CONSUMERS ENERGY CO
10-Ks and 10-Qs
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Table of Contents
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
|
x
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the fiscal year ended December 31, 2010 | ||
|
OR
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the transition period from ___ to ___ | ||
|
Commission
|
Registrant; State
of Incorporation;
|
IRS Employer
|
||
|
File
Number
|
Address; and
Telephone Number
|
Identification
No.
|
||
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1-9513
|
CMS ENERGY CORPORATION
(A Michigan Corporation) One Energy Plaza, Jackson, Michigan 49201 (517) 788-0550 |
38-2726431 | ||
|
1-5611
|
CONSUMERS ENERGY COMPANY
(A Michigan Corporation) One Energy Plaza, Jackson, Michigan 49201 (517) 788-0550 |
38-0442310 |
Securities
registered pursuant to Section 12(b) of the Act:
|
Name of Each
Exchange
|
||||
|
Registrant
|
Title of
Class
|
on Which
Registered
|
||
|
CMS Energy Corporation
|
Common Stock, $.01 par value | New York Stock Exchange | ||
|
Consumers Energy Company
|
Preferred Stocks, $100 par value: $4.16 Series, $4.50 Series | New York Stock Exchange |
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the Registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
CMS
Energy
Corporation:
Yes
x
No
o
Consumers
Energy
Company:
Yes
x
No
o
Indicate
by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
CMS
Energy
Corporation:
Yes
o
No
x
Consumers
Energy
Company:
Yes
o
No
x
Indicate
by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrants
were required to file such reports), and (2) have been
subject to such filing requirements for the past 90 days.
CMS
Energy
Corporation:
Yes
x
No
o
Consumers
Energy
Company:
Yes
x
No
o
Indicate
by check mark whether the Registrants have submitted
electronically and posted on their corporate Web sites, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the Registrants
were required to submit and post such files).
CMS
Energy
Corporation:
Yes
x
No
o
Consumers
Energy
Company:
Yes
x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to
Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
[ ]
Indicate
by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in
Rule 12b-2
of the Exchange Act.
CMS
Energy
Corporation:
Large
accelerated
filer
x
Accelerated
filer
o
Non-Accelerated
filer
o
Smaller reporting company
o
Consumers
Energy
Company:
Large
accelerated
filer
o
Accelerated
filer
o
Non-Accelerated
filer
x
Smaller reporting company
o
Indicate
by check mark whether the Registrant is a shell company (as
defined in
Rule 12b-2
of the Exchange Act).
CMS
Energy
Corporation:
Yes
o
No
x
Consumers
Energy
Company:
Yes
o
No
x
The
aggregate market value of CMS Energy voting and non-voting
common equity held by non-affiliates was $3.326 billion for
the 227,027,288 CMS Energy Common Stock shares outstanding on
June 30, 2010 based on the closing sale price of $14.65 for
CMS Energy Common Stock, as reported by the New York Stock
Exchange on such date.
There
were 252,140,618 shares of CMS Energy Common Stock
outstanding on February 10, 2011. On February 24,
2011, CMS Energy held all voting and non-voting common equity of
Consumers. Documents incorporated by reference in Part III:
CMS Energy’s proxy statement and Consumers’
information statement relating to the 2011 annual meeting of
stockholders to be held May 20, 2011.
CMS Energy
Corporation
Consumers Energy
Company
Annual Reports on
Form 10-K
to the Securities and Exchange Commission for the Year Ended
December 31,
2010
TABLE OF CONTENTS
2
Table of Contents
GLOSSARY
Certain terms used in the text and financial statements are
defined below.
|
2008 Energy Legislation
|
Comprehensive energy reform package enacted in October 2008 with the approval of Michigan Senate Bill 213 and Michigan House Bill 5524 | |
|
ABATE
|
Association of Businesses Advocating Tariff Equity | |
|
ABO
|
Accumulated Benefit Obligation. The liabilities of a pension plan based on service and pay to date. This differs from the PBO that is typically disclosed in that it does not reflect expected future salary increases. | |
|
AFUDC
|
Allowance for borrowed and equity funds used during construction | |
|
AOCI
|
Accumulated Other Comprehensive Income (Loss) | |
|
ARO
|
Asset retirement obligation | |
|
ASU
|
FASB Accounting Standards Update | |
|
Bay Harbor
|
A residential/commercial real estate area located near Petoskey, Michigan. In 2002, CMS Energy sold its interest in Bay Harbor. | |
|
bcf
|
Billion cubic feet of gas | |
|
Big Rock
|
Big Rock Point nuclear power plant, formerly owned by Consumers | |
|
Btu
|
British thermal unit; one Btu equals the amount of energy required to raise the temperature of one pound of water by one degree Fahrenheit | |
|
CAIR
|
The Clean Air Interstate Rule | |
|
Cantera Gas Company
|
Cantera Gas Company LLC, a non-affiliated company | |
|
Cantera Natural Gas, Inc.
|
Cantera Natural Gas, Inc., a non-affiliated company that purchased CMS Field Services | |
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CAO
|
Chief Accounting Officer | |
|
CATR
|
The Clean Air Transport Rule | |
|
CCB
|
Coal combustion by-product | |
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CEO
|
Chief Executive Officer | |
|
CFO
|
Chief Financial Officer | |
|
C&HR Committees
|
The Compensation and Human Resources Committees of the Boards of Directors of CMS Energy and Consumers | |
|
City-gate contract
|
An arrangement made for the point at which a local distribution company physically receives gas from a supplier or pipeline | |
|
CKD
|
Cement kiln dust | |
|
Clean Air Act
|
Federal Clean Air Act, as amended | |
|
Clean Water Act
|
Federal Water Pollution Control Act | |
|
CMS Capital
|
CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy |
3
Table of Contents
|
CMS Electric & Gas
|
CMS Electric & Gas, L.L.C., a wholly owned subsidiary of CMS International Ventures | |
|
CMS Energy
|
CMS Energy Corporation, the parent of Consumers and CMS Enterprises | |
|
CMS Energy Brasil S.A.
|
CMS Energy Brasil S.A., a former wholly owned subsidiary of CMS Electric & Gas | |
|
CMS Enterprises
|
CMS Enterprises Company, a wholly owned subsidiary of CMS Energy | |
|
CMS ERM
|
CMS Energy Resource Management Company, formerly CMS MST, a wholly owned subsidiary of CMS Enterprises | |
|
CMS Field Services
|
CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission | |
|
CMS Gas Transmission
|
CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises | |
|
CMS Generation
|
CMS Generation Co., a former wholly owned subsidiary of CMS Enterprises | |
|
CMS Generation San Nicolas Company
|
CMS Generation San Nicolas Company, a company in which CMS Enterprises formerly owned a 0.1 percent interest | |
|
CMS International Ventures
|
CMS International Ventures LLC, a subsidiary of CMS Enterprises in which CMS Enterprises owns a 61.49 percent interest and CMS Gas Transmission owns a 37.01 percent interest | |
|
CMS Land
|
CMS Land Company, a wholly owned subsidiary of CMS Capital | |
|
CMS MST
|
CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM effective January 2004 | |
|
CMS Oil and Gas
|
CMS Oil and Gas Company, a former wholly owned subsidiary of CMS Enterprises | |
|
CMS Viron
|
CMS Viron Corporation, a wholly owned subsidiary of CMS ERM | |
|
Consumers
|
Consumers Energy Company, a wholly owned subsidiary of CMS Energy | |
|
Consumers Funding
|
Consumers Funding LLC, a wholly owned consolidated bankruptcy-remote subsidiary of Consumers and special-purpose entity organized for the sole purpose of purchasing and owning Securitization property, assuming Securitization bonds, and pledging its interest in Securitization property to a trustee to collateralize the Securitization bonds | |
|
Customer Choice Act
|
Customer Choice and Electricity Reliability Act, a Michigan statute | |
|
D.C.
|
District of Columbia | |
|
DCCP
|
Defined Company Contribution Plan | |
|
DC SERP
|
Defined Contribution SERP | |
|
Detroit Edison
|
The Detroit Edison Company, a non-affiliated company |
4
Table of Contents
|
DIG
|
Dearborn Industrial Generation, L.L.C., a wholly owned subsidiary of Dearborn Industrial Energy, L.L.C., a wholly owned subsidiary of CMS Energy | |
|
Dodd-Frank Act
|
Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010 | |
|
DOE
|
U.S. Department of Energy | |
|
DOJ
|
U.S. Department of Justice | |
|
EBITDA
|
Earnings Before Interest, Taxes, Depreciation, and Amortization | |
|
EISP
|
Executive Incentive Separation Plan | |
|
EnerBank
|
EnerBank USA, a wholly owned subsidiary of CMS Capital | |
|
Entergy
|
Entergy Corporation, a non-affiliated company | |
|
EPA
|
U.S. Environmental Protection Agency | |
|
EPS
|
Earnings per share | |
|
Exchange Act
|
Securities Exchange Act of 1934, as amended | |
|
Exeter
|
Exeter Energy Limited Partnership, a limited partnership owned directly and indirectly by HYDRA-CO | |
|
FASB
|
Financial Accounting Standards Board | |
|
FDIC
|
Federal Deposit Insurance Corporation | |
|
FERC
|
The Federal Energy Regulatory Commission | |
|
First Mortgage Bond Indenture
|
The indenture dated as of September 1, 1945 between Consumers and The Bank of New York Mellon, as Trustee, as amended and supplemented | |
|
FLI Liquidating Trust
|
Trust formed in Missouri bankruptcy court to accomplish the liquidation of Farmland Industries, Inc., a non-affiliated entity | |
|
FMB
|
First mortgage bond | |
|
FOV
|
Finding of Violation | |
|
GAAP
|
U.S. Generally Accepted Accounting Principles | |
|
GasAtacama
|
GasAtacama Holding Limited, a limited liability partnership that manages GasAtacama S.A., which includes Atacama Finance Company, an integrated natural gas pipeline and electric generating plant in Argentina and Chile, in which CMS International Ventures formerly owned a 50 percent interest | |
|
GCC
|
Gas Customer Choice, which allows gas customers to purchase gas from alternative suppliers | |
|
GCR
|
Gas cost recovery | |
|
Genesee
|
Genesee Power Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest | |
|
Grayling
|
Grayling Generating Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest | |
|
GWh
|
Gigawatt-hour (a unit of energy equal to one million kWh) |
5
Table of Contents
|
Health Care Acts
|
Comprehensive health care reform enacted in March 2010, comprising the Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act | |
|
HYDRA-CO
|
HYDRA-CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises | |
|
IPP
|
Independent power producer or independent power production | |
|
IRS
|
Internal Revenue Service | |
|
ISFSI
|
Independent spent fuel storage installation | |
|
kilovolts
|
Thousand volts (unit used to measure the difference in electrical pressure along a current) | |
|
kVA
|
Thousand volt-amperes (unit used to reflect the electrical power capacity rating of equipment or a system) | |
|
kWh
|
Kilowatt-hour (a unit of energy equal to one thousand watt-hours) | |
|
LIBOR
|
The London Interbank Offered Rate | |
|
Lucid Energy
|
Lucid Energy LLC, a non-affiliated company | |
|
Ludington
|
Ludington pumped storage plant, jointly owned by Consumers and Detroit Edison | |
|
Marathon
|
Marathon Oil Company, Marathon E.G. Holding, Marathon E.G. Alba, Marathon E.G. LPG, Marathon Production LTD, and Alba Associates, LLC, each a non-affiliated company | |
|
MCV Facility
|
A 1,500 MW natural gas-fueled, combined-cycle cogeneration facility operated by the MCV Partnership | |
|
MCV Partnership
|
Midland Cogeneration Venture Limited Partnership | |
|
MCV PPA
|
The PPA between Consumers and the MCV Partnership, with a 35-year term commencing in March 1990, as amended and restated in an agreement dated as of June 9, 2008 between Consumers and the MCV Partnership | |
|
MD&A
|
Management’s Discussion and Analysis | |
|
MDL
|
A pending multi-district litigation case in Nevada | |
|
MDNRE
|
Michigan Department of Natural Resources and Environment, which, effective January 17, 2010, is the successor to the Michigan Department of Environmental Quality and the Michigan Department of Natural Resources | |
|
MEI
|
Michigan Energy Investments LLC, an affiliate of Lucid Energy and a non-affiliated company | |
|
METC
|
Michigan Electric Transmission Company, LLC, a non-affiliated company | |
|
MGP
|
Manufactured gas plant | |
|
Midwest Energy Market
|
An energy market developed by the MISO to provide day-ahead and real-time market information and centralized dispatch for market participants | |
|
MISO
|
The Midwest Independent Transmission System Operator, Inc. |
6
Table of Contents
|
MPSC
|
Michigan Public Service Commission | |
|
MRV
|
Market-Related Value of Plan assets | |
|
MW
|
Megawatt (a unit of power equal to one million watts) | |
|
MWh
|
Megawatt-hour (a unit of energy equal to one million watt-hours) | |
|
NAV
|
Net asset value | |
|
NERC
|
The North American Electric Reliability Corporation, a non-affiliated company | |
|
NOMECO
|
CMS NOMECO Oil & Gas Co., a former wholly owned subsidiary of CMS Enterprises | |
|
NOV
|
Notice of Violation | |
|
NPDES
|
National Pollutant Discharge Elimination System | |
|
NREPA
|
Part 201 of Michigan Natural Resources and Environmental Protection Act, a statute that covers environmental activities including remediation | |
|
NSR
|
New Source Review, a construction-permitting program under the Clean Air Act | |
|
NYMEX
|
The New York Mercantile Exchange | |
|
OPEB
|
Postretirement benefit plans other than pensions | |
|
Palisades
|
Palisades nuclear power plant, sold by Consumers to Entergy in 2007 | |
|
Panhandle
|
Panhandle Eastern Pipe Line Company, including its wholly owned subsidiaries Trunkline, Pan Gas Storage Company, Panhandle Storage Company, and Panhandle Holding Company, a former wholly owned subsidiary of CMS Gas Transmission | |
|
PBO
|
Projected benefit obligation | |
|
PCB
|
Polychlorinated biphenyl | |
|
Pension Plan
|
Trusteed, non-contributory, defined benefit pension plan of CMS Energy, Consumers, and Panhandle | |
|
PISP
|
Performance Incentive Stock Plan | |
|
PPA
|
Power purchase agreement | |
|
PSCR
|
Power supply cost recovery | |
|
PSD
|
Prevention of Significant Deterioration | |
|
PURPA
|
Public Utility Regulatory Policies Act of 1978 | |
|
RCP
|
Resource Conservation Plan | |
|
REC
|
Renewable energy credit established under the 2008 Energy Legislation | |
|
ReEnergy
|
ReEnergy Sterling LLC, a non-affiliated company | |
|
RMRR
|
Routine maintenance, repair, and replacement |
7
Table of Contents
|
ROA
|
Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to the Customer Choice Act | |
|
S&P
|
Standard and Poor’s Financial Services LLC, which includes Standard and Poor’s Ratings Services | |
|
SEC
|
U.S. Securities and Exchange Commission | |
|
Securitization
|
A financing method authorized by statute and approved by the MPSC which allows a utility to sell its right to receive a portion of the rate payments received from its customers for the repayment of securitization bonds issued by a special-purpose entity affiliated with such utility | |
|
SENECA
|
Sistema Electrico del Estado Nueva Esparta C.A., a former wholly owned subsidiary of CMS International Ventures | |
|
SERP
|
Supplemental Executive Retirement Plan | |
|
SFAS
|
Statement of Financial Accounting Standards | |
|
Sherman Act
|
Sherman Antitrust Act, enacted in 1890 | |
|
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 | |
|
Supplemental Environmental Projects
|
Environmentally beneficial projects that a party agrees to undertake as part of the settlement of an enforcement action, but which the party is not otherwise legally required to perform | |
|
TAQA
|
Abu Dhabi National Energy Company, a subsidiary of Abu Dhabi Water and Electricity Authority, a non-affiliated company | |
|
Terminal Rental Adjustment Clause
|
A provision of a leasing agreement which permits or requires the rental price to be adjusted upward or downward by reference to the amount realized by the lessor under the agreement upon sale or other disposition of formerly leased property | |
|
T.E.S. Filer City
|
T.E.S. Filer City Station Limited Partnership, a VIE in which HYDRA-CO has a 50 percent interest | |
|
TGN
|
A natural gas transportation and pipeline business located in Argentina, in which CMS Gas Transmission formerly owned a 23.54 percent interest | |
|
Title V
|
A federal program under the Clean Air Act designed to standardize air quality permits and the permitting process for major sources of emissions across the U.S. | |
|
Trunkline
|
Trunkline Gas Company, LLC, a former wholly owned subsidiary of CMS Panhandle Holding, LLC |
8
Table of Contents
|
Trust Preferred Securities
|
Securities representing an undivided beneficial interest in the assets of statutory business trusts, the interests of which have a preference with respect to certain trust distributions over the interests of either CMS Energy or Consumers, as applicable, as owner of the common beneficial interests of the trusts | |
|
TSR
|
Total shareholder return | |
|
TSU
|
Texas Southern University, a non-affiliated entity | |
|
Union
|
Utility Workers Union of America, AFL-CIO | |
|
U.S.
|
United States | |
|
VEBA
|
Voluntary employees’ beneficiary association trusts accounts established specifically to set aside employer-contributed assets to pay for future expenses of the OPEB plan | |
|
VIE
|
Variable interest entity | |
|
Wolverine
|
Wolverine Power Supply Cooperative, Inc., a non-affiliated company | |
|
XBRL
|
eXtensible Business Reporting Language | |
|
Zeeland
|
A 935 MW gas-fueled power plant located in Zeeland, Michigan |
9
Table of Contents
FILING
FORMAT
This combined
Form 10-K
is separately filed by CMS Energy and Consumers. Information in
this combined
Form 10-K
relating to each individual registrant is filed by such
registrant on its own behalf. Consumers makes no representation
regarding information relating to any other companies affiliated
with CMS Energy other than its own subsidiaries. None of CMS
Energy, CMS Enterprises, nor any of CMS Energy’s other
subsidiaries (other than Consumers) has any obligation in
respect of Consumers’ debt securities and holders of such
debt securities should not consider the financial resources or
results of operations of CMS Energy, CMS Enterprises, nor any of
CMS Energy’s other subsidiaries (other than Consumers and
its own subsidiaries (in relevant circumstances)) in making a
decision with respect to Consumers’ debt securities.
