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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission | Registrant; State of Incorporation; | IRS Employer | ||
File Number | Address; and Telephone Number | Identification No. | ||
1-9513 | CMS ENERGY CORPORATION | 38-2726431 | ||
(A Michigan Corporation) | ||||
One Energy Plaza, Jackson, Michigan 49201 | ||||
(517) 788-0550 | ||||
1-5611 | CONSUMERS ENERGY COMPANY | 38-0442310 | ||
(A Michigan Corporation) | ||||
One Energy Plaza, Jackson, Michigan 49201 | ||||
(517) 788-0550 |
CMS Energy Corporation: Large accelerated filer þ Accelerated filer o Non-Accelerated filer o
Consumers Energy Company: Large accelerated filer o Accelerated filer o Non-Accelerated filer þ
CMS Energy Corporation: Yes o No þ Consumers Energy Company: Yes o No þ
CMS Energy Corporation: | ||||
CMS Energy Common Stock, $.01 par value | 225,091,031 | |||
Consumers Energy Company, $10 par value, privately held by CMS Energy Corporation | 84,108,789 |
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and
Consumers Energy Company
United States Securities and Exchange Commission
for the Quarter Ended September 30, 2007
Page | ||
3 | ||
PART I – FINANCIAL INFORMATION | ||
Item 1. Financial Statements | ||
CMS Energy Corporation | ||
CMS – 33 | ||
CMS – 35 | ||
CMS – 36 | ||
CMS – 38 | ||
CMS – 39 | ||
CMS – 42 | ||
CMS – 58 | ||
CMS – 61 | ||
CMS – 64 | ||
CMS – 65 | ||
CMS – 69 | ||
CMS – 70 | ||
CMS – 72 | ||
CMS – 74 | ||
CMS – 75 | ||
Consumers Energy Company | ||
CE – 25 | ||
CE – 26 | ||
CE – 27 | ||
CE – 29 | ||
CE – 31 | ||
CE – 33 | ||
CE – 35 | ||
CE – 45 | ||
CE – 46 | ||
CE – 47 | ||
CE – 49 | ||
CE – 51 | ||
CE – 53 |
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CMS Energy Corporation | ||||||||
CMS | – 1 | |||||||
CMS | – 4 | |||||||
CMS | – 6 | |||||||
CMS | – 15 | |||||||
CMS | – 19 | |||||||
CMS | – 21 | |||||||
CMS | – 30 | |||||||
CMS | – 31 | |||||||
Consumers Energy Company | ||||||||
CE | – 1 | |||||||
CE | – 4 | |||||||
CE | – 6 | |||||||
CE | – 11 | |||||||
CE | – 13 | |||||||
CE | – 15 | |||||||
CE | – 23 | |||||||
CE | – 24 | |||||||
CO | – 1 | |||||||
CO | – 1 | |||||||
CO | – 1 | |||||||
CO | – 6 | |||||||
CO | – 9 | |||||||
CO | – 9 | |||||||
CO | – 9 | |||||||
CO | – 9 | |||||||
CO | – 10 | |||||||
CO | – 11 | |||||||
CMS Energy Corporation Bylaws | ||||||||
Consumers Energy Company Bylaws | ||||||||
Form of Indemnification Agreement between CMS Energy Corporation & its Directors | ||||||||
Form of Indemnification Agreement between Consumers Energy Company & its Directors | ||||||||
CMS Energy Corporation's Certification of the CEO pursuant to Section 302 | ||||||||
CMS Energy Corporation's Certification of the CFO pursuant to Section 302 | ||||||||
Consumers Energy Corporation's Certification of the CEO pursuant to Section 302 | ||||||||
Consumers Energy Corporation's Certification of the CFO pursuant to Section 302 | ||||||||
CMS Energy Corporation's Certifications pursuant to Section 906 | ||||||||
Consumers Energy Corporation's Certifications pursuant to Section 906 |
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AEI | Ashmore Energy International, a non-affiliated company | |
AFUDC | Allowance for Funds Used During Construction | |
ALJ | Administrative Law Judge | |
AOC | Administrative Order on Consent | |
AOCI | Accumulated Other Comprehensive Income | |
AOCL | Accumulated Other Comprehensive Loss | |
ARO | Asset retirement obligation | |
Bay Harbor | A residential/commercial real estate area located near Petoskey, Michigan. In 2002, CMS | |
Energy sold its interest in Bay Harbor. | ||
bcf | One billion cubic feet of gas | |
Big Rock | Big Rock Point nuclear power plant | |
Big Rock ISFSI | Big Rock Independent Spent Fuel Storage Installation | |
Broadway Gen Funding LLC | Broadway Gen Funding LLC, a non-affiliated company | |
CEO | Chief Executive Officer | |
CFO | Chief Financial Officer | |
CFTC | Commodity Futures Trading Commission | |
CKD | Cement Kiln Dust | |
Clean Air Act | Federal Clean Air Act, as amended | |
CMS Energy | CMS Energy Corporation, the parent of Consumers and Enterprises | |
CMS Energy Common Stock or common stock | Common stock of CMS Energy, par value $.01 per share | |
CMS ERM | CMS Energy Resource Management Company, formerly CMS MST, a subsidiary of Enterprises | |
CMS Field Services | CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission | |
CMS Gas Transmission | CMS Gas Transmission Company, a wholly owned subsidiary of Enterprises | |
CMS Generation | CMS Generation Co., a former wholly owned subsidiary of Enterprises | |
CMS International Ventures | CMS International Ventures LLC, a subsidiary of Enterprises | |
CMS MST | CMS Marketing, Services and Trading Company, a wholly owned subsidiary of Enterprises, whose name was changed to CMS ERM effective January 2004 | |
Consumers | Consumers Energy Company, a subsidiary of CMS Energy | |
Customer Choice Act | Customer Choice and Electricity Reliability Act, a Michigan statute enacted in June 2000 | |
DCCP | Defined Company Contribution Plan | |
Detroit Edison | The Detroit Edison Company, a non-affiliated company |
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DIG | Dearborn Industrial Generation, LLC, a wholly owned subsidiary of CMS Energy | |
DOE | U.S. Department of Energy | |
DOJ | U.S. Department of Justice | |
Dow | The Dow Chemical Company, a non-affiliated company | |
EISP | Executive Incentive Separation Plan | |
EITF | Emerging Issues Task Force | |
EITF Issue No. 02-03 | Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and | |
Contracts Involved in Energy Trading and Risk Management Activities | ||
El Chocon | A 1,200 MW hydro power plant located in Argentina, in which CMS Generation formerly held a | |
17.2 percent ownership interest | ||
Entergy | Entergy Corporation, a non-affiliated company | |
Enterprises | CMS Enterprises Company, a subsidiary of CMS Energy | |
EPA | U.S. Environmental Protection Agency | |
EPS | Earnings per share | |
Exchange Act | Securities Exchange Act of 1934, as amended | |
FASB | Financial Accounting Standards Board | |
FERC | Federal Energy Regulatory Commission | |
FIN 14 | FASB Interpretation No. 14, Reasonable Estimation of Amount of a Loss | |
FIN 46(R) | Revised FASB Interpretation No. 46, Consolidation of Variable Interest Entities | |
FIN 47 | FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations | |
FIN 48 | FASB Interpretation No. 48, Uncertainty in Income Taxes | |
FMLP | First Midland Limited Partnership, a partnership that holds a lessor interest in the MCV | |
Facility | ||
FSP FIN 39-1 | FASB Staff Position on FASB Interpretation No. 39-1, Amendment of FASB Interpretation No. 39 | |
GAAP | Generally Accepted Accounting Principles | |
GasAtacama | GasAtacama Holding Limited, a limited liability partnership that manages GasAtacama S.A., | |
which includes an integrated natural gas pipeline and electric generating plant located in | ||
Argentina and Chile and Atacama Finance Company | ||
GCR | Gas cost recovery | |
ICSID | International Centre for the Settlement of Investment Disputes | |
IRS | Internal Revenue Service | |
ISFSI | Independent Spent Fuel Storage Installation | |
Jamaica | Jamaica Private Power Company, Limited, a 63 MW diesel-fueled power plant located in | |
Jamaica, in which CMS Generation formerly owned a 42 percent interest |
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Jorf Lasfar | A 1,356 MW coal-fueled power plant in Morocco, in which CMS Generation formerly owned a 50 percent interest | |
Jubail | A 240 MW natural gas cogeneration power plant in Saudi Arabia, in which CMS Generation formerly owned a 25 percent interest | |
kWh | Kilowatt-hour (a unit of energy equal to one thousand watt hours) | |
LS Power Group | LS Power Group, a non-affiliated company | |
Lucid Energy | Lucid Energy LLC, a non-affiliated company | |
Ludington | Ludington pumped storage plant, jointly owned by Consumers and Detroit Edison | |
mcf | One 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 | |
MCV PPA | The Power Purchase Agreement between Consumers and the MCV Partnership with a 35-year term | |
commencing in March 1990, as amended, and as interpreted by the Settlement Agreement dated | ||
as of January 1, 1999 between the MCV Partnership and Consumers | ||
MD&A | Management’s Discussion and Analysis | |
MDEQ | Michigan Department of Environmental Quality | |
MDL | Multidistrict Litigation | |
METC | Michigan Electric Transmission Company, LLC, a non-affiliated company | |
MISO | Midwest Independent Transmission System Operator, Inc. | |
MMBtu | Million British Thermal Units | |
Moody’s | Moody’s Investors Service, Inc. | |
MPSC | Michigan Public Service Commission | |
MSBT | Michigan Single Business Tax | |
MW | Megawatt (a unit of power equal to one million watts) | |
MWh | Megawatt hour (a unit of energy equal to one million watt hours) | |
Neyveli | CMS Generation Neyveli Ltd, a 250 MW lignite-fired power station located in India, in which CMS International Ventures formerly owned a 50 percent interest | |
NMC | Nuclear Management Company LLC, formed in 1999 by Northern States Power Company (now Xcel | |
Energy Inc.), Alliant Energy, Wisconsin Electric Power Company, and Wisconsin Public Service | ||
Company to operate and manage nuclear generating facilities owned by the utilities | ||
NRC | Nuclear Regulatory Commission | |
NYMEX | New York Mercantile Exchange | |
OPEB | Postretirement benefit plans other than pensions for retired employees |
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Palisades | Palisades nuclear power plant, formerly owned by Consumers | |
Panhandle | Panhandle Eastern Pipe Line Company, including its subsidiaries Trunkline, Pan Gas Storage, | |
Panhandle Storage, and Panhandle Holdings, a former wholly owned subsidiary of CMS Gas | ||
Transmission | ||
PCB | Polychlorinated biphenyl | |
PDVSA | Petroleos de Venezuela S.A. | |
Peabody Energy | Peabody Energy Corporation, a non-affiliated company | |
Pension Plan | The trusteed, non-contributory, defined benefit pension plan of Panhandle, Consumers and CMS | |
Energy | ||
PowerSmith | A 124 MW natural gas power plant located in Oklahoma, in which CMS Generation formerly held a 6.25% limited partner ownership interest | |
PSCR | Power supply cost recovery | |
PURPA | Public Utility Regulatory Policies Act of 1978 | |
Quicksilver | Quicksilver Resources, Inc., a non-affiliated company | |
RCP | Resource Conservation Plan | |
ROA | Retail Open Access | |
S&P | Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc. | |
SEC | U.S. Securities and Exchange Commission | |
Section 10d(4) Regulatory Asset | Regulatory asset as described in Section 10d(4) of the Customer Choice Act, as amended | |
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 | ||
SENECA | Sistema Electrico del Estado Nueva Esparta C.A., a former subsidiary of CMS International | |
Ventures | ||
SERP | Supplemental Executive Retirement Plan | |
SFAS | Statement of Financial Accounting Standards | |
SFAS No. 5 | SFAS No. 5, “Accounting for Contingencies” | |
SFAS No. 87 | SFAS No. 87, “Employers’ Accounting for Pensions” | |
SFAS No. 88 | SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit | |
Pension Plans and for Termination Benefits” | ||
SFAS No. 98 | SFAS No. 98, “Accounting for Leases” | |
SFAS No. 106 | SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” | |
SFAS No. 109 | SFAS No. 109, “Accounting for Income Taxes” | |
SFAS No. 115 | SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” | |
SFAS No. 132(R) | SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” |
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SFAS No. 133 | SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities, as amended and | |
interpreted” | ||
SFAS No. 143 | SFAS No. 143, “Accounting for Asset Retirement Obligations” | |
SFAS No. 144 | SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” | |
SFAS No. 157 | SFAS No. 157, “Fair Value Measurement” | |
SFAS No. 158 | SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement | |
Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R)” | ||
SFAS No. 159 | SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, | |
Including an amendment to FASB Statement No. 115” | ||
Shuweihat | A power and desalination plant located in the United Arab Emirates, in which CMS Generation | |
formerly owned a 20 percent interest | ||
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 | |
Takoradi | A 200 MW open-cycle combustion turbine crude oil power plant located in Ghana, in which CMS | |
Generation formerly owned a 90 percent interest | ||
TAQA | Abu Dhabi National Energy Company, a subsidiary of Abu Dhabi Water and Electricity Authority | |
Taweelah | Al Taweelah A2, a power and desalination plant of Emirates CMS Power Company located in the | |
United Arab Emirates, in which CMS Generation formerly held a 40 percent interest | ||
TGM | A natural gas transportation and pipeline business located in Argentina, in which CMS | |
International Ventures formerly owned a 20 percent interest | ||
TGN | A natural gas transportation and pipeline business located in Argentina, in which CMS Gas | |
Transmission owns a 23.54 percent interest | ||
Trunkline | CMS Trunkline Gas Company, LLC, formerly a subsidiary of CMS Panhandle Holdings, LLC | |
Zeeland | A 946 MW gas-fired power plant located in Zeeland, Michigan |
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• | the price of CMS Energy Common Stock, capital and financial market conditions, and the effect of such market conditions on the Pension Plan, interest rates, and access to the capital markets, including availability of financing to CMS Energy, Consumers, or any of their affiliates, and the energy industry, | ||
• | market perception of the energy industry, CMS Energy, Consumers, or any of their affiliates, | ||
• | the ability of CMS Energy affiliates with interests in the DIG power plant to effectively restructure power supply agreements on a timely basis, | ||
• | factors affecting utility and diversified energy 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, | ||
• | the impact of possible regulations or laws regarding carbon dioxide and other greenhouse gas emissions, | ||
• | national, regional, and local economic, competitive, and regulatory policies, conditions and developments, | ||
• | adverse regulatory or legal decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with such decisions, including but not limited to those that may affect Bay Harbor, |
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• | potentially adverse regulatory treatment and (or) regulatory delay or failure to receive timely regulatory orders concerning a number of significant questions presently or potentially before the MPSC, including: |
• | recovery of Clean Air Act capital and operating costs and other environmental and safety-related expenditures, | ||
• | recovery of power supply and natural gas supply costs when fuel prices are increasing and (or) fluctuating, | ||
• | timely recognition in rates of additional equity investments in Consumers, | ||
• | adequate and timely recovery of additional electric and gas rate-based investments, | ||
• | adequate and timely recovery of higher MISO energy and transmission costs, | ||
• | recovery of Stranded Costs incurred due to customers choosing alternative energy suppliers, | ||
• | recovery of Palisades plant sale-related costs, | ||
• | authorization of Zeeland power plant purchase costs, and | ||
• | authorization of a new clean coal plant, |
• | the effects on our ability to purchase capacity to serve our customers and fully recover the cost of these purchases, if the owners of the MCV Facility exercise their right to terminate the MCV PPA, | ||
