CMS Energy and Consumers’ affiliated (81 ) (75 ) (79 ) Interest expense on note payable Trust Preferred Securities Companies — — (2 ) Gas Transportation(a) CMS Bay Area Pipeline L.L.C. — — (1 ) (a)CMS Bay Area Pipeline, L.L.C. was sold to Lucid Energy in March 2007.Amounts receivable from related parties for various services and employee benefits were $2 million at December 31, 2009 and 2008. Amounts payable to related parties for purchased power were $11 million at December 31, 2009 and $14 million at December 31, 2008.Consumers owns 1.8 million shares of CMS Energy Common Stock with a fair value of $29 million at December 31, 2009. For additional details on Consumers’ investment in CMS Energy Common Stock, see Note 10, Financial Instruments.22: ASSET SALES, DISCONTINUED OPERATIONS, AND IMPAIRMENT CHARGESAsset SalesThe impacts of asset sales are included in Gain on asset sales, net and Income (Loss) from Discontinued Operations in CMS Energy’s Consolidated Statements of Income (Loss) and Loss (gain) on assets sales, net in Consumers’ Consolidated Statements of Income. Asset sales for CMS Energy and Consumers were immaterial for the years ended December 31, 2009 and 2008.160CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The following table summarizes CMS Energy’s and Consumers’ asset sales for the year ended December 31, 2007: Disposal of Continuing Discontinued Operations Operations Cash Pretax Pretax Proceeds Gain (Loss) Gain (Loss) In Millions March El Chocon(a) $ 50 $ 34 $ — March Argentine/Michigan businesses(b) 130 (5 ) (278 ) April Palisades(c) 333 — — April SENECA(d) 106 — 46 May Middle East, Africa and India businesses(e) 792 (15 ) 96 June CMS Energy Brasil S.A.(f) 201 — 3 August GasAtacama(g) 80 — — October Jamaica(h) 14 1 — Various Other 11 6 — Total CMS Energy $ 1,717 $ 21 $ (133 ) April Palisades(c) $ 333 $ — Various Other 4 2 Total Consumers $ 337 $ 2 (a)CMS Energy sold its interest in El Chocon to Endesa, S.A.(b)CMS Energy sold a portfolio of its businesses in Argentina and northern Michigan non-utility natural gas assets to Lucid Energy. Due to the settlement of certain legal proceedings, CMS Energy recognized a $17 million gain in 2007.(c)Consumers sold Palisades to Entergy for $380 million and, as of December 31, 2007, received $363 million after various closing adjustments. Consumers also paid Entergy $30 million to assume ownership and responsibility for the Big Rock ISFSI. Because of the sale of Palisades, Consumers paid the NMC, the former operator of Palisades, $7 million in exit fees and forfeited its $5 million investment in the NMC. Entergy assumed responsibility for the future decommissioning of Palisades and for storage and disposal of spent nuclear fuel located at Palisades and the Big Rock ISFSI sites.Consumers accounted for the disposal of Palisades as a financing and thus recognized no gain on the Consolidated Statements of Income. Consumers accounted for the remaining non-real estate assets and liabilities associated with the transaction as a sale.(d)CMS Energy sold its ownership interest in SENECA and certain associated generating equipment to PDVSA.(e)CMS Energy sold its ownership interest in businesses in the Middle East, Africa, and India to TAQA.(f)CMS Energy sold CMS Energy Brasil S.A. to CPFL Energia S.A., a Brazilian utility.(g)CMS Energy sold its investment in GasAtacama to Endesa S.A.(h)CMS Energy sold its investment in Jamaica Power to AEI.161CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)In connection with the sale of CMS Energy’s Argentine and Michigan assets to Lucid Energy in March 2007, CMS Energy entered into agreements that granted MEI, an affiliate of Lucid Energy, the right to any proceeds from an assignment of the ICSID award associated with TGN. The agreements also granted MEI an option to purchase CMS Gas Transmission’s ownership interests in TGN, and the rights to any proceeds CMS Enterprises will receive if it sells its stock interest in CMS Generation San Nicolas Company.In June 2008, CMS Energy executed an agreement with MEI and a third party to assign the ICSID award and to sell its interests in TGN directly to the third party. In accordance with the agreements executed in March 2007, the proceeds from the assignment of the ICSID award and the sale of TGN were passed on to MEI and CMS Energy recognized an $8 million gain on the assignment of the ICSID award in Gain on asset sales, net on CMS Energy’s Consolidated Statements of Income (Loss). CMS Energy also recognized a $197 million cumulative net foreign currency translation loss related to TGN, which had been deferred as a Foreign currency translation component of stockholders’ equity. This charge was fully offset by the elimination of a $197 million Argentine currency impairment reserve on CMS Energy’s Consolidated Balance Sheets, created when it impaired its investment in TGN in March 2007. For additional details, see “Impairment Charges” within this Note.As of December 31, 2009, $7 million remained as a deferred credit on CMS Energy’s Consolidated Balance Sheets related to MEI’s right to proceeds that CMS Enterprises will receive if it sells its stock interest in CMS Generation San Nicolas Company.Discontinued OperationsDiscontinued operations are a component of CMS Energy’s enterprises business segment. CMS Energy included the following amounts in the Income (Loss) From Discontinued Operations line on its Consolidated Statements of Income (Loss): 2009 2008 2007 In Millions Revenues $ 7 $ 14 $ 248 Discontinued operations: Pretax income (loss) from discontinued operations $ 33 $ 2 $ (111 ) Income tax expense (benefit) 13 1 (1 ) Income (Loss) From Discontinued Operations, Net of Tax Expense (Benefit) $ 20 (a) $ 1 $ (110 )(b) (a)Includes an operating loss of $11 million ($7 million after tax) at Exeter, whose assets and liabilities were reclassified as held for sale in 2009, and a loss of $3 million ($2 million after tax) related to the State Street Bank and TSU litigation at CMS Viron. For additional details on CMS Viron, see Note 6, Contingencies and Commitments.Also includes a gain for the expiration of an indemnity obligation related to a 2007 asset sale. CMS Energy provided an indemnity to TAQA in connection with the sale of its ownership interests in businesses in the Middle East, Africa, and India, and recorded a $50 million provision for the contingent liability. This indemnity expired in 2009 and CMS Energy eliminated the liability from its balance sheet, recognizing a $45 million benefit ($28 million after tax) to Income (Loss) from Discontinued Operations, Net of Tax Expense (Benefit) and a $5 million benefit to Gain on asset sales, net.(b)Includes operating income of $22 million (operating loss of $9 million after tax). Also includes $133 million ($101 million after tax) net loss on disposal of assets. For details on gains and losses recognized on the disposal of discontinued operations, see “Asset Sales” within this Note.162CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Discontinued operations include a provision for closing costs and a portion of CMS Energy’s parent company interest expense. CMS Energy allocated interest expense of less than $1 million in 2009 and $1 million in each of the years 2008 and 2007. This allocation was equal to the net book value of the asset sold divided by CMS Energy’s total capitalization of each discontinued operation multiplied by CMS Energy’s interest expense.Pending Asset Sales: During the fourth quarter of 2009, management committed to a plan to sell its interest in Exeter and initiated an active program to locate potential buyers. CMS Energy expects to complete the sale of this asset in 2010. As a result, the major classes of assets and liabilities of Exeter were classified as held for sale on CMS Energy’s Consolidated Balance Sheets in 2009. They are as follows: 2009 In Millions Assets: Cash $ 1 Accounts receivable, net 1 Property, plant, and equipment, net 8 Other 1 Total assets $ 11 Liabilities: Current Liabilities $ — Non-Current Liabilities — Total liabilities $ — Since the fair value of CMS Energy’s investment in Exeter less costs to sell exceeded the carrying amount, no charge to income was recognized as a result of Exeter being classified as held for sale.Impairment ChargesCMS Energy recorded no impairments of long-lived assets for the years ended December 31, 2009 and 2008. Consumers recorded no impairments of long-lived assets for the years ended December 31, 2009, 2008, and 2007. The following table summarizes asset impairments at CMS Energy’s enterprises business segment for the year ended December 31, 2007: 2007 In Millions TGN(a) $ 140 GasAtacama(b) 35 Jamaica(c) 22 PowerSmith(d) 5 Prairie State(e) 2 Total CMS Energy asset impairments $ 204 (a)CMS Energy recorded a $215 million impairment charge to recognize the reduction in fair value of its investment in TGN, a natural gas business in Argentina. The impairment included a cumulative net foreign163CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)currency translation loss of $197 million. In 2007, CMS Energy recognized a $75 million deferred credit in Asset impairment charges on its Consolidated Statements of Income (Loss).(b)In 2007, CMS Energy recorded an impairment charge to reflect the fair value of its investment in GasAtacama as determined in sale negotiations.(c)CMS Energy recorded an impairment charge to reflect the fair value of its investment in an electric generating plant in Jamaica by discounting a set of probability-weighted streams of future operating cash flows.(d)CMS Energy recorded an impairment charge to reflect the fair value of its investment in PowerSmith as determined in sale negotiations.