Similarly, none of Consumers nor any other subsidiary of CMS
Energy has any obligation in respect of debt securities of CMS
Energy.
FORWARD-LOOKING
STATEMENTS AND INFORMATION
This
Form 10-K
and other written and oral statements that CMS Energy and
Consumers make may contain forward-looking statements as defined
by the Private Securities Litigation Reform Act of 1995. The use
of “might,” “may,” “could,”
“should,” “anticipates,”
“believes,” “estimates,”
“expects,” “intends,” “plans,”
“projects,” “forecasts,”
“predicts,” “assumes,” and other similar
words is intended to identify forward-looking statements that
involve risk and uncertainty. This discussion of potential risks
and uncertainties is designed to highlight important factors
that may impact CMS Energy’s and Consumers’ businesses
and financial outlook. CMS Energy and Consumers have no
obligation to update or revise forward-looking statements
regardless of whether new information, future events, or any
other factors affect the information contained in the
statements. These forward-looking statements are subject to
various factors that could cause CMS Energy’s and
Consumers’ actual results to differ materially from the
results anticipated in these statements. These factors include
CMS Energy’s and Consumers’ inability to predict or
control the following, all of which are potentially significant:
| • | the price of CMS Energy common stock, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ postretirement benefit plans, interest costs, and access to the capital markets, including availability of financing (including Consumers’ accounts receivable sales program and CMS Energy’s and Consumers’ revolving credit facilities) to CMS Energy, Consumers, or any of their affiliates, and the energy industry; | |
| • | the impact of the economy, particularly in Michigan, and potential future volatility in the financial and credit markets on CMS Energy’s, Consumers’, or any of their affiliates’: |
| • | revenues; | |
| • | capital expenditure programs and related earnings growth; | |
| • | ability to collect accounts receivable from customers; | |
| • | cost of capital and availability of capital; and | |
| • | Pension Plan and postretirement benefit plans assets and required contributions; |
| • | changes in the economic and financial viability of CMS Energy’s and Consumers’ suppliers, customers, and other counterparties and the continued ability of these third parties, including third parties in bankruptcy, to meet their obligations to CMS Energy and Consumers; | |
| • | population decline in the geographic areas where CMS Energy and Consumers conduct business; | |
| • | national, regional, and local economic, competitive, and regulatory policies, conditions, and developments; | |
| • | changes in applicable laws, rules, regulations, principles or practices, or in their interpretation, including those related to taxes, the environment, and accounting matters, that could have an impact on CMS Energy’s |
10
Table of Contents
| and Consumers’ businesses or financial results, including the impact of any future regulations or lawsuits regarding: |
| • | carbon dioxide and other greenhouse gas emissions, including potential future legislation to establish a cap and trade system; | |
| • | criteria pollutants, such as nitrogen oxide, sulfur dioxide, and particulate, and hazardous air pollutants, including impacts of the CAIR and CATR; | |
| • | CCBs; | |
| • | PCBs; | |
| • | cooling water intake or discharge from power plants or other industrial equipment; | |
| • | limitations on the use or construction of coal-fueled electric power plants; | |
| • | nuclear-related regulation; | |
| • | renewable portfolio standards and energy efficiency mandates; | |
| • | energy-related derivatives and hedges under the Dodd-Frank Act; and | |
| • | any other potential legislative changes, including changes to the ten-percent ROA limit; |
| • | potentially adverse regulatory or legal interpretations or decisions, including those related to environmental laws and regulations, and potential environmental remediation costs associated with these interpretations or decisions, including those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations; | |
| • | potentially adverse or delayed regulatory treatment or permitting decisions concerning significant matters affecting CMS Energy or Consumers that are presently or soon to be before the MDNRE and/or EPA, including Bay Harbor; | |
| • | potentially adverse regulatory treatment or failure to receive timely regulatory orders concerning a number of significant matters affecting Consumers that are presently or potentially before the MPSC, including: |
| • | sufficient and timely recovery of: |
| • | environmental and safety-related expenditures for coal-fueled plants and other utility properties; | |
| • | power supply and natural gas supply costs; | |
| • | operating and maintenance expenses; | |
| • | additional utility rate-based investments; | |
| • | costs associated with the proposed retirement and decommissioning of facilities; | |
| • | development costs of the proposed coal-fueled plant; | |
| • | MISO energy and transmission costs; and | |
| • | costs associated with energy efficiency investments and state or federally mandated renewable resource standards; |
| • | actions of regulators with respect to expenditures subject to tracking mechanisms; | |
| • | actions of regulators to prevent or curtail shutoffs for non-paying customers; | |
| • | actions of regulators with respect to Consumers’ pilot electric and gas decoupling mechanisms; | |
| • | regulatory orders preventing or curtailing rights to self-implement rate requests; |
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Table of Contents
| • | regulatory orders potentially requiring a refund of previously self-implemented rates; and | |
| • | implementation of new energy legislation or revisions of existing regulations; |
| • | potentially adverse regulatory treatment resulting from pressure on regulators to oppose annual rate increases or to lessen rate impacts upon customers, particularly in difficult economic times; | |
| • | loss of customer demand for electric generation supply to alternative energy suppliers; | |
| • | the ability of Consumers to recover its regulatory assets in full and in a timely manner; | |
| • | the effectiveness of the electric and gas decoupling mechanisms in moderating the impact of sales variability on net revenues; | |
| • | the ability of Consumers to recover nuclear fuel storage costs incurred as a result of the DOE’s failure to accept spent nuclear fuel on schedule or at all, and the outcome of pending litigation with the DOE; | |
| • | the impact of enforcement powers and investigation activities at FERC; | |
| • | federal regulation of electric sales and transmission of electricity, including periodic re-examination by federal regulators of CMS Energy’s and Consumers’ market-based sales authorizations in wholesale power markets without price restrictions; | |
| • | effects of weather conditions, such as unseasonably warm weather during the winter, on sales; | |
| • | the market perception of the energy industry or of CMS Energy, Consumers, or any of their affiliates; | |
| • | the credit ratings of CMS Energy or Consumers; | |
| • | the impact of credit markets, economic conditions, and any new banking regulations on EnerBank; | |
| • | potential effects of the Dodd-Frank Act and related regulations on CMS Energy and Consumers, including regulation of financial institutions such as EnerBank, and shareholder activity that is permitted or may be permitted under the Act; | |
| • | disruptions in the normal commercial insurance and surety bond markets that may increase costs or reduce traditional insurance coverage, particularly terrorism and sabotage insurance, performance bonds, and tax-exempt debt insurance, and stability of insurance providers, and the ability of Consumers to recover the costs of any such insurance from customers; | |
| • | energy markets, including availability of capacity and the timing and extent of changes in commodity prices for oil, coal, natural gas, natural gas liquids, electricity, and certain related products due to lower or higher demand, shortages, transportation problems, or other developments, and their impact on CMS Energy’s and Consumers’ cash flows and working capital; | |
| • | the effectiveness of CMS Energy’s and Consumers’ risk management policies, procedures, and strategies, including their strategies to hedge risk related to future prices of electricity, natural gas, and other energy-related commodities; | |
| • | changes in construction material prices and the availability of qualified construction personnel to implement Consumers’ construction program; | |
| • | factors affecting development of generation projects and distribution infrastructure replacement and expansion projects, including those related to project site identification, construction, permitting, and government approvals; | |
| • | costs and availability of personnel, equipment, and materials for operating and maintaining existing facilities; | |
| • | factors affecting operations, such as unusual weather conditions, catastrophic weather-related damage, unscheduled generation outages, maintenance or repairs, environmental incidents, or electric transmission and distribution or gas pipeline system constraints; |
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| • | potential disruption or interruption of facilities or operations due to accidents, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events; | |
| • | the impact of an accident, explosion, or other physical disaster involving Consumers’ high-or low-pressure gas pipelines, gas storage fields, overhead or underground electrical lines, or other utility infrastructure; | |
| • | CMS Energy’s and Consumers’ ability to achieve generation planning goals and the occurrence and duration of scheduled or unscheduled generation or gas compression outages; | |
| • | technological developments in energy production, delivery, usage, and storage; | |
| • | achievement of capital expenditure and operating expense goals, including the 2011 capital expenditures forecast; | |
| • | the impact of CMS Energy’s and Consumers’ integrated business software system on their operations, including utility customer billing and collections; | |
| • | potential effects of the Health Care Acts on existing or future health care costs; | |
| • | adverse outcomes regarding tax positions; | |
| • | adverse consequences resulting from any past or future assertion of indemnity or warranty claims associated with assets and businesses previously owned by CMS Energy or Consumers, including claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions; | |
| • | the outcome, cost, and other effects of legal or administrative proceedings, settlements, investigations, or claims; | |
| • | earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts, such as electricity sales agreements and interest rate and foreign currency contracts; | |
| • | changes in financial or regulatory accounting principles or policies; | |
| • | a possible future requirement to comply with International Financial Reporting Standards, which differ from GAAP in various ways, including the present lack of special accounting treatment for regulated activities; and | |
| • | other business or investment matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other publicly issued documents. |
For additional details regarding these and other uncertainties,
see Item 1A. Risk Factors; the “Outlook” section
included in MD&A; Note 5, Contingencies and
Commitments; and Note 6, Regulatory Matters.
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GENERAL
CMS
Energy
CMS Energy was formed in Michigan in 1987 and is an energy
company operating primarily in Michigan. It is the parent
holding company of several subsidiaries, including Consumers, an
electric and gas utility, and CMS Enterprises, primarily a
domestic IPP. Consumers serves individuals and businesses
operating in the alternative energy, automotive, chemical,
metal, and food products industries, as well as a diversified
group of other industries. CMS Enterprises, through its
subsidiaries and equity investments, is engaged primarily in IPP
and owns power generation facilities fueled mostly by natural
gas and biomass.
CMS Energy manages its businesses by the nature of services each
provides and operates, principally in three business segments:
electric utility, gas utility, and enterprises, its non-utility
operations and investments. Consumers’ consolidated
operations account for substantially all of CMS Energy’s
total assets, income, and operating revenue. CMS Energy’s
consolidated operating revenue was $6.4 billion in 2010,
$6.2 billion in 2009, and $6.8 billion in 2008.
For further information about operating revenue, net operating
income, and identifiable assets and liabilities attributable to
all of CMS Energy’s business segments and operations, see
Item 8. Financial Statements and Supplementary Data, CMS
Energy’s Selected Financial Information, Consolidated
Financial Statements, and Notes to Consolidated Financial
Statements.
Consumers
Consumers has served Michigan customers since 1886. Consumers
was incorporated in Maine in 1910 and became a Michigan
corporation in 1968. Consumers owns and operates electric
distribution and generation facilities and gas transmission,
storage, and distribution facilities. It provides electricity
and/or
natural gas to 6.8 million of Michigan’s
10 million residents. Consumers’ rates and certain
other aspects of its business are subject to the jurisdiction of
the MPSC and FERC, as described in “CMS Energy and
Consumers Regulation” in this Item 1.
Consumers’ consolidated operating revenue was
$6.2 billion in 2010, $6.0 billion in 2009, and
$6.4 billion in 2008. For further information about
operating revenue, net operating income, and identifiable assets
and liabilities attributable to Consumers’ electric and gas
utility operations, see Item 8. Financial Statements and
Supplementary Data, Consumers’ Selected Financial
Information, Consolidated Financial Statements, and Notes to
Consolidated Financial Statements.
Consumers owns its principal properties in fee, except that most
electric lines and gas mains are located below public roads or
on land owned by others and are accessed by Consumers through
easements and other rights. Almost all of Consumers’
properties are subject to the lien of its First Mortgage Bond
Indenture. For additional information on Consumers’
properties, see Consumers Electric Utility — Electric
Utility Properties and Consumers Gas Utility — Gas
Utility Properties in the “Business Segments” section
of this Item 1.
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In 2010, Consumers served 1.8 million electric customers
and 1.7 million gas customers in Michigan’s Lower
Peninsula. Presented in the following map is Consumers’
service territory:
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BUSINESS
SEGMENTS
Consumers
Electric Utility
Electric Utility Operations:
Consumers’
electric utility operations, which include the generation,
purchase, distribution, and sale of electricity, generated
operating revenue of $3.8 billion in 2010,
$3.4 billion in 2009, and $3.6 billion in 2008.
Consumers’ electric utility customer base consists of a mix
of residential, commercial, and diversified industrial customers
in Michigan’s Lower Peninsula. The automotive industry
represented six percent of Consumers’ 2010 electric utility
operating revenue. Presented in the following illustration is
Consumers’ 2010 electric utility operating revenue of
$3.8 billion by customer class:
Consumers’ electric utility operations are not dependent on
a single customer, or even a few customers, and the loss of any
one or even a few of its largest customers is not reasonably
likely to have a material adverse effect on Consumers’
financial condition.
In 2010, Consumers’ electric deliveries, excluding
intersystem deliveries, were 38 million MWh, which included
ROA deliveries of four million MWh, consistent with the
ten-percent cap. Net bundled sales were 34 million MWh in
2010. In 2009, Consumers’ electric deliveries, excluding
intersystem deliveries, were 36 million MWh, which included
ROA deliveries of two million MWh, resulting in net bundled
sales of 34 million MWh.
Consumers’ electric utility operations are seasonal. The
consumption of electric energy typically increases in the summer
months, due primarily to the use of air conditioners and other
cooling equipment.
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Presented in the following illustration are Consumers’
monthly weather-adjusted electric deliveries (deliveries
adjusted to reflect normal weather conditions) to its customers,
including ROA deliveries, during 2010 and 2009:
Consumers’ 2010 summer peak demand was 8,190 MW, which
includes ROA demand of 555 MW. For the
2009-2010
winter period, Consumers’ peak demand was 6,093 MW,
which includes ROA demand of 425 MW. As required by MISO
reserve margin requirements, Consumers owns or controls, through
long-term contracts, capacity necessary to supply its projected
firm peak load and necessary reserve margin for summer 2011.