• | the ability of Consumers to utilize its regulatory out rights as it pertains to the MCV PPA, | ||
• | the ability of Consumers to recover Big Rock decommissioning funding shortfalls and nuclear fuel storage costs due to the DOE’s failure to accept spent nuclear fuel on schedule, including the outcome of pending litigation with the DOE, | ||
• | federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of market-based sales authorizations in wholesale power markets without price restrictions, | ||
• | 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, | ||
• | our ability to collect accounts receivable from our customers, | ||
• | earnings volatility as a result of the GAAP requirement that we utilize mark-to-market accounting on certain energy commodity contracts and interest rate swaps, which may have, in any given period, a significant positive or negative effect on earnings, which could change dramatically or be eliminated in subsequent periods, | ||
• | the effect on our utility and utility revenues of the direct and indirect impacts of the continued economic downturn experienced by the Michigan economy, | ||
• | potential disruption or interruption of facilities or operations due to accidents, war, terrorism, or changing political environment, and the ability to obtain or maintain insurance coverage for such events, | ||
• | technological developments in energy production, delivery, and usage, |
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• | achievement of capital expenditure and operating expense goals, | ||
• | changes in financial or regulatory accounting principles or policies, | ||
• | changes in domestic or foreign tax laws, or new IRS or foreign governmental interpretations of existing or past tax laws, | ||
• | changes in federal or state regulations or laws that could have an impact on our business, | ||
• | outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations or claims, including claims, damages, and fines resulting from round-trip trading and alleged inaccurate commodity price reporting, including the outcome of investigations by the DOJ regarding round-trip trading and price reporting, | ||
• | disruptions in the normal commercial insurance and surety bond markets that may increase costs or reduce traditional insurance coverage, particularly terrorism and sabotage insurance and performance bonds, | ||
• | potential assertion of indemnity or warranty claims with respect to previously owned assets and businesses, | ||
• | credit ratings of CMS Energy, Consumers, or any of their affiliates, | ||
• | other business or investment considerations that may be disclosed from time to time in CMS Energy’s or Consumers’ SEC filings, or in other publicly issued written documents, and | ||
• | other uncertainties that are difficult to predict, many of which are beyond our control. |
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• | weather, especially during the normal heating and cooling seasons, | ||
• | economic conditions, primarily in Michigan, | ||
• | regulation and regulatory issues that affect our electric and gas utility operations, | ||
• | energy commodity prices, | ||
• | interest rates, and | ||
• | our debt credit rating. |
• | a portfolio of our businesses in Argentina and our northern Michigan non-utility natural gas assets to Lucid Energy for $130 million in March 2007, | ||
• | our ownership interest in El Chocon, an Argentine hydroelectric generating business, to Endesa, S.A. for $50 million in March 2007, | ||
• | our ownership interest in SENECA and certain associated generating equipment to PDVSA for $106 million in April 2007, | ||
• | our ownership interest in businesses in the Middle East, Africa, and India to TAQA for $900 million in May 2007, | ||
• | CMS Energy Brasil S.A. to CPFL Energia S.A., a Brazilian utility, for $211 million in June 2007, | ||
• | our investment in GasAtacama to Endesa S.A. for $80 million in August 2007, and | ||
• | our investment in Jamaica to AEI for $14 million in October 2007. |
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• | reducing parent debt, | ||
• | continued investment in our utility business, | ||
• | growing earnings while controlling operating costs, and | ||
• | principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance. |
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In Millions (except for per share amounts) | ||||||||||||
Three months ended September 30 | 2007 | 2006 | Change | |||||||||
Net Income (Loss) Available to Common Stockholders | $ | 82 | $ | (103 | ) | $ | 185 | |||||
Basic Earnings (Loss) Per Share | $ | 0.37 | $ | (0.47 | ) | $ | 0.84 | |||||
Diluted Earnings (Loss) Per Share | $ | 0.34 | $ | (0.47 | ) | $ | 0.81 | |||||
Electric Utility | $ | 67 | $ | 93 | $ | (26 | ) | |||||
Gas Utility | (8 | ) | (20 | ) | 12 | |||||||
Enterprises (Includes the MCV Partnership and FMLP interests) | 58 | (133 | ) | 191 | ||||||||
Corporate Interest and Other | (35 | ) | (54 | ) | 19 | |||||||
Discontinued Operations | — | 11 | (11 | ) | ||||||||
Net Income (Loss) Available to Common Stockholders | $ | 82 | $ | (103 | ) | $ | 185 | |||||
In Millions | ||||||||
• | absence of a 2006 asset impairment of our investment in GasAtacama, | 169 | ||||||
• | recognition of an insurance reimbursement related to the non-payment by the Argentine government of our ICSID award, | 48 | ||||||
• | increase in earnings from our gas utility primarily due to the positive effect of an MPSC gas rate order, | 12 | ||||||
• | recognition of a gain associated with the sale of our Argentine and Michigan assets to Lucid Energy, | 11 | ||||||
• | increase in earnings from Enterprises primarily due to decreased operating and maintenance expenses, and mark-to-market gains at CMS ERM compared to losses in 2006, partially offset by the absence of earnings from equity method investments that were sold in 2007, | 8 | ||||||
• | absence of a 2006 property tax refund at the MCV Partnership, | (26 | ) | |||||
• | decreased Palisades-related earnings at our electric utility partially offset by lower operating and maintenance expenses, and | (26 | ) | |||||
• | reduction in earnings from discontinued operations. | (11 | ) | |||||
Total Change | $ | 185 | ||||||
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In Millions (except for per share amounts) | ||||||||||||
Nine months ended September 30 | 2007 | 2006 | Change | |||||||||
Net Loss Available to Common Stockholders | $ | (100 | ) | $ | (58 | ) | $ | (42 | ) | |||
Basic Loss Per Share | $ | (0.45 | ) | $ | (0.26 | ) | $ | (0.19 | ) | |||
Diluted Loss Per Share | $ | (0.45 | ) | $ | (0.26 | ) | $ | (0.19 | ) | |||
Electric Utility | $ | 158 | $ | 159 | $ | (1 | ) | |||||
Gas Utility | 53 | 14 | 39 | |||||||||
Enterprises (Includes the MCV Partnership and FMLP interests) | (173 | ) | (215 | ) | 42 | |||||||
Corporate Interest and Other | (51 | ) | (48 | ) | (3 | ) | ||||||
Discontinued Operations | (87 | ) | 32 | (119 | ) | |||||||
Net Loss Available to Common Stockholders | $ | (100 | ) | $ | (58 | ) | $ | (42 | ) | |||
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In Millions | ||||||||
• | impairments of our investments in TGN, GasAtacama, Jamaica, and PowerSmith, | $ | (181 | ) | ||||
• | impact of activities associated with discontinued operations as the net loss on the disposal of international businesses in 2007 replaced earnings recorded for these businesses in 2006, | (119 | ) | |||||
• | absence of tax benefits recorded at Corporate and Enterprises in 2006 from the resolution of an IRS income tax audit, | (54 | ) | |||||
• | the establishment of a tax provision on the cumulative undistributed earnings of foreign subsidiaries sold in 2007, compared to tax benefits recorded in 2006, | (67 | ) | |||||
• | absence of earnings from our equity method investments that were sold in 2007, | (17 | ) | |||||
• | absence of an insurance reimbursement received for previously incurred legal expenses, | (15 | ) | |||||
• | premiums paid on the early retirement of corporate debt, | (6 | ) | |||||
• | absence of a 2006 GasAtacma impairment, | 169 | ||||||
• | reduction to our corporate deferred tax valuation allowances associated with capital loss carryforwards and foreign basis differences primarily due to the sale of international businesses in 2007 compared to an increase in the valuation allowance in 2006, | 94 | ||||||
• | recognition of an insurance reimbursement related to the non-payment by the Argentine government of our ICSID award, | 48 | ||||||
• | increase in earnings at our gas and electric utility segments, | 38 | ||||||
• | absence of mark-to-market losses net of operating earnings from our investment in the MCV Partnership, and | 35 | ||||||
• | additional increase in earnings at Enterprises primarily due to mark-to-market gains at CMS ERM compared to losses in 2006 and gains associated with asset sales. | 33 | ||||||
Total Change | $ | (42 | ) | |||||
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In Millions | ||||||||||||
September 30 | 2007 | 2006 | Change | |||||||||
Three months ended | $ | 67 | $ | 93 | $ | (26 | ) | |||||
Nine months ended | $ | 158 | $ | 159 | $ | (1 | ) | |||||
Three Months Ended | Nine Months Ended | |||||||
September 30, 2007 | September 30, 2007 | |||||||
Reasons for the change: | vs. 2006 | vs. 2006 | ||||||
Electric deliveries | $ | (6 | ) | $ | 26 | |||
Surcharge revenue | 3 | 11 | ||||||
Palisades revenue to PSCR | (50 | ) | (91 | ) | ||||
Power supply costs and related revenue | (6 | ) | (18 | ) | ||||
Other operating expenses, other income, and non-commodity revenue | 33 | 97 | ||||||
General taxes | (7 | ) | (14 | ) | ||||
Interest charges | (7 | ) | (13 | ) | ||||
Income taxes | 14 | 1 | ||||||
Total change | $ | (26 | ) | $ | (1 | ) | ||
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In Millions | ||||||||||||
September 30 | 2007 | 2006 | Change | |||||||||
Three months ended | $ | (8 | ) | $ | (20 | ) | $ | 12 | ||||
Nine months ended | $ | 53 | $ | 14 | $ | 39 | ||||||
Three Months Ended | Nine Months Ended | |||||||
September 30, | September 30, | |||||||
Reasons for the change: | 2007 vs. 2006 | 2007 vs. 2006 | ||||||
Gas deliveries | $ | 5 | $ | 22 | ||||
Gas rate increase | 11 | 56 | ||||||
Gas wholesale and retail services, other gas revenues and other income | 3 | 13 | ||||||
Operation and maintenance | (2 | ) | (22 | ) | ||||
General taxes and depreciation | (4 | ) | (10 | ) | ||||
Interest charges | 3 | 2 | ||||||
Income taxes | (4 | ) | (22 | ) | ||||
Total change | $ | 12 | $ | 39 | ||||
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In Millions | ||||||||||||
September 30 | 2007 | 2006 | Change | |||||||||
Three months ended | $ | 58 | $ | (133 | ) | $ | 191 | |||||
Nine months ended | $ | (173 | ) | $ | (215 | ) | $ | 42 | ||||
Three Months Ended | Nine Months Ended | |||||||
September 30, 2007 | September 30, 2007 | |||||||
Reasons for the change: | vs. 2006 | vs. 2006 | ||||||
Operating revenues | $ | 17 | $ | 24 | ||||
Cost of gas and purchased power | 1 | 20 | ||||||
Earnings from equity method investees | (19 | ) | (26 | ) | ||||
Gain on sale of assets | 18 | 16 | ||||||
Operation and maintenance | 13 | 7 | ||||||
General taxes, depreciation, and other income, net | 6 | 6 | ||||||
Asset impairment, net of insurance reimbursement | 288 | 25 | ||||||
Fixed charges | 4 | 9 | ||||||
Minority interest | (6 | ) | (6 | ) | ||||
Income taxes | (103 | ) | (68 | ) | ||||
The MCV Partnership | (28 | ) | 35 | |||||
Total change | $ | 191 | $ | 42 | ||||
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In Millions | ||||||||||||
September 30 | 2007 | 2006 | Change | |||||||||
Three months ended | $ | (35 | ) | $ | (54 | ) | $ | 19 | ||||
Nine months ended | $ | (51 | ) | $ | (48 | ) | $ | (3 | ) | |||
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CMS-15
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Interest Rates (%) | Volatility Rates (%) | |||||||
Electricity-related option contracts | 3.6 | 68 — 113 | ||||||
CMS-16
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In Millions | ||||||||||||
Non-Trading | Trading | Total | ||||||||||
Fair value of contracts outstanding at December 31, 2006 | $ | 31 | $ | (68 | ) | $ | (37 | ) | ||||
Fair value of new contracts when entered into during the period (a) | — | (1 | ) | (1 | ) | |||||||
Contracts realized or otherwise settled during the period (b) | (6 | ) | 67 | 61 | ||||||||
Other changes in fair value (c) | (26 | ) | (12 | ) | (38 | ) | ||||||
Fair value of contracts outstanding at September 30, 2007 | $ | (1 | ) | $ | (14 | ) | $ | (15 | ) | |||
Fair Value of Non-Trading Contracts at September 30, 2007 | In Millions | |||||||||||||||||||
Total | Maturity (in years) | |||||||||||||||||||
Source of Fair Value | Fair Value | Less than 1 | 1 to 3 | 4 to 5 | Greater than 5 | |||||||||||||||
Prices actively quoted | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Prices obtained from external sources or based on models and other valuation methods | (1 | ) | (1 | ) | — | — | — | |||||||||||||
Total | $ | (1 | ) | $ | (1 | ) | $ | — | $ | — | $ | — | ||||||||
Fair Value of Trading Contracts at September 30, 2007 | In Millions | |||||||||||||||||||
Total | Maturity (in years) | |||||||||||||||||||
Source of Fair Value | Fair Value | Less than 1 | 1 to 3 | 4 to 5 | Greater than 5 | |||||||||||||||
Prices actively quoted | $ | (3 | ) | $ | (3 | ) | $ | — | $ | — | $ | — | ||||||||
Prices obtained from external sources or based on models and other valuation methods | (11 | ) | (9 | ) | (2 | ) | — | — | ||||||||||||
Total | $ | (14 | ) | $ | (12 | ) | $ | (2 | ) | $ | — | $ | — | |||||||
CMS-17
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In Millions | ||||||||
September 30, 2007 | December 31, 2006 | |||||||
Variable-rate financing — before-tax annual earnings exposure | $ | 2 | $ | 4 | ||||
Fixed-rate financing — potentialreductionin fair value (a) | 181 | 193 | ||||||
In Millions | ||||||||
September 30, 2007 | December 31, 2006 | |||||||
Potentialreductionin fair value: | ||||||||
Non-trading contracts | ||||||||
CMS ERM gas forward contracts | $ | — | $ | 3 | ||||
Trading contracts | ||||||||
Electricity-related option contracts | — | 3 | ||||||
Electricity-related swaps | 3 | — | ||||||
Gas-related option contracts | — | 1 | ||||||
Gas-related swaps and futures | 2 | 1 | ||||||
In Millions | ||||||||
September 30, 2007 | December 31, 2006 | |||||||
Potentialreductionin fair value of available-for-sale equity securities (primarily SERP investments): | $ | 6 | $ | 6 | ||||
• | accounting for long-lived assets and equity method investments, | ||
• | accounting for the effects of industry regulation, | ||
• | accounting for pension and OPEB, | ||
• | accounting for asset retirement obligations, and | ||
• | accounting for nuclear decommissioning costs. |
CMS-18
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• | results of operations, | ||
• | capital expenditures, | ||
• | energy commodity and transportation costs, | ||
• | contractual obligations, | ||
• | regulatory decisions, | ||
• | debt maturities, | ||
• | credit ratings, | ||
• | working capital needs, and | ||
• | collateral requirements. |
• | our current level of cash and revolving credit facilities, | ||
• | our anticipated cash flows from operating and investing activities, and | ||
• | our ability to access secured and unsecured borrowing capacity in the capital markets, if necessary. |
In Millions | ||||||||
Nine months ended September 30 | 2007 | 2006 | ||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | (116 | ) | $ | 447 | |||
Investing activities | 1,394 | (436 | ) | |||||
