UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DCD.C. 20549
FORM 10-Q
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þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20092010
OR
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o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Commission | | Registrant; State of Incorporation; | | IRS Employer |
File Number | | Address; and Telephone Number | | Identification No. |
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1-9513 | | CMS ENERGY CORPORATION | | 38-2726431 |
| | (A Michigan Corporation)
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| | One Energy Plaza, Jackson, Michigan 49201 | | |
| | (517) 788-0550 | | |
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1-5611 | | CONSUMERS ENERGY COMPANY | | 38-0442310 |
| | (A Michigan Corporation) | | |
| | One Energy Plaza, Jackson, Michigan 49201 | | |
| | (517) 788-0550 | | |
Indicate by check mark whether the 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 Corporation: Yesþ NooConsumers Energy Company: Yesþ Noo
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 of Regulation 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).
CMS Energy Corporation: Yesoþ NooConsumers Energy Company: Yesoþ Noo
Indicate by check mark whether the registrantRegistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
CMS Energy Corporation:
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Large accelerated filerþ | | Accelerated filero | | Non-acceleratedNon-Accelerated filero (Do not check if a smaller reporting company) | | Smaller reporting companyo |
Consumers Energy Company:
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Large accelerated filero | | Accelerated filero | | Non-acceleratedNon-Accelerated filerþ (Do not check if a smaller reporting company) | | Smaller reporting companyo |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
CMS Energy Corporation: Yeso NoþConsumers Energy Company: Yeso Noþ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock at July 29, 2009:16, 2010:
CMS Energy Corporation:
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CMS Energy Corporation:Common Stock, $0.01 par value | | | 230,179,070 |
Consumers Energy Company:
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CMS Energy Common Stock, $.01 par value | | | 228,916,926 | |
Consumers Energy Company:
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Consumers Energy Common Stock, $10 par value, privately held by CMS Energy Corporation | | | 84,108,789 | |
CMS Energy Corporation
Consumers Energy Company
Quarterly reportsReports on Form 10-Q to the
United States Securities and Exchange Commission
for the QuarterPeriod Ended
June 30, 2009
This combined Form 10-Q is separately filed by CMS Energy Corporation and Consumers Energy Company. Information in this combined Form 10-Q 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’s other subsidiaries (other than Consumers Energy Company) has any obligation in respect of Consumers Energy Company’s debt securities and holders of such securities should not consider the financial resources or results of operations of CMS Energy Corporation, CMS Enterprises Company nor any of CMS Energy Corporation’s subsidiaries (other than Consumers Energy Company and its own subsidiaries (in relevant circumstances)) in making a decision with respect to Consumers Energy Company’s 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.
This report should be read in its entirety. No one section of this report deals with all aspects of the subject matter of this report. This report should be read in conjunction with the consolidated financial statements and related notes and with Management’s Discussion and Analysis included in CMS Energy Corporation’s and Consumers Energy Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (each, the “2008 Form 10-K”).2010
TABLE OF CONTENTS
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PART I — FINANCIAL INFORMATION | | | | |
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Item 1. Financial Statements (unaudited) | | | | |
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TABLE OF CONTENTS
(Continued)
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GLOSSARY
Certain terms used in the text and financial statements are defined belowbelow.
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2008 Energy Legislation | | Comprehensive energy reform package enacted in October 2008 with the approval of Michigan Senate Bill 213 and Michigan House Bill 5524 |
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2009 Form 10-K | | Each of CMS Energy’s and Consumers’ Annual Report on Form 10-K for the year ended December 31, 2009 |
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ALJ | | Administrative Law Judge |
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AOC | | Administrative Order on Consent |
APB | | Accounting Principles Board |
ARBAOCL | | Accumulated Other Comprehensive Loss |
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ASU | | FASB Accounting Research BulletinStandards Update |
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Bay Harbor | | A residential/commercial real estate area located near Petoskey, Michigan. In 2002, CMS Energy sold its interest in Bay Harbor. |
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bcf | | Billion cubic feet of gas |
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Beeland | | Beeland Group LLC, a wholly owned subsidiary of CMS Land |
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Big Rock | | Big Rock Point nuclear power plant, formerly owned by Consumers |
Big Rock ISFSI | | Big Rock Independent Spent Fuel Storage Installation |
BreckenridgeCAIR | | Breckenridge Brewery of Colorado,The Clean Air Interstate Rule |
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Cantera Gas Company | | Cantera Gas Company LLC, a non-affiliated company |
CAIR | | Clean Air Interstate Rule |
CAMRCantera Natural Gas, Inc. | | Clean Air Mercury RuleCantera Natural Gas, Inc., a non-affiliated company that purchased CMS Field Services |
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CCB | | Coal combustion by-product |
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CEO | | Chief Executive Officer |
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CFO | | Chief Financial Officer |
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Chrysler | | Chrysler LLC, a non-affiliated company |
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CKD | | Cement kiln dust |
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Clean Air Act | | Federal Clean Air Act, as amended |
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Clean Water Act | | Federal Water Pollution Control Act |
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CMS Capital | | CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy |
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CMS Energy | | CMS Energy Corporation, the parent of Consumers and CMS Enterprises |
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CMS Energy Common Stock or common stock | | Common stock of CMS Energy, par value $.01$0.01 per share |
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CMS Energy Trust I | | A VIE and a wholly owned business trust formed for the sole purpose of issuing preferred securities and lending the proceeds to CMS Energy |
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CMS Enterprises | | CMS Enterprises Company, a wholly owned subsidiary of CMS Energy |
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CMS ERM | | CMS Energy Resource Management Company, formerly CMS MST, a wholly owned subsidiary of CMS Enterprises |
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CMS Field Services | | CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission |
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CMS Gas Transmission | | CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises |
CMS Generation | | CMS Generation Co., a former wholly owned subsidiary of Enterprises |
CMS Land | | CMS Land Company, a wholly owned subsidiary of CMS EnergyCapital |
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CMS MST | | CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM effective January 2004 |
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CMS Oil and Gas | | CMS Oil and Gas Company, formerly a former wholly owned subsidiary of CMS Enterprises |
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CMS Viron | | CMS Viron Corporation, a wholly owned subsidiary of CMS ERM |
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Consumers | | Consumers Energy Company, a wholly owned subsidiary of CMS Energy |
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Customer Choice Act | | Customer Choice and Electricity Reliability Act, a Michigan statute |
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Detroit Edison | | The Detroit Edison Company, a non-affiliated company |
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D.C. | | District of Columbia |
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DOE | | U.S. Department of Energy |
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DOJ | | U.S. Department of Justice |
Dow | | The Dow Chemical Company, a non-affiliated company |
DSSP | | Deferred Salary Savings Plan |
EITF | | Emerging Issues Task Force |
EITF Issue 07-5 | | EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” |
EITF Issue 08-5 | | EITF Issue No. 08-5, “Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement” |
EnerBank | | EnerBank USA, a wholly owned subsidiary of CMS Capital |
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Entergy | | Entergy Corporation, a non-affiliated company |
Enterprises | | CMS Enterprises Company, a wholly owned subsidiary of CMS Energy |
EPA | | U.S. Environmental Protection Agency |
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EPS | | Earnings per share |
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Exchange Act | | Securities Exchange Act of 1934, as amended |
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FASB | | Financial Accounting Standards Board |
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FDIC | | Federal Deposit Insurance Corporation |
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FERC | | The Federal Energy Regulatory Commission |
FIN 46(R) | | Revised FASB Interpretation No. 46, “Consolidation |
FLI Liquidating Trust | | Trust formed in Missouri bankruptcy court to accomplish the liquidation of Variable Interest Entities”Farmland Industries, Inc., a non-affiliated entity |
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FMB | | First Mortgage Bondsmortgage bond |
FMLP | | First Midland Limited Partnership, a partnership that holds a lessor interest in the MCV Facility |
FOV | | Finding of Violation |
FSP | | FASB Staff Position |
FSP APB 14-1 | | FASB Staff Position on APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” |
FSP EITF 03-6-1 | | FASB Staff Position on EITF Issue No. 03-6, “Participating Securities and the Two-class Method under FASB Statement No. 128” |
FSP FAS 107-1 and APB 28-1 | | FASB Staff Position on SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” and APB Opinion No. 28, “Interim Financial Reporting” |
FSP FAS 115-2 and FAS 124-2 | | FASB Staff Position on SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and SFAS No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations” |
FSP FAS 132(R)-1 | | FASB Staff Position on SFAS No. 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” |
FSP FAS 157-4 | | FASB Staff Position on SFAS No. 157, “Fair Value Measurements” |
GAAP | | U.S. Generally Accepted Accounting Principles |
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GCR | | Gas cost recovery |
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Genesee | | Genesee Power Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest |
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GM | | General Motors Corporation, a non-affiliated company |
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Grayling | | Grayling Generating Station Limited Partnership, a consolidated variable interest entityVIE in which CMS EnergyHYDRA-CO has a 50 percent interest |
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GWh | | Gigawatt hourGigawatt-hour (a unit of energy equal to one million kilowatt hours)kilowatt-hours) |
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HYDRA-CO | | HYDRA-CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises |
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IPP | | Independent power producer or independent power production |
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IRS | | Internal Revenue Service |
Jorf Lasfar | | A 1,356 MW coal-fueled power plant in Morocco, in which CMS Generation formerly owned a 50 percent interest |
ISFSI | | Independent spent fuel storage installation |
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ITC | | Income tax credit |
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kWh | | Kilowatt-hour (a unit of energy equal to one thousand watt hours)watt-hours) |
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LIBOR | | The London Interbank Offered Rate |
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Ludington | | Ludington pumped storage plant, jointly owned by Consumers and Detroit Edison |
MACT | | Maximum Achievable Control Technology; a stringent emission limitation for hazardous pollutants |
Marathon | | Marathon Oil Company, Marathon E.G. Holding, Marathon E.G. Alba, Marathon E.G. LPG, Marathon Production LTD, and Alba Associates, LLC, each a non-affiliated company |
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MBT | | Michigan Business Tax |
mcf | | Thousand cubic feet of gas |
MCV Facility | | A natural gas-fueled, combined-cycle cogeneration facility operated by the MCV Partnership |
MCV Partnership | | Midland Cogeneration Venture Limited Partnership |
MD&A | | Management’s Discussion and Analysis |
MDEQ | | |
MDL | | A pending multi-district litigation case in Nevada |
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MDNRE | | Michigan Department of Natural Resources and Environment, which, effective January 17, 2010, is the successor to the Michigan Department of Environmental Quality and the Michigan Department of Natural Resources |
METC | | Michigan Electric Transmission Company, LLC, a non-affiliated company owned by ITC Holdings Corporation and a member of MISO |
MGP | | Manufactured gas plant |
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MISO | | The Midwest Independent Transmission System Operator, Inc. |
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MPSC | | Michigan Public Service Commission |
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MW | | Megawatt (a unit of power equal to one million watts) |
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MWh | | Megawatt hourMegawatt-hour (a unit of energy equal to one million watt hours)watt-hours) |
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NAV | | Net Asset Valuesasset value |
NERC | | North American Electric Reliability Corporation, |
NOMECO | | CMS NOMECO Oil & Gas Co., a non-affiliated companyformer wholly owned subsidiary of CMS Enterprises |
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NOV | | Notice of Violation |
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NREPA | | Part 201 of Michigan Natural Resources and Environmental Protection Act, a statute that covers environmental activities including remediation |
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NSR | | New Source Review, a construction-permitting program under the Clean Air Act |
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NYMEX | | The New York Mercantile Exchange |
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OPEB | | Postretirement benefit plans other than pensions |
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Palisades | | Palisades nuclear power plant, formerly owned by Consumers |
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Panhandle | | Panhandle Eastern Pipe Line Company, including its wholly owned subsidiaries Trunkline, Pan Gas Storage, Panhandle Storage, and Panhandle Holdings, a former wholly owned subsidiary of CMS Gas Transmission |
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PCB | | Polychlorinated biphenyl |
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Pension Plan | | The trusteed,Trusteed, non-contributory, defined benefit pension plan of Panhandle, Consumers, and CMS Energy |
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PFD | | Proposal for decision |
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PPA | | Power purchase agreement |
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PSCR | | Power supply cost recovery |
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PSD | | Prevention of Significant Deterioration |
Quicksilver | | Quicksilver Resources, Inc., a non-affiliated company |
RFCQSPE | | ReliabilityFirst Corporation, a non-affiliated companyQualifying special-purpose entity |
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REC | | Renewable energy credit established under the 2008 Energy Legislation |
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RMRR | | Routine maintenance, repair, and replacement |
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ROA | | Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to the Customer Choice Act |
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SEC | | U.S. Securities and Exchange Commission |
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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 |
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SERP | | Supplemental Executive Retirement Plan |
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SFAS | | Statement of Financial Accounting Standards |
SFAS No. 158 | | SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statement No. 87, 88, 106, and 132 (R)” |
SFAS No. 160 | | SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” |
SFAS No. 161 | | SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” |
Stranded Costs | | Costs incurred by utilities in order to serve their customers in a regulated monopoly environment, which may not be recoverable in a competitive environment because of customers leaving their systems and ceasing to pay for their costs. These costs could include owned and purchased generation and regulatory assets. |
Superfund | | Comprehensive Environmental Response, Compensation and Liability Act |
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Supplemental Environmental Programs | | Environmentally beneficial projects which a party agrees to undertake as part of the settlement of an enforcement action, but which the party is not otherwise legally required to perform |
TAQA | | Abu Dhabi National Energy Company, a subsidiary of Abu Dhabi Water and Electricity Authority, a non-affiliated company |
TGNT.E.S. Filer City | | T.E.S. Filer City Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest |
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Title V | | A natural gas transportationfederal program under the Clean Air Act designed to standardize air quality permits and pipeline business located in Argentina, in which CMS Gas Transmission formerly owned a 23.54 percent interestthe permitting process for major sources of emissions across the U.S. |
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Trunkline | | CMS Trunkline Gas Company, LLC, formerly a former wholly owned subsidiary of CMS Panhandle Holdings,Holding, LLC |
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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 |
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TSU | | Texas Southern University, a non-affiliated entity |
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Union | | Utility Workers Union of America, AFL-CIO |
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U.S. | | United States |
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VIE | | Variable interest entity |
Wolverine | | Wolverine Power Supply Cooperative, Inc., a non-affiliated company |
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CMS Energy Corporation
Consumers Energy CompanyFILING FORMAT
MANAGEMENT’S DISCUSSION AND ANALYSIS
This MD&Acombined Form 10-Q is a combined report ofseparately filed by CMS Energy and Consumers. It has been preparedInformation in accordance with the instructions tothis combined Form 10-Q relating to each individual registrant is filed by such registrant on its own behalf. Consumers makes no representation regarding information relating to any other companies affiliated with CMS Energy other than its own subsidiaries. None of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers) has any obligation in respect of Consumers’ securities and Item 303holders of Regulation S-K. such securities should not consider the financial resources or results of operations of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers and its own subsidiaries (in relevant circumstances)) in making a decision with respect to Consumers’ debt securities. Similarly, none of Consumers nor any other subsidiary of CMS Energy has any obligation in respect of debt securities of CMS Energy.
This MD&Areport should be read in its entirety. No one section of this report deals with all aspects of the subject matter of this report. This report should be read in conjunction with the consolidated financial statements and related notes and with MD&A containedincluded in CMS Energy’s and Consumers’ 2008the 2009 Form 10-K.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This Form 10-Q and other written and oral statements that CMS Energy and Consumers make contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The use of “might,” “may,” “could,” “should,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “predicts,” “assumes,” and other similar words is intended to identify forward-looking statements that involve risk and uncertainty. This discussion of potential risks and uncertainties is designed to highlight important factors that may impact CMS Energy’s and Consumers’ businessbusinesses 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’s and Consumers’ actual results to differ materially from the results anticipated in these statements. These factors include CMS Energy’s and Consumers’ inability to predict or control: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; |
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| • | | the impact of the continued downturntroubled economy, particularly in the economyMichigan, and the sharp downturn and extremerisk of future volatility in the financial and credit markets on CMS Energy, Consumers, or any of their affiliates, including their: |
| §• | | revenues; |
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| §• | | capital expenditure programs and related earnings growth; |
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| §• | | ability to collect accounts receivable from customers; |
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| §• | | cost of capital and availability of capital; and |
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| §• | | 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, particularlyincluding third parties in bankruptcy, to meet their obligations to CMS Energy and Consumers;
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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’s and Consumers’ businesses, including the impact of any future regulations or laws regarding:
| • | | population decline in the geographic areas where CMS Energy and Consumers conduct business; |
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| • | | 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’s and Consumers’ businesses or financial results, including the impact of any future regulations or laws regarding: |
| §• | | carbon dioxide and other greenhouse gas emissions, including potential future legislation to establish a cap and trade system; |
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| §• | | mercury emissions;criteria pollutants, such as nitrogen oxide, sulfur dioxide, and particulate, and hazardous air pollutants; |
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| §• | | coal ash;CCBs; |
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| §• | | PCBs; |
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| • | | cooling water discharge from power plants or other industrial equipment; |
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| • | | limitations on the use or construction of coal-fueled electric power plants; and |
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| §• | | renewable portfolio standards and energy efficiency mandates; |
national, regional, and local economic, competitive, and regulatory policies, conditions, and developments;
adverse regulatory or legal interpretations or decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with these interpretations or decisions, including but not limited to those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations;
potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant matters affecting Consumers that are presently or potentially before the MPSC, including:
| § | | sufficient and timely recovery of: |
| § | | Clean Air Act capital and operating costs and other environmental and safety-related expenditures; |
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| §• | | any other potential legislative changes, including changes to the ten-percent ROA limit; |
| • | | national, regional, and local economic, competitive, and regulatory policies, conditions, and developments; |
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| • | | adverse regulatory or legal interpretations or decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with these interpretations or decisions, including but not limited to those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations; |
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| • | | potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant matters affecting Consumers that are presently or potentially before the MPSC, including: |
sufficient and timely recovery of:
| • | | environmental and safety-related expenditures for coal-fueled plants and other utility properties; |
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| • | | power supply and natural gas supply costs; |
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| §• | | operating and maintenance expenses; |
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| §• | | additional utility rate-based investments; |
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| §• | | increased MISO energycosts associated with the proposed retirement and transmission costs; decommissioning of facilities; |
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| §• | | development costs of the proposed coal-fueled plant; |
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| • | | MISO energy and transmission costs; and |
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| • | | costs associated with energy efficiency investments and state or federally mandated renewable resource standards; and |
| • | | actions of regulators with respect to expenditures subject to tracking mechanisms; |
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| § | | Big Rock decommissioning funding shortfalls; |
| §• | | actions of regulators to prevent or curtail shutoffs for non-paying customers; |
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| §• | | actions of regulators with respect to the implementation of the “pilot” decoupling mechanism and an uncollectible expense tracking mechanism described in the November 2009 MPSC electric rate case order and the “pilot” decoupling mechanism described in the May 2010 MPSC gas rate case order; |
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| • | | regulatory orders preventing or curtailing rights to self-implement rate requests; |
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| §• | | regulatory orders potentially requiring a refund of previously self-implemented rates; |
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| § | | authorization of a new coal-fueled plant; and |
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| §• | | implementation of new energy legislation;legislation or revisions of existing regulations; |
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| • | | potentially adverse regulatory treatment resulting from pressure on regulators to oppose annual rate increases or to lessen rate impacts upon customers, particularly in difficult economic times; |
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| • | | loss of customer load to alternative energy suppliers; |
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| • | | potentially adverse regulatory treatment concerning significant matters affecting CMS Energy or Consumers that are presently before the MDNRE, including Bay Harbor; |
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| • | | the ability of Consumers to recover its regulatory assets in full and in a timely manner; |
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| • | | the effectiveness of the electric and gas decoupling mechanisms in moderating the impact of sales variability on net revenues; |
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| • | | the ability of Consumers to recover nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule, and the outcome of pending litigation with the DOE; |
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| • | | the impact of expanded enforcement powers and investigation activities at the FERC; |
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| • | | federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of CMS Energy’s and Consumers’ market-based sales authorizations in wholesale power markets without price restrictions; |
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| • | | effects of weather conditions, such as unusually cool weather during the summer orunseasonably warm weather during the winter, on sales; |
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| • | | the market perception of the energy industry or of CMS Energy, Consumers, or any of their affiliates; |
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| • | | the credit ratings of CMS Energy or Consumers; |
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| • | | the impact of credit markets, economic conditions, and any new banking regulations on EnerBank; |
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| • | | potential effects of financial reform legislation on regulation of energy derivatives and financial institutions such as EnerBank; |
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| • | | disruptions in the normal commercial insurance and surety bond markets that may increase costs or reduce traditional insurance coverage, particularly terrorism and sabotage insurance, performance bonds, and tax-exempt debt insurance, and stability of insurance providers;providers, and the ability of Consumers to recover the costs of any such insurance from customers; |
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| • | | energy markets, including availability of capacity and the timing and extent of changes in commodity prices for oil, coal, natural gas, natural gas liquids, electricity, and certain related products due to lower or higher demand, shortages, transportation problems, or other developments, and their impact on CMS Energy’s and Consumers’ cash flows and working capital; |
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| • | | the effectiveness of CMS Energy’s and Consumers’ strategies to hedge risk related to future prices of electricity, natural gas, and other energy-related commodities; |
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| • | | changes in construction material prices and the availability of qualified construction personnel to implement Consumers’ construction program; |
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| • | | factors affecting development of generation projects and distribution infrastructure replacement and expansion projects, including those related to project site identification, construction, permitting, and government approvals; |
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| • | | costs and availability of personnel, equipment, and materials for operating and maintaining existing facilities; |
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| • | | factors affecting operations, such as unusual weather conditions, catastrophic weather-related damage, unscheduled generation outages, maintenance or repairs, environmental incidents, or electric transmission or gas pipeline system constraints; |
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| • | | potential disruption or interruption of facilities or operations due to accidents, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events; |
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| • | | technological developments in energy production, delivery, usage, and storage; |
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| • | | achievement of capital expenditure and operating expense goals;goals, including the 2010 capital expenditures forecast; |
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| • | | the impact of CMS Energy’s and Consumers’ integrated business software system on their operations, including utility customer billing and collections; |
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| • | | potential effects of new federal health care legislation on current or future health care costs; |
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| • | | the effectiveness of CMS Energy’s and Consumers’ risk management policies and procedures; |
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| • | | CMS Energy’s and Consumers’ ability to achieve generation planning goals and the occurrence and duration of planned or unplanned generation outages; |
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| • | | adverse outcomes regarding tax positions; |
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| • | | adverse consequences resulting from any past or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including the F.T. Barr matter and claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions; |
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| • | | the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or claims; |
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| • | | earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts, such as electricity sales agreements and interest rate and foreign currency contracts; |
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| • | | changes in financial or regulatory accounting principles or policies, including possible changes to rules involving fair value accounting; |
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| • | | new or revised interpretations of GAAP by regulators, which could affect how accounting principles are applied, and could impact future periods’ financial statements or previously filed financial statements; |
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10
| • | | a possible future requirement to comply with International Financial Reporting Standards, which differ from GAAP in various ways, including the present lack of special accounting treatment for regulated activities; and |
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| • | | other business or investment matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other publicly issued documents. |
For additional details regarding these and other uncertainties, see the “Outlook” section included in this MD&A, Note 3, Contingencies and Commitments, Note 4, Utility Rate Matters, Note 10, Income Taxes, and Part II, Item 1A. Risk Factors.
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CMS Energy Corporation
Consumers Energy Company
MANAGEMENT’S DISCUSSION AND ANALYSIS
This MD&A is a combined report of CMS Energy and Consumers. It has been prepared in accordance with the instructions to Form 10-Q and Item 303 of Regulation S-K. This MD&A should be read in conjunction with MD&A contained in the 2009 Form 10-K.
EXECUTIVE OVERVIEW
CMS Energy is an energy company operating primarily in Michigan andMichigan. It is the parent holding company of several subsidiaries, including Consumers, and Enterprises. Consumers is a combinationan electric and gas utility, company serving Michigan’s Lower Peninsula.and CMS Enterprises, primarily a domestic IPP. Consumers’ electric utility operations include the generation, purchase, distribution, and sale of electricity.electricity and Consumers’ gas utility operations include the purchase, transportation,transmission, storage, distribution, and sale of natural gas. Consumers’ customer base includesconsists of a mix of residential, commercial, and diversified industrial customers. CMS Enterprises, through its subsidiaries and equity investments, and subsidiaries, is primarily engaged in independentowns power production.generation facilities.
CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in three business segments: electric utility; gas utility; and enterprises, its non-utility investments and operations. Consumers operates principally in two business segments: electric utility and gas utility.
CMS Energy and Consumers earn revenue and generate cash from operations by providing electric and natural gas utility services, electric powerdistribution and generation, gas distribution, transmission, storage, and storage,distribution, and other energy-related services. Their businesses are affected primarily by:
| • | | weather, especially during the heatingregulation and cooling seasons;regulatory matters; |
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| • | | economic conditions; |
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| • | | regulation and regulatory matters;weather; |
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| • | | energy commodity prices; |
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| • | | interest rates; and |
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| • | | CMS Energy’s and Consumers’ debtsecurities credit ratings. |
During the past several years, CMS Energy’s business strategy has emphasized improving its consolidated balance sheet and maintaining focus on its core strength, which is Consumers’ utility operations and service.
Consumers’ forecast calls for capital investments in excess of $6about $7 billion from 20092010 through 2013,2014, with a key aspect of its strategy being the balanced energy initiative. The balanced energy initiative is a comprehensive energy resource plan to meet Consumers’ projected short-term and long-term electric power requirements with energy efficiency,efficiency; demand management,management; expanded use of renewable energy,energy; development of new power plants, andplants; pursuit of additional power purchase agreementsPPAs to complement existing generating sources.sources; potential retirement or mothballing of older generating units; and continued operation of others.
In May 2010, Consumers announced plans to defer the development of its proposed 830 MW coal-fueled plant at its Karn/Weadock generating complex. This decision reflects reduced customer demand for electricity due to the recession in Michigan, forecasted lower natural gas prices due to recent developments in shale gas recovery technology, and projected surplus generating capacity in the MISO market. Consumers has not set a timetable for a future decision about the project.
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Consumers’ planned capital investments continue to include renewable energy projects. Consumers expects to spend $650 million on renewable energy investments through 2014. 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. In compliance with this legislation, Consumers filed a renewable energy plan with the MPSC in February 2009 outlining its 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. Consumers’ plan proposed that half of the new renewable capacity would 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.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. Consumers’ filings include a request for recovery of the cost of the renewable energy and energy optimization measures. In May 2009, the MPSC approved the energy optimization plan and, with minor exceptions, the renewable energy plan.
Furthermore,Consumers also intends to make a significant capital investment in April 2009,its smart grid program, which will provide enhanced controls over and information about energy usage, as well as timely notification of service interruptions. Consumers plans to follow a phased implementation approach and to conduct an operational pilot of the smart grid technology in 2011.
Regulatory matters are a key aspect of CMS Energy’s and Consumers’ businesses, particularly Consumers’ rate cases and regulatory proceedings before the MPSC. In February 2010, the MPSC issued an order requiring that Consumers refund to customers $86 million collected during a rate freeze from 2001 to 2003; the MPSC determined that these funds should have been placed in a decommissioning trust fund. Consumers has filed tariff sheets indicating that it plannedan appeal of this order. In May 2010, the MPSC issued a gas rate order authorizing Consumers to self-implementincrease its gas rates by $66 million based on an authorized return on equity of 10.55 percent. The order also adopts a revenue decoupling mechanism. Further, in July 2010, Consumers self-implemented an electric rate increase in the annual amount of $179 million beginning in May 2009. The MPSC issued an
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order in May 2009 requiring that, if Consumers self-implemented the $179 million electric rate increase, it must simultaneously refund to customers $36 million of excess proceeds from the April 2007 sale of Palisades. Accordingly, Consumers self-implemented an annual electric rate increase of $179$150 million, subject to refund with interest, and also implemented a one-time refund of $36 million.interest. In its July 2010 order allowing Consumers anticipates a final order into self-implement this rate filing in November 2009. Additionally, in May 2009, Consumers filed an application withincrease, the MPSC seeking an annualexpressed concern about utilities repeatedly self-implementing rate increases over short time periods, and before the return of previous overcollections of self-implemented rate increases.
The Customer Choice Act allows Consumers’ electric customers to buy electric generation service from Consumers or from alternative electric suppliers. The 2008 Energy Legislation limits alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. In May 2010, a bill was introduced to the Michigan Senate and House of Representatives that would increase in gas revenue of $114 million based on an 11the percentage from ten percent authorized return on equity. These rate filings include requests for increases in rates to cover various costs, including capital additions25 percent. At June 30, 2010, electric deliveries under the balanced energy initiative.ROA program were at the ten percent limit.
Another area of importance for CMS Energy and Consumers filed an air permit application with the MDEQ in October 2007 for its proposed new 830 MW coal-fueled plant. Consumers expects the MDEQ to act on the application by the end of the year. Consumers prepared and filed with the MDEQ and the MPSC a needs-and-alternatives analysis that supported Consumers’ current balanced energy initiative and the construction of its proposed power plant.
is environmental regulation. There is uncertainty associated with federal legislative and regulatory proposals related to the regulation of carbon dioxide emissions, particularly associated with coal-fueledfossil-fueled generation. Federal legislation is being considered to establish a cap and trade system, or alternatively, to tax carbon dioxide emissions. In addition, in AprilDecember 2009, the EPA issued a proposedan endangerment finding that greenhouse gases, including carbon dioxide, contribute to air pollution that may endanger the public health and welfare, thus setting the stage for regulation of carbon dioxide emissions under the Clean Air Act. The EPA also issued an Advance Notice of Proposed Rulemaking in April 2010, indicating that it is considering a variety of regulatory actions with respect to PCBs. In June 2010, the EPA proposed a range of alternatives for regulating CCBs, such as coal ash, under the Resource Conservation and Recovery Act. In July 2010, the EPA released a proposed rule that would replace CAIR. CMS Energy and Consumers are monitoring these developments for potential effects on their plans and operations.
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Consumers is developing an advanced metering infrastructure system that will provide enhanced controls over and information about energy usage, as well as timely notification of service interruptions. Consumers is using a phased implementation approach that will allow it to analyze, test, and pilot the new technology prior to widespread investment and deployment. Consumers will also make certain modifications to its software to enable the new system.
In the future, CMS Energy will continue to focus its strategy on:
investing in Consumers’ utility system;
| • | | investing in Consumers’ utility system; |
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| • | | growing earnings and operating cash flow while controlling operating and fuel costs; and |
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| • | | maintaining principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance. |
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.
AsIn executing this strategy, CMS Energy and Consumers execute this strategy, they will need to overcome a Michigan economy that has been impacted adversely by the continued downturn and uncertainty in Michigan’s automotive industry marked by the bankruptcies of GM and Chrysler.Chrysler, as well as by high unemployment rates. The financial market crisis, the effects of which became evident in a global economic downturn during the fourth quarter ofbeginning in 2008, continues to result in a negative economic outlook.outlook in the near term. A range of possible outcomes exists due to the uncertain financial market environment and ongoing government policy responses.progress of economic recovery in Consumers’ service territory. Pressure on regulators to limit rate increases can be expected to mount if Michigan’s economy remains sluggish. Consumers expects its annual 2009 weather-adjusted sales to decline by 3.5 percent forthat the electric utility and five percentgas “pilot” decoupling mechanisms and the uncollectible expense tracking mechanism for electric customers adopted in recent MPSC rate orders will mitigate partially the impacts of these economic conditions on the electric and gas utility and it projects slower growth in the longer term.utilities. While CMS Energy and Consumers believe that their sources of liquidity will be sufficient to meet their requirements, they will continue to monitor developments in the financial and credit markets and government policy responses to those developments for potential implications for CMS Energy’s and Consumers’ businesses and their future financial needs.
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RESULTS OF OPERATIONS
CMS ENERGY’S CONSOLIDATED RESULTS OF OPERATIONSEnergy’s Consolidated Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | |
In Millions (except for per share amounts) | In Millions (except for per share amounts) | | In Millions (except for per share amounts) | |
Three months ended June 30 | | 2009 | | 2008 | | Change | | | 2010 | | 2009 | | Change | |
| Net Income Available to Common Stockholders | | $ | 74 | | $ | 44 | | $ | 30 | | | $ | 80 | | $ | 75 | | $ | 5 | |
Basic Earnings Per Share | | $ | 0.33 | | $ | 0.20 | | $ | 0.13 | | | $ | 0.35 | | $ | 0.33 | | $ | 0.02 | |
Diluted Earnings Per Share | | $ | 0.32 | | $ | 0.18 | | $ | 0.14 | | | $ | 0.32 | | $ | 0.32 | | $ | — | |
| | | |
Electric Utility | | $ | 66 | | $ | 57 | | $ | 9 | | |
Gas Utility | | 5 | | 2 | | 3 | | |
Enterprises | | | (17 | ) | | 10 | | | (27 | ) | |
Corporate Interest and Other | | | (9 | ) | | | (24 | ) | | 15 | | |
Discontinued Operations | | 29 | | | (1 | ) | | 30 | | |
| |
Net Income Available to Common Stockholders | | $ | 74 | | $ | 44 | | $ | 30 | | |
| |
| | | | | | | | | | | | |
In Millions | |
Three months ended June 30 | | 2010 | | | 2009 | | | Change | |
|
Electric Utility | | $ | 86 | | | $ | 67 | | | $ | 19 | |
Gas Utility | | | 1 | | | | 5 | | | | (4 | ) |
Enterprises | | | 33 | | | | (13 | ) | | | 46 | |
Corporate Interest and Other | | | (24 | ) | | | (9 | ) | | | (15 | ) |
Discontinued Operations | | | (16 | ) | | | 25 | | | | (41 | ) |
|
Net Income Available to Common Stockholders | | $ | 80 | | | $ | 75 | | | $ | 5 | |
|
For the three months ended June 30, 2009,2010, net income available to common stockholders was $74$80 million, compared with $44$75 million for 2008. Combined net income for Consumers’ electric and gas utility segments increased, as the impact of MPSC rate orders, a self-implemented rate increase, and a favorable sales mix more than offset lower electric deliveries and increased operating expenses and interest expense. CMS Energy’s consolidated net income was also positively impacted by the expiration of an indemnity obligation related to a 2007 asset sale and a gain on the retirement of debt, which were partially offset by an increase in projected Bay Harbor remediation costs.
2009. Specific after-tax changes to net income available to common stockholders for the three months ended June 30, 20092010 versus 20082009 are:
| | | | | | | | |
| | | | | | After Tax, In Millions | |
|
| • | | | Increase in electric and gas revenues at Consumers due to MPSC rate orders and a self-implemented rate increase | | $ | 44 | |
| • | | | Increase from discontinued operations due primarily to a benefit from the expiration of an indemnity obligation | | | 30 | |
| • | | | Improvement in corporate interest and other due primarily to a gain on the retirement of debt | | | 15 | |
| • | | | Increase in electric and gas revenues at Consumers due to a favorable sales mix | | | 14 | |
| • | | | Increase in projected Bay Harbor remediation costs at Enterprises | | | (22 | ) |
| • | | | Decrease in electric and gas revenues at Consumers due to decreased deliveries, primarily reflecting unfavorable economic conditions | | | (21 | ) |
| • | | | Increase in other net expenses at Consumers, primarily reflecting higher pension and OPEB expenses, higher interest expense, and higher plant maintenance expense | | | (19 | ) |
| • | | | Absence of resource conservation savings received in 2008 related to the power purchase agreement with the MCV Partnership | | | (6 | ) |
| • | | | Increased maintenance expenses and lower revenues at certain Enterprises plants | | | (5 | ) |
|
Total change | | $ | 30 | |
|
| | | | | | | | |
2010 over/(under) 2009 |
| | | | | | (In Millions) |
|
• | | | insurance settlement related to a previously sold investment | | $ | 30 | |
• | | | absence of an increase in the provision for Bay Harbor environmental remediation costs recorded in 2009 | | | 22 | |
• | | | increase in electric and gas revenues at Consumers due to rate orders, including the impacts of the decoupling mechanisms | | | 18 | |
• | | | other net increases at Consumers due to lower service restoration costs, outage costs, and other operating expenses | | | 15 | |
• | | | increase in electric revenues due to weather | | | 11 | |
• | | | absence of a benefit recorded in 2009 related to the expiration of an indemnity obligation | | | (31 | ) |
• | | | absence of a gain on the retirement of debt recorded in 2009 | | | (18 | ) |
• | | | other net decreases, primarily from tax adjustments and impairments related to discontinued operations | | | (13 | ) |
• | | | decrease in gas revenue due to weather | | | (10 | ) |
• | | | decrease in electric and gas revenues due to unfavorable sales mix and economic conditions | | | (10 | ) |
• | | | other net decreases at Consumers, primarily higher depreciation expense and sales and use tax | | | (9 | ) |
|
Total change | | $ | 5 | |
|
1415
| | | | | | | | | | | | | | | | | | | | | | | | |
In Millions (except for per share amounts) | In Millions (except for per share amounts) | | In Millions (except for per share amounts) | |
Six months ended June 30 | | 2009 | | 2008 | | Change | | | 2010 | | 2009 | | Change | |
| Net Income Available to Common Stockholders | | $ | 143 | | $ | 146 | | $ | (3 | ) | | $ | 165 | | $ | 145 | | $ | 20 | |
| | |
Basic Earnings Per Share | | $ | 0.63 | | $ | 0.64 | | $ | (0.01 | ) | | $ | 0.72 | | $ | 0.64 | | $ | 0.08 | |
Diluted Earnings Per Share | | $ | 0.61 | | $ | 0.60 | | $ | 0.01 | | | $ | 0.67 | | $ | 0.62 | | $ | 0.05 | |
| | | |
Electric Utility | | $ | 104 | | $ | 124 | | $ | (20 | ) | |
Gas Utility | | 64 | | 64 | | — | | |
Enterprises | | | (17 | ) | | 8 | | | (25 | ) | |
Corporate Interest and Other | | | (37 | ) | | | (49 | ) | | 12 | | |
Discontinued Operations | | 29 | | | (1 | ) | | 30 | | |
| |
Net Income Available to Common Stockholders | | $ | 143 | | $ | 146 | | $ | (3 | ) | |
| |
| | | | | | | | | | | | |
In Millions | |
Six months ended June 30 | | 2010 | | | 2009 | | | Change | |
|
Electric Utility | | $ | 127 | | | $ | 106 | | | $ | 21 | |
Gas Utility | | | 67 | | | | 64 | | | | 3 | |
Enterprises | | | 42 | | | | (12 | ) | | | 54 | |
Corporate Interest and Other | | | (54 | ) | | | (37 | ) | | | (17 | ) |
Discontinued Operations | | | (17 | ) | | | 24 | | | | (41 | ) |
|
Net Income Available to Common Stockholders | | $ | 165 | | | $ | 145 | | | $ | 20 | |
|
For the six months ended June 30, 2009,2010, net income available to common stockholders was $143$165 million, compared with $146$145 million for 2008. Net income from Consumers’ electric utility segment decreased, reflecting increased seasonal variations associated with a new electric rate design structure, decreased deliveries, the absence of gains from the sale of sulfur dioxide allowances recognized in 2008, and an increase in operating expenses and interest expense. These changes were partially offset by increased earnings from MPSC rate orders, a self-implemented rate increase, and a favorable sales mix. CMS Energy’s consolidated net income was also positively impacted by the expiration of an indemnity obligation related to a 2007 asset sale and a gain on the retirement of debt, which were partially offset by an increase in projected Bay Harbor remediation costs.