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Electric Utility Properties:
At
December 31, 2010, Consumers’ electric generating
system consisted of the following:
|
2010
|
||||||||||
|
Summer Net
|
||||||||||
|
Demonstrated
|
2010 Net
|
|||||||||
|
Number of Units and Year
|
Capability(a)
|
Generation
|
||||||||
|
Name and Location (Michigan)
|
Entered Service | (MW) | (GWh) | |||||||
|
Coal Generation
|
||||||||||
|
J. H. Campbell 1 & 2 — West Olive
|
2 Units, 1962-1967 | 615 | 4,015 | |||||||
|
J. H. Campbell 3 — West Olive(b)
|
1 Unit, 1980 | 770 | 5,419 | |||||||
|
B. C. Cobb — Muskegon
|
2 Units, 1956-1957 | 310 | 1,932 | |||||||
|
D. E. Karn — Essexville
|
2 Units, 1959-1961 | 515 | 2,810 | |||||||
|
J. C. Weadock — Essexville
|
2 Units, 1955-1958 | 290 | 1,739 | |||||||
|
J. R. Whiting — Erie
|
3 Units, 1952-1953 | 328 | 1,964 | |||||||
|
Total coal generation
|
2,828 | 17,879 | ||||||||
|
Oil/Gas Generation
|
||||||||||
|
B. C. Cobb — Muskegon
|
3 Units, 1999-2000(c) | — | — | |||||||
|
D. E. Karn — Essexville
|
2 Units, 1975-1977 | 1,276 | 99 | |||||||
|
Zeeland — Zeeland
|
1 Unit, 2002 | 538 | 720 | |||||||
|
Total oil/gas generation
|
1,814 | 819 | ||||||||
|
Hydroelectric
|
||||||||||
|
Conventional hydro generation
|
13 Plants, 1906-1949 | 74 | 365 | |||||||
|
Ludington — Ludington
|
6 Units, 1973 | 955 | (d) | (366 | )(e) | |||||
|
Total hydroelectric
|
1,029 | (1 | ) | |||||||
|
Gas/Oil Combustion Turbine
|
||||||||||
|
Various plants
|
7 Plants, 1966-1971 | 187 | 10 | |||||||
|
Zeeland — Zeeland
|
2 Units, 2001 | 330 | 235 | |||||||
|
Total gas/oil combustion turbine
|
517 | 245 | ||||||||
|
Total owned generation
|
6,188 | 18,942 | ||||||||
|
Purchased and Interchange Power(f)
|
3,058 | (g) | 18,048 | (h) | ||||||
|
Total Supply
|
9,246 | 36,990 | ||||||||
|
Generation and transmission use/loss
|
(3,373 | ) | ||||||||
|
Total Net Bundled Sales
|
33,617 | |||||||||
| (a) | Represents each plant’s electric generating capacity during the critical summer months. | |
| (b) | Represents Consumers’ share of the capacity of the J. H. Campbell 3 unit, net of the 6.69 percent ownership interest of the Michigan Public Power Agency and Wolverine. | |
| (c) | B. C. Cobb 1-3 are retired coal-fueled units that were converted to gas-fueled units. B. C. Cobb 1-3 were placed back into service in the years indicated, and subsequently taken out of service beginning in April 2009. Consumers plans to reevaluate the status of B. C. Cobb 1-3 in 2011 and may return the units to service in 2012. | |
| (d) | Represents Consumers’ 51 percent share of the capacity of Ludington. Detroit Edison owns the remaining 49 percent. | |
| (e) | Represents Consumers’ share of net pumped-storage generation. The pumped-storage facility consumes electricity to pump water during off-peak hours for storage in order to generate electricity later during peak-demand hours. | |
| (f) | Includes purchases from the Midwest Energy Market, long-term purchase contracts, and seasonal purchases. | |
| (g) | Includes 1,240 MW of purchased contract capacity from the MCV Facility and 778 MW of purchased contract capacity from Palisades. | |
| (h) | Includes 2,456 GWh of purchased energy from the MCV Facility and 6,241 GWh of purchased energy from Palisades. |
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Consumers’ distribution system includes:
| • | 413 miles of high-voltage distribution radial lines operating at 120 kilovolts or above; | |
| • | 4,244 miles of high-voltage distribution overhead lines operating at 23 kilovolts and 46 kilovolts; | |
| • | 17 miles of high-voltage distribution underground lines operating at 23 kilovolts and 46 kilovolts; | |
| • | 55,933 miles of electric distribution overhead lines; | |
| • | 10,058 miles of underground distribution lines; and | |
| • | substations with an aggregate transformer capacity of 24 million kVA. |
Consumers is interconnected to the interstate high-voltage
electric transmission system owned by METC and operated by MISO,
to neighboring utilities, and to other transmission systems.
Generation and Power Purchase Capacity by Fuel
Type:
As shown in the following illustration,
Consumers’ 2010 generation capacity of 9,246 MW,
including capacity of 3,058 MW purchased under PPAs, relied
on a variety of fuel sources:
Renewable generation capacity includes wind generation resources
assumed to provide capacity at eight percent of nameplate rating.
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Consumers’ Electric Generating System Power
Generation:
Consumers generated power from the
following sources:
| GWh | ||||||||||||||||||||
|
Power Generated
|
2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
|
Coal
|
17,879 | 17,255 | 17,701 | 17,903 | 17,744 | |||||||||||||||
|
Gas
|
1,043 | 565 | 804 | 129 | 161 | |||||||||||||||
|
Hydro(a)
|
365 | 466 | 454 | 416 | 485 | |||||||||||||||
|
Oil
|
21 | 14 | 41 | 112 | 48 | |||||||||||||||
|
Nuclear
|
— | — | — | 1,781 | 5,904 | |||||||||||||||
|
Net pumped storage(b)
|
(366 | ) | (303 | ) | (382 | ) | (478 | ) | (426 | ) | ||||||||||
|
Total owned generation
|
18,942 | 17,997 | 18,618 | 19,863 | 23,916 | |||||||||||||||
|
Purchased renewable energy(c)
|
1,582 | 1,472 | 1,503 | 1,480 | 1,529 | |||||||||||||||
|
Purchased generation-other(c)
|
10,421 | 10,066 | 12,140 | 11,022 | 7,065 | |||||||||||||||
|
Net interchange power(d)
|
6,045 | 6,925 | 6,653 | 8,009 | 7,244 | |||||||||||||||
|
Net purchased and interchange power
|
18,048 | 18,463 | 20,296 | 20,511 | 15,838 | |||||||||||||||
|
Total Net Power Supply
|
36,990 | 36,460 | 38,914 | 40,374 | 39,754 | |||||||||||||||
| (a) | Represents Consumers’ owned renewable generation. | |
| (b) | Represents Consumers’ share of net pumped-storage generation. The pumped-storage facility consumes electricity to pump water during off-peak hours for storage in order to generate electricity later during peak-demand hours. | |
| (c) | Includes purchases from long-term purchase contracts. | |
| (d) | Includes purchases from the Midwest Energy Market and seasonal purchases. |
The cost of all fuels consumed, shown in the following table,
fluctuates with the mix of fuel used.
| Cost per Million Btu | ||||||||||||||||||||
|
Fuel Consumed
|
2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
|
Coal
|
$ | 2.51 | $ | 2.37 | $ | 2.01 | $ | 2.04 | $ | 2.09 | ||||||||||
|
Gas
|
5.57 | 6.57 | 10.94 | 10.29 | 8.92 | |||||||||||||||
|
Oil
|
10.98 | 9.59 | 11.54 | 8.21 | 8.68 | |||||||||||||||
|
Nuclear
|
— | — | — | 0.42 | 0.24 | |||||||||||||||
|
All Fuels(a)
|
$ | 2.71 | $ | 2.56 | $ | 2.47 | $ | 2.07 | $ | 1.72 | ||||||||||
| (a) | Weighted-average fuel costs |
In 2010, Consumers’ four coal-fueled generating sites
burned 10 million tons of coal and produced a combined
total of 17,879 GWh of electricity, which represented
48 percent of the energy provided by Consumers to meet
customer demand.
In order to obtain its coal requirements, Consumers enters into
physical coal supply contracts. At December 31, 2010,
Consumers had contracts to purchase coal through 2013; these
contracts total $315 million. All of Consumers’ coal
supply contracts have fixed prices. At December 31, 2010,
Consumers had 85 percent of its 2011 expected coal
requirements under contract, as well as a
41-day
supply of coal on hand.
In conjunction with its coal supply contracts, Consumers leases
a fleet of rail cars and has long-term transportation contracts
with various companies to provide rail and vessel services for
delivery of purchased coal to Consumers’ generating
facilities. Consumers’ coal transportation contracts expire
from 2011 through 2014; these contracts total $445 million.
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Consumers participates in the Midwest Energy Market. Consumers
offers its generation into the market on a day-ahead and
real-time basis and bids for power in the market to serve the
demand of its customers. Consumers is a net purchaser of power
and supplements its generation capability with purchases from
the market to meet its customers’ needs during peak demand
periods.
At December 31, 2010, Consumers had unrecognized future
commitments (amounts for which liabilities, in accordance with
GAAP, have not been recorded on its balance sheet) to purchase
capacity and energy under long-term PPAs with various generating
plants. These contracts require monthly capacity payments based
on the plants’ availability or deliverability. These
payments for 2011 through 2030 total $15.3 billion and
range from $822 million to $1 billion annually for
each of the next five years. These amounts may vary depending on
plant availability and fuel costs. For further information about
Consumers’ future capacity and energy purchase obligations,
see Item 7. MD&A, “Capital Resources and
Liquidity.”
Consumers
Gas Utility
Gas
Utility Operations:
Consumers’ gas utility operations, which include the
purchase, transmission, storage, distribution, and sale of
natural gas, generated operating revenue of $2.4 billion in
2010, $2.6 billion in 2009, and $2.8 billion in 2008.
Consumers’ gas utility customer base consists of a mix of
residential, commercial, and diversified industrial customers in
Michigan’s Lower Peninsula. Presented in the following
illustration is Consumers’ 2010 gas utility operating
revenue by customer class:
Consumers’ gas utility operations are not dependent on a
single customer, or even a few customers, and the loss of any
one or even a few of its largest customers is not reasonably
likely to have a material adverse effect on Consumers’
financial condition.
In 2010, deliveries of natural gas, including off-system
transportation deliveries, through Consumers’ pipeline and
distribution network totaled 317 bcf, which included GCC
deliveries of 36 bcf. In 2009, deliveries of natural gas,
including off-system transportation deliveries, through
Consumers’ pipeline and distribution network totaled 319
bcf, which included GCC deliveries of 27 bcf. Consumers’
gas utility operations are seasonal. Consumers injects natural
gas into storage during the summer months for use during the
winter months when the demand for natural gas is higher. Peak
demand occurs in the winter due to colder temperatures and the
resulting use of natural gas as a heating fuel. During 2010,
46 percent of the natural gas supplied to all customers
during the winter months
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was supplied from storage. Presented in the following
illustration are Consumers’ monthly weather-adjusted gas
deliveries to its customers, including GCC deliveries, during
2010 and 2009:
Gas Utility Properties:
Consumers’ gas
distribution and transmission system located in Michigan’s
Lower Peninsula consists of:
| • | 26,585 miles of distribution mains; | |
| • | 1,664 miles of transmission lines; | |
| • | seven compressor stations with a total of 150,475 installed and available horsepower; and | |
| • | 15 gas storage fields with an aggregate storage capacity of 307 bcf and a working storage capacity of 142 bcf. |
Gas Supply:
In 2010, Consumers purchased
61 percent of the gas it delivered from U.S. producers
and 21 percent from Canadian producers. The remaining
18 percent was purchased from authorized GCC suppliers and
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delivered by Consumers to customers in the GCC program.
Presented in the following illustration are the supply
arrangements for the gas Consumers delivered to GCC and GCR
customers during 2010:
Firm transportation or firm city-gate contracts are those that
define a fixed amount, price, and delivery time frame.
Consumers’ firm gas transportation contracts are with ANR
Pipeline Company, Great Lakes Gas Transmission, L.P., Panhandle,
Trunkline, and Vector Pipeline L.P. Under these contracts,
Consumers purchases and transports gas to Michigan for ultimate
delivery to its customers. Consumers’ firm gas
transportation contracts expire through 2017 and provide for the
delivery of 71 percent of Consumers’ total gas supply
requirements.
Consumers purchases the balance of its required gas supply under
firm city-gate contracts and through authorized suppliers under
the GCC program. Consumers may also utilize incremental firm
transportation contracts and interruptible transportation
contracts to purchase its gas supply. Under interruptible
transportation contracts, the transportation provider is
permitted to interrupt service. Consumers’ use of
incremental firm transportation contracts and interruptible
transportation contracts is generally during off-peak summer
months and after Consumers has fully utilized the services under
the firm transportation contracts. The amount of interruptible
transportation service and its use vary primarily with the price
for this service and the availability and price of purchased and
transported spot supplies.
Enterprises
Segment — Non-Utility Operations and
Investments
CMS Energy’s enterprises segment, through various
subsidiaries and certain equity investments, is engaged
primarily in domestic IPP and the marketing of IPP. In 2007, the
enterprises segment made a significant change in business
strategy by exiting the international marketplace and refocusing
on its independent power business in the U.S.
The enterprises segment’s operating revenue included in
Income From Continuing Operations in CMS Energy’s
Consolidated Financial Statements was $238 million in 2010,
$216 million in 2009, and $365 million in 2008. The
enterprises segment’s operating revenue included in Income
(Loss) From Discontinued Operations in CMS Energy’s
Consolidated Financial Statements was $10 million in 2010,
$7 million in 2009, and $14 million in 2008.
IPP:
While owned by CMS Enterprises, CMS Generation
invested in and operated non-utility power generation plants in
the U.S. and abroad. In 2007, CMS Enterprises sold CMS
Generation and all of CMS
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Enterprises’ international assets to third parties and
transferred its domestic independent power plant operations to
its subsidiary, HYDRA-CO.
The operating revenue from IPP included in Income From
Continuing Operations in CMS Energy’s Consolidated
Financial Statements was $18 million in 2010,
$18 million in 2009, and $22 million in 2008. The
operating revenue from IPP included in Income (Loss) From
Discontinued Operations in CMS Energy’s Consolidated
Financial Statements was $10 million in 2010,
$7 million in 2009, and $14 million in 2008.
IPP Properties:
At December 31, 2010, CMS
Energy had ownership interests in independent power plants
totaling 1,166 gross MW or 1,066 net MW. (Net MW
reflects that portion of the gross capacity relating to CMS
Energy’s ownership interests.)
Presented in the following table are CMS Energy’s interests
in independent power plants at December 31, 2010:
|
Gross Capacity
|
||||||||||||||
|
Under Long-Term
|
||||||||||||||
|
Primary
|
Ownership Interest
|
Gross Capacity
|
Contract
|
|||||||||||
|
Location
|
Fuel Type | (%) | (MW) | (%) | ||||||||||
|
Connecticut(a)
|
Scrap tire | 100 | 31 | — | ||||||||||
|
Michigan
|
Natural gas | 100 | 710 | 88 | ||||||||||
|
Michigan
|
Natural gas | 100 | 224 | 89 | ||||||||||
|
Michigan
|
Coal | 50 | 73 | 100 | ||||||||||
|
Michigan
|
Biomass | 50 | 40 | 100 | ||||||||||
|
Michigan
|
Biomass | 50 | 38 | 100 | ||||||||||
|
North Carolina
|
Biomass | 50 | 50 | — | ||||||||||
|
Total
|
1,166 | |||||||||||||
| (a) | Represents Exeter. In January 2011, CMS Energy sold its ownership interest in Exeter to ReEnergy. |
Energy Resource Management:
CMS ERM purchases and
sells energy commodities in support of CMS Energy’s
generating facilities. In 2010, CMS ERM marketed 15 bcf of
natural gas and 2,308 GWh of electricity. All marketed
electricity was generated by IPPs of the enterprises segment.
CMS ERM’s operating revenue included in Income From
Continuing Operations in CMS Energy’s Consolidated
Financial Statements was $220 million in 2010,
$198 million in 2009, and $343 million in 2008.
Natural Gas Transmission:
CMS Gas Transmission
owned, developed, and managed domestic and international natural
gas facilities. In 2007, CMS Gas Transmission sold a portfolio
of its businesses in Argentina and its northern Michigan
non-utility natural gas assets to Lucid Energy, and its
investment in GasAtacama to Endesa S.A. In 2008, CMS Gas
Transmission completed the sale of its investment in TGN. CMS
Gas Transmission’s operating revenue included in Income
From Continuing Operations in CMS Energy’s Consolidated
Financial Statements was less than $1 million in each of
2010, 2009, and 2008.
International Energy Distribution:
In 2007, CMS
Energy exited this line of business when it sold its ownership
interests in SENECA and CMS Energy Brasil S.A.
OTHER
BUSINESSES
EnerBank:
EnerBank, a wholly owned subsidiary of CMS
Energy, is a Utah state-chartered, FDIC-insured industrial bank
providing unsecured consumer installment loans for financing
home improvements. EnerBank’s operating revenue included in
Income From Continuing Operations in CMS Energy’s
Consolidated Financial Statements was $38 million in 2010,
$26 million in 2009, and $21 million in 2008.