Net cash provided by operating and investing activities | 1,278 | 11 | ||||||
Financing activities | (386 | ) | (400 | ) | ||||
Effect of exchange rates on cash | 2 | 1 | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents | $ | 894 | $ | (388 | ) | |||
CMS-19
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CMS-20
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• | energy conservation measures, | ||
• | fluctuations in weather conditions, and | ||
• | changes in economic conditions, including utilization and expansion or contraction of manufacturing facilities. |
CMS-21
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CMS-22
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• | repeal or significant reform of the Customer Choice Act, | ||
• | obtaining environmental permits, | ||
• | successful MPSC regulatory review and approval, and | ||
• | obtaining property tax abatements. |
CMS-23
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• | construction commodity prices, especially construction material and labor, | ||
• | project completion schedules, | ||
• | cost escalation factor used to estimate future years’ costs of 2.6 percent, and | ||
• | an AFUDC capitalization rate of 7.8 percent. |
CMS-24
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State and Federal | State and Federal | |||
Phase I | Phase II | |||
Federal Clean Air Mercury Rule | 30% reduction by 2010 with interstate trading of allowances | 70% reduction by 2018 with interstate trading of allowances | ||
Proposed State Mercury Rule | 30% reduction by 2010 without interstate trading of allowances | 90% reduction by 2015 without interstate trading of allowances | ||
CMS-25
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CMS-26
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• | fluctuations in weather conditions, | ||
• | use by independent power producers, | ||
• | changes in gas commodity prices, | ||
• | Michigan economic conditions, | ||
• | the price of competing energy sources or fuels, | ||
• | gas consumption per customer, and | ||
• | improvements in gas appliance efficiency. |
CMS-27
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CMS-28
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• | an option to buy CMS Gas Transmission’s ownership interest in TGN, subject to the rights of other third parties, | ||
• | the right to certain proceeds that may be awarded and received by CMS Gas Transmission in connection with certain legal proceedings, and | ||
• | the right to proceeds that Enterprises will receive if it sells its stock interest in CMS Generation San Nicolas Company. |
• | the outcome of ongoing negotiations to restructure the power supply agreements associated with our DIG power plant, | ||
• | the impact of indemnity and environmental remediation obligations at Bay Harbor, | ||
• | the outcome of certain legal proceedings, | ||
• | the impact of representations, warranties, and related indemnities in connection with the sales of our international assets, | ||
• | the outcome of the planned sale of other assets, and | ||
• | 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. |
CMS-29
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CMS-30
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CMS-31
Table of Contents
CMS-32
Table of Contents
Consolidated Statements of Income (Loss)
(Unaudited)
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Operating Revenue | $ | 1,282 | $ | 1,288 | $ | 4,790 | $ | 4,404 | ||||||||
Earnings from Equity Method Investees | — | 19 | 36 | 63 | ||||||||||||
Operating Expenses | ||||||||||||||||
Fuel for electric generation | 130 | 224 | 326 | 587 | ||||||||||||
Fuel costs mark-to-market at the MCV Partnership | — | 28 | — | 226 | ||||||||||||
Purchased and interchange power | 390 | 205 | 1,079 | 476 | ||||||||||||
Cost of gas sold | 199 | 196 | 1,591 | 1,439 | ||||||||||||
Other operating expenses | 226 | 273 | 714 | 754 | ||||||||||||
Maintenance | 45 | 66 | 155 | 220 | ||||||||||||
Depreciation and amortization | 121 | 124 | 402 | 402 | ||||||||||||
General taxes | 53 | (21 | ) | 176 | 103 | |||||||||||
Asset impairment charges, net of insurance recoveries | (76 | ) | 239 | 204 | 239 | |||||||||||
1,088 | 1,334 | 4,647 | 4,446 | |||||||||||||
Operating Income (Loss) | 194 | (27 | ) | 179 | 21 | |||||||||||
Other Income (Deductions) | ||||||||||||||||
Gain on asset sales, net | 18 | — | 16 | — | ||||||||||||
Interest and dividends | 33 | 21 | 78 | 54 | ||||||||||||
Regulatory return on capital expenditures | 9 | 8 | 24 | 18 | ||||||||||||
Foreign currency gain (loss), net | — | (2 | ) | 1 | — | |||||||||||
Other income | 4 | 7 | 15 | 28 | ||||||||||||
Other expense | (12 | ) | (2 | ) | (29 | ) | (15 | ) | ||||||||
52 | 32 | 105 | 85 | |||||||||||||
Fixed Charges | ||||||||||||||||
Interest on long-term debt | 96 | 112 | 295 | 342 | ||||||||||||
Interest on long-term debt — related parties | 3 | 3 | 10 | 11 | ||||||||||||
Other interest | 14 | 6 | 36 | 19 | ||||||||||||
Capitalized interest | (1 | ) | (2 | ) | (5 | ) | (7 | ) | ||||||||
Preferred dividends of subsidiaries | 1 | 1 | 2 | 4 | ||||||||||||
113 | 120 | 338 | 369 | |||||||||||||
Income (Loss) Before Minority Interests (Obligations), Net | 133 | (115 | ) | (54 | ) | (263 | ) | |||||||||
Minority Interests (Obligations), Net | 3 | 38 | 8 | (33 | ) | |||||||||||
Income (Loss) Before Income Taxes | 130 | (153 | ) | (62 | ) | (230 | ) | |||||||||
Income Tax Expense (Benefit) | 46 | (41 | ) | (58 | ) | (148 | ) | |||||||||
Income (Loss) From Continuing Operations | 84 | (112 | ) | (4 | ) | (82 | ) | |||||||||
Income (Loss) From Discontinued Operations, Net of Tax (Tax Benefit) of $-, $11, $(1), and $24 | — | 11 | (87 | ) | 32 | |||||||||||
Net Income (Loss) | 84 | (101 | ) | (91 | ) | (50 | ) | |||||||||
Preferred Dividends | 2 | 2 | 8 | 8 | ||||||||||||
Redemption Premium on Preferred Stock | — | — | 1 | — | ||||||||||||
Net Income (Loss) Available to Common Stockholders | $ | 82 | $ | (103 | ) | $ | (100 | ) | $ | (58 | ) | |||||
CMS-33
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In Millions, Except Per Share Amounts | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
CMS Energy | ||||||||||||||||
Net Income (Loss) | ||||||||||||||||
Net Income (Loss) Available to Common Stockholders | $ | 82 | $ | (103 | ) | $ | (100 | ) | $ | (58 | ) | |||||
Basic Earnings (Loss) Per Average Common Share | ||||||||||||||||
Income (Loss) from Continuing Operations | $ | 0.37 | $ | (0.52 | ) | $ | (0.06 | ) | $ | (0.41 | ) | |||||
Gain (Loss) from Discontinued Operations | — | 0.05 | (0.39 | ) | 0.15 | |||||||||||
Net Income (Loss) Attributable to Common Stock | $ | 0.37 | $ | (0.47 | ) | $ | (0.45 | ) | $ | (0.26 | ) | |||||
Diluted Earnings (Loss) Per Average Common Share | ||||||||||||||||
Income (Loss) from Continuing Operations | $ | 0.34 | $ | (0.52 | ) | $ | (0.06 | ) | $ | (0.41 | ) | |||||
Gain (Loss) from Discontinued Operations | — | 0.05 | (0.39 | ) | 0.15 | |||||||||||
Net Income (Loss) Attributable to Common Stock | $ | 0.34 | $ | (0.47 | ) | $ | (0.45 | ) | $ | (0.26 | ) | |||||
Dividends Declared Per Common Share | $ | 0.05 | $ | — | $ | 0.15 | $ | — | ||||||||
CMS-34
Table of Contents
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended | ||||||||
September 30 | 2007 | 2006 | ||||||
In Millions | ||||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (91 | ) | $ | (50 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities | ||||||||
Depreciation and amortization, net of nuclear decommissioning of $4 and $3 | 407 | 418 | ||||||
Deferred income taxes and investment tax credit | (79 | ) | (223 | ) | ||||
Minority interests (obligations), net | (13 | ) | (27 | ) | ||||
Asset impairment charges, net of insurance recoveries | 204 | 239 | ||||||
Fuel costs mark-to-market at the MCV Partnership | — | 226 | ||||||
Regulatory return on capital expenditures | (24 | ) | (18 | ) | ||||
Capital lease and other amortization | 41 | 34 | ||||||
Loss on the sale of assets | 117 | — | ||||||
Earnings from equity method investees | (36 | ) | (63 | ) | ||||
Cash distributions from equity method investees | 15 | 63 | ||||||
Pension contribution | (109 | ) | (13 | ) | ||||
Shareholder class action settlement | (125 | ) | — | |||||
Changes in other assets and liabilities: | ||||||||
Decrease (increase) in accounts receivable and accrued revenues | (148 | ) | 340 | |||||
Decrease (increase) in accrued power supply and gas revenue | 52 | (90 | ) | |||||
Increase in inventories | (186 | ) | (246 | ) | ||||
Decrease in deferred property taxes | 111 | 102 | ||||||
Decrease in accounts payable | (91 | ) | (116 | ) | ||||
Decrease in accrued taxes | (144 | ) | (152 | ) | ||||
Increase (decrease) in accrued expenses | (37 | ) | 35 | |||||
Decrease in the MCV Partnership gas supplier funds on deposit | — | (159 | ) | |||||
Decrease in other current and non-current assets | 87 | 106 | ||||||
Increase (decrease) in other current and non-current liabilities | (67 | ) | 41 | |||||
Net cash provided by (used in) operating activities | (116 | ) | 447 | |||||
Cash Flows from Investing Activities | ||||||||
Capital expenditures (excludes assets placed under capital lease) | (523 | ) | (477 | ) | ||||
Cost to retire property | (18 | ) | (41 | ) | ||||
Restricted cash and restricted short-term investments | 34 | 125 | ||||||
Investments in nuclear decommissioning trust funds | (1 | ) | (20 | ) | ||||
Proceeds from nuclear decommissioning trust funds | 333 | 20 | ||||||
Maturity of the MCV Partnership restricted investment securities held-to-maturity | — | 119 | ||||||
Purchase of the MCV Partnership restricted investment securities held-to-maturity | — | (118 | ) | |||||
Proceeds from sale of assets | 1,696 | — | ||||||
Cash relinquished from sale of assets | (113 | ) | — | |||||
Other investing | (14 | ) | (44 | ) | ||||
Net cash provided by (used in) investing activities | 1,394 | (436 | ) | |||||
Cash Flows from Financing Activities | ||||||||
Proceeds from notes, bonds, and other long-term debt | 476 | 72 | ||||||
Issuance of common stock | 13 | 7 | ||||||
Retirement of bonds and other long-term debt | (769 | ) | (433 | ) | ||||
Redemption of preferred stock | (32 | ) | — | |||||
Payment of common stock dividends | (34 | ) | — | |||||
Payment of preferred stock dividends | (8 | ) | (8 | ) | ||||
Payment of capital lease and financial lease obligations | (14 | ) | (23 | ) | ||||
Debt issuance costs, financing fees, and other | (18 | ) | (15 | ) | ||||
Net cash used in financing activities | (386 | ) | (400 | ) | ||||
Effect of Exchange Rates on Cash | 2 | 1 | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 894 | (388 | ) | |||||
Cash and Cash Equivalents, Beginning of Period | 351 | 847 | ||||||
Cash and Cash Equivalents, End of Period | $ | 1,245 | $ | 459 | ||||
CMS-35
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In Millions | ||||||||
September 30 | December 31 | |||||||
ASSETS | 2007 | 2006 | ||||||
(Unaudited) | ||||||||
Plant and Property (At cost) | ||||||||
Electric utility | $ | 7,945 | $ | 8,504 | ||||
Gas utility | 3,327 | 3,273 | ||||||
Enterprises | 391 | 453 | ||||||
Other | 34 | 33 | ||||||
11,697 | 12,263 | |||||||
Less accumulated depreciation, depletion and amortization | 4,117 | 5,194 | ||||||
7,580 | 7,069 | |||||||
Construction work-in-progress | 381 | 639 | ||||||
7,961 | 7,708 | |||||||
Investments | ||||||||
Enterprises | 20 | 556 | ||||||
Other | 5 | 10 | ||||||
25 | 566 | |||||||
Current Assets | ||||||||
Cash and cash equivalents at cost, which approximates market | 1,245 | 249 | ||||||
Restricted cash at cost, which approximates market | 48 | 71 | ||||||
Accounts receivable and accrued revenue, less allowances of $20 in 2007 and $25 in 2006 | 531 | 502 | ||||||
Notes receivable | 80 | 48 | ||||||
Accrued power supply and gas revenue | 104 | 156 | ||||||
Accounts receivable and notes receivable — related parties | 2 | 62 | ||||||
Inventories at average cost | ||||||||
Gas in underground storage | 1,301 | 1,129 | ||||||
Materials and supplies | 83 | 87 | ||||||
Generating plant fuel stock | 125 | 126 | ||||||
Regulatory assets — postretirement benefits | 19 | 19 | ||||||
Deferred income taxes | — | 155 | ||||||
Deferred property taxes | 103 | 150 | ||||||
Assets held for sale | — | 239 | ||||||
Price risk management assets | 4 | 45 | ||||||
Prepayments and other | 51 | 105 | ||||||
3,696 | 3,143 | |||||||
Non-current Assets | ||||||||
Regulatory Assets | ||||||||
Securitized costs | 479 | 514 | ||||||
Postretirement benefits | 1,032 | 1,131 | ||||||
Customer Choice Act | 158 | 190 | ||||||
Other | 508 | 497 | ||||||
Nuclear decommissioning trust funds | — | 602 | ||||||
Deferred income taxes | 123 | — | ||||||
Notes receivable | 152 | 137 | ||||||
Notes receivable — related parties | — | 125 | ||||||
Assets held for sale | — | 412 | ||||||
Price risk management assets | — | 19 | ||||||
Other | 170 | 327 | ||||||
2,622 | 3,954 | |||||||
Total Assets | $ | 14,304 | $ | 15,371 | ||||
CMS-36
Table of Contents
In Millions | ||||||||
September 30 | December 31 | |||||||
STOCKHOLDERS’ INVESTMENT AND LIABILITIES | 2007 | 2006 | ||||||
(Unaudited) | ||||||||
Capitalization | ||||||||
Common stockholders’ equity | ||||||||
Common stock, authorized 350.0 shares; outstanding 225.1 shares and 222.8 shares, respectively | $ | 2 | $ | 2 | ||||
Other paid-in capital | 4,476 | 4,468 | ||||||
Accumulated other comprehensive loss | (136 | ) | (318 | ) | ||||
Retained deficit | (2,070 | ) | (1,918 | ) | ||||
2,272 | 2,234 | |||||||
Preferred stock of subsidiary | 44 | 44 | ||||||
Preferred stock | 250 | 261 | ||||||
Long-term debt | 5,390 | 6,200 | ||||||
Long-term debt — related parties | 178 | 178 | ||||||
Non-current portion of capital and finance lease obligations | 226 | 42 | ||||||
8,360 | 8,959 | |||||||
Minority Interests | 50 | 52 | ||||||
Current Liabilities | ||||||||
Current portion of long-term debt, capital and finance leases | 997 | 563 | ||||||
Notes payable | 1 | 2 | ||||||
Accounts payable | 392 | 481 | ||||||
Accrued rate refunds | 29 | 37 | ||||||
Accounts payable — related parties | — | 2 | ||||||
Accrued interest | 96 | 126 | ||||||
Accrued taxes | 155 | 301 | ||||||
Regulatory liabilities | 176 | — | ||||||
Deferred income taxes | 172 | — | ||||||
Argentine currency impairment reserve | 197 | — | ||||||
Legal settlement liability | — | 200 | ||||||
Liabilities held for sale | — | 144 | ||||||
Price risk management liabilities | 17 | 70 | ||||||
Other | 217 | 230 | ||||||
2,449 | 2,156 | |||||||
Non-current Liabilities | ||||||||
Regulatory Liabilities | ||||||||
Regulatory liabilities for cost of removal | 1,250 | 1,166 | ||||||
Income taxes, net | 554 | 539 | ||||||
Other regulatory liabilities | 213 | 249 | ||||||
Postretirement benefits | 947 | 1,066 | ||||||
Deferred income taxes | — | 123 | ||||||
Deferred investment tax credit | 59 | 62 | ||||||
Asset retirement obligation | 97 | 498 | ||||||
Liabilities held for sale | — | 59 | ||||||
Price risk management liabilities | 2 | 31 | ||||||
Other | 323 | 411 | ||||||
3,445 | 4,204 | |||||||
Commitments and Contingencies(Notes 3, 4 and 6) | ||||||||
Total Stockholders’ Investment and Liabilities | $ | 14,304 | $ | 15,371 | ||||
CMS-37
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Consolidated Statements of Common Stockholders’ Equity
(Unaudited)
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Common Stock | ||||||||||||||||
At beginning and end of period | $ | 2 | $ | 2 | $ | 2 | $ | 2 | ||||||||
Other Paid-in Capital | ||||||||||||||||
At beginning of period | 4,477 | 4,452 | 4,468 | 4,436 | ||||||||||||
Common stock issued | 4 | 10 | 26 | 25 | ||||||||||||
Common stock repurchased | (5 | ) | (1 | ) | (5 | ) | (1 | ) | ||||||||