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2009. Specific after-tax changes to net income available to common stockholders for the six months ended June 30, 20092010 versus 20082009 are:
| | | | | | | | |
| | | | | | After Tax, In Millions | |
|
| • | | | Increase in electric and gas revenues at Consumers due to MPSC rate orders and a self-implemented rate increase | | $ | 51 | |
| • | | | Increase from discontinued operations due primarily to a benefit from the expiration of an indemnity obligation | | | 30 | |
| • | | | Increase in electric and gas revenues at Consumers due to a favorable sales mix | | | 20 | |
| • | | | Improvement in corporate interest and other due primarily to a gain on the retirement of debt | | | 12 | |
| • | | | Decrease in electric and gas revenues at Consumers due to decreased deliveries, primarily reflecting unfavorable economic conditions | | | (40 | ) |
| • | | | Increase in projected Bay Harbor remediation costs at Enterprises | | | (22 | ) |
| • | | | Increase in pension and OPEB expenses at Consumers | | | (12 | ) |
| • | | | Absence of gains from the sale of sulfur dioxide credits recognized at Consumers in 2008 | | | (12 | ) |
| • | | | Increase in other net expenses at Consumers primarily related to higher interest, and uncollectible accounts expense | | | (10 | ) |
| • | | | Increase in plant maintenance expense at Consumers | | | (9 | ) |
| • | | | Absence of resource conservation savings received in 2008 related to the power purchase agreement with the MCV Partnership | | | (8 | ) |
| • | | | Increased maintenance expense at certain Enterprises plants | | | (3 | ) |
|
Total change | | $ | (3 | ) |
|
CONSUMERS’ ELECTRIC UTILITY RESULTS OF OPERATIONS
| | | | | | | | | | | | |
| | | | | | In Millions | |
June 30 | | 2009 | | | 2008 | | | Change | |
|
Three months ended | | $ | 66 | | | $ | 57 | | | $ | 9 | |
Six months ended | | $ | 104 | | | $ | 124 | | | $ | (20 | ) |
|
| | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
Reasons for the change: | | June 30, 2009 vs. 2008 | | | June 30, 2009 vs. 2008 | |
|
Electric deliveries and rate increase | | $ | 37 | | | $ | 36 | |
Power supply costs and related revenue | | | (1 | ) | | | 3 | |
Other income | | | 3 | | | | (1 | ) |
Maintenance and other operating expenses | | | (16 | ) | | | (50 | ) |
Depreciation and amortization | | | 3 | | | | (3 | ) |
General taxes | | | — | | | | (2 | ) |
Interest charges | | | (10 | ) | | | (10 | ) |
Income taxes | | | (7 | ) | | | 7 | |
|
Total change | | $ | 9 | | | $ | (20 | ) |
|
| | | | | | | | |
2010 over/(under) 2009 |
| | | | | (In Millions) |
|
• | | | increase in electric and gas revenues at Consumers due to rate orders, including the impacts of the decoupling mechanisms | | $ | 55 | |
• | | | insurance settlement related to a previously sold investment | | | 30 | |
• | | | absence of an increase in the provision for Bay Harbor environmental remediation costs recorded in 2009 | | | 22 | |
• | | | other net increase at Consumers due to lower service restoration costs, outage costs, and other operating expenses | | | 21 | |
• | | | other net increases, primarily higher mark-to-market gains and increased power demand at the enterprises segment | | | 8 | |
• | | | increase in electric revenues due to weather | | | 7 | |
• | | | absence of a benefit recorded in 2009 related to the expiration of an indemnity obligation | | | (31 | ) |
• | | | decrease in electric and gas revenue due to unfavorable sales mix and economic conditions | | | (23 | ) |
• | | | decrease in gas revenue due to weather | | | (22 | ) |
• | | | absence of a gain on the retirement of debt recorded in 2009 | | | (18 | ) |
• | | | other net decreases, primarily from tax adjustments and impairments related to discontinued operations | | | (15 | ) |
• | | | decrease at Consumers due to costs associated with the voluntary separation plan | | | (7 | ) |
• | | | other net decreases at Consumers, primarily higher depreciation expense and sales and use tax | | | (7 | ) |
|
Total change | | $ | 20 | |
|
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Consumers’ Electric Utility Results of Operations
| | | | | | | | | | | | |
In Millions | |
June 30 | | 2010 | | | 2009 | | | Change | |
|
Net Income Available to Common Stockholders: | | | | | | | | | | | | |
Three months ended | | $ | 86 | | | $ | 67 | | | $ | 19 | |
Six months ended | | $ | 127 | | | $ | 106 | | | $ | 21 | |
|
| | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
Reasons for the change: | | June 30, 2010 vs. 2009 | | | June 30, 2010 vs. 2009 | |
|
Electric deliveries and rate increase | | $ | 75 | | | $ | 101 | |
Power supply costs and related revenue | | | (1 | ) | | | (11 | ) |
Other income, net of expenses | | | (5 | ) | | | (8 | ) |
Maintenance and other operating expenses | | | (28 | ) | | | (34 | ) |
Depreciation and amortization | | | (11 | ) | | | (12 | ) |
General taxes | | | 2 | | | | — | |
Interest charges | | | (4 | ) | | | (6 | ) |
Income taxes | | | (9 | ) | | | (9 | ) |
|
Total change | | $ | 19 | | | $ | 21 | |
|
Electric deliveries and rate increase:For the three months ended June 30, 2009,2010, electric delivery revenues increased by $37$75 million compared with 2008.2009. The increase primarily resulted from a combined $64was due to $14 million of additional revenuerevenues resulting from the June 2008 MPSCNovember 2009 rate order and other rate-related items of $21 million, which included the May 2009 self-implemented rateimpacts of the decoupling mechanism that became effective in December 2009. Also contributing to the increase including an $11was $5 million increase from higher deliveries, which included the impact of favorable weather in 2010. These increases were offset partially by a new rate design structure that provides lower winter and higher summer rates to encourage conservation. These variances, together with a $16$5 million increasedecrease in revenues from a favorablean unfavorable sales mix, were partially offset by $30 million in lower deliveries. Deliveriesmix. Overall, deliveries to end-use customers were 89.0 billion kWh, a decreasean increase of 0.6 billion kWh or 7.07.1 percent compared with 2008, primarily reflecting unfavorable economic conditions in Michigan. Surcharge2009.
Additionally, surcharge revenues decreased by $13and related reserves increased $40 million for the three months ended June 30, 2010 compared with 2009, due primarilyto $26 million from the collection of regulatory assets related to retirement benefits, an $8 million increase related to the absence of $12energy optimization program, and a $6 million of retirement benefits expense recoveredincrease in revenue in 2008.other surcharge revenue.
For the six months ended June 30, 2009,2010, electric delivery revenues increased by $36$101 million compared with 2008.2009. The increase primarily resulted from a combined $70was due to $46 million of additional revenuerevenues resulting from the June 2008 MPSCNovember 2009 rate order and other rate-related items of $37 million, which included the May 2009 self-implemented rate increase, netimpacts of the decoupling mechanism that became effective in December 2009. These increases were offset partially by a $20$9 million decrease from a new rate design structure that provides lower winter and higher summer rates to encourage conservation. These variances, together with a $27 million increase in revenues from a favorablean unfavorable sales mix, wereincluding the impact of customers switching from demand rates to energy only rates. Additionally, revenues decreased $17 million due to lower deliveries to Consumers’ high margin customers, offset partially offset by $48 millionincreases due to favorable weather in lower deliveries. Deliveries2010. Overall, deliveries to end-use customers were 1718.1 billion kWh, a decreasean increase of 10.7 billion kWh or 5.64.0 percent compared with 2008, primarily reflecting unfavorable economic conditions in Michigan. Surcharge2009.
Additionally, surcharge revenues decreased by $13and related reserves increased $44 million for the six months ended June 30, 2010 compared with 2009, due primarilyto $26 million from the collection of regulatory assets related to retirement benefits, a $14 million increase related to the absence of $12energy optimization program, and a $4 million of retirement benefits expense recoveredincrease in revenue in 2008.other surcharge revenue.
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Power supply costs and related revenue:For the three months ended June 30, 2009,2010, PSCR and related revenue decreased $1 million compared with 2008,2009, due primarily to a decrease in wholesale fuel recovery revenue.
For the six months ended June 30, 2009,2010, PSCR and related revenue increased by $3decreased $11 million compared with 2008. The increase was due primarily to2009, reflecting an order received from the absenceMPSC that disallowed recovery of a reduction to revenuecertain power supply costs in 2008 related to amounts excluded from recovery in the 2006Consumers’ 2007 PSCR reconciliation case. The increase was offset partially by a decrease in wholesale fuel recovery revenue.
Other income:income, net of expenses:For the three months ended June 30, 2009,2010, other income increased by $3decreased $5 million compared with 2008. The increase was due primarily to proceeds received from a land sale in 2009, partially offset by a decrease in interest income, reflecting lower levels of short-term cash investments.
Forand for the six months ended June 30, 2009,2010, other income decreased by $1$8 million compared with 2008. The decrease was2009. These decreases were due primarily to lowera reduction in interest income reflecting lower levelsrecorded on certain regulatory assets and the absence in 2010 of short-term cash investments, partially offset by proceeds received from a gain recognized on a sale of land sale in 2009.
Maintenance and other operating expenses:For the three months ended June 30, 2009,2010, maintenance and other operating expenses increased $16$28 million compared with 2008.2009. The increase was due primarily to cost increases for plant maintenance$26 million of higher retirement benefits expenses, which were recovered in revenue in 2010, and an $8 million the absence of $9 million of resource conservation savings received in 2008 related to Consumers’ power purchase agreementincrease associated with the MCV Partnership, and a $4energy optimization program. Also contributing to the increase was $6 million increase in uncollectible accounts expense. These increases were offset partially offset by $5 million of lower pension and OPEB expenses, as the absence of $12 million of expense associated with retirement benefits recovered in revenue in 2008 more than offset the $7 million increase due to market performance of retirement benefit plan assets.
17
For the six months ended June 30, 2009, maintenance and other operating expenses increased $50 million compared with 2008. The increase was due primarily to cost increases for plant maintenance of $14 million, and the absence of an $18 million benefit from the sale of sulfur dioxide credits recognized in 2008. Also contributing to the increase were the absence of $12 million of resource conservation savings received in 2008 related to Consumers’ power purchase agreement with the MCV Partnership, and an increase in other net expenses of $6 million. The increase in other net expenses included $2 million of higher pension and OPEB expenses, as a $14 million increase due to the market performance of retirement benefit plan assets more than offset the absence of $12 million of expense associated with retirement benefits expense recovered in revenue in 2008.
Depreciation and amortization:For the three months ended June 30, 2009, depreciation and amortization expense decreased $3 million compared with 2008. The decrease was due primarily to a $5 million reduction in amortization expense on certain regulatory assets, partially offset byexpenses for forestry and tree-trimming services and a $2$7 million increase from higher plantdecrease in service.service restoration expenses, health care costs, and other net operating expenses.
For the six months ended June 30, 2009, depreciation and amortization expense increased $3 million compared with 2008. The increase was due primarily to a $7 million increase from higher plant in service, offset by $4 million due to the expiration of amortization expense on certain regulatory assets.
General taxes:For the six months ended June 30, 2009, general taxes increased $2 million compared with 2008, due primarily to higher property tax expense, reflecting higher capital spending.
Interest charges:Interest charges increased by $10 million for the three months and the six months ended June 30, 2009, due primarily to the issuance of debt in 2009.
Income taxes:For the three months ended June 30, 2009, income taxes increased $7 million compared with 2008, due primarily to higher earnings in the second quarter of 2009.
For the six months ended June 30, 2009, income taxes decreased $7 million compared with 2008, due primarily to lower earnings in the first quarter of 2009.
CONSUMERS’ GAS UTILITY RESULTS OF OPERATIONS
| | | | | | | | | | | | |
| | | | | | In Millions | |
June 30 | | 2009 | | | 2008 | | | Change | |
|
Three months ended | | $ | 5 | | | $ | 2 | | | $ | 3 | |
Six months ended | | $ | 64 | | | $ | 64 | | | $ | — | |
|
| | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
Reasons for the change: | | June 30, 2009 vs. 2008 | | | June 30, 2009 vs. 2008 | |
|
Gas deliveries and rate increase | | $ | 6 | | | $ | 4 | |
Gas wholesale and retail services, other gas revenues, and other income | | | — | | | | 1 | |
Maintenance and other operating expenses | | | (1 | ) | | | (14 | ) |
Depreciation and amortization | | | 2 | | | | 8 | |
General taxes | | | — | | | | (1 | ) |
Interest charges | | | (1 | ) | | | (1 | ) |
Income taxes | | | (3 | ) | | | 3 | |
|
Total change | | $ | 3 | | | $ | — | |
|
18
Gas deliveries and rate increase:For the three months ended June 30, 2009, gas delivery revenue increased $6 million compared with 2008. The increase was due primarily to additional revenue of $4 million from the MPSC’s December 2008 gas rate order and $4 million from a favorable sales mix, partially offset by lower deliveries of $2 million reflecting unfavorable economic conditions in Michigan. Gas deliveries, including miscellaneous transportation to end-use customers, were 41 bcf, a decrease of 1.9 bcf or 4.4 percent compared with 2008.
For the six months ended June 30, 2009, gas delivery revenue increased $4 million compared with 2008. The increase was due primarily to additional revenue of $11 million from the MPSC’s December 2008 gas rate order and $6 million from a favorable sales mix, largely offset by lower deliveries of $13 million reflecting unfavorable economic conditions in Michigan. Gas deliveries, including miscellaneous transportation to end-use customers, were 172 bcf, a decrease of 8.4 bcf or 4.7 percent compared with 2008.
Gas wholesale and retail services, other gas revenues, and other income:For the six months ended June 30, 2009, gas wholesale and retail services, other gas revenues and other income increased $1 million compared with 2008, due to an increase in appliance service plan program revenue.
Maintenance and other operating expenses:For the three months ended June 30, 2009,2010, maintenance and other operating expenses increased $1$34 million compared with 2008.2009. The increase was due primarily to $26 million of higher retirement benefits expenses, which were recovered in revenue in 2010, a $3$14 million increase in OPEB expense, reflecting market performance of Consumers’ retirement benefit plan assets, partially offset by a $2associated with the energy optimization program, and an $8 million decrease in uncollectible accounts expense.
For the six months ended June 30, 2009, maintenance and other operating expenses increased $14 million compared with 2008. The increase was due primarily to an increase in uncollectible accounts expense of $9 million and higher OPEB expense ofexpense. Also contributing to the increase was $6 million reflecting market performance of Consumers’ retirement benefitvoluntary separation plan assets,expenses in 2010. These increases were offset partially offset by a $1$7 million netreduction in expenses for forestry and tree-trimming services and a $13 million decrease in service restoration expenses, health care costs, and other net operating expenses.
Depreciation and amortization:For the three months ended June 30, 2009,2010, depreciation and amortization expense decreased $2increased $11 million compared with 2008. The MPSC’s December 2008 gas rate order reduced amortization expense by $3 million,2009, and delayed collection of an equal amount of amortization in rates. This decrease was partially offset by $1 million of higher depreciation expense due to an increase in plant in service.
Forfor the six months ended June 30, 2009,2010, depreciation and amortization expense decreased $8increased $12 million compared with 2008. The MPSC’s December 2008 gas rate order reduced amortization expense by $11 million, and delayed collection of an equal amount of amortization in rates. This decrease was partially offset by $3 million of2009, due to higher depreciation expense due to an increase infrom increased plant in service.service and higher amortization expense on certain regulatory assets.
General taxes:For the sixthree months ended June 30, 2009,2010, general taxes increased $1decreased $2 million compared with 2008, due primarily to2009. The decrease resulted from adjustments associated with the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.” This decrease was offset partially by increased property taxes, reflecting higher capital spending.
Interest charges:For the three months ended June 30, 2010, interest charges increased $4 million compared with 2009. The increase resulted from interest related to the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies,” offset partially by lower debt levels in 2010.
For the six months ended June 30, 2010, interest charges increased $6 million compared with 2009. The increase resulted from interest related to the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.” Also contributing to the increase was additional interest incurred as a result of an order received from the MPSC that disallowed recovery of certain power supply costs in Consumers’ 2007 PSCR reconciliation case. These increases were offset partially by lower debt levels in 2010.
18
Income taxes:For each of the three and six months ended June 30, 2010, income taxes increased $9 million compared with 2009, due to higher electric utility earnings in 2010.
Consumers’ Gas Utility Results of Operations
| | | | | | | | | | | | |
In Millions | |
June 30 | | 2010 | | | 2009 | | | Change | |
|
Net Income Available to Common Stockholders: | | | | | | | | | | | | |
Three months ended | | $ | 1 | | | $ | 5 | | | $ | (4 | ) |
Six months ended | | $ | 67 | | | $ | 64 | | | $ | 3 | |
|
| | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
Reasons for the change: | | June 30, 2010 vs. 2009 | | | June 30, 2010 vs. 2009 | |
|
Gas deliveries and rate increase | | $ | (2 | ) | | $ | 19 | |
Other income, net of expenses | | | 2 | | | | 4 | |
Maintenance and other operating expenses | | | (3 | ) | | | (9 | ) |
Depreciation and amortization | | | — | | | | (1 | ) |
General taxes | | | 3 | | | | 2 | |
Interest charges | | | (5 | ) | | | (7 | ) |
Income taxes | | | 1 | | | | (5 | ) |
|
Total change | | $ | (4 | ) | | $ | 3 | |
|
Gas deliveries and rate increase:For the three months ended June 30, 2010, gas delivery revenues decreased $2 million compared with 2009. The decrease was due to lower deliveries of $9 million, which included the impact of milder weather. This decrease was offset partially by $1 million of additional revenue from the May 2010 rate order and a $6 million increase in surcharge revenues related to the energy optimization program. Gas deliveries, including miscellaneous transportation to end-use customers, were 36.8 bcf, a decrease of 4.0 bcf or 9.8 percent compared with 2009.
For the six months ended June 30, 2010, gas delivery revenues increased $19 million compared with 2009. The increase resulted from $28 million of additional revenue from the May 2010 rate order and $8 million from a favorable sales mix. Additionally, surcharge revenues were $16 million higher in 2010, due to a $13 million increase related to the energy optimization program and $3 million from the collection of regulatory assets related to retirement benefits. These increases were offset partially by lower deliveries of $33 million due to milder weather. Gas deliveries, including miscellaneous transportation to end-use customers, were 155.9 bcf, a decrease of 15.6 bcf or 9.1 percent compared with 2009.
Other income, net of expenses:For the three months ended June 30, 2010, other income increased $2 million compared with 2009, and for the six months ended June 30, 2010, other income increased $4 million compared with 2009. These increases were due to increased interest chargesincome related to secured borrowing agreements.
Maintenance and other operating expenses:For the three months ended June 30, 2010, maintenance and other operating expenses increased $3 million compared with 2009. The increase was due to additional expenses of $6 million related to the energy optimization program and a $3 million increase in uncollectible accounts expense. These increases were offset partially by a $6 million reduction in health care costs and other net operating expenses.
19
For the six months ended June 30, 2010, maintenance and other operating expenses increased $9 million compared with 2009. The increase was due to additional expenses of $13 million related to the energy optimization program, $4 million of voluntary separation plan expenses, and higher expenses of $3 million associated with retirement benefits, which were recovered in revenue in 2010. These increases were offset partially by lower uncollectible accounts expense of $3 million and an $8 million reduction in health care costs and other net operating expenses.
Depreciation and amortization:For the six months ended June 30, 2010, depreciation and amortization expense increased $1 million compared with 2008,2009, due primarily to an increase in plant in service.
General taxes:For the issuancethree months ended June 30, 2010, general taxes decreased $3 million compared with 2009, resulting from adjustments associated with the State of debtMichigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.”
For the six months ended June 30, 2010, general taxes decreased $2 million compared with 2009. The decrease resulted from adjustments associated with the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.” This decrease was offset partially by increased property taxes, reflecting higher capital spending.
Interest charges:For the three months ended June 30, 2010, interest charges increased $5 million compared with 2009, and for the six months ended June 30, 2010, interest charges increased $7 million compared with 2009, due primarily to interest related to the State of Michigan’s use tax assessment, discussed in Note 3, Contingencies and Commitments, “Consumers’ Other Contingencies.”
Income taxes:For the three months ended June 30, 2009,2010, income taxes increased $3decreased $1 million compared with 2008,2009. The change reflects $2 million due primarily to higherlower gas utility earnings in the second quarter of 2009.2010, offset partially by a $1 million increase in MBT expense.
For the six months ended June 30, 2009,2010, income taxes decreased $3increased $5 million compared with 2008.2009. The decrease reflected $1change reflects $2 million due to lowerhigher gas utility earnings in the first quarter of 20092010 and $2a $3 million related to the treatment of property, plant and equipment, as required by MPSC orders.increase in MBT expense.
1920
ENTERPRISES RESULTS OF OPERATIONSEnterprises Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | |
| | In Millions | | |
In Millions | | In Millions | |
June 30 | | 2009 | | 2008 | | Change | | | 2010 | | 2009 | | Change | |
| Net Income Available to Common Stockholders: | | |
Three months ended | | $ | (17 | ) | | $ | 10 | | $ | (27 | ) | | $ | 33 | | $ | (13 | ) | | $ | 46 | |
Six months ended | | $ | (17 | ) | | $ | 8 | | $ | (25 | ) | | $ | 42 | | $ | (12 | ) | | $ | 54 | |
|
For the three months ended June 30, 2009, Enterprises recorded2010, the enterprises segment reported net income of $33 million compared with a net loss of $17$13 million compared with netfor the same period in 2009. The $46 million change reflects after-tax income of $10$30 million in 2008. The reduction was due primarilyfrom the settlement of an insurance claim related to a previously sold South American investment and the absence of an environmental remediation charge of $22 million after-tax expenserecorded in 2009 related to Bay Harbor. These items were offset partially by a net decrease of $6 million due to the absence of a gain recorded in 2009 on the expiration of an indemnity provided in connection with a previous asset sale, and the absence of benefits related to a 2009 legal settlement associated with an increase in projected future environmental remediation costs at Bay Harbor. An additional $5 million decrease was related primarily to higher maintenance expensea gas sales and lower revenues due to outages.purchase contract.
For the six months ended June 30, 2009, Enterprises recorded2010, the enterprises segment reported net income of $42 million compared with a net loss of $17$12 million compared with netfor the same period in 2009. The $54 million change reflects after-tax income of $8$30 million in 2008. The reduction was due primarilyfrom the settlement of the insurance claim related to athe previously sold South American investment and the absence of the environmental remediation charge of $22 million after-tax expense associated with an increaserecorded in projected future environmental remediation costs associated with2009 related to Bay Harbor. An additional $3increase of $8 million reflects increased demand for power at higher prices, higher income from equity-method investments, and a net increase in mark-to-market gains. These items were offset partially by a decrease was primarilyof $6 million due to the absence of a gain recorded in 2009 on the expiration of an indemnity provided in connection with a previous asset sale, and the absence of benefits related to higher maintenance expense.a 2009 legal settlement associated with a gas sales and purchase contract.
CORPORATE INTEREST AND OTHER RESULTS OF OPERATIONSCorporate Interest and Other Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | |
| | In Millions | | |
In Millions | | In Millions | |
June 30 | | 2009 | | 2008 | | Change | | | 2010 | | 2009 | | Change | |
| Net Loss Available to Common Stockholders: | | |
Three months ended | | $ | (9 | ) | | $ | (24 | ) | | $ | 15 | | | $ | (24 | ) | | $ | (9 | ) | | $ | (15 | ) |
Six months ended | | $ | (37 | ) | | $ | (49 | ) | | $ | 12 | | | $ | (54 | ) | | $ | (37 | ) | | $ | (17 | ) |
|
For the three months ended June 30, 2009,2010, corporate interest and other net expenses decreasedincreased $15 million compared with 2009 due primarily to athe absence of an $18 million gain recognized in 2009 on the early retirement of CMS Energy’s long-term debt, related parties, offset partially offset by higher$3 million of lower professional and administrative expenses.
For the six months ended June 30, 2009,2010, corporate interest and other net expenses decreased $12increased $17 million compared with 2009 due primarily to athe absence of an $18 million gain recognized in 2009 on the early retirement of CMS Energy’s long-term debt, related parties, offset partially offset by an increase in tax expense due to legislation related to the MBT$1 million of lower professional and higher other operatingadministrative expenses.
DISCONTINUED OPERATIONSDiscontinued Operations
For each of the three months and six months ended June 30, 2009, net income2010, earnings from discontinued operations net of tax, was $29decreased $41 million compared with a net loss of $1 million in 2008.2009. The improvementdecrease was due to the absence of a $28 million gain recognized in 2009 on the expiration of an indemnity obligationprovided in connection with a 2007 asset sale, the recognition in 2010 of $10 million in additional tax expense resulting from an IRS audit adjustment related to a 2003 asset sale, and a $3 million increase in a liability for a 2007 asset sale.sale indemnity.
21
CAPITAL RESOURCES AND LIQUIDITY
Components of CMS Energy’s and 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 March 2009, Consumers issued $500 million in FMB;
In June 2009, CMS Energy issued $173 million in convertible senior notes and $300 million in senior notes, and retired $144 million of its $178 million of Long-term debt — related parties;
In June 2009, CMS Energy commenced cash tender offers to repurchase up to $330 million of CMS Energy’s senior notes due 2010 and 2011. In July 2009, under the terms of the tender offer, CMS Energy repurchased and retired $233 million principal amount of the senior notes due 2010 and $87 million principal amount of the senior notes due 2011, funded partially by a draw on its revolving credit facility; and
20
In June 2009, CMS Energy’s preferred stock became convertible at the holders’ option for the third quarter of 2009.
| • | | In January 2010, CMS Energy issued $300 million of 6.25 percent senior notes due 2020; |
|
| • | | In April 2010, Consumers executed a bond purchase agreement whereby Consumers will issue, in a September 2010 private placement, $250 million of 5.30 percent FMBs due September 2022 and $50 million of 6.17 percent FMBs due September 2040; and |
|
| • | | In June 2010, CMS Energy’s $239 million of 4.50 percent preferred stock and $139 million of 3.375 percent senior notes became convertible at the holders’ option for the third quarter of 2010. |
Despite the 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’In February 2010, Consumers renewed its accounts receivable sales program was renewed in April 2009 through February 2010; |
|
| • | | Consumers’ planned renewals of letters of credit and revolving credit facilities are $342 million in 2009 and $500 million in 2012; |
|
| • | | Consumers’ FMB maturities are $150 million for the remainder of 2009, $250 million in 2010, and $300 million in 2012;2011; |
|
| • | | Consumers’ tax-exempt pollution control revenue bond maturities arewere $58 million in June 2010; |
|
| • | | Consumers’ $150 million revolving credit facility is planned for renewal in August 2010; |
|
| • | | Consumers’ $30 million Letter of Credit Reimbursement Agreement is planned for renewal in November 2010; |
|
| • | | Consumers’ FMBs maturities were $250 million in May 2010 and are $300 million in 2012; |
|
| • | | Consumers’ $500 million revolving credit facility is planned for renewal prior to its expiration in 2012; |
|
| • | | CMS Energy’s senior notes maturities after reflecting the July 2009 retirements, are $67 million in August 2010, $213$214 million in 2011, and $150 million in 2012; and |
|
| • | | CMS Energy’s $550 million revolving credit facility is planned for renewal prior to its expiration in 2012. |
CMS Energy and Consumers believe that their present level of cash and their expected cash flows from operating activities, together with their access to sources of liquidity, will be sufficient to meet cash requirements. In particular, Consumers expects to complete the renewal of its $150 million 364-day revolving credit facility in the third quarter of 2009. If access to the capital markets were to become diminished or otherwise restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. For additional details, see Note 5, Financings and Capitalization.
At June 30, 2009, CMS Energy and Consumers were each in compliance with the financial covenants in their respective debt agreements.Financings.
Cash Position, Investing, and Financing
CMS Energy’s and Consumers’ operating, investing, and financing activities meet their consolidated cash needs. At June 30, 2009,2010, CMS Energy had $1.056 billion of consolidated cash and cash equivalents, which includes $31 million of restricted cash and cash equivalents and $11 million of cash and cash equivalents held by consolidated VIEs. At June 30, 2009, Consumers had $760$558 million of consolidated cash and cash equivalents, which includes $23included $22 million of restricted cash and cash equivalents. At June 30, 2010, Consumers had $342 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 $130 million in common stock dividends and Enterprises paid $55$168 million in common stock dividends to CMS Energy for the six months ended June 30, 2009.2010. For details on dividend restrictions, see Note 5, Financings and Capitalization.Financings.
22
Operating Activities:For the six months ended June 30, 2009, CMS Energy generated $803 million in cash from operations and Consumers generated $856 million in cash from operations. For the six months ended June 30, 2008, CMS Energy generated $651 million in cash from operations and Consumers generated $954 million in cash from operations. Specific components of net cash provided by operating activities for the six months ended June 30, 2010 and 2009 and 2008 are:
21
CMS Energy, including Consumerswere:
| | | | | | | | | | | | | | | | |
| | In Millions |
| | | | Six months ended June 30 | | 2009 | | 2008 | | Change |
|
| • | | | Net income attributable to CMS Energy | | $ | 149 | | | $ | 152 | | | $ | (3 | ) |
| • | | | Non-cash transactions (a) | | | 477 | | | | 480 | | | | (3 | ) |
| | | | | | |
| | | | | | | 626 | | | | 632 | | | | (6 | ) |
| • | | | Sale of gas purchased in prior year | | | 576 | | | | 548 | | | | 28 | |
| • | | | Purchase of gas in current year | | | (293 | ) | | | (417 | ) | | | 124 | |
| • | | | Electric sales contract termination payment | | | — | | | | (275 | ) | | | 275 | |
| • | | | Accounts receivable sales | | | (170 | ) | | | — | | | | (170 | ) |
| • | | | Pension contribution | | | (206 | ) | | | — | | | | (206 | ) |
| • | | | Other core working capital | | | 243 | | | | 198 | | | | 45 | |
| • | | | Other changes in assets and liabilities, net | | | 27 | | | | (35 | ) | | | 62 | |
|
Net cash provided by operating activities | | $ | 803 | | | $ | 651 | | | $ | 152 | |
|
| | | | | | | | | | | | |
In Millions | |
Six months ended June 30 | | 2010 | | | 2009 | | | Change | |
|
CMS Energy, including Consumers | | | | | | | | | | | | |
• Net income | | $ | 172 | | | $ | 154 | | | $ | 18 | |
• Non-cash transactions (a) | | | 539 | | | | 436 | | | | 103 | |
| | |
| | $ | 711 | | | $ | 590 | | | $ | 121 | |
• Sale of gas purchased in the prior year | | | 474 | | | | 576 | | | | (102 | ) |
• Purchase of gas in the current year | | | (274 | ) | | | (293 | ) | | | 19 | |
• Accounts receivable sales, net | | | (50 | ) | | | (170 | ) | | | 120 | |
• Change in other core working capital (b) | | | 299 | | | | 243 | | | | 56 | |
• Other changes in assets and liabilities, net | | | (112 | ) | | | (146 | ) | | | 34 | |
| | |
Net cash provided by operating activities | | $ | 1,048 | | | $ | 800 | | | $ | 248 | |
|
Consumers | | | | | | | | | | | | |
• Net income | | $ | 195 | | | $ | 171 | | | $ | 24 | |
• Non-cash transactions (a) | | | 398 | | | | 447 | | | | (49 | ) |
| | |
| | $ | 593 | | | $ | 618 | | | $ | (25 | ) |
• Sale of gas purchased in the prior year | | | 474 | | | | 576 | | | | (102 | ) |
• Purchase of gas in the current year | | | (274 | ) | | | (293 | ) | | | 19 | |
• Accounts receivable sales, net | | | (50 | ) | | | (170 | ) | | | 120 | |
• Change in other core working capital (b) | | | 300 | | | | 247 | | | | 53 | |
• Other changes in assets and liabilities, net | | | (60 | ) | | | (125 | ) | | | 65 | |
| | |
Net cash provided by operating activities | | $ | 983 | | | $ | 853 | | | $ | 130 | |
|
Consumers
| | | | | | | | | | | | | | | | |
| | In Millions |
| | | | Six months ended June 30 | | 2009 | | 2008 | | Change |
|
| • | | | Net income | | $ | 169 | | | $ | 190 | | | $ | (21 | ) |
| • | | | Non-cash transactions (a) | | | 450 | | | | 428 | | | | 22 | |
| | | | | | |
| | | | | | | 619 | | | | 618 | | | | 1 | |
| • | | | Sale of gas purchased in prior year | | | 576 | | | | 548 | | | | 28 | |
| • | | | Purchase of gas in current year | | | (293 | ) | | | (417 | ) | | | 124 | |
| • | | | Accounts receivable sales | | | (170 | ) | | | — | | | | (170 | ) |
| • | | | Pension contribution | | | (199 | ) | | | — | | | | (199 | ) |
| • | | | Other core working capital | | | 247 | | | | 187 | | | | 60 | |
| • | | | Other changes in assets and liabilities, net | | | 76 | | | | 18 | | | | 58 | |
|
Net cash provided by operating activities | | $ | 856 | | | $ | 954 | | | $ | (98 | ) |
|
| | |
(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 six months ended June 30, 2009,2010, net cash provided by operating activities at CMS Energy increased $152$248 million compared with 2008. This2009. The increase was due to higher net income, net of non-cash transactions, at the absence in 2009 of a payment made by CMS ERM in 2008enterprises segment and to terminate electricity sales agreements, partially offset by changes affecting Consumers’ cash provided by operating activities described in the following paragraph.
For the six months ended June 30, 2009,2010, net cash provided by operating activities at Consumers decreased $98increased $130 million compared with 2008. This decrease2009. The increase was due primarily to a 2009 pension contribution and the absence of 2008higher accounts receivable sales. These decreases were partially offset by the impact of lower gas prices on inventory purchasedcollections from customers in 2009, collection of increased billings due to recent regulatory actions, and other timing differences.2010.