CMS ENERGY AND
CONSUMERS REGULATION
CMS Energy, Consumers, and their subsidiaries are subject to
regulation by various federal, state, local, and foreign
governmental agencies, including those described in the
following sections.
24
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MPSC
Consumers is subject to the jurisdiction of the MPSC, which
regulates public utilities in Michigan with respect to retail
utility rates, accounting, utility services, certain facilities,
corporate mergers, and other matters.
The Michigan Attorney General, ABATE, the MPSC staff, and
certain other parties typically participate in MPSC proceedings
concerning Consumers. The Michigan Attorney General, ABATE, and
others often appeal significant MPSC orders.
Rate Proceedings:
For information regarding open
rate proceedings, see Item 8. Financial Statements and
Supplementary Data, Notes to Consolidated Financial Statements,
Note 6, Regulatory Matters.
Michigan Energy
Legislation
The 2008 Energy Legislation required that at least ten percent
of Consumers’ electric sales volume come from renewable
energy sources by 2015, and included requirements for specific
capacity additions. The 2008 Energy Legislation also required
Consumers to prepare an energy optimization plan and achieve
annual sales reduction targets through at least 2015. The
targets are incremental with the goal of achieving a six percent
reduction in customers’ electricity use and a four percent
reduction in customers’ natural gas use by
December 31, 2015. For additional information regarding
Consumers’ renewable energy and energy optimization plans,
see Item 7. MD&A, Outlook, “Consumers’
Electric Utility Business Outlook and Uncertainties.”
The 2008 Energy Legislation also reformed the Customer Choice
Act to limit alternative energy suppliers to supplying no more
than ten percent of Consumers’ weather-adjusted sales. For
additional information regarding the Customer Choice Act, see
Item 7. MD&A, Outlook, “Consumers’ Electric
Utility Business Outlook and Uncertainties.”
FERC
FERC has exercised limited jurisdiction over several independent
power plants and exempt wholesale generators in which CMS
Enterprises has ownership interests, as well as over CMS ERM,
CMS Gas Transmission, and DIG. Among other things, FERC has
jurisdiction over acquisitions, operations, and disposals of
certain assets and facilities, services provided and rates
charged, conduct among affiliates, and limited jurisdiction over
holding company matters with respect to CMS Energy. FERC, in
connection with NERC and with regional reliability
organizations, also regulates generation owners and operators,
load serving entities, purchase and sale entities, and others
with regard to reliability of the bulk power system. Certain
aspects of Consumers’ gas business are also subject to
regulation by FERC, including a blanket transportation tariff
under which Consumers may transport gas in interstate commerce.
FERC also regulates certain aspects of Consumers’ electric
operations, including compliance with FERC accounting rules,
wholesale rates, operation of licensed hydroelectric generating
plants, transfers of certain facilities, corporate mergers, and
issuances of securities.
Other
Regulation
The Secretary of Energy regulates imports and exports of natural
gas and has delegated various aspects of this jurisdiction to
FERC and the DOE’s Office of Fossil Fuels.
Consumers’ pipelines are subject to the Natural Gas
Pipeline Safety Act of 1968 and the Pipeline Safety Improvement
Act of 2002, which regulate the safety of gas pipelines.
EnerBank is regulated by the FDIC.
CMS ENERGY AND
CONSUMERS ENVIRONMENTAL COMPLIANCE
CMS Energy, Consumers, and their subsidiaries are subject to
various federal, state, and local regulations for environmental
quality, including air and water quality, solid waste
management, and other matters. For additional
25
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information concerning environmental matters, see Item 1A.
Risk Factors and Item 8. Financial Statements and
Supplementary Data, Notes to Consolidated Financial Statements,
Note 5, Contingencies and Commitments.
CMS Energy has recorded a significant liability for its
affiliates’ obligations associated with Bay Harbor. For
additional information, see Item 1A. Risk Factors and
Item 8. Financial Statements and Supplementary Data, Notes
to Consolidated Financial Statements, Note 5, Contingencies
and Commitments.
Air:
Consumers continues to install
state-of-the-art
emissions control equipment at its electric generating plants
and to convert electric generating units to burn cleaner fuels.
Consumers estimates that it will incur expenditures of
$1.4 billion from 2011 through 2018 to comply with present
and future federal and state regulations that will require
extensive reductions in nitrogen oxides, sulfur dioxides,
particulate matter, and mercury emissions. Consumers’
estimate may increase if additional laws or regulations are
adopted or implemented regarding greenhouse gases, including
carbon dioxide. For additional information concerning estimated
capital expenditures related to emissions control, see
Item 7. MD&A, Outlook, “Consumers’ Electric
Utility Business Outlook and Uncertainties — Electric
Environmental Estimates.”
Solid Waste Disposal:
Costs related to the
construction, operation, and closure of solid waste disposal
facilities for coal ash are significant. Historically, Consumers
has worked with others to reuse 30 to 40 percent of ash produced
by its coal-fueled plants, and sells ash for use as a Portland
cement replacement in concrete products, as feedstock for the
manufacture of Portland cement, and for other
environmentally-compatible uses. Consumers’ solid waste
disposal areas are regulated under Michigan’s solid waste
rules. Consumers has converted all of its fly ash handling
systems to dry systems, which reduce landfill venting
substantially. All of Consumers’ ash facilities have
programs designed to protect the environment and are subject to
quarterly MDNRE inspections. Furthermore, an independent
consultant has assessed dike integrity and stability. No major
deficiencies were identified that could immediately jeopardize
continued safe and reliable operation of the project structures.
The draft reports of three EPA contractors who have since
inspected these facilities with regard to National Dam Safety
Program Act requirements comport with this conclusion. The EPA
has proposed new federal regulations for ash disposal areas.
Consumers estimates that it will incur expenditures of
$320 million from 2011 through 2018 to comply with future
regulations relating to ash disposal. For additional information
concerning estimated capital expenditures related to solid waste
disposal, see Item 7. MD&A, Outlook,
“Consumers’ Electric Utility Business Outlook and
Uncertainties — Electric Environmental Estimates.”
Water:
Consumers uses significant amounts of water
to operate and cool its electric generating plants. Water
discharge quality is regulated and administered by the MDNRE
under the federal NPDES program. To comply with such regulation,
Consumers’ facilities have discharge monitoring programs.
The EPA is developing new regulations related to cooling water
intake systems. Consumers estimates that it will incur
expenditures of $180 million from 2011 through 2018 to
comply with future regulations relating to cooling water intake
systems. For additional information concerning estimated capital
expenditures related to cooling water intake systems, see
Item 7. MD&A, Outlook, “Consumers’ Electric
Utility Business Outlook and Uncertainties — Electric
Environmental Estimates.”
CMS ENERGY AND
CONSUMERS COMPETITION
Electric
Competition
Consumers’ electric utility business is subject to actual
and potential competition from many sources, in both the
wholesale and retail markets, as well as in electric generation,
electric delivery, and retail services.
The Customer Choice Act allows all of Consumers’ electric
customers to buy electric generation service from Consumers or
from an alternative electric supplier. The 2008 Energy
Legislation revised the Customer Choice Act by limiting
alternative electric supply to ten percent of weather-adjusted
retail sales for the preceding calendar year. At
December 31, 2010, electric deliveries under the ROA
program were at the ten percent limit. Alternative electric
suppliers were providing 807 MW of generation service to
ROA customers.
Consumers also has competition or potential competition from:
| • | industrial customers relocating all or a portion of their production capacity outside Consumers’ service territory for economic reasons; |
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| • | municipalities owning or operating competing electric delivery systems; | |
| • | customer self-generation; and | |
| • | adjacent utilities that extend lines to customers in contiguous service territories. |
Consumers addresses this competition by monitoring activity in
adjacent areas and monitoring compliance with the MPSC’s
and FERC’s rules, providing non-energy services, and
providing tariff-based incentives that support economic
development.
CMS ERM continues to focus on optimizing CMS Energy’s IPP
portfolio. CMS Energy’s IPP business faces competition from
generators, marketers and brokers, and utilities marketing power
in the wholesale market.
Gas
Competition
Competition exists in various aspects of Consumers’ gas
utility business. Competition comes from other gas suppliers
taking advantage of direct access to Consumers’ customers
and from alternative fuels and energy sources, such as propane,
oil, and electricity.
INSURANCE
CMS Energy and its subsidiaries, including Consumers, maintain
insurance coverage generally similar to comparable companies in
the same lines of business. The insurance policies are subject
to terms, conditions, limitations, and exclusions that might not
fully compensate CMS Energy or Consumers for all losses. A
portion of each loss is generally assumed by CMS Energy or
Consumers in the form of deductibles and self-insured retentions
that, in some cases, are substantial. As CMS Energy or Consumers
renews its policies, it is possible that some of the present
insurance coverage may not be renewed or obtainable on
commercially reasonable terms due to restrictive insurance
markets.
CMS Energy’s and Consumers’ present insurance program
does not cover the risks of certain environmental cleanup costs
and environmental damages, such as claims for air pollution,
damage to sites owned by CMS Energy or Consumers, and some
long-term storage or disposal of wastes.
EMPLOYEES
CMS
Energy
At December 31, 2010, CMS Energy and its wholly owned
subsidiaries, including Consumers, had 7,822 full-time
equivalent employees. Included in the total are
3,310 full-time operating, maintenance, and construction
employees and full-time and part-time call center employees who
are represented by the Union.
Consumers
At December 31, 2010, Consumers and its subsidiaries had
7,522 full-time equivalent employees. Included in the total
are 3,310 full-time operating, maintenance, and
construction employees and full-time and part-time call center
employees who are represented by the Union.
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Table of Contents
CMS ENERGY
EXECUTIVE OFFICERS (as of February 1, 2011)
|
Name
|
Age
|
Position
|
Period
|
|||
|
John G. Russell
|
53 |
President and CEO of CMS Energy
|
5/2010-Present | |||
|
President and CEO of Consumers
|
5/2010-Present | |||||
|
Director of CMS Energy
|
5/2010-Present | |||||
|
Director of Consumers
|
5/2010-Present | |||||
|
Director of CMS Enterprises
|
5/2010-Present | |||||
|
Chairman of the Board, President and CEO of CMS Enterprises
|
5/2010-Present | |||||
|
President and Chief Operating Officer of Consumers
|
2004-5/2010 | |||||
|
Thomas J. Webb
|
58 |
Executive Vice President, CFO of CMS Energy
|
2002-Present | |||
|
Executive Vice President, CFO of Consumers
|
2002-Present | |||||
|
Executive Vice President, CFO of CMS Enterprises
|
2002-Present | |||||
|
Director of CMS Enterprises
|
2002-Present | |||||
|
James E. Brunner
|
58 |
Senior Vice President and General Counsel of CMS Energy
|
11/2006-Present | |||
|
Senior Vice President and General Counsel of Consumers
|
11/2006-Present | |||||
|
Senior Vice President and General Counsel of CMS Enterprises
|
11/2007-Present | |||||
|
Director of CMS Enterprises
|
2006-Present | |||||
|
Senior Vice President of CMS Enterprises
|
2006-11/2007 | |||||
|
Senior Vice President, General Counsel and Chief Compliance
Officer of CMS Energy
|
5/2006-11/2006 | |||||
|
Senior Vice President, General Counsel and Chief Compliance
Officer of Consumers
|
5/2006-11/2006 | |||||
|
Senior Vice President and General Counsel of CMS Energy
|
2/2006-5/2006 | |||||
|
Senior Vice President, General Counsel and Interim Chief
Compliance Officer of Consumers
|
2/2006-5/2006 | |||||
|
Vice President and General Counsel of Consumers
|
7/2004-2/2006 | |||||
|
John M. Butler*
|
46 |
Senior Vice President of CMS Energy
|
2006-Present | |||
|
Senior Vice President of Consumers
|
2006-Present | |||||
|
Senior Vice President of CMS Enterprises
|
2006-Present |
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Table of Contents
|
Name
|
Age
|
Position
|
Period
|
|||
|
David G. Mengebier
|
53 |
Senior Vice President and Chief Compliance Officer of CMS Energy
|
11/2006-Present | |||
|
Senior Vice President and Chief Compliance Officer of Consumers
|
11/2006-Present | |||||
|
Senior Vice President of CMS Enterprises
|
2003-Present | |||||
|
Senior Vice President of CMS Energy
|
2001-11/2006 | |||||
|
Senior Vice President of Consumers
|
2001-11/2006 | |||||
|
Glenn P. Barba
|
45 |
Vice President, Controller and Chief Accounting Officer of CMS
Energy
|
2003-Present | |||
|
Vice President, Controller and Chief Accounting Officer of
Consumers
|
2003-Present | |||||
|
Vice President, Chief Accounting Officer and Controller of CMS
Enterprises
|
11/2007-Present | |||||
|
Vice President and Chief Accounting Officer of CMS Enterprises
|
2003-11/2007 |
| * | From 2004 until June 2006, Mr. Butler was Human Resources Director, Manufacturing and Engineering at Dow Chemical Company, a non-affiliated company. |
There are no family relationships among executive officers and
directors of CMS Energy.
The term of office of each of the executive officers extends to
the first meeting of the Board of Directors of CMS Energy after
the next annual election of Directors of CMS Energy (scheduled
to be held on May 20, 2011).
CONSUMERS EXECUTIVE OFFICERS (as of February 1, 2011)
|
Name
|
Age
|
Position
|
Period
|
|||
|
John G. Russell
|
53 |
President and CEO of CMS Energy
|
5/2010-Present | |||
|
President and CEO of Consumers
|
5/2010-Present | |||||
|
Director of CMS Energy
|
5/2010-Present | |||||
|
Director of Consumers
|
5/2010-Present | |||||
|
Director of CMS Enterprises
|
5/2010-Present | |||||
|
Chairman of the Board, President and CEO of CMS Enterprises
|
5/2010-Present | |||||
|
President and Chief Operating Officer of Consumers
|
2004-5/2010 | |||||
|
Thomas J. Webb
|
58 |
Executive Vice President, CFO of CMS Energy
|
2002-Present | |||
|
Executive Vice President, CFO of Consumers
|
2002-Present | |||||
|
Executive Vice President, CFO of CMS Enterprises
|
2002-Present | |||||
|
Director of CMS Enterprises
|
2002-Present | |||||
|
James E. Brunner
|
58 |
Senior Vice President and General Counsel of CMS Energy
|
11/2006-Present | |||
|
Senior Vice President and General Counsel of Consumers
|
11/2006-Present | |||||
|
Senior Vice President and General Counsel of CMS Enterprises
|
11/2007-Present | |||||
|
Director of CMS Enterprises
|
2006-Present | |||||
|
Senior Vice President of CMS Enterprises
|
2006-11/2007 |
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Table of Contents
|
Name
|
Age
|
Position
|
Period
|
|||
|
Senior Vice President, General Counsel and Chief Compliance
Officer of CMS Energy
|
5/2006-11/2006 | |||||
|
Senior Vice President, General Counsel and Chief Compliance
Officer of Consumers
|
5/2006-11/2006 | |||||
|
Senior Vice President and General Counsel of CMS Energy
|
2/2006-5/2006 | |||||
|
Senior Vice President, General Counsel and Interim Chief
Compliance Officer of Consumers
|
2/2006-5/2006 | |||||
|
Vice President and General Counsel of Consumers
|
7/2004-2/2006 | |||||
|
John M. Butler*
|
46 |
Senior Vice President of CMS Energy
|
2006-Present | |||
|
Senior Vice President of Consumers
|
2006-Present | |||||
|
Senior Vice President of CMS Enterprises
|
2006-Present | |||||
|
David G. Mengebier
|
53 |
Senior Vice President and Chief Compliance Officer of CMS Energy
|
11/2006-Present | |||
|
Senior Vice President and Chief Compliance Officer of Consumers
|
11/2006-Present | |||||
|
Senior Vice President of CMS Enterprises
|
2003-Present | |||||
|
Senior Vice President of CMS Energy
|
2001-11/2006 | |||||
|
Senior Vice President of Consumers
|
2001-11/2006 | |||||
|
William E. Garrity
|
62 |
Senior Vice President of Consumers
|
2005-Present | |||
|
Jackson L. Hanson
|
54 |
Senior Vice President of Consumers
|
5/2010-Present | |||
|
Vice President of Consumers
|
11/2006-5/2010 | |||||
|
Plant and Site Business Manager of Consumers
|
4/2006-11/2006 | |||||
|
Daniel J. Malone
|
50 |
Senior Vice President of Consumers
|
5/2010-Present | |||
|
Vice President of Consumers
|
6/2008-5/2010 | |||||
|
Site Business Manager of Consumers
|
12/2006-6/2008 | |||||
|
Manager of Equipment Services of Consumers
|
8/2006-12/2006 | |||||
|
Glenn P. Barba
|
45 |
Vice President, Controller and Chief Accounting Officer of CMS
Energy
|
2003-Present | |||
|
Vice President, Controller and Chief Accounting Officer of
Consumers
|
2003-Present | |||||
|
Vice President, Controller and Chief Accounting Officer of CMS
Enterprises
|
11/2007-Present | |||||
|
Vice President and Chief Accounting Officer of CMS Enterprises
|
2003-11/2007 |
| * | From 2004 until June 2006, Mr. Butler was Human Resources Director, Manufacturing and Engineering at Dow Chemical Company, a non-affiliated company. |
There are no family relationships among executive officers and
directors of Consumers.