Common stock reissued | — | — | 6 | 1 | ||||||||||||
Redemption of preferred stock | — | — | (19 | ) | — | |||||||||||
At end of period | 4,476 | 4,461 | 4,476 | 4,461 | ||||||||||||
Accumulated Other Comprehensive Loss | ||||||||||||||||
Retirement Benefits Liability | ||||||||||||||||
At beginning of period | (23 | ) | (19 | ) | (23 | ) | (19 | ) | ||||||||
Unrealized gain on retirement benefits (a) | 1 | — | 1 | — | ||||||||||||
At end of period | (22 | ) | (19 | ) | (22 | ) | (19 | ) | ||||||||
Investments | ||||||||||||||||
At beginning of period | 16 | 10 | 14 | 9 | ||||||||||||
Unrealized gain on investments (a) | — | 2 | 2 | 3 | ||||||||||||
At end of period | 16 | 12 | 16 | 12 | ||||||||||||
Derivative Instruments | ||||||||||||||||
At beginning of period | (1 | ) | 35 | (12 | ) | 35 | ||||||||||
Unrealized loss on derivative instruments (a) | — | (22 | ) | (3 | ) | (22 | ) | |||||||||
Reclassification adjustments included in net income (loss) (a) | — | (1 | ) | 14 | (1 | ) | ||||||||||
At end of period | (1 | ) | 12 | (1 | ) | 12 | ||||||||||
Foreign Currency Translation | ||||||||||||||||
At beginning of period | (129 | ) | (308 | ) | (297 | ) | (313 | ) | ||||||||
Sale of Argentine assets (a) | — | — | 128 | — | ||||||||||||
Sale of Brazilian assets (a) | — | — | 36 | — | ||||||||||||
Other foreign currency translations (a) | — | 2 | 4 | 7 | ||||||||||||
At end of period | (129 | ) | (306 | ) | (129 | ) | (306 | ) | ||||||||
Total Accumulated Other Comprehensive Loss | (136 | ) | (301 | ) | (136 | ) | (301 | ) | ||||||||
Retained Deficit | ||||||||||||||||
At beginning of period | (2,140 | ) | (1,783 | ) | (1,918 | ) | (1,828 | ) | ||||||||
Adjustment to initially apply FIN 48 | — | — | (18 | ) | — | |||||||||||
Net income (loss) (a) | 84 | (101 | ) | (91 | ) | (50 | ) | |||||||||
Preferred stock dividends declared | (2 | ) | (2 | ) | (8 | ) | (8 | ) | ||||||||
Common stock dividends declared | (12 | ) | — | (34 | ) | — | ||||||||||
Redemption of preferred stock (a) | — | — | (1 | ) | — | |||||||||||
At end of period | (2,070 | ) | (1,886 | ) | (2,070 | ) | (1,886 | ) | ||||||||
Total Common Stockholders’ Equity | $ | 2,272 | $ | 2,276 | $ | 2,272 | $ | 2,276 | ||||||||
(a) Disclosure of Comprehensive Income (Loss): | ||||||||||||||||
Unrealized gain on retirement benefits, net of tax of $—, $—, $1, and $—, respectively | $ | 1 | $ | — | $ | 1 | $ | — | ||||||||
Unrealized gain on investments, net of tax of $1, $1, $2, and $1, respectively | — | 2 | 2 | 3 | ||||||||||||
Unrealized loss on derivative instruments, net of tax (tax benefit) of $—, $(7), $2, and $(14), respectively | — | (22 | ) | (3 | ) | (22 | ) | |||||||||
Reclassification adjustments included in net income (loss), net of tax (tax benefit) of $—, $—, $7, and $(2), respectively | — | (1 | ) | 14 | (1 | ) | ||||||||||
Sale of Argentine assets, net of tax of $68 | — | — | 128 | — | ||||||||||||
Sale of Brazilian assets, net of tax of $20 | — | — | 36 | — | ||||||||||||
Other foreign currency translations | — | 2 | 4 | 7 | ||||||||||||
Redemption of preferred stock, net of tax benefit of $1 in 2007 | — | — | (1 | ) | — | |||||||||||
Net income (loss) | 84 | (101 | ) | (91 | ) | (50 | ) | |||||||||
Total Comprehensive Income (Loss) | $ | 85 | $ | (120 | ) | $ | 90 | $ | (63 | ) | ||||||
CMS-38
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CMS-39
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CMS-40
Table of Contents
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Other income | ||||||||||||||||
Interest and dividends — related parties | $ | — | $ | 2 | $ | — | $ | 8 | ||||||||
Electric restructuring return | — | 1 | 1 | 3 | ||||||||||||
Return on stranded and security costs | 1 | 1 | 4 | 4 | ||||||||||||
Nitrogen oxide allowance sales | — | 1 | — | 7 | ||||||||||||
Refund of surety bond premium | — | — | — | 1 | ||||||||||||
Gain on investment | 3 | — | 7 | — | ||||||||||||
All other | — | 2 | 3 | 5 | ||||||||||||
Total other income | $ | 4 | $ | 7 | $ | 15 | $ | 28 | ||||||||
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Other expense | ||||||||||||||||
Accretion expense | $ | — | $ | — | $ | — | $ | (4 | ) | |||||||
Derivative loss on debt tender offer | — | — | (3 | ) | — | |||||||||||
Loss on reacquired and extinguished debt | (11 | ) | — | (22 | ) | (5 | ) | |||||||||
Civic and political expenditures | (1 | ) | (1 | ) | (2 | ) | (2 | ) | ||||||||
Donations | — | — | — | (1 | ) | |||||||||||
All other | — | (1 | ) | (2 | ) | (3 | ) | |||||||||
Total other expense | $ | (12 | ) | $ | (2 | ) | $ | (29 | ) | $ | (15 | ) | ||||
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• | an option to buy CMS Gas Transmission’s ownership interest in TGN, subject to the rights of other third parties, |
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• | the right to certain proceeds that may be awarded and received by CMS Gas Transmission in connection with certain legal proceedings, and | ||
• | the right to proceeds that Enterprises will receive if it sells its stock interest in CMS Generation San Nicolas Company. |
In Millions | ||||||||||
Pretax | After-tax | |||||||||
Date sold | Business/Project | Gain (Loss) | Gain (Loss) | |||||||
March | El Chocon | $ | 34 | $ | 22 | |||||
March | TGM and Bay Area Pipeline (a) | (22 | ) | (14 | ) | |||||
May | Middle East, Africa and India businesses (b) | (16 | ) | (12 | ) | |||||
August | GasAtacama | — | — | |||||||
September | Sale of award rights (a) | 17 | 11 | |||||||
Various | Other | 3 | 2 | |||||||
Total gain on asset sales | $ | 16 | $ | 9 | ||||||
(a) | Included in the $130 million sale to Lucid Energy. | |
(b) | Included in the $900 million sale to TAQA. |
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In Millions | ||||||||||||
MPSC Order | Estimated | |||||||||||
Customer | Closing | Total | ||||||||||
Customer Benefits | Benefits Estimate | Adjustments | Benefits | |||||||||
Purchase price | $ | 380 | $ | (7 | ) | $ | 373 | |||||
Less: Book value of Palisades | 314 | (18 | ) | 296 | ||||||||
Excess proceeds | 66 | 11 | 77 | |||||||||
Excess decommissioning trust funds | 189 | 123 | 312 | |||||||||
Total customer benefits | $ | 255 | $ | 134 | $ | 389 | ||||||
Total | ||||
Deferred Costs | Costs | |||
NMC exit fee | $ | 7 | ||
Forfeiture of the NMC investment | 5 | |||
Selling expenses | 14 | |||
Total transaction costs | 26 | |||
Big Rock ISFSI operation and maintenance fee to Entergy | 30 | |||
Regulatory asset, as of September 30, 2007 | $ | 56 | ||
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In Millions | ||||
Assets | ||||
Cash | $ | 102 | ||
Accounts receivable, net | 105 | |||
Notes receivable | 110 | |||
Goodwill | 25 | |||
Investments | 33 | |||
Property, plant and equipment, net | 233 | |||
Other | 43 | |||
Total assets | $ | 651 | ||
Liabilities | ||||
Accounts payable | $ | 82 | ||
Accrued taxes | 30 | |||
Minority interest | 40 | |||
Other | 51 | |||
Total liabilities | $ | 203 | ||
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In Millions | ||||||||
Three months ended September 30 | 2007 | 2006 | ||||||
Revenues | $ | — | $ | 174 | ||||
Pretax income from discontinued operations | $ | — | $ | 22 | ||||
Income tax expense | — | 11 | ||||||
Income From Discontinued Operations | $ | — | $ | 11 | ||||
In Millions | ||||||||
Nine months ended September 30 | 2007 | 2006 | ||||||
Revenues | $ | 235 | $ | 486 | ||||
Pretax income (loss) from discontinued operations | $ | (88 | ) | $ | 56 | |||
Income tax expense (benefit) | (1 | )(a) | 24 | |||||
Income (Loss) From Discontinued Operations | $ | (87 | )(b) | $ | 32 | |||
(a) | Includes a $5 million additional charge related to foreign earnings repatriated in March 2007. | |
(b) | Includes a loss on disposal of our Argentine and northern Michigan non-utility assets of $279 million ($171 million after-tax and after minority interest), a gain on disposal of SENECA of $46 million ($33 million after-tax and after minority interest), a gain on disposal of our ownership interest in businesses in the Middle East, Africa, and India of $96 million ($62 million after-tax), and a gain on disposal of CMS Energy Brasil S.A. of $3 million ($2 million after-tax). |
In Millions | ||||||||||||||||
Pretax | After-tax | Pretax | After-tax | |||||||||||||
Nine months ended September 30 | 2007 | 2007 | 2006 | 2006 | ||||||||||||
Asset impairments: | ||||||||||||||||
Enterprises: | ||||||||||||||||
TGN (a) | $ | 140 | $ | 91 | $ | — | $ | — | ||||||||
GasAtacama (b) | 35 | 23 | 239 | 169 | ||||||||||||
Jamaica (c) | 22 | 14 | — | — | ||||||||||||
PowerSmith (d) | 5 | 3 | — | — | ||||||||||||
Prairie State (e) | 2 | 1 | — | — | ||||||||||||
Total asset impairments | $ | 204 | $ | 132 | $ | 239 | $ | 169 | ||||||||
(a) | In the first quarter of 2007, we recorded a $215 million impairment charge to recognize the reduction in fair value of our investment in TGN, a natural gas business in Argentina. The |
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impairment included a cumulative net foreign currency translation loss of approximately $197 million. | ||
In December 2005, certain insurance underwriters paid $75 million to CMS Gas Transmission in respect of their insurance obligations resulting from the non-payment of the ICSID arbitration award. We recorded this payment as a deferred credit on our Consolidated Balance Sheets because of a contingent obligation to refund the proceeds if the arbitration decision was annulled. In September 2007, the contingent repayment obligation was eliminated by agreement. Later that month, a separate arbitration panel ruling on the annulment issue upheld the prior ICSID award. As a result, we recognized the $75 million deferred credit in Asset impairment charges, net of insurance recoveries on our Consolidated Statements of Income (Loss). For additional details on this settlement, see Note 3, Contingencies, “Other Contingencies — Argentina.” | ||
We will maintain our interest in TGN, which remains subject to a potential sale to the government of Argentina or some other disposition. | ||
(b) | In August 2006, a major gas supplier notified GasAtacama that it would no longer deliver gas to GasAtacma due to the Argentine government’s decision to increase the cost of its gas exports using a special tax. We performed an impairment analysis to determine the fair value of our investment in GasAtacama and concluded that the fair value was lower than the carrying amount and that this decline was other than temporary. We recorded an impairment charge in the third quarter of 2006. As a result, our consolidated net income was reduced by $169 million after considering tax effects and minority interest. | |
In the second quarter of 2007, we recorded an impairment charge to reflect the fair value of our investment in GasAtacama as determined in sale negotiations. | ||
(c) | In the first quarter of 2007, we recorded an impairment charge to reflect the fair value of our investment in an electric generating plant in Jamaica. | |
(d) | In the first quarter of 2007, we recorded an impairment charge to reflect the fair value of our investment in PowerSmith. | |
(e) | In the second quarter of 2007, we recorded an impairment charge to reflect our withdrawal from the co-development of Prairie State with Peabody Energy because it did not meet our investment criteria. |
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Power Supply Cost Recovery Reconciliation | ||||||||||
Net Under- | PSCR Cost of Power | Description of Net | ||||||||
PSCR Year | Date Filed | Order Date | recovery | Sold | Underrecovery | |||||
2005 Reconciliation | March 2006 | July 2007 | $36 million | $1.081 billion | MPSC approved the recovery of our $36 million underrecovery, including the cost of money, related to our commercial and industrial customers. | |||||
2006 Reconciliation | March 2007 | Pending | $105 million | $1.490 billion | Underrecovery relates to our increased METC costs and coal supply costs, increased bundled sales, and other cost increases beyond those included in the 2006 PSCR plan filings. | |||||
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• | approval to remove the costs associated with Palisades, | ||
• | recovery of the proposed purchase of the Zeeland power plant, | ||
• | partial and immediate rate relief associated with 2007 capital investments, a $400 million equity infusion into Consumers, and general inflation on operation and maintenance expenses to 2007 levels, and | ||
• | approval of a plan for the distribution of additional excess proceeds from the sale of Palisades to customers, effectively offsetting the partial and immediate relief for up to nine months. |
In Millions | ||||||||
Zeeland | ||||||||
and | ||||||||
Partial | ||||||||
and | ||||||||
Components of the increase in revenue | Immediate | Final | ||||||
Increase in base rates (a) | $ | 77 | $ | 146 | ||||
Removal of Palisades from base rates | (169 | ) | (169 | ) | ||||
Elimination of Palisades base rate recovery credit from the PSCR (b) | 167 | 167 | ||||||
Surcharge for return on nuclear investments (c) | — | 13 | ||||||
Total requested increase in revenues at March 2007 filing | 75 | 157 | ||||||
Palisades transaction costs | — | 28 | ||||||
Zeeland power plant non-fuel revenue requirements | 84 | 92 | ||||||
Energy Efficiency Program surcharge | — | 5 | ||||||
Palisades excess proceeds | (127 | ) | — | |||||
Total requested increase in revenues | $ | 32 | $ | 282 | ||||
(a) | The increase in base rates relates to Clean Air Act-related and other utility expenditures, changes in the capital structure, and increased distribution system operation and maintenance costs including employee pension and health care costs. | |
(b) | Palisades power purchase agreement costs in the PSCR are presently offset through a base rate recovery credit. The Palisades base rate recovery credit will be discontinued once Palisades’ costs are removed from base rates. | |
(c) | The nuclear surcharge is a proposal to earn a return on funds spent on Big Rock spent nuclear fuel storage, decommissioning, and site restoration expenditures until pending DOE litigation and future MPSC proceedings regarding this issue are concluded. |
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Gas Cost Recovery Reconciliation | ||||||||||
Net Over- | GCR Cost | |||||||||
GCR Year | Date Filed | Order Date | recovery | of Gas Sold | Description of Net Overrecovery | |||||
2005-2006 | June 2006 | April 2007 | $3 million | $1.8 billion | The net overrecovery includes $1 million interest income through March 2006, which resulted from a net underrecovery position during the majority of the GCR period. | |||||
2006-2007 | June 2007 | Pending | $5 million | $1.7 billion | The total overrecovery amount reflects an overrecovery of $1 million plus $4 million in accrued interest owed to customers. | |||||
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In Millions | ||||||||||||
FIN 45 | ||||||||||||
Issue | Expiration | Maximum | Carrying | |||||||||
Guarantee Description | Date | Date | Obligation | Amount | ||||||||
Indemnifications from asset sales and other agreements (a) | Various | Indefinite | $ | 1,327 | $ | 88 | (b) | |||||
Surety bonds and other indemnifications | Various | Indefinite | 24 | — | ||||||||
Guarantees and put options (c) | Various | Various through September 2027 | 99 | 1 | ||||||||
(a) | The majority of this amount arises from routine provisions in stock and asset sales agreements under which we indemnify the purchaser for losses resulting from claims related to tax disputes, claims related to power purchase agreements and the failure of title to the assets or stock sold by us to the purchaser. | |
(b) | In the second quarter of 2007, we recorded $87 million of liabilities related to tax and other indemnifications for completed asset sales. | |