23
Investing Activities:For the six months ended June 30, 2009, net cash used in investing activities was $436 million at CMS Energy and $423 million at Consumers. For the six months ended June 30, 2008, net cash used in investing activities was $344 million at CMS Energy and $345 million at Consumers. Specific components of cash used in investing activities for the six months ended June 30, 2010 and 2009 and 2008 are:
22
CMS Energy, including Consumerswere:
| | | | | | | | | | | | | | | | |
| | In Millions |
| | | | Six months ended June 30 | | 2009 | | 2008 | | Change |
|
| • | | | Capital expenditures | | $ | (412 | ) | | $ | (340 | ) | | $ | (72 | ) |
| • | | | Costs to retire property and other | | | (24 | ) | | | (4 | ) | | | (20 | ) |
|
Net cash used in investing activities | | $ | (436 | ) | | $ | (344 | ) | | $ | (92 | ) |
|
Consumers
| | | | | | | | | | | | | | | | |
| | In Millions |
| | | | Six months ended June 30 | | 2009 | | 2008 | | Change |
|
| • | | | Capital expenditures | | $ | (407 | ) | | $ | (338 | ) | | $ | (69 | ) |
| • | | | Costs to retire property and other | | | (16 | ) | | | (7 | ) | | | (9 | ) |
|
Net cash used in investing activities | | $ | (423 | ) | | $ | (345 | ) | | $ | (78 | ) |
|
| | | | | | | | | | | | |
In Millions |
Six months ended June 30 | | 2010 | | | 2009 | | | Change |
|
CMS Energy, including Consumers | | | | | | | | | | | | |
• Capital expenditures | | $ | (424 | ) | | $ | (409 | ) | | $ | (15 | ) |
• Cash effect of deconsolidation of partnerships | | | (10 | ) | | | — | | | | (10 | ) |
• Costs to retire property and other | | | (56 | ) | | | (24 | ) | | | (32 | ) |
| | |
Net cash used in investing activities | | $ | (490 | ) | | $ | (433 | ) | | $ | (57 | ) |
|
Consumers | | | | | | | | | | | | |
• Capital expenditures | | $ | (423 | ) | | $ | (404 | ) | | $ | (19 | ) |
• Costs to retire property and other | | | (21 | ) | | | (16 | ) | | | (5 | ) |
| | |
Net cash used in investing activities | | $ | (444 | ) | | $ | (420 | ) | | $ | (24 | ) |
|
For the six months ended June 30, 2009,2010, net cash used in investing activities at CMS Energy increased $92$57 million compared with 2008.2009. For the six months ended June 30, 2009,2010, net cash used in investing activities at Consumers increased $78$24 million compared with 2008. These2009. Both increases were due primarily to an increase in Consumers’reflect higher capital expenditures and costs to retire property.at Consumers.
Financing Activities:For the six months ended June 30, 2009, CMS Energy generated $445 million in cash from financing activities and Consumers generated $235 million in cash from financing activities. For the six months ended June 30, 2008, net cash used in financing activities was $128 million at CMS Energy and $361 million at Consumers. Specific components of net cash (used in) provided by (used in) financing activities for the six months ended June 30, 2010 and 2009 and 2008 are:were:
CMS Energy, including Consumers
| | | | | | | | | | | | | | | | |
| | In Millions |
| | | | Six months ended June 30 | | 2009 | | 2008 | | Change |
|
| • | | | Issuance of FMB, convertible senior notes and senior notes | | $ | 973 | | | $ | 250 | | | $ | 723 | |
| • | | | Borrowings on revolving credit facility | | | — | | | | 225 | | | | (225 | ) |
| • | | | Other long-term debt issuances | | | 89 | | | | 51 | | | | 38 | |
| • | | | Retirement of debt and other debt maturity payments | | | (423 | ) | | | (474 | ) | | | 51 | |
| • | | | Payments on revolving credit facility | | | (105 | ) | | | (120 | ) | | | 15 | |
| • | | | Payments of common and preferred stock dividends | | | (63 | ) | | | (47 | ) | | | (16 | ) |
| • | | | Other financing activities | | | (26 | ) | | | (13 | ) | | | (13 | ) |
|
Net cash provided by (used in) financing activities | | $ | 445 | | | $ | (128 | ) | | $ | 573 | |
|
Consumers
| | | | | | | | | | | | | | | | |
| | In Millions |
| | | | Six months ended June 30 | | 2009 | | 2008 | | Change |
|
| • | | | Issuance of FMB | | $ | 500 | | | $ | 250 | | | $ | 250 | |
| • | | | Retirement of debt and other debt maturity payments | | | (218 | ) | | | (426 | ) | | | 208 | |
| • | | | Payments of common stock dividends | | | (130 | ) | | | (168 | ) | | | 38 | |
| • | | | Stockholder’s contribution from CMS Energy | | | 100 | | | | — | | | | 100 | |
| • | | | Other financing activities | | | (17 | ) | | | (17 | ) | | | — | |
|
Net cash provided by (used in) financing activities | | $ | 235 | | | $ | (361 | ) | | $ | 596 | |
|
| | | | | | | | | | | | |
In Millions |
Six months ended June 30 | | 2010 | | | 2009 | | | Change | |
|
CMS Energy, including Consumers | | | | | | | | |
|
• Issuance of FMBs, convertible senior notes, senior notes, and other debt | | $ | 421 | | | $ | 1,062 | | | $ | (641 | ) |
• Retirement of debt and other debt maturity payments | | | (407 | ) | | | (528 | ) | | | 121 | |
• Payments of common and preferred stock dividends | | | (74 | ) | | | (63 | ) | | | (11 | ) |
• Other financing activities | | | (51 | ) | | | (26 | ) | | | (25 | ) |
| | |
Net cash (used in) provided by financing activities | | $ | (111 | ) | | $ | 445 | | | $ | (556 | ) |
|
Consumers | | | | | | | | | | | | |
|
• Issuance of FMBs | | $ | — | | | $ | 500 | | | $ | (500 | ) |
• Retirement of debt and other debt maturity payments | | | (327 | ) | | | (218 | ) | | | (109 | ) |
• Stockholder’s contribution | | | 250 | | | | 100 | | | | 150 | |
• Payments of common and preferred stock dividends | | | (169 | ) | | | (131 | ) | | | (38 | ) |
• Other financing activities | | | (12 | ) | | | (16 | ) | | | 4 | |
| | |
Net cash (used in) provided by financing activities | | $ | (258 | ) | | $ | 235 | | | $ | (493 | ) |
|
For the six months ended June��June 30, 2009,2010, net cash provided byused in financing activities at CMS Energy increased $573totaled $111 million, compared with 2008. This increase was due primarily to an increase in net proceeds from issuance of long-term debt at both CMS Energy and Consumers.
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Forfor the six months ended June 30, 2009, net cash provided by financing activities at Consumers increased $596totaled $445 million. The $556 million compared with 2008. This increasechange was due primarily to an increasea decrease in net proceeds from Consumers’ issuance of long-termborrowing.
For the six months ended June 30, 2010, net cash used in financing activities at Consumers totaled $258 million, and for the six months ended June 30, 2009, net cash provided by financing activities totaled $235 million. The $493 million change was due primarily to debt maturities and a decrease in net proceeds from borrowings, offset partially by a stockholder’s contribution from CMS Energy.
For additional details on long-term debt activity, see Note 5, Financings and Capitalization.Financings.
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Retirement Benefits
The following table provides the most recent estimates of CMS Energy’s and Consumers’ pension cost, OPEB cost, and pension cash contributions:contributions for the next three years.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | In Millions | | | In Millions |
| | Pension Cost | | Pension Contributions | | | Pension Cost | | OPEB Cost | | Pension Contribution | | OPEB Contribution | |
| CMS Energy, including Consumers | | | | |
2009 | | $ | 97 | | $ | 206 | | |
2010 | | 92 | | 157 | | | $ | 107 | | $ | 61 | | $ | 100 | | $ | 71 | |
2011 | | 88 | | 98 | | | 114 | | 51 | | 89 | | 61 | |
2012 | | | 110 | | 48 | | 142 | | 51 | |
| Consumers | | |
2009 | | $ | 93 | | $ | 199 | | |
2010 | | 89 | | 152 | | | $ | 104 | | $ | 63 | | $ | 97 | | $ | 70 | |
2011 | | 85 | | 95 | | | 111 | | 53 | | 86 | | 60 | |
2012 | | | 107 | | 50 | | 137 | | 50 | |
|
Based on recent guidance from the federal Pension Protection Act of 2006, IRS notices, and the federal Worker, Retiree, and Employer Recovery Act of 2008, CMS Energy reduced its estimated pension contribution for 2009 by $94 million to $206 million. During the first six months of 2009,In March 2010, CMS Energy contributed $206$100 million to its pension fund, which includesincluded a contribution of $199$97 million by Consumers. Actual future pension cost and contributions will depend on future investment performance, changes in discount rates, and various other factors related to the Pension Plan participants.
In April 2010, Consumers reached an agreement with the Union on a new five-year contract for Union members. The agreement changed postretirement health benefits under the OPEB plan for qualifying retired employees. As a result, CMS Energy and Consumers remeasured their OPEB obligations at April 30, 2010.
For additional details on retirement benefits, see Note 8,9, Retirement Benefits.
Obligations And Commitments
Revolving Credit Facilities:For details on CMS Energy’s and Consumers’ revolving credit facilities, see Note 5, Financings and Capitalization.Financings.
Dividend Restrictions:For details on CMS Energy’s and Consumers’ dividend restrictions, see Note 5, Financings and Capitalization.Financings.
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Off-Balance-Sheet Arrangements
Off-Balance-Sheet Arrangements:CMS Energy, Consumers, and certain of their subsidiaries enter into various arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include indemnifications,indemnities, surety bonds, letters of credit, and financial and performance guarantees. IndemnificationsIndemnities are usually agreements to reimburse a counterparty that may incur losses due to outside claims or breach of contract terms. The maximum payment that could be required under a number of these indemnity obligations is not estimable. While CMS Energy and Consumers believe it is unlikely that they will incur any material losses related to indemnities they have not recorded as liabilities, they cannot predict the impact of these contingent obligations on their liquidity and financial condition. For additional details on these and other guarantee arrangements, see Note 3, Contingencies and Commitments, “Guarantees.”
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Sale of Accounts Receivable:Under Consumers’ revolving accounts receivable sales program, Consumers may sell up to $250 million of accounts receivable, subject to certain eligibility requirements. At June 30, 2009, $134 million of accounts receivable were eligible for sale, and no accounts receivable were sold under the program.
OUTLOOK
Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and future 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 the “Forward-Looking Statements and Information” section included in this MD&AInformation,” Note 3, Contingencies and Commitments, and Part II, Item 1A. Risk Factors.
Consumers’ Electric Utility Business Outlook and Uncertainties
Balanced Energy InitiativeInitiative:: 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; |
|
| • | | demand management; |
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| • | | expanded use of renewable energy; and |
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| • | | development of new power plants and pursuit of additional power purchase agreementsPPAs to complement existing generating sources.sources; and |
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| • | | potential retirement or mothballing of older generating units. |
Consumers’ balanced energy initiative includesIn May 2010, Consumers announced plans to build andefer the development of its proposed 830 MW coal-fueled plant at its Karn/Weadock generating complex near Bay City, Michigan.complex. This decision reflects reduced customer demand for electricity due to the recession, forecasted lower natural gas prices due to recent developments in shale gas recovery technology, and projected surplus generating capacity in the MISO market. Consumers expectswill monitor customer demand, fuel and power prices, and other market conditions, but has not set a timetable for a future decision about the project. Consumers’ alternatives to constructing the proposed coal-fueled plant include constructing new gas-fueled generation, relying upon additional market purchases, as well as continued operation of several existing generating units; however, Consumers continues to believe that new clean coal generating capacity will be in operation in 2017 and plans to use five-eighthsthe long-term best interests of the plant’s output to serve its own customers with the remaining output to be committed to others. The 2008 Energy Legislation provided guidelines with respect to the MPSC’s review and approval of energy resource plans and proposed power plants through the issuanceas part of a certificate of need. Consumers plans to file a new case with the MPSC seeking a certificate of need that conforms to the legislation.
Proposed Coal Plant Projects:In October 2007, Consumers filed an air permit application with the MDEQ for its proposed coal-fueled plant. The MDEQ published Consumers’ draft air permit for public comment in March 2009 and, in response to public comments, indicated that it would require a needs-and-alternatives analysis. In June 2009, Consumers prepared and filed with the MDEQ and the MPSC a needs-and-alternatives analysis that supported Consumers’ current balanced energy initiative and the construction of its proposed coal-fueled power plant. Both the MDEQ and the MPSC published Consumers’ analysis for public comment.portfolio.
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Renewable Energy Plan:TheConsumers’ renewable energy plan details how Consumers will meet REC and capacity standards prescribed by the 2008 Energy Legislation prescribed renewable energy standards for energy and capacity. The energy standardLegislation. This legislation requires thatConsumers to obtain RECs in an amount equal to at least ten percent of Consumers’its electric sales volume come(estimated to be 3.6 million RECs annually) by 2015. RECs represent proof that the associated electricity was generated from a renewable sources by 2015 with interim target requirements. Using the guidelines of the standard, four percent of Consumers’ electric sales volume now comes from renewable sources.energy resource. The capacity standardlegislation also requires Consumers to add newobtain 500 MW of capacity from renewable energy capacity of 200 MWresources by December 31, 2013, and an additional 300 MW2015, either through generation resources owned by December 31, 2015, from owned renewable energy sourcesConsumers or through agreements to purchase power.capacity from other parties.
Under its renewable energy plan, Consumers expects to secure its required RECs each year with a combination of newly generated RECs and previously generated RECs carried over from prior years. Presently, Consumers generates and purchases 1.6 million RECs per year, which represent 40 percent of its long-term REC needs.
To meet its renewable capacity requirements, Consumers expects to add 500 MW of owned or contracted renewable capacity by 2015. Consumers has secured more than 48,00075,000 acres of land easements in Michigan’s TuscolaMason, Huron, and MasonTuscola Counties for the potential development of wind generation, development and is presently collecting wind speed and other meteorological data at those sites. Consumers has entered into a contract to purchase wind turbine generators for the sites.construction of a 100 MW wind farm in Mason County, the Lake Winds Energy Park, which Consumers expects to be operational in late 2012. Consumers will continue to seek opportunities for wind generation development in support of the renewable capacity standards.
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In February 2009,June 2010, Consumers filed itsexecuted agreements with four renewable energy plan withsuppliers for the MPSC. The plan detailed how Consumers would meetpurchase of 243 MW of capacity, which will generate an estimated 20 percent of Consumers’ long-term REC needs. In its July 2010 order, the MPSC approved these agreements, granting Consumers’ request to recover the full costs of these contracts from its customers. Various parties have made claims concerning certain aspects of Consumers’ decision to enter into these renewable energy standards for energy and capacity, with wind generation as Consumers’ primary resource. Consumers’ plan proposed that half of the new renewable capacity would be obtained through long-term agreementscontracts. Consumers plans to purchase power from third parties, with the remaining capacity to be supplied by facilities built and owned by Consumers. Consumers’ plan was approved by the MPSC in May 2009 with minor exceptions. It is subject to biennial review and annual cost and revenue reconciliation proceedings.
Energy Optimization Plan:The 2008 Energy Legislation requires utilities to prepare energy optimization plans and achieve annual sales reduction targets beginning in 2009 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 natural gas use by December 31, 2015. In February 2009, Consumers fileddefend its energy optimization plan with the MPSC. The plan detailed Consumers’ proposals for energy cost savings among all customer classes through incentives to reduce customer usage by offering customer energy audits, rebates and discounts on purchases of highly efficient appliances, and other incentives and programs. The plan also sought recovery of program costs. Consumers’ plan was approved by the MPSC in May 2009. It is subject to biennial review and annual cost and revenue reconciliation proceedings.actions.
Electric Customer Deliveries and Revenue:Consumers’ electric customer deliveries are largely dependent on Michigan’s economy, which has suffered from plant closures, restructurings,economic and bankruptciesfinancial instability in the automotive sector and from the depressed housing market. The Michigan economy also has been harmed by the present volatility in the financial and credit markets. Although Consumers’ electric utility results are not substantially dependent upon a single customer, or even a few customers, customers in the automotive sector and their direct suppliers represented four percent of Consumers’ total 2008 electric revenue and 2.5 percent of Consumers’ 2008 electric operating income.real estate sectors.
In the second quarter of 2009, GM and Chrysler each declared bankruptcy. As a result, Consumers has charged off $3 million of accounts receivable and unbilled revenue due from those customers. Chrysler emerged from bankruptcy in June 2009, and GM emerged from bankruptcy in July 2009. Consumers could, however, incur additional charge-offs presently estimated at $7 million in the event that all direct suppliers in the automotive sector and other significant related suppliers were to declare bankruptcy. This estimate does not include the potential indirect impacts on other sectors and customers. Consumers cannot predict the financial impact of the Michigan economy on its electric customer revenue.
Electric Deliveries:Consumers expects weather-adjusted electric deliveries to decreaseincrease in 20092010 by 3.5two percent compared with 2008.2009. Consumers’ outlook for 20092010 includes continuing growth in deliveries to its largest customer, which produces semiconductor and solar energyenergy-related components. Consumers has a long-term contract with this customer to provide electricity at a discounted rate for economic development purposes. Excluding this customer’s growth, Consumers expects weather-adjusted electric deliveries in 20092010 to decrease five percent compared with 2008.be at a similar level to 2009. Consumers’ outlook reflects the impact of reduced deliveries associated with its investment in energy efficiency programs included in the 2008 Energy Legislation, as well as recent projections of MichiganMichigan’s economic conditions.
Beginning in 2010, Consumers expects economic conditions to stabilize by the end of 2010, resulting in modestly growing
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deliveriesannual electric delivery growth of electricityabout one percent on average through 2014. This modestreflects growth expectation takes into accountin electric deliveries offset by the predicted effects of energy efficiency programs.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. |
Electric Supply Resources:In its 2009 electric rate case order, the MPSC authorized Consumers through its supply resources,to adopt a “pilot” decoupling mechanism. This mechanism, subject to certain conditions, allows Consumers to adjust future rates to collect or refund the change in marginal revenue by class arising from the difference between the level of average sales per customer adopted in the order and actual average sales per customer. The MPSC’s order also adopted an uncollectible expense tracking mechanism, which consistallows future 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 reduce volatility of electric generating plants, long-term power purchase contracts, and short-term purchases of capacity and energy, is planning to meet the resource adequacy requirements established by MISO.
Electric Transmission Expenses:Consumers expects the transmission charges it incurs to increase by $48 million in 2009 compared with 2008, due primarily to a 25 percent increase in METC and Wolverine transmission rates. This increase was included in Consumers’ 2009 PSCR plan filed with the MPSC in September 2008. For details on litigation concerning Consumers’ recovery of its electric transmission expense, see Note 3, Contingencies, “Consumers’ Electric Utility Contingencies — Litigation.”utility revenue.
Electric ROA:The Customer Choice Act allows Consumers’ electric customers to buy electric generation service from Consumers or from an alternative electric supplier. However, theThe 2008 Energy Legislation generally limits alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year. At June 2009,30, 2010, electric deliveries under the ROA program were at the ten percent limit and alternative electric suppliers were providing 443781 MW of generation service to ROA customers,customers.
In May 2010, a 33 percentbill was introduced to the Michigan Senate and House of Representatives that would increase from December 31, 2008. Alternativeten percent to 25 percent the proportion of an electric supply represented four percent of Consumers’ weather-adjusted retailutility’s sales for which service may be provided by an alternative electric supplier. Consumers is unable to predict the outcome of the preceding calendar year.proposed legislation.
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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, Clean Water Act, and numerous state and federal environmental regulations. Consumers estimates expenditures of $1.36$2.2 billion from 20092010 through 2017 for equipment installation to comply with a number of environmental regulations, including regulations limiting nitrogen oxides, sulfur dioxide, and mercury emissions.these regulations. Consumers expects to recover these costs in customer rates.
Consumers has applied for early reduction nitrogen oxide allowances withrates, but cannot guarantee this result. Consumers’ primary environmental compliance focus includes, but is not limited to, the MDEQ. It is expected that allowances and installation of pollution control equipment will cover the shortfall in nitrogen oxide emission allowances through 2015. If the early reduction nitrogen oxide allowances are granted, no additional purchases of allowances will be necessary. Consumers also plans to purchase sulfur dioxide emission allowances, between 2012 and 2015, at an average cost of $5 million per year. Consumers expects to recover emission allowance costs from its customers through the PSCR process.following matters:
Clean Air Interstate Rule:In 2005, the EPA adopted theAt this time, CAIR which required additional coal-fueled electric generating plant emission controls for nitrogen oxides and sulfur dioxide. The CAIR was appealed to the U.S. Court of Appeals for the District of Columbia. The court initially nullified the CAIR and the CAIR federal implementation plan in its entirety, but subsequently, the court changed course and remanded the rule to the EPA maintaining the ruleremains in effect, pending EPA revision. Atrevision due to a December 2008 court decision. In July 2010, the EPA released a proposed rule that would replace CAIR. Consumers is examining this time, the CAIR remains in effect, with 2009 as the first annual nitrogen oxides compliance year.proposed rule and its potential effects on Consumers’ fleet. The EPA must now revisewill accept comments on the ruleproposal for 60 days following its publication in the Federal Register before publishing a final rule. In addition, Consumers is monitoring legislative initiatives in the U.S. Senate, which may lead to resolve the court’s concerns. The impacts of this revision are unknown, but stricter regulation is envisioned. A draft rule is expected in 2010.
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State and Federal Mercury Air Rules:In 2005, the EPA issued the 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 the CAMRan alternative to the U.S. Courtrevised CAIR. Meanwhile, Consumers’ strategy to comply with CAIR involves the installation 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 Cleanstate-of-the-art emission control equipment.
Federal Hazardous Air Act. The U.S. Supreme Court denied a request to review this decision. Pollutant Regulation:The EPA has initiated the development of a revised rule for electric generating unit hazardous air pollutants, such as mercury, based on MACT. The rule is expected to be proposed in early 2010, at which timeSection 112 of the Clean Air Act. Consumers will have a better understanding of the potential impact.
In 2006, Michigan’s governorimpact of the proposed a plan that would result in mercury emissions reductions of 90 percent by 2015. The MDEQ has proposed a rule in response to this proposal,upon its release, which is presently undergoing technical reviewexpected in 2010. Existing sources must meet the state’s Officestandards generally within three years of Administrative Hearings and Rules. Consumers cannot predictissuance of the financial impact or outcome of this matter.final rule.
Greenhouse GasesGases:: In June 2009, the United StatesU.S. House of Representatives passed the American Clean Energy and Security Act, which requireswould require reductions in emissions of greenhouse gases, including carbon dioxide. The bill proposes to reduce carbon dioxide and other greenhouse gas emissions, by 3 percent belowrelative to 2005 levels, by three percent 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, in orderwhich would mitigate some of the price impact to mitigate price impacts toConsumers’ customers. Consumers considers it likely thatbelieves Congress will enact this bill or othermay eventually pass greenhouse gas legislation, but the form and timing of any final bill is difficult to predict.
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. In April 2010, the EPA issued its final rule that regulates greenhouse gas emissions from motor vehicles under Section 202 of the Clean Air Act. This final action renders carbon dioxide and other greenhouse gases “regulated air pollutants” under the Clean Air Act.
In May 2010, the EPA released its Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule. The final rule, which numerous parties have challenged in the U.S. Court of Appeals for the D.C. Circuit, sets limits for greenhouse gas emissions that define when permits are required for new and existing industrial facilities under New Source Review PSD and Title V Operating Permit programs.
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 emission allowances, curtail operations, arrange for alternative sources of supply, or take other steps to manage or lower the emission of greenhouse gases. In April 2009, the EPA issued a proposed finding that greenhouse gases, including carbon dioxide, contribute to air pollution that may endanger the public health and welfare. If other administrative actions are taken, such as finalization of the proposed endangerment finding following public comment, it could lead to the regulation of carbon dioxide as a pollutant under the Clean Air Act.
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 have an opportunity to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.
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Coal Combustion By-Products:In June 2010, the EPA proposed rules regulating CCBs, such as coal ash, under the Resource Conservation and Recovery Act. Michigan already regulates CCBs as low-hazard industrial waste. The EPA proposed a range of alternatives for regulating CCBs, including regulation as either a non-hazardous waste or a hazardous waste. If coal ash were regulated as a hazardous waste, Consumers would likely cease the beneficial re-use of this product, resulting in significantly more coal ash requiring costly disposal. Additionally, it is possible that existing ash disposal areas could be closed and costly alternative arrangements for ash disposal could be required if the upgrades to hazardous waste landfill standards are economically prohibitive. Consumers is unable to predict accurately the full impacts from this wide range of possible outcomes, but significant expenditures are likely.
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 is planninghas announced plans to issue a revised draft rule in early 2010. Consumers estimates capital expendituresthis year.
Advance Notice of $150 millionProposed Rulemaking on 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 complyPCBs. One proposal aims to phase out equipment containing PCBs by 2025. Another proposal eliminates an exemption for small equipment containing PCBs. Utilities could incur substantial costs associated with these regulations.the regulation of PCBs due to the widespread use of electrical equipment containing PCBs.
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 3, Contingencies and Commitments, “Consumers’ Electric Utility Contingencies -— Electric Environmental Matters.”
Electric Transmission:In June 2010, FERC issued a Notice of Proposed Rulemaking to establish a closer link between regional electric transmission planning and cost allocations to ensure the construction of required transmission facilities. In a related matter, MISO filed a tariff revision with the FERC in July 2010, proposing a cost allocation methodology for new transmission projects. Consumers is unable to predict the financial impact or outcome of either of these proposals.
Electric Rate Matters:Rate matters are critical to Consumers’ electric utility business. For details on Consumers’ stranded cost recovery, power supply cost recovery,PSCR, electric rate case, Palisades regulatory proceedings,cases, electric operation and maintenance expenditures show-cause order, Big Rock decommissioning proceedings, electric depreciation cases, renewable energy plan, and energy optimization plan, see Note 4, Utility Rate Matters, “Consumers’ Electric Utility Rate Matters.”
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Consumers’ Gas Utility Business Outlook and Uncertainties
Gas Deliveries:Consumers expects 2010 weather-adjusted gas deliveries to decline in 2009 by fiveone percent compared with 2008,2009, 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 20102011 through 2014,2015, which reflectsincludes 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 independent power producers;IPPs; |
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| • | | availability and development of renewable energy sources; |
|
| • | | changes in gas prices; |
|
| • | | Michigan economic conditions including population trends and housing activity; |
|
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| • | | the price of competing energy sources or fuels; and |
|
| • | | energy efficiency and conservation. |
In its 2009 gas rate case order, the MPSC authorized Consumers to adopt a decoupling mechanism. This mechanism, subject to certain conditions, allows Consumers to adjust future rates to collect or refund the change in marginal revenue by class arising from the difference between base sales per customer established in the order and weather-adjusted sales per customer. Consumers expects this mechanism to reduce volatility of gas utility revenue.
Gas Environmental Estimates:Consumers expects to incur investigation and remedial action costs at a number of sites, including 23 former manufactured gas plantMGP sites. For additional details, see Note 3, Contingencies and Commitments, “Consumers’ Gas Utility Contingencies — Gas Environmental Matters.”
Gas Rate Matters:Rate matters are critical to Consumers’ gas utility business. For details on Consumers’ gas cost recovery, gas depreciation,GCR, gas rate case, and lost and unaccounted for gas depreciation case, see Note 4, Utility Rate Matters, “Consumers’ Gas Utility Rate Matters.”
Enterprises’Enterprises Outlook and 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 uncertaintiesother matters that could have a material impact on CMS Energy’s consolidated income, cash flows, or financial position include:
| • | | the impact of indemnity and environmental remediation obligations at Bay Harbor; |
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| • | | the outcome of certain legal proceedings; |
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| • | | impacts of declines in electricity prices on the impactprofitability of the enterprises segment’s generating units; |
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| • | | representations, warranties, and indemnities provided by CMS Energy or its subsidiaries in connection with theprevious sales of assets; |
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| • | | 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; |
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| • | | changes in various environmental laws, regulations, principles, practices, or in their interpretation; and |
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| • | | the impact of economic conditions in Michigan, including population trends and housing activity. |
For additional details regarding Enterprises’the enterprises segment’s uncertainties, see Note 3, Contingencies and Part II, Item 1. Legal Proceedings.Commitments.
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Other Outlook and Uncertainties
Advanced Metering Infrastructure:Smart Grid:Consumers’ development of a smart grid continues to move forward. The foundation of the smart grid program is an advanced metering infrastructure system is proceeding as planned. This system is designed to provideinfrastructure. The program will include smart meters that are capable of transmitting and receiving data, a two-way communications between Consumersnetwork, and its customersmodifications to Consumers’ existing systems to manage the data and shouldenable changes to key business processes. It is intended to allow Consumers to read meters, receive outage and restoration notification, and turn service on and off without visiting the meter. It should 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.lower peak capacity requirements. Due to this system’s complexity and relative market immaturity, Consumers is using a phased implementation approach that will allow itand intends to analyze, test, and pilot the new technology prior to widespread investment and deployment. Consumers will also make certain modifications to its software to enable the new system. Massbegin deployment of meters in late 2011.
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Health Care Reform:The Patient Protection and Affordable Care Act and the systemrelated Health Care and installationEducation Reconciliation Act (the Health Care Acts) were enacted in March 2010. For taxable years beginning after December 31, 2012, the Health Care Acts repeal the tax deduction for the portion of health care costs that are reimbursed by the Medicare Part D subsidy. This legislation resulted in a $3 million increase to CMS Energy’s tax expense for the six months ended June 30, 2010, and it had no effect on Consumers’ net income. For additional details, see Note 10, Income Taxes.
Union Contract:In April 2010, the Union ratified a new meters is plannedfive-year agreement with Consumers for 2011.operating, maintenance, and construction employees. Consumers’ previous Union agreement was to expire in June 2010.
Litigation:CMS Energy, Consumers, and certain of their subsidiaries are named as a partyparties in various litigation matters, as well as in administrative proceedings before various courts and governmental agencies arising in the ordinary course of business. For additional details regarding these and other legal matters, see Note 3, Contingencies and Part II, Item 1. Legal Proceedings.Commitments and Note 4, Utility Rate Matters.
EnerBank:EnerBank, a wholly owned subsidiary of CMS Capital that represents one percent of CMS Energy’s net assets, is a Utah state-chartered, FDIC-insured industrial bank providing unsecured home improvement loans. The carrying value of EnerBank’s loan portfolio was $196$296 million at June 30, 2009.2010. Its loan portfolio was funded primarily by deposit liabilities of $160 million and borrowings from the U.S. Federal Reserve bank of $19$280 million. Twelve-month rolling average default rates on loans held by EnerBank have risendeclined slightly from 1.42.1 percent at December 31, 20082009 to 2.01.9 percent at June 30, 2009. Due to the economic downturn,2010. EnerBank expects the level of loan defaults to continue to increase throughout the remainderdecline in 2010 and return gradually to historical levels of 2009 and into 2010, returning to lower levels thereafter.about 1.0 percent.
NEW ACCOUNTING STANDARDS
For details regarding the implementation of new accounting standards and new accounting standards issued that are not yet effective, see Note 1, New Accounting Policies.Standards.
3031
CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | In Millions | | |
In Millions | | In Millions | |
| | Three Months Ended | | Six Months Ended | | | Three Months Ended | | Six Months Ended | |
June 30 | | 2009 | | 2008 | | 2009 | | 2008 | | | 2010 | | 2009 | | 2010 | | 2009 | |
| Operating Revenue | | $ | 1,228 | | $ | 1,365 | | $ | 3,334 | | $ | 3,549 | | | $ | 1,340 | | $ | 1,225 | | $ | 3,307 | | $ | 3,329 | |
| | |
Loss from Equity Method Investees | | — | | | (1 | ) | | | (1 | ) | | | (2 | ) | |
| | |
Operating Expenses | | |
Fuel for electric generation | | 118 | | 135 | | 253 | | 297 | | | 151 | | 118 | | 289 | | 253 | |
Purchased and interchange power | | 282 | | 297 | | 571 | | 620 | | | 314 | | 282 | | 592 | | 571 | |
Purchased power — related parties | | | 21 | | — | | 42 | | — | |
Cost of gas sold | | 208 | | 351 | | 1,171 | | 1,335 | | | 178 | | 208 | | 956 | | 1,171 | |
Other operating expenses | | 254 | | 209 | | 481 | | 397 | | |
Maintenance | | 63 | | 49 | | 111 | | 89 | | |
Maintenance and other operating expenses | | | 296 | | 306 | | 571 | | 575 | |
Depreciation and amortization | | 121 | | 128 | | 294 | | 301 | | | 131 | | 121 | | 303 | | 294 | |
General taxes | | 48 | | 48 | | 113 | | 108 | | | 41 | | 48 | | 107 | | 113 | |
Insurance settlement | | | | (50 | ) | | — | | | (50 | ) | | — | |
Gain on asset sales, net | | | (8 | ) | | | (8 | ) | | | (8 | ) | | | (8 | ) | | | (4 | ) | | | (8 | ) | | | (4 | ) | | | (8 | ) |
| | | | |
| | 1,086 | | 1,209 | | 2,986 | | 3,139 | | |
Total operating expenses | | | 1,078 | | 1,075 | | 2,806 | | 2,969 | |
| | | |
Operating Income | | 142 | | 155 | | 347 | | 408 | | | 262 | | 150 | | 501 | | 360 | |
| | |
Other Income (Deductions) | | |
Other Income (Expense) | | |
Interest and dividends | | 6 | | 9 | | 11 | | 18 | | | 4 | | 4 | | 9 | | 8 | |
Regulatory return on capital expenditures | | 6 | | 8 | | 13 | | 16 | | |
Allowance for equity funds used during construction | | | 2 | | 2 | | 3 | | 3 | |
Income (loss) from equity method investees | | | 2 | | — | | 5 | | | (1 | ) |
Other income | | 33 | | 3 | | 38 | | 6 | | | 9 | | 39 | | 18 | | 51 | |
Other expense | | | (3 | ) | | | (5 | ) | | | (5 | ) | | | (6 | ) | | | (3 | ) | | | (3 | ) | | | (5 | ) | | | (5 | ) |
| | | | |
| | 42 | | 15 | | 57 | | 34 | | |
Total other income (expense) | | | 14 | | 42 | | 30 | | 56 | |
| | | |
Interest Charges | | |
Interest on long-term debt | | 95 | | 87 | | 184 | | 176 | | | 98 | | 98 | | 196 | | 190 | |
Interest on long-term debt — related parties | | 3 | | 4 | | 6 | | 7 | | |
Other interest | | 8 | | 7 | | 16 | | 18 | | | 20 | | 8 | | 28 | | 16 | |
Capitalized interest | | | (1 | ) | | | (1 | ) | | | (2 | ) | | | (3 | ) | |
Allowance for borrowed funds used during construction | | | | (1 | ) | | | (1 | ) | | | (2 | ) | | | (2 | ) |
| | | | |
| | 105 | | 97 | | 204 | | 198 | | |
Total interest charges | | | 117 | | 105 | | 222 | | 204 | |
| | | |
Income Before Income Taxes | | 79 | | 73 | | 200 | | 244 | | | 159 | | 87 | | 309 | | 212 | |
Income Tax Expense | | 29 | | 24 | | 77 | | 87 | | | 59 | | 32 | | 120 | | 82 | |
| | | | |
| | |
Income from Continuing Operations | | 50 | | 49 | | 123 | | 157 | | |
Income (Loss) From Discontinued Operations, Net of Tax (Tax Benefit) of $19, $(1), $19 and $(1) | | 29 | | | (1 | ) | | 29 | | | (1 | ) | |
Income From Continuing Operations | | | 100 | | 55 | | 189 | | 130 | |
Income (Loss) From Discontinued Operations, Net of Tax Expense of $6, $17, $5 and $16 | | | | (16 | ) | | 25 | | | (17 | ) | | 24 | |
| | | | |
| | |
Net Income | | 79 | | 48 | | 152 | | 156 | | | 84 | | 80 | | 172 | | 154 | |
Income Attributable to Noncontrolling Interests | | 2 | | 1 | | 3 | | 4 | | | 2 | | 2 | | 2 | | 3 | |
| | | | |
| | |
Net Income Attributable to CMS Energy | | 77 | | 47 | | 149 | | 152 | | | 82 | | 78 | | 170 | | 151 | |
Preferred Stock Dividends | | 3 | | 3 | | 6 | | 6 | | | 2 | | 3 | | 5 | | 6 | |
| | | | |
| | |
Net Income Available to Common Stockholders | | $ | 74 | | $ | 44 | | $ | 143 | | $ | 146 | | | $ | 80 | | $ | 75 | | $ | 165 | | $ | 145 | |
|
The accompanying notes are an integral part of these statements.