The term of office of each of the executive officers extends to
the first meeting of the Board of Directors of Consumers after
the next annual election of Directors of Consumers (scheduled to
be held on May 20, 2011).
AVAILABLE
INFORMATION
CMS Energy’s internet address is www.cmsenergy.com.
Information contained on CMS Energy’s website is not
incorporated herein. All of CMS Energy’s annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed pursuant to
Section 13(a) or 15(d) of the Exchange Act
30
Table of Contents
are accessible free of charge on CMS Energy’s website.
These reports are available soon after they are filed
electronically with the SEC. Also on CMS Energy’s website
are its:
| • | Corporate Governance Principles; | |
| • | Codes of Conduct (CMS Energy Corporation/Consumers Energy Company Board of Directors Code of Conduct — 2010 and Code of Conduct and Guide to Ethical Business Behavior 2010); | |
| • | Board committee charters (including the Audit Committee, the Compensation and Human Resources Committee, the Finance Committee, and the Governance and Public Responsibility Committee); and | |
| • | Articles of Incorporation (and amendments) and Bylaws. |
CMS Energy will provide this information in print to any
stockholder who requests it.
Any materials CMS Energy files with the SEC may also be read and
copied at the SEC’s Public Reference Room at
100 F Street, NE, Washington D.C., 20549. Information
on the operation of the Public Reference Room may be obtained by
calling the SEC at
1-800-SEC-0330.
The SEC also maintains an internet site that contains reports,
proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The
address is www.sec.gov.
31
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Actual results in future periods for CMS Energy and Consumers
could differ materially from historical results and the
forward-looking statements contained in this report. Factors
that might cause or contribute to these differences include, but
are not limited to, those discussed in the following sections.
CMS Energy’s and Consumers’ businesses are influenced
by many factors that are difficult to predict, that involve
uncertainties that may materially affect results, and that are
often beyond their control. Additional risks and uncertainties
not presently known or that the companies’ management
believes to be immaterial may also adversely affect the
companies. The risk factors described in the following sections,
as well as the other information included in this report and in
other documents filed with the SEC, should be considered
carefully before making an investment in securities of CMS
Energy or Consumers. Risk factors of Consumers are also risk
factors of CMS Energy. All of these risk factors are potentially
significant.
CMS
Energy depends on dividends from its subsidiaries to meet its
debt service obligations.
Due to its holding company structure, CMS Energy depends on
dividends from its subsidiaries to meet its debt service and
other payment obligations. Restrictions contained in
Consumers’ preferred stock provisions and other legal
restrictions, such as certain terms in its articles of
incorporation and FERC requirements, limit Consumers’
ability to pay dividends or acquire its own stock from CMS
Energy. At December 31, 2010, Consumers had
$404 million of unrestricted retained earnings available to
pay common stock dividends. If sufficient dividends are not paid
to CMS Energy by its subsidiaries, CMS Energy may not be able to
generate the funds necessary to fulfill its payment obligations,
which could have a material adverse effect on CMS Energy’s
liquidity and financial condition.
CMS
Energy has indebtedness that could limit its financial
flexibility and hence its ability to meet its debt service
obligations.
At December 31, 2010, CMS Energy, including Consumers, had
$7.2 billion aggregate principal amount of indebtedness,
including $29 million of subordinated indebtedness relating
to its convertible preferred securities. CMS Energy had
$2.3 billion aggregate principal amount of indebtedness at
December 31, 2010. At December 31, 2010, there were no
borrowings and $3 million of letters of credit outstanding
under CMS Energy’s revolving credit agreement. CMS Energy
and its subsidiaries may incur additional indebtedness in the
future.
The level of CMS Energy’s present and future indebtedness
could have several important effects on its future operations,
including, among others:
| • | a significant portion of CMS Energy’s cash flow from operations could be dedicated to the payment of principal and interest on its indebtedness and would not be available for other purposes; | |
| • | covenants contained in CMS Energy’s existing debt arrangements, which require it to meet certain financial tests, could affect its flexibility in planning for, and reacting to, changes in its business; | |
| • | CMS Energy’s ability to obtain additional financing for working capital, capital expenditures, acquisitions, and general corporate and other purposes could become limited; | |
| • | CMS Energy could be placed at a competitive disadvantage to its competitors that are less leveraged; | |
| • | CMS Energy’s vulnerability to adverse economic and industry conditions could increase; and | |
| • | CMS Energy’s future credit ratings could fluctuate. |
CMS Energy’s ability to meet its debt service obligations
and to reduce its total indebtedness will depend on its future
performance, which will be subject to general economic
conditions, industry cycles, changes in laws or regulatory
decisions (including with respect to environmental matters), and
financial, business, and other factors affecting its operations,
many of which are beyond its control. CMS Energy cannot make
assurances that its business will continue to generate
sufficient cash flow from operations to service its
indebtedness. If CMS Energy is unable to generate sufficient
cash flows from operations, it may be required to sell assets or
obtain additional financing. CMS Energy cannot ensure that
additional financing will be available on commercially
acceptable terms or at all.
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CMS
Energy cannot predict the outcome of regulatory reviews and
claims regarding its participation in the development of Bay
Harbor.
The EPA and the MDNRE have not completed their review of
proposals by CMS Land and CMS Capital to remedy the flow of
leachate from buried CKD piles at the Bay Harbor site to Lake
Michigan and related environmental issues. One of the major
issues to be resolved is determining a long-term solution to the
disposal of leachate collected at the site. In December 2010,
the MDNRE issued a five-year NPDES permit that authorizes CMS
Land to discharge treated leachate into Little Traverse Bay.
Costs to treat and discharge collected leachate under this
permit could exceed those that are presently anticipated.
Additionally, CMS Land and CMS Capital could be required to
alter their present water disposal strategy upon expiration of
this permit if the MDNRE or EPA identify a more suitable option,
or if the permit itself is challenged before the MDNRE or the
courts. CMS Land and CMS Capital, the MDNRE, the EPA, and other
parties continue to negotiate the long-term remedy for the Bay
Harbor site. These negotiations are focused on, among other
things, issues related to:
| • | the disposal of leachate; | |
| • | the capping and excavation of CKD; | |
| • | the location and design of collection lines and upstream water diversion systems; | |
| • | application of criteria for various substances such as mercury; and | |
| • | other matters that are likely to affect the scope of remedial work that CMS Land and CMS Capital may be obligated to undertake. |
Depending on the results of these negotiations, as well as the
size of any indemnity obligation or liability under an
Administrative Order on Consent signed by CMS Land and CMS
Capital or other liability under environmental laws, adverse
outcomes of some or all of these matters could have a material
adverse effect on CMS Energy’s liquidity and financial
condition and could negatively affect CMS Energy’s
financial results.
CMS
Energy could be affected adversely by a regulatory investigation
and civil lawsuits regarding pricing information that CMS MST
and CMS Field Services provided to market
publications.
In 2002, CMS Energy notified appropriate regulatory and
governmental agencies that some employees at CMS MST and CMS
Field Services appeared to have provided inaccurate information
regarding natural gas trades to various energy industry
publications which compile and report index prices. CMS Energy
is cooperating with an ongoing investigation by the DOJ
regarding this matter. CMS Energy is unable to predict the
outcome of the DOJ investigation or the amount of any fines or
penalties that may be imposed and what effect, if any, the
investigation will have on CMS Energy.
CMS Energy, CMS MST, CMS Field Services, Cantera Natural Gas,
Inc., and Cantera Gas Company were named as defendants in
various lawsuits arising as a result of alleged false natural
gas price reporting. Allegations included manipulation of NYMEX
natural gas futures and options prices, price-fixing
conspiracies, and artificial inflation of natural gas retail
prices in Colorado, Kansas, Missouri, Tennessee, and Wisconsin.
CMS Energy cannot predict the outcome of the lawsuits or the
amount of damages for which CMS Energy may be liable. It is
possible that the outcome in one or more of the lawsuits could
have a material adverse effect on CMS Energy’s liquidity,
financial condition, and results of operations.
CMS
Energy and Consumers retain contingent liabilities in connection
with their asset sales.
The agreements that CMS Energy and Consumers enter into for the
sale of assets customarily include provisions whereby they are
required to:
| • | retain specified preexisting liabilities, such as for taxes, pensions, or environmental conditions; | |
| • | indemnify the buyers against specified risks, including the inaccuracy of representations and warranties they make; and |
33
Table of Contents
| • | make payments to the buyers depending on the outcome of post-closing adjustments, litigation, audits, or other reviews, including claims resulting from attempts by foreign or domestic governments to assess taxes on past operations or transactions. |
Many of these contingent liabilities can remain open for
extended periods of time after the sales are closed. Depending
on the extent to which the buyers may ultimately seek to enforce
their rights under these contractual provisions, and the
resolution of any disputes concerning them, there could be a
material adverse effect on CMS Energy’s or Consumers’
liquidity, financial condition, and results of operations.
CMS
Energy and Consumers have financing needs and could be unable to
obtain bank financing or access the capital markets. Potential
disruption in the capital and credit markets could have a
material adverse effect on CMS Energy’s and Consumers’
businesses, including the availability and cost of short-term
funds for liquidity requirements and their ability to meet
long-term commitments. These consequences could have a material
adverse effect on CMS Energy’s and Consumers’
liquidity, financial condition, and results of
operations.
CMS Energy and Consumers may be subject to liquidity demands
under commercial commitments, guarantees, indemnities, and
letters of credit. Consumers’ capital requirements are
expected to be substantial over the next several years as it
implements generation and environmental projects, and those
requirements may increase if additional laws or regulations are
adopted or implemented regarding greenhouse gases, including
carbon dioxide.
CMS Energy and Consumers rely on the capital markets,
particularly for publicly offered debt, as well as on bank
syndications, to meet their financial commitments and short-term
liquidity needs if internal funds are not available from CMS
Energy’s and Consumers’ respective operations. CMS
Energy and Consumers also use letters of credit issued under
certain of their revolving credit facilities to support certain
operations and investments.
Longer term disruptions in the capital and credit markets as a
result of uncertainty, changing or increased regulation, reduced
alternatives, or failures of significant financial institutions
could adversely affect CMS Energy’s and Consumers’
access to liquidity needed for their respective businesses. Any
disruption could require CMS Energy and Consumers to take
measures to conserve cash until the markets stabilize or until
alternative credit arrangements or other funding for their
business needs can be arranged. These measures could include
deferring capital expenditures, changing CMS Energy’s and
Consumers’ commodity purchasing strategy to avoid
collateral-posting requirements, and reducing or eliminating
future share repurchases, dividend payments, or other
discretionary uses of cash.
CMS Energy continues to explore financing opportunities to
supplement its financial plan. These potential opportunities
include refinancing
and/or
issuing new capital markets debt, preferred stock
and/or
common equity, and bank financing. Similarly, Consumers plans to
seek funds through the capital markets, commercial lenders, and
leasing arrangements. Entering into new financings is subject in
part to capital market receptivity to utility industry
securities in general and to CMS Energy’s and
Consumers’ securities issuances in particular. CMS Energy
and Consumers cannot guarantee the capital markets’
acceptance of their securities or predict the impact of factors
beyond their control, such as actions of rating agencies. If CMS
Energy or Consumers is unable to obtain bank financing or access
the capital markets to incur or refinance indebtedness, or is
unable to obtain commercially reasonable terms for any
financing, there could be a material adverse effect on its
liquidity, financial condition, and results of operations.
Certain of CMS Energy’s securities and those of its
affiliates, including Consumers, are rated by various credit
rating agencies. Any reduction or withdrawal of one or more of
its credit ratings could have a material adverse impact on CMS
Energy’s or Consumers’ ability to access capital on
acceptable terms and maintain commodity lines of credit, could
make its cost of borrowing higher, and could cause CMS Energy or
Consumers to reduce its capital expenditures. If it is unable to
maintain commodity lines of credit, CMS Energy or Consumers may
have to post collateral or make prepayments to certain of its
suppliers under existing contracts. Further, since Consumers
provides dividends to CMS Energy, any adverse developments
affecting Consumers that result in a lowering of its credit
ratings could have an adverse effect on CMS Energy’s credit
ratings. CMS Energy and Consumers cannot
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Table of Contents
guarantee that any of their present ratings will remain in
effect for any given period of time or that a rating will not be
lowered or withdrawn entirely by a rating agency.
CMS
Energy and Consumers could incur additional significant costs to
comply with environmental requirements.
CMS Energy, Consumers, and their subsidiaries are subject to
costly and increasingly stringent environmental regulations.
They believe that environmental laws and regulations related to
flue gas emissions, ash disposal, and cooling water use will
continue to become more stringent and require them to make
additional significant capital expenditures for emissions
control equipment installation and upgrades.
In 2009, the EPA issued an endangerment finding for greenhouse
gases under the Clean Air Act. In this finding, which has been
challenged in the U.S. Court of Appeals for the D.C.
Circuit by numerous parties, the EPA determined that present and
projected atmospheric concentrations of six greenhouse gases
threaten the public health and welfare of present and future
generations. In May 2010, the EPA issued a final rule that
addresses greenhouse gas emissions from stationary sources under
the Clean Air Act permitting programs. The “tailoring
rule” sets thresholds for greenhouse gas emissions that
define when permits under the NSR and Title V programs are
required for new and existing industrial facilities. This
regulation took effect in January 2011. Comprehensive federal
legislation that addresses greenhouse gases has not advanced in
the U.S. Congress. Federal legislation is considered likely
to be enacted in some form in the future and could have a
significant impact on the operation and cost of existing and
future fossil-fueled power plants.
In 2010, a significant percentage of the energy generated by
Consumers came from fossil-fueled power plants. The emissions
from fossil-fueled power plants would be subject to greenhouse
gas regulations. CMS Enterprises also has interests in
fossil-fueled power plants and other types of power plants that
produce greenhouse gases. Federal laws and rules limiting the
emission of greenhouse gases or similar state laws and rules, if
enacted, as well as international accords and treaties, could
require CMS Energy and Consumers to install additional equipment
for emission controls, purchase carbon emissions allowances,
curtail operations, invest in non-fossil-fuel generating
capacity, or take other significant steps to manage or lower the
emission of greenhouse gases. The following risks related to
climate change could also have a material adverse impact on CMS
Energy’s and Consumers’ liquidity, financial
condition, and results of operations:
| • | litigation originated by third parties against CMS Energy, Consumers, or their subsidiaries due to CMS Energy’s or Consumers’ greenhouse gas emissions; | |
| • | impairment of CMS Energy’s or Consumers’ reputation due to its greenhouse gas emissions and public perception of its response to potential greenhouse gas regulations, rules, and legislation; and | |
| • | extreme weather conditions, such as severe storms, that may affect customer demand, company operations, or assets. |
The EPA is considering regulating CCBs, such as coal ash, as
hazardous wastes under the Resource Conservation and Recovery
Act. Michigan already regulates CCBs as low-hazard industrial
waste. If coal ash is regulated as a hazardous waste, Consumers
would likely cease the beneficial re-use of this product,
resulting in significantly more coal ash requiring costly
disposal. Additionally, it is possible that existing landfills
could be closed if the upgrades to hazardous waste landfill
standards are economically prohibitive. Costs associated with
this potential regulation could be substantial.
The EPA is revising regulations that govern cooling water intake
structures aimed at protecting aquatic life. Costs associated
with these revisions could be material to CMS Energy, Consumers,
and CMS Enterprises and result in operational changes or the
retirement of certain generating units.