(e)CMS Energy recorded an impairment charge to reflect its withdrawal from the co-development of Prairie State with Peabody Energy because the project did not meet CMS Energy’s investment criteria.23: REPORTABLE SEGMENTStheits contribution to net income (loss) available to CMS Energy's common stockholders of each segment.stockholders. The reportable segments for CMS Energy and Consumers are:• electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan;• gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan;• enterprises, consisting of various subsidiaries engaging primarily in domestic independent power production; and• other, including corporate interest and other expenses and discontinued operations.• electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan;• gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; and• other, including a consolidated special-purpose entity for the sale of accounts receivable.Energy’sEnergy's and Consumers’Consumers' segments are as described in Note 1, Significant Accounting Policies. The consolidated financial statements reflect the assets, liabilities, revenues, and expenses of the individual segments when appropriate. Accounts are allocated among the segments when common accounts are attributable to more than one segment. The allocations are based on certain measures of business activities, such as revenue, labor dollars, customers, other operation and maintenance expense, construction expense, leased property, taxes, or functional surveys. For example, customer receivables are allocated based on revenue, and pension provisions are allocated based on labor dollars.(loss) available to common stockholders by segment.164CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)ThePresented in the following tables provideis financial information by reportable segment: 2012 2011 2010 $ 4,031 $ 3,913 $ 3,802 1,982 2,340 2,354 183 204 238 57 46 38 $ 6,253 $ 6,503 $ 6,432 $ 4,031 $ 3,913 $ 3,802 1,982 2,340 2,354 $ 6,013 $ 6,253 $ 6,156 $ 459 $ 412 $ 450 133 130 122 4 3 3 2 1 1 $ 598 $ 546 $ 576 $ 459 $ 412 $ 450 133 130 122 $ 592 $ 542 $ 572 $ 17 $ 9 $ 11 $ 17 $ 9 $ 11 $ 179 $ 192 $ 202 63 71 73 147 152 156 $ 389 $ 415 $ 431 $ 179 $ 192 $ 202 63 71 73 2 2 2 $ 244 $ 265 $ 277 2009 2008 2007 In Millions Operating Revenue: Electric utility $ 3,407 $ 3,594 $ 3,443 Gas utility 2,556 2,827 2,621 Enterprises 216 365 370 Other 26 21 17 Total Operating Revenue — CMS Energy $ 6,205 $ 6,807 $ 6,451 Operating Revenue: Electric utility $ 3,407 $ 3,594 $ 3,443 Gas utility 2,556 2,827 2,621 Total Operating Revenue — Consumers $ 5,963 $ 6,421 $ 6,064 Income (Loss) from Equity Method Investees(a) Enterprises $ (2 ) $ 5 $ 39 Other — — 1 Total Income (Loss) from Equity Method Investees — CMS Energy $ (2 ) $ 5 $ 40 Depreciation and Amortization: Electric utility $ 441 $ 438 $ 397 Gas utility 118 136 127 Enterprises 10 10 11 Other 1 4 4 Total Depreciation and Amortization — CMS Energy $ 570 $ 588 $ 539 Depreciation and Amortization: Electric utility $ 441 $ 438 $ 397 Gas utility 118 136 127 Total Depreciation and Amortization — Consumers $ 559 $ 574 $ 524 165 2012 2011 2010 $ 227 $ 190 $ 187 70 77 67 (1 ) (24 ) 14 (51 ) (52 ) (44 ) $ 245 $ 191 $ 224 $ 227 $ 190 $ 187 70 77 67 $ 297 $ 267 $ 254 $ 325 $ 333 $ 303 110 130 127 16 32 36 (69 ) (80 ) (142 ) $ 382 $ 415 $ 324 $ 325 $ 333 $ 303 110 130 127 2 2 2 $ 437 $ 465 $ 432 $ 11,041 $ 10,400 $ 9,944 4,400 4,206 4,063 113 109 102 38 36 36 $ 15,592 $ 14,751 $ 14,145 $ 11,041 $ 10,400 $ 9,944 4,400 4,206 4,063 15 15 15 $ 15,456 $ 14,621 $ 14,022 $ 55 $ 49 $ 48 2 1 1 $ 57 $ 50 $ 49 2012 2011 2010 $ 10,423 $ 9,938 $ 9,321 5,016 4,956 4,614 181 242 191 1,511 1,316 1,490 $ 17,131 $ 16,452 $ 15,616 $ 10,423 $ 9,938 $ 9,321 5,016 4,956 4,614 836 768 904 $ 16,275 $ 15,662 $ 14,839 $ 921 $ 661 $ 642 340 261 235 1 5 4 4 1 2 $ 1,266 $ 928 $ 883 $ 921 $ 661 $ 642 340 261 235 $ 1,261 $ 922 $ 877 ENERGY CORPORATIONEnterprises;CONSUMERS ENERGY COMPANY Related Party 2012 2011 2010 Affiliates of CMS Enterprises $ 86 $ 81 $ 84 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2009 2008 2007 In Millions Interest Charges: Electric utility $ 225 $ 185 $ 192 Gas utility 66 60 69 Enterprises 5 6 9 Other 139 149 177 Total Interest Charges — CMS Energy $ 435 $ 400 $ 447 Interest Charges: Electric utility $ 225 $ 185 $ 193 Gas utility 66 60 70 Other 1 2 1 Total Interest Charges — Consumers $ 292 $ 247 $ 264 Income Tax Expense (Benefit): Electric utility $ 107 $ 153 $ 100 Gas utility 56 45 47 Enterprises 4 (10 ) (183 ) Other (52 ) (49 ) (161 ) Total Income Tax Expense (Benefit) — CMS Energy $ 115 $ 139 $ (197 ) Income Tax Expense (Benefit): Electric utility $ 107 $ 153 $ 100 Gas utility 56 45 47 Other — — (22 ) Total Income Tax Expense (Benefit) — Consumers $ 163 $ 198 $ 125 Net Income (Loss) Available to Common Stockholders: Electric utility $ 194 $ 271 $ 196 Gas utility 96 89 87 Enterprises (7 ) 13 (412 ) Discontinued operations 20 1 (89 ) Other (85 ) (90 ) (16 ) Total Net Income (Loss) Available to Common Stockholders — CMS Energy $ 218 $ 284 $ (234 ) 166CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2009 2008 2007 In Millions Net Income Available to Common Stockholder: Electric utility $ 194 $ 271 $ 196 Gas utility 96 89 87 Other 1 2 27 Total Net Income (Loss) Available to Common Stockholder — Consumers $ 291 $ 362 $ 310 Investments in Equity Method Investees:(a) Enterprises $ 3 $ 5 $ 6 Other 6 6 5 Total Investments in Equity Method Investees — CMS Energy $ 9 $ 11 $ 11 Property, Plant and Equipment, Gross Electric utility $ 9,525 $ 8,965 $ 8,555 Gas utility 3,812 3,622 3,467 Enterprises 345 340 341 Other 34 33 34 Total Property, Plant and Equipment — CMS Energy $ 13,716 $ 12,960 $ 12,397 Property, Plant and Equipment, Gross Electric utility $ 9,525 $ 8,965 $ 8,555 Gas utility 3,812 3,622 3,467 Other 15 15 15 Total Property, Plant and Equipment — Consumers $ 13,352 $ 12,602 $ 12,037 Total Assets: Electric utility(b) $ 9,157 $ 8,904 $ 8,492 Gas utility(b) 4,594 4,565 4,102 Enterprises 303 313 982 Other 1,202 1,119 604 Total Assets — CMS Energy $ 15,256 $ 14,901 $ 14,180 167CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2009 2008 2007 In Millions Total Assets: Electric utility(b) $ 9,157 $ 8,904 $ 8,492 Gas utility(b) 4,594 4,565 4,102 Other 871 777 807 Total Assets — Consumers Energy $ 14,622 $ 14,246 $ 13,401 Capital Expenditures:(c) Electric utility $ 557 $ 553 $ 1,319 Gas utility 270 241 168 Enterprises 7 3 5 Total Capital Expenditures — CMS Energy $ 834 $ 797 $ 1,492 Capital Expenditures:(c) Electric utility $ 557 $ 553 $ 1,319 Gas utility 270 241 168 Total Capital Expenditures — Consumers $ 827 $ 794 $ 1,487 Geographic Areas: 2009 2008 2007 In Millions United States Operating revenue(e) $ 6,205 $ 6,807 $ 6,449 Operating income $ 696 $ 798 $ 151 Total Assets $ 15,253 $ 14,898 $ 14,175 International Operating revenue(e) $ — $ — $ 2 Operating income (loss) $ — $ 1 $ (150 ) Total Assets $ 3 $ 3 $ 5 (a)Name (Ownership Interest) Consumers has no material equity method investments.Nature of the EntityFinancing of Partnership (b)T.E.S. Filer City (50%)Amounts includeCoal-fueled power generatorNon-recourse long-term debt that matured in December 2007. Grayling (50%) Wood waste-fueled power generator Sale of revenue bonds that were retired in March 2012. Genesee (50%) Wood waste-fueled power generator Sale of revenue bonds that mature in 2021 and bear interest at fixed rates. The debt is non-recourse to the partnership and secured by a portion of Consumers’ other common assets attributable to both the electric and gas utility businesses.CMS Energy guarantee capped at $3 million annually. (c)Amounts include purchase nuclear fuel and capital lease additions. Amounts also include a portion of Consumers’ capital expenditures for plant and equipment attributable to both the electric and gas utility businesses.(d)Consumers has no international assets, international operating revenues, or international operating income.(e)Revenues are based on the country location of customers.168CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Collective Bargaining Agreements: At December 31, 2009,2012 and $52 million as of December 31, 2011. The creditors of these partnerships do not have recourse to the Union represented 43 percentgeneral credit of CMS Energy’s employeesEnergy or Consumers, except through a guarantee provided by CMS Energy of $3 million annually. CMS Energy has deferred collections on certain receivables owed by Genesee. CMS Energy's maximum exposure to loss from these receivables is $7 million. Consumers has not provided any financial or other support during the periods presented that was not previously contractually required.44 percentincome (loss) from discontinued operations on CMS Energy's consolidated statements of Consumers’ employees. The Union represents Consumers’ operating, maintenance, construction,income. CMS Energy had no significant asset sales during the year ended December 31, 2012. Consumers had no significant asset sales during the years ended December 31, 2012, 2011, or 2010.call center employees. Union contracts expiretransferred the sale proceeds to Michigan Energy Investments LLC, a non-affiliated company. As a result, CMS Enterprises recognized a $3 million net gain. In 2010,June and Augustincome (loss) from discontinued operations: 2012 2011 2010 $ – $ – $ 10 $ 11 $ 2 $ (21 ) 4 – 2 $ 7 1 $ 2 2 $ (23 )3 2010.24: QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION (UNAUDITED) 2009 March 31 June 30 Sept. 30 Dec. 31 In Millions, Except Per Share Amounts Operating revenue $ 2,104 $ 1,225 $ 