(c) | Maximum obligation includes $85 million related to the MCV Partnership’s non-performance under a steam and electric power agreement with Dow. We sold our interests in the MCV Partnership and the FMLP. The sales agreement calls for the purchaser, an affiliate of GSO Capital Partners and Rockland Capital Energy Investments, to pay $85 million, subject to certain reimbursement rights, if Dow terminates an agreement under which the MCV Partnership provides it steam and electric power. This agreement expires in March 2016, subject to certain terms and conditions. The purchaser secured its reimbursement obligation with an irrevocable letter of credit of up to $85 million. |
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Events That Would Require | ||||
Guarantee Description | How Guarantee Arose | Performance | ||
Indemnifications 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 | ||
Surety bonds and other indemnifications | Normal operating activity, permits and licenses | Nonperformance | ||
Guarantees and put options | Normal operating activity | Nonperformance or non-payment by a subsidiary under a related contract | ||
Agreement to provide power and steam to Dow | MCV Partnership’s nonperformance or non-payment under a related contract | |||
Bay Harbor remediation efforts | Owners exercising put options requiring us to purchase property | |||
In Millions | ||||||||
September 30, 2007 | December 31, 2006 | |||||||
CMS Energy Corporation | ||||||||
Senior notes | $ | 2,002 | $ | 2,271 | ||||
Other long-term debt | — | 1 | ||||||
Total — CMS Energy Corporation | 2,002 | 2,272 | ||||||
Consumers Energy Company | ||||||||
First mortgage bonds | 3,170 | 3,172 | ||||||
Senior notes and other | 657 | 652 | ||||||
Securitization bonds | 318 | 340 | ||||||
Total — Consumers Energy Company | 4,145 | 4,164 | ||||||
Other Subsidiaries | 224 | 328 | ||||||
Total principal amounts outstanding | 6,371 | 6,764 | ||||||
Current amounts | (971 | ) | (550 | ) | ||||
Net unamortized discount | (10 | ) | (14 | ) | ||||
Total Long-term debt | $ | 5,390 | $ | 6,200 | ||||
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Principal | Issue/Retirement | |||||||||||||||
(in millions) | Interest Rate (%) | Date | Maturity Date | |||||||||||||
Debt Issuances | ||||||||||||||||
CMS Energy | ||||||||||||||||
Senior notes | $ | 250 | 6.55 | % | July 2007 | July 2017 | ||||||||||
Senior notes (a) | 150 | Variable | July 2007 | January 2013 | ||||||||||||
Total | $ | 400 | ||||||||||||||
Debt Retirements: | ||||||||||||||||
CMS Energy | ||||||||||||||||
Senior notes | $ | 260 | 8.90 | % | June 2007 | July 2008 | ||||||||||
Senior notes | 409 | 7.50 | % | July and August 2007 | January 2009 | |||||||||||
Enterprises | ||||||||||||||||
CMS Generation Investment Co. IV Bank Loan | 108 | Variable | May 2007 | December 2008 | ||||||||||||
Total | $ | 777 | ||||||||||||||
(a) | The variable rate senior notes bear interest at three-month LIBOR plus 95 basis points (6.31 percent at September 30, 2007). |
In Millions | ||||||||||||||||||
Outstanding | ||||||||||||||||||
Company | Expiration Date | Amount of Facility | Amount Borrowed | Letters-of-Credit | Amount Available | |||||||||||||
CMS Energy | April 2, 2012 | $ | 300 | $ | — | $ | 3 | $ | 297 | |||||||||
Consumers | March 30, 2012 | 500 | — | 218 | 282 | |||||||||||||
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In Millions | ||||||||
Nine months ended September 30 | 2007 | 2006 | ||||||
Net cash flow as a result of accounts receivable financing | $ | (325 | ) | $ | (9 | ) | ||
Collections from customers | $ | 4,631 | $ | 4,402 | ||||
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In Millions, Except Per Share Amounts | ||||||||
Three Months Ended September 30 | 2007 | 2006 | ||||||
Income (Loss) Available to Common Stockholders | ||||||||
Income (Loss) from Continuing Operations | $ | 84 | $ | (112 | ) | |||
Less Preferred Dividends | (2 | ) | (2 | ) | ||||
Income (Loss) from Continuing Operations Available to Common Stockholders — Basic and Diluted | $ | 82 | $ | (114 | ) | |||
Average Common Shares Outstanding | ||||||||
Weighted Average Shares — Basic | 223.0 | 220.1 | ||||||
Add dilutive impact of Contingently Convertible Securities | 17.0 | — | ||||||
Add dilutive Stock Options and Warrants | 1.3 | — | ||||||
Weighted Average Shares — Diluted | 241.3 | 220.1 | ||||||
Income (Loss) Per Average Common Share Available to Common Stockholders | ||||||||
Basic | $ | 0.37 | $ | (0.52 | ) | |||
Diluted | $ | 0.34 | $ | (0.52 | ) | |||
In Millions, Except Per Share Amounts | ||||||||
Nine Months Ended September 30 | 2007 | 2006 | ||||||
Loss Available to Common Stockholders | ||||||||
Loss from Continuing Operations | $ | (4 | ) | $ | (82 | ) | ||
Less Preferred Dividends and Redemption Premium | (9 | ) | (8 | ) | ||||
Loss from Continuing Operations Available to Common Stockholders — Basic and Diluted | $ | (13 | ) | $ | (90 | ) | ||
Average Common Shares Outstanding | ||||||||
Weighted Average Shares — Basic | 222.4 | 219.6 | ||||||
Add dilutive impact of Contingently Convertible Securities | — | — | ||||||
Add dilutive Stock Options and Warrants | — | — | ||||||
Weighted Average Shares — Diluted | 222.4 | 219.6 | ||||||
Loss Per Average Common Share Available to Common Stockholders | ||||||||
Basic | $ | (0.06 | ) | $ | (0.41 | ) | ||
Diluted | $ | (0.06 | ) | $ | (0.41 | ) | ||
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• | increased the numerator of diluted EPS by $2 million for the three months ended September 30, 2007, and $7 million for the nine months ended September 30, 2007, from an assumed reduction of interest expense, net of tax, and | ||
• | increased the denominator of diluted EPS by 4.2 million shares. |
In Millions | ||||||||||||||||||||||||
September 30, 2007 | December 31, 2006 | |||||||||||||||||||||||
Unrealized Gain | Unrealized Gain | |||||||||||||||||||||||
Cost | Fair Value | (Loss) | Cost | Fair Value | (Loss) | |||||||||||||||||||
Long-term debt | $ | 6,361 | $ | 6,494 | $ | (133 | ) | $ | 6,750 | $ | 6,946 | $ | (196 | ) | ||||||||||
Long-term debt — related parties | 178 | 162 | 16 | 178 | 155 | 23 | ||||||||||||||||||
In Millions | ||||||||||||||||||||||||||||||||
September 30, 2007 | December 31, 2006 | |||||||||||||||||||||||||||||||
Cost | Unrealized Gains | Unrealized Losses | Fair Value | Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||||||||||||||||
Nuclear decommissioning investments: | ||||||||||||||||||||||||||||||||
Equity securities | $ | — | $ | — | $ | — | $ | — | $ | 140 | $ | 150 | $ | (4 | ) | $ | 286 | |||||||||||||||
Debt securities | — | — | — | — | 307 | 4 | (2 | ) | 309 | |||||||||||||||||||||||
SERP: | ||||||||||||||||||||||||||||||||
Equity securities | 37 | 26 | (1 | ) | 62 | 36 | 21 | — | 57 | |||||||||||||||||||||||
Debt securities | 11 | — | — | 11 | 13 | — | — | 13 | ||||||||||||||||||||||||
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• | an executive oversight committee consisting of senior management representatives, and | ||
• | a risk committee consisting of business unit managers. |
• | the relationship between the derivative instrument and the forecasted transaction being hedged must be formally documented at inception, | ||
• | the derivative instrument must be highly effective in offsetting the hedged transaction’s cash flows, and | ||
• | the forecasted transaction being hedged must be probable. |
• | 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. |
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In Millions | ||||||||||||||||||||||||
September 30, 2007 | December 31, 2006 | |||||||||||||||||||||||
Unrealized Gain | ||||||||||||||||||||||||
Derivative Instruments | Cost | Fair Value | Unrealized Loss | Cost | Fair Value | (Loss) | ||||||||||||||||||
CMS ERM derivative contracts: | ||||||||||||||||||||||||
Non-trading electric / gas contracts (a) | $ | — | $ | (1 | ) | $ | (1 | ) | $ | — | $ | 31 | $ | 31 | ||||||||||
Trading electric / gas contracts (b) | (4 | ) | (14 | ) | (10 | ) | (11 | ) | (68 | ) | (57 | ) | ||||||||||||
Derivative contracts associated with equity investments in: | ||||||||||||||||||||||||
Shuweihat (c) | — | — | — | — | (14 | ) | (14 | ) | ||||||||||||||||
Taweelah (c) | — | — | — | (35 | ) | (11 | ) | 24 | ||||||||||||||||
Jorf Lasfar (c) | — | — | — | — | (5 | ) | (5 | ) | ||||||||||||||||
Other | — | — | — | — | 1 | 1 | ||||||||||||||||||
(a) | The fair value of CMS ERM’s non-trading electric and gas contracts has decreased significantly from December 31, 2006 due to the termination of certain gas contracts. CMS ERM had recorded derivative assets, representing cumulative unrealized mark-to-market gains, associated with these contracts. | |
(b) | The fair value of CMS ERM’s trading electric and gas contracts has increased significantly from December 31, 2006 due to the termination of certain gas contracts. CMS ERM had recorded derivative liabilities, representing cumulative unrealized mark-to-market losses, associated with these contracts. | |
(c) | We sold our equity investments in Shuweihat, Taweelah, and Jorf Lasfar in May 2007. As such, we no longer reflect our proportionate share of the fair value of the derivatives contracts held by these investments in our consolidated financial statements. |
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• | interest rate contracts that hedged the risk associated with variable-rate debt, and | ||
• | foreign exchange contracts that hedged the foreign currency risk associated with payments to be made under operating and maintenance service agreements. |
In Millions | ||||||||||||||||||||
Net Exposure from | Net Exposure from | |||||||||||||||||||
Exposure Before | Collateral | Investment Grade | Investment Grade | |||||||||||||||||
Collateral (a) | Held | Net Exposure | Companies | Companies (%) | ||||||||||||||||
CMS ERM | $ | 5 | $ | — | $ | 5 | $ | 4 | 80 | % | ||||||||||
(a) | Exposure is reflected net of payables or derivative liabilities if netting arrangements exist. |
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• | a non-contributory, defined benefit Pension Plan, | ||
• | a cash balance Pension Plan for certain employees hired between July 1, 2003 and August 31, 2005, | ||
• | a DCCP for employees hired on or after September 1, 2005, | ||
• | benefits to certain management employees under SERP, | ||
• | a defined contribution 401(k) Savings Plan, | ||
• | benefits to a select group of management under the EISP, and | ||
• | health care and life insurance benefits under OPEB. |
Pension | OPEB | |||||||
Plan liability transferred to Entergy | $ | 44 | $ | 20 | ||||
Trust assets transferred to Entergy | 22 | 5 | ||||||
Net adjustment | $ | 22 | $ | 15 | ||||
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In Millions | ||||||||||||||||
Pension | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Service cost | $ | 12 | $ | 13 | $ | 37 | $ | 37 | ||||||||
Interest expense | 22 | 20 | 65 | 62 | ||||||||||||
Expected return on plan assets | (19 | ) | (20 | ) | (59 | ) | (63 | ) | ||||||||
Amortization of: | ||||||||||||||||
Net loss | 12 | 10 | 35 | 32 | ||||||||||||
Prior service cost | 1 | 1 | 5 | 5 | ||||||||||||
Net periodic cost | 28 | 24 | 83 | 73 | ||||||||||||
Regulatory adjustment | (6 | ) | (3 | ) | (14 | ) | (8 | ) | ||||||||
Net periodic cost after regulatory adjustment | $ | 22 | $ | 21 | $ | 69 | $ | 65 | ||||||||
In Millions | ||||||||||||||||||||
OPEB | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
Service cost | $ | 7 | $ | 6 | $ | 19 | $ | 18 | ||||||||||||
Interest expense | 17 | 15 | 52 | 47 | ||||||||||||||||
Expected return on plan assets | (16 | ) | (14 | ) | (47 | ) | (43 | ) | ||||||||||||
Amortization of: | ||||||||||||||||||||
Net loss | 6 | 5 | 17 | 15 | ||||||||||||||||
Prior service credit | (3 | ) | (3 | ) | (8 | ) | (8 | ) | ||||||||||||
Net periodic cost | 11 | 9 | 33 | 29 | ||||||||||||||||
Regulatory adjustment | (2 | ) | — | (5 | ) | (1 | ) | |||||||||||||
Net periodic cost after regulatory adjustment | $ | 9 | $ | 9 | $ | 28 | $ | 28 | ||||||||||||
In Millions | ||||||||
January 1, 2007 | December 31, 2006 | |||||||
Property | $ | (592 | ) | $ | (790 | ) | ||
Securitized costs | (177 | ) | (177 | ) | ||||
Employee benefits | 38 | 38 | ||||||
Gas inventories | (168 | ) | (168 | ) | ||||
Tax loss and credit carryforwards | 700 | 867 | ||||||
SFAS No. 109 regulatory liabilities, net | 189 | 189 | ||||||
Foreign investments inflation indexing | 86 | 86 | ||||||
Valuation allowances | (216 | ) | (116 | ) | ||||
Other, net | 103 | 106 | ||||||
Net deferred tax assets (liabilities) | $ | (37 | ) | $ | 35 | |||
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In Millions | ||||||||
Nine Months Ended September 30 | 2007 | 2006 | ||||||
Loss before income taxes | $ | (62 | ) | $ | (230 | ) | ||
Statutory federal income tax rate | x 35 | % | x 35 | % | ||||
Expected income tax benefit | (22 | ) | (81 | ) | ||||
Increase (decrease) in taxes from: | ||||||||
Property differences | 10 | 15 | ||||||
Income tax effect of foreign investments | 47 | (20 | ) | |||||
Income tax credit amortization | (3 | ) | (3 | ) | ||||
Medicare Part D exempt income | (7 | ) | (5 | ) | ||||
Tax exempt income | (1 | ) | (2 | ) | ||||
Valuation allowance | (82 | ) | 12 | |||||
Tax contingency reserves | — | (15 | ) | |||||
IRS settlement/credit restoration | — | (49 | ) | |||||
Recorded income benefit | $ | (58 | ) | $ | (148 | ) | ||
Effective tax rate | 94 | % | 64 | % | ||||
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September 30, 2007 | In Millions | |||||||
In Service | Trust | |||||||
ARO Description | Date | Long-Lived Assets | Fund | |||||
Palisades-decommission plant site | 1972 | Palisades nuclear plant | $ — | |||||
Big Rock-decommission plant site | 1962 | Big Rock nuclear plant | — | |||||
JHCampbell intake/discharge water line | 1980 | Plant intake/discharge water line | — | |||||
Closure of coal ash disposal areas | Various | Generating plants coal ash areas | — | |||||
Closure of wells at gas storage fields | Various | Gas storage fields | — | |||||
Indoor gas services equipment relocations | Various | Gas meters located inside structures | — | |||||
Asbestos abatement | 1973 | Electric and gas utility plant | — | |||||
Natural gas-fired power plant | 1997 | Gas fueled power plant | — | |||||
Close gas treating plant and gas wells | Various | Gas transmission and storage | — | |||||
In Millions | ||||||||||||||||||||||||
ARO | ARO | |||||||||||||||||||||||
Liability | Cash flow | Liability | ||||||||||||||||||||||
ARO Description | 12/31/06 | Incurred | Settled (a) | Accretion | Revisions | 9/30/07 | ||||||||||||||||||
Palisades — decommission | $ | 401 | $ | — | $ | (410 | ) | $ | 7 | $ | 2 | $ | — | |||||||||||
Big Rock — decommission | 2 | — | (3 | ) | 1 | — | — | |||||||||||||||||
JHCampbell intake line | — | — | — | — | — | — | ||||||||||||||||||
Coal ash disposal areas | 57 | — | (3 | ) | 4 | — | 58 | |||||||||||||||||
Wells at gas storage fields | 1 | — | — | — | — | 1 | ||||||||||||||||||
Indoor gas services relocations | 1 | — | — | — | — | 1 | ||||||||||||||||||
Asbestos abatement | 35 | — | (1 | ) | 2 | — | 36 | |||||||||||||||||
Natural gas-fired power plant | 1 | — | (1 | ) | — | — | — | |||||||||||||||||
Close gas treating plant and gas wells | 2 | — | (1 | ) | — | — | 1 | |||||||||||||||||
Total | $ | 500 | (a) | $ | — | $ | (419 | ) | $ | 14 | $ | 2 | $ | 97 | ||||||||||
• | the MPSC Staff to advise the MPSC whether there are any FERC accounts, rules or procedures that should be adopted by reference or changed, and | ||