CMS Energy and Consumers expect to collect fully from their
customers, through the ratemaking process, expenditures incurred
to comply with environmental regulations. If Consumers were
unable to recover these expenditures from customers in rates, it
could negatively affect CMS Energy’s
and/or
Consumers’ liquidity, results of operations, and financial
condition and CMS Energy
and/or
Consumers could be required to seek significant additional
financing to fund these expenditures.
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CMS
Energy’s and Consumers’ businesses could be affected
adversely by any delay in meeting environmental
requirements.
A delay or failure by CMS Energy or Consumers to obtain or
maintain any necessary environmental permits or approvals to
satisfy any applicable environmental regulatory requirements or
install emission control equipment could:
| • | prevent the construction of new facilities; | |
| • | prevent the continued operation and sale of energy from existing facilities; | |
| • | prevent the modification of existing facilities; or | |
| • | result in significant additional costs that could have a material adverse effect on their liquidity, financial condition, or results of operations. |
Market
performance and other changes could decrease the value of
benefit plan assets, which then could require significant
funding.
The performance of the capital markets affects the values of
assets that are held in trust to satisfy future obligations
under CMS Energy’s and Consumers’ pension and
postretirement benefit plans. CMS Energy and Consumers have
significant obligations under these plans and hold significant
assets in these trusts. These assets are subject to market
fluctuations and will yield uncertain returns, which may fall
below CMS Energy’s and Consumers’ forecasted return
rates. A decline in the market value of the assets or a change
in the level of interest rates used to measure the required
minimum funding levels may increase the funding requirements of
these obligations. Also, changes in demographics, including
increased number of retirements or changes in life expectancy
assumptions, may increase the funding requirements of the
obligations related to the pension and postretirement benefit
plans. If CMS Energy and Consumers were unable to manage their
pension and postretirement plan assets successfully, it could
have a material adverse effect on their liquidity, financial
condition, and results of operations.
Periodic
reviews of the values of CMS Energy’s and Consumers’
assets could result in accounting charges.
CMS Energy and Consumers are required by GAAP to review
periodically the carrying value of their assets, including those
that may be sold. Market conditions, the operational
characteristics of their assets, and other factors could result
in recording impairment charges for their assets, which could
have an adverse effect on their stockholders’ equity and
their access to additional financing. In addition, CMS Energy
and Consumers may be required to record impairment charges at
the time they sell assets, depending on the sale prices they are
able to secure and other factors.
CMS
Energy’s and Consumers’ businesses have safety
risks.
Consumers’ electric and gas delivery systems, power plants,
gas infrastructure, and energy products could be involved in
accidents that result in injury or property loss to customers,
employees, or the public. Although CMS Energy and Consumers have
insurance coverage for many potential incidents, depending upon
the nature or severity of any incident or accident, CMS Energy
or Consumers could suffer financial loss, damage to its
reputation, and negative repercussions from regulatory agencies
or other public authorities.
CMS
Energy’s and Consumers’ revenues and results of
operations are subject to risks that are beyond their control,
including but not limited to natural disasters, terrorist
attacks or related acts of war, hostile cyber intrusions, or
other catastrophic events.
The impact of natural disasters, wars, terrorist acts, cyber
intrusions, and other catastrophic events on the facilities and
operations of CMS Energy and Consumers could have a material
adverse affect on their liquidity, financial condition, and
results of operations. A terrorist attack on physical
infrastructure or a major natural disaster could result in
severe damage to CMS Energy’s and Consumers’ assets
beyond what could be recovered through insurance policies.
Hostile cyber intrusions, including those targeting information
systems as well as electronic control systems used at the
generating plants and for the electric and gas distribution
systems, could severely disrupt
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business operations and result in loss of service to customers,
as well as significant expense to repair security breaches or
system damage. Terrorist attacks or acts of war could result in
the disruption of power and fuel markets that could increase
costs or disrupt service. Instability in the financial markets
as a result of terrorism, war, natural disasters, credit crises,
recessions, or other factors, could have a material adverse
effect on CMS Energy’s and Consumers’ liquidity,
financial condition, and results of operations.
CMS
Energy and Consumers are exposed to significant reputational
risks.
Consumers is actively engaged in multiple regulatory oversight
processes and has a large electric and gas customer base. As a
result, Consumers has a highly visible public profile in
Michigan. Consumers and CMS Energy could suffer negative impacts
to their reputations as a result of operational incidents,
violations of corporate compliance policies, regulatory
violations, or other events. This could have a material adverse
effect on CMS Energy’s and Consumers’ liquidity,
financial condition, and results of operations. It could also
result in negative customer perception and increased regulatory
oversight.
Energy
risk management strategies may not be effective in managing fuel
and electricity pricing risks, which could result in
unanticipated liabilities to Consumers and CMS Energy or
increased volatility of their earnings.
Consumers is exposed to changes in market prices for natural
gas, coal, electricity, emission allowances, and RECs. Prices
for natural gas, coal, electricity, emission allowances, and
RECs may fluctuate substantially over relatively short periods
of time and expose Consumers to commodity price risk. A
substantial portion of Consumers’ operating expenses for
its plants consists of the costs of obtaining these commodities.
Consumers manages these risks using established policies and
procedures, and it may use various contracts to manage these
risks, including swaps, options, futures, and forward contracts.
No assurance can be made that these strategies will be
successful in managing Consumers’ pricing risk or that they
will not result in net liabilities to Consumers as a result of
future volatility in these markets.
Natural gas prices in particular have been historically
volatile. Consumers routinely enters into contracts to mitigate
exposure to the risks of demand, market effects of weather, and
changes in commodity prices associated with its gas distribution
business. These contracts are executed in conjunction with the
GCR mechanism, which is designed to allow Consumers to recover
prudently incurred costs associated with those positions.
Consumers does not always hedge the entire exposure of its
operations from commodity price volatility. Furthermore, the
ability to hedge exposure to commodity price volatility depends
on liquid commodity markets. As a result, to the extent the
commodity markets are illiquid, Consumers may not be able to
execute its risk management strategies, which could result in
greater unhedged positions than preferred at a given time. To
the extent that unhedged positions exist, fluctuating commodity
prices could have a negative effect on CMS Energy’s and
Consumers’ liquidity, financial condition, and results of
operations.
Changes
in taxation as well as the inherent difficulty in quantifying
potential tax effects of business decisions could negatively
impact CMS Energy’s and Consumers’ results of
operations.
CMS Energy and Consumers are required to make judgments
regarding the potential tax effects of various financial
transactions and results of operations in order to estimate
their obligations to taxing authorities. The tax obligations
include income, real estate, sales and use taxes,
employment-related taxes, and ongoing issues related to these
tax matters. The judgments include determining reserves for
potential adverse outcomes regarding tax positions that have
been taken and may be subject to challenge by the IRS
and/or
other
taxing authorities. Unfavorable settlements of any of the issues
related to these reserves at CMS Energy or Consumers could have
a material adverse effect on its liquidity, financial condition,
and results of operations.
CMS Energy and Consumers are subject to changing tax laws.
Increases in local, state, or federal tax rates or other changes
in tax laws could have adverse impacts on their liquidity,
financial condition, and results of operations.
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Consumers
is exposed to risks related to general economic conditions in
its service territories.
Consumers’ electric and gas utility businesses are affected
by the economic conditions of the customers they serve. In
Consumers’ service territories in Michigan, the economy has
been affected adversely by economic and financial instability in
the automotive and real estate sectors and by relatively high
unemployment. The Michigan economy also has been affected
negatively by the uncertainty in the financial and credit
markets. If economic conditions in Michigan decline further,
Consumers may experience reduced demand for electricity or
natural gas that could result in decreased earnings and cash
flow. In addition, economic conditions in Consumers’
service territory affect its collections of accounts receivable
and levels of lost or stolen gas, which in turn impact its
liquidity, financial condition, and results of operations.
CMS
Energy’s and Consumers’ energy sales and operations
are affected by seasonal factors and varying weather conditions
from year to year.
CMS Energy’s and Consumers’ businesses are seasonal.
Demand for electricity is greater in the summer cooling season
and the winter heating season. Demand for natural gas peaks in
the winter heating season. Accordingly, their overall results in
the future may fluctuate substantially on a seasonal basis. Mild
temperatures during the summer cooling season and winter heating
season could have a material adverse affect on CMS Energy’s
and Consumers’ liquidity, financial condition, and results
of operations.
Unplanned
power plant outages could be costly for Consumers.
When unplanned maintenance work is required on power plants or
other equipment, Consumers may be required to incur unplanned
expenses and to make spot market purchases of electricity that
exceed its costs of generation. If Consumers were unable to
recover any of these increased costs in rates, it could have a
material adverse effect on Consumers’ liquidity, financial
condition, and results of operations.
A work
interruption or other union actions could adversely affect CMS
Energy and Consumers.
Over 40 percent of CMS Energy’s and Consumers’
employees are represented by a union. If these employees were to
engage in a strike, work stoppage, or other slowdown, or if the
terms and conditions in future labor agreements were
renegotiated, CMS Energy and Consumers could experience a
significant disruption in their operations and higher ongoing
labor costs.
Failure
to attract and retain an appropriately qualified workforce could
harm CMS Energy’s and Consumers’ results of
operations.
If CMS Energy and Consumers were unable to match skill sets to
future needs, they could encounter operating challenges and
increased costs. These challenges could include a lack of
resources, loss of knowledge, and delays in skill development.
Additionally, higher costs could result from the use of
contractors to replace employees, loss of productivity, and
safety incidents. Failing to train replacement employees
adequately and to transfer internal knowledge and expertise
could affect CMS Energy’s and Consumers’ ability to
manage and operate their businesses. If CMS Energy and Consumers
were unable to attract and retain an appropriately qualified
workforce, their results of operations could be affected
negatively.
Consumers
may not be able to obtain an adequate supply of coal or natural
gas, which could limit its ability to operate its electric
generation facilities or serve its natural gas
customers.
Consumers is dependent on coal for a significant portion of its
electric generating capacity. While Consumers has coal supply
and transportation contracts in place, there can be no assurance
that the counterparties to these agreements will fulfill their
obligations to supply coal to Consumers. The suppliers under the
agreements may experience financial or operational problems that
inhibit their ability to fulfill their obligations to Consumers.
In addition, suppliers under these agreements may not be
required to supply coal to Consumers under certain
circumstances, such as in the event of a natural disaster. If
Consumers were unable to obtain its coal requirements under
existing or future coal supply and transportation contracts, it
may be required to purchase coal at higher
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prices, or it may be forced to purchase electricity from higher
cost generating resources in the Midwest Energy Market, which
would increase Consumers’ working capital requirements.
Consumers has firm interstate transportation and supply
agreements in place to facilitate deliveries of natural gas to
its customers. Apart from the contractual and monetary remedies
available to Consumers in the event of a counterparty’s
failure to perform, there can be no assurances that the
counterparties to these firm interstate transportation and
supply agreements will fulfill their obligations to provide
natural gas to Consumers. In addition, suppliers under these
agreements may not be required to deliver natural gas to
Consumers in certain circumstances, such as in the event of a
natural disaster. If Consumers were unable to obtain its natural
gas supply requirements under existing or future natural gas
supply and transportation contracts, it could be required to
purchase natural gas at higher prices from other sources or
implement its natural gas curtailment program filed with the
MPSC, which would increase Consumers’ working capital
requirements and decrease its natural gas revenues.
Electric
industry regulation could have a material adverse effect on CMS
Energy’s and Consumers’ businesses.
Federal and state regulation of electric utilities has changed
dramatically in the last two decades and could continue to
change over the next several years. These changes could have a
material adverse effect on CMS Energy’s and Consumers’
liquidity, financial condition, and results of operations.
CMS Energy and Consumers are subject to, or affected by,
extensive federal and state utility regulation. In CMS
Energy’s and Consumers’ business planning and
management of operations, they must address the effects of
existing and proposed regulation on their businesses and changes
in the regulatory framework, including initiatives by federal
and state legislatures, regional transmission organizations,
utility regulators, and taxing authorities. Adoption of new
regulations by federal or state agencies, or changes to present
regulations and interpretations of these regulations, could have
a material adverse effect on CMS Energy’s and
Consumers’ liquidity, financial condition, and results of
operations.
There are multiple proceedings pending before FERC involving
transmission rates, regional transmission organizations, and
electric bulk power markets and transmission. CMS Energy and
Consumers cannot predict the impact of these electric industry
restructuring proceedings on their liquidity, financial
condition, and results of operations.
Electric
industry legislation could have a material adverse effect on CMS
Energy’s and Consumers’ businesses.
The 2008 Energy Legislation, among other things, limits
alternative electric supply to ten percent of weather-adjusted
retail sales for the preceding calendar year for ROA. Proposals
have been made to raise that limit, which, if enacted, could
have a material adverse effect on Consumers’ business.
Proposals also have been made to increase the electric sales
volume that will be required from renewable energy sources.
Other new legislation or interpretations could change how the
businesses of CMS Energy and Consumers operate, impact the
ability of Consumers to recover costs through rate increases, or
require CMS Energy or Consumers to incur additional expenses.
The
markets for alternative energy and distributed generation could
impact financial results.
Advances in technology could reduce the cost of alternative
methods of producing electricity, such as fuel cells,
microturbines, windmills, and photovoltaic (solar) cells, to a
level that is competitive with that of fossil-fuel technology
utilized by CMS Energy and Consumers to produce a majority of
their electricity. It is also possible that electric customers
could reduce their electric consumption significantly through
demand-side energy conservation programs. Changes in technology
could also alter the channels through which electric customers
buy electricity. Any of these changes could have a material
adverse effect on CMS Energy’s and Consumers’
liquidity, financial condition, or results of operations.
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CMS
Energy and Consumers are subject to rate regulation, which could
have an adverse effect on financial results.
CMS Energy and Consumers are subject to rate regulation.
Electric and gas rates for their utilities are set by the MPSC
and cannot be increased without regulatory authorization. While
Consumers is permitted by the 2008 Energy Legislation to
self-implement rate changes six months after a rate filing with
the MPSC, subject to certain limitations, if a final rate order
from the MPSC provides for lower rates than Consumers
self-implemented, Consumers must refund the difference, with
interest. Also, the MPSC may delay or deny implementation of a
rate increase upon showing of good cause.
In addition, Consumers’ plans for making significant
capital investments, including modifications to meet new
environmental requirements and investment in new generation,
could be affected adversely or could have a material adverse
effect on Consumers if rate regulators fail to provide timely
rate relief. Regulators seeking to avoid or minimize rate
increases could resist raising customer rates sufficiently to
permit Consumers to recover the full cost of modifications to
meet environmental requirements and other prudent investments.
In addition, because certain costs are mandated by state
requirements for cost recovery, such as resource additions to
meet Michigan’s renewable resource standard, regulators
could be more inclined to oppose rate increases for other
required items and investments. Rate regulators could also face
pressure to avoid or limit rate increases for a number of
reasons, including failure of Michigan’s economy to improve
or diminishment of Consumers’ customer base. In addition to
potentially affecting Consumers’ investment program, any
limitation of cost recovery through rates could have a material
adverse effect on Consumers’ liquidity, financial
condition, and results of operations.
A further regulatory risk could arise from the MPSC’s
adoption of mechanisms to decouple revenues from electricity and
gas sales. The MPSC’s adoption or future treatment of these
mechanisms could impact future revenues.
FERC authorizes certain subsidiaries of CMS Energy to sell
electricity at market-based rates. Failure of CMS Energy and
Consumers to obtain adequate rates or regulatory approvals in a
timely manner could have a material adverse effect on CMS
Energy’s and Consumers’ liquidity, financial
condition, and results of operations.
The various risks associated with the MPSC and FERC regulation
of CMS Energy’s and Consumers’ businesses, which
include the risk of adverse decisions in any number of rate or
regulatory proceedings before either agency, could have a
substantial negative effect on the companies’ investment
plans and results of operations.
CMS
Energy’s and Consumers’ financial statements,
including their reported earnings, could be significantly
impacted by convergence with International Financial Reporting
Standards.
The FASB is expected to make broad changes to GAAP as part of an
overall initiative to converge U.S. standards with
International Financial Reporting Standards. These changes could
have significant impacts on the financial statements of CMS
Energy and Consumers. Also, the SEC is considering incorporating
International Financial Reporting Standards into the financial
reporting system for U.S. registrants. A transition to
International Financial Reporting Standards could significantly
impact CMS Energy’s and Consumers’ financial results,
since these standards differ from GAAP in many ways. One of the
major differences is the lack of special accounting treatment
for regulated activities under International Financial Reporting
Standards, which could result in greater earnings volatility for
CMS Energy and Consumers.