1,263 $ 1,613 Operating income 209 150 229 108 Income from continuing operations 75 55 76 14 Income (loss) from discontinued operations(a) (1 ) 25 (1 ) (3 ) Net income 74 80 75 11 Income attributable to noncontrolling interests 1 2 6 2 Net income attributable to CMS Energy 73 78 69 9 Preferred dividends 3 3 2 3 Net income available to common stockholders 70 75 67 6 Income from continuing operations per average common share — basic 0.32 0.22 0.30 0.04 Income from continuing operations per average common share — diluted 0.31 0.21 0.29 0.03 Basic earnings per average common share(b) 0.31 0.33 0.29 0.03 Diluted earnings per average common share(b) 0.30 0.32 0.28 0.02 Common stock prices(c) High 12.20 12.30 13.64 16.04 Low 10.09 10.98 11.78 13.05 Operating revenue $ 2,034 $ 1,182 $ 1,204 $ 1,543 Operating income 203 174 218 94 Net income 99 72 101 21 Preferred dividends 1 — 1 — Net income available to common stockholder 98 72 100 21 169CMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2008 March 31 June 30 Sept. 30 Dec. 31 Operating revenue $ 2,180 $ 1,361 $ 1,425 $ 1,841 Operating income 252 154 212 181 Income from continuing operations 107 49 81 64 Income (loss) from discontinued operations(a) 1 (1 ) 1 — Net income 108 48 82 64 Income attributable to noncontrolling interests 3 1 2 1 Net income attributable to CMS Energy 105 47 80 63 Preferred dividends 3 3 2 3 Net income available to common stockholders 102 44 78 60 Income from continuing operations per average common share — basic 0.45 0.20 0.34 0.26 Income from continuing operations per average common share — diluted 0.43 0.18 0.32 0.26 Basic earnings per average common share(b) 0.45 0.20 0.35 0.26 Diluted earnings per average common share(b) 0.43 0.18 0.33 0.26 Common stock prices(c) High 17.16 15.83 14.91 12.58 Low 13.35 13.78 12.09 8.81 Operating revenue $ 2,091 $ 1,263 $ 1,307 $ 1,760 Operating income 250 139 199 178 Net income 130 60 91 83 Preferred dividends 1 — 1 — Net income available to common stockholder 129 60 90 83 (a)Net of tax.(b)Sum of the quarters may not equal the annual earnings per share due to changes in shares outstanding.(c)Based on New York Stock Exchange composite transactions.Quarterly numbers differ from those previously reportedtax) reversal of a loss on disposal due to the elimination of a liability associated with the 2003 sale of Panhandle.Energy’s reclassificationViron.an IPP owned by CMS Enterprises$2 million ($1 million net of tax) at Exeter, whose assets and liabilities were reclassified as held for sale within 2009.operating results now reportedinterest expense by applying its total interest expense to the net carrying amount of the asset sold divided by CMS Energy's total capitalization.and duefor the year ended December 31, 2010.adjustmentsdefer the development of its proposed 830-MW coal-fueled plant at its Karn/Weadock generating complex. At that time, Consumers recorded a charge of $3 million to write off certain capitalized development costs because the costs wereConsumers’ November 2009 electric rate order.the proposed plant. The total charge of $22 million was recorded in other operating expenses for the year ended December 31, 2010. In accordance withDecember 2011, Consumers announced the accounting rules that apply to certain adjustmentscancellation of utility revenue under ratemaking processes, the proposed plant.impactsyears ended December 31, 2012, 2011, and 2010. 2012 March 31 June 30 Sept 30 Dec 31 $ 1,743 $ 1,333 $ 1,507 $ 1,670 188 260 343 212 60 101 149 67 7 – – – 67 101 149 67 – 1 1 – 67 100 148 67 67 100 148 67 0.23 0.38 0.56 0.26 0.22 0.37 0.55 0.25 0.26 0.38 0.56 0.26 0.25 0.37 0.55 0.25 22.31 23.87 24.81 24.70 21.33 21.52 22.70 22.79 $ 1,675 $ 1,282 $ 1,448 $ 1,608 183 260 334 207 76 122 163 78 – 1 1 – 76 121 162 78 2011 March 31 June 30 Sept 30 Dec 31 $ 2,055 $ 1,364 $ 1,464 $ 1,620 306 207 316 174 133 101 140 41 2 – – – 135 101 140 41 – 1 1 – 135 100 139 41 135 100 139 41 0.53 0.40 0.55 0.16 0.51 0.38 0.53 0.15 0.54 0.40 0.55 0.16 0.52 0.38 0.53 0.15 19.78 20.39 20.47 22.35 18.60 18.90 17.16 19.18 $ 1,988 $ 1,303 $ 1,397 $ 1,565 300 207 305 173 153 92 155 67 – 1 1 – 153 91 154 67 rate order that were specifically identifiable with prior interim periodsquarters may not equal annual EPS due to changes in the number of 2009 as revisions to those periods.shares outstanding.170
Table of ContentsCMS ENERGY CORPORATIONCONSUMERS ENERGY COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Impacts of November 2009 electric rate order: 2009 March 31 June 30 Sept. 30 In Millions, Except Per Share Amounts Operating revenue $ — $ (2 ) $ (9 ) Operating income 2 2 (11 ) Net income (loss) available to common stockholders 1 1 (6 ) Basic earnings per average common share 0.01 — (0.03 ) Diluted earnings per average common share — — (0.03 ) Operating revenue $ — $ (2 ) $ (9 ) Operating income 2 2 (11 ) Net income available to common stockholder 1 1 (6 ) Impacts of reclassification of IPP as held for sale: 2009 March 31 June 30 Sept. 30 Dec. 31 In Millions Operating revenue $ (2 ) $ (1 ) $ (2 ) $ — Operating income 2 6 2 — 2008 March 31 June 30 Sept. 30 Dec. 31 In Millions Operating revenue $ (4 ) $ (4 ) $ (3 ) $ (3 ) Operating income (1 ) (1 ) — 1 171(loss),of comprehensive income, of cash flows, and of changes in equity present fairly, in all material respects, the financial position of CMS Energy Corporation and its subsidiaries at December 31, 20092012 and December 31, 2008,2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20092012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2012, based on criteria established inInternal Control —– Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’sCompany's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’sManagement's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Consumers Energy Company20092012 and December 31, 2008,2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20092012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedulesschedule listed in the index appearing under Item 15(a)(2) presentpresents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2012, based on criteria established inInternal Control —– Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’sCompany's management is responsible for these financial statements and the financial statement schedules,schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’sManagement's Annual Report on Internal Control over Financial Reporting appearing under Item 9A(T).9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules,schedule, and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
February 21, 2013March 1, 2010173
Table of Contents(This page intentionally left blank)174CMS EnergyNone.ConsumersNone.ProceduresProcedures:: Under the supervision and with the participation of management, including its CEO and CFO, CMS Energy conducted an evaluation of its disclosure controls and procedures (as such term is defined inRules 13a-15(e) and15d-15(e) under the Exchange Act). Based on such evaluation, CMS Energy’sEnergy's CEO and CFO have concluded that its disclosure controls and procedures were effective as of December 31, 2009.Management’sManagement's Annual Report on Internal Control Over Financial ReportingReporting:: CMS Energy’sEnergy's management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange ActRule Rules 13a-15(f) and 15d-15(f). CMS Energy’sEnergy's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes policies and procedures that:• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of CMS Energy;• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of CMS Energy are being made only in accordance with authorizations of management and directors of CMS Energy; and• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of CMS Energy’s assets that could have a material effect on its financial statements.2009.2012. In making this evaluation, management used the criteria set forth in the framework in Internal Control —– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, CMS Energy’sEnergy's management concluded that its internal control over financial reporting was effective as of December 31, 2009.2012. The effectiveness of CMS Energy’sEnergy's internal control over financial reporting as of December 31, 20092012 has been audited by PricewaterhouseCoopers LLP, anEnergy’sEnergy's internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.175
CONSUMERSITEM 9A(T). CONSUMERS’ CONTROLS AND PROCEDURESConsumers’Consumers' CEO and CFO have concluded that its disclosure controls and procedures were effective as of December 31, 2009.Management’sManagement's Annual Report on Internal Control Over Financial Reporting:Consumers’ Consumers' management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange ActRule Rules 13a-15(f) and 15d-15(f). Consumers’ Consumers' internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes policies and procedures that:• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Consumers;• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of Consumers are being made only in accordance with authorizations of management and directors of Consumers; and• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Consumers’ assets that could have a material effect on its financial statements.2009.2012. In making this evaluation, management used the criteria set forth in the framework in Internal Control —– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, Consumers’Consumers' management concluded that its internal control over financial reporting was effective as of December 31, 2009.2012. The effectiveness of Consumers’Consumers' internal control over financial reporting as of December 31, 20092012 has been audited by PricewaterhouseCoopers LLP, an independentConsumers’Consumers' internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