31
| | | | | | | | | | | | | | | | |
| | | | | | In Millions, Except Per Share Amounts | |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
CMS Energy | | | | | | | | | | | | | | | | |
Net Income Available to Common Stockholders | | $ | 74 | | | $ | 44 | | | $ | 143 | | | $ | 146 | |
| | |
| | | | | | | | | | | | | | | | |
Basic Earnings Per Average Common Share | | | | | | | | | | | | | | | | |
Income from Continuing Operations | | $ | 0.20 | | | $ | 0.21 | | | $ | 0.50 | | | $ | 0.65 | |
Income (Loss) from Discontinued Operations | | | 0.13 | | | | (0.01 | ) | | | 0.13 | | | | (0.01 | ) |
| | |
Net Income Attributable to Common Stock | | $ | 0.33 | | | $ | 0.20 | | | $ | 0.63 | | | $ | 0.64 | |
| | |
| | | | | | | | | | | | | | | | |
Diluted Earnings Per Average Common Share | | | | | | | | | | | | | | | | |
Income from Continuing Operations | | $ | 0.19 | | | $ | 0.19 | | | $ | 0.48 | | | $ | 0.61 | |
Income (Loss) from Discontinued Operations | | | 0.13 | | | | (0.01 | ) | | | 0.13 | | | | (0.01 | ) |
| | |
Net Income Attributable to Common Stock | | $ | 0.32 | | | $ | 0.18 | | | $ | 0.61 | | | $ | 0.60 | |
| | |
| | | | | | | | | | | | | | | | |
Dividends Declared Per Common Share | | $ | 0.125 | | | $ | 0.09 | | | $ | 0.25 | | | $ | 0.18 | |
|
32
(This page intentionally left blank) | | | | | | | | | | | | | | | | |
In Millions, Except Per Share Amounts |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
|
Net Income Attributable to Common Stockholders | | | | | | | | | | | | | | | | |
Amounts Attributable to Continuing Operations | | $ | 96 | | | $ | 50 | | | $ | 182 | | | $ | 121 | |
Amounts Attributable to Discontinued Operations | | | (16 | ) | | | 25 | | | | (17 | ) | | | 24 | |
| | |
Net Income Available to Common Stockholders | | $ | 80 | | | $ | 75 | | | $ | 165 | | | $ | 145 | |
| | |
| | | | | | | | | | | | | | | | |
Income Attributable to Noncontrolling Interests | | | | | | | | | | | | | | | | |
Amounts Attributable to Continuing Operations | | $ | 2 | | | $ | 2 | | | $ | 2 | | | $ | 3 | |
Amounts Attributable to Discontinued Operations | | | — | | | | — | | | | — | | | | — | |
| | |
Income Attributable to Noncontrolling Interests | | $ | 2 | | | $ | 2 | | | $ | 2 | | | $ | 3 | |
| | |
| | | | | | | | | | | | | | | | |
Basic Earnings Per Average Common Share | | | | | | | | | | | | | | | | |
Basic Earnings from Continuing Operations | | $ | 0.42 | | | $ | 0.22 | | | $ | 0.80 | | | $ | 0.53 | |
Basic Earnings (Loss) from Discontinued Operations | | | (0.07 | ) | | | 0.11 | | | | (0.08 | ) | | | 0.11 | |
| | |
Basic Earnings Attributable to Common Stock | | $ | 0.35 | | | $ | 0.33 | | | $ | 0.72 | | | $ | 0.64 | |
| | |
| | | | | | | | | | | | | | | | |
Diluted Earnings Per Average Common Share | | | | | | | | | | | | | | | | |
Diluted Earnings from Continuing Operations | | $ | 0.39 | | | $ | 0.21 | | | $ | 0.74 | | | $ | 0.52 | |
Diluted Earnings (Loss) from Discontinued Operations | | | (0.07 | ) | | | 0.11 | | | | (0.07 | ) | | | 0.10 | |
| | |
Diluted Earnings Attributable to Common Stock | | $ | 0.32 | | | $ | 0.32 | | | $ | 0.67 | | | $ | 0.62 | |
| | |
| | | | | | | | | | | | | | | | |
Dividends Declared Per Common Share | | $ | 0.15 | | | $ | 0.125 | | | $ | 0.30 | | | $ | 0.25 | |
|
33
CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | | | | | | |
| | In Millions | | |
In Millions | | In Millions | |
Six Months Ended June 30 | | 2009 | | 2008 | | | 2010 | | 2009 | |
| Cash Flows from Operating Activities | | |
Net income attributable to CMS Energy | | $ | 149 | | $ | 152 | | |
Adjustments to reconcile net income attributable to CMS Energy to net cash provided by operating activities | | |
Net Income | | | $ | 172 | | $ | 154 | |
Adjustments to reconcile net income to net cash provided by operating activities | | |
Depreciation and amortization | | 294 | | 301 | | | 303 | | 294 | |
Deferred income taxes and investment tax credit | | 94 | | 81 | | | 107 | | 94 | |
Income attributable to noncontrolling interests | | 3 | | 4 | | |
Regulatory return on capital expenditures | | | (13 | ) | | | (16 | ) | |
Postretirement benefits expense | | 91 | | 76 | | | 88 | | 91 | |
Allowance for equity funds used during construction | | | | (3 | ) | | | (3 | ) |
Capital lease and other amortization | | 19 | | 23 | | | 20 | | 19 | |
Gain on indemnification | | | (50 | ) | | — | | |
Gain on sale of assets | | | (3 | ) | | | (8 | ) | |
Gain on extinguishment of long-term debt — related parties | | | (28 | ) | | — | | |
Increase in environmental remediation accrual | | 35 | | — | | |
Bad debt expense | | 34 | | 17 | | | 32 | | 34 | |
Loss from equity method investees | | 1 | | 2 | | |
Gain on expiration of indemnification | | | — | | | (50 | ) |
Gain on extinguishment of long-term debt, related parties | | | — | | | (28 | ) |
Other non-cash operating activities | | | | (8 | ) | | | (15 | ) |
Postretirement benefits contributions | | | (232 | ) | | | (25 | ) | | | (153 | ) | | | (232 | ) |
Electric sales contract termination payment | | — | | | (275 | ) | |
Changes in other assets and liabilities: | | |
Decrease in accounts receivable and accrued revenue | | 115 | | 187 | | |
Decrease in accrued power supply and gas revenue | | 5 | | 40 | | |
Decrease in accounts receivable, notes receivable, and accrued revenue | | | 178 | | 115 | |
Decrease in accrued power supply revenue | | | 22 | | 5 | |
Decrease in inventories | | 267 | | 139 | | | 230 | | 267 | |
Increase (decrease) in accounts payable | | | (26 | ) | | 3 | | | 41 | | | (26 | ) |
Decrease in accrued expenses | | | (7 | ) | | | (49 | ) | | | (51 | ) | | | (5 | ) |
Decrease in other current and non-current assets | | 110 | | 111 | | | 88 | | 104 | |
Decrease in other current and non-current liabilities | | | (55 | ) | | | (112 | ) | | | (18 | ) | | | (18 | ) |
| | | | |
Net cash provided by operating activities | | 803 | | 651 | | | 1,048 | | 800 | |
| | | |
Cash Flows from Investing Activities | | |
Capital expenditures (excludes assets placed under capital lease) | | | (412 | ) | | | (340 | ) | | | (424 | ) | | | (409 | ) |
Cost to retire property | | | (25 | ) | | | (12 | ) | | | (20 | ) | | | (25 | ) |
Proceeds for sale of assets | | 7 | | — | | |
Proceeds from sale of assets | | | 3 | | 7 | |
Cash effect of deconsolidation of partnerships | | | | (10 | ) | | — | |
Restricted cash and cash equivalents | | 6 | | 7 | | | | (1 | ) | | 6 | |
Other investing | | | (12 | ) | | 1 | | |
Other investing activities | | | | (38 | ) | | | (12 | ) |
| | | | |
Net cash used in investing activities | | | (436 | ) | | | (344 | ) | | | (490 | ) | | | (433 | ) |
| | | |
Cash Flows from Financing Activities | | |
Proceeds from issuance of long-term debt | | 973 | | 475 | | | 300 | | 973 | |
Proceeds from EnerBank notes, net | | 4 | | 7 | | | 66 | | 4 | |
Issuance of common stock | | 5 | | 4 | | | 5 | | 5 | |
Retirement of bonds and other long-term debt, including related parties | | | (443 | ) | | | (550 | ) | |
Retirement of long-term debt | | | | (352 | ) | | | (443 | ) |
Payment of common stock dividends | | | (57 | ) | | | (41 | ) | | | (69 | ) | | | (57 | ) |
Payment of preferred stock dividends | | | (6 | ) | | | (6 | ) | | | (5 | ) | | | (6 | ) |
Payment of capital and finance lease obligations | | | (12 | ) | | | (12 | ) | | | (12 | ) | | | (12 | ) |
Debt issuance costs, financing fees, and other | | | (19 | ) | | | (5 | ) | |
Other financing costs | | | | (44 | ) | | | (19 | ) |
| | | | |
Net cash provided by (used in) financing activities | | 445 | | | (128 | ) | |
Net cash (used in) provided by financing activities | | | | (111 | ) | | 445 | |
| | |
| | |
Net Increase in Cash and Cash Equivalents, Including Assets Held for Sale | | | 447 | | 812 | |
Decrease (Increase) in Cash and Cash Equivalents Included in Assets Held for Sale | | | | (1 | ) | | 4 | |
| | | |
| | |
Net Increase in Cash and Cash Equivalents | | 812 | | 179 | | | 446 | | 816 | |
| | |
Cash and Cash Equivalents, Beginning of Period | | 213 | | 348 | | | 90 | | 207 | |
| | | | |
| | |
Cash and Cash Equivalents, End of Period | | $ | 1,025 | | $ | 527 | | | $ | 536 | | $ | 1,023 | |
|
The accompanying notes are an integral part of these statements.
34
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CMS Energy Corporation
Consolidated Balance Sheets
(Unaudited)
ASSETS
| | | | | | | | |
| | | | | | In Millions | |
| | June 30 | | | December 31 | |
| | 2009 | | | 2008 | |
|
Plant and Property (at cost) | | | | | | | | |
Electric utility | | $ | 9,235 | | | $ | 8,965 | |
Gas utility | | | 3,667 | | | | 3,622 | |
Enterprises | | | 395 | | | | 390 | |
Other | | | 33 | | | | 33 | |
| | |
| | | 13,330 | | | | 13,010 | |
Less accumulated depreciation, depletion and amortization | | | 4,462 | | | | 4,428 | |
| | |
| | | 8,868 | | | | 8,582 | |
Construction work in progress | | | 553 | | | | 608 | |
| | |
| | | 9,421 | | | | 9,190 | |
|
| | | | | | | | |
Investments | | | | | | | | |
Enterprises | | | 4 | | | | 5 | |
Other | | | 6 | | | | 6 | |
| | |
| | | 10 | | | | 11 | |
|
| | | | | | | | |
Current Assets | | | | | | | | |
Cash and cash equivalents | | | 1,025 | | | | 213 | |
Restricted cash and cash equivalents | | | 31 | | | | 35 | |
Accounts receivable and accrued revenue, less allowances of $31 in 2009 and $26 in 2008 | | | 701 | | | | 851 | |
Notes receivable | | | 87 | | | | 95 | |
Accrued power supply and gas revenue | | | 2 | | | | 7 | |
Inventories at average cost | | | | | | | | |
Gas in underground storage | | | 887 | | | | 1,168 | |
Materials and supplies | | | 115 | | | | 110 | |
Generating plant fuel stock | | | 136 | | | | 127 | |
Deferred property taxes | | | 128 | | | | 165 | |
Regulatory assets — postretirement benefits | | | 19 | | | | 19 | |
Prepayments and other | | | 25 | | | | 37 | |
| | |
| | | 3,156 | | | | 2,827 | |
|
| | | | | | | | |
Non-current Assets | | | | | | | | |
Regulatory assets | | | | | | | | |
Securitized costs | | | 392 | | | | 416 | |
Postretirement benefits | | | 1,386 | | | | 1,431 | |
Customer Choice Act | | | 68 | | | | 90 | |
Other | | | 469 | | | | 482 | |
Notes receivable, less allowances of $5 in 2009 and $34 in 2008 | | | 196 | | | | 186 | |
Other | | | 179 | | | | 268 | |
| | |
| | | 2,690 | | | | 2,873 | |
|
| | | | | | | | |
Total Assets | | $ | 15,277 | | | $ | 14,901 | |
|
| | | | | | | | |
| | In Millions | |
| | June 30 | | | December 31 | |
| | 2010 | | | 2009 | |
|
Current Assets | | | | | | | | |
Cash and cash equivalents | | $ | 536 | | | $ | 90 | |
Restricted cash and cash equivalents | | | 22 | | | | 32 | |
Accounts receivable and accrued revenue, less allowances of $23 in 2010 and $23 in 2009 | | | 697 | | | | 948 | |
Notes receivable | | | 72 | | | | 81 | |
Accrued power supply revenue | | | 26 | | | | 48 | |
Accounts receivable — related parties | | | 8 | | | | — | |
Inventories at average cost | | | | | | | | |
Gas in underground storage | | | 842 | | | | 1,043 | |
Materials and supplies | | | 104 | | | | 118 | |
Generating plant fuel stock | | | 131 | | | | 158 | |
Deferred property taxes | | | 127 | | | | 172 | |
Regulatory assets | | | 19 | | | | 19 | |
Assets held for sale | | | 2 | | | | 2 | |
Prepayments and other current assets | | | 35 | | | | 31 | |
| | |
Total current assets | | | 2,621 | | | | 2,742 | |
|
| | | | | | | | |
Plant, Property & Equipment (at cost) | | | | | | | | |
Plant, property & equipment, gross | | | 13,727 | | | | 13,716 | |
Less accumulated depreciation, depletion, and amortization | | | 4,566 | | | | 4,540 | |
| | |
Plant, property & equipment, net | | | 9,161 | | | | 9,176 | |
Construction work in progress | | | 643 | | | | 506 | |
| | |
Total plant, property & equipment | | | 9,804 | | | | 9,682 | |
|
| | | | | | | | |
Non-current Assets | | | | | | | | |
Regulatory assets | | | 2,085 | | | | 2,291 | |
Notes receivable, less allowances of $5 in 2010 and $6 in 2009 | | | 286 | | | | 269 | |
Investments | | | 52 | | | | 9 | |
Assets held for sale | | | 6 | | | | 9 | |
Other non-current assets | | | 197 | | | | 254 | |
| | |
Total non-current assets | | | 2,626 | | | | 2,832 | |
|
| | | | | | | | |
Total Assets | | $ | 15,051 | | | $ | 15,256 | |
|
The accompanying notes are an integral part of these statements.
3536
STOCKHOLDERS’ INVESTMENTLIABILITIES AND LIABILITIESEQUITY
| | | | | | | | | | | | | | | | |
| | In Millions | | |
| | June 30 | | December 31 | | |
| | 2009 | | 2008 | | |
| |
Capitalization | | |
Common stockholders’ equity | | |
Common stock, authorized 350.0 shares; outstanding 227.0 shares in 2009 and 226.4 shares in 2008 | | $ | 2 | | $ | 2 | | |
Other paid-in capital | | 4,552 | | 4,533 | | |
Accumulated other comprehensive loss | | | (27 | ) | | | (28 | ) | |
Accumulated deficit | | | (1,945 | ) | | | (2,031 | ) | |
| | | |
| | 2,582 | | 2,476 | | |
Noncontrolling interests | | 51 | | 52 | | |
Preferred stock of subsidiary | | 44 | | 44 | | |
Preferred stock | | 243 | | 243 | | |
| | | |
Total equity | | 2,920 | | 2,815 | | |
| | |
Long-term debt | | 6,356 | | 5,837 | | |
Long-term debt — related parties | | 34 | | 178 | | |
Non-current portion of capital and finance lease obligations | | 197 | | 206 | | |
| | | | In Millions | |
| | 9,507 | | 9,036 | | | June 30 | | December 31 | |
| | | 2010 | | 2009 | |
| | |
Current Liabilities | | |
Current portion of long-term debt, capital and finance lease obligations | | 604 | | 514 | | | $ | 653 | | $ | 694 | |
Notes payable | | 19 | | — | | | — | | 40 | |
Accounts payable | | 406 | | 466 | | | 451 | | 509 | |
Accrued rate refunds | | 58 | | 7 | | | 12 | | 21 | |
Accounts payable — related parties | | | 9 | | — | |
Accrued interest | | 113 | | 107 | | | 101 | | 96 | |
Accrued taxes | | 225 | | 289 | | | 230 | | 283 | |
Deferred income taxes | | 129 | | 100 | | | 51 | | 43 | |
Regulatory liabilities | | 114 | | 120 | | | 111 | | 145 | |
Other | | 155 | | 260 | | |
Liabilities held for sale | | | 1 | | — | |
Other current liabilities | | | 117 | | 123 | |
| | | | |
| | 1,823 | | 1,863 | | |
Total current liabilities | | | 1,736 | | 1,954 | |
| | | |
Non-current Liabilities | | |
Long-term debt | | | 5,883 | | 5,895 | |
Non-current portion of capital and finance lease obligations | | | 196 | | 197 | |
Regulatory liabilities | | | 1,943 | | 1,991 | |
Cost of removal | | 1,227 | | 1,203 | | |
Income taxes, net | | 532 | | 519 | | |
Other | | 146 | | 146 | | |
Postretirement benefits | | 1,324 | | 1,502 | | | 1,276 | | 1,460 | |
Asset retirement obligation | | 211 | | 206 | | |
Asset retirement obligations | | | 235 | | 229 | |
Deferred investment tax credit | | 53 | | 54 | | | 49 | | 51 | |
Deferred income taxes | | 114 | | 55 | | | 444 | | 231 | |
Other | | 340 | | 317 | | |
Other non-current liabilities | | | 296 | | 310 | |
| | | |
Total non-current liabilities | | | 10,322 | | 10,364 | |
| | | |
| | 3,947 | | 4,002 | | |
Commitments and Contingencies(Notes 3, 4, 5, 7 and 8) | | |
| | |
Equity | | |
Common stockholders’ equity | | |
Common stock, authorized 350.0 shares; outstanding 228.3 shares in 2010 and 227.9 shares in 2009 | | | 2 | | 2 | |
Other paid-in capital | | | 4,569 | | 4,560 | |
Accumulated other comprehensive loss | | | | (31 | ) | | | (33 | ) |
Accumulated deficit | | | | (1,831 | ) | | | (1,927 | ) |
| | | |
Total common stockholders’ equity | | | 2,709 | | 2,602 | |
Preferred stock | | | 239 | | 239 | |
Noncontrolling interests | | | 45 | | 97 | |
| | | |
Total equity | | | 2,993 | | 2,938 | |
| | |
Commitments and Contingencies(Notes 3, 5 and 7) | | |
Total Liabilities and Equity | | | $ | 15,051 | | $ | 15,256 | |
| | |
Total Stockholders’ Investment and Liabilities | | $ | 15,277 | | $ | 14,901 | | |
| |
3637
CMS Energy Corporation
Consolidated Statements of Common Stockholders’Changes in Equity
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | In Millions | |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Common Stock | | | | | | | | | | | | | | | | |
At beginning and end of period | | $ | 2 | | | $ | 2 | | | $ | 2 | | | $ | 2 | |
|
| | | | | | | | | | | | | | | | |
Other Paid-in Capital | | | | | | | | | | | | | | | | |
At beginning of period | | | 4,538 | | | | 4,520 | | | | 4,533 | | | | 4,517 | |
Common stock issued | | | 3 | | | | 5 | | | | 8 | | | | 8 | |
Conversion option on convertible debt | | | 11 | | | | — | | | | 11 | | | | — | |
| | |
At end of period | | | 4,552 | | | | 4,525 | | | | 4,552 | | | | 4,525 | |
|
| | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | | |
Retirement benefits liability | | | | | | | | | | | | | | | | |
At beginning of period | | | (27 | ) | | | (16 | ) | | | (27 | ) | | | (15 | ) |
Retirement benefits liability adjustments (a) | | | — | | | | — | | | | — | | | | (1 | ) |
| | |
At end of period | | | (27 | ) | | | (16 | ) | | | (27 | ) | | | (16 | ) |
| | |
| | | | | | | | | | | | | | | | |
Investments | | | | | | | | | | | | | | | | |
At beginning of period | | | (4 | ) | | | (4 | ) | | | — | | | | — | |
Unrealized gain (loss) on investments (a) | | | 5 | | | | (1 | ) | | | 1 | | | | (5 | ) |
| | |
At end of period | | | 1 | | | | (5 | ) | | | 1 | | | | (5 | ) |
| | |
| | | | | | | | | | | | | | | | |
Derivative instruments | | | | | | | | | | | | | | | | |
At beginning and end of period | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | (1 | ) |
| | |
| | | | | | | | | | | | | | | | |
Foreign currency translation | | | | | | | | | | | | | | | | |
At beginning of period | | | — | | | | (128 | ) | | | — | | | | (128 | ) |
Sale of interests in TGN (a) | | | — | | | | 128 | | | | — | | | | 128 | |
| | |
At end of period | | | — | | | | — | | | | — | | | | — | |
| | |
| | | | | | | | | | | | | | | | |
Total Accumulated Other Comprehensive Loss | | | (27 | ) | | | (22 | ) | | | (27 | ) | | | (22 | ) |
|
| | | | | | | | | | | | | | | | |
Accumulated Deficit | | | | | | | | | | | | | | | | |
At beginning of period | | | (1,991 | ) | | | (2,151 | ) | | | (2,031 | ) | | | (2,227 | ) |
Effects of changing the retirement plans measurement date pursuant to SFAS No. 158 | | | | | | | | | | | | | | | | |
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 | ) |
Net income attributable to CMS Energy (a) | | | 77 | | | | 47 | | | | 149 | | | | 152 | |
Preferred stock dividends declared | | | (3 | ) | | | (3 | ) | | | (6 | ) | | | (6 | ) |
Common stock dividends declared | | | (28 | ) | | | (21 | ) | | | (57 | ) | | | (41 | ) |
| | |
At end of period | | | (1,945 | ) | | | (2,128 | ) | | | (1,945 | ) | | | (2,128 | ) |
| | |
| | | | | | | | | | | | | | | | |
Total Common Stockholders’ Equity | | $ | 2,582 | | | $ | 2,377 | | | $ | 2,582 | | | $ | 2,377 | |
|
The accompanying notes are an integral part of these statements.
37
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | In Millions | |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
(a) Disclosure of Comprehensive Income: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net income attributable to CMS Energy | | $ | 77 | | | $ | 47 | | | $ | 149 | | | $ | 152 | |
| | | | | | | | | | | | | | | | |
Retirement benefits liability adjustments, net of tax of $-, $-, $-, and $2, respectively | | | — | | | | — | | | | — | | | | (1 | ) |
| | | | | | | | | | | | | | | | |
Unrealized gain (loss) on investments, net of tax (tax benefit) of $-, $(1), $-, and $(3), respectively | | | 5 | | | | (1 | ) | | | 1 | | | | (5 | ) |
| | | | | | | | | | | | | | | | |
Sale of interests in TGN, net of tax of $69 | | | — | | | | 128 | | | | — | | | | 128 | |
| | |
| | | | | | | | | | | | | | | | |
Total Comprehensive Income | | $ | 82 | | | $ | 174 | | | $ | 150 | | | $ | 274 | |
| | |
| | | | | | | | | | | | | | | | |
| | In Millions | |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
|
Common Stock | | | | | | | | | | | | | | | | |
At beginning and end of period | | $ | 2 | | | $ | 2 | | | $ | 2 | | | $ | 2 | |
|
| | | | | | | | | | | | | | | | |
Other Paid-in Capital | | | | | | | | | | | | | | | | |
At beginning of period | | | 4,564 | | | | 4,538 | | | | 4,560 | | | | 4,533 | |
Common stock issued | | | 6 | | | | 3 | | | | 10 | | | | 8 | |
Common stock repurchased | | | (1 | ) | | | — | | | | (1 | ) | | | — | |
Conversion option on convertible debt | | | — | | | | 11 | | | | — | | | | 11 | |
| | |
At end of period | | | 4,569 | | | | 4,552 | | | | 4,569 | | | | 4,552 | |
|
| | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | | |
Retirement benefits liability | | | | | | | | | | | | | | | | |
At beginning of period | | | (31 | ) | | | (27 | ) | | | (32 | ) | | | (27 | ) |
Retirement benefits liability adjustments (a) | | | 1 | | | | — | | | | 2 | | | | — | |
| | |
At end of period | | | (30 | ) | | | (27 | ) | | | (30 | ) | | | (27 | ) |
| | |
|
Investments | | | | | | | | | | | | | | | | |
At beginning of period | | | — | | | | (4 | ) | | | — | | | | — | |
Unrealized gain on investments (a) | | | — | | | | 5 | | | | — | | | | 1 | |
| | |
At end of period | | | — | | | | 1 | | | | — | | | | 1 | |
| | |
|
Derivative instruments | | | | | | | | | | | | | | | | |
At beginning and end of period | | | (1 | ) | | | (1 | ) | | | (1 | ) | | | (1 | ) |
| | |
|
At end of period | | | (31 | ) | | | (27 | ) | | | (31 | ) | | | (27 | ) |
|
| | | | | | | | | | | | | | | | |
Accumulated Deficit | | | | | | | | | | | | | | | | |
At beginning of period | | | (1,876 | ) | | | (1,990 | ) | | | (1,927 | ) | | | (2,031 | ) |
Net income attributable to CMS Energy (a) | | | 82 | | | | 78 | | | | 170 | | | | 151 | |
Common stock dividends declared | | | (35 | ) | | | (28 | ) | | | (69 | ) | | | (57 | ) |
Preferred stock dividends declared | | | (2 | ) | | | (3 | ) | | | (5 | ) | | | (6 | ) |
| | |
At end of period | | | (1,831 | ) | | | (1,943 | ) | | | (1,831 | ) | | | (1,943 | ) |
|
| | | | | | | | | | | | | | | | |
Preferred Stock | | | | | | | | | | | | | | | | |
At beginning and end of period | | | 239 | | | | 243 | | | | 239 | | | | 243 | |
|
| | | | | | | | | | | | | | | | |
Noncontrolling Interests | | | | | | | | | | | | | | | | |
At beginning of period | | | 44 | | | | 96 | | | | 97 | | | | 96 | |
Income attributable to noncontrolling interests (a) | | | 2 | | | | 2 | | | | 2 | | | | 3 | |
Distributions and other changes in noncontrolling interests | | | (1 | ) | | | (3 | ) | | | (54 | ) | | | (4 | ) |
| | |
At end of period | | | 45 | | | | 95 | | | | 45 | | | | 95 | |
|
|
Total Equity | | $ | 2,993 | | | $ | 2,922 | | | $ | 2,993 | | | $ | 2,922 | |
|
38
ConsumersCMS Energy Company
Corporation
Consolidated Statements of Income
Changes in Equity
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | In Millions | |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Operating Revenue | | $ | 1,184 | | | $ | 1,263 | | | $ | 3,218 | | | $ | 3,354 | |
| | | | | | | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | | | | | | |
Fuel for electric generation | | | 105 | | | | 118 | | | | 216 | | | | 245 | |
Purchased and interchange power | | | 280 | | | | 293 | | | | 564 | | | | 610 | |
Purchased power — related parties | | | 17 | | | | 17 | | | | 35 | | | | 37 | |
Cost of gas sold | | | 195 | | | | 289 | | | | 1,131 | | | | 1,233 | |
Other operating expenses | | | 200 | | | | 194 | | | | 409 | | | | 364 | |
Maintenance | | | 54 | | | | 44 | | | | 98 | | | | 80 | |
Depreciation and amortization | | | 118 | | | | 124 | | | | 288 | | | | 294 | |
General taxes | | | 46 | | | | 45 | | | | 107 | | | | 102 | |
Gain on asset sales, net | | | (3 | ) | | | — | | | | (3 | ) | | | — | |
| | |
| | | 1,012 | | | | 1,124 | | | | 2,845 | | | | 2,965 | |
|
| | | | | | | | | | | | | | | | |
Operating Income | | | 172 | | | | 139 | | | | 373 | | | | 389 | |
| | | | | | | | | | | | | | | | |
Other Income (Deductions) | | | | | | | | | | | | | | | | |
Interest | | | 5 | | | | 9 | | | | 10 | | | | 16 | |
Regulatory return on capital expenditures | | | 6 | | | | 8 | | | | 13 | | | | 16 | |
Other income | | | 3 | | | | 2 | | | | 8 | | | | 5 | |
Other expense | | | (2 | ) | | | (5 | ) | | | (4 | ) | | | (6 | ) |
| | |
| | | 12 | | | | 14 | | | | 27 | | | | 31 | |
|
| | | | | | | | | | | | | | | | |
Interest Charges | | | | | | | | | | | | | | | | |
Interest on long-term debt | | | 65 | | | | 55 | | | | 124 | | | | 113 | |
Other interest | | | 5 | | | | 4 | | | | 10 | | | | 11 | |
Capitalized interest | | | (1 | ) | | | (1 | ) | | | (2 | ) | | | (3 | ) |
| | |
| | | 69 | | | | 58 | | | | 132 | | | | 121 | |
|
| | | | | | | | | | | | | | | | |
Income Before Income Taxes | | | 115 | | | | 95 | | | | 268 | | | | 299 | |
| | | | | | | | | | | | | | | | |
Income Tax Expense | | | 44 | | | | 35 | | | | 99 | | | | 109 | |
| | |
| | | | | | | | | | | | | | | | |
Net Income | | | 71 | | | | 60 | | | | 169 | | | | 190 | |
| | | | | | | | | | | | | | | | |
Preferred Stock Dividends | | | — | | | | — | | | | 1 | | | | 1 | |
| | |
| | | | | | | | | | | | | | | | |
Net Income Available to Common Stockholder | | $ | 71 | | | $ | 60 | | | $ | 168 | | | $ | 189 | |
|
| | | | | | | | | | | | | | | | |
| | In Millions | |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
|
(a) Disclosure of Comprehensive Income: | | | | | | | | | | | | | | | | |
|
Net income | | $ | 84 | | | $ | 80 | | | $ | 172 | | | $ | 154 | |
Income attributable to noncontrolling interests | | | 2 | | | | 2 | | | | 2 | | | | 3 | |
| | |
Net income attributable to CMS Energy | | $ | 82 | | | $ | 78 | | | $ | 170 | | | $ | 151 | |
| | | | | | | | | | | | | | | | |
Retirement benefits liability: | | | | | | | | | | | | | | | | |
Retirement benefits liability adjustments, net of tax of $2, $-, $1, and $-, respectively | | | 1 | | | | — | | | | 2 | | | | — | |
| | | | | | | | | | | | | | | | |
Investments: | | | | | | | | | | | | | | | | |
Unrealized gain on investments, net of tax of $-, $-, $-, and $-, respectively | | | — | | | | 5 | | | | — | | | | 1 | |
| | |
| | | | | | | | | | | | | | | | |
Total Comprehensive Income | | $ | 83 | | | $ | 83 | | | $ | 172 | | | $ | 152 | |
| | |
The accompanying notes are an integral part of these statements.
39
Consumers Energy Company
Consolidated Statements of Cash FlowsIncome
(Unaudited)
| | | | | | | | |
| | | | | | In Millions | |
Six Months Ended June 30 | | 2009 | | | 2008 | |
|
Cash Flows from Operating Activities | | | | | | | | |
Net income | | $ | 169 | | | $ | 190 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | |
Depreciation and amortization | | | 288 | | | | 294 | |
Deferred income taxes and investment tax credit | | | 46 | | | | 44 | |
Regulatory return on capital expenditures | | | (13 | ) | | | (16 | ) |
Postretirement benefits expense | | | 89 | | | | 74 | |
Capital lease and other amortization | | | 13 | | | | 16 | |
Bad debt expense | | | 30 | | | | 16 | |
Gain on sale of assets | | | (3 | ) | | | — | |
Postretirement benefits contributions | | | (225 | ) | | | (24 | ) |
Changes in assets and liabilities: | | | | | | | | |
Decrease in accounts receivable, notes receivable and accrued revenue | | | 114 | | | | 199 | |
Decrease in accrued power supply and gas revenue | | | 5 | | | | 40 | |
Decrease in inventories | | | 266 | | | | 122 | |
Decrease in accounts payable | | | (20 | ) | | | (3 | ) |
Increase in accrued expenses | | | 2 | | | | 7 | |
Decrease in other current and non-current assets | | | 112 | | | | 101 | |
Decrease in other current and non-current liabilities | | | (17 | ) | | | (106 | ) |
| | |
Net cash provided by operating activities | | | 856 | | | | 954 | |
|
| | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | |
Capital expenditures (excludes assets placed under capital lease) | | | (407 | ) | | | (338 | ) |
Cost to retire property | | | (25 | ) | | | (12 | ) |
Proceeds from sale of assets | | | 7 | | | | — | |
Restricted cash and cash equivalents | | | 2 | | | | 5 | |
| | |
Net cash used in investing activities | | | (423 | ) | | | (345 | ) |
|
| | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | |
Proceeds from issuance of long-term debt | | | 500 | | | | 250 | |
Retirement of long-term debt | | | (218 | ) | | | (426 | ) |
Payment of common stock dividends | | | (130 | ) | | | (168 | ) |
Payment of capital and finance lease obligations | | | (12 | ) | | | (12 | ) |
Stockholder’s contribution | | | 100 | | | | — | |
Payment of preferred stock dividends | | | (1 | ) | | | (1 | ) |
Debt issuance and financing costs | | | (4 | ) | | | (4 | ) |
| | |
Net cash provided by (used in) financing activities | | | 235 | | | | (361 | ) |
|
| | | | | | | | |
Net Increase in Cash and Cash Equivalents | | | 668 | | | | 248 | |
| | | | | | | | |
Cash and Cash Equivalents, Beginning of Period | | | 69 | | | | 195 | |
| | |
| | | | | | | | |
Cash and Cash Equivalents, End of Period | | $ | 737 | | | $ | 443 | |
|
| | | | | | | | | | | | | | | | |
In Millions | |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
|
Operating Revenue | | $ | 1,276 | | | $ | 1,182 | | | $ | 3,166 | | | $ | 3,216 | |
| | | | | | | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | | | | | | |
Fuel for electric generation | | | 125 | | | | 105 | | | | 250 | | | | 216 | |
Purchased and interchange power | | | 310 | | | | 280 | | | | 587 | | | | 564 | |
Purchased power — related parties | | | 20 | | | | 17 | | | | 41 | | | | 35 | |
Cost of gas sold | | | 163 | | | | 195 | | | | 909 | | | | 1,131 | |
Maintenance and other operating expenses | | | 281 | | | | 250 | | | | 543 | | | | 501 | |
Depreciation and amortization | | | 130 | | | | 118 | | | | 301 | | | | 288 | |
General taxes | | | 40 | | | | 46 | | | | 104 | | | | 107 | |
Gain on asset sales, net | | | — | | | | (3 | ) | | | — | | | | (3 | ) |
| | |
Total operating expenses | | | 1,069 | | | | 1,008 | | | | 2,735 | | | | 2,839 | |
|
| | | | | | | | | | | | | | | | |
Operating Income | | | 207 | | | | 174 | | | | 431 | | | | 377 | |
| | | | | | | | | | | | | | | | |
Other Income (Expense) | | | | | | | | | | | | | | | | |
Interest and dividends | | | 4 | | | | 3 | | | | 9 | | | | 7 | |
Allowance for equity funds used during construction | | | 2 | | | | 2 | | | | 3 | | | | 3 | |
Other income | | | 9 | | | | 9 | | | | 18 | | | | 21 | |
Other expense | | | (3 | ) | | | (2 | ) | | | (5 | ) | | | (4 | ) |
| | |
Total other income (expense) | | | 12 | | | | 12 | | | | 25 | | | | 27 | |
|
| | | | | | | | | | | | | | | | |
Interest Charges | | | | | | | | | | | | | | | | |
Interest on long-term debt | | | 60 | | | | 65 | | | | 123 | | | | 124 | |
Other interest | | | 19 | | | | 5 | | | | 25 | | | | 10 | |
Allowance for borrowed funds used during construction | | | (1 | ) | | | (1 | ) | | | (2 | ) | | | (2 | ) |
| | |
Total interest charges | | | 78 | | | | 69 | | | | 146 | | | | 132 | |
|
| | | | | | | | | | | | | | | | |
Income Before Income Taxes | | | 141 | | | | 117 | | | | 310 | | | | 272 | |
| | | | | | | | | | | | | | | | |
Income Tax Expense | | | 53 | | | | 45 | | | | 115 | | | | 101 | |
| | |
| | | | | | | | | | | | | | | | |
Net Income | | | 88 | | | | 72 | | | | 195 | | | | 171 | |
| | | | | | | | | | | | | | | | |
Preferred Stock Dividends | | | 1 | | | | — | | | | 1 | | | | 1 | |
| | |
| | | | | | | | | | | | | | | | |
Net Income Available to Common Stockholder | | $ | 87 | | | $ | 72 | | | $ | 194 | | | $ | 170 | |
|
The accompanying notes are an integral part of these statements.