CMS
Energy and Consumers are exposed to credit risk of those with
whom they do business.
CMS Energy and Consumers are exposed to credit risk of
counterparties with whom they do business. Adverse economic
conditions or financial difficulties experienced by these
counterparties could impair the ability of these counterparties
to pay for CMS Energy’s and Consumers’ services or
fulfill their contractual obligations, including performance and
payment of damages. CMS Energy and Consumers depend on these
counterparties to remit payments and perform services timely.
Any delay or default in payment or performance of contractual
obligations could have a material adverse effect on CMS
Energy’s and Consumers’ liquidity, financial
condition, and results of operations.
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In recent years, the capital and credit markets have experienced
unprecedented high levels of volatility and disruption. Market
disruption and volatility could have a negative impact on CMS
Energy’s and Consumers’ lenders, suppliers, customers,
and other counterparties, causing them to fail to meet their
obligations. Adverse economic conditions could also have a
negative impact on the loan portfolio of CMS Energy’s
banking subsidiary, EnerBank.
CMS
Energy could be required to pay cash to certain security holders
in connection with the optional conversion of their convertible
securities.
CMS Energy has issued two series of cash-convertible securities,
of which an aggregate principal amount of $460 million was
outstanding at December 31, 2010. If the trading price of
CMS Energy’s common stock exceeds specified amounts at the
end of a particular fiscal quarter, then holders of one or more
series of these convertible securities will have the option to
convert their securities in the following fiscal quarter, with
the principal amount payable in cash by CMS Energy. Accordingly,
if these trading price minimums are satisfied and security
holders exercise their conversion rights, CMS Energy may be
required to outlay a significant amount of cash to those
security holders, which could have a material adverse effect on
CMS Energy’s liquidity and financial condition.
There
are risks associated with Consumers’ significant capital
investment program planned for the next five
years.
Consumers’ planned investments include an advanced metering
infrastructure program, renewable power generation, gas
compression, environmental controls, other electric and gas
infrastructure to upgrade delivery systems, and, potentially,
new power plants. The success of these investments depends on or
could be affected by a variety of factors including, but not
limited to, effective cost and schedule management during
implementation, changes in commodity and other prices,
operational performance, changes in environmental, legislative
and regulatory requirements, and regulatory cost recovery.
Consumers cannot predict the impact that any of these factors
could have on the success of its capital investment program. It
is possible that adverse events associated with these factors
could have a material adverse effect on Consumers’
liquidity, financial condition, and results of operations.
None.
Descriptions of CMS Energy’s and Consumers’ properties
are found in the following sections of Item 1, all of which
are incorporated by reference in this Item 2:
| • | Business, Business Segments, Consumers Electric Utility, Electric Utility Properties; | |
| • | Business, Business Segments, Consumers Gas Utility, Gas Utility Properties; and | |
| • | Business, Business Segments, Enterprises Segment — Non-Utility Operations and Investments, IPP Properties. |
For information regarding CMS Energy’s, Consumers’,
and their subsidiaries’ significant pending administrative
and judicial proceedings involving regulatory, operating,
transactional, environmental, and other matters, see
Item 8. Financial Statements and Supplementary Data, Notes
to Consolidated Financial Statements, Note 5, Contingencies
and Commitments and Note 6, Regulatory Matters.
CMS Energy, Consumers, and certain of their subsidiaries and
affiliates are also parties to routine lawsuits and
administrative proceedings incidental to their businesses
involving, for example, claims for personal injury and property
damage, contractual matters, various taxes, and rates and
licensing.
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MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
CMS
Energy
CMS Energy’s common stock is traded on the New York Stock
Exchange. Market prices for CMS Energy’s common stock and
related security holder matters are contained in Item 7.
MD&A and Item 8. Financial Statements and
Supplementary Data, Notes to Consolidated Financial Statements,
Note 22, Quarterly Financial and Common Stock Information
(Unaudited), which are incorporated by reference herein. At
February 10, 2011, the number of registered holders of CMS
Energy’s common stock totaled 42,360, based on the number
of record holders. Presented in the following table are CMS
Energy’s dividends on its common stock:
| Per Share | ||||||||||||||||
| February | May | August | November | |||||||||||||
|
2010
|
$ | 0.150 | $ | 0.150 | $ | 0.150 | $ | 0.210 | ||||||||
|
2009
|
$ | 0.125 | $ | 0.125 | $ | 0.125 | $ | 0.125 | ||||||||
Information regarding securities authorized for issuance under
equity compensation plans is included in CMS Energy’s
definitive proxy statement, which is incorporated by reference
herein. For additional information regarding dividends and
dividend restrictions, see Item 8. Financial Statements and
Supplementary Data, Notes to Consolidated Financial Statements,
Note 7, Financings and Capitalization.
Consumers
Consumers’ common stock is privately held by its parent,
CMS Energy, and does not trade in the public market. Presented
in the following table are Consumers’ cash dividends on its
common stock:
| In Millions | ||||||||||||||||
| February | May | August | November | |||||||||||||
|
2010
|
$ | 114 | $ | 54 | $ | 91 | $ | 99 | ||||||||
|
2009
|
$ | 72 | $ | 58 | $ | 103 | $ | 52 | ||||||||
For additional information regarding dividends and dividend
restrictions, see Item 8. Financial Statements and
Supplementary Data, Notes to Consolidated Financial Statements,
Note 7, Financings and Capitalization.
Issuer
Repurchases of Equity Securities
Presented in the following table are CMS Energy’s
repurchases of equity securities for the three months ended
December 31, 2010:
|
Total Number of
|
Maximum Number of
|
|||||||||||||||
|
Shares Purchased as
|
Shares that May Yet
|
|||||||||||||||
|
Total Number of
|
Average
|
Part of Publicly
|
Be Purchased Under
|
|||||||||||||
|
Shares Purchased
|
Price Paid
|
Announced Plans or
|
Publicly Announced
|
|||||||||||||
|
Period
|
(a) | per Share | Programs | Plans or Programs | ||||||||||||
|
October 1, 2010 to October 31, 2010
|
2,071 | $ | 18.54 | — | — | |||||||||||
|
November 1, 2010 to November 30, 2010
|
— | — | — | — | ||||||||||||
|
December 1, 2010 to December 31, 2010
|
1,861 | 18.62 | — | — | ||||||||||||
|
Total
|
3,932 | $ | 18.58 | — | — | |||||||||||
| (a) | Common shares were purchased to satisfy CMS Energy’s minimum statutory income tax withholding obligation for common shares that have vested under the PISP. Shares repurchased have a value based on the market price on the vesting date. |
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Unregistered
Sales of Equity Securities
On December 30, 2010, CMS Energy issued 166,930 shares
of its common stock and paid $3 million in cash in exchange
for $3 million aggregate principal amount of its
3.375 percent Convertible Senior Notes Due 2023,
Series B. These convertible notes were tendered for
conversion on December 13, 2010 in accordance with the
terms and provisions of the Indenture of CMS Energy dated as of
September 15, 1992, as supplemented by the Sixteenth
Supplemental Indenture dated as of December 16, 2004. Such
shares of common stock were issued based on the conversion value
of $2,006.88 per $1,000 principal amount of convertible note.
The issuance of these shares of common stock was an exchange of
securities with existing shareholders and was exempt from
registration pursuant to Section 3(a)(9) of the Securities
Act of 1933, as amended.
CMS
Energy
Selected financial information is contained in Item 8.
Financial Statements and Supplementary Data, CMS Energy’s
Selected Financial Information, which is incorporated by
reference herein.
Consumers
Selected financial information is contained in Item 8.
Financial Statements and Supplementary Data, Consumers’
Selected Financial Information, which is incorporated by
reference herein.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CMS
Energy
Management’s discussion and analysis of financial condition
and results of operations is contained in Item 8. Financial
Statements and Supplementary Data, MD&A, which is
incorporated by reference herein.
Consumers
Management’s discussion and analysis of financial condition
and results of operations is contained in Item 8. Financial
Statements and Supplementary Data, MD&A, which is
incorporated by reference herein.
CMS
Energy
Quantitative and qualitative disclosures about market risk are
contained in Item 8. Financial Statements and Supplementary
Data, MD&A, Critical Accounting Policies, “Financial
and Derivative Instruments and Market Risk Information,”
which is incorporated by reference herein.
Consumers
Quantitative and qualitative disclosures about market risk are
contained in Item 8. Financial Statements and Supplementary
Data, MD&A, Critical Accounting Policies, “Financial
and Derivative Instruments and Market Risk Information,”
which is incorporated by reference herein.
43
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| Page | ||||
|
Index to Financial Statements:
|
||||
|
Selected Financial Information
|
||||
| 47 | ||||
| 48 | ||||
| 49 | ||||
|
Consolidated Financial Statements
|
||||
| 75 | ||||
| 84 | ||||
| 92 | ||||
|
Reports of Independent Registered Public Accounting Firms
|
||||
| 172 | ||||
| 173 | ||||
44
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(This page
intentionally left blank)
45
Table of Contents
2010 Consolidated
Financial Statements
and
2010 Consolidated
Financial Statements
46
Table of Contents
| Selected Financial Information | CMS Energy Corporation |
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||
|
Operating revenue (in millions)
|
($) | 6,432 | 6,205 | 6,807 | 6,451 | 6,117 | ||||||||||||||||||||||
|
Income (loss) from equity method investees
(in millions) |
($) | 11 | (2 | ) | 5 | 40 | 89 | |||||||||||||||||||||
|
Income (loss) from continuing operations
(in millions)(a) |
($) | 366 | 220 | 301 | (120 | ) | (242 | ) | ||||||||||||||||||||
|
Income (loss) from discontinued operations
(in millions) |
($) | (23 | ) | 20 | 1 | (110 | ) | 60 | ||||||||||||||||||||
|
Net income (loss) available to common stockholders (in millions)
|
($) | 324 | 218 | 284 | (234 | ) | (96 | ) | ||||||||||||||||||||
|
Average common shares outstanding
(in thousands) |
231,473 | 227,169 | 225,671 | 224,473 | 221,618 | |||||||||||||||||||||||
|
Earnings (loss) from continuing operations per average common
share
|
||||||||||||||||||||||||||||
|
CMS Energy — Basic
|
($) | 1.50 | 0.87 | 1.25 | (0.65 | ) | (0.67 | ) | ||||||||||||||||||||
|
- Diluted
|
($) | 1.36 | 0.83 | 1.20 | (0.65 | ) | (0.67 | ) | ||||||||||||||||||||
|
Earnings (loss) per average common share
|
||||||||||||||||||||||||||||
|
CMS Energy — Basic
|
($) | 1.40 | 0.96 | 1.25 | (1.04 | ) | (0.43 | ) | ||||||||||||||||||||
|
- Diluted
|
($) | 1.28 | 0.91 | 1.20 | (1.04 | ) | (0.43 | ) | ||||||||||||||||||||
|
Cash provided by operations (in millions)
|
($) | 959 | 848 | 557 | 23 | 688 | ||||||||||||||||||||||
|
Capital expenditures, excluding assets placed under capital
lease (in millions)
|
($) | 821 | 818 | 792 | 1,263 | 670 | ||||||||||||||||||||||
|
Total assets (in millions)
|
($) | 15,616 | 15,256 | 14,901 | 14,180 | 15,324 | ||||||||||||||||||||||
|
Long-term debt, excluding current portion
(in millions) |
($) | 6,448 | 5,895 | 6,015 | 5,533 | 6,338 | ||||||||||||||||||||||
|
Non-current portion of capital and finance lease obligations (in
millions)
|
($) | 188 | 197 | 206 | 225 | 42 | ||||||||||||||||||||||
|
Total preferred stock (in millions)
|
($) | — | 239 | 243 | 250 | 261 | ||||||||||||||||||||||
|
Cash dividends declared per common share
|
($) | 0.66 | 0.50 | 0.36 | 0.20 | — | ||||||||||||||||||||||
|
Market price of common stock at year-end
|
($) | 18.60 | 15.66 | 10.11 | 17.38 | 16.70 | ||||||||||||||||||||||
|
Book value per common share at year-end
|
($) | 11.19 | 11.42 | 10.93 | 9.54 | 10.14 | ||||||||||||||||||||||
|
Number of employees at year-end (full-time equivalents)
|
7,822 | 8,039 | 7,970 | 7,898 | 8,640 | |||||||||||||||||||||||
|
Electric Utility Statistics
|
||||||||||||||||||||||||||||
|
Sales (billions of kWh)
|
38 | 36 | 37 | 39 | 38 | |||||||||||||||||||||||
|
Customers (in thousands)
|
1,792 | 1,796 | 1,814 | 1,799 | 1,797 | |||||||||||||||||||||||
|
Average sales rate per kWh
|
(¢) | 10.54 | 9.81 | 9.48 | 8.65 | 8.46 | ||||||||||||||||||||||
|
Gas Utility Statistics
|
||||||||||||||||||||||||||||
|
Sales and transportation deliveries (bcf)
|
317 | 319 | 338 | 340 | 309 | |||||||||||||||||||||||
|
Customers (in thousands)(b)
|
1,711 | 1,708 | 1,713 | 1,710 | 1,714 | |||||||||||||||||||||||
|
Average sales rate per mcf
|
($) | 10.60 | 10.73 | 11.25 | 10.66 | 10.44 | ||||||||||||||||||||||
| (a) | Income (loss) from continuing operations includes income (loss) attributable to noncontrolling interests of $3 million at December 31, 2010, $11 million at December 31, 2009, $7 million at December 31, 2008, $(8) million at December 31, 2007, and $(97) million at December 31, 2006. | |
| (b) | Excludes off-system transportation customers. |
47
Table of Contents
| Selected Financial Information | Consumers Energy Company |
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||
|
Operating revenue (in millions)
|
($) | 6,156 | 5,963 | 6,421 | 6,064 | 5,721 | ||||||||||||||||||
|
Income from equity method investees (in millions)
|
($) | — | — | — | — | 1 | ||||||||||||||||||
|
Net income (in millions)
|
($) | 434 | 293 | 364 | 312 | 186 | ||||||||||||||||||
|
Net income available to common stockholder (in millions)
|
($) | 432 | 291 | 362 | 310 | 184 | ||||||||||||||||||
|
Cash provided by operations (in millions)
|
($) | 910 | 922 | 873 | 440 | 474 | ||||||||||||||||||
|
Capital expenditures, excluding assets placed under capital
lease (in millions)
|
($) | 815 | 811 | 789 | 1,258 | 646 | ||||||||||||||||||
|
Total assets (in millions)
|
($) | 14,839 | 14,622 | 14,246 | 13,401 | 12,845 | ||||||||||||||||||
|
Long-term debt, excluding current portion (in millions)
|
($) | 4,488 | 4,063 | 3,908 | 3,692 | 4,127 | ||||||||||||||||||
|
Non-current portion of capital and finance lease obligations (in
millions)
|
($) | 188 | 197 | 206 | 225 | 42 | ||||||||||||||||||
|
Total preferred stock (in millions)
|
($) | 44 | 44 | 44 | 44 | 44 | ||||||||||||||||||
|
Number of preferred stockholders at year-end
|
1,496 | 1,531 | 1,584 | 1,641 | 1,728 | |||||||||||||||||||
|
Number of employees at year-end (full-time equivalents)
|
7,522 | 7,755 | 7,697 | 7,614 | 8,026 | |||||||||||||||||||
|
Electric Utility Statistics
|
||||||||||||||||||||||||
|
Sales (billions of kWh)
|
38 | 36 | 37 | 39 | 38 | |||||||||||||||||||
|
Customers (in thousands)
|
1,792 | 1,796 | 1,814 | 1,799 | 1,797 | |||||||||||||||||||
|
Average sales rate per kWh
|
(¢) | 10.54 | 9.81 | 9.48 | 8.65 | 8.46 | ||||||||||||||||||
|
Gas Utility Statistics
|
||||||||||||||||||||||||
|
Sales and transportation deliveries (bcf)
|
317 | 319 | 338 | 340 | 309 | |||||||||||||||||||
|
Customers (in thousands)(a)
|
1,711 | 1,708 | 1,713 | 1,710 | 1,714 | |||||||||||||||||||
|
Average sales rate per mcf
|
($) | 10.60 | 10.73 | 11.25 | 10.66 | 10.44 | ||||||||||||||||||
| (a) | Excludes off-system transportation customers. |
48
Table of Contents
CMS Energy
Corporation
Consumers Energy
Company
This MD&A is a combined report of CMS Energy and Consumers.