• | the use of a revised calculation for cost of removal estimates derived from applying SFAS No. 143, which includes the use of standard retirement units. |
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In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 (a) | 2006 | 2007 (a) | 2006 | ||||||||||||
Operating revenue | $ | — | $ | 121 | $ | 164 | $ | 355 | ||||||||
Operating expenses | — | 77 | 113 | 235 | ||||||||||||
Operating income | — | 44 | 51 | 120 | ||||||||||||
Other expense, net | — | 16 | 19 | 42 | ||||||||||||
Net income | $ | — | $ | 28 | $ | 32 | $ | 78 | ||||||||
(a) | Jorf Lasfar was sold May 2, 2007. The summarized income statement data in the table is comprised of Jorf Lasfar’s financial information through April 30, 2007. |
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In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Operating Revenue | ||||||||||||||||
Electric utility | $ | 963 | $ | 976 | $ | 2,663 | $ | 2,496 | ||||||||
Gas utility | 209 | 201 | 1,811 | 1,576 | ||||||||||||
Enterprises | 105 | 108 | 303 | 323 | ||||||||||||
Other | 5 | 3 | 13 | 9 | ||||||||||||
Total Operating Revenue | $ | 1,282 | $ | 1,288 | $ | 4,790 | $ | 4,404 | ||||||||
Net Income (Loss) Available to Common Stockholders | ||||||||||||||||
Electric utility | $ | 67 | $ | 93 | $ | 158 | $ | 159 | ||||||||
Gas utility | (8 | ) | (20 | ) | 53 | 14 | ||||||||||
Enterprises | 58 | (133 | ) | (173 | ) | (215 | ) | |||||||||
Discontinued operations | — | 11 | (87 | ) | 32 | |||||||||||
Other | (35 | ) | (54 | ) | (51 | ) | (48 | ) | ||||||||
Total Net Income (Loss) Available to Common Stockholders | $ | 82 | $ | (103 | ) | $ | (100 | ) | $ | (58 | ) | |||||
In Millions | ||||||||
September 30, 2007 | December 31, 2006 | |||||||
Assets | ||||||||
Electric utility (a) | $ | 8,333 | $ | 8,516 | ||||
Gas utility (a) | 4,343 | 3,950 | ||||||
Enterprises (b) | 925 | 1,947 | ||||||
Other | 703 | 958 | ||||||
Total Assets | $ | 14,304 | $ | 15,371 | ||||
(a) | Amounts include a portion of Consumers’ other common assets attributable to both the electric and gas utility businesses. | |
(b) | There were no assets classified as held for sale at September 30, 2007 and $651 million at December 31, 2006. |
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Management’s Discussion and Analysis
• | the price of CMS Energy Common Stock, capital and financial market conditions, and the effect of such market conditions on the Pension Plan, interest rates, and access to the capital markets, including availability of financing to Consumers, CMS Energy, or any of their affiliates, and the energy industry, | ||
• | market perception of the energy industry, Consumers, CMS Energy, or any of their affiliates, | ||
• | factors affecting utility and diversified energy 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, | ||
• | the impact of possible regulations or laws regarding carbon dioxide and other greenhouse gas emissions, | ||
• | national, regional, and local economic, competitive, and regulatory policies, conditions and developments, | ||
• | adverse regulatory or legal decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with such decisions, | ||
• | potentially adverse regulatory treatment and (or) regulatory delay or failure to receive timely regulatory orders concerning a number of significant questions presently or potentially before the MPSC, including: |
• | recovery of Clean Air Act capital and operating costs and other environmental and safety-related expenditures, | ||
• | recovery of power supply and natural gas supply costs, |
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• | timely recognition in rates of additional equity investments in Consumers, | ||
• | adequate and timely recovery of additional electric and gas rate-based investments, | ||
• | adequate and timely recovery of higher MISO energy and transmission costs, | ||
• | recovery of Stranded Costs incurred due to customers choosing alternative energy suppliers, | ||
• | recovery of Palisades sale-related costs, | ||
• | approval of Zeeland power plant purchase costs, and | ||
• | approval of a new clean coal plant, |
• | the effects on our ability to purchase capacity to serve our customers and fully recover the cost of these purchases, if the owners of the MCV Facility exercise their right to terminate the MCV PPA, | ||
• | our ability to utilize our regulatory out rights as it pertains to the MCV PPA, | ||
• | our ability to recover Big Rock decommissioning funding shortfalls and nuclear fuel storage costs due to the DOE’s failure to accept spent nuclear fuel on schedule, including the outcome of pending litigation with the DOE, | ||
• | federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of our market-based sales authorizations in wholesale power markets without price restrictions, | ||
• | 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, | ||
• | our ability to collect accounts receivable from our customers, | ||
• | earnings volatility as a result of the GAAP requirement that we utilize mark-to-market accounting on certain energy commodity contracts and interest rate swaps, which may have, in any given period, a significant positive or negative effect on earnings, which could change dramatically or be eliminated in subsequent periods, | ||
• | the effect on our utility and utility revenues of the direct and indirect impacts of the continued economic downturn experienced by the Michigan economy, | ||
• | potential disruption or interruption of facilities or operations due to accidents, war, terrorism, or changing political environment, and the ability to obtain or maintain insurance coverage for such events, | ||
• | technological developments in energy production, delivery, and usage, | ||
• | achievement of capital expenditure and operating expense goals, | ||
• | changes in financial or regulatory accounting principles or policies, |
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• | changes in domestic or foreign tax laws or new IRS or foreign governmental interpretations of existing or past tax laws, | ||
• | changes in federal or state regulations or laws that could have an impact on our business, | ||
• | outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations or claims, | ||
• | disruptions in the normal commercial insurance and surety bond markets that may increase costs or reduce traditional insurance coverage, particularly terrorism and sabotage insurance and performance bonds, | ||
• | credit ratings of Consumers, CMS Energy, or any of their affiliates, | ||
• | other business or investment considerations that may be disclosed from time to time in Consumers’ or CMS Energy’s SEC filings, or in other publicly issued written documents, and | ||
• | other uncertainties that are difficult to predict, many of which are beyond our control. |
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• | weather, especially during the normal heating and cooling seasons, | ||
• | economic conditions, | ||
• | regulation and regulatory issues, | ||
• | energy commodity prices, | ||
• | interest rates, and | ||
• | our debt credit rating. |
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• | investing in our utility system to enable us to meet our customer commitments, comply with increasing environmental performance standards, improve system performance, and maintain adequate supply and capacity, | ||
• | growing earnings while controlling operating and fuel costs, | ||
• | managing cash flow issues, and | ||
• | principles of safe, efficient operations, customer value, fair and timely regulation, and consistent financial performance. |
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In Millions | ||||||||||||
Three months ended September 30 | 2007 | 2006 | Change | |||||||||
Electric | $ | 67 | $ | 93 | $ | (26 | ) | |||||
Gas | (8 | ) | (20 | ) | 12 | |||||||
Other (Includes the MCV Partnership and FMLP interests) | 1 | 26 | (25 | ) | ||||||||
Net income available to common stockholder | $ | 60 | $ | 99 | $ | (39 | ) | |||||
In Millions | ||||||
• | decrease in general taxes primarily due to absence, in 2007, of a property tax refund at the MCV Partnership, | $ | (32 | ) | ||
• | decrease due to electric revenue being used to offset costs incurred under our power purchase agreement with Entergy, | (32 | ) | |||
• | other net decreases, | (7 | ) | |||
• | lower nuclear operating and maintenance costs, | 21 | ||||
• | increase in gas delivery revenue primarily due to the MPSC’s November 2006 and August 2007 gas rate orders, and | 8 | ||||
• | increase in gas delivery revenue primarily due to higher estimated system efficiency. | 3 | ||||
Total Change | $ | (39 | ) | |||
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In Millions | ||||||||||||
Nine months ended September 30 | 2007 | 2006 | Change | |||||||||
Electric | $ | 158 | $ | 159 | $ | (1 | ) | |||||
Gas | 53 | 14 | 39 | |||||||||
Other (Includes the MCV Partnership and FMLP interests) | 5 | (29 | ) | 34 | ||||||||
Net income available to common stockholder | $ | 216 | $ | 144 | $ | 72 | ||||||
In Millions | ||||||
• | lower nuclear operating and maintenance costs, | $ | 46 | |||
• | increase in gas delivery revenue primarily due to the MPSC’s November 2006 and August 2007 gas rate orders, | 37 | ||||
• | decrease in losses from our ownership interest in the MCV Partnership primarily due to the absence, in 2007, of mark-to-market losses on certain long-term gas contracts and financial hedges, and a property tax refund, | 34 | ||||
• | increase in electric revenue primarily due to favorable weather and higher surcharge revenue, | 24 | ||||
• | increase in gas delivery revenue primarily due to favorable weather, | 14 | ||||
• | decrease due to electric revenue being used to offset costs incurred under our power purchase agreement with Entergy, | (59 | ) | |||
• | increase in general taxes, | (13 | ) | |||
• | increase in income taxes, primarily due to the absence of IRS income tax benefits, and | (7 | ) | |||
• | other net decreases. | (4 | ) | |||
Total Change | $ | 72 | ||||
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In Millions | ||||||||||||
September 30 | 2007 | 2006 | Change | |||||||||
Three months ended | $ | 67 | $ | 93 | $ | (26 | ) | |||||
Nine months ended | $ | 158 | $ | 159 | $ | (1 | ) | |||||
Three Months Ended | Nine Months Ended | |||||||
September 30, 2007 | September 30, 2007 | |||||||
Reasons for the change: | vs. 2006 | vs. 2006 | ||||||
Electric deliveries | $ | (6 | ) | $ | 26 | |||
Surcharge revenue | 3 | 11 | ||||||
Palisades revenue to PSCR | (50 | ) | (91 | ) | ||||
Power supply costs and related revenue | (6 | ) | (18 | ) | ||||
Other operating expenses, other income, and non-commodity revenue | 33 | 97 | ||||||
General taxes | (7 | ) | (14 | ) | ||||
Interest charges | (7 | ) | (13 | ) | ||||
Income taxes | 14 | 1 | ||||||
Total change | $ | (26 | ) | $ | (1 | ) | ||
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In Millions | ||||||||||||
September 30 | 2007 | 2006 | Change | |||||||||
Three months ended | $ | (8 | ) | $ | (20 | ) | $ | 12 | ||||
Nine months ended | $ | 53 | $ | 14 | $ | 39 | ||||||
Three Months Ended | Nine Months Ended | |||||||
September 30, | September 30, | |||||||
Reasons for the change: | 2007 vs. 2006 | 2007 vs. 2006 | ||||||
Gas deliveries | $ | 5 | $ | 22 | ||||
Gas rate increase | 11 | 56 | ||||||
Gas wholesale and retail services, other gas revenues and other income | 3 | 13 | ||||||
Operation and maintenance | (2 | ) | (22 | ) | ||||
General taxes and depreciation | (4 | ) | (10 | ) | ||||
Interest charges | 3 | 2 | ||||||
Income taxes | (4 | ) | (22 | ) | ||||
Total change | $ | 12 | $ | 39 | ||||
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In Millions | ||||||||||||
September 30 | 2007 | 2006 | Change | |||||||||
Three months ended | $ | 1 | $ | 26 | $ | (25 | ) | |||||
Nine months ended | $ | 5 | $ | (29 | ) | $ | 34 | |||||
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In Millions | ||||||||
September 30, 2007 | December 31, 2006 | |||||||
Variable-rate financing — before tax annual earnings exposure | $ | 2 | $ | 3 | ||||
Fixed-rate financing — potentialreductionin fair value (a) | 123 | 134 | ||||||
(a) | Fair value reduction could only be realized if we repurchased all of our fixed-rate financing. |
In Millions | ||||||||
September 30, 2007 | December 31, 2006 | |||||||
Potentialreductionin fair value of available-for-sale equity securities (SERP investments and investment in CMS Energy common stock) | $ | 6 | $ | 6 | ||||
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• | accounting for long-lived assets, | ||
• | accounting for the effects of industry regulation, | ||
• | accounting for pension and OPEB, | ||
• | accounting for asset retirement obligations, | ||
• | accounting for nuclear decommissioning costs, and | ||
• | accounting for related party transactions. |
• | results of operations, | ||
• | capital expenditures, | ||
• | energy commodity and transportation costs, | ||
• | contractual obligations, | ||
• | regulatory decisions, | ||
• | debt maturities, | ||
• | credit ratings, | ||
• | working capital needs, and | ||
• | collateral requirements. |
• | our current level of cash and revolving credit facilities, | ||
• | our anticipated cash flows from operating and investing activities, and | ||
• | our ability to access secured and unsecured borrowing capacity in the capital markets, if necessary. |
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In Millions | ||||||||
Nine Months Ended September 30 | 2007 | 2006 | ||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 189 | $ | 89 | ||||
Investing activities | 151 | (371 | ) | |||||
Net cash provided by (used in) operating and investing activities | 340 | (282 | ) | |||||
Financing activities | 392 | (6 | ) | |||||
Net Increase (Decrease) in Cash and Cash Equivalents | $ | 732 | $ | (288 | ) | |||
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• | energy conservation measures, | ||
• | fluctuations in weather conditions, and | ||
• | changes in economic conditions, including utilization and expansion or contraction of manufacturing facilities. |
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• | repeal or significant reform of the Customer Choice Act, | ||
• | obtaining environmental permits, | ||
• | successful MPSC regulatory review and approval, and | ||
• | obtaining property tax abatements. |
• | construction commodity prices, especially construction material and labor, | ||
• | project completion schedules, | ||
• | cost escalation factor used to estimate future years’ costs of 2.6 percent, and | ||
• | an AFUDC capitalization rate of 7.8 percent. |
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State and Federal | State and Federal | |||
Phase I | Phase II | |||
Federal Clean Air Mercury Rule | 30% reduction by 2010 with interstate trading of allowances | 70% reduction by 2018 with interstate trading of allowances | ||
Proposed State Mercury Rule | 30% reduction by 2010 without interstate trading of allowances | 90% reduction by 2015 without interstate trading of allowances | ||
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• | fluctuations in weather conditions, | ||
• | use by independent power producers, | ||
• | changes in gas commodity prices, | ||
• | Michigan economic conditions, | ||
• | the price of competing energy sources or fuels, | ||
• | gas consumption per customer, and | ||
• | improvements in gas appliance efficiency. |
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for non-vested equity-classified employee share-based payment awards as an increase to additional paid-in capital. We do not believe that implementation of this standard will have a material effect on our financial statements.