40
Consumers Energy Company
Consolidated Balance SheetsStatements of Cash Flows
(Unaudited)
ASSETS
| | | | | | | | |
| | | | | | In Millions | |
| | June 30 | | | December 31 | |
| | 2009 | | | 2008 | |
|
Plant and Property (at cost) | | | | | | | | |
Electric utility | | $ | 9,235 | | | $ | 8,965 | |
Gas utility | | | 3,667 | | | | 3,622 | |
Other | | | 15 | | | | 15 | |
| | |
| | | 12,917 | | | | 12,602 | |
Less accumulated depreciation, depletion, and amortization | | | 4,271 | | | | 4,242 | |
| | |
| | | 8,646 | | | | 8,360 | |
Construction work in progress | | | 553 | | | | 607 | |
| | |
| | | 9,199 | | | | 8,967 | |
|
| | | | | | | | |
Investments | | | | | | | | |
Stock of affiliates | | | 22 | | | | 19 | |
|
| | | | | | | | |
Current Assets | | | | | | | | |
Cash and cash equivalents | | | 737 | | | | 69 | |
Restricted cash and cash equivalents | | | 23 | | | | 25 | |
Accounts receivable and accrued revenue, less allowances of $28 in 2009 and $24 in 2008 | | | 683 | | | | 829 | |
Notes receivable | | | 80 | | | | 93 | |
Accrued power supply and gas revenue | | | 2 | | | | 7 | |
Accounts receivable — related parties | | | 1 | | | | 2 | |
Inventories at average cost | | | | | | | | |
Gas in underground storage | | | 885 | | | | 1,168 | |
Materials and supplies | | | 108 | | | | 103 | |
Generating plant fuel stock | | | 130 | | | | 118 | |
Deferred property taxes | | | 128 | | | | 165 | |
Regulatory assets — postretirement benefits | | | 19 | | | | 19 | |
Prepayments and other | | | 21 | | | | 30 | |
| | |
| | | 2,817 | | | | 2,628 | |
|
| | | | | | | | |
Non-current Assets | | | | | | | | |
Regulatory assets | | | | | | | | |
Securitized costs | | | 392 | | | | 416 | |
Postretirement benefits | | | 1,386 | | | | 1,431 | |
Customer Choice Act | | | 68 | | | | 90 | |
Other | | | 469 | | | | 482 | |
Other | | | 124 | | | | 213 | |
| | |
| | | 2,439 | | | | 2,632 | |
|
| | | | | | | | |
Total Assets | | $ | 14,477 | | | $ | 14,246 | |
|
| | | | | | | | |
| | | | | | In Millions | |
Six Months ended June 30 | | 2010 | | | 2009 | |
|
Cash Flows from Operating Activities | | | | | | | | |
Net Income | | $ | 195 | | | $ | 171 | |
Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | |
Depreciation and amortization | | | 301 | | | | 288 | |
Deferred income taxes and investment tax credit | | | (22 | ) | | | 46 | |
Postretirement benefits expense | | | 87 | | | | 89 | |
Allowance for equity funds used during construction | | | (3 | ) | | | (3 | ) |
Capital lease and other amortization | | | 13 | | | | 13 | |
Bad debt expense | | | 29 | | | | 30 | |
Other non-cash operating activities | | | (7 | ) | | | (16 | ) |
Postretirement benefits contributions | | | (143 | ) | | | (225 | ) |
Changes in other assets and liabilities: | | | | | | | | |
Decrease in accounts receivable, notes receivable, and accrued revenue | | | 186 | | | | 114 | |
Decrease in accrued power supply revenue | | | 22 | | | | 5 | |
Decrease in inventories | | | 229 | | | | 266 | |
Increase (decrease) in accounts payable | | | 35 | | | | (20 | ) |
Increase (decrease) in accrued expenses | | | (13 | ) | | | 4 | |
Decrease in other current and non-current assets | | | 92 | | | | 106 | |
Decrease in other current and non-current liabilities | | | (18 | ) | | | (15 | ) |
| | |
Net cash provided by operating activities | | | 983 | | | | 853 | |
|
| | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | |
Capital expenditures (excludes assets placed under capital lease) | | | (423 | ) | | | (404 | ) |
Cost to retire property | | | (21 | ) | | | (25 | ) |
Proceeds from sale of assets | | | — | | | | 7 | |
Restricted cash and cash equivalents | | | — | | | | 2 | |
| | |
Net cash used in investing activities | | | (444 | ) | | | (420 | ) |
|
| | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | |
Proceeds from issuance of long-term debt | | | — | | | | 500 | |
Retirement of long-term debt | | | (327 | ) | | | (218 | ) |
Payment of common stock dividends | | | (168 | ) | | | (130 | ) |
Payment of preferred stock dividends | | | (1 | ) | | | (1 | ) |
Stockholder’s contribution | | | 250 | | | | 100 | |
Payment of capital and finance lease obligations | | | (12 | ) | | | (12 | ) |
Other financing costs | | | — | | | | (4 | ) |
| | |
Net cash (used in) provided by financing activities | | | (258 | ) | | | 235 | |
|
| | | | | | | | |
Net Increase in Cash and Cash Equivalents | | | 281 | | | | 668 | |
| | | | | | | | |
Cash and Cash Equivalents, Beginning of Period | | | 39 | | | | 69 | |
| | |
| | | | | | | | |
Cash and Cash Equivalents, End of Period | | $ | 320 | | | $ | 737 | |
|
The accompanying notes are an integral part of these statements.
41
STOCKHOLDER’S INVESTMENT AND LIABILITIES
| | | | | | | | |
| | | | | | In Millions | |
| | June 30 | | | December 31 | |
| | 2009 | | | 2008 | |
|
Capitalization | | | | | | | | |
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) | | | 3 | | | | (1 | ) |
Retained earnings | | | 421 | | | | 383 | |
| | |
| | | 3,847 | | | | 3,705 | |
Preferred stock | | | 44 | | | | 44 | |
| | |
Total equity | | | 3,891 | | | | 3,749 | |
| | | | | | | | |
Long-term debt | | | 4,081 | | | | 3,908 | |
Non-current portion of capital and finance lease obligations | | | 197 | | | | 206 | |
| | |
| | | 8,169 | | | | 7,863 | |
|
| | | | | | | | |
Current Liabilities | | | | | | | | |
Current portion of long-term debt, capital and finance lease obligations | | | 515 | | | | 408 | |
Accounts payable | | | 394 | | | | 444 | |
Accrued rate refunds | | | 58 | | | | 7 | |
Accounts payable — related parties | | | 10 | | | | 14 | |
Accrued interest | | | 78 | | | | 69 | |
Accrued taxes | | | 232 | | | | 289 | |
Deferred income taxes | | | 232 | | | | 277 | |
Regulatory liabilities | | | 114 | | | | 120 | |
Other | | | 118 | | | | 151 | |
| | |
| | | 1,751 | | | | 1,779 | |
|
| | | | | | | | |
Non-current Liabilities | | | | | | | | |
Deferred income taxes | | | 872 | | | | 792 | |
Regulatory liabilities | | | | | | | | |
Cost of removal | | | 1,227 | | | | 1,203 | |
Income taxes, net | | | 532 | | | | 519 | |
Other | | | 146 | | | | 146 | |
Postretirement benefits | | | 1,266 | | | | 1,436 | |
Asset retirement obligations | | | 210 | | | | 205 | |
Deferred investment tax credit | | | 53 | | | | 54 | |
Other | | | 251 | | | | 249 | |
| | |
| | | 4,557 | | | | 4,604 | |
|
| | | | | | | | |
Commitments and Contingencies(Notes 3, 5 and 7) | | | | | | | | |
| | | | | | | | |
Total Stockholder’s Investment and Liabilities | | $ | 14,477 | | | $ | 14,246 | |
|
42
Consumers Energy Company
Consolidated Statements of Common Stockholder’s EquityBalance Sheets
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | In Millions | |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Common Stock | | | | | | | | | | | | | | | | |
At beginning and end of period (a) | | $ | 841 | | | $ | 841 | | | $ | 841 | | | $ | 841 | |
|
| | | | | | | | | | | | | | | | |
Other Paid-in Capital | | | | | | | | | | | | | | | | |
At beginning of period | | | 2,482 | | | | 2,482 | | | | 2,482 | | | | 2,482 | |
Stockholder’s contribution | | | 100 | | | | — | | | | 100 | | | | — | |
| | |
At end of period | | | 2,582 | | | | 2,482 | | | | 2,582 | | | | 2,482 | |
|
| | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | | |
Retirement benefits liability | | | | | | | | | | | | | | | | |
At beginning of period | | | (7 | ) | | | (9 | ) | | | (7 | ) | | | (15 | ) |
Retirement benefits liability adjustments (b) | | | — | | | | — | | | | — | | | | 6 | |
| | |
At end of period | | | (7 | ) | | | (9 | ) | | | (7 | ) | | | (9 | ) |
| | |
| | | | | | | | | | | | | | | | |
Investments | | | | | | | | | | | | | | | | |
At beginning of period | | | 7 | | | | 7 | | | | 6 | | | | 15 | |
Unrealized gain (loss) on investments (b) | | | 3 | | | | 1 | | | | 4 | | | | (7 | ) |
| | |
At end of period | | | 10 | | | | 8 | | | | 10 | | | | 8 | |
| | |
| | | | | | | | | | | | | | | | |
Total Accumulated Other Comprehensive Income (Loss) | | | 3 | | | | (1 | ) | | | 3 | | | | (1 | ) |
|
| | | | | | | | | | | | | | | | |
Retained Earnings | | | | | | | | | | | | | | | | |
At beginning of period | | | 408 | | | | 334 | | | | 383 | | | | 324 | |
Effects of changing the retirement plans measurement date pursuant to SFAS No. 158 | | | | | | | | | | | | | | | | |
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 | ) |
Net income (b) | | | 71 | | | | 60 | | | | 169 | | | | 190 | |
Common stock dividends declared | | | (58 | ) | | | (55 | ) | | | (130 | ) | | | (168 | ) |
Preferred stock dividends declared | | | — | | | | — | | | | (1 | ) | | | (1 | ) |
| | |
At end of period | | | 421 | | | | 339 | | | | 421 | | | | 339 | |
| | |
| | | | | | | | | | | | | | | | |
Total Common Stockholder’s Equity | | $ | 3,847 | | | $ | 3,661 | | | $ | 3,847 | | | $ | 3,661 | |
|
ASSETS | | | | | | | | |
| | | | | | In Millions | |
| | June 30 | | | December 31 | |
| | 2010 | | | 2009 | |
|
Current Assets | | | | | | | | |
Cash and cash equivalents | | $ | 320 | | | $ | 39 | |
Restricted cash and cash equivalents | | | 22 | | | | 22 | |
Accounts receivable and accrued revenue, less allowances of $20 in 2010 and $21 in 2009 | | | 679 | | | | 935 | |
Notes receivable | | | 62 | | | | 79 | |
Accrued power supply revenue | | | 26 | | | | 48 | |
Accounts receivable — related parties | | | 1 | | | | 2 | |
Inventories at average cost | | | | | | | | |
Gas in underground storage | | | 838 | | | | 1,038 | |
Materials and supplies | | | 100 | | | | 111 | |
Generating plant fuel stock | | | 130 | | | | 148 | |
Deferred property taxes | | | 127 | | | | 172 | |
Regulatory assets | | | 19 | | | | 19 | |
Prepayments and other current assets | | | 26 | | | | 23 | |
| | |
Total current assets | | | 2,350 | | | | 2,636 | |
|
| | | | | | | | |
Plant, Property & Equipment (at cost) | | | | | | | | |
Plant, property & equipment, gross | | | 13,607 | | | | 13,352 | |
Less accumulated depreciation, depletion, and amortization | | | 4,516 | | | | 4,386 | |
| | |
Plant, property & equipment, net | | | 9,091 | | | | 8,966 | |
Construction work in progress | | | 643 | | | | 505 | |
| | |
Total plant, property & equipment | | | 9,734 | | | | 9,471 | |
|
| | | | | | | | |
Non-current Assets | | | | | | | | |
Regulatory assets | | | 2,085 | | | | 2,291 | |
Investments | | | 27 | | | | 29 | |
Other non-current assets | | | 130 | | | | 195 | |
| | |
Total non-current assets | | | 2,242 | | | | 2,515 | |
|
| | | | | | | | |
Total Assets | | $ | 14,326 | | | $ | 14,622 | |
|
The accompanying notes are an integral part of these statements.
42
LIABILITIES AND EQUITY
| | | | | | | | |
| | | | | | In Millions | |
| | June 30 | | | December 31 | |
| | 2010 | | | 2009 | |
|
Current Liabilities | | | | | | | | |
Current portion of long-term debt, capital and finance lease obligations | | $ | 61 | | | $ | 365 | |
Accounts payable | | | 432 | | | | 490 | |
Accrued rate refunds | | | 12 | | | | 21 | |
Accounts payable — related parties | | | 12 | | | | 11 | |
Accrued interest | | | 68 | | | | 70 | |
Accrued taxes | | | 273 | | | | 277 | |
Deferred income taxes | | | 165 | | | | 206 | |
Regulatory liabilities | | | 111 | | | | 145 | |
Other current liabilities | | | 86 | | | | 86 | |
| | |
Total current liabilities | | | 1,220 | | | | 1,671 | |
|
| | | | | | | | |
Non-current Liabilities | | | | | | | | |
Long-term debt | | | 4,043 | | | | 4,063 | |
Non-current portion of capital and finance lease obligations | | | 196 | | | | 197 | |
Regulatory liabilities | | | 1,943 | | | | 1,991 | |
Postretirement benefits | | | 1,218 | | | | 1,396 | |
Asset retirement obligations | | | 234 | | | | 228 | |
Deferred investment tax credit | | | 49 | | | | 51 | |
Deferred income taxes | | | 1,058 | | | | 926 | |
Other non-current liabilities | | | 233 | | | | 241 | |
| | |
Total non-current liabilities | | | 8,974 | | | | 9,093 | |
|
| | | | | | | | |
Commitments and Contingencies(Notes 3, 4, 5, 7 and 8) | | | | | | | | |
| | | | | | | | |
Equity | | | | | | | | |
Common stockholder’s equity | | | | | | | | |
Common stock, authorized 125.0 shares; outstanding 84.1 shares for both periods | | | 841 | | | | 841 | |
Other paid-in capital | | | 2,832 | | | | 2,582 | |
Accumulated other comprehensive income | | | — | | | | 2 | |
Retained earnings | | | 415 | | | | 389 | |
| | |
Total common stockholder’s equity | | | 4,088 | | | | 3,814 | |
Preferred stock | | | 44 | | | | 44 | |
| | |
Total equity | | | 4,132 | | | | 3,858 | |
|
| | | | | | | | |
Total Liabilities and Equity | | $ | 14,326 | | | $ | 14,622 | |
|
43
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | In Millions | |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(b) Disclosure of Comprehensive Income: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 71 | | | $ | 60 | | | $ | 169 | | | $ | 190 | |
| | | | | | | | | | | | | | | | |
Retirement benefits liability | | | | | | | | | | | | | | | | |
Retirement benefits liability adjustments, net of tax of $-, $-, $-, and $2, respectively | | | — | | | | — | | | | — | | | | 6 | |
| | | | | | | | | | | | | | | | |
Investments | | | | | | | | | | | | | | | | |
Unrealized gain (loss) on investments, net of tax (tax benefit) of $-, $1, $-, and $(3), respectively | | | 3 | | | | 1 | | | | 4 | | | | (7 | ) |
| | |
| | | | | | | | | | | | | | | | |
Total Comprehensive Income | | $ | 74 | | | $ | 61 | | | $ | 173 | | | $ | 189 | |
| | |
Consumers Energy Company
Consolidated Statements of Changes in Equity
(Unaudited) | | | | | | | | | | | | | | | | |
| | In Millions | |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
|
Common Stock | | | | | | | | | | | | | | | | |
At beginning and end of period (a) | | $ | 841 | | | $ | 841 | | | $ | 841 | | | $ | 841 | |
|
| | | | | | | | | | | | | | | | |
Other Paid-in Capital | | | | | | | | | | | | | | | | |
At beginning of period | | | 2,782 | | | | 2,482 | | | | 2,582 | | | | 2,482 | |
Stockholder’s contribution | | | 50 | | | | 100 | | | | 250 | | | | 100 | |
| | |
At end of period | | | 2,832 | | | | 2,582 | | | | 2,832 | | | | 2,582 | |
|
| | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Income | | | | | | | | | | | | | | | | |
Retirement benefits liability | | | | | | | | | | | | | | | | |
At beginning and end of period | | | (11 | ) | | | (7 | ) | | | (11 | ) | | | (7 | ) |
| | |
| | | | | | | | | | | | | | | | |
Investments | | | | | | | | | | | | | | | | |
At beginning of period | | | 12 | | | | 7 | | | | 13 | | | | 6 | |
Unrealized (loss) gain on investments (b) | | | (1 | ) | | | 3 | | | | (2 | ) | | | 4 | |
| | |
At end of period | | | 11 | | | | 10 | | | | 11 | | | | 10 | |
| | |
| | | | | | | | | | | | | | | | |
At end of period | | | — | | | | 3 | | | | — | | | | 3 | |
|
| | | | | | | | | | | | | | | | |
Retained Earnings | | | | | | | | | | | | | | | | |
At beginning of period | | | 382 | | | | 409 | | | | 389 | | | | 383 | |
Net income (b) | | | 88 | | | | 72 | | | | 195 | | | | 171 | |
Common stock dividends declared | | | (54 | ) | | | (58 | ) | | | (168 | ) | | | (130 | ) |
Preferred stock dividends declared | | | (1 | ) | | | — | | | | (1 | ) | | | (1 | ) |
| | |
At end of period | | | 415 | | | | 423 | | | | 415 | | | | 423 | |
|
| | | | | | | | | | | | | | | | |
Preferred Stock | | | | | | | | | | | | | | | | |
At beginning and end of period | | | 44 | | | | 44 | | | | 44 | | | | 44 | |
|
| | | | | | | | | | | | | | | | |
Total Equity | | $ | 4,132 | | | $ | 3,893 | | | $ | 4,132 | | | $ | 3,893 | |
|
The accompanying notes are an integral part of these statements.
44
| | | | | | | | | | | | | | | | |
| | In Millions | |
| | Three Months Ended | | | Six Months Ended | |
June 30 | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
|
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(b) Disclosure of Comprehensive Income: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 88 | | | $ | 72 | | | $ | 195 | | | $ | 171 | |
| | | | | | | | | | | | | | | | |
Investments | | | | | | | | | | | | | | | | |
Unrealized (loss) gain on investments, net of tax of $-, $-, $-, and $-, respectively | | | (1 | ) | | | 3 | | | | (2 | ) | | | 4 | |
| | |
| | | | | | | | | | | | | | | | |
Total Comprehensive Income | | $ | 87 | | | $ | 75 | | | $ | 193 | | | $ | 175 | |
| | |
45
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4546
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
notes to consolidated financial statements
These interim Consolidated Financial Statements have been prepared by CMS Energy and Consumers in accordance with accounting principles generally accepted in the United StatesU.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As a result, CMS Energy and Consumers have condensed or omitted certain information and Note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States.U.S. CMS Energy and Consumers have reclassified certain prior yearperiod amounts to conform to the presentation in the current year. The Consolidated Financial Statements for the six months ended June 30, 2008 have been updated for amounts previously reported.period. In management’s opinion, the unaudited information contained in this report reflects all adjustments of a normal recurring nature necessary to ensure the fair presentation of financial position, results of operations, and cash flows for the periods presented. The Notes to Consolidated Financial Statements and the related Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related Notes contained in CMS Energy’s and Consumers’ 2008the 2009 Form 10-K. Due to the seasonal nature of CMS Energy’s and Consumers’ operations, the results presented for this interim period are not necessarily indicative of results to be achieved for the fiscal year.
These interim Consolidated Financial Statements and accompanying Note disclosures include the evaluation of subsequent events through July 30, 2009, the date of issuance.
1: NEW ACCOUNTING POLICIESSTANDARDS
SIGNIFICANT ACCOUNTING POLICIES
Self-implemented Rates: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 an order, the filed rates are considered approved. If the MPSC issues an order, 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.
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment to ARB No. 51:Under this standard, which was effective for CMS Energy and Consumers January 1, 2009, ownership interests in subsidiaries held by third parties, previously referred to as minority interests, are presented as noncontrolling interests and shown separately on the parent’s balance sheet within equity. In addition, net income attributable to noncontrolling interests is included in net income on the income statement. CMS Energy has applied these provisions to current and prior periods presented in its consolidated financial statements. The standard had no impact on Consumers’ consolidated financial statements for the periods presented. The standard also affects the accounting for changes in a parent’s ownership interest, including deconsolidation of a subsidiary. CMS Energy and Consumers will apply these provisions of the standard to any such future transactions.
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133:This standard, which was effective for CMS Energy and Consumers January 1, 2009, requires enhanced disclosures about how and why derivatives are used, how derivatives and related
46
hedged items are accounted for, and how derivatives and any related hedged items affect financial position, financial performance, and cash flows. The 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 7, Financial and Derivative Instruments.
FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled In Cash Upon Conversion (Including Partial Cash Settlement):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 manner that reflects CMS Energy’s borrowing rate for nonconvertible debt. The following table summarizes the effects of adopting this standard on CMS Energy’s consolidated financial statements:
| | | | | | | | |
Increases (decreases) | | In Millions, Except Per Share Amounts |
Three months ended June 30 | | 2009 | | 2008 |
|
Interest on long-term debt | | $ | 2 | | | $ | 3 | |
Income tax expense | | | (1 | ) | | | (1 | ) |
| | |
Net income | | $ | (1 | ) | | $ | (2 | ) |
| | |
| | | | | | | | |
Earnings Per Average Common Share | | | | | | | | |
Basic | | $ | (0.01 | ) | | $ | — | |
Diluted | | $ | (0.01 | ) | | $ | — | |
|
|
Six months ended June 30 | | 2009 | | 2008 |
|
Interest on long-term debt | | $ | 4 | | | $ | 5 | |
Income tax expense | | | (2 | ) | | | (2 | ) |
| | |
Net income | | $ | (2 | ) | | $ | (3 | ) |
| | |
| | | | | | | | |
Earnings Per Average Common Share | | | | | | | | |
Basic | | $ | (0.01 | ) | | $ | (0.01 | ) |
Diluted | | $ | (0.01 | ) | | $ | (0.01 | ) |
|
|
Increases (decreases) | | December 31, 2008 | | January 1, 2008 |
|
Assets | | | | | | | | |
Non-current deferred income tax assets | | $ | — | | | $ | (12 | ) |
| | |
| | | | | | | | |
Liabilities | | | | | | | | |
Long-term debt | | $ | (22 | ) | | $ | (30 | ) |
Non-current deferred income tax liabilities | | | 9 | | | | — | |
| | |
Total | | $ | (13 | ) | | $ | (30 | ) |
| | |
| | | | | | | | |
Common Stockholders’ Equity | | | | | | | | |
Other paid-in capital | | $ | 37 | | | $ | 37 | |
Accumulated deficit | | | 24 | | | | 19 | |
| | |
Total | | $ | 13 | | | $ | 18 | |
|
The standard had no impact on Consumers’ consolidated financial statements. For additional details on CMS Energy’s convertible debt instruments, see Note 5, Financings and Capitalization.
FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities:Under this standard, which was effective for CMS Energy and Consumers
47
January 1, 2009, share-based payment awards that accrue cash dividends when common shareholders receive dividends are considered participating securities if the dividends are not required to be returned to the company when the employee forfeits the award. The standard applies to CMS Energy’s outstanding unvested restricted stock awards, which are considered participating securities and thus are included in the computation of basic EPS. Implementation of the standard for CMS Energy did not have a material impact for the six months ended June 30, 2009 or 2008. Retrospective implementation of the standard at CMS Energy will reduce basic and diluted EPS by $0.01 for the year ended December 31, 2008. The standard had no impact on Consumers’ consolidated financial statements.
FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly:The standard, which was effective for the quarter ended June 30, 2009 for CMS Energy and Consumers, 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. The 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. The standard requires quarterly disclosures about the inputs and valuation techniques used in fair value measurements. Previously, these disclosures were required only annually. See Note 2, Fair Value Measurements, for the required disclosures. The standard had no impact on CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments:The standard, which was effective for the quarter ended June 30, 2009 for CMS Energy and Consumers, amends the other-than-temporary impairment guidance 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 an other-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 to earnings, while impairments related to other factors should be recorded to other comprehensive income. The standard also includes additional disclosure requirements. The standard had no impact on CMS Energy’s or Consumers’ consolidated financial statements; however, the new guidance will be incorporated in future assessments of other-than-temporary impairments of debt securities.
FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments:This standard, which was effective for the quarter ended June 30, 2009 for CMS Energy and Consumers, requires quarterly disclosures of the fair values of financial instruments. Previously, these disclosures were required only annually. The standard also requires quarterly disclosure of the methods and significant assumptions used in the fair value measurements. The standard did not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
EITF Issue 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock: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. Under the new criteria, these features remain exempt from derivative accounting, and thus, this standard had no impact on CMS Energy’s or Consumers’ consolidated financial statements.
EITF Issue 08-5, Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement:This standard, which was effective for CMS Energy and Consumers January 1, 2009, concludes that the fair value measurement of a liability should not consider the effect of a third-party credit enhancement or guarantee supporting the liability. To comply with the standard, CMS Energy and
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Consumers adjusted the methods they use to determine the fair values of certain long-term debt instruments for their fair value disclosures, resulting in a minor reduction in the fair values disclosed. For the fair value disclosures, see Note 7, Financial and Derivative Instruments. The standard had no impact on CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE
SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140:140, codified throughASU No. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets:This standard, which will bewas effective for CMS Energy and Consumers January 1, 2010, removes the concept of a qualifying special purpose entity (QSPE)QSPE from guidance relating to transfers of financial assets and extinguishments of liabilities. It also removes the exceptions from applying guidance relating to VIEs to QSPEs. TheThis 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. The standard also requires enhanced disclosures related to continuing involvement with transferred financial assets. Under this standard, transactions entered into under Consumers’ revolving accounts receivable sales program, discussed in Note 5, Financings, are accounted for as secured borrowings rather than as sales. CMS Energy and Consumers are evaluatingpresent outstanding amounts under the impact of this standard on their consolidated financial statements.program as short-term debt collateralized by accounts receivable.
SFAS No. 167, Amendments to FASB Interpretation No. 46(R),codified throughASU No. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities:This standard, which will bewas effective for CMS Energy and Consumers January 1, 2010, amends FIN 46(R) to replace the quantitative calculation of risks and rewardscriteria used to determine which enterprise,entity, if any, has a controlling financial interest in a VIE. The standard establishesIt replaces the quantitative calculation of risks and rewards with a qualitative approach focused on identifying which enterpriseentity (1) has the power to direct the activities of a VIE that most significantly impact the entity’sVIE’s economic performance and (2) has the obligation to absorb losses of the entityVIE or the right to receive benefits from the entity. TheVIE. This standard also requires ongoing assessments of whether an enterpriseentity is the primary beneficiary of a VIE. Upon implementation of this guidance, CMS Energy concluded that it is the primary beneficiary of CMS Energy Trust I and consolidated the trust in its consolidated financial statements on January 1, 2010. CMS Energy also concluded that it is not the primary beneficiary of T.E.S. Filer City, Grayling, or Genesee and deconsolidated these partnerships in its consolidated financial statements on January 1, 2010. CMS Energy consolidated CMS Energy Trust I at the carrying value that
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would be recorded had this guidance been effective when CMS Energy initially became involved with CMS Energy Trust I. CMS Energy recorded its retained interest in the deconsolidated partnerships at the carrying value that would be recorded had this guidance been effective when CMS Energy initially became involved with the partnerships. CMS Energy and Consumers are evaluating the impact of this standard on their consolidated financial statements.have chosen not to adjust previously reported balances. No cumulative effect adjustments were required. For additional details, see Note 11, Variable Interest Entities.
FSP FAS 132(R)-1, Employers’ASU No. 2010-06, Improving Disclosures about Postretirement Benefit Plan Assets:Fair Value Measurements:This standard expands the required quarterly disclosures about fair value measurements that are included in Note 2, Fair Value Measurements. The standard requires information on transfers in and out of Levels 1 and 2 of the fair value hierarchy. In addition, it requires gross reporting of purchases, sales, issuances, and settlements in the reconciliation of Level 3 fair values, rather than reporting this activity as one net amount. The 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 for the year ending December 31, 2009 for CMS Energy and Consumers requires expanded annual disclosures about postretirement benefit plan assets. The required disclosures include information about investment allocation decisions, major categories of plan assets, the inputs and valuation techniques used in the fair value measurements, the effects of significant unobservable inputs on changes in plan assets, and significant concentrations of risk within plan assets. TheJanuary 1, 2011. This standard willdoes not impact CMS Energy’s or Consumers’ consolidated income, cash flows, or financial position.
position, and did not result in any significant changes to the fair value disclosures. 2: FAIR VALUE MEASUREMENTS
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. When measuring fair value, CMS Energy and Consumers are required to incorporate all assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. A fair value hierarchy prioritizes inputs used to measure fair value according to their observability in the market. The three levels of the fair value hierarchy are as follows:
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| • | | Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. These markets must be accessible to CMS Energy and Consumers at the measurement date. |
|
| • | | 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. |
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.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
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 June 30, 2010:
| | | | | | | | | | | | | | | | |
In Millions |
| | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
|
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents | | $ | 465 | | | $ | 465 | | | $ | — | | | $ | — | |
Restricted cash equivalents | | | 5 | | | | 5 | | | | — | | | | — | |
Nonqualified deferred compensation plan assets | | | 5 | | | | 5 | | | | — | | | | — | |
SERP: | | | | | | | | | | | | | | | | |
Cash equivalents | | | 2 | | | | 2 | | | | — | | | | — | |
Mutual fund | | | 62 | | | | 62 | | | | — | | | | — | |
State and municipal bonds | | | 28 | | | | — | | | | 28 | | | | — | |
Derivative instruments: | | | | | | | | | | | | | | | | |
Commodity contracts (a) | | | 5 | | | | 2 | | | | 3 | | | | — | |
| | |
Total | | $ | 572 | | | $ | 541 | | | $ | 31 | | | $ | — | |
| | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Nonqualified deferred compensation plan liabilities | | $ | 5 | | | $ | 5 | | | $ | — | | | $ | — | |
Derivative instruments: | | | | | | | | | | | | | | | | |
Commodity contracts (b) | | | 8 | | | | 2 | | | | 1 | | | | 5 | |
| | |
Total (c) | | $ | 13 | | | $ | 7 | | | $ | 1 | | | $ | 5 | |
|
Consumers | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents | | $ | 260 | | | $ | 260 | | | $ | — | | | $ | — | |
Restricted cash equivalents | | | 5 | | | | 5 | | | | — | | | | — | |
CMS Energy Common Stock | | | 27 | | | | 27 | | | | — | | | | — | |
Nonqualified deferred compensation plan assets | | | 4 | | | | 4 | | | | — | | | | — | |
SERP: | | | | | | | | | | | | | | | | |
Cash equivalents | | | 1 | | | | 1 | | | | — | | | | — | |
Mutual fund | | | 39 | | | | 39 | | | | — | | | | — | |
State and municipal bonds | | | 17 | | | | — | | | | 17 | | | | — | |
| | |
Total | | $ | 353 | | | $ | 336 | | | $ | 17 | | | $ | — | |
| | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Nonqualified deferred compensation plan liabilities | | $ | 4 | | | $ | 4 | | | $ | — | | | $ | — | |
| | |
Total | | $ | 4 | | | $ | 4 | | | $ | — | | | $ | — | |
|
| | |
(a) | | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $2 million impact of offsetting cash margin deposits paid to CMS ERM by other parties. |
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(b) | | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. |
|
(c) | | At June 30, 2010, CMS Energy’s liabilities classified as Level 3 represented 38 percent of CMS Energy’s total liabilities measured at fair value. The Level 3 liabilities are comprised primarily of an electricity sales agreement held by CMS ERM. |
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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, 2009:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | |
| CMS Energy, including Consumers | | |
Assets: | | |
Cash equivalents | | $ | 985 | | $ | 985 | | $ | — | | $ | — | | | $ | 57 | | $ | 57 | | $ | — | | $ | — | |
Restricted cash equivalents | | 5 | | 5 | | — | | — | | | 12 | | 12 | | — | | — | |
Nonqualified deferred compensation plan assets | | 4 | | 4 | | — | | — | | | 5 | | 5 | | — | | — | |
SERP | | |
Equity securities | | 41 | | 41 | | — | | — | | |
Debt securities | | 27 | | — | | 27 | | — | | |
Derivative instruments (a) | | 1 | | — | | 1 | | — | | |
SERP: | | |
Cash equivalents | | | 49 | | 49 | | — | | — | |
State and municipal bonds | | | 27 | | — | | 27 | | — | |
Derivative instruments: | | |
Commodity contracts (a) | | | 1 | | — | | 1 | | — | |
| | | | |
Total | | $ | 1,063 | | $ | 1,035 | | $ | 28 | | $ | — | | | $ | 151 | | $ | 123 | | $ | 28 | | $ | — | |
| | | | |
| | |
Liabilities: | | |
Nonqualified deferred compensation plan liabilities | | $ | 5 | | $ | 5 | | $ | — | | $ | — | | | $ | 5 | | $ | 5 | | $ | — | | $ | — | |
Derivative instruments (b) | | 17 | | 3 | | 3 | | 11 | | |
Derivative instruments: | | |
Commodity contracts (b) | | | 9 | | 1 | | 1 | | 7 | |
Interest rate contracts | | | 1 | | — | | — | | 1 | |
| | | | |
Total (c) | | $ | 22 | | $ | 8 | | $ | 3 | | $ | 11 | | | $ | 15 | | $ | 6 | | $ | 1 | | $ | 8 | |
| | | |
| | |
Consumers | | |
Assets: | | |
Cash equivalents | | $ | 713 | | $ | 713 | | $ | — | | $ | — | | | $ | 31 | | $ | 31 | | $ | — | | $ | — | |
Restricted cash equivalents | | 5 | | 5 | | — | | — | | | 5 | | 5 | | — | | — | |
CMS Energy Common Stock | | 22 | | 22 | | — | | — | | | 29 | | 29 | | — | | — | |
Nonqualified deferred compensation plan assets | | 3 | | 3 | | — | | — | | | 4 | | 4 | | — | | — | |
SERP | | |
Equity securities | | 27 | | 27 | | — | | — | | |
Debt securities | | 18 | | — | | 18 | | — | | |
SERP: | | |
Cash equivalents | | | 30 | | 30 | | — | | — | |
State and municipal bonds | | | 16 | | — | | 16 | | — | |
| | | | |
Total | | $ | 788 | | $ | 770 | | $ | 18 | | $ | — | | | $ | 115 | | $ | 99 | | $ | 16 | | $ | — | |
| | | | |
| | |
Liabilities: | | |
Nonqualified deferred compensation plan liabilities | | $ | 3 | | $ | 3 | | $ | — | | $ | — | | | $ | 4 | | $ | 4 | | $ | — | | $ | — | |
| | | | |
Total (c) | | $ | 3 | | $ | 3 | | $ | — | | $ | — | | |
Total | | | $ | 4 | | $ | 4 | | $ | — | | $ | — | |
|
| | |
(a) | | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. |
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(b) | | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $3 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. |
|
(c) | | At June 30, 2009, CMS Energy’s liabilities classified as Level 3 represent 50 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3. |
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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:
| | | | | | | | | | | | | | | | |
In Millions |
| | Total | | Level 1 | | Level 2 | | Level 3 |
|
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents | | $ | 176 | | | $ | 176 | | | $ | — | | | $ | — | |
Restricted cash equivalents | | | 5 | | | | 5 | | | | — | | | | — | |
Nonqualified deferred compensation plan assets | | | 5 | | | | 5 | | | | — | | | | — | |
SERP | | | | | | | | | | | | | | | | |
Equity securities | | | 39 | | | | 39 | | | | — | | | | — | |
Debt securities | | | 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 | |
| | |
| | | | | | | | | | | | | | | | |
Consumers | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents | | $ | 56 | | | $ | 56 | | | $ | — | | | $ | — | |
Restricted cash equivalents | | | 5 | | | | 5 | | | | — | | | | — | |
CMS Energy Common Stock | | | 19 | | | | 19 | | | | — | | | | — | |
Nonqualified deferred compensation plan assets | | | 3 | | | | 3 | | | | — | | | | — | |
SERP | | | | | | | | | | | | | | | | |
Equity securities | | | 25 | | | | 25 | | | | — | | | | — | |
Debt securities | | | 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$1 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. |
|
(c) | | At December 31, 2008,2009, CMS Energy’s liabilities classified as Level 3 represent 64represented 53 percent of CMS Energy’s total liabilities measured at fair value. Consumers did not have any assets orThe Level 3 liabilities classified as Level 3.are comprised primarily of an electricity sales agreement held by CMS ERM. |
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Cash Equivalents:Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity. The funds invest in U.S. Treasury notes, other government-backed securities, and repurchase agreements collateralized by U.S. Treasury notes.
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Nonqualified Deferred Compensation Plan Assets:CMS Energy’s and Consumers’ nonqualified deferred compensation plan assets are invested in various mutual funds. CMS Energy and Consumers value these assets using a market approach, using the daily quoted NAVNAVs provided by the fund managers that are the basis for transactions to buy or sell shares in each fund. CMS Energy and Consumers report these assets in Other non-current assets on their Consolidated Balance Sheets.