None.EnergyENERGY1 in the1. Business, CMS Energy Executive Officers section, which is incorporated by reference in this Item 10.Energy’sEnergy's definitive proxy statement, which is incorporated by reference herein.CODE OF ETHICSCode of EthicsOn January 29, 2010, CMS Energy’s Board of Directors approved amendments to this code of ethics. A summary of those amendments as well as the completeThis code of ethics, entitled “Code"Code of Conduct and Guide to Ethical Business Behavior 2010” are2010," is posted on CMS Energy’sEnergy's website at www.cmsenergy.com, under “Compliance"Compliance and Ethics”.Ethics." CMS Energy’sEnergy's Code of Conduct and Guide to Ethical Business Behavior 2010 is administered by the Chief Compliance Officer of CMS Energy, who reports directly to the Audit Committee of the Board of Directors.Directors of CMS Energy. Any amendment to, or waiver of, a provision of CMS Energy’sEnergy's code of ethics that applies to CMS Energy’sEnergy's CEO, CFO, CAO, or persons performing similar functions will be disclosed on CMS Energy’sEnergy's website at www.cmsenergy.com under “Compliance"Compliance and Ethics.”“Board"Board of Directors Code of Conduct”.Conduct." This Board of Directors Code of Conduct can also be found on CMS Energy’sEnergy's website at www.cmsenergy.com. Thewww.cmsenergy.com, under "Compliance and Ethics." CMS Energy's Board of Directors Code of Conduct is administered by the Audit Committee of the Board of Directors.Directors of CMS Energy. Any alleged violation of this Board of Directors Code of Conduct by a director will be investigated by disinterested members of the Audit Committee of the Board of Directors of CMS Energy, or if none, by disinterested members of the entire Board of Directors.ConsumersCONSUMERS1 in the1. Business, Consumers Executive Officers section, which is incorporated by reference in this Item 10.herein.Consumers’Consumers' directors, executive officers, and corporate governance is included in CMS Energy’sEnergy's definitive proxy statement, which is incorporated by reference herein.CODE OF ETHICSCode of EthicsOn January 29, 2010, Consumers’ board of directors approved amendments to this code of ethics. A summary of those amendments as well as the completeThis code of ethics, entitled “Code"Code of Conduct and Guide to Ethical Business Behavior 2010” are2010," is posted on Consumers’Consumers' website at www.consumersenergy.com, under “Compliance"Our Company," "Compliance and Ethics”. Consumers’Ethics." Consumers' Code of Conduct and Guide to Ethical Business Behavior 2010 is administered by the Chief Compliance Officer of Consumers, who reports directly to the Audit Committee of Consumers’ boardthe Board of directors.Directors of Consumers. Any amendment to, or waiver of, a provision of Consumers’Consumers' code of ethics that applies to Consumers’Consumers' CEO, CFO, CAO, or persons performing similar functions will be disclosed on Consumers’Consumers' website at www.consumersenergy.com under “Compliance"Our Company," "Compliance and Ethics.”“Board"Board of Directors Code of Conduct”.Conduct." This Board of Directors Code of Conduct can also be found on Consumers’Consumers' website at www.consumersenergy.com. The Consumerswww.consumersenergy.com, under "Our Company," "Compliance and Ethics." Consumers' Board of Directors Code of Conduct is administered by the Audit Committee of Consumers’ boardthe Board of directors.Directors of Consumers. Any alleged violation of this Board of Directors Code of Conduct by a177Consumers’ boardthe Board of directors,Directors of Consumers, or if none, by disinterested members of the entire boardBoard of directors.Energy’sEnergy's and Consumers’Consumers' executive officers is included in CMS Energy’sEnergy's definitive proxy statement, which is incorporated by reference herein.OFFICER INCENTIVE COMPENSATION PLANOn February 23, 2010, the C&HR Committees approved the payout of cash bonuses for 2009 under the Annual Officer Incentive Compensation Plan. The C&HR Committees approved achievement of the composite plan performance factor resulting in payout under this plan at 148 percent.On January 28, 2010, the C&HR Committees approved the material terms of this plan, including the 2010 corporate performance goals thereunder. This plan includes the material terms detailed below, although the specific target levels for the corporate performance goals vary from year to year.Corporate Performance: The composite plan performance factor depends on corporate performance in two areas as described in the plan: (1) the adjusted net income per outstanding CMS Energy common share, called Plan EPS; and (2) the corporate free cash flow of CMS Energy, called CFCF. Plan EPS performance constitutes 60 percent of the composite plan performance factor and CFCF performance constitutes 40 percent of the composite plan performance factor. There will be a payout under the plan if either Plan EPS performance is not less than ten cents below target EPS or CFCF is not less than $100 million below target CFCF. Even if only one but not both of these target minimums is achieved, a partial payout would result. The composite plan performance factor to be used for payouts is capped at a maximum of 200 percent. Annual awards under the plan to Consumers’ officers may be reduced by ten percent in the event that there is no payout to non-officer, non-union employees under a separate Consumers’ employee incentive plan and may be increased by ten percent in the event that the maximum payout is made to non-officer, non-union employees under the Consumers’ employee incentive plan.Annual Award Formula: Annual awards for each eligible officer will be based upon a standard award percentage of the officer’s base salary as in effect for the performance year. The maximum amount that can be awarded under the plan for any Internal Revenue Code Section 162(m) employee will not exceed $2.5 million in any one performance year. Annual awards for officers will be calculated and made as follows: Individual Award = Base Salary times Standard Award Percentage times Performance Factor Percentage. The standard award percentages for officers are based on individual salary grade levels, which were increased slightly from 2009 plan percentages.Payment of Annual Awards: All annual awards for a performance year will be paid in cash no later than March 15 of the calendar year following the performance year provided that they first have been reviewed and approved by the C&HR Committees, and provided further that the annual award for a particular performance year has not been deferred voluntarily. The amounts required by law to be withheld for income and employment taxes will be deducted from the annual award payments. All annual awards become the obligation of the company on whose payroll the employee is enrolled at the time the C&HR Committees make the annual award.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERSCMS EnergyInformation that is required in Item 12 regarding securities authorized for issuance under equity compensation plans and security ownership of certain beneficial owners and management is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.178ConsumersEnergy’sEnergy's definitive proxy statement, which is incorporated by reference herein.CMS EnergyInformation that is required in Item 13 regarding certain relationships and related transactions, and director independence is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.ConsumersEnergy’sEnergy's definitive proxy statement, which is incorporated by reference herein.CMS EnergyInformation that is required in Item 14 regarding principal accountant fees and services is included in CMS Energy’s definitive proxy statement, which is incorporated by reference herein.ConsumersEnergy’sEnergy's definitive proxy statement, which is incorporated by reference herein.(a)(1) Financial Statements and Reports of Independent Public Accountants for CMS Energy and Consumers are included in each company’s Item 8. Financial Statements and Supplementary Data and are incorporated by reference herein.
(a)(2)
Index to Financial Statement Schedules. Page Energy-ParentEnergy – Parent Company (Loss)185 188 186 Condensed Balance Sheets189187 190 190192 Corporation191 Consumers Energy Company193 191 193 Corporation172 Consumers Energy Company175 173 176 179(a)(3) Exhibits for CMS Energy and Consumers are listed after Item 15(b) below and are incorporated by reference herein.
(b)
Exhibits, including those incorporated by reference.(a)(3) Exhibits for
CMS Energy and Consumers are listed after Item 15(b) below and are incorporated by reference herein.(b) Exhibits, including those incorporated by reference.CMS ENERGY’SENERGY'S AND CONSUMERS’CONSUMERS' EXHIBITS solely provide information regarding the terms of the agreements and are not intended to provide any other factual or disclosure information about CMS Energy, Consumers, or other parties to the agreements. The agreements may contain representations and warranties made by each of the parties to each of the agreements that were made exclusively for the benefit of the parties involved in each of the agreements and should not be treated as statements of fact. The representations and warranties were made as a way to allocate risk if one or more of those statements prove to be incorrect. The statements were qualified by disclosures toof the parties to each of the agreements andthat may not be reflected in each of the agreements. The agreements may apply standards of materiality that are different than standards applied to other investors. Additionally, the statements were made as of the date of the agreements or as specified in the agreements and have not been updated.SEC’sSEC's website athttp://www.sec.gov. Previously Filed With File