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Consolidated Statements of Income
(Unaudited)
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Operating Revenue | $ | 1,172 | $ | 1,191 | $ | 4,474 | $ | 4,111 | ||||||||
Earnings from Equity Method Investees | — | — | — | 1 | ||||||||||||
Operating Expenses | ||||||||||||||||
Fuel for electric generation | 122 | 213 | 298 | 557 | ||||||||||||
Fuel costs mark-to-market at the MCV Partnership | — | 28 | — | 226 | ||||||||||||
Purchased and interchange power | 383 | 183 | 1,055 | 427 | ||||||||||||
Purchased power — related parties | 20 | 18 | 59 | 55 | ||||||||||||
Cost of gas sold | 113 | 125 | 1,309 | 1,164 | ||||||||||||
Other operating expenses | 201 | 226 | 619 | 661 | ||||||||||||
Maintenance | 41 | 64 | 143 | 214 | ||||||||||||
Depreciation and amortization | 117 | 119 | 390 | 387 | ||||||||||||
General taxes | 51 | (24 | ) | 166 | 97 | |||||||||||
1,048 | 952 | 4,039 | 3,788 | |||||||||||||
Operating Income | 124 | 239 | 435 | 324 | ||||||||||||
Other Income (Deductions) | ||||||||||||||||
Interest and dividends | 24 | 18 | 55 | 44 | ||||||||||||
Regulatory return on capital expenditures | 9 | 8 | 24 | 18 | ||||||||||||
Other income | 5 | 3 | 21 | 17 | ||||||||||||
Other expense | (1 | ) | (1 | ) | (4 | ) | (5 | ) | ||||||||
37 | 28 | 96 | 74 | |||||||||||||
Interest Charges | ||||||||||||||||
Interest on long-term debt | 59 | 70 | 177 | 216 | ||||||||||||
Interest on long-term debt — related parties | — | — | 2 | 1 | ||||||||||||
Other interest | 10 | 4 | 25 | 12 | ||||||||||||
Capitalized interest | (1 | ) | (2 | ) | (5 | ) | (7 | ) | ||||||||
68 | 72 | 199 | 222 | |||||||||||||
Income Before Income Taxes and Minority Interests (Obligations), Net | 93 | 195 | 332 | 176 | ||||||||||||
Minority Interests (Obligations), Net | — | 40 | — | (35 | ) | |||||||||||
Income Before Income Taxes | 93 | 155 | 332 | 211 | ||||||||||||
Income Tax Expense | 33 | 56 | 115 | 66 | ||||||||||||
Net Income | 60 | 99 | 217 | 145 | ||||||||||||
Preferred Stock Dividends | — | — | 1 | 1 | ||||||||||||
Net Income Available to Common Stockholder | $ | 60 | $ | 99 | $ | 216 | $ | 144 | ||||||||
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Consolidated Statements of Cash Flows
(Unaudited)
In Millions | |||||||||
Nine Months Ended | |||||||||
September 30 | 2007 | 2006 | |||||||
Cash Flows from Operating Activities | |||||||||
Net income | $ | 217 | $ | 145 | |||||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||||
Depreciation and amortization (includes nuclear decommissioning of $4 and $3) | 390 | 387 | |||||||
Deferred income taxes and investment tax credit | (6 | ) | (267 | ) | |||||
Fuel costs mark-to-market at the MCV Partnership | — | 226 | |||||||
Minority obligations, net | — | (35 | ) | ||||||
Regulatory return on capital expenditures | (24 | ) | (18 | ) | |||||
Gain on sale of assets | (2 | ) | — | ||||||
Capital lease and other amortization | 32 | 27 | |||||||
Earnings from equity method investees | — | (1 | ) | ||||||
Pension contribution | (103 | ) | (13 | ) | |||||
Changes in assets and liabilities: | |||||||||
Decrease (increase) in accounts receivable, notes receivable and accrued revenue | (142 | ) | 302 | ||||||
Decrease (increase) in accrued power supply and gas revenue | 52 | (90 | ) | ||||||
Increase in inventories | (184 | ) | (256 | ) | |||||
Decrease in deferred property taxes | 111 | 101 | |||||||
Decrease in accounts payable | (67 | ) | (93 | ) | |||||
Decrease in accrued taxes | (75 | ) | (248 | ) | |||||
Increase (decrease) in accrued expenses | (21 | ) | 40 | ||||||
Decrease in the MCV Partnership gas supplier funds on deposit | — | (159 | ) | ||||||
Decrease (increase) in other current and non-current assets | 59 | (8 | ) | ||||||
Increase (decrease) in other current and non-current liabilities | (48 | ) | 49 | ||||||
Net cash provided by operating activities | 189 | 89 | |||||||
Cash Flows from Investing Activities | |||||||||
Capital expenditures (excludes assets placed under capital lease) | (518 | ) | (461 | ) | |||||
Cost to retire property | (18 | ) | (41 | ) | |||||
Restricted cash and restricted short-term investments | 16 | 126 | |||||||
Investments in nuclear decommissioning trust funds | (1 | ) | (20 | ) | |||||
Proceeds from nuclear decommissioning trust funds | 333 | 20 | |||||||
Proceeds from sale of assets | 337 | — | |||||||
Maturity of the MCV Partnership restricted investment securities held-to-maturity | — | 119 | |||||||
Purchase of the MCV Partnership restricted investment securities held-to-maturity | — | (118 | ) | ||||||
Other investing | 2 | 4 | |||||||
Net cash provided by (used in) investing activities | 151 | (371 | ) | ||||||
Cash Flows from Financing Activities | |||||||||
Retirement of long-term debt | (24 | ) | (208 | ) | |||||
Payment of common stock dividends | (176 | ) | (71 | ) | |||||
Payment of capital and finance lease obligations | (14 | ) | (23 | ) | |||||
Stockholder’s contribution, net | 650 | 200 | |||||||
Payment of preferred stock dividends | (1 | ) | (1 | ) | |||||
Increase (decrease) in notes payable | (42 | ) | 100 | ||||||
Debt issuance and financing costs | (1 | ) | (3 | ) | |||||
Net cash provided by (used in) financing activities | 392 | (6 | ) | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 732 | (288 | ) | ||||||
Cash and Cash Equivalents, Beginning of Period | 37 | 416 | |||||||
Cash and Cash Equivalents, End of Period | $ | 769 | $ | 128 | |||||
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Consolidated Balance Sheets
In Millions | ||||||||
September 30 | ||||||||
2007 | December 31 | |||||||
(Unaudited) | 2006 | |||||||
Plant and Property (at cost) | ||||||||
Electric | $ | 7,945 | $ | 8,504 | ||||
Gas | 3,327 | 3,273 | ||||||
Other | 15 | 15 | ||||||
11,287 | 11,792 | |||||||
Less accumulated depreciation, depletion, and amortization | 3,948 | 5,018 | ||||||
7,339 | 6,774 | |||||||
Construction work-in-progress | 381 | 639 | ||||||
7,720 | 7,413 | |||||||
Investments | ||||||||
Stock of affiliates | 31 | 36 | ||||||
Other | — | 5 | ||||||
31 | 41 | |||||||
Current Assets | ||||||||
Cash and cash equivalents at cost, which approximates market | 769 | 37 | ||||||
Restricted cash at cost, which approximates market | 41 | 57 | ||||||
Accounts receivable, and accrued revenue, less allowances of $15 in 2007 and $14 in 2006 | 505 | 389 | ||||||
Notes receivable | 78 | 46 | ||||||
Accrued power supply and gas revenue | 104 | 156 | ||||||
Accounts receivable — related parties | 7 | 5 | ||||||
Inventories at average cost | ||||||||
Gas in underground storage | 1,301 | 1,129 | ||||||
Materials and supplies | 77 | 81 | ||||||
Generating plant fuel stock | 103 | 105 | ||||||
Deferred property taxes | 103 | 150 | ||||||
Regulatory assets — postretirement benefits | 19 | 19 | ||||||
Prepayments and other | 29 | 50 | ||||||
3,136 | 2,224 | |||||||
Non-current Assets | ||||||||
Regulatory assets | ||||||||
Securitized costs | 479 | 514 | ||||||
Postretirement benefits | 1,032 | 1,131 | ||||||
Customer Choice Act | 158 | 190 | ||||||
Other | 508 | 497 | ||||||
Nuclear decommissioning trust funds | — | 602 | ||||||
Other | 91 | 233 | ||||||
2,268 | 3,167 | |||||||
Total Assets | $ | 13,155 | $ | 12,845 | ||||
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In Millions | ||||||||
September 30 | ||||||||
2007 | December 31 | |||||||
(Unaudited) | 2006 | |||||||
Capitalization | ||||||||
Common stockholder’s equity | ||||||||
Common stock, authorized 125.0 shares; outstanding 84.1 shares for all periods | $ | 841 | $ | 841 | ||||
Paid-in capital | 2,482 | 1,832 | ||||||
Accumulated other comprehensive income | 14 | 15 | ||||||
Retained earnings | 305 | 270 | ||||||
3,642 | 2,958 | |||||||
Preferred stock | 44 | 44 | ||||||
Long-term debt | 3,699 | 4,127 | ||||||
Non-current portion of capital leases and finance lease obligations | 226 | 42 | ||||||
7,611 | 7,171 | |||||||
Current Liabilities | ||||||||
Current portion of long-term debt, capital leases, and finance leases | 466 | 44 | ||||||
Notes payable — related parties | — | 42 | ||||||
Accounts payable | 358 | 421 | ||||||
Accrued rate refunds | 29 | 37 | ||||||
Accounts payable — related parties | 14 | 18 | ||||||
Accrued interest | 48 | 62 | ||||||
Accrued taxes | 198 | 295 | ||||||
Deferred income taxes | 183 | 11 | ||||||
Regulatory liabilities | 176 | — | ||||||
Other | 172 | 184 | ||||||
1,644 | 1,114 | |||||||
Non-current Liabilities | ||||||||
Deferred income taxes | 606 | 847 | ||||||
Regulatory liabilities | ||||||||
Regulatory liabilities for cost of removal | 1,250 | 1,166 | ||||||
Income taxes, net | 554 | 539 | ||||||
Other regulatory liabilities | 213 | 249 | ||||||
Postretirement benefits | 882 | 993 | ||||||
Asset retirement obligations | 96 | 497 | ||||||
Deferred investment tax credit | 59 | 62 | ||||||
Other | 240 | 207 | ||||||
3,900 | 4,560 | |||||||
Commitments and Contingencies (Notes 3, 4, and 5) | ||||||||
Total Stockholder’s Investment and Liabilities | $ | 13,155 | $ | 12,845 | ||||
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Consolidated Statements of Common Stockholder’s Equity
(Unaudited)
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Common Stock | ||||||||||||||||
At beginning and end of period (a) | $ | 841 | $ | 841 | $ | 841 | $ | 841 | ||||||||
Other Paid-in Capital | ||||||||||||||||
At beginning of period | 2,482 | 1,832 | 1,832 | 1,632 | ||||||||||||
Stockholder’s contribution | — | — | 650 | 200 | ||||||||||||
At end of period | 2,482 | 1,832 | 2,482 | 1,832 | ||||||||||||
Accumulated Other Comprehensive Income | ||||||||||||||||
Retirement benefits liability | ||||||||||||||||
At beginning and end of period | (8 | ) | (2 | ) | (8 | ) | (2 | ) | ||||||||
Investments | ||||||||||||||||
At beginning of period | 22 | 16 | 23 | 18 | ||||||||||||
Unrealized gain (loss) on investments (b) | — | 3 | (1 | ) | 1 | |||||||||||
At end of period | 22 | 19 | 22 | 19 | ||||||||||||
Derivative instruments | ||||||||||||||||
At beginning of period | — | 39 | — | 56 | ||||||||||||
Unrealized loss on derivative instruments (b) | — | (13 | ) | — | (27 | ) | ||||||||||
Reclassification adjustments included in net income (b) | — | (1 | ) | — | (4 | ) | ||||||||||
At end of period | — | 25 | — | 25 | ||||||||||||
Total Accumulated Other Comprehensive Income | 14 | 42 | 14 | 42 | ||||||||||||
Retained Earnings | ||||||||||||||||
At beginning of period | 286 | 238 | 270 | 233 | ||||||||||||
Adjustment to initially apply FIN 48 | — | — | (5 | ) | — | |||||||||||
Net income | 60 | 99 | 217 | 145 | ||||||||||||
Cash dividends declared — Common Stock | (41 | ) | (31 | ) | (176 | ) | (71 | ) | ||||||||
Cash dividends declared — Preferred Stock | — | — | (1 | ) | (1 | ) | ||||||||||
At end of period | 305 | 306 | 305 | 306 | ||||||||||||
Total Common Stockholder’s Equity | $ | 3,642 | $ | 3,021 | $ | 3,642 | $ | 3,021 | ||||||||
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In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented. | ||||||||||||||||
(b) Disclosure of Comprehensive Income: | ||||||||||||||||
Investments | ||||||||||||||||
Unrealized gain (loss) on investments, net of tax (tax benefit) of $-, $2, $(1), $-, respectively | $ | — | $ | 3 | $ | (1 | ) | $ | 1 | |||||||
Derivative instruments | ||||||||||||||||
Unrealized loss on derivative instruments, net of tax benefit of $-, $(7), $-, $(14), respectively | — | (13 | ) | — | (27 | ) | ||||||||||
Reclassification adjustments included in net income, net of tax benefit of $-, $(1), $-, $(2), respectively | — | (1 | ) | — | (4 | ) | ||||||||||
Net income | 60 | 99 | 217 | 145 | ||||||||||||
Total Comprehensive Income | $ | 60 | $ | 88 | $ | 216 | $ | 115 | ||||||||
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In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Other income | ||||||||||||||||
Electric restructuring return | $ | — | $ | 1 | $ | 1 | $ | 3 | ||||||||
Return on stranded and security costs | 1 | 1 | 4 | 4 | ||||||||||||
Nitrogen oxide allowance sales | — | 1 | — | 7 | ||||||||||||
Gain on stock | — | — | 4 | 1 | ||||||||||||
Gain on investment | 3 | — | 7 | — | ||||||||||||
Gain on asset sales, net | — | — | 2 | — | ||||||||||||
All other | 1 | — | 3 | 2 | ||||||||||||
Total other income | $ | 5 | $ | 3 | $ | 21 | $ | 17 | ||||||||
In Millions | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Other expense | ||||||||||||||||
Civic and political expenditures | $ | (1 | ) | $ | (1 | ) | $ | (2 | ) | $ | (2 | ) | ||||
Donations | — | — | — | (1 | ) | |||||||||||
All other | — | — | (2 | ) | (2 | ) | ||||||||||
Total other expense | $ | (1 | ) | $ | (1 | ) | $ | (4 | ) | $ | (5 | ) | ||||
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In Millions | ||||||||||||
MPSC Order | Estimated | |||||||||||
Customer | Closing | Total | ||||||||||
Customer Benefits | Benefits Estimate | Adjustments | Benefits | |||||||||
Purchase price | $ | 380 | $ | (7 | ) | $ | 373 | |||||
Less: Book value of Palisades | 314 | (18 | ) | 296 | ||||||||
Excess proceeds | 66 | 11 | 77 | |||||||||
Excess decommissioning trust funds | 189 | 123 | 312 | |||||||||
Total customer benefits | $ | 255 | $ | 134 | $ | 389 | ||||||
Total | ||||
Deferred Costs | Costs | |||
NMC exit fee | $ | 7 | ||
Forfeiture of the NMC investment | 5 | |||
Selling expenses | 14 | |||
Total transaction costs | 26 | |||
Big Rock ISFSI operation and maintenance fee to Entergy | 30 | |||
Regulatory asset, as of September 30, 2007 | $ | 56 | ||
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Power Supply Cost Recovery Reconciliation | ||||||||||
Net Under- | PSCR Cost of Power | Description of Net | ||||||||
PSCR Year | Date Filed | Order Date | recovery | Sold | Underrecovery | |||||
2005 Reconciliation | March 2006 | July 2007 | $36 million | $1.081 billion | MPSC approved the recovery of our $36 million underrecovery, including the cost of money, related to our commercial and industrial customers. | |||||
2006 Reconciliation | March 2007 | Pending | $105 million | $1.490 billion | Underrecovery relates to our increased METC costs and coal supply costs, increased bundled sales, and other cost increases beyond those included in the 2006 PSCR plan filings. | |||||
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• | approval to remove the costs associated with Palisades, | ||