SERP Assets:CMS Energy and Consumers value their SERP assets using a market approach, incorporating prices and other relevant information from market transactions. The SERP equity securitiescash equivalents consist of an investmenta money market fund with daily liquidity, which invests in state and municipal securities.
The SERP invests in a Standard & Poor’s 500 Indexshort-term, fixed-income mutual fund.fund that holds a variety of debt securities with average maturities of one to three years. The fund’s equityfund invests primarily in investment-grade debt securities are listed on an active exchange.but, in order to achieve its investment objective, it may invest a portion of its assets in high-yield securities, foreign debt, and derivative instruments. The fair value of the SERP equity securitiesfund is based on the NAV of the mutual fund, derived fromdetermined using the daily closing prices of the equity securities held by the fund. Thepublished NAV, which is the basis for transactions to buy or sell shares in the fund.
CMS EnergyThe SERP state and Consumers value their SERP debt securities, whichmunicipal bonds are investment grade municipal bonds,securities that are valued using a matrix pricing model that incorporates Level 2 market-based information. The fair value of the SERP debt securitiesbonds 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 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. For additional details about SERP securities, see Note 7, Financial and Derivative 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 oweis owed to the plan participants in accordance with their investment elections. CMS Energy reportsand Consumers report 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 itstheir Consolidated Balance Sheets.
Derivative Instruments:CMS Energy and Consumers value their derivative instruments using either a market approach that incorporates information from market transactions, or an income approach that discounts future expected cash flows to a present value amount. They use various inputs to value the derivatives depending on the type of contract and the availability of market data. CMS Energy has exchange-traded derivative contracts that are valued based on Level 1 quoted prices in actively traded markets, as well as 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,ERM that extends beyond the term for which quoted electricity prices are available. To value this agreement, CMS Energy uses an internally developed model to project future prices. This method incorporates 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. Since the modeling technique is significant to the overall fair value measurement, this agreement is classified as Level 3.
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For all fair values other than Level 1 prices, CMS Energy and Consumers incorporate adjustments for 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
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agencies and the credit adjustment is significant to the overall valuation, the derivative fair value is classified as Level 3. CMS Energy and Consumers adjust their derivative liabilities downward to reflect the risk of their own nonperformance, based on their published credit ratings. Adjustments for credit risk using the approach outlined abovewithin this paragraph are not materially different from the adjustments that would result from using credit default swap rates for the contracts presently held. For additional details about derivative contracts, see Note 7, Financial and8, Derivative Instruments.
Assets and Liabilities Measured at Fair Value on a Recurring Basis using Significant Level 3 Inputs
The following table is a reconciliation of changes in the fair values of Level 3 assets and liabilities at CMS Energy:
| | | | | | | | | | | | | | | | |
In Millions | Three months ended June 30 | | 2009 | | 2008 | | 2010 | | 2009 |
| Balance at April 1 | | $ | (10 | ) | | $ | (21 | ) | | $ | (3 | ) | | $ | (10 | ) |
Total gains (realized and unrealized) Included in earnings (a) | | — | | | (3 | ) | |
Total losses included in earnings (a) | | | | (1 | ) | | — | |
Purchases, sales, issuances, and settlements (net) | | | (1 | ) | | — | | | | (1 | ) | | | (1 | ) |
| | | | |
Balance at June 30 | | | (11 | ) | | | (24 | ) | | $ | (5 | ) | | $ | (11 | ) |
| Unrealized gains (losses) included in earnings for the quarter ended June 30 relating to assets and liabilities still held at June 30 (a) | | $ | (1 | ) | | $ | (4 | ) | |
Unrealized losses included in earnings for the three months ended June 30 relating to assets and liabilities still held at June 30 (a) | | | $ | (2 | ) | | $ | (1 | ) |
|
| | | | | | | | | | | | | | | | |
In Millions | Six months ended June 30 | | 2009 | | 2008 | | 2010 | | 2009 |
| Balance at January 1 | | $ | (16 | ) | | $ | (19 | ) | | $ | (8 | ) | | $ | (16 | ) |
Total gains (realized and unrealized) Included in earnings (a) | | 6 | | | (6 | ) | |
Total gains included in earnings (a) | | | 3 | | 6 | |
Purchases, sales, issuances, and settlements (net) | | | (1 | ) | | 1 | | | — | | | (1 | ) |
| | | | |
Balance at June 30 | | | (11 | ) | | | (24 | ) | | $ | (5 | ) | | $ | (11 | ) |
| Unrealized gains (losses) included in earnings for the six months ended June 30 relating to assets and liabilities still held at June 30 (a) | | $ | 4 | | $ | (8 | ) | |
Unrealized gains included in earnings for the six months ended June 30 relating to assets and liabilities still held at June 30 (a) | | | $ | 2 | | $ | 4 | |
|
| | |
(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 Operating Expenses inMaintenance and other operating expenses on its Consolidated Statements of Income. |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis The following table summarizes, by level within the fair value hierarchy, CMS Energy’s assets reported at fair value on a nonrecurring basis during the three months ended June 30, 2010:
| | | | | | | | | | | | | | | | |
In Millions |
| | | | | | | | | | | | | | Gains |
| | Level 1 | | Level 2 | | Level 3 | | (Losses) |
|
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Assets held for sale | | $ | — | | | $ | — | | | $ | 7 | | | $ | (4 | ) |
|
CMS Energy wrote down assets held for sale from their carrying amount of $11 million to their fair value at June 30, 2010 of $7 million, resulting in a loss of $4 million, which was recorded in earnings as part of discontinued operations. The fair value was determined based on a discounted cash flow technique. The reduction in fair value during the three months ended
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June 30, 2010 was due primarily to declines in forward electricity prices. Consumers did not have any nonrecurring fair value measurements during the three months ended June 30, 2010.
3: CONTINGENCIES AND COMMITMENTS
CMS ENERGY CONTINGENCIES
Gas Index Price Reporting Investigation:In 2002, CMS Energy notified appropriate regulatory and governmental agencies that some employees at CMS MST and CMS Field Services appeared to have provided inaccurate information regarding natural gas trades to various energy industry publications, which compile and report index prices. CMS Energy cooperated with an investigation by the DOJ regarding this matter. Although CMS Energy has not received any formal notification that the DOJ has
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completed its investigation, the DOJ’s last request for information occurred in 2003, and CMS Energy completed its response to this request in 2004. CMS Energy is unable to predict the outcome of the DOJ investigation and what effect, if any, the investigation will have on its business.CMS Energy.
Gas Index Price Reporting Litigation:CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc. (the company that purchased CMS Field Services), and Cantera Gas Company, are named as defendants in various class action and individual lawsuits arising as a result of allegedlyalleged inaccurate natural gas price reporting.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 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. |
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| • | | In 2007, a class action complaint, Heartland Regional Medical Center, et al. v. Oneok, Inc. et al., was filed in Missouri state court alleging violations of Missouri antitrust laws. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Missouri antitrust law in connection with their natural gas price reporting activities. |
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| • | | Breckenridge Brewery of Colorado, LLC and BBD Acquisition Co. v. Oneok, Inc., et al., a class action complaint brought on behalf of retail direct purchasers of natural gas in Colorado, was filed in Colorado state court in May 2006. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Colorado Antitrust Act of 1992 in connection with their natural gas price reporting activities. Plaintiffs are seeking full refund damages. |
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| • | | 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 2009, plaintiffs filed a new Arandell case in Michigan. The CMS Energy defendants filed a motion to dismiss the new Michigan case on statute-of-limitations grounds and that motion remains pending. |
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| • | | Another class action complaint, Newpage Wisconsin System v. CMS ERM, CMS Energy, and Cantera Gas Company, was filed in 2009 in circuit court in Wood County, Wisconsin, against CMS Energy defendants and 19 other non-CMS Energy companies. The plaintiff is seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees. |
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| • | | In 2005, J.P. Morgan Trust Company, 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, Breckenridge, both Arandell cases, Newpage, and J.P. Morgan cases were transferred to the MDL case. CMS MST settled a master class action suitEnergy was dismissed from the Learjet, Heartland, and J.P. Morgan cases in California state court for $7 million and the2009, but other CMS Energy defendants settled four class action suits originally filed in California federal court. CMS MST is the only remaining defendant in the California state court cases. In July 2009, CMS MST entered into a settlement of the remaining California state court cases. The settlement amount is immaterial to CMS Energy.
remain parties. All CMS Energy defendants were dismissed from the Missouri Public Service CommissionBreckenridge case a state action,in 2009. It is expected that the plaintiffs in this case will appeal this decision after all claims against defendants have been dismissed. At this time, there is no pending appeal. In June 2010, CMS Energy and Cantera Gas Company were dismissed from the Newpage case; the Arandell (Wisconsin) case was reinstated against CMS ERM; and the Breckenridge case, a federal action. Appeals are pending in both cases. CMS Energy was also dismissed from three federal cases, while the other CMS Energy defendants remain. CMS Energy defendants were also dismissed from a federal case in Wisconsin, but the plaintiffs have filed a motion for reconsideration and refiled the complaint in Michigan federal court. The MichiganArandell (Wisconsin) case was transferred toconsolidated with the multi-district litigation proceedingNewpage case. These two consolidated cases remain pending only against CMS ERM. Pending before the court in Nevada. In addition,all of the Tennessee Supreme Court has grantedMDL cases are the CMS Energy defendants’ applicationrenewed motions for summary judgment based on FERC preemption and the plaintiffs’ motion for leave to appealamend their complaint to add a federal Sherman Act antitrust claim. In all but the TennesseeJ.P. Morgan case, there are also pending plaintiffs’ motions for class action lawsuit. Othercertification. 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 included CMS Energy, CMS MST, and CMS Field Services. In April 2010, the Tennessee Supreme Court dismissed all claims against all defendants. |
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| • | | 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 2009, all defendants were dismissed for lack of standing. The Missouri Court of Appeals affirmed the dismissals in late 2009. In February 2010, the plaintiff filed an application for leave to appeal with the Missouri Supreme Court, seeking to overturn the Missouri Court of Appeals decision. In April 2010, the Missouri Supreme Court granted review to hear the case. Oral argument on the appeal is scheduled for September 2010 in the Missouri Supreme Court. |
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
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amount of CMS Energy’s possible loss would be based on widely varying models previously untested in several jurisdictions remain pending.
Another class action complaint was filedthis context. Defenses are being pursued vigorously, which could result in March 2009 in circuit court in Wood County, Wisconsin, againstthe dismissal of the cases completely, but CMS Energy defendants, along with 19 other non-CMS Energy companies, alleging conspiracyis unable to restrain trade through inaccurate natural gas price reporting. Defendants removed the case to federal court in Wisconsin and it was transferred through the multi-district litigation process to the consolidated actions in Nevada. CMS Energy cannot predict the financial impact or 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 MDEQ,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 have agreed upon augmentation measures to address areas where pH measurements arewere not satisfactory. The augmentation measures are beingwere implemented and are expected to be completed this year.in 2009.
In 2008, the MDEQMDNRE and the EPA granted permits for CMS Land 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. One appealThe legal proceeding was stayed in 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.
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 the permit remainsaccess, or other matters. There is presently one lawsuit (Jankowski v. CMS Energy, CMS Capital, and CMS Land) pending that was filed in the state court. Groups opposedJune 2010 in Emmet County Circuit Court in Michigan relating to the injection well filed a lawsuit in Antrim County against development of the well and in January 2009, the trial judge issued an injunction. Beeland filed an application for leave to appeal the court’s order with the Michigan Court of Appeals and the Michigan Supreme Court. Both appeals were denied.such subjects.
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CMS Land and CMS Capital, the MDEQ,MDNRE, the EPA, and other parties are discussingnegotiating the long-term remedy for the Bay Harbor sites, including:
| • | | the disposal of leachate; |
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| • | | the capping and excavation of CKD; |
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| • | | the location and design of collection lines and upstream diversion of water; |
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| • | | potential flow of leachate below the collection system; |
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| • | | applicable criteria for various substances such as mercury; and |
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| • | | 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 including accretion expense, of $177 million, of which $36 million was recorded in the second quarter of 2009. Several factors contributed to the revised remediation cost estimates in the second quarter of 2009. These factors include increased costs related to the disposal of 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.
$180 million. At June 30, 2009,2010, CMS Energy had a recorded liability of $90$70 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 1one percent on annual operating and maintenance costs. CMS Energy based the discount rate on the interest rate for 30-year U.S. Treasury securities on June 30, 2009. The undiscounted amount of the remaining obligation is $116$91 million. CMS Energy expects to pay $22$12 million in 2009, $13 million induring the remainder of 2010, $6$9 million in 2011, $7 million in 2012, $5 million in 2013, and the remainderremaining amount thereafter on long-term liquid disposal and operating and maintenance costs.
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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; |
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| • | | further increases in water disposal costs under existing options; |
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| • | | delays in developing a long-term water disposal option; |
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| • | | an increase in the number of contamination areas; |
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| • | | different remediation techniques; |
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| • | | the nature and extent of contamination; |
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| • | | continued inability to reach agreement with the MDEQMDNRE or the EPA over required remedial actions; |
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| • | | delays in the receipt of requested permits; |
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| • | | delays following the receipt of any requested permits due to legal appeals of third parties; |
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| • | | further increases in water disposal costs; |
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| • | | delays in developing a long-term water disposal option; |
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| • | | additional or new legal or regulatory requirements; or |
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| • | | 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 impactaffect CMS Energy’s financial results. CMS Energy cannot predict the financial impact or outcome of this matter.
Quicksilver Resources, Inc.:In 2001, Quicksilver sued CMS MST in Texas state court in Fort Worth, Texas for breach of contract in connection with a base contract for the sale and purchase of natural gas. The jury verdict awarded Quicksilver no compensatory damages but $10 million in punitive damages. In 2007, the trial court nullified the jury award of punitive damages but held that the contract should be rescinded prospectively. The judicial rescission of the contract caused CMS Energy to record a charge in
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the second quarter of 2007 of $24 million, net of tax. In June 2009, the Texas Court of Appeals ruled in favor of CMS MST and, pursuant to a settlement agreement to end the litigation, Quicksilver paid $5 million to CMS MST, which caused CMS Energy to recognize a $5 million credit to Cost of gas sold. The parties have agreed not to appeal. The Quicksilver matter has now been resolved.
State Street Bank and TSU Litigation:In 1998, CMS Viron installed a number of energy savings measures at TSU. CMS Viron sold the master lease for the project to a third-party, which transferred its interest to State Street Bank. Although TSU accepted the improvements, it refused to pay on the grounds that the Texas Board of Higher Education had not approved the expenditure. In 2002, State Street Bank sued CMS Viron in the District Court of Harris County, Texas, claiming primarily a breach of warranty. The plaintiffs arerepresentations and warranties and seeking $6$9 million plus interest from CMS Viron. During the same year, CMS Viron has filed a motioncounterclaim, as well as third-party actions against TSU, Academic Capital Group, Inc., and Academic Services, Inc. for summary disposition. The trial is scheduled to beginbreach of contract and fiduciary duties and conversion. In December 2009, the jury rendered a verdict in August 2009.favor of CMS Viron believes it hasand a valid defensefinal 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 claim, but cannot predict the outcomeverdict. 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 June 30, 2010, CMS Energy had a recorded liability of $3 million for its potential obligation related to this litigation.matter.
Equatorial Guinea Tax Claim:In 2004, CMS Energy received a request for indemnification from the purchaser of CMS Oil and Gas. The indemnity claim relates to the 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. At June 30, 2009, CMS Energy had a recorded liability of $4 million for its potential indemnity obligation for corporate and withholding taxes for 2006. CMS Energy cannot predict the financial impact or outcome of this matter.
Marathon Indemnity Claim regarding F.T. Barr Claim:In 2001, F. T.F.T. Barr an individual with an overriding royalty interest in production from the Alba field, 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. CMS Oil and Gas believes that Barr was properly paid on gas sales and that he was not entitled to the additional overriding royalty payment sought. AllIn 2004, all parties signed a confidential settlement agreement in 2004. The settlementthat resolved claims between Barr and the defendants, and the involveddefendants. The CMS Energy entitiesdefendants reserved all defenses to any indemnity claim relating to the settlement. Issues exist between Marathon and certain present or former CMS Energy entities as to the existence and scope of any indemnity obligation to Marathon in connection with the matter. In April 2008, Marathon indicated its intent to pursue the indemnity claim, and certain present and former CMS Energy entities and Marathon entered into a one-year agreement tolling the statute of limitations on any claim by Marathon under the indemnity.
In April 2009, certain Marathon entities filed a case in the United StatesU.S. District Court for the Southern District of Texas against CMS Enterprises for indemnification.indemnification in connection with this matter. CMS Energy entities
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dispute Marathon’s claim, and will vigorously oppose it.are opposing it vigorously. 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.
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Former NOMECO Employees’ Litigation:In June 2010, eight former employees of NOMECO filed a lawsuit in Ingham County Circuit Court in Michigan against CMS Energy and three Marathon entities (Richard Rulewicz, Trustee of the Richard Rulewicz Revocable Living Trust, et al. v. CMS Energy) alleging underpayment of the former employees’ overriding royalty payments related to the Alba field production in Equatorial Guinea, to which the plaintiffs claim to be entitled. CMS Oil and Gas sold its interests in the Alba field to Marathon in 2002. CMS Energy cannot predict the financial impact or outcome of this matter. CMS Energy believes that it may be entitled to full or partial indemnification from Marathon for monetary damages that may arise from this lawsuit.
CONSUMERS’ ELECTRIC UTILITY CONTINGENCIES
Electric 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 the NREPA, Consumers will ultimatelyexpects to incur investigationremediation and other response activity costs at a number of sites.sites under NREPA. Consumers believes that these costs willshould be recoverable in rates, under current ratemaking policies.but cannot guarantee that outcome. At June 30, 2009,2010, Consumers had a recorded liability of $1 million, the minimum amount in the range of its estimated probable NREPA liability, in accordance with applicable accounting standards.liability.
Consumers is a potentially responsible party at a number of contaminated sites administered under the Superfund. Superfund liability is joint and several. However,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 $11$8 million. Various factors, including the number of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At June 30, 2009,2010, Consumers had a recorded liability of $2 million, the minimum amount in the range of its estimated probable Superfund liability, in accordance with applicable accounting standards.liability.
The timing of payments related to Consumers’ investigationremediation 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 response activityperiodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, 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 aan NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in their associated air permits. The utility boilers are located at the Karn/Weadock Generating Complex, Campbell Plant, Cobb Electric Generating Station and Whiting Plant, which are all in Michigan. Consumers has responded formally to the NOV/FOV denying the allegations and is awaiting the EPA’s response to its submission.
In addition, the EPA has alleged that some utilities have incorrectly classified major plant modifications as RMRR rather than seeking permits from the EPA to modify their plants. Consumers responded to information requests from the EPA on this subject in 2000, 2002, 2006, and 2008. Consumers believes that it has properly interpreted the requirements of RMRR.allegations. In addition, in 2008, Consumers received aan 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. 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
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their plants. Consumers responded to the information requests from the EPA on this subject in the past. Consumers believes that it has properly interpreted the requirements of RMRR.
Consumers is engaged in discussions with the EPA on bothall 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 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.
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RFC Initial Notice Although the potential costs relating to these matters could be material and cost recovery cannot be reasonably estimated, Consumers expects that it would be able to recover some or all of Alleged Violation:In July 2008, Consumers notified RFC, the NERC-affiliated regional reliability organizationcosts in rates, consistent with the region that includes Consumers’ generating plants, that certain generation equipment covered by the NERC standards for maintenance and testing of certain electrical protection equipment was not covered by Consumers’ Generation Reliability Compliance Program. Since notifying RFC, Consumers has submitted and implemented a mitigation plan. It has also responded to the February 2009 initial notice of violation. Consumers cannot predict the financial impact or outcome of this matter.
Litigation:The transmission charges Consumers pays to MISO have been subject to regulatory review and recovery through the annual PSCR process. Michigan’s attorney general has argued that the statute governing the PSCR process does not permit recovery of transmission charges in that mannerother reasonable costs of complying with environmental laws and that those expenses should be considered in general rate cases. Several decisions of the Michigan Court of Appeals have ruled against the Michigan attorney general’s arguments, but in September 2008, the Michigan Supreme Court granted the Michigan attorney general’s applications for leave to appeal two of those decisions. In May 2009, the Michigan Supreme Court issued an order affirming Consumers’ ability to recover transmission costs through the PSCR process. The Michigan attorney general filed a petition for reconsideration/rehearing on this decision, which the Michigan Supreme Court denied.regulations.
Nuclear Matters:
DOE Litigation:In 1997, a United StatesU.S. Court of Appeals decision confirmed that the DOE was to begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent United StatesU.S. 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 StatesU.S. 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 deferred paymenthas a recorded liability of $163 million for amounts it collected from customers before 1983 to fund the disposal of spent nuclear fuel used before April 7, 1983. Its DOE liability is $163 million at June 30, 2009.fuel. This amount, which includes interest andof $119 million, is payable uponto the firstDOE when it begins to accept delivery of spent nuclear fuel to the DOE. Consumers recovered the amount of this liability, excluding a portion of interest, through electric rates.fuel. In conjunction with the sale of Palisades and the Big Rock ISFSI in 2007, Consumers retained this obligation and provided a $162 million letter of credit to Entergy as security for this obligation.
CONSUMERS’ GAS UTILITY CONTINGENCIES
Gas Environmental Matters:Consumers expects to incur investigationremediation and remediationother response activity costs at a number of sites under the NREPA. These sites include 23 former manufactured gas plantMGP facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, itConsumers has no currentpresent ownership interest or may own only a portion of the original site. In December 2008,At June 30, 2010, Consumers estimated its undiscounted remaining remediation and other response activity costs to be between $38$33 million and $52$48 million. Generally, Consumers expectshas been able to fundrecover most of theseits costs to date through proceeds from insurance settlements and MPSC-approvedcustomer rates.
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At June 30, 2009,2010, Consumers had a recorded liability of $37$33 million and a regulatory asset of $66 $61��million that included $30$28 million of deferred MGP expenditures. The timing of payments related to the remediation ofand other response activity at Consumers’ manufactured gas plantformer MGP sites is uncertain. Consumers expects annualits remediation and other response activity costs to range between $5average $6 million and $6 millionannually over the next five years. Consumers periodically reviews these response activity cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, changes in remediation techniques, or legal and regulatory requirements, could affect Consumers’ estimates of annual response activity costs and the MGP liability.
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CONSUMERS’ OTHER CONTINGENCIES
FERC Investigation:Michigan Sales/Use TaxIn February 2008,: Consumers receivedwas audited recently by the State of Michigan and assessed $35 million in additional sales and use tax for the tax years 1997 through 2004. This assessment, which comprises tax and interest, relates to the denial of an industrial processing exemption from sales and use tax on certain of Consumers’ equipment and supply purchases. Consumers will contest the assessment in the Michigan Court of Claims. To do so, it must first pay the assessment so that a data request relating to an investigationfiling can be made in the FERC is conducting into possible violationsMichigan Court of the FERC’s posting and competitive bidding regulationsClaims. At June 30, 2010, Consumers had a recorded liability of $35 million 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. Consumers cannot predict the financial impact or outcome of this matter.
GUARANTEES
The following table describes CMS Energy’s guarantees at June 30, 2009:2010:
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In Millions | | | Issue | | Expiration | | Maximum | | Carrying | | Issue | | Expiration | | Maximum | | Carrying |
Guarantee Description | | Date | | Date | | Obligation | | Amount | | Date | | Date | | Obligation | | Amount |
| Indemnity obligations from asset sales and other agreements (a) | | Various | | Indefinite | | $ | 1,369 | (b) | | $ | 15 | | Various | | Various through | | $845 (a) | | $12 |
Surety bonds and other indemnity obligations (c) | | Various | | Indefinite | | 35 | | — | |
Guarantees and put options (d) | | Various | | Various through September 2023 | | 4 | | 1 | |
| | | | | June 2022 | | | | |
| | | | | | | | | |
Guarantees and put options (b) | | | Various | | Various through | | 36 | | 1 |
| | | | | December 2011 | | | | |
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(a) | | In May 2007, 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 on May 2, 2009. CMS Energy eliminated the liability from its balance sheet, recognizing a $45 million benefit to Income (Loss) from Discontinued Operations, Net of Tax (Tax Benefit) and a $5 million benefit to Gain on asset sales, net. |
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(b) | | The majority of this amount arises from stock and asset sales agreements under which CMS Energy or a subsidiary of CMS Energy, other than Consumers, indemnified the purchaser for losses resulting from various matters, including claims related to tax disputes, claims related to power purchase agreements,PPAs, and the defects in title to the assets or stock sold to the purchaser by CMS Energy subsidiaries. Except for items described elsewhere in this Note, CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities. |
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(c)(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 it incurred losses due to a breach of contract terms or nonperformance under the contract. |
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| | |
(d) | | In 1987, Consumers issued an $85 million guarantee of the MCV Partnership’s performance under a steam and electric power agreement with Dow. In May 2009, the parties mutually terminated the steam and electric power agreement. The termination of the agreement released Consumers from its $85 million guarantee to Dow. At June 30, 2009, the maximum obligation and2010, the carrying amount of CMS Energy’sLand’s put option agreements with certain Bay Harbor property owners werewas $1 million. Additionally, ifIf CMS EnergyLand 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 option.put option agreement. |
At June 30, 2009,2010, the maximum obligation and carrying amountamounts for Consumers’ guarantees were immaterial.less than $1 million.
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The following table provides additional information regarding CMS Energy’s guarantees:
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| | | | Events That Would Require |
Guarantee Description | | How Guarantee Arose | | Performance |
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Indemnity obligations from asset sales and other agreements | | Stock and asset sales agreements | | Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances |
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Surety bonds and other indemnity obligations | | Normal operating activity, permits and licenses | | Nonperformance |
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Guarantees and put options | | Normal operating activity | | Nonperformance or non-payment by a subsidiary under a related contract |
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| | Bay Harbor remediation efforts | | Owners exercising put options requiring CMS Land and CMS Capital to purchase property |
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CMS Energy, Consumers, and Consumerscertain other subsidiaries of CMS Energy also enter into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. These factors include unspecified exposure under certain agreements. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities to be remote.
OTHER CONTINGENCIES
In addition to the matters disclosed in this Note and Note 4, Utility Rate Matters, there are certain other lawsuits and administrative proceedings before various courts and governmental agencies arising in the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties to certain lawsuits and administrative proceedings before various courts and governmental agencies arising from the ordinary course of business.parties. These other 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.
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4: UTILITY RATE MATTERS
Rate matters are critical to Consumers. Depending upon the specific issues, the outcomes of specific rate cases and proceedings could have a material adverse effect on Consumers’ cash flows and results of operations.
CONSUMERS’ ELECTRIC UTILITY RATE MATTERS
Stranded Cost Recovery:In 2004, the MPSC approved recovery of Consumers’ Stranded Costs incurred in 2002 and 2003 plus interest through the period of collection through a surcharge on ROA customers. Consumers presently has fewer ROA customers than at the time of the 2004 MPSC order, but has experienced a recent upward trend in ROA customers. The 2008 Energy Legislation amended the Customer Choice Act and directed the MPSC to approve rates that will allow recovery of Stranded Costs within five years. In January 2009, Consumers filed an application with the MPSC requesting recovery of these Stranded Costs through a surcharge on both full service and ROA customers. In June 2009, the ALJ’s proposal for decision supported Consumers’ request for recovery. At June 30, 2009, Consumers had a regulatory asset for Stranded Costs of $72 million.
Power Supply Cost Recovery:The PSCR process is designed to allow Consumers to recover all of its power supply costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and reconciliation proceedings. Consumers adjusts its PSCR billing factor monthly in order to minimize the over-overrecovery or underrecovery amount in the annual PSCR reconciliation.
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PSCR Reconciliations: The following table summarizes the PSCR reconciliation filingsfiling pending with the MPSC:
Power Supply Cost Recovery Reconciliation
| | | | | | | | | | |
| | | | | | Net Over- | | PSCR Cost | | |
PSCR | | Date | | (Under) | | of Power | | |
Year | | Filed | | recovery (a) | | Sold | | Description |
|
| 2007 | | | March 2008 | | $(42) million (b) | | $1.628 billion | | In the 2007 PSCR Plan, Consumers expected to offset power supply costs by including a $44 million credit for Palisades sale proceeds due customers. However, the MPSC directed that the Palisades sale proceeds be refunded through bill credits outside of the PSCR process. |
| | | | | | PSCR Cost of |
PSCR Year | | Date Filed | | Net Underrecovery | | Power Sold |
|
| 2008 | 2009 | | March 20092010 | | $239 million (a) | | $1.6701.6 billion | | The overrecovery amount includes accrued interest and reflects an overrecovery for 2008 less underrecoveries from 2007. |
|
| | |
(a) | | Amount includes prior year over- or underrecoveries as allowed byIn 2005, the MPSC order in Consumers’ 2007 PSCR plan case. |
|
(b) | | In May 2009, the ALJ’s proposal for decision recommended no PSCR recovery forapproved an economic development discountsdiscount for a large industrial customer to promote long-term investments in the industrial infrastructure of $3 million and disallowanceMichigan. 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 power-supply component of the discount provided from January 2009 through self-implementation, which totaled $4 millionmillion. Consumers has requested recovery of net replacement power costs associated with a crane incident at Consumers’ Campbell Plant.this amount through its 2009 PSCR reconciliation. |
In March 2010, the MPSC issued an order in Consumers’ 2007 PSCR reconciliation, disallowing PSCR recovery of $3 million of economic development discounts and $4 million of net replacement power costs associated with a crane incident at Consumers’ Campbell plant. The MPSC approved the 2007 PSCR reconciliation, as modified by the order, and authorized Consumers to include an underrecovery of $21 million in its 2008 PSCR plan. In April 2010, Consumers filed for a rehearing in its 2007 PSCR reconciliation, asking the MPSC to reconsider its decision to disallow recovery of a $2 million economic development discount provided in 2007 to a large industrial customer. In June 2010, the MPSC denied Consumers’ petition for rehearing. In July 2010, Consumers filed a claim for appeal with the Michigan Court of Appeals regarding the MPSC’s decision to disallow recovery of the economic development discount. Consumers cannot predict the outcome of this proceeding.
In June 2010, the MPSC issued an order in Consumers’ 2008 PSCR reconciliation, disallowing the PSCR recovery of a $3 million economic development discount. The MPSC approved the 2008 PSCR reconciliation, as modified by the order, and authorized Consumers to include an overrecovery of $14 million in its 2009 PSCR reconciliation. In July 2010, Consumers filed for a rehearing in its 2008 PSCR reconciliation, asking the MPSC to reconsider its decision to disallow recovery of the $3 million economic development discount. Consumers cannot predict the outcome of this proceeding.
PSCR Plan: In September 2008,2009, Consumers submitted its 20092010 PSCR planPlan to the MPSC. The plan seeks approval to apply a uniformUsing the maximum PSCR factor of up to $0.02680 per kWh to all classes of customers, which includes recovery of an expected $22 million discountproposed in power supply charges 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 June 2009, the ALJ’s proposal for decision recommended that recovery of this discount should not be included in the PSCR, but should be determined through a general rate case.
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its plan, Consumers self-implemented the 20092010 PSCR charge beginning in January 2009. The August 2009 PSCR billing factor is $0.01529 per kWh.2010. While Consumers expects to recover all of its PSCR costs, it cannot predict the financial impact or outcome of these proceedings.this proceeding.
Electric Rate Case:Cases:The MPSC, through a final order and rehearing in Consumers’ 2009 electric rate case, directed Consumers to refund to customers the difference between the rates it self-implemented in May 2009 and the rates authorized in the order, plus interest, subject to a reconciliation proceeding. In November 2008,February 2010, Consumers filed an application for the refund of $12 million to its customers beginning in September 2010. In May 2010, the MPSC Staff recommended a refund of $32 million. In June 2010, Consumers revised its proposed refund to $15 million. The MPSC issued an order in June 2010 that dispenses with the need for the ALJ’s PFD in this case, which will expedite the refund Consumers must make to its customers.
The MPSC’s order in Consumers’ 2009 electric rate case also adopted a “pilot” decoupling mechanism and an uncollectible expense tracking mechanism. Various parties have filed appeals concerning aspects of the MPSC order, including both of these ratemaking mechanisms. Two parties also seek to have the Michigan Supreme Court hear these appeals directly. Consumers cannot predict the outcome of these proceedings.
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In January 2010, Consumers filed an application with the MPSC seeking an annual increase in revenue of $214$178 million based on an 11 percent authorized return on equity. The filing seeks recovery of costs associated with new plant investments including Clean Air Act investments, higher operating and maintenance costs, and the approvalrequested authority to recover costs associated with Consumers’ advanced metering infrastructure program. The following table details the components of the requested increasenew investments in revenue:
| | | | |
In Millions |
Components of the increase in revenue | | | | |
|
Operating and maintenance | | $ | 50 | |
Rate of return | | | 17 | |
Rate base | | | 104 | |
Sales | | | 43 | |
| | | |
Total | | $ | 214 | |
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system reliability, environmental compliance, and technology advancements. In April 2009,June 2010, the MPSC staff and intervenors filed testimony concerning the rate case. The MPSC staffStaff recommended a revenue increase of $75$90 million, based on an 11a 10.35 percent return on equity. The MPSC staff subsequently filed revised testimony recommending a $111Staff also recommended an additional revenue increase of $25 million revenue increase.
This is(not included in 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, unlesstable below) if the MPSC finds good causedenies Consumers’ request for a tracking mechanism for an economic development discount provided to prohibit self-implementation. The new provisions require the MPSC to issue an order 12 months after filing or the rates, as filed, become permanent.a large industrial customer. 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 refund to customers $36 million of excess proceeds from the April 2007 sale of Palisades. Accordingly, in May 2009July 2010, Consumers self-implemented an annual electric rate increase of $179$150 million, subject to refund with interest,interest. The $28 million reduction from Consumers’ requested rate increase reflects Consumers’ attempt to be responsive to concerns raised by the MPSC Staff and also implemented a one-time refundother intervenors, and to balance the need for investment in improved infrastructure to support economic recovery in Michigan and the resulting rate impacts on customers. The following table details the components of $36 millionConsumers’ self-implemented electric rate increase and the increase recommended by the MPSC Staff:
| | | | | | | | | | | | |
| | | | | | | | In Millions |
| | | | | | Increase | | |
| | Consumers’ | | Recommended | | |
| | Self-Implemented | | by the | | |
Components of the increase in revenue | | Increase | | MPSC Staff | | Difference |
|
Investment in rate base | | $ | 106 | | | $ | 80 | | | $ | (26 | ) |
Recovery of operating and maintenance costs | | | 21 | | | | 25 | | | | 4 | |
Return on equity | | | 18 | | | | (19 | ) | | | (37 | ) |
Impact of sales declines | | | 5 | | | | 4 | | | | (1 | ) |
| | |
Total | | $ | 150 | | | $ | 90 | | | $ | (60 | ) |
|
In its July 2010 order allowing Consumers to customers. Consumers does not consider it probable that it will be required to refund a portionself-implement this increase, the MPSC expressed concern about utilities repeatedly self-implementing rate increases over short time periods, and before the return of itsprevious overcollections of self-implemented rates, and therefore it has not recorded a provision for revenue subject to refund.
rate increases. Consumers cannot predict the financial impact or outcome of this electric rate case.
Palisades Regulatory Proceedings: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 and that Consumers has not refunded this amount to customers. The order directed Consumers to explain why it should not be found in violation of the MPSC’s December 2005 order and subjected 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 for the years 2006 through 2009 exceeded the total amounts included in rates for these activities.
In March 2010, the MPSC Staff requested that the MPSC find Consumers in violation of the December 2005 order and that the MPSC order approvingConsumers to refund $27 million for failure to meet annual spending requirements during 2007 and 2008. Consumers filed a response, stating that it would be unreasonable and unlawful to order a refund of this amount and that Consumers’ expenditures were consistent with the Palisades sale transaction requiredMPSC’s orders. In March 2010, the ALJ’s PFD found Consumers’ expenditures to be prudent and that Consumers credit $255 million of excess sales proceeds and decommissioning amounts to its retail customers bydid not violate the December 2008. There are additional excess sales proceeds and decommissioning fund balances of $135 million above the amount in the MPSC2005 order. The ALJ recommended that the
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MPSC order in Consumers’ 2007 electric rate case instructed Consumers to offset the excess sales proceeds and decommissioning fund balances with $26 million of transaction costs from the Palisades sale, excluding interest. In addition, as described in the preceding paragraph the MPSC required Consumers to offset its self-implemented electric rate increase with $36 million of these funds. The distributionfind that no violation of the remaining balanceDecember 2005 order occurred and that no refunds be made to customers. Consumers cannot predict the outcome of $73 million is still pending with the MPSC.this proceeding.
Big Rock Decommissioning:The MPSC and the FERC regulate the recovery of Consumers’ costs to decommission Big Rock. InSubsequent to 2000, Consumers stopped funding a Big Rock trust fund because the collection period for an MPSC-authorized decommissioning surcharge collection period expired.expired on that date. The level of funds provided by the trust fell short of the amount needed to complete decommissioning. As a result,decommissioning and Consumers provided $44 million of corporate contributions for decommissioning costs.