Number As Exhibit
Number 3.11 1-9513 (3)(a) — Restated Articles of Incorporation of CMS Energy, effective June 1, 2004, as amended May 22, 2009 (Form 10-Q for the quarterly period ended June 30, 2009) 3.21 1-9513 3.1 — CMS Energy Corporation Bylaws, amended and restated as of January 24, 2013 (Form 8-K filed January 29, 2013) 3.3 1-5611 3(c) — Restated Articles of Incorporation of Consumers effective June 7, 2000 (Form 10-K for the fiscal year ended December 31, 2000) 3.4 1-5611 3.2 — Consumers Energy Company Bylaws, amended and restated as of January 24, 2013 (Form 8-K filed January 29, 2013) 4.1 2-65973 (b)(1)-4 — Indenture dated as of September 1, 1945 between Consumers and Chemical Bank (successor to Manufacturers Hanover Trust Company), as Trustee, including therein indentures supplemental thereto through the Forty-third Supplemental Indenture dated as of May 1, 1979 (Form S-16 filed November 13, 1979) Indentures Supplemental thereto: 4.1.a 1-5611 (4)(a) — 71st dated as of 3/06/98 (Form 10-K for the fiscal year ended December 31, 1997) 4.1.b 1-5611 (4)(b) — 92nd dated as of 8/26/03 (Form 10-Q for the quarterly period ended September 30, 2003) 4.1.c 1-5611 (4)(a) — 96th dated as of 8/17/04 (Form 8-K filed August 20, 2004) 4.1.d 1-5611 4.4 — 98th dated as of 12/13/04 (Form 8-K filed December 13, 2004) 4.1.e 1-5611 (4)(a)(i) — 99th dated as of 1/20/05 (Form 10-K for the fiscal year ended December 31, 2004) 4.1.f 1-5611 4.2 — 100th dated as of 3/24/05 (Form 8-K filed March 30, 2005) 4.1.g 1-5611 4.2 — 104th dated as of 8/11/05 (Form 8-K filed August 11, 2005) 4.1.h 1-5611 4.1 — 108th dated as of 3/14/08 (Form 8-K filed March 14, 2008) 4.1.i 1-5611 4.1 — 109th dated as of 9/11/08 (Form 8-K filed September 16, 2008) 4.1.j 1-5611 4.1 — 110th dated as of 9/12/08 (Form 8-K filed September 12, 2008) 4.1.k 1-5611 4.1 — 111th dated as of 3/6/09 (Form 8-K filed March 6, 2009) Previously Filed With File
NumberAs Exhibit
NumberExhibitsNumberNumberDescription(3)(a)1-9513(3)(a)—Restated Articles of Incorporation of CMS Energy, effective June 1, 2004, as amended May 22, 2009 (2nd qtr. 2009Form 10-Q)(3)(b)1-95133.01—CMS Energy Corporation Bylaws, amended and restated as of August 14, 2009(Form 8-K filed August 18, 2009)(3)(c)1-56113(c)—Restated Articles of Incorporation of Consumers effective June 7, 2000 (2000Form 10-K)(3)(d)1-56113.02—Consumers Energy Company Bylaws, amended and restated as of August 14, 2009(Form 8-K filed August 18, 2009)(4)(a)2-65973(b)(1)-4—Indenture dated as of September 1, 1945, between Consumers and Chemical Bank (successor to Manufacturers Hanover Trust Company), as Trustee, including therein indentures supplemental thereto through the Forty-third Supplemental Indenture dated as of May 1, 1979(Form S-16 filed November 13, 1979)Indentures Supplemental thereto:(4)(a)(i)1-5611(4)(a)—71st dated as of 3/06/98 (1997Form 10-K)(4)(a)(ii)1-5611(4)(d)—90th dated as of 4/30/03 (1st qtr. 2003Form 10-Q)(4)(a)(iii)1-5611(4)(a)—91st dated as of 5/23/03 (3rd qtr. 2003Form 10-Q)(4)(a)(iv)1-5611(4)(b)—92nd dated as of 8/26/03 (3rd qtr. 2003Form 10-Q)(4)(a)(v)1-5611(4)(a)—96th dated as of 8/17/04(Form 8-K filed August 20, 2004)(4)(a)(vi)333-120611(4)(e)(xv)—97th dated as of 9/1/04 (ConsumersForm S-3 dated November 18, 2004)(4)(a)(vii)1-56114.4—98th dated as of 12/13/04(Form 8-K filed December 13, 2004)(4)(a)(viii)1-5611(4)(a)(i)—99th dated as of 1/20/05 (2004Form 10-K)(4)(a)(ix)1-56114.2—100th dated as of 3/24/05(Form 8-K filed March 30, 2005)(4)(a)(x)1-56114.2—102nd dated as of 4/13/05(Form 8-K filed April 13, 2005)(4)(a)(xi)1-56114.2—104th dated as of 8/11/05(Form 8-K filed August 11, 2005)180Previously FiledWith FileAs ExhibitExhibitsNumberNumberDescription(4)(a)(xii)1-56114(b)—105th dated as of 3/30/07 (2007Form 10-K)(4)(a)(xiii)1-56114(a)—106th dated as of 11/30/07 (2007Form 10-K)(4)(a)(xiv)1-5611(4)(a)—107th dated as of 3/1/08 (1st qtr. 2008Form 10-Q)(4)(a)(xv)4.1.l 1-5611 4.1 — 108th112th dated as of 3/14/08(Form9/1/10 (Form 8-K filed March 14, 2008)September 7, 2010)(4)(a)(xvi)4.1.m 1-5611 4.1 — 109th113th dated as of 9/11/08(Form10/15/10 (Form 8-K filed September 16, 2008)October 20, 2010)(4)(a)(xvii)4.1.n 1-5611 4.1 — 110th114th dated as of 9/12/08(Form3/31/11 (Form 8-K filed September 12, 2008)April 6, 2011)(4)(a)(xviii)4.1.o 1-5611 4.1 — 111th116th dated as of 3/6/09(Form 8-K9/1/11 (Form 10-Q for the quarterly period ended September 30, 2011) filed March 6, 2009)(4)(b)4.1.p1-5611 4.1 — 117th dated as of 5/8/12 (Form 8-K filed May 8, 2012) 4.1.q 1-5611 4.1 — 119th dated as of 8/3/12 (Form 10-Q for the quarterly period ended September 30, 2012) 4.1.r 1-5611 4.1 — 120th dated as of 12/17/12 (Form 8-K filed December 20, 2012) 4.2 1-5611 (4)(b) — Indenture dated as of January 1, 1996 between Consumers and The Bank of New York Mellon, as Trustee (1995Form 10-K)(Form 10-K for the fiscal year ended December 31, 1995)(4)(c)4.3 1-5611 (4)(c) — Indenture dated as of February 1, 1998 between Consumers and The Bank of New York Mellon (formerly The Chase Manhattan Bank), as Trustee (1997Form 10-K)(Form 10-K for the fiscal year ended December 31, 1997)(4)(d)4.41 33-47629 (4)(a) * — Indenture dated as of September 15, 1992 between CMS Energy and NBD Bank, as Trustee (Form (Form S-3 filed May 1, 1992) Indentures Supplemental thereto: (4)(d)(i)4.4.a1 333-586861-9513 (4)(a)*4.2 — 11th19th dated as of 3/29/01(Form S-812/13/05 (Form 8-K filed April 11, 2001)December 15, 2005)(4)(d)(ii)4.4.b1 1-9513 (4)(d)(i)*4.2 — 15th20th dated as of 9/29/04 (2004Form 10-K)7/3/07 (Form 8-K filed July 5, 2007)(4)(d)(iii)4.4.c1 1-9513 (4)(d)(ii)*4.1 — 16th22nd dated as of 12/16/04 (2004Form 10-K)6/15/09 (Form 8-K filed June 15, 2009)(4)(d)(iv)4.4.d1 1-9513 4.2*4.3 — 17th23rd dated as of 12/13/04(Form6/15/09 (Form 8-K filed December 13, 2004)June 15, 2009)(4)(d)(v)4.4.e1 1-9513 4.2*4.1 — 18th24th dated as of 1/19/05(Form14/10 (Form 8-K filed January 20, 2005)14, 2010)(4)(d)(vi)4.4.f1 1-9513 4.2*4.1 — 19th25th dated as of 12/13/05(Form9/23/10 (Form 8-K filed December 15, 2005)September 23, 2010)(4)(d)(vii)4.4.g1 1-9513 4.2*4.1 — 20th26th dated as of 7/3/07(Form11/19/10 (Form 8-K filed July 5, 2007)November 19, 2010)(4)(d)(viii)4.4.h1 1-9513 4.3*4.1 — 21st27th dated as of 7/3/07(Form5/12/11 (Form 8-K filed July 5, 2007)May 12, 2011)(4)(d)(ix)4.4.i1 1-9513 4.1*4.1 — 22nd28th dated as of 6/15/09(Form3/12/12 (Form 8-K filed June 15, 2009)March 12, 2012)(4)(d)(x)1-95134.3*—23rd dated as of 6/15/09(Form 8-K4.51 filed June 15, 2009)(4)(d)(xi)1-95134.1*—24th dated as of 1/14/10(Form 8-K filed January 14, 2010)(4)(e) 1-9513 (4a) * — Indenture dated as of June 1, 1997 between CMS Energy Corporation and The Bank of New York Mellon, as trustee(FormTrustee (Form 8-K filed July 1, 1997)Indentures Supplemental thereto:(4)(e)(i)1-9513(4)(b)*—1st dated as of 6/20/97(Form 8-K10.12 filed July 1, 1997)(10)(a)1-9513(10)(d)*—$300 million Seventh Amended and Restated Credit Agreement dated as of April 2, 2007 among CMS Energy Corporation, the Banks, the Administrative Agent, Collateral Agent, Syndication Agent and Documentation Agents all defined therein and Amendment No. 1 dated as of December 19, 2007 (3rd qtr. 2009Form 10-Q)(10)(b)1-9513(10)(b)*—Amendment No. 2 to the $300 million Seventh Amended and Restated Credit Agreement dated as of January 23, 2009 (2008Form 10-K)(10)(c)1-9513(10)(e)*—Assumption and Acceptance to the $300 million Seventh Amended and Restated Credit Agreement dated January 8, 2008 (3rd qtr. 2009Form 10-Q)(10)(d)1-951310(b)*—Fourth Amended and Restated Pledge and Security Agreement dated as of April 2, 2007 among CMS Energy and Collateral Agent, as defined therein (2007Form 10-K)(10)(e)1-951310(c)*—Amended and Restated Cash Collateral Agreement dated as of April 2, 2007, made by CMS Energy to the Administrative Agent for the lenders and Collateral Agent, as defined therein (2007Form 10-K)181Previously FiledWith FileAs ExhibitExhibitsNumberNumberDescription(10)(f)1-5611(10)(f)—$500 million Fourth Amended and Restated Credit Agreement dated as of March 30, 2007 among Consumers Energy Company, the Banks, the Administrative Agent, the Collateral Agent, the Syndication Agent and the Documentation Agents all as defined therein (3rd qtr. 2009Form 10-Q)(10)(g) 1-9513 (10)(g) — 2004 Form of Executive Severance Agreement (3rd qtr. 2009Form 10-Q)(Form 10-Q for the quarterly period ended September 30, 2009)(10)(h)10.22 1-9513 (10)(h) — 2004 Form of Officer Severance Agreement (3rd qtr. 2009Form 10-Q)(Form 10-Q for the quarterly period ended September 30, 2009)(10)(i)1-9513(10)(g)—2004 Form ofChange-in-Control10.32 Agreement (2007Form 10-K)(10)(j) 1-9513 10.1 — CMS Energy’sEnergy's Performance Incentive Stock Plan, effective February 3, 1988, amended and restated, effective August 1, 2010 (Form 10-Q for the quarterly period ended June 1, 2009(Form 8-K filed May 27, 2009)30, 2010)(10)(k)10.42 1-9513 (10)(i) — CMS Deferred Salary Savings Plan effective December 1, 1989 and as further amended effective December 1, 2007 (2007Form 10-K)(Form 10-K for the fiscal year ended December 31, 2007)(10)(l)10.52 1-9513 (10)(l) — Amendment to the Deferred Salary Savings Plan dated December 21, 2008 (2008Form 10-K)(Form 10-K for the fiscal year ended December 31, 2008)(10)(m)10.62 1-9513 (10)(m)—Annual Officer Incentive Compensation Plan for CMS Energy Corporation and its