• | recovery of the proposed purchase of the Zeeland power plant, | ||
• | partial and immediate rate relief associated with 2007 capital investments, a $400 million equity infusion into Consumers, and general inflation on operation and maintenance expenses to 2007 levels, and | ||
• | approval of a plan for the distribution of additional excess proceeds from the sale of Palisades to customers, effectively offsetting the partial and immediate relief for up to nine months. |
In Millions | ||||||||
Zeeland | ||||||||
and Partial | ||||||||
and | ||||||||
Components of the increase in revenue | Immediate | Final | ||||||
Increase in base rates (a) | $ | 77 | $ | 146 | ||||
Removal of Palisades from base rates | (169 | ) | (169 | ) | ||||
Elimination of Palisades base rate recovery credit from the PSCR (b) | 167 | 167 | ||||||
Surcharge for return on nuclear investments (c) | — | 13 | ||||||
Total requested increase in revenues at March 2007 filing | 75 | 157 | ||||||
Palisades transaction costs | — | 28 | ||||||
Zeeland power plant non-fuel revenue requirements | 84 | 92 | ||||||
Energy Efficiency Program surcharge | — | 5 | ||||||
Palisades excess proceeds | (127 | ) | — | |||||
Total requested increase in revenues | $ | 32 | $ | 282 | ||||
(a) | The increase in base rates relates to Clean Air Act-related and other utility expenditures, changes in the capital structure, and increased distribution system operation and maintenance costs including employee pension and health care costs. | |
(b) | Palisades power purchase agreement costs in the PSCR are presently offset through a base rate recovery credit. The Palisades base rate recovery credit will be discontinued once Palisades’ costs are removed from base rates. | |
(c) | The nuclear surcharge is a proposal to earn a return on funds spent on Big Rock spent nuclear fuel storage, decommissioning, and site restoration expenditures until pending DOE litigation and future MPSC proceedings regarding this issue are concluded. |
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Gas Cost Recovery Reconciliation | ||||||||||
Net Over- | GCR Cost | |||||||||
GCR Year | Date Filed | Order Date | recovery | of Gas Sold | Description of Net Overrecovery | |||||
2005-2006 | June 2006 | April 2007 | $3 million | $1.8 billion | The net overrecovery includes $1 million interest income through March 2006, which resulted from a net underrecovery position during the majority of the GCR period. | |||||
2006-2007 | June 2007 | Pending | $5 million | $1.7 billion | The total overrecovery amount reflects an overrecovery of $1 million plus $4 million in accrued interest owed to customers. | |||||
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In Millions | ||||||||
FIN 45 | ||||||||
Expiration | Maximum | Carrying | ||||||
Guarantee Description | Issue Date | Date | Obligation | Amount | ||||
Surety bonds and other indemnifications | Various | Various | $ 1 | — | ||||
Guarantee | January 1987 | March 2016 | 85 | — | ||||
Events That Would Require | ||||
Guarantee Description | How Guarantee Arose | Performance | ||
Surety bonds and other indemnifications | Normal operating activity, permits and licenses | Nonperformance | ||
Guarantee | Agreement to provide power and steam to Dow | MCV Partnership’s nonperformance or non-payment under a related contract | ||
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In Millions | ||||||||
September 30, 2007 | December 31, 2006 | |||||||
First mortgage bonds | $ | 3,170 | $ | 3,172 | ||||
Senior notes and other | 657 | 652 | ||||||
Securitization bonds | 318 | 340 | ||||||
Principal amounts outstanding | 4,145 | 4,164 | ||||||
Current amounts | (440 | ) | (31 | ) | ||||
Net unamortized discount | (6 | ) | (6 | ) | ||||
Total Long-term debt | $ | 3,699 | $ | 4,127 | ||||
In Millions | ||||||||||||||||
Outstanding | ||||||||||||||||
Amount of | Amount | Letters-of- | Amount | |||||||||||||
Company | Expiration Date | Facility | Borrowed | Credit | Available | |||||||||||
Consumers | March 30, 2012 | $ | 500 | $ — | $ | 218 | $ | 282 | ||||||||
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In Millions | ||||||||
Nine months ended September 30 | 2007 | 2006 | ||||||
Net cash flow as a result of accounts receivable financing | $ | (325 | ) | $ | (9 | ) | ||
Collections from customers | $ | 4,631 | $ | 4,402 | ||||
In Millions | ||||||||||||||||||||||||
September 30, 2007 | December 31, 2006 | |||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||
Cost | Value | Gain | Cost | Value | Gain | |||||||||||||||||||
Long-term debt | $ | 4,139 | $ | 4,073 | $ | 66 | $ | 4,158 | $ | 4,111 | $ | 47 | ||||||||||||
In Millions | ||||||||||||||||||||||||||||||||
September 30, 2007 | December 31, 2006 | |||||||||||||||||||||||||||||||
Unrealized | Unrealized | Fair | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
Common stock of CMS Energy (a) | $ | 8 | $ | 23 | $ | — | $ | 31 | $ | 10 | $ | 26 | $ | — | $ | 36 | ||||||||||||||||
Nuclear decommissioning investments: | ||||||||||||||||||||||||||||||||
Equity securities | — | — | — | — | 140 | 150 | (4 | ) | 286 | |||||||||||||||||||||||
Debt securities | — | — | — | — | 307 | 4 | (2 | ) | 309 | |||||||||||||||||||||||
SERP: | ||||||||||||||||||||||||||||||||
Equity securities | 18 | 11 | — | 29 | 17 | 9 | — | 26 | ||||||||||||||||||||||||
Debt securities | 5 | — | — | 5 | 6 | — | — | 6 | ||||||||||||||||||||||||
(a) | At September 30, 2007, we held 1.8 million shares and at December 31, 2006, we held 2.2 million shares of CMS Energy Common Stock. |
• | an executive oversight committee consisting of senior management representatives, and | ||
• | a risk committee consisting of business unit managers. |
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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. |
• | a non-contributory, defined benefit Pension Plan, | ||
• | a cash balance Pension Plan for certain employees hired between July 1, 2003 and August 31, 2005, | ||
• | a DCCP for employees hired on or after September 1, 2005, | ||
• | benefits to certain management employees under SERP, | ||
• | a defined contribution 401(k) Savings Plan, | ||
• | benefits to a select group of management under the EISP, and | ||
• | health care and life insurance benefits under OPEB. |
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Pension | OPEB | |||||||
Plan liability transferred to Entergy | $ | 44 | $ | 20 | ||||
Trust assets transferred to Entergy | 22 | 5 | ||||||
Net adjustment | $ | 22 | $ | 15 | ||||
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In Millions | ||||||||||||||||
Pension | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Service cost | $ | 12 | $ | 12 | $ | 35 | $ | 35 | ||||||||
Interest expense | 20 | 20 | 61 | 59 | ||||||||||||
Expected return on plan assets | (18 | ) | (20 | ) | (56 | ) | (60 | ) | ||||||||
Amortization of: | ||||||||||||||||
Net loss | 11 | 10 | 33 | 30 | ||||||||||||
Prior service cost | 1 | 1 | 5 | 5 | ||||||||||||
Net periodic cost | 26 | 23 | 78 | 69 | ||||||||||||
Regulatory adjustment | (6 | ) | (3 | ) | (14 | ) | (8 | ) | ||||||||
Net periodic cost after regulatory adjustment | $ | 20 | $ | 20 | $ | 64 | $ | 61 | ||||||||
In Millions | ||||||||||||||||
OPEB | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Service cost | $ | 7 | $ | 6 | $ | 20 | $ | 18 | ||||||||
Interest expense | 17 | 15 | 52 | 47 | ||||||||||||
Expected return on plan assets | (16 | ) | (14 | ) | (47 | ) | (43 | ) | ||||||||
Amortization of: | ||||||||||||||||
Net loss | 6 | 5 | 17 | 15 | ||||||||||||
Prior service credit | (3 | ) | (3 | ) | (8 | ) | (8 | ) | ||||||||
Net periodic cost | 11 | 9 | 34 | 29 | ||||||||||||
Regulatory adjustment | (2 | ) | — | (5 | ) | (1 | ) | |||||||||
Net periodic cost after regulatory adjustment | $ | 9 | $ | 9 | $ | 29 | $ | 28 | ||||||||
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September 30, 2007 | In Millions | |||||||||
In Service | Trust | |||||||||
ARO Description | Date | Long-Lived Assets | Fund | |||||||
Palisades — decommission plant site | 1972 | Palisades nuclear plant | $ | — | ||||||
Big Rock — decommission plant site | 1962 | Big Rock nuclear plant | — | |||||||
JHCampbell intake/discharge water line | 1980 | Plant intake/discharge water line | — | |||||||
Closure of coal ash disposal areas | Various | Generating plants coal ash areas | — | |||||||
Closure of wells at gas storage fields | Various | Gas storage fields | — | |||||||
Indoor gas services equipment relocations | Various | Gas meters located inside structures | — | |||||||
Asbestos abatement | 1973 | Electric and gas utility plant | — | |||||||
In Millions | ||||||||||||||||||||||||
ARO | ARO | |||||||||||||||||||||||
Liability | Cash flow | Liability | ||||||||||||||||||||||
ARO Description | 12/31/06 | Incurred | Settled (a) | Accretion | Revisions | 9/30/07 | ||||||||||||||||||
Palisades — decommission | $ | 401 | $ | — | $ | (410 | ) | $ | 7 | $ | 2 | $ | — | |||||||||||
Big Rock — decommission | 2 | — | (3 | ) | 1 | — | — | |||||||||||||||||
JHCampbell intake line | — | — | — | — | — | — | ||||||||||||||||||
Coal ash disposal areas | 57 | — | (3 | ) | 4 | — | 58 | |||||||||||||||||
Wells at gas storage fields | 1 | — | — | — | — | 1 | ||||||||||||||||||
Indoor gas services relocations | 1 | — | — | — | — | 1 | ||||||||||||||||||
Asbestos abatement | 35 | — | (1 | ) | 2 | — | 36 | |||||||||||||||||
Total | $ | 497 | $ | — | $ | (417 | ) | $ | 14 | $ | 2 | $ | 96 | |||||||||||
(a) | Cash payments of $4 million are included in the Other current and non-current liabilities line in Net cash provided by operating activities in our Consolidated Statements of Cash Flows. In April 2007, we sold Palisades to Entergy and paid Entergy to assume ownership and responsibility for the Big Rock ISFSI. Our AROs related to Palisades and the Big Rock ISFSI ended with the sale and the related ARO liabilities were removed from our Consolidated Balance Sheets. We also removed the Big Rock ARO related to the plant in the second quarter of 2007 due to the completion of decommissioning. |
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• | the MPSC Staff to advise the MPSC whether there are any FERC accounts, rules or procedures that should be adopted by reference or changed, and | ||
• | the use of a revised calculation for cost of removal estimates derived from applying SFAS No. 143, which includes the use of standard retirement units. |
In Millions | ||||||||
January 1, | December 31, | |||||||
2007 | 2006 | |||||||
Property | $ | (725 | ) | $ | (814 | ) | ||
Securitized costs | (177 | ) | (177 | ) | ||||
Gas inventories | (168 | ) | (168 | ) | ||||
Employee benefits | 36 | 36 | ||||||
SFAS No. 109 regulatory liability, net | 189 | 189 | ||||||
Nuclear decommissioning | 57 | 57 | ||||||
Tax loss and credit carryforwards | 178 | 209 | ||||||
Valuation allowances | (22 | ) | (15 | ) | ||||
Other, net | (176 | ) | (175 | ) | ||||
Net deferred tax liabilities | $ | (808 | ) | $ | (858 | ) | ||
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In Millions | ||||||||
Nine Months Ended September 30 | 2007 | 2006 | ||||||
Income before income taxes | $ | 332 | $ | 211 | ||||
Statutory federal income tax rate | x 35 | % | x 35 | % | ||||
Expected income tax expense | 116 | 74 | ||||||
Increase (decrease) in taxes from: | ||||||||
Property differences | 10 | 15 | ||||||
IRS Settlement/Credit Restoration | — | (18 | ) | |||||
Fair market value charitable donation | (2 | ) | — | |||||
Tax exempt income | (1 | ) | (2 | ) | ||||
Medicare Part D exempt income | (7 | ) | (4 | ) | ||||
Income tax credit amortization | (3 | ) | (3 | ) | ||||
Valuation Allowance | — | 5 | ||||||
Other, net | 2 | (1 | ) | |||||
Recorded income tax expense | $ | 115 | $ | 66 | ||||
Effective tax rate | 35 | % | 31 | % | ||||
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In Millions | |||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||
September 30 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||
Operating revenue | |||||||||||||||||||
Electric | $ | 963 | $ | 976 | $ | 2,663 | $ | 2,496 | |||||||||||
Gas | 209 | 201 | 1,811 | 1,576 | |||||||||||||||
Other | — | 14 | — | 39 | |||||||||||||||
Total Operating Revenue | $ | 1,172 | $ | 1,191 | $ | 4,474 | $ | 4,111 | |||||||||||
Net income available to common stockholder | |||||||||||||||||||
Electric | $ | 67 | $ | 93 | $ | 158 | $ | 159 | |||||||||||
Gas | (8 | ) | (20 | ) | 53 | 14 | |||||||||||||
Other | 1 | 26 | 5 | (29 | ) | ||||||||||||||
Total Net Income Available to Common Stockholder | $ | 60 | $ | 99 | $ | 216 | $ | 144 | |||||||||||
In Millions | ||||||||
September 30, 2007 | December 31, 2006 | |||||||
Assets | ||||||||
Electric (a) | $ | 8,333 | $ | 8,516 | ||||
Gas (a) | 4,343 | 3,950 | ||||||
Other | 479 | 379 | ||||||
Total Assets | $ | 13,155 | $ | 12,845 | ||||
(a) | Amounts include a portion of our other common assets attributable to both the electric and gas utility businesses. |
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(3)(b) | CMS Energy Corporation Bylaws, amended and restated as of August 10, 2007 | |
(3)(d) | Consumers Energy Company Bylaws, amended and restated as of August 10, 2007 | |
(10)(a) | Form of Indemnification Agreement between CMS Energy Corporation and its Directors, effective as of November 1, 2007 | |
(10)(b) | Form of Indemnification Agreement between Consumers Energy Company and its Directors, effective as of November 1, 2007 | |
(31)(a) | CMS Energy Corporation’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
(31)(b) | CMS Energy Corporation’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
(31)(c) | Consumers Energy Company’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
(31)(d) | Consumers Energy Company’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
(32)(a) | CMS Energy Corporation’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
(32)(b) | Consumers Energy Company’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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CMS ENERGY CORPORATION (Registrant) | ||||
Dated: November 1, 2007 | By: | /s/ Thomas J. Webb | ||
Thomas J. Webb | ||||
Executive Vice President and Chief Financial Officer | ||||
CONSUMERS ENERGY COMPANY (Registrant) | ||||
Dated: November 1, 2007 | By: | /s/ Thomas J. Webb | ||
Thomas J. Webb | ||||
Executive Vice President and Chief Financial Officer | ||||
CO-11