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 alsowas entitled to a recovery of the $44 million decommissioning shortfall, but concluded that Consumers had collected this amount previously through the decommissioning surcharge in effect during the rate freeze. In April 2010, the MPSC ordered Consumers to refund $85 million of revenue collected in excess of decommissioning costs plus interest, over seven months beginning in July 2010. Consumers filed an appeal with the Michigan Court of Appeals in March 2010 to dispute the MPSC’s conclusion that the collections received during the rate freeze should be subject to refund. At June 30, 2010, Consumers had an $86 million regulatory liability recorded on its Consolidated Balance Sheets for this refund. Consumers cannot predict the outcome of this proceeding.
Consumers has paid $30 million to Entergy to
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assume ownership and responsibility for the Big Rock ISFSI, and paidhas incurred $55 million for nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule.fuel. Consumers is seeking recovery of these costs from the DOE. At June 30, 2009,2010, Consumers has a $129had an $85 million regulatory asset recorded on its Consolidated Balance Sheets for these costs.
Electric Depreciation:In 2008,February 2010, Consumers filed an application withelectric depreciation case related to its wholly owned electric utility property. As ordered by the MPSC, seekingConsumers prepared a traditional cost-of-removal study, which supported a $46 million increase in annual depreciation expense.
Also in February 2010, Consumers filed an electric depreciation case for Ludington, the deferralpumped storage plant jointly owned by Consumers and Detroit Edison. This case, filed jointly with Detroit Edison, requests an increase in annual depreciation expense. Consumers’ share of ratemaking treatment for the recovery of its nuclear fuel storage costs and the payment to Entergy, until the litigation regarding these coststhis increase is resolved in the federal courts. In the application,$9 million annually. Consumers is seeking to recover the $44 million Big Rock decommissioning shortfall from customers. The MPSC staff and other interveners have filed testimony in this case recommending that the MPSC deny Consumers’ request and requesting rate refunds of various amounts. Consumers continues to believe that recovery of its regulatory asset is probable, but it cannot predict the financial impact or outcome of this proceeding.these proceedings.
Renewable Energy Plan:In June 2010, Consumers filed its first annual report and reconciliation for its renewable energy plan with the MPSC, requesting approval of Consumers’ reconciliation of renewable energy plan costs for 2009.
Energy Optimization Plan:In April 2010, Consumers filed its first annual report and reconciliation for its energy optimization plan with the MPSC, requesting approval of Consumers’ reconciliation of energy optimization plan costs for 2009. Consumers also requested approval of the collection of a $6 million incentive payment for both its gas and electric energy optimization plans. During 2009, Consumers achieved 134 percent of its electric savings target and 132 percent of its gas savings target. These achievements qualify Consumers to earn the maximum incentive allowed by the MPSC, which is calculated as 15 percent of Consumers’ investment in energy savings.
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CONSUMERS’ GAS UTILITY RATE MATTERS
Gas Cost Recovery:The GCR process is designed to allow Consumers to recover all of its purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and reconciliation proceedings. Consumers adjusts its GCR billing factor monthly in order to minimize the over-overrecovery or underrecovery amount in the annual GCR reconciliation.
GCR Reconciliations: The following table summarizes the GCR reconciliation filings pending with the MPSC:
| | | | | | | | |
Gas Cost Recovery Reconciliation |
| | | | Net Over- | | | | |
| | | | (Under) | | GCR Cost of Gas | | |
GCR Year | | Date Filed | | recoveryNet (Under)/Overrecovery | | Gas Sold | | Description |
|
2007-2008 | | June 2008 | | $17 million | | $1.7 billion | | The overrecovery amount reflects an overrecovery of $15 million plus $2 million in accrued interest owed to customers. |
2008-2009 | | June 2009 | | $(15) million | | $1.8 billion |
2009-2010 | | The underrecovery amount reflects an underrecovery of $16 million lessJune 2010 | | $1 million in accrued interest owed to customers. | | $1.3 billion |
|
GCR Plans:In March 2010, the MPSC authorized Consumers to implement its 2009-2010 base GCR factor and generally approved Consumers’ plan for year 2009-2010:with minor adjustments to Consumers’ current purchasing guidelines.
In December 2008,2009, Consumers filed an application with the MPSC seeking approval of a GCR plan for its 2009-20102010-2011 GCR plan year. The request proposed the use of a base GCR ceiling factor of $8.10 per mcf, plus a quarterly GCR ceiling price adjustment contingent upon future events. Using the proposed base GCR ceiling factor,In April 2010, Consumers self-implemented the 2009-2010its filed GCR charge in April 2009. The August 2009 GCR billing factor is $7.36 per mcf.plan. While Consumers expects to recover all of its GCR costs, it cannot predict the financial impact or outcome of these proceedings.
Gas Depreciation:In August 2008, Consumers filed a gas depreciation case using 2007 data with the MPSC-ordered variations on traditional cost-of-removal methodologies. In December 2008, the MPSC approved a partial settlement agreement allowing Consumers to implement the filed depreciation rates, on an interim basis, concurrent with the implementation of settled rates in its 2008 gas rate case. The interim depreciation rates, which reduced Consumers’ recovery of depreciation expense by $20 million per year, will remain in effect until the MPSC issues a final order in the gas depreciation case. In July 2009, the ALJ’s proposal for decision recommended an additional reduction to Consumers’ recovery of
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depreciation expense of $28 million per year. The final order in Consumers’ gas depreciation case may increase or decrease its annual recovery of depreciation expense.
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 filing seeks recovery of costs associated with ongoing investments inrequested authorization to implement an uncollectible expense tracking mechanism, Pension Plan and OPEB equalization mechanisms, as well as a revenue decoupling mechanism.
In November 2009, Consumers self-implemented a gas utility assets, increases in operating and maintenance costs, and recognition of a decrease in expected sales related to the continued declinerate increase in the Michigan economy.annual amount of $89 million. In May 2010, the MPSC issued its order in this case, authorizing Consumers to increase its rates by $66 million based on an authorized return on equity of 10.55 percent. The following table details the components of the requested increase in revenue:
| | | | |
In Millions |
Components of the increase in revenue | | | | |
|
Operating and maintenance | | $ | 25 | |
Rate of return | | | 8 | |
Rate base | | | 40 | |
Sales | | | 41 | |
| | | |
Total | | $ | 114 | |
|
Under the new streamlined regulatory process described in the “Consumers’ Electric Utility Rate Matters — Electric Rate Case” section of this Note, utilities may be allowed to self-implement rates six months after filing. If the MPSC were to take action to prevent or delay Consumers’ self-implementation, it could have a materially negative impact on Consumers’ earnings and cash flows. Consumers cannot predict the financial impact or outcome of thisself-implemented gas rate case.increase and the increase authorized by the MPSC:
Lost | | | | | | | | | | | | |
In Millions | |
| | Consumers’ | | | Increase | | | | |
| | Self-Implemented | | | Authorized by | | | | |
Components of the increase in revenue | | Increase | | | the MPSC | | | Difference | |
|
Impact of sales declines | | $ | 41 | | | $ | 28 | | | $ | (13 | ) |
Investment in rate base | | | 23 | | | | 27 | | | | 4 | |
Recovery of operating and maintenance costs | | | 17 | | | | 13 | | | | (4 | ) |
Return on equity | | | 8 | | | | (2 | ) | | | (10 | ) |
| | |
Total | | $ | 89 | | | $ | 66 | | | $ | (23 | ) |
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The MPSC directed Consumers to refund to customers the difference between the rates it self-implemented in November 2009 and Unaccounted for Gas:Gas utilities typically lose some gas as it is injected intothe rates authorized in this order, plus interest, subject to a reconciliation proceeding. At June 30, 2010, CMS Energy and withdrawn from storageConsumers had a recorded regulatory liability of $15 million related to this refund. CMS Energy and sent through transmission and distribution systems. Consumers recoversdetermined that the cost of lost and unaccounted for gas through general rate cases, which have provided for recovery based on an averageportion of the previous five yearsrefund that was specifically identifiable with the first quarter of actual losses. To the extent that Consumers’ annual lost2010 was not material and, unaccounted for gas cost exceeds the previous five-year average, Consumers may be unable to recover these amounts in rates.accordingly, did not revise those financial statements.
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The May 2010 order also adopts a revenue decoupling mechanism, effective June 1, 2010, which, subject to certain conditions, allows Consumers to adjust future rates to collect or refund the change in marginal revenue by class arising from the difference between base sales per customer established in the order and weather-adjusted sales per customer. The order denied Consumers’ request to implement a gas uncollectible expense tracking mechanism and Pension Plan and OPEB equalization mechanisms. Gas Depreciation:In September 2009, the MPSC 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 May 2010, as ordered by the MPSC, Consumers implemented the new standard retirement units concurrently with the final rates approved in its gas rate case.
5: FINANCINGS AND CAPITALIZATION
Long-term debt is summarized as follows:
| | | | | | | | |
In Millions |
| | June 30, 2009 | | | December 31, 2008 | |
|
CMS Energy | | | | | | | | |
Senior notes | | $ | 2,175 | | | $ | 1,703 | |
Revolving credit facility | | | — | | | | 105 | |
| | | | | | |
Total — CMS Energy | | | 2,175 | | | | 1,808 | |
Consumers | | | 4,579 | | | | 4,297 | |
Other CMS Energy Subsidiaries | | | 232 | | | | 252 | |
| | | | | | |
Total CMS Energy principal amounts outstanding | | | 6,986 | | | | 6,357 | |
Current amounts | | | (581 | ) | | | (489 | ) |
Net unamortized discount | | | (49 | ) | | | (31 | ) |
| | | | | | |
| | | | | | | | |
Total CMS Energy Long-term debt | | $ | 6,356 | | | $ | 5,837 | |
| | | | | | |
Consumers | | | | | | | | |
First mortgage bonds | | $ | 3,815 | | | $ | 3,517 | |
Senior notes and other | | | 503 | | | | 503 | |
Securitization bonds | | | 261 | | | | 277 | |
| | | | | | |
Total Consumers principal amounts outstanding | | | 4,579 | | | | 4,297 | |
Current amounts | | | (492 | ) | | | (383 | ) |
Net unamortized discount | | | (6 | ) | | | (6 | ) |
| | | | | | |
| | | | | | | | |
Total Consumers Long-term debt | | $ | 4,081 | | | $ | 3,908 | |
|
Financings:The following is a summary of majorsignificant long-term debt transactions during the six months ended June 30, 2009:2010:
| | | | | | | | | | | | | | | | |
| | Principal | | Interest | | Issue/Retirement | | |
| | (in millions) | | Rate (%) | | Date | | Maturity Date |
|
Debt Issuances: | | | | | | | | | | | | | | | | |
CMS Energy | | | | | | | | | | | | | | | | |
Convertible senior notes | | $ | 173 | | | | 5.50 | % | | June 2009 | | June 2029 |
Senior notes | | | 300 | | | | 8.75 | % | | June 2009 | | June 2019 |
Consumers | | | | | | | | | | | | | | | | |
First mortgage bonds | | | 500 | | | | 6.70 | % | | March 2009 | | September 2019 |
|
Debt Retirements: | | | | | | | | | | | | | | | | |
CMS Energy | | | | | | | | | | | | | | | | |
Long-term debt — related parties (a) | | $ | 144 | | | | 7.75 | % | | June 2009 | | July 2027 |
Consumers | | | | | | | | | | | | | | | | |
First mortgage bonds | | | 200 | | | | 4.80 | % | | February 2009 | | February 2009 |
|
| | |
(a) | | CMS Energy retired this debt at a discount, and recorded a gain on extinguishment of debt of $28 million in Other income in its Consolidated Statements of Income. |
| | | | | | | | | | | | | | | | |
|
| | Principal | | | Interest | | | | | | | |
| | (in millions) | | | Rate | | | Issue/Retirement Date | | | Maturity Date | |
|
Debt Issuances: | | | | | | | | | | | | | | | | |
CMS Energy | | | | | | | | | | | | | | | | |
Senior notes | | $ | 300 | | | | 6.25 | % | | January 2010 | | February 2020 |
|
Debt Retirements: | | | | | | | | | | | | | | | | |
Consumers | | | | | | | | | | | | | | | | |
FMBs | | $ | 250 | | | | 4.00 | % | | May 2010 | | May 2010 |
Tax-exempt pollution control revenue bonds | | | 58 | | | Various | | June 2010 | | June 2010 |
|
In June 2009, CMS Energy commenced cash tender offers to repurchase up to $330April 2010, Consumers executed a bond purchase agreement whereby Consumers will issue, in a September 2010 private placement, $250 million of CMS Energy’s 7.755.30 percent senior notesFMBs due 2010September 2022 and 8.50$50 million of 6.17 percent senior notesFMBs due 2011. In July 2009, under the terms of the tender offers, CMS Energy repurchased and retired $233 million principal amount of the 7.75 percent senior notes and $87 million principal amount of the 8.50 percent senior notes.September 2040.
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Revolving Credit Facilities:The following secured revolving credit facilities with banks were available at June 30, 2009:2010:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions | In Millions | In Millions | |
| | Letters of | | | | Letters of | | | |
| | Amount of | | Amount | | Credit | | Amount | | Amount of | | Amount | | Credit | | Amount | |
Company | | Expiration Date | | Facility | | Borrowed | | Outstanding | | Available | | Expiration Date | | Facility | | Borrowed | | Outstanding | | Available | |
| CMS Energy (a) | | April 2, 2012 | | $ | 550 | | $ | — | (b) | | $ | 3 | | $ | 547 | | | April 2, 2012 | | $ | 550 | | $ | — | | $ | 3 | | $ | 547 | |
Consumers | | March 30, 2012 | | 500 | | — | | 172 | | 328 | | | March 30, 2012 | | 500 | | — | | 335 | | 165 | |
Consumers (c)(b) | | November 30, 2009 | | 192 | | — | | 192 | | — | | | November 30, 2010 | | 30 | | — | | 30 | | — | |
Consumers | | September 9, 2009 | | 150 | | — | | — | | 150 | | | August 17, 2010 | | 150 | | — | | — | | 150 | |
|
| | |
(a) | | CMS Energy’s average borrowings during the six months ended June 30, 2009,2010, totaled $69$2 million, with a weighted averageweighted-average annual interest rate of 1.321.0 percent, at LIBOR plus 0.75 percent. |
|
(b) | | In July 2009, CMS Energy borrowed $130 million on its revolving credit facility to fund the repurchase and retirement of senior notes. |
|
(c) | | Consumers’ securedSecured revolving letter of credit facility. |
Sale of Accounts Receivable:Short-term Borrowings:Under Consumers’ revolving accounts receivable sales program, Consumers may selltransfer up to $250 million of accounts receivable, subject to certain eligibility requirements.
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Effective January 1, 2010, transactions entered into under this program are accounted for as secured borrowings rather than as sales. For additional details, see Note 1, New Accounting Standards. At June 30, 2009, $1342010, $250 million of accounts receivable were eligible for sale,transfer, and no accounts receivable were soldhad been transferred under the program.
Consumers’ average short-term borrowings during the six months ended June 30, 2010, totaled $1 million, with a weighted average annual interest rate of 0.2 percent.
Contingently Convertible Securities:At June 30, 2009,2010, the significant terms of CMS Energy’s contingently convertible securities were as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Outstanding | | Adjusted | | Adjusted | | Outstanding | | Adjusted | | Adjusted | |
Security | | Maturity | | (In Millions) | | Conversion Price | | Trigger Price | | Maturity | | (In Millions) | | Conversion Price | | Trigger Price | |
| 4.50% preferred stock (a) | | — | | $ | 243 | | $ | 9.32 | | $ | 11.18 | | | — | | $ | 239 | | $ | 8.96 | | $ | 10.75 | |
3.375% senior notes (b) | | 2023 | | 140 | | 10.05 | | 12.06 | | |
3.375% senior notes (a) | | | 2023 | | 139 | | 9.67 | | 11.60 | |
2.875% senior notes | | 2024 | | 288 | | 13.89 | | 16.67 | | | 2024 | | 288 | | 13.36 | | 16.03 | |
5.50% senior notes (c) | | 2029 | | 173 | | 14.46 | | 18.80 | | |
5.50% senior notes | | | 2029 | | 173 | | 14.46 | | 18.80 | |
|
| | |
(a) | | During 20 of the last 30 trading days ended June 30, 2009,2010, the $11.18 per share adjusted trigger price wasprices were met for these securities and, as a result, the securities are convertible at the option of the security holders for the three months ending September 30, 2009. |
|
(b) | | CMS Energy has the option to redeem these securities at par. |
|
(c) | | The $173 million of 5.50 percent convertible senior notes issued in June 2009 become convertible for the calendar quarter beginning October 1, 2009, 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 third quarter of 2009. The trigger price at which these securities become convertible is 130 percent of the conversion price. The conversion and trigger prices are subject to adjustment under certain circumstances, including payments or distributions to CMS Energy’s common stockholders.2010. |
During the quarterthree months ended June 30, 2009,2010, no other trigger price contingencies were met that would have allowed CMS Energy or the holders of the convertible securities to convert the securities to cash and equity.
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In July 2010, 250,000 shares of 4.50 percent preferred stock and $8 million principal amount of 3.375 percent senior notes were tendered for conversion. The average conversion price per share, number of common shares to be issued, and cash to be paid on settlement are not yet determinable.
Dividend Restrictions:Under provisions of CMS Energy’s senior notes indenture, at June 30, 2009,2010, payment of common stock dividends by CMS Energy was limited to $677$879 million.
Under the provisions of its articles of incorporation, at June 30, 2009,2010, Consumers had $364$356 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.
For the six months ended June 30, 2009,2010, CMS Energy received $130$168 million of common stock dividends from Consumers.
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6: EARNINGS PER SHARE — CMS ENERGY
The following table presents CMS Energy’s basic and diluted EPS computations based on EarningsIncome from Continuing Operations:
| | | | | | | | | | | | | | | | |
In Millions, Except Per Share Amounts | In Millions, Except Per Share Amounts | In Millions, Except Per Share Amounts | |
Three months ended June 30 | | 2009 | | 2008 | | | 2010 | | 2009 | |
| Earnings Available to Common Stockholders | | |
Earnings from Continuing Operations | | $ | 50 | | $ | 49 | | |
Less Earnings Attributable to Noncontrolling Interests | | | (2 | ) | | | (1 | ) | |
Income Available to Common Stockholders | | |
Income from Continuing Operations | | | $ | 100 | | $ | 55 | |
Less Income Attributable to Noncontrolling Interests | | | | (2 | ) | | | (2 | ) |
Less Preferred Dividends | | | (3 | ) | | | (3 | ) | | | (2 | ) | | | (3 | ) |
| | | | | | | |
Earnings from Continuing Operations Available to Common Stockholders — Basic and Diluted | | $ | 45 | | $ | 45 | | |
Income from Continuing Operations Available to Common Stockholders — Basic and Diluted | | | $ | 96 | | $ | 50 | |
| | | | | | | |
Average Common Shares Outstanding | | |
Weighted Average Shares — Basic | | 226.9 | | 225.4 | | | 228.2 | | 226.9 | |
Add dilutive impact of Contingently Convertible Securities | | 7.6 | | 15.0 | | | 19.3 | | 7.6 | |
Add dilutive Stock Options and Warrants | | 0.1 | | 0.2 | | |
Add dilutive Options and Warrants | | | 0.1 | | 0.1 | |
| | | | | | | |
Weighted Average Shares — Diluted | | 234.6 | | 240.6 | | | 247.6 | | 234.6 | |
| | | | | | |
Earnings Per Average Common Share Available to Common Stockholders | | |
Income from Continuing Operations Per Average Common Share Available to Common Stockholders | | |
Basic | | $ | 0.20 | | $ | 0.21 | | | $ | 0.42 | | $ | 0.22 | |
Diluted | | $ | 0.19 | | $ | 0.19 | | | $ | 0.39 | | $ | 0.21 | |
|
| | | | | | | | | | | | | | | | |
In Millions, Except Per Share Amounts | In Millions, Except Per Share Amounts | In Millions, Except Per Share Amounts | |
Six months ended June 30 | | 2009 | | 2008 | | | 2010 | | 2009 | |
| Earnings Available to Common Stockholders | | |
Earnings from Continuing Operations | | $ | 123 | | $ | 157 | | |
Less Earnings Attributable to Noncontrolling Interests | | | (3 | ) | | | (4 | ) | |
Income Available to Common Stockholders | | |
Income from Continuing Operations | | | $ | 189 | | $ | 130 | |
Less Income Attributable to Noncontrolling Interests | | | | (2 | ) | | | (3 | ) |
Less Preferred Dividends | | | (6 | ) | | | (6 | ) | | | (5 | ) | | | (6 | ) |
| | | | | | | |
Earnings from Continuing Operations Available to Common Stockholders — Basic and Diluted | | $ | 114 | | $ | 147 | | |
Income from Continuing Operations Available to Common Stockholders — Basic and Diluted | | | $ | 182 | | $ | 121 | |
| | | | | | | |
Average Common Shares Outstanding | | |
Weighted Average Shares — Basic | | 226.8 | | 225.3 | | | 228.1 | | 226.8 | |
Add dilutive impact of Contingently Convertible Securities | | 7.2 | | 14.3 | | | 19.5 | | 7.2 | |
Add dilutive Stock Options and Warrants | | 0.1 | | 0.2 | | |
Add dilutive Options and Warrants | | | 0.1 | | 0.1 | |
| | | | | | | |
Weighted Average Shares — Diluted | | 234.1 | | 239.8 | | | 247.7 | | 234.1 | |
| | | | | | |
Earnings Per Average Common Share Available to Common Stockholders | | |
Income from Continuing Operations Per Average Common Share Available to Common Stockholders | | |
Basic | | $ | 0.50 | | $ | 0.65 | | | $ | 0.80 | | $ | 0.53 | |
Diluted | | $ | 0.48 | | $ | 0.61 | | | $ | 0.74 | | $ | 0.52 | |
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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. For additional details on contingently convertible securities, see Note 5, Financings and Capitalization.Financings.
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Stock Options and Warrants:For each of the three and six months ended June 30, 2009,2010, outstanding options and warrants to purchase 0.60.4 million shares of CMS Energy common stock had no impact on diluted EPS, since the exercise price was greater than the average market price of CMS Energy common stock. These stock options have the potential to dilute EPS in the future.
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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 CMS Energy if the recipient forfeits the award, the unvested restricted stock awards are considered participating securities. As such, unvested restricted stock awards were included in the computation of basic EPS.
Convertible Debentures:For each of the three and six months ended June 30, 20092010 and 2008,2009, 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 less than $1 million for the three months ended June 30, 2010, and by $2 million for the three months ended June 30, 2009, from an assumed reduction of interest expense, net of tax; |
|
| • | | increased the denominator of diluted EPS by 0.7 million shares for the three months ended June 30, 2010, and 2008by 3.6 million shares for the three months ended June 30, 2009; |
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| • | | increased the numerator of diluted EPS by $1 million for the six months ended June 30, 2010, and by $4 million for the six months ended June 30, 2009, and 2008, from an assumed reduction of interest expense, net of tax; and |
|
| • | | increased the denominator of diluted EPS by 3.60.7 million shares for the threesix months ended June 30, 20092010, and by 3.9 million shares for the six months ended June 30, 2009. The denominator of diluted EPS would have increased by 4.2 million shares for the three months and six months ended June 30, 2008. |
CMS Energy can revoke the conversion rights if certain conditions are met.
7: FINANCIAL AND DERIVATIVE INSTRUMENTS
Financial Instruments:The carrying amounts of CMS Energy’s and Consumers’ cash, cash equivalents, current accounts and notes receivable, short-term investments, and current liabilities approximate their fair values because of their short-term nature. The cost or carrying amountamounts and fair valuevalues of CMS Energy’s and Consumers’ long-term financial instruments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions | In Millions | In Millions | |
| | June 30, 2009 | | December 31, 2008 | | June 30, 2010 | | December 31, 2009 | |
| | Cost or | | Cost or | | | | Cost or | | Cost or | | | |
| | Carrying | | Carrying | | | | Carrying | | Carrying | | | |
| | Amount | | Fair Value | | Amount | | Fair Value | | Amount | | Fair Value | | Amount | | Fair Value | |
| CMS Energy, including Consumers | | |
Securities held to maturity | | $ | 3 | | $ | 3 | | $ | 3 | | $ | 3 | | | $ | 4 | | $ | 5 | | $ | 4 | | $ | 4 | |
Securities available for sale | | 67 | | 68 | | 68 | | 68 | | | 89 | | 90 | | 26 | | 27 | |
Notes receivable, net | | 196 | | 207 | | 186 | | 201 | | | 296 | | 320 | | 269 | | 279 | |
Long-term debt (a) | | 6,937 | | 6,979 | | 6,326 | | 5,962 | | | 6,511 | | 7,178 | | 6,567 | | 7,013 | |
Long-term debt — related parties | | 34 | | 27 | | 178 | | 107 | | |
| | |
Consumers | | |
Securities available for sale | | $ | 52 | | $ | 67 | | $ | 52 | | $ | 63 | | | $ | 64 | | $ | 83 | | $ | 24 | | $ | 45 | |
Long-term debt (b) | | 4,573 | | 4,575 | | 4,291 | | 4,073 | | | 4,079 | | 4,487 | | 4,406 | | 4,635 | |
|
| | |
(a) | | Includes current maturitiesportion of $581long-term debt of $628 million at June 30, 20092010 and $489$672 million at December 31, 2008.2009. |
|
(b) | | Includes current maturitiesportion of $492long-term debt of $36 million at June 30, 20092010 and $383$343 million at December 31, 2008.2009. |
Notes receivable, net consist of EnerBank’s fixed-rate installment loans. EnerBank estimates the fair value of these loans using a discounted cash flows technique that incorporates current market interest
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rates as well as assumptions about the remaining life of the loans and credit risk. Fair values for impaired loans are estimated using discounted cash flows or underlying collateral values.
CMS Energy and Consumers estimate the fair value of their long-term debt using quoted prices from market trades of the debt, if available. In the absence of quoted prices, CMS Energy and Consumers calculate market yields and prices for the debt using a matrix method that incorporates market data for similarly rated debt. Depending on the information available, other valuation techniques may be used that
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rely on internal assumptions and models. For its convertible securities, CMS Energy incorporates, as appropriate, information on the market prices of CMS EnergyEnergy’s common stock.
The effects of third-party credit enhancements are excluded from the fair value measurements of long-term debt. At June 30, 2010, CMS Energy’s long-term debt includes $290included $240 million principal amount that iswas supported by third-party insurance or other credit enhancements. This entire principal amount was at Consumers. At December 31, 2009, CMS Energy’s long-term debt included $286 million principal amount that was supported by third-party insurance or other credit enhancements. Of this amount, $273$271 million principal amount iswas at Consumers. The effects of this third-party credit support were excluded from the measurement of fair value at June 30, 2009.
The following table summarizes CMS Energy’s and Consumers’ investment securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions | In Millions | In Millions | |
| | June 30, 2009 | | December 31, 2008 | | June 30, 2010 | | December 31, 2009 | |
| | Unrealized | | Unrealized | | Fair | | Unrealized | | Unrealized | | Fair | | Unrealized | | Unrealized | | Fair | | Unrealized | | Unrealized | | Fair | |
| | Cost | | Gains | | Losses | | Value | | Cost | | Gains | | Losses | | Value | | Cost | | Gains | | Losses | | Value | | Cost | | Gains | | Losses | | Value | |
| CMS Energy, including Consumers | CMS Energy, including Consumers | | |
Available for sale: | | |
SERP: | | |
Equity securities | | $ | 40 | | $ | 1 | | $ | — | | $ | 41 | | $ | 39 | | $ | — | | $ | — | | $ | 39 | | |
Debt securities | | 27 | | — | | — | | 27 | | 29 | | — | | — | | 29 | | |
Mutual fund | | | $ | 62 | | $ | — | | $ | — | | $ | 62 | | $ | — | | $ | — | | $ | — | | $ | — | |
State and municipal bonds | | | 27 | | 1 | | — | | 28 | | 26 | | 1 | | — | | 27 | |
Held to maturity: | | |
Debt securities | | 3 | | — | | — | | 3 | | 3 | | — | | — | | 3 | | | 4 | | 1 | | — | | 5 | | 4 | | — | | — | | 4 | |
| | |
Consumers | | |
Available for sale: | | |
SERP: | | |
Equity securities | | $ | 26 | | $ | 1 | | $ | — | | $ | 27 | | $ | 25 | | $ | — | | $ | — | | $ | 25 | | |
Debt securities | | 18 | | — | | — | | 18 | | 19 | | — | | — | | 19 | | |
Common stock of CMS Energy | | 8 | | 14 | | — | | 22 | | 8 | | 11 | | — | | 19 | | |
Mutual fund | | | $ | 39 | | $ | — | | $ | — | | $ | 39 | | $ | — | | $ | — | | $ | — | | $ | — | |
State and municipal bonds | | | 17 | | — | | — | | 17 | | 16 | | — | | — | | 16 | |
CMS Energy Common Stock | | | 8 | | 19 | | — | | 27 | | 8 | | 21 | | — | | 29 | |
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Equity securitiesThe mutual fund classified as available for sale is a short-term, fixed-income fund. Shares in this fund were acquired during the six months ended June 30, 2010. State and municipal bonds classified as available for sale consist of an investment in a Standard & Poor’s 500 Index mutual fund. Debt securities classified as available for sale consist of investment-gradegrade state and municipal bonds. Debt securities classified as held to maturity consist of state and municipal bonds and mortgage-backed securities held by EnerBank.
The following table summarizes the sales activity for CMS Energy’s and Consumers’ investment securities:
| | | | | | | | | | | | | | | | |
In Millions | |
| | Three months ended | | | Six months ended | |
June 30 | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
|
Proceeds from sales of investment securities: | | | | | | | | | | | | | | | | |
CMS Energy, including Consumers | | $ | 1 | | | $ | 1 | | | $ | 2 | | | $ | 3 | |
Consumers | | | 1 | | | | 1 | | | | 1 | | | | 2 | |
|
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All of the proceeds related to sales of state and municipal bonds that were held within the SERP and classified as available for sale. Realized losses on these sales were insignificant for both CMS Energy and Consumers during each period.
The fair values of the SERP state and municipal bonds by contractual maturity at June 30, 2010 were as follows:
| | | | | | | | |
In Millions | |
| | CMS Energy, | | | | |
| | including | | | | |
| | Consumers | | | Consumers | |
|
Due one year or less | | $ | — | | | $ | — | |
Due after one year through five years | | | 10 | | | | 6 | |
Due after five years through ten years | | | 11 | | | | 7 | |
Due after ten years | | | 7 | | | | 4 | |
| | | | | | |
Total | | $ | 28 | | | $ | 17 | |
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Derivative Instruments:8: DERIVATIVE INSTRUMENTS
In order to limit exposure to certain market risks, primarily changes in commodity prices, interest rates, and foreign exchange rates, CMS Energy and Consumers may enter into various risk management contracts, such as forward contracts, futures, options, and swaps. 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 holdsenters into 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,reporting period, the resulting asset or liability is adjusted to reflect any change in the fair value of the contract, a practice known as marking the contract to market.contract. Since none of CMS Energy’s or Consumers’ derivatives have been designated as accounting hedges, all mark-to-market gains and losseschanges in fair value are reported in earnings. For a discussion of how CMS Energy and Consumers determine the fair value of their derivatives, see Note 2, Fair Value Measurements.
Commodity Price Risk: In order to support ongoing operations, CMS Energy and Consumers enter into contracts for the future purchase and sale of various commodities, such as electricity, natural gas, and coal. These forward contracts are generally long-term in nature and result in physical delivery of the commodity at a contracted price. Most of these contracts are not subject to derivative accounting because:
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| • | | 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 resulting mark-to-marketfair value gains and losses would be offset by changes in regulatory assets and liabilities and would not affect net income. ForNo other subsidiaries of CMS Energy does not believe the resulting mark-to-market impact on earnings would be material.enter into coal purchase contracts.
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
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commodity price risks associated with these forward purchase and sale contracts, CMS ERM uses various financial instruments, such as futures, options, and swaps. At June 30, 2009,2010, CMS ERM held a forward contract for the physical sale of 889743 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 4236 percent of the generating plant’s natural gas requirements needed to serve a steam sales contract, for a total of 1.20.5 bcf of natural gas. In its role as a marketer of natural gas for third-party producers, CMS ERM also held forward contracts to purchase 9.62.4 bcf of natural gas and to sell 7.72.0 bcf of natural gas through 2010.
Interest rate risk: In order2010 and a financial contract to mitigate its exposure to changes in interest rates, Grayling executed an interest rate collarsell 1.0 bcf of natural gas as an economic hedge of the variable interest rate charged on its outstanding revenue bonds.gas storage sales in 2011. At June 30, 2009, the notional amount2010, CMS ERM held financial contracts through 2010 as an economic hedge against tolling arrangements with a purchase of this contract was $17 million.260 GWh of electricity and a sale of 1.7 bcf of gas.
At June 30, 2010 and December 31, 2009, the fair value of Consumers’ derivative instruments was immaterial.less than $1 million. The following table summarizes the fair values of CMS Energy’s derivative instruments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions | June 30, 2009 | | Asset Derivatives | | Liability Derivatives | | |
| | Balance Sheet | | Balance Sheet | | | | | Derivative Assets | | Derivative Liabilities |
| | Location | | Fair Value | | Location | | Fair Value | | | Fair Value | | Fair Value |
| | | Balance | | Balance | | | | |
CMS Energy | | |
| | | Sheet | | June 30, | | December 31, | | Sheet | | June 30, | | December 31, |
| | | Location | | 2010 | | 2009 | | Location | | 2010 | | 2009 |
| | |
CMS Energy, including Consumers | | |
Derivatives not designated as hedging instruments: | | |
Commodity contracts (a) | | Other assets | | $ | 1 | | Other liabilities | | $ | (16 | ) | | Other assets (b) | | $ | 5 | | $ | 1 | | Other liabilities (c) | | $ | 8 | | $ | 9 | |
Interest rate contracts | | Other assets | | — | | Other liabilities | | | (1 | ) | |
| | |
Interest rate contracts (d) | | | Other assets | | — | | — | | Other liabilities | | — | | 1 | |
| | | | | | | | | |
Total CMS Energy Derivatives | | $ | 1 | | $ | (17 | ) | | $ | 5 | | $ | 1 | | $ | 8 | | $ | 10 | |
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| | |
(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 excludesagreements, which was $1 million at June 30, 2010 and December 31, 2009. |
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(b) | | Assets exclude the $3impact of offsetting cash margin deposits paid by other parties to CMS ERM, which was $2 million at June 30, 2010. CMS Energy presents these assets net of these impacts on its Consolidated Balance Sheets. |
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(c) | | Liabilities exclude the impact of offsetting cash margin deposits paid by CMS ERM to other parties.parties, which was less than $1 million at June 30, 2010 and $1 million at December 31, 2009. CMS Energy presents these assets and liabilities net of these impacts on its Consolidated Balance Sheets. |
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(d) | | At December 31, 2009, CMS Energy’s derivatives included an interest rate collar held by Grayling as an economic hedge of the variable interest rate charged on its outstanding revenue bonds. Effective January 1, 2010, CMS Energy deconsolidated Grayling. CMS Energy reflected its share of the loss on the interest rate collar, which was less than $1 million at June 30, 2010, in Income (loss) from equity method investees in its Consolidated Statements of Income. For additional details about the deconsolidation of Grayling, see Note 11, Variable Interest Entities. |
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The following tables summarize the effect of CMS Energy’s and Consumers’ derivative instruments on their Consolidated Statements of Income:
| | | | | | | | | | | | | | | | | | |
In Millions | In Millions | | In Millions |
| | Location of Gain (Loss) | | Amount of Gain (Loss) | | | Location of Gain (Loss) | | Amount of Gain (Loss) |
| | Recognized in Income on | | Recognized in Income on | | | on Derivatives | | on Derivatives |
Three months ended June 30, 2009 | | Derivatives | | Derivatives | | |
| | | Recognized in Income | | Recognized in Income |
Three months ended June 30 | | | 2010 | | 2009 |
| CMS Energy, including Consumers | | | | |
Derivatives not designated as hedging instruments: | | | | |
Commodity contracts | | Operating Revenue | | $ | (2 | ) | | Operating Revenue | | $ | (2 | ) | | $ | (2 | ) |
| | Fuel for electric generation | | — | | | Other income | | 1 | | 1 | |
| | Cost of gas sold | | — | | | |
| | Other income | | 1 | | |
Interest rate contracts | | Other expense | | — | | |
| | | | | | |
Total CMS Energy | | | | $ | (1 | ) | | $ | (1 | ) | | $ | (1 | ) |
| | | | | | |
| | | | |
Consumers | | | | |
Derivatives not designated as hedging instruments: | | | | |
Commodity contracts | | Other income | | $ | 1 | | | Other income | | $ | 1 | | $ | 1 | |
|
| | | | | | | | | | | | | | | | | | |
In Millions | In Millions | | In Millions |
| | Location of Gain (Loss) | | Amount of Gain (Loss) | | | Location of Gain (Loss) | | Amount of Gain (Loss) |
| | Recognized in Income on | | Recognized in Income on | | | on Derivatives | | on Derivatives |
Six months ended June 30, 2009 | | Derivatives | | Derivatives | | |
| | | Recognized in Income | | Recognized in Income |
Six months ended June 30 | | Six months ended June 30 | | 2010 | | 2009 |
| CMS Energy, including Consumers | | | | |
Derivatives not designated as hedging instruments: | | | | |
Commodity contracts | | Operating Revenue | | $ | 5 | | | Operating Revenue | | $ | 3 | | $ | 5 | |
| | Fuel for electric generation | | | (2 | ) | | Fuel for electric generation | | 2 | | | (2 | ) |
| | Cost of gas sold | | | (3 | ) | | Cost of gas sold | | — | | | (3 | ) |
| | Other income | | 1 | | | Cost of power purchased | | 1 | | — | |
Interest rate contracts | | Other expense | | — | | |
| | | Other income | | 1 | | 1 | |
Foreign exchange contracts (a) | | Other expense | | | (1 | ) | | Other expense | | — | | | (1 | ) |
| | | | | | | |
Total CMS Energy | | | | $ | — | | | $ | 7 | | $ | — | |
| | | | | | |
| | | | |
Consumers | | | | |
Derivatives not designated as hedging instruments: | | | | |
Commodity contracts | | Other income | | $ | 1 | | | Other income | | $ | 1 | | $ | 1 | |
|
| | |
(a) | | This derivative loss relates to a foreign-exchange forward contract CMS Energy held at December 31, 2008.that CMS Energy settled this obligation and the related derivative in January 2009. |
At June 30, 2009,2010, none of CMS Energy’s derivative liabilities was subject to credit-risk-related contingency features. At December 31, 2009, CMS Energy’s derivative liabilities subject to credit-risk-related contingent features. Therefore,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 each counterparty based on the evaluation of their 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.