Subsidiaries effective January 1, 2004, amended and restated effective as of January 1, 2008 (2008Form 10-K)(10)(n)1-9513(10)(n)—Amendment to the Officer’s Incentive Compensation Plan dated December 21, 2008 (2008Form 10-K)(10)(o)1-9513(10)(k)10.6 — Supplemental Executive Retirement Plan for Employees of CMS Energy/Consumers Energy Company effective on January 1, 1982 and as further amended Decembereffective April 1, 2007 (2007Form 10-K)2011 (Form 10-Q for the quarterly period ended March 31, 2011)(10)(p)10.72 1-9513 (10)(p)—Amendment to the Defined Benefit Supplemental Executive Retirement Plan dated December 21, 2008 (2008Form��10-K)(10)(q)1-9513(10)(l)10.5 — Defined Contribution Supplemental Executive Retirement Plan effective April 1, 2006 and as further amended effective DecemberApril 1, 2007 (2007Form 10-K)(10)(r)1-9513(10)(r)—Amendment to2011 (Form 10-Q for the Defined Contribution Supplemental Executive Retirement Plan dated December 21, 2008 (2008Form 10-K)(10)(s)1-9513(10)(s)—2009 Form of Change in Control Agreement (2008Form 10-K)(10)(t)1-9513(10)(t)—2009 Form of Officer Separation Agreement (2008Form 10-K)(10)(u)1-9513(10)(v)—Amended and Restated Investor Partner Tax Indemnification Agreement dated as of June 1, 1990 among Investor Partners, CMS Midland as Indemnitor and CMS Energy as Guarantor (1990Form 10-K)(10)(v)1-9513(10)(y)*—Environmental Agreement dated as of June 1, 1990 made by CMS Energy to The Connecticut National Bank and Others (1990Form 10-K)(10)(w)1-5611(10)(y)—Unwind Agreement dated as of December 10, 1991 by and among CMS Energy, Midland Group, Ltd., Consumers, CMS Midland, Inc., MEC Development Corp. and CMS Midland Holdings Company (1991Form 10-K)(10)(x)1-5611(10)(aa)*—Parent Guaranty dated as of June 14, 1990 from CMS Energy to MCV, each of the Owner Trustees, the Indenture Trustees, the Owner Participants and the Initial Purchasers of Senior Bonds in the MCV Sale Leaseback transaction, and MEC Development (1991Form 10-K)quarterly period ended March 31, 2011) Previously Filed With File
Number As Exhibit
Number 10.82 — Form of Officer Separation Agreement as of January 2013 10.91 1-9513 (10)(v) — Amended and Restated Investor Partner Tax Indemnification Agreement dated as of June 1, 1990 among Investor Partners, CMS Midland as Indemnitor and CMS Energy as Guarantor (Form 10-K for the fiscal year ended December 31, 1990) 10.101 1-9513 (10)(y) — Environmental Agreement dated as of June 1, 1990 made by CMS Energy to The Connecticut National Bank and Others (Form 10-K for the fiscal year ended December 31, 1990) 10.11 1-5611 (10)(y) — Unwind Agreement dated as of December 10, 1991 by and among CMS Energy, Midland Group, Ltd., Consumers, CMS Midland, Inc., MEC Development Corp. and CMS Midland Holdings Company (Form 10-K for the fiscal year ended December 31, 1991) 10.121 1-9513 (10)(aa) — Parent Guaranty dated as of June 14, 1990 from CMS Energy to MCV, each of the Owner Trustees, the Indenture Trustees, the Owner Participants and the Initial Purchasers of Senior Bonds in the MCV Sale Leaseback transaction, and MEC Development (Form 10-K for the fiscal year ended December 31, 1991) 10.13 1-5611 (10)(i) — Asset Sale Agreement dated as of July 11, 2006 by and among Consumers Energy Company as Seller and Entergy Nuclear Palisades, LLC as Buyer (Form 10-Q for the quarterly period ended September 30, 2009) 10.14 1-5611 (10)(j) — Palisades Nuclear Power Plant Power Purchase Agreement dated as of July 11, 2006 between Entergy Nuclear Palisades, LLC and Consumers Energy Company (Form 10-Q for the quarterly period ended September 30, 2009) 10.151 1-9513 (10)(k) — Agreement of Purchase and Sale, by and between CMS Enterprises Company and Abu Dhabi National Energy Company PJSC dated as of February 3, 2007 (Form 10-Q for the quarterly period ended September 30, 2009) 10.161,2 1-9513 (10)(a) — Form of Indemnification Agreement between CMS Energy Corporation and its Directors, effective as of November 1, 2007 (Form 10-Q for the quarterly period ended September 30, 2007) 10.172 1-5611 (10)(b) — Form of Indemnification Agreement between Consumers Energy Company and its Directors, effective as of November 1, 2007 (Form 10-Q for the quarterly period ended September 30, 2007) 10.18 1-5611 10.1 — $150 million Third Amended and Restated Revolving Credit Agreement dated as of April 18, 2012 among Consumers Energy Company, the Banks, Agent, Co-Syndication Agents, and Documentation Agent all as defined therein (Form 8-K filed April 24, 2012) 10.19 1-5611 (10)(t) — Settlement Agreement and Amended and Restated Power Purchase Agreement between Consumers Energy Company and Midland Cogeneration Venture Limited Partnership (Form 10-Q for the quarterly period ended September 30, 2009) 10.20 1-5611 10.4 — 1st Amendment to the Amended and Restated Power Purchase Agreement between Consumers and MCV Partnership, dated as of March 1, 2010 (Form 10-Q for the quarterly period ended September 30, 2010) Previously Filed With File
Number As Exhibit
Number 10.21 1-5611 10.34 — Amended and Restated Receivables Purchase Agreement dated as of November 23, 2010 among Consumers Receivables Funding II, LLC, Consumers Energy Company, The Conduits from time to time party thereto, The Financial Institutions from time to time party thereto, The Managing Agents from time to time party thereto, and JPMorgan Chase Bank, NA, as Administrative Agent (Form 10-K for the fiscal year ended December 31, 2010) 10.22 1-5611 10.1 — Amendment No. 1 to Amended and Restated Receivables Purchase Agreement dated as of November 18, 2011 (Form 8-K filed November 25, 2011) 10.23 1-5611 10.24 — Amendment No. 2 to Amended and Restated Receivables Purchase Agreement dated as of December 15, 2011 (Form 10-K for the fiscal year ended December 31, 2011) 10.24 1-5611 10.1 — Amendment No. 3 to Amended and Restated Receivables Purchase Agreement dated as of November 9, 2012 (Form 8-K filed November 14, 2012) 10.25 1-5611 10.1 — Amendment No. 4 to Amended and Restated Receivables Purchase Agreement dated as of November 30, 2012 (Form 8-K filed December 6, 2012) 10.26 1-5611 (10)(v) — Receivables Sale Agreement, dated as of May 22, 2003, between Consumers Energy Company, as Originator and Consumers Receivables Funding II, LLC, as Buyer, as amended by Amendment No. 1 dated as of May 20, 2004 and as amended by Amendment No. 2 dated as of August 15, 2006 (Form 10-Q for the quarterly period ended September 30, 2009) 10.27 1-5611 (10)(rr) — Amendment No. 3 to the Receivables Sale Agreement dated as of September 3, 2009 (Form 10-K for the fiscal year ended December 31, 2009) 10.28 1-5611 (10)(ss) — Amendment No. 4 to the Receivables Sale Agreement dated as of February 12, 2010 (Form 10-K for the fiscal year ended December 31, 2009) 10.29 1-5611 (10)(b) — Amendment No. 5 to the Receivables Sale Agreement, dated as of March 17, 2010 (Form 10-Q for the quarterly period ended March 31, 2010) 10.30 1-5611 (10)(d) — Amendment No. 6 to the Receivables Sale Agreement, dated as of April 20, 2010 (Form 10-Q for the quarterly period ended March 31, 2010) 10.31 1-5611 10.40 — Amendment No. 7 to the Receivables Sale Agreement dated as of November 23, 2010 (Form 10-K for the fiscal year ended December 31, 2010) 10.32 1-5611 10.2 — Amendment No. 8 to the Receivables Sale Agreement dated as of November 30, 2012 (Form 8-K filed December 6, 2012) 10.332 1-9513 10.3 — CMS Incentive Compensation Plan for CMS Energy and its Subsidiaries, amended and restated effective as of March 16, 2012 (Form 10-Q for the quarterly period ended March 31, 2012) 10.342 — Form of Change in Control Agreement as of January 2013 10.351,2 1-9513 (10)(g) — Agreement between David W. Joos and CMS Energy Board of Directors (Form 10-Q for the quarterly period ended March 31, 2010) Previously Filed With File
Number As Exhibit
Number 10.361 1-9513 10.1 — $550 million Amended and Restated Revolving Credit Agreement dated as of December 21, 2012 among CMS Energy, the Banks, as defined therein, and Barclays, as Agent (Form 8-K filed December 28, 2012) 10.37 1-5611 10.2 — $500 million Amended and Restated Revolving Credit Agreement dated as of December 21, 2012 among Consumers Energy, the Banks, as defined therein, and JPMorgan Chase Bank, N.A., as Agent (Form 8-K filed December 28, 2012) 10.381 1-9513 10.3 — Pledge and Security Agreement dated as of March 31, 2011, made by CMS Energy Corporation to Barclays Bank PLC, as Administrative Agent for the Banks, as defined therein (Form 8-K filed April 6, 2011) 10.39 1-5611 10.1 — Settlement Agreement between Consumers and United States to Resolve Claims Arising from Contract DE-CR01-83NE44374, entered into on July 11, 2011 (Form 10-Q for the quarterly period ended June 30, 2011) 10.402 1-9513 10.1 — Consumers and other CMS Energy Companies Retired Executives Survivor Benefit Plan for Management/ Executive Employees, distributed July 1, 2011 (Form 10-Q for the quarterly period ended September 30, 2011) 10.411 1-9513 10.1 — $180,000,000 Term Loan Credit Agreement dated as of December 15, 2011 among CMS Energy Corporation, the financial institutions named therein and JPMorgan Chase Bank, N.A. as Agent (Form 8-K filed December 20, 2011) 10.421 1-9513 10.1 — Amendment No. 1 dated as of February 8, 2013 to $180,000,000 Term Loan Credit Agreement dated as of December 15, 2011 (Form 8-K filed February 14, 2013) 10.43 1-5611 10.1 — $375,000,000 Term Loan Credit Agreement dated as of June 13, 2012 among Consumers Energy, the financial institutions named therein and JPMorgan Chase Bank, N.A., as Agent (Form 8-K filed June 19, 2012) 10.44 1-5611 10.1 — Bond Purchase Agreement between Consumers Energy and each of the Purchasers named therein, dated as of July 10, 2012 (Form 8-K filed July 13, 2012) 12.1 — Statement regarding computation of CMS Energy's Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends 12.2 — Statement regarding computation of Consumers' Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends 21.1 — Subsidiaries of CMS Energy and Consumers 23.1 — Consent of PricewaterhouseCoopers LLP for CMS Energy 23.2 — Consent of PricewaterhouseCoopers LLP for Consumers 24.1 — Power of Attorney for CMS Energy 24.2 — Power of Attorney for Consumers 31.1 — CMS Energy's certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 — CMS Energy's certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.3 — Consumers' certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Previously Filed With File
NumberAs Exhibit
NumberExhibitsNumberNumberDescription(10)(y)1-5611(10)(i)—Asset Sale Agreement dated as of July 11, 2006 by and among Consumers Energy Company as Seller and Entergy Nuclear Palisades, LLC as Buyer (3rd qtr. 2009Form 10-Q)(10)(z)1-5611(10)(j)—Palisades Nuclear Power Plant Power Purchase Agreement dated as of July 11, 2006 between Entergy Nuclear Palisades, LLC and Consumers Energy Company (3rd qtr. 2009Form 10-Q)(10)(aa)1-9513(10)(k)*—Agreement of Purchase and Sale, by and between CMS Enterprises Company and Abu Dhabi National Energy Company PJSC dated as of February 3, 2007 (3rd qtr. 2009Form 10-Q)(10)(bb)1-951310.1*—Common Agreement dated March 12, 2007 between CMS Enterprises Company and Lucid Energy, LLC(Form 8-K filed March 14, 2007)(10)(cc)1-9513(10)(l)*—Agreement of Purchase and Sale dated March 12, 2007 by and among CMS Enterprises Company, CMS Energy Investment, LLC, and Lucid Energy, LLC and Michigan Pipeline and Processing, LLC (3rd qtr. 2009Form 10-Q)(10)(dd)1-9513(10)(m)*—Agreement of Purchase and Sale dated March 12, 2007 by and among CMS Enterprises Company, CMS Generation Holdings Company, CMS International Ventures, LLC, and Lucid Energy, LLC and New Argentine Generation Company, LLC (3rd qtr. 2009Form 10-Q)(10)(ee)1-5611(10)(p)—Purchase and Sale Agreement by and between Broadway Gen Funding, LLC as Seller and Consumers Energy Company as Buyer dated as of May 24, 2007 (3rd qtr. 2009Form 10-Q)(10)(ff)1-9513(10)(a)*—Form of Indemnification Agreement between CMS Energy Corporation and its Directors, effective as of November 1, 2007 (3rd qtr. 2007Form 10-Q)(10)(gg)1-5611(10)(b)—Form of Indemnification Agreement between Consumers Energy Company and its Directors, effective as of November 1, 2007 (3rd qtr. 2007Form 10-Q)(10)(hh)1-561110.1—$200 million Letter of Credit Reimbursement Agreement dated as of November 30, 2007 between Consumers Energy Company and the Bank of Nova Scotia(Form 8-K filed December 6, 2007)(10)(ii)1-5611(10)(tt)—First Amendment to Reimbursement Agreement dated as of September 25, 2008 (2008Form 10-K)(10)(jj)1-5611(10)(c)—Second Amendment to Reimbursement Agreement dated as of September 25, 2009 (3rd qtr. 2009Form 10-Q)(10)(kk)1-561110.1—$150 million Amended and Restated Revolving Credit Agreement dated as of August 18, 2009 among Consumers Energy Company, the Banks, Agent, Co-Syndication Agents, and Documentation Agent all as defined therein(Form 8-K filed August 21, 2009)(10)(ll)1-5611(10)(t)—Settlement Agreement and Amended and Restated Power Purchase Agreement between Consumers Energy Company and Midland Cogeneration Venture Limited Partnership dated as of June 9, 2008 (3rd qtr. 2009Form 10-Q)(10)(mm)1-5611(10)(u)—Receivables Purchase Agreement dated as of May 22, 2003 (as modified by Amendments 1-15) among Consumers Receivables Funding II, LLC, Consumers Energy Company, Falcon Asset Securitization Corporation, The Financial Institutions from time to time parties hereto, as Financial Institutions, and Bank One, NA, as Administrative Agent (3rd qtr. 2009Form 10-Q)183Previously FiledWith FileAs ExhibitExhibitsNumberNumberDescription(10)(nn)1-5611(10)(b)—Amendment No. 16 to the Receivables Purchase Agreement dated as of April 29, 2009 (1st qtr. 2009Form 10-Q)(10)(oo)1-5611(10)(b)—Amendment No. 17 to the Receivables Purchase Agreement dated as of September 3, 2009 (3rd qtr. 2009Form 10-Q)(10)(pp)31.4 — Amendment No. 18 to the Receivables Purchase Agreement dated as of February 12, 2010(10)(qq)1-5611(10)(v)—Receivables Sale Agreement, dated as of May 22, 2003, between Consumers Energy Company, as Originator and Consumers Receivables Funding II, LLC, as Buyer, as amended by Amendment No. 1 dated as of May 20, 2004 and as amended by Amendment No. 2 dated as of August 15, 2006 (3rd qtr. 2009Form 10-Q)(10)(rr)—Amendment No. 3 to the Receivables Sale Agreement dated as of September 3, 2009(10)(ss)—Amendment No. 4 to the Receivables Sale Agreement dated as of February 12, 2010(10)(tt)1-9513(10)(a)—CMS Incentive Compensation Plan for CMS Energy and its Subsidiaries, effective January 1, 2004, amended and restated, effective as of January 1, 2009 (1st qtr. 2009Form 10-Q)(12)(a)—Statement regarding computation of CMS Energy’s Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends(12)(b)—Statement regarding computation of Consumers’ Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends(21)—Subsidiaries of CMS Energy and Consumers(23)(a)—Consent of PricewaterhouseCoopers LLP for CMS Energy(23)(b)—Consent of PricewaterhouseCoopers LLP for Consumers(24)(a)—Power of Attorney for CMS Energy(24)(b)—Power of Attorney for Consumers(31)(a)—CMS Energy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(31)(b)—CMS Energy’sConsumers' certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(31)(c)—Consumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(31)(d)—Consumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(32)(a)32.1 — CMS Energy’sEnergy's certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(32)(b)32.2 — Consumers’Consumers' certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 200299.11 333-177886 99.1 — CMS Energy Corporation Stock Purchase Plan, as amended and restated November 10, 2011 (Form S-3ASR filed November 10, 2011) *101.INS3Obligations of CMS Energy or its subsidiaries, but not of Consumers.— XBRL Instance Document 101.SCH3 — XBRL Taxonomy Extension Schema 101.CAL3 — XBRL Taxonomy Extension Calculation Linkbase 101.DEF3 — XBRL Taxonomy Extension Definition Linkbase 101.LAB3 — XBRL Taxonomy Extension Labels Linkbase 101.PRE3 — XBRL Taxonomy Extension Presentation Linkbase 184
Table of ContentsSCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT—Corporation
Schedule I – Condensed Financial Information of Registrant
CMS Energy – Parent Company (Loss) 2012 2011 2010 $ (8 ) $ (9 ) $ (6 ) – 6 – (8 ) (3 ) (6 ) (8 ) (3 ) (6 ) 477 510 464 1 1 1 (5 ) (5 ) (8 ) 473 506 457 140 143 147 5 6 4 145 149 151 320 354 300 (62 ) (61 ) (50 ) 382 415 350 – – (10 ) 382 415 340 – – 8 – – 8 $ 382 $ 415 $ ��324 2009 2008 2007 In Millions Operating Expenses Depreciation and amortization $ — $ (3 ) $ (3 ) Gain on asset sales, net — — 81 Other operating expense (10 ) (5 ) (10 ) (10 ) (8 ) 68 Operating Income (Loss) (10 ) (8 ) 68 Other Income (Expense) Equity earnings (losses) of subsidiaries 310 433 (142 ) Interest income — 1 3 Other income (expense) 12 (4 ) (24 ) 322 430 (163 ) Interest Charges Interest on long-term debt 124 127 153 Interest on preferred securities 8 14 14 Intercompany interest expense and other 8 48 70 140 189 237 Income (Loss) Before Income Taxes 172 233 (332 ) Income Tax Benefit (57 ) (62 ) (140 ) Income (Loss) From Continuing Operations 229 295 (192 ) Loss From Discontinued Operations — — (30 ) Net Income (Loss) 229 295 (222 ) Preferred Dividends 11 11 11 Redemption Premium on Preferred Stock — — 1 Net Income (Loss) Available to Common Stockholders $ 218 $ 284 $ (234 ) condensed notes are an integral part of these statementsstatements.185
Table of ContentsSCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT—Corporation
Schedule I – Condensed Financial Information of Registrant
CMS Energy – Parent Company 2012 2011 2010 $ 382 $ 415 $ 340 (477 ) (510 ) (464 ) 401 474 358 2 (1 ) – – – (16 ) (30 ) (71 ) 117 278 307 335 (151 ) (125 ) (250 ) (151 ) (125 ) (250 ) 575 375 800 30 29 8 (463 ) (376 ) (396 ) (252 ) (211 ) (154 ) – – (8 ) – – (239 ) (4 ) (6 ) (11 ) (11 ) 7 (85 ) (125 ) (182 ) (85 ) 2 – – – – – $ 2 $ – $ – 2009 2008 2007 In Millions Cash Flows From Operating Activities Net income (loss) $ 229 $ 295 $ (222 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Equity (earnings) losses of subsidiaries (310 ) (433 ) 142 Dividends received from subsidiaries 340 1,247 251 Depreciation and amortization — 3 3 Gain on sale of assets — — (81 ) Decrease (increase) in accounts receivable (2 ) — 11 Increase (decrease) in accounts payable 16 (2 ) (3 ) Decrease in legal settlement liability — — (125 ) Change in other assets and liabilities 7 (55 ) (51 ) Net cash provided by (used in) operating activities 730 1,055 (75 ) Cash Flows From Investing Activities Investment in subsidiaries (100 ) (22 ) (660 ) Changes in notes receivable, net — — 42 Net cash used in investing activities (100 ) (22 ) (618 ) Cash Flows From Financing Activities Proceeds from bank loans and notes 718 665 400 Proceeds from issuance of common stock 9 9 15 Retirement of bank loans and notes (788 ) (570 ) (958 ) Payment of common stock dividends (114 ) (82 ) (45 ) Payment of preferred stock dividends (11 ) (11 ) (11 ) Redemption of preferred stock (4 ) (1 ) (1 ) Debt issuance costs and financing fees (5 ) — (1 ) Changes in notes payable, net (15 ) (1,043 ) 1,294 Net cash provided by (used in) financing activities (180 ) (1,033 ) 693 Net Change in Cash and Temporary Cash Investments $ — $ — $ — Cash and Temporary Cash Investments, Beginning of Period $ — $ — $ — Cash and Temporary Cash Investments, End of Period $ — $ — $ — condensed notes are an integral part of these statementsstatements.186