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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 no credit-risk-related circumstance in whichreason to do so.
The following table illustrates CMS Energy’s exposure to potential losses at June 30, 2010, if each counterparty within this industry concentration failed to meet its contractual obligations. This table includes contracts accounted for as derivatives. It does not include trade accounts receivable, derivative contracts that qualify for the normal purchases and sales exception, or other contracts that CMS Energy would have to post collateral or settledoes not account for as derivatives.
| | | | | | | | | | | | | | | | | | | | |
In Millions |
| | | | | | | | | | | | | | Net Exposure | | Net Exposure |
| | Exposure | | | | | | | | | | from | | from |
| | Before | | | | | | | | | | Investment | | Investment |
| | Collateral | | | | | | | | | | Grade | | Grade |
| | (a) | | Collateral Held | | Net Exposure | | Companies | | Companies (%) |
|
CMS Energy | | $ | 3 | | | $ | 2 | | | $ | 1 | | | $ | — | | | | — | |
|
| | |
(a) | | Exposure is reflected net of payables or derivative liabilities if netting arrangements exist. |
CMS Energy does not expect a material adverse effect on its derivative liabilities.Consolidated Balance Sheets and Consolidated Statements of Income as a result of counterparty nonperformance, given CMS Energy’s credit policies, current exposures, and credit reserves.
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8:9: RETIREMENT BENEFITS
CMS Energy and Consumers provide pension,Pension Plan, OPEB, and other retirement benefit plans to their employees.
The following tables show the costs and other changes in plan assets and benefit obligations incurred in CMS Energy’s and Consumers’ retirement benefits plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions | | | Pension | | | Pension |
| | Three months ended | | Six months ended | | | Three Months Ended | | Six Months Ended |
June 30 | | 2009 | | 2008 | | 2009 | | 2008 | | | 2010 | | 2009 | | 2010 | | 2009 |
| CMS Energy, including Consumers | | |
Service cost | | $ | 10 | | $ | 10 | | $ | 20 | | $ | 21 | | | $ | 11 | | $ | 10 | | $ | 22 | | $ | 20 | |
Interest expense | | 24 | | 24 | | 48 | | 48 | | | 25 | | 24 | | 49 | | 48 | |
Expected return on plan assets | | | (22 | ) | | | (21 | ) | | | (43 | ) | | | (41 | ) | | | (23 | ) | | | (22 | ) | | | (46 | ) | | | (43 | ) |
Amortization of: | | |
Net loss | | 11 | | 11 | | 21 | | 21 | | | 13 | | 11 | | 26 | | 21 | |
Prior service cost | | 1 | | 2 | | 3 | | 3 | | | 1 | | 1 | | 3 | | 3 | |
| | | | |
Net periodic cost | | 24 | | 26 | | 49 | | 52 | | | $ | 27 | | $ | 24 | | $ | 54 | | $ | 49 | |
Regulatory adjustment | | — | | 8 | | — | | 4 | | | 21 | | — | | 23 | | — | |
| | | | |
Net periodic cost after regulatory adjustment | | $ | 24 | | $ | 34 | | $ | 49 | | $ | 56 | | | $ | 48 | | $ | 24 | | $ | 77 | | $ | 49 | |
| | | |
Consumers | | |
Service cost | | $ | 10 | | $ | 10 | | $ | 20 | | $ | 20 | | | $ | 10 | | $ | 10 | | $ | 21 | | $ | 20 | |
Interest expense | | 23 | | 23 | | 46 | | 46 | | | 24 | | 23 | | 48 | | 46 | |
Expected return on plan assets | | | (22 | ) | | | (20 | ) | | | (42 | ) | | | (39 | ) | | | (22 | ) | | | (22 | ) | | | (45 | ) | | | (42 | ) |
Amortization of: | | |
Net loss | | 10 | | 10 | | 20 | | 20 | | | 13 | | 10 | | 25 | | 20 | |
Prior service cost | | 2 | | 2 | | 3 | | 3 | | | 1 | | 2 | | 3 | | 3 | |
| | | | |
Net periodic cost | | 23 | | 25 | | 47 | | 50 | | | $ | 26 | | $ | 23 | | $ | 52 | | $ | 47 | |
Regulatory adjustment | | — | | 8 | | — | | 4 | | |
Regulatory adjustments (a) | | | 21 | | — | | 23 | | — | |
| | | | |
Net periodic cost after regulatory adjustment | | $ | 23 | | $ | 33 | | $ | 47 | | $ | 54 | | | $ | 47 | | $ | 23 | | $ | 75 | | $ | 47 | |
|
| | |
(a) | | Regulatory adjustments are the differences between amounts included in rates and the periodic benefit cost calculated. |
CMS Energy’s and Consumers’ expected long-term rate of return on plan assets is 8.25eight percent. For the six months ended June 30, 2010, the actual return on Pension Plan assets was a negative 0.5 percent, and for 2009 the actual return on pension plan assets was 4.8 percent, and for 2008 the actual return was a negative 23.221 percent. The expected rate of return is an assumption about long-term asset performance that CMS Energy and Consumers review annually for reasonableness and appropriateness.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In Millions | | | OPEB | | | OPEB |
| | Three months ended | | Six months ended | | | Three Months Ended | | Six Months Ended |
June 30 | | 2009 | | 2008 | | 2009 | | 2008 | | | 2010 | | 2009 | | 2010 | | 2009 |
| CMS Energy, including Consumers | | |
Service cost | | $ | 7 | | $ | 5 | | $ | 13 | | $ | 11 | | | $ | 6 | | $ | 7 | | $ | 13 | | $ | 13 | |
Interest expense | | 20 | | 18 | | 40 | | 36 | | | 20 | | 20 | | 41 | | 40 | |
Expected return on plan assets | | | (13 | ) | | | (17 | ) | | | (26 | ) | | | (33 | ) | | | (14 | ) | | | (13 | ) | | | (29 | ) | | | (26 | ) |
Amortization of: | | |
Net loss | | 9 | | 2 | | 17 | | 4 | | | 8 | | 9 | | 16 | | 17 | |
Prior service credit | | | (3 | ) | | | (2 | ) | | | (5 | ) | | | (5 | ) | | | (5 | ) | | | (3 | ) | | | (7 | ) | | | (5 | ) |
| | | | |
Net periodic cost | | 20 | | 6 | | 39 | | 13 | | | $ | 15 | | $ | 20 | | $ | 34 | | $ | 39 | |
Regulatory adjustment | | — | | 2 | | — | | 3 | | | 6 | | — | | 7 | | — | |
| | | | |
Net periodic cost after regulatory adjustment | | $ | 20 | | $ | 8 | | $ | 39 | | $ | 16 | | | $ | 21 | | $ | 20 | | $ | 41 | | $ | 39 | |
| | | |
Consumers | | |
Service cost | | $ | 6 | | $ | 5 | | $ | 12 | | $ | 11 | | | $ | 6 | | $ | 6 | | $ | 13 | | $ | 12 | |
Interest expense | | 19 | | 18 | | 39 | | 36 | | | 20 | | 19 | | 40 | | 39 | |
Expected return on plan assets | | | (12 | ) | | | (17 | ) | | | (24 | ) | | | (33 | ) | | | (14 | ) | | | (12 | ) | | | (28 | ) | | | (24 | ) |
Amortization of: | | |
Net loss | | 9 | | 3 | | 17 | | 5 | | | 8 | | 9 | | 16 | | 17 | |
Prior service credit | | | (3 | ) | | | (2 | ) | | | (5 | ) | | | (5 | ) | | | (4 | ) | | | (3 | ) | | | (6 | ) | | | (5 | ) |
| | | | |
Net periodic cost | | 19 | | 7 | | 39 | | 14 | | | $ | 16 | | $ | 19 | | $ | 35 | | $ | 39 | |
Regulatory adjustment | | — | | 2 | | — | | 3 | | |
Regulatory adjustments (a) | | | 6 | | — | | 7 | | — | |
| | | | |
Net periodic cost after regulatory adjustment | | $ | 19 | | $ | 9 | | $ | 39 | | $ | 17 | | | $ | 22 | | $ | 19 | | $ | 42 | | $ | 39 | |
|
| | |
(a) | | Regulatory adjustments are the differences between amounts included in rates and the periodic benefit cost calculated. |
In February 2010, the MPSC issued an order in Consumers’ GCR case that allowed Consumers to collect a one-time surcharge under a Pension Plan and OPEB equalization mechanism. For the six months ended June 30, 2010, Consumers collected $2 million of Pension Plan and $1 million of OPEB surcharge revenue in gas rates. Consumers recorded a reduction of $3 million of equalization regulatory assets on its Consolidated Balance Sheets and an increase of $3 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 six months ended June 30, 2010.
In April 2010, the MPSC issued an order in Consumers’ PSCR case that allowed Consumers to collect a one-time surcharge under a Pension Plan and OPEB equalization mechanism. For the six months ended June 30, 2010, Consumers collected $21 million of Pension Plan and $6 million of OPEB surcharge revenue in gas rates. Consumers recorded a reduction of $27 million of equalization regulatory assets on its Consolidated Balance Sheets and an increase of $27 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 six months ended June 30, 2010.
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CMS Energy and Consumers remeasured their OPEB obligations at April 30, 2010 to incorporate the effects of a new collective bargaining agreement reached between the Union and Consumers. The OPEB plan remeasurement decreased CMS Energy’s OPEB liability by $95 million, OPEB regulatory asset by $93 million, and AOCL by $2 million, and will result in a decrease in benefit costs of $14 million for 2010. The OPEB plan remeasurement decreased Consumers’ OPEB liability and OPEB regulatory asset by $93 million each, and will result in a decrease in benefit costs of $13 million for 2010. With the plan remeasurement, the discount rate was reduced from 6.0 percent at December 31, 2009 to 5.85 percent at April 30, 2010.
In March 2010, CMS Energy contributed $100 million to its pension fund, which included a contribution of $97 million by Consumers. In February 2010, CMS Energy contributed $17 million to its SERP fund, which included a contribution of $11 million by Consumers.
9:10: INCOME TAXES
The actual income tax expense on income from continuing operations, excluding income attributable to noncontrolling interests, differs from the amount computed by applying the statutory U.S. federal income tax rate of 35 percent to income before income taxes, as follows:
| | | | | | | | | | | | | | | | |
In Millions | Six months ended June 30 | | 2009 | | 2008 | | | 2010 | | 2009 |
| Income from continuing operations before income taxes less income attributable to noncontrolling interests | | $ | 197 | | $ | 240 | | |
Statutory federal income tax rate | | x | 35 | % | | x | 35 | % | |
CMS Energy, including Consumers | | |
Income from continuing operations before income taxes | | | $ | 307 | | $ | 209 | |
| | | |
Expected income tax expense | | 69 | | 84 | | |
Increase (decrease) in taxes from: | | |
Income tax expense at statutory 35% federal rate | | | 108 | | 73 | |
Increase (decrease) in income taxes from: | | |
Change in tax law, Medicare Part D subsidy | | | 3 | | — | |
ITC amortization | | | | (2 | ) | | | (2 | ) |
Medicare Part D exempt income | | | | (3 | ) | | | (3 | ) |
State and local income taxes, net of federal benefit | | 12 | | 4 | | | 12 | | 13 | |
Medicare Part D exempt income | | | (3 | ) | | | (3 | ) | |
Other, net | | | (1 | ) | | 2 | | | 2 | | 1 | |
| | | | |
Recorded income tax expense | | $ | 77 | | $ | 87 | | |
Income tax expense | | | $ | 120 | | $ | 82 | |
| | | |
Effective tax rate | | | 39.1 | % | | | 36.3 | % | | | 39.1 | % | | | 39.2 | % |
| Consumers | | |
Income from continuing operations before income taxes | | | $ | 310 | | $ | 272 | |
| | |
Income tax expense at statutory 35% federal rate | | | 108 | | 95 | |
Increase (decrease) in taxes from: | | |
ITC amortization | | | | (2 | ) | | | (2 | ) |
Medicare Part D exempt income | | | | (3 | ) | | | (3 | ) |
State and local income taxes, net of federal benefit | | | 11 | | 8 | |
Other, net | | | 1 | | 3 | |
| | | |
Income tax expense | | | $ | 115 | | $ | 101 | |
| | | |
Effective tax rate | | | | 37.1 | % | | | 37.1 | % |
| | |
The Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act (the Health Care Acts) were enacted in March 2010. For taxable years beginning after December 31, 2012, the Health Care Acts repeal the tax deduction for the portion of health care costs that are reimbursed by the Medicare Part D subsidy. To reflect the law change, CMS Energy and Consumers decreased their deferred tax asset balances by $68 million, with CMS Energy recognizing deferred tax expense of $3 million and Consumers recognizing an increase into net regulatory tax assets of $65 million (not including the effectiveeffects of ratemaking tax rategross-ups). Therefore, this legislation had no effect on Consumers’ net income for the six months ended June 30, 2009 was due to increases in the MBT from legislative changes that increased the tax, as well as the recognition of deferred MBT for the electric utility segment of Consumers, beginning with the second quarter of 2009.2010.
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11: VARIABLE INTEREST ENTITIES 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. 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.
Effective January 1, 2010, the accounting standards for consolidation of VIEs were amended. The most significant amendment changed the criteria for identifying the primary beneficiary. Under the amended standard, 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.
As a result of adopting this amendment, effective January 1, 2010, CMS Energy has consolidated CMS Energy Trust I and deconsolidated three partnerships that it had previously consolidated.
CMS Energy has consolidated 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. Through its guarantee, CMS Energy also has the obligation to absorb losses of CMS Energy Trust I. The sole assets of the trust consist of notes payable by CMS Energy, and the sole liabilities of the trust consist of Trust Preferred Securities. Upon consolidation, CMS Energy reduced its equity method investment by $5 million and its Long-term debt by $34 million. CMS Energy also recorded a $29 million liability for the mandatorily redeemable preferred securities issued by the trust. No gain or loss was recognized on the consolidation of CMS Energy Trust I.
CMS Energy has deconsolidated T.E.S. Filer City, Grayling, and Genesee because CMS Energy determined that power is shared among unrelated parties, and that 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. As a result, CMS Energy is not the primary beneficiary of these partnerships.
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The following table provides information about these partnerships:
| | | | |
|
| | Nature of | | |
Name (Ownership Interest) | | the Entity | | Financing of Partnership |
|
T.E.S. Filer City (50%) | | Coal-fueled power generator | | Non-recourse long-term debt that matured in December 2007. |
| | | | |
Grayling (50%) | | Wood waste- fueled power generator | | Sale 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. |
| | | | |
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 CMS Energy guarantee capped at $3 million annually. |
|
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 the Consolidated Balance Sheets in the amount of $49 million as of June 30, 2010. The partnerships were consolidated at December 31, 2009. Total assets of the partnerships were $189 million and total liabilities were $92 million at December 31, 2009. The partnerships had third-party debt obligations totaling $70 million at December 31, 2009. Plant, property, and equipment serving as collateral for these obligations had a carrying value of $137 million at December 31, 2009. 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 is $6 million. Consumers has not provided any financial or other support during the periods presented that was not previously contractually required.
10:12: REPORTABLE SEGMENTS
Reportable segments consist of business units defined by the products and services they offer. CMS Energy and Consumers evaluate performance based on the net income available to common stockholders of each segment. The reportable segments for CMS Energy and Consumers are:
CMS Energy:
| • | | electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan; |
|
| • | | gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; |
|
| • | | enterprises, consisting of various subsidiaries engaging primarily in domestic independent power production; and |
|
| • | | other, including corporate interest and other expenses and discontinued operations. |
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Consumers:
| • | | electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan; |
|
| • | | gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; and |
|
| • | | other, including a consolidated special-purpose entity for the sale of accounts receivable. |
The following tables provide financial information by reportable segment:
| | | | | | | | | | | | | | | | |
| | In Millions |
| | Three months ended | | Six months ended |
June 30 | | 2010 | | 2009 | | 2010 | | 2009 |
|
Operating Revenue | | | | | | | | | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 975 | | �� | $ | 848 | | | $ | 1,813 | | | $ | 1,660 | |
Gas utility | | | 301 | | | | 334 | | | | 1,353 | | | | 1,556 | |
Enterprises | | | 55 | | | | 37 | | | | 123 | | | | 101 | |
Other | | | 9 | | | | 6 | | | | 18 | | | | 12 | |
| | |
Total Operating Revenue — CMS Energy | | $ | 1,340 | | | $ | 1,225 | | | $ | 3,307 | | | $ | 3,329 | |
Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 975 | | | $ | 848 | | | $ | 1,813 | | | $ | 1,660 | |
Gas utility | | | 301 | | | | 334 | | | | 1,353 | | | | 1,556 | |
| | |
Total Operating Revenue — Consumers | | $ | 1,276 | | | $ | 1,182 | | | $ | 3,166 | | | $ | 3,216 | |
| | | | | | | | | | | | | | | | |
Net Income Available to Common Stockholders | | | | | | | | | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 86 | | | $ | 67 | | | $ | 127 | | | $ | 106 | |
Gas utility | | | 1 | | | | 5 | | | | 67 | | | | 64 | |
Enterprises | | | 33 | | | | (13 | ) | | | 42 | | | | (12 | ) |
Discontinued Operations | | | (16 | ) | | | 25 | | | | (17 | ) | | | 24 | |
Other | | | (24 | ) | | | (9 | ) | | | (54 | ) | | | (37 | ) |
| | |
Total Net Income Available to Common Stockholders — CMS Energy | | $ | 80 | | | $ | 75 | | | $ | 165 | | | $ | 145 | |
Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 86 | | | $ | 67 | | | $ | 127 | | | $ | 106 | |
Gas utility | | | 1 | | | | 5 | | | | 67 | | | | 64 | |
| | |
Total Net Income Available to Common Stockholder — Consumers | | $ | 87 | | | $ | 72 | | | $ | 194 | | | $ | 170 | |
|
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The following tables show financial information by reportable segment:
| | | | | | | | | | | | | | | | |
In Millions | |
| | Three months ended | | | Six months ended | |
June 30 | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
|
Operating Revenue | | | | | | | | | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 850 | | | $ | 841 | | | $ | 1,662 | | | $ | 1,701 | |
Gas utility | | | 334 | | | | 422 | | | | 1,556 | | | | 1,653 | |
Enterprises | | | 38 | | | | 97 | | | | 104 | | | | 185 | |
Other | | | 6 | | | | 5 | | | | 12 | | | | 10 | |
| | |
Total Operating Revenue — CMS Energy | | $ | 1,228 | | | $ | 1,365 | | | $ | 3,334 | | | $ | 3,549 | |
Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 850 | | | $ | 841 | | | $ | 1,662 | | | $ | 1,701 | |
Gas utility | | | 334 | | | | 422 | | | | 1,556 | | | | 1,653 | |
| | |
Total Operating Revenue — Consumers | | $ | 1,184 | | | $ | 1,263 | | | $ | 3,218 | | | $ | 3,354 | |
| | | | | | | | | | | | | | | | |
Net Income Available to Common Stockholders | | | | | | | | | | | | | | | | |
CMS Energy, including Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 66 | | | $ | 57 | | | $ | 104 | | | $ | 124 | |
Gas utility | | | 5 | | | | 2 | | | | 64 | | | | 64 | |
Enterprises | | | (17 | ) | | | 10 | | | | (17 | ) | | | 8 | |
Other | | | 20 | | | | (25 | ) | | | (8 | ) | | | (50 | ) |
| | |
Total Net Income Available to Common Stockholders — CMS Energy | | $ | 74 | | | $ | 44 | | | $ | 143 | | | $ | 146 | |
Consumers | | | | | | | | | | | | | | | | |
Electric utility | | $ | 66 | | | $ | 57 | | | $ | 104 | | | $ | 124 | |
Gas utility | | | 5 | | | | 2 | | | | 64 | | | | 64 | |
Other | | | — | | | | 1 | | | | — | | | | 1 | |
| | |
Total Net Income Available to Common Stockholder — Consumers | | $ | 71 | | | $ | 60 | | | $ | 168 | | | $ | 189 | |
|
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| | | | | | | | | | | | | | | | |
In Millions | In Millions | | In Millions |
| | June 30, 2009 | | December 31, 2008 | | | June 30, 2010 | | December 31, 2009 |
| | |
Plant, Property, and Equipment, Gross | | |
CMS Energy, including Consumers | | |
Electric utility | | | $ | 9,717 | | $ | 9,525 | |
Gas utility | | | 3,875 | | 3,812 | |
Enterprises | | | 101 | | 345 | |
Other | | | 34 | | 34 | |
| | | |
Total Plant, Property, and Equipment — CMS Energy | | | $ | 13,727 | | $ | 13,716 | |
Consumers | | |
Electric utility | | | $ | 9,717 | | $ | 9,525 | |
Gas utility | | | 3,875 | | 3,812 | |
Other | | | 15 | | 15 | |
| | | |
Total Plant, Property, and Equipment — Consumers | | | $ | 13,607 | | $ | 13,352 | |
| | |
Assets | | |
CMS Energy, including Consumers | | |
Electric utility (a) | | $ | 9,346 | | $ | 8,904 | | | $ | 9,268 | | $ | 9,157 | |
Gas utility (a) | | 4,396 | | 4,565 | | | 4,407 | | 4,594 | |
Enterprises | | 301 | | 313 | | | 192 | | 303 | |
Other | | 1,234 | | 1,119 | | | 1,184 | | 1,202 | |
| | | | |
Total Assets — CMS Energy | | $ | 15,277 | | $ | 14,901 | | | $ | 15,051 | | $ | 15,256 | |
Consumers | | |
Electric utility (a) | | $ | 9,346 | | $ | 8,904 | | | $ | 9,268 | | $ | 9,157 | |
Gas utility (a) | | 4,396 | | 4,565 | | | 4,407 | | 4,594 | |
Other | | 735 | | 777 | | | 651 | | 871 | |
| | | | |
Total Assets — Consumers | | $ | 14,477 | | $ | 14,246 | | | $ | 14,326 | | $ | 14,622 | |
|
| | |
(a) | | Amounts include a portion of Consumers’ other common assets attributable to both the electric and the gas utility businesses. |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | | |
Item 3. | | Quantitative and Qualitative Disclosures About Market Risk |
CMS ENERGY
Quantitative and Qualitative Disclosures about Market Risk is contained in PARTPart I, Item 2. — MD&A, which is incorporated by reference herein.
CONSUMERS
Quantitative and Qualitative Disclosures about Market Risk is contained in PARTPart I, Item 2. — MD&A, which is incorporated by reference herein.
Item 4. Controls and Procedures | | |
Item 4. | | Controls and Procedures |
CMS ENERGY
Disclosure Controls and Procedures: CMS Energy’s management, with the participation of its CEO and CFO, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, CMS Energy’s CEO and CFO have concluded that, as of the end of such period, its disclosure controls and procedures are effective.
Internal Control Over Financial Reporting: There have not been any changes in CMS Energy’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
Item 4T. Controls and Procedures
CONSUMERS
Disclosure Controls and Procedures: Consumers’ management, with the participation of its CEO and CFO, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, Consumers’ CEO and CFO have concluded that, as of the end of such period, its disclosure controls and procedures are effective.
Internal Control Over Financial Reporting: There have not been any changes in Consumers’ internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.reporting
PART II. OTHER INFORMATION
Item 1. Legal ProceedingsThe discussionCMS Energy and Consumers are parties to various lawsuits and regulatory matters in the following paragraphs is limitedordinary course of business. For information regarding material legal proceedings, including updates to an updateinformation reported under Item 3 of developments that have occurred in various judicial and administrative proceedings, manyPart I of which are more fully described in CMS Energy’s and Consumers’ 2008the 2009 Form 10-K, and their Form 10-Q for the three months ended March 31, 2009. Reference is also made to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, in particular,see Part I, Item 1, Note 3, Contingencies and Commitments, and Note 4, Utility Rate Matters, included herein for additional information regarding various pending administrative and judicial proceedings involving rate, operating, regulatory, and environmental matters.
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CMS ENERGY
GAS INDEX PRICE REPORTING LITIGATION
In the Arandell Corporation, et al v. XCEL Energy Inc., et al class action complaint, filed in Wisconsin, the federal court granted the motion to dismiss all CMS Energy defendants in February 2009. Plaintiffs filed a motion for reconsideration. CMS Energy defendants filed a response in opposition to that motion in June 2009. This motion is pending.
All CMS Energy defendants were dismissed from the Missouri Public Service Commission case, a state action, and the Breckenridge case, a federal action. Appeals are pending in both cases.
In July 2009, CMS MST entered into a settlement of the remaining California state court cases. The settlement amount is immaterial to CMS Energy.
QUICKSILVER RESOURCES, INC.
In 2001, Quicksilver sued CMS MST in Texas state court in Fort Worth, Texas for breach of contract in connection with a base contract for the sale and purchase of natural gas. The jury verdict awarded Quicksilver no compensatory damages but $10 million in punitive damages. In 2007, the trial court nullified the jury award of punitive damages but held that the contract should be rescinded prospectively. The judicial rescission of the contract caused CMS Energy to record a charge in the second quarter of 2007 of $24 million, net of tax. In June 2009, the Texas Court of Appeals ruled in favor of CMS MST and, pursuant to a settlement agreement to end the litigation, Quicksilver paid $5 million to CMS MST, which caused CMS Energy to recognize a $5 million credit to Cost of gas sold. The parties have agreed not to appeal. The Quicksilver matter has now been resolved.Matters.
There have been no material changes to the Risk Factors as previously disclosed in Part I, Item 1A. Risk Factors, in CMS Energy’s and Consumers’ 2008the 2009 Form 10-K.
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| | |
Item 2. | | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) Unregistered Sales of Equity Securities
On June 25, 2010, CMS Energy issued 228 shares of its Common Stock and Usepaid $5,012 in cash in exchange for 100 shares of Proceedsits 4.50 percent Cumulative Convertible Preferred Stock, Series B, tendered for conversion on June 8, 2010 in accordance with the terms and provisions of the Certificate of Designation of 4.50 percent Cumulative Convertible Preferred Stock dated as of December 20, 2004, corrected February 27, 2006. Such Common Stock shares were issued based on the conversion value of $84.75 per share. The foregoing issuance, an exchange of securities with an existing shareholder, was exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.
(c) Issuer Repurchases of Equity Securities
The following table below shows CMS Energy’s repurchases of equity securities for the three months ended June 30, 2009:2010:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Maximum Number of |
| | Total | | Average | | Total Number of Shares | | Shares that May Yet |
| | Number | | Price | | Purchased as Part of | | Be Purchased Under |
| | of Shares | | Paid per | | Publicly Announced | | Publicly Announced |
Period | | Purchased* | | Share | | Plans or Programs | | Plans or Programs |
|
April 1, 2009 to April 30, 2009 | | | 1,313 | | | $ | 11.59 | | | | — | | | | — | |
May 1, 2009 to May 31, 2009 | | | — | | | $ | — | | | | — | | | | — | |
June 1, 2009 to June 30, 2009 | | | — | | | $ | — | | | | — | | | | — | |
| | |
Total | | | 1,313 | | | | — | | | | — | | | | — | |
|
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | Total Number of | | Maximum Number of |
| | Total | | Average | | Shares Purchased as | | Shares that May Yet |
| | Number of | | Price | | Part of Publicly | | Be Purchased Under |
| | Shares | | Paid per | | Announced Plans or | | Publicly Announced |
Period | | Purchased* | | Share | | Programs | | Plans or Programs |
|
April 1, 2010 to April 30, 2010 | | | 1,695 | | | $ | 16.38 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
May 1, 2010 to May 31, 2010 | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
June 1, 2010 to June 30, 2010 | | | 61,496 | | | | 14.32 | | | | — | | | | — | |
| | |
Total | | | 63,191 | | | $ | 14.38 | | | | — | | | | — | |
|
| | |
* | | CMS Energy repurchases certain restricted shares upon vesting under the performance incentive stock plan from participants in the performance incentive stock plan, equal to its minimum statutory income tax withholding obligation. Shares repurchased have a value based on the market price on the vesting date. |
Item 3. Defaults Upon Senior Securities | | |
Item 3. | | Defaults Upon Senior Securities |
None.
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Item 4. Submission of Matters to a Vote of Security Holders
At the CMS Energy annual meeting of shareholders held on May 22, 2009, the CMS Energy shareholders voted upon five proposals, as follows:
| • | |
Item 5. | | Ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit CMS Energy’s financial statements for the year ending December 31, 2009, with a vote of 193,907,401 shares in favor, 604,346 against and 292,177 abstentions; |
|
| • | | Approval of an amendment to CMS Energy’s performance incentive stock plan with a vote of 154,453,235 shares in favor, 22,232,738 against, 591,626 abstentions, and 17,523,740 broker non-votes; |
|
| • | | Approval of the performance measures used in CMS Energy’s bonus plan with a vote of 188,952,229 shares in favor, 5,206,594 against and 645,087 abstentions; |
|
| • | | Approval of an amendment to CMS Energy’s restated articles of incorporation addressing a majority vote standard for uncontested director elections with a vote of 192,052,494 shares in favor, 1,997,626 against and 753,796 abstentions; and |
|
| • | | Election of eleven members to the CMS Energy board of directors. The votes for individual nominees were as follows:Other Information |
CMS ENERGY
| | | | | | | | | | | | |
Number of Votes: | | For | | Withheld | | Total |
|
Merribel S. Ayres | | | 193,355,306 | | | | 1,448,612 | | | | 194,803,918 | |
Jon E. Barfield | | | 193,340,237 | | | | 1,463,681 | | | | 194,803,918 | |
Richard M. Gabrys | | | 193,308,493 | | | | 1,495,425 | | | | 194,803,918 | |
David W. Joos | | | 192,123,123 | | | | 2,680,795 | | | | 194,803,918 | |
Philip R. Lochner, Jr. | | | 190,948,758 | | | | 3,855,160 | | | | 194,803,918 | |
Michael T. Monahan | | | 190,920,491 | | | | 3,883,427 | | | | 194,803,918 | |
Joseph F. Paquette, Jr. | | | 193,264,751 | | | | 1,539,167 | | | | 194,803,918 | |
Percy A. Pierre | | | 190,915,288 | | | | 3,888,630 | | | | 194,803,918 | |
Kenneth L. Way | | | 192,049,427 | | | | 2,754,491 | | | | 194,803,918 | |
Kenneth Whipple | | | 192,325,170 | | | | 2,478,748 | | | | 194,803,918 | |
John B. Yasinsky | | | 190,902,008 | | | | 3,901,910 | | | | 194,803,918 | |
CONSUMERS
Consumers did not solicit proxies for the matters submitted to votes at the contemporaneous May 22, 2009 Consumers’ annual meeting of shareholders. All 84,108,789 shares of Consumers common stock were voted in favor of electing the above-named individuals as directors of Consumers and in favor of the remaining proposals for Consumers: (1) ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit Consumers’ financial statements for the year ending December 31, 2009; (2) approval of an amendment to CMS Energy’s performance incentive stock plan; and (3) approval of the performance measures used in CMS Energy’s bonus plan. None of the 441,599 shares of Consumers preferred stock were voted at the annual meeting.
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Item 5. Other Information
None.
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The agreements included as exhibits to this Form 10-Q filing are included solely to provide information regarding the terms of the agreements and are not intended to provide any other factual or disclosure information about CMS Energy, Consumers or other parties to the agreements. The agreements may contain representations and warranties made by each of the parties to each of the agreements that were made exclusively for the benefit of the parties involved in each of the agreements and should not be treated as statements of fact. The representations and warranties were made as a way to allocate risk if one or more of those statements prove to be incorrect. The statements were qualified by disclosures to the parties to each of the agreements and may not be reflected in each of the agreements. The agreements may apply standards of materiality that are different than standards applied to other investors. Additionally, the statements were made as of the date of the agreements or as specified in the agreements and have not been updated.
The representations and warranties may not describe the actual state of affairs of the parties to each agreement. Additional information about CMS Energy and Consumers may be found in this filing, at www.cmsenergy.com, at www.consumersenergy.com and through the SEC’s website at www.sec.gov.
| | |
|
(3)(a)3.1 | | Restated Articles of Incorporation of CMS Energy effective June 1, 2004, asBylaws, amended May 22, 2009 |
| | |
(4)(a) | | Twenty-Second Supplemental Indenture datedand restated as of June 15, 2009 between CMS Energy and The Bank of New York Mellon, as Trustee.May 21, 2010 (Exhibit 4.13.1 to Form 8-K filed June 15, 2009May 26, 2010 and incorporated herein by reference) |
| | |
(4)(b)3.2 | | Twenty-Third Supplemental Indenture datedConsumers Bylaws, amended and restated as of June 15, 2009 between CMS Energy and The Bank of New York Mellon, as Trustee.May 21, 2010 (Exhibit 4.33.2 to Form 8-K filed June 15, 2009May 26, 2010 and incorporated herein by reference) |
| | |
(10)(a)10.1 | | CMS Energy’s Performance Incentive Stock Plan, effective February 3, 1988, amended and restated, effective JuneAugust 1, 2009 (Exhibit 10.1 to Form 8-K filed May 27, 2009 and incorporated herein by reference)2010 |
| | |
(12)(a)12.1 | | Statement regarding computation of CMS Energy’s Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends |
| | |
(12)(b)12.2 | | Statement regarding computation of Consumers’ Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends |
| | |
(31)(a)31.1 | | CMS Energy Corporation’sEnergy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
(31)(b)31.2 | | CMS Energy Corporation’sEnergy’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
(31)(c)31.3 | | Consumers Energy Company’sConsumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
(31)(d)31.4 | | Consumers Energy Company’sConsumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
(32)(a)32.1 | | CMS Energy Corporation’sEnergy’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
(32)(b)32.2 | | Consumers Energy Company’sConsumers’ certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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| | |
|
101.INS* | | XBRL Instance Document |
| | |
101.SCH* | | XBRL Taxonomy Extension Schema |
| | |
101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase |
| | |
101.DEF* | | XBRL Taxonomy Extension Definition Linkbase |
| | |
101.LAB* | | XBRL Taxonomy Extension Labels Linkbase |
| | |
101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase |
| | |
* | | In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 shall be deemed to be “furnished” and not “filed”. The financial information contained in the XBRL-related information is “unaudited” and “unreviewed.” |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiary.
| | | | | | |
| | CMS ENERGY CORPORATION (Registrant)
| |
Dated: July 28, 2010 | By: | /s/ Thomas J. Webb | |
| | (Registrant)
| Thomas J. Webb | |
| | Executive Vice President and Chief Financial Officer | |
|
| CONSUMERS ENERGY COMPANY (Registrant) | |
Dated: July 30, 2009 | 28, 2010 | By: | | /s/ Thomas J. Webb | | |
| | | | | Thomas J. Webb | |
| | | | Thomas J. Webb | Executive Vice President and Chief Financial Officer | |
| | | | Executive Vice President and | | |
| | | | Chief Financial Officer | | |
| | | | | | |
| | CONSUMERS ENERGY COMPANY
| | |
| | (Registrant)
| | |
| | | | | | |
Dated: July 30, 2009 | | By: | | /s/ Thomas J. Webb | | |
| | | | | | |
| | | | Thomas J. Webb | | |
| | | | Executive Vice President and | | |
| | | | Chief Financial Officer | | |
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