Table of ContentsSCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT—Corporation
Schedule I – Condensed Financial Information of Registrant
CMS Energy – Parent Company 2012 2011 $ 2 $ – 1 1 4 6 7 16 3 3 17 26 16 16 16 16 – – 392 367 5,312 5,096 24 23 26 28 5,754 5,514 $ 5,771 $ 5,540 2009 2008 In Millions Current Assets Cash and temporary cash investments $ — $ — Notes and accrued interest receivable 1 1 Accrued taxes receivable — 41 Accounts receivable, including intercompany and related parties 6 4 Deferred income taxes 7 5 14 51 Property, Plant and Equipment, at cost 16 16 Less accumulated depreciation (15 ) (15 ) 1 1 Non-current Assets Deferred income taxes 371 340 Investment in Subsidiaries 4,591 4,913 Other investment — SERP 17 16 Other 46 40 5,025 5,309 $ 5,040 $ 5,361
CMS Energy Corporation
Schedule I – Condensed Financial Information of Registrant
CMS Energy – Parent Company
Condensed Balance Sheets 2012 2011 $ 172 $ 398 152 163 30 28 5 5 359 594 2,205 1,875 – 34 (13) (17) 24 24 2 2 2,218 1,918 3,194 3,028 $ 5,771 $ 5,540 condensed notes are an integral part of these statementsstatements.187
Table of ContentsSCHEDULESchedule I —– Condensed Financial Information of Registrant
CMS Energy – Parent Company
NOTES TO THE CONDENSED FINANCIAL INFORMATIONSTATEMENTSREGISTRANTENERGY — PARENT COMPANYCondensed Balance SheetsDecember 31 2009 2008Millions 2009 2008 In Millions Current Liabilities Current portion of long-term debt $ 207 $ — Accounts and notes payable, including intercompany and related parties 258 615 Accrued interest, including intercompany 24 35 Accrued taxes 13 — Other 5 11 507 661 Non-Current Liabilities Postretirement benefits 22 21 Capitalization Long-term debt Senior Notes 1,673 1,808 Related Party 34 178 Unamortized Discount (37 ) (26 ) Common stockholders’ equity 2,602 2,476 Nonredeemable preferred stock 239 243 4,511 4,679 $ 5,040 $ 5,361 The accompanying condensedaccordance with Rule 12-04 of Regulation S-X, these parent-only financial statements do not include all of the information and notes are an integral part ofrequired by GAAP for annual financial statements, and therefore these parent-only financial statements188(This page intentionally left blank)189ENERGY CORPORATIONSCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANTCMS Energy — Parent Company1: Guarantyguarantymaximum potential obligation of $165 million on behalf of some of its wholly owned subsidiary,subsidiaries. CMS ERM, to support itsEnergy's maximum potential obligation consists primarily of payment obligations to a third partyparties under certain commodity purchase and swap agreements at CMS ERM and to the DOE for non-payment by Consumers in relation to the DOE settlement. The expiry dates of these guarantees vary, depending upon contractual provisions or swap agreements. CMS Energy’s maximum potential obligationupon the statute of limitations under the guaranty is $5 million, plus expenses.relevant governing law.190
Table of ContentsSCHEDULESchedule II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES– Valuation and Qualifying Accounts and Reserves2009, 2008,2012, 2011, and 20072010 Balance at Charged Charged/Accrued Balance Beginning to to Other at End of Period Expense Accounts Deductions of Period (In Millions) Accumulated provision for uncollectible accounts: 2009 $ 26 $ 54 $ — $ 57 $ 23 2008 $ 21 $ 51 $ — $ 46 $ 26 2007 $ 25 $ 37 $ 7 $ 34 $ 21 Deferred tax valuation allowance: 2009 $ 32 $ — $ 2 $ — $ 34 2008 $ 32 $ — $ 7 $ 7 $ 32 2007 $ 72 $ — $ 81 $ 121 $ 32 Allowance for notes receivable, including related parties: 2009 $ 34 $ — $ 2 $ 30 $ 6 2008 $ 33 $ — $ 1 $ — $ 34 2007 $ 101 $ — $ 1 $ 69 $ 33 Balance at
Beginning
of Period Charged to
Expense Charged to
Other
Accounts Deductions Balance
at End
of Period $ 35 $ 53 $ – $ 56 $ 32 25 70 – 60 35 23 53 – 51 25 $ 20 $ – $ (15 ) $ 2 $ 3 19 1 – – 20 34 1 (15 ) 1 19 $ 5 $ 4 $ – $ 4 $ 5 5 4 – 4 5 6 4 – 5 5 SCHEDULEConsumers Energy Company
Schedule II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES– Valuation and Qualifying Accounts and Reserves2009, 2008,2012, 2011, and 20072010 Balance at
Beginning
of Period Charged to
Expense Charged to
Other
Accounts Deductions Balance
at End
of Period $ 33 $ 53 $ – $ 56 $ 30 23 70 – 60 33 21 53 – 51 23 $ 1 $ – $ – $ – $ 1 – 1 – – 1 – – – – – Balance at Charged Charged/Accrued Balance Beginning to to Other at End of Period Expense Accounts Deductions of Period (In Millions) Accumulated provision for uncollectible accounts: 2009 $ 24 $ 47 $ — $ 50 $ 21 2008 $ 16 $ 47 $ — $ 39 $ 24 2007 $ 14 $ 33 $ — $ 31 $ 16 Deferred tax valuation allowance: 2009 $ — $ — $ — $ — $ — 2008 $ — $ — $ — $ — $ — 2007 $ 15 $ — $ 8 $ 23 $ — 191
Table of Contents(This page intentionally left blank)192(This page intentionally left blank)193SIGNATURES1st21st day of March 2010.February 2013.CMS ENERGY CORPORATION By CMS ENERGY CORPORATION
By:
/s/ David W. JoosJohn RussellJohn G. Russell
President and Chief Executive OfficerDavid W. JoosPresident and Chief Executive Officer1st21st day of March 2010.February 2013.SignatureTitle(i) Principal executive officer:
/s/ John RussellDavid W. JoosDavid W. JoosPresident and Chief Executive Officer
(ii)Principal financial officer:
/s/ Thomas J. Webb
Thomas J. WebbThomas J. WebbExecutive Vice President and Chief Financial Officer
(iii)Controller or principal accounting officer:
/s/ Glenn P. Barba
Glenn P. BarbaGlenn P. BarbaVice President, Controller, and Chief Accounting Officer
(iv) The Directors:
Merribel S. Ayres*
Jon E. Barfield*
Stephen E. Ewing*
Richard M. Gabrys*
William D. Harvey*
David W. Joos*
Philip R. Lochner, Jr.*
Michael T. Monahan*
John G. Russell*
Kenneth L. Way*
Laura H. Wright*
John B. Yasinsky* (iv)
* By:
A majority of the Directors:*Merribel S. AyresDirector*Jon E. BarfieldDirector*Stephen E. EwingDirector*Richard M. GabrysDirector*David W. JoosDirector*Philip R. Lochner, Jr.Director194SignatureTitle*Michael T. MonahanDirector*Joseph F. Paquette. Jr.Director*Percy A. PierreDirector*Kenneth L. WayDirector*Kenneth WhippleDirector*John B. YasinskyDirector*By
Thomas J. Webb, Attorney-in-FactThomas J. Webb,Attorney-in-Fact
195
SIGNATURESSIGNATURES1st21st day of March 2010.February 2013.CONSUMERS ENERGY COMPANY By CONSUMERS ENERGY COMPANY
By:
/s/ David W. JoosJohn RussellJohn G. Russell
President and Chief Executive OfficerDavid W. JoosChief Executive Officer1st21st day of March 2010.February 2013.SignatureTitle(i) Principal executive officer:
/s/ John Russell
John G. Russell
President and Chief Executive Officer
/s/ David W. JoosDavid W. JoosChief Executive Officer(ii) Principal financial officer:
/s/ Thomas J. Webb
Thomas J. WebbThomas J. WebbExecutive Vice President and Chief Financial Officer
(iii)Controller or principal accounting officer:
/s/ Glenn P. Barba
Glenn P. Barba
Vice President, Controller, and Chief Accounting Officer
(iv) The Directors:Merribel S. Ayres*
Jon E. Barfield*
Stephen E. Ewing*
Richard M. Gabrys*
William D. Harvey*
David W. Joos*
Philip R. Lochner, Jr.*
Michael T. Monahan*
John G. Russell*
Kenneth L. Way*
Laura H. Wright*
John B. Yasinsky*
* By:
/s/ Glenn P. BarbaThomas J. WebbGlenn P. BarbaVice President, Controllerand Chief Accounting Officer(iv)A majority of the Directors:*Merribel S. AyresDirector*Jon E. BarfieldDirector*Stephen E. EwingDirector��*Richard M. GabrysDirector*David W. JoosDirector*Philip R. Lochner, Jr.Director*Michael T. MonahanDirector196SignatureTitle*Joseph F. Paquette. Jr.Director*Percy A. PierreDirector*Kenneth L. WayDirector*Kenneth WhippleDirector*John B. YasinskyDirector*By/s/ Thomas J. Webb, Attorney-in-FactThomas J. Webb,Attorney-in-Fact
197198
Table of ContentsEXHIBITS200ENERGY’SENERGY'S AND CONSUMERS’CONSUMERS' EXHIBIT INDEX(10)(pp)10.81 — Amendment No. 18 to the Receivables PurchaseForm of Officer Separation Agreement dated as of February 12, 2010January 2013(10)(rr)10.341 — Amendment No. 3 to the Receivables SaleForm of Change in Control Agreement dated as of September 3, 2009January 2013(10)(ss)—Amendment No. 4 to the Receivables Sale Agreement dated as of February 12, 2010(12)(a)12.1 — Statement regarding computation of CMS Energy’sEnergy's Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends(12)(b)12.2 — Statement regarding computation of Consumers’Consumers' Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends(21)21.1 — Subsidiaries of CMS Energy and Consumers (23)(a)23.1 — Consent of PricewaterhouseCoopers LLP for CMS Energy (23)(b)23.2 — Consent of PricewaterhouseCoopers LLP for Consumers (24)(a)24.1 — Power of Attorney for CMS Energy (24)(b)24.2 — Power of Attorney for Consumers (31)(a)31.1 — CMS Energy’sEnergy's certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(31)(b)31.2 — CMS Energy’sEnergy's certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(31)(c)31.3 — Consumers’Consumers' certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(31)(d)31.4 — Consumers’Consumers' certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(32)(a)32.1 — CMS Energy’sEnergy's certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(32)(b)32.2 — Consumers’Consumers' certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INS2 — XBRL Instance Document 101.SCH2 — XBRL Taxonomy Extension Schema 101.CAL2 — XBRL Taxonomy Extension Calculation Linkbase 101.DEF2 — XBRL Taxonomy Extension Definition Linkbase 101.LAB2 — XBRL Taxonomy Extension Labels Linkbase 101.PRE2 — XBRL Taxonomy Extension Presentation Linkbase 201