EXECUTIVE
OVERVIEW
CMS Energy is an energy company operating primarily in Michigan.
It is the parent holding company of several subsidiaries,
including Consumers, an electric and gas utility, and CMS
Enterprises, primarily a domestic IPP. Consumers’ electric
utility operations include the generation, purchase,
distribution, and sale of electricity, and Consumers’ gas
utility operations include the purchase, transmission, storage,
distribution, and sale of natural gas. Consumers’ customer
base consists of a mix of residential, commercial, and
diversified industrial customers. CMS Enterprises, through its
subsidiaries and equity investments, owns and operates power
generation facilities.
CMS Energy and Consumers manage their businesses by the nature
of services each provides. CMS Energy operates principally in
three business segments: electric utility; gas utility; and
enterprises, its non-utility investments and operations.
Consumers operates principally in two business segments:
electric utility and gas utility.
CMS Energy and Consumers earn revenue and generate cash from
operations by providing electric and natural gas utility
services; electric distribution and generation; gas
transmission, storage, and distribution; and other
energy-related services. Their businesses are affected primarily
by:
| • | regulation and regulatory matters; | |
| • | economic conditions; | |
| • | weather; | |
| • | energy commodity prices; | |
| • | interest rates; and | |
| • | CMS Energy’s and Consumers’ securities’ credit ratings. |
During the past several years, CMS Energy’s “Growing
Forward” business strategy has emphasized the following key
elements:
Utility
Investment
Consumers expects to make capital investments of more than
$6 billion over the next five years, with a key aspect of
its strategy being the balanced energy initiative. The balanced
energy initiative is a comprehensive energy resource plan to
meet Consumers’ projected short-term and long-term electric
power requirements with energy efficiency, demand management,
expanded use of renewable energy, development of new power
plants, pursuit of
49
Table of Contents
additional PPAs to complement existing generating sources,
potential retirement or mothballing of older generating units,
and continued operation of others.
Presented in the following illustration are CMS Energy’s
and Consumers’ estimated capital expenditures, including
lease commitments, for 2011 through 2015:
Renewable energy projects are a major component of
Consumers’ planned capital investments. Consumers expects
to spend $650 million on renewable energy investments
through 2015. The 2008 Energy Legislation requires that at least
ten percent of Consumers’ electric sales volume come from
renewable energy sources by 2015, and includes requirements for
specific capacity additions. Consumers has historically included
renewable resources as part of its portfolio, with about five
percent of its present power supply coming from such renewable
sources as hydroelectric, landfill gas, biomass, and wind. In
2010, Consumers filed with the MPSC its first annual reports and
reconciliations for its renewable energy plan and its energy
optimization plan, requesting approval of 2009 plan costs. As
one of the conditions to the continuation of the electric and
gas decoupling mechanisms that were adopted in general rate
cases, Consumers must exceed the statutory savings targets
specified in the 2008 Energy Legislation for 2011 through 2014.
In December 2010, the MPSC approved Consumers’ amended
energy optimization plan to recover the additional spending
necessary to exceed these savings targets.
In February 2011, Consumers and Detroit Edison together
announced an $800 million maintenance and upgrade project
at their jointly owned Ludington pumped-storage plant. The
project, scheduled to begin in 2013 and extend through 2019,
will increase the capacity of Ludington from its present level
of 1,872 MW to about 2,172 MW. Consumers expects its
share of the project cost to total $400 million.
Consumers’ smart grid program will also represent a
significant capital investment. The initial deployment will
include advanced metering infrastructure and will follow a
phased approach, beginning in early 2012. Consumers expects to
spend $355 million on its smart grid program through 2015.
In May 2010, Consumers announced plans to defer the development
of its proposed
830-MW
coal-fueled plant at its Karn/Weadock generating complex. This
decision reflects reduced customer demand for electricity
resulting from the recession in Michigan, forecasted lower
natural gas prices due to recent developments in shale gas
recovery technology, and projected surplus generating capacity
in the MISO market.
50
Table of Contents
Regulation
Regulatory matters are a key aspect of CMS Energy’s and
Consumers’ businesses, particularly Consumers’ rate
cases and regulatory proceedings before the MPSC. Recent
significant regulatory events and developments are summarized
below.
| • | Big Rock Decommissioning Refund: In February 2010, the MPSC issued an order requiring that Consumers refund to customers $85 million collected during a rate freeze from 2001 to 2003 plus interest. Consumers completed this refund in January 2011. Consumers has filed an appeal of this order. | |
| • | 2009 Gas Rate Case: In May 2010, the MPSC issued a gas rate order authorizing Consumers to increase its gas rates in an annual amount of $66 million based on an authorized return on equity of 10.55 percent. This rate order also adopted a pilot revenue decoupling mechanism. In general, a decoupling mechanism allows a utility to adjust rates due to changes in sales volumes, in order to improve the match between the collection of revenues and the revenue level approved by the utility’s regulator. Consumers’ gas decoupling mechanism, subject to certain conditions, allows Consumers to adjust future gas rates to compensate for changes in sales volumes resulting from energy efficiency, conservation, and other non-weather factors. This mechanism is subject to review at the end of annual periods. | |
| • | 2010 Gas Rate Case: In August 2010, Consumers filed an application with the MPSC seeking an annual gas rate increase of $55 million based on an 11 percent authorized return on equity. The filing requested recovery for investments made to enhance safety, system reliability, and operational efficiencies that improve service to customers. In January 2011, Consumers filed testimony and exhibits with the MPSC in support of a self-implemented annual gas rate increase of $48 million, subject to refund with interest. In February 2011, Consumers filed a letter with the MPSC revising the proposed self-implemented increase to $29 million. The MPSC issued an order in February 2011, delaying Consumers’ self-implementation in order to give other parties to the proceeding an opportunity to respond to Consumers’ revised self-implementation filing. | |
| • | 2010 Electric Rate Case: In November 2010, the MPSC issued an electric rate order authorizing Consumers to increase its rates in an annual amount of $146 million based on an authorized return on equity of 10.7 percent. This electric rate order continues Consumers’ pilot electric decoupling mechanism, which, subject to certain conditions, was adopted in a November 2009 electric rate order. The electric decoupling mechanism is similar to the gas decoupling mechanism, but also permits rate adjustments to compensate for changes in sales volumes resulting from weather fluctuations. The mechanism is subject to review at the end of annual periods. |
Environmental regulation is another area of importance for CMS
Energy and Consumers. In 2009, the EPA issued an endangerment
finding that greenhouse gases, including carbon dioxide,
contribute to air pollution that may endanger the public health
and welfare, thus setting the stage for regulation of carbon
dioxide emissions under the Clean Air Act. The EPA also issued
an Advance Notice of Proposed Rulemaking in April 2010,
indicating that it is considering a variety of regulatory
actions with respect to PCBs. In June 2010, the EPA proposed a
range of alternatives for regulating CCBs, such as coal ash,
under the Resource Conservation and Recovery Act. In July 2010,
the EPA released CATR, a proposed rule that would replace CAIR.
CMS Energy and Consumers are monitoring these developments for
potential effects on their plans and operations.
Safety
The safety and security of employees, customers, and the general
public remain a priority of CMS Energy and Consumers.
Accordingly, CMS Energy and Consumers have worked to integrate a
set of safety principles into their business operations and
culture. These principles include complying with applicable
safety, health, and security regulations and implementing
programs and processes aimed at continually improving safety and
security conditions.
51
Table of Contents
Financial
Performance in 2010 and Beyond
In 2010, CMS Energy’s net income available to common
stockholders was $324 million, and diluted earnings per
share were $1.28. This compares with net income available to
common stockholders of $218 million and diluted earnings
per share of $0.91 in 2009.
Among the most significant factors contributing to CMS
Energy’s improved performance in 2010 were benefits from
electric and gas rate orders, the absence of a revenue reduction
in 2009 associated with the Big Rock decommissioning refund
order, increased deliveries of electricity, and an insurance
settlement related to a previously sold investment.
Also in 2010, CMS Energy recognized a $40 million charge to
increase the recorded liability for its affiliates’
environmental remediation obligation associated with Bay Harbor.
This increase was due to several factors, including anticipated
cost increases for the disposal of leachate under an NPDES
permit issued by the MDNRE; additional costs for the increased
scope of remediation to meet EPA and MDNRE requirements; and
increased legal, management, and engineering costs due to delays
in reaching an agreement with all involved parties. In addition,
Consumers recorded charges of $22 million in 2010 to write
off previously capitalized development costs associated with its
proposed coal-fueled plant. These charges reflected
Consumers’ decision to defer the development of the plant,
and the reduced likelihood that the plant will be constructed.
A more detailed discussion of the factors affecting CMS
Energy’s and Consumers’ performance in 2010 can be
found in the “Results of Operations” section that
follows this Executive Overview.
In 2010, Consumers’ weather-adjusted electric deliveries
increased by 1.7 percent over 2009, while Consumers’
weather-adjusted gas deliveries were at similar levels to 2009.
These trends support CMS Energy’s view that economic
conditions in Michigan have stabilized. Although Michigan’s
economy continues to be affected by the recession and its impact
on the state’s automotive industry, by high unemployment
rates, and by a modestly shrinking population, there are
indications that the recession is easing in Michigan. Consumers
expects its electric sales to increase by about 1.5 percent
annually through 2016, driven largely by the continued rise in
industrial production. Consumers is projecting that its gas
sales will decline by about one percent annually through 2016,
due largely to energy efficiency and conservation.
As Consumers continues to seek fair and timely regulatory
treatment, delivering customer value will remain a key strategic
priority. To keep costs down for its utility customers,
Consumers has set aggressive goals for annual productivity
improvements. Additionally, Consumers will strive to give
priority to capital investments that increase customer value or
lower costs.
Consumers expects to continue to have sufficient capacity to
fund its investment-based growth plans. CMS Energy also expects
its sources of liquidity to remain sufficient to meet its cash
requirements. CMS Energy and Consumers will continue to monitor
developments in the financial and credit markets, as well as
government policy responses to those developments, for potential
implications for their businesses and their future financial
needs.
RESULTS OF
OPERATIONS
CMS
Energy’s Consolidated Results of Operations
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions (except for Per Share Amounts) | ||||||||||||
|
Net Income Available to Common Stockholders
|
$ | 324 | $ | 218 | $ | 284 | ||||||
|
Basic Earnings Per Share
|
$ | 1.40 | $ | 0.96 | $ | 1.25 | ||||||
|
Diluted Earnings Per Share
|
$ | 1.28 | $ | 0.91 | $ | 1.20 | ||||||
52
Table of Contents
|
Years Ended December 31
|
2010 | 2009 | Change | 2009 | 2008 | Change | ||||||||||||||||||
| In Millions | ||||||||||||||||||||||||
|
Electric Utility
|
$ | 303 | $ | 194 | $ | 109 | $ | 194 | $ | 271 | $ | (77 | ) | |||||||||||
|
Gas Utility
|
127 | 96 | 31 | 96 | 89 | 7 | ||||||||||||||||||
|
Enterprises
|
36 | (7 | ) | 43 | (7 | ) | 13 | (20 | ) | |||||||||||||||
|
Corporate Interest and Other
|
(119 | ) | (85 | ) | (34 | ) | (85 | ) | (90 | ) | 5 | |||||||||||||
|
Discontinued Operations
|
(23 | ) | 20 | (43 | ) | 20 | 1 | 19 | ||||||||||||||||
|
Net Income Available to Common Stockholders
|
$ | 324 | $ | 218 | $ | 106 | $ | 218 | $ | 284 | $ | (66 | ) | |||||||||||
Presented in the following table are specific after-tax changes
to net income available to common stockholders for 2010 versus
2009:
| 2010 Over/(Under) 2009 | ||||||||||||
| (In Millions) | ||||||||||||
|
Electric and gas rate orders
|
$ | 90 | ||||||||||
|
Electric sales:
|
||||||||||||
|
Weather
|
$ | 52 | ||||||||||
|
Customer shift to energy-only rates and to ROA
|
(36 | ) | ||||||||||
|
Decoupling benefit
|
11 | 27 | ||||||||||
|
Gas sales, primarily weather
|
(14 | ) | ||||||||||
|
2009 net benefits, primarily asset sale gain and tax credit
|
(17 | ) | ||||||||||
|
Write-off of proposed coal-fueled plant cost
|
(14 | ) | ||||||||||
|
Other, mainly depreciation
|
(5 | ) | $ | 67 | ||||||||
|
Subsidiary earnings of enterprises segment
|
13 | |||||||||||
|
Cost of debt retirements and preferred stock redemptions, net
|
(20 | ) | ||||||||||
|
Interest expense
|
(9 | ) | ||||||||||
|
Other, mainly tax adjustments
|
(6 | ) | (35 | ) | ||||||||
|
2009 Big Rock decommissioning refund
|
79 | |||||||||||
|
Insurance settlement recovery
|
31 | |||||||||||
|
2009 gain on indemnity expiration
|
(31 | ) | ||||||||||
|
Other, including increase in Bay Harbor environmental liability
|
(18 | ) | 61 | |||||||||
|
Total change
|
$ | 106 | ||||||||||
Presented in the following table are specific after-tax changes
to net income available to common stockholders for 2009 versus
2008:
| 2009 Over/(Under) 2008 | ||||||||||||
| (In Millions) | ||||||||||||
|
Electric and gas rate orders
|
$ | 139 | ||||||||||
|
Electric and gas sales:
|
||||||||||||
|
Weather
|
$ | (34 | ) | |||||||||
|
Lower deliveries, mainly economic conditions
|
(14 | ) | (48 | ) | ||||||||
|
2008 net benefits, primarily sulfur dioxide credits
|
(23 | ) | ||||||||||
|
Plant maintenance expense
|
(20 | ) | ||||||||||
|
Pension and OPEB expenses
|
(19 | ) | ||||||||||
|
Forestry and tree trimming costs
|
(12 | ) | ||||||||||
|
Other, mainly higher property tax and interest expense
|
(19 | ) | $ | (2 | ) | |||||||
|
Subsidiary earnings of enterprises segment
|
5 | |||||||||||
|
Gain on early retirement of debt
|
7 | |||||||||||
|
Other, mainly tax adjustments
|
3 | 10 | ||||||||||
|
Big Rock decommissioning refund
|
(79 | ) | ||||||||||
|
Increase in Bay Harbor environmental liability
|
(22 | ) | ||||||||||
|
Gain on indemnity expiration
|
31 | |||||||||||
|
Other
|
(9 | ) | (79 | ) | ||||||||
|
Total change
|
$ | (66 | ) | |||||||||
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Table of Contents
Consumers’
Electric Utility Results of Operations
|
Years Ended December 31
|
2010 | 2009 | Change | 2009 | 2008 | Change | ||||||||||||||||||
| In Millions | ||||||||||||||||||||||||
|
Net Income Available to Common Stockholders
|
$ | 303 | $ | 194 | $ | 109 | $ | 194 | $ | 271 | $ | (77 | ) | |||||||||||
|
Reasons for the change:
|
||||||||||||||||||||||||
|
Electric deliveries and rate increases
|
$ | 266 | $ | (6 | ) | |||||||||||||||||||
|
Power supply costs and related revenue
|
(7 | ) | (1 | ) | ||||||||||||||||||||
|
Other income, net of expenses
|
(27 | ) | 14 | |||||||||||||||||||||
|
Maintenance and other operating expenses
|
(59 | ) | (77 | ) | ||||||||||||||||||||
|
Depreciation and amortization
|
(9 | ) | (2 | ) | ||||||||||||||||||||
|
General taxes
|
2 | (10 | ) | |||||||||||||||||||||
|
Interest charges
|
23 | (42 | ) | |||||||||||||||||||||
|
Income taxes
|
(80 | ) | 47 | |||||||||||||||||||||
|
Total change
|
$ | 109 | $ | (77 | ) | |||||||||||||||||||
Electric deliveries and rate increases:
For 2010,
electric delivery revenues increased $266 million compared
with 2009. This variance included $84 million associated
with favorable weather in 2010, offset partially by
$40 million of decreased demand revenues and
$19 million from lower customer usage. Additionally,
revenues increased $32 million due to surcharges from MPSC
orders allowing recovery of retirement benefit expenses, and
$100 million from authorized rate increases in November
2010 and November 2009. Revenues also increased $99 million
due to the absence of a refund ordered in 2009 related to the
Big Rock decommissioning case. For more details regarding the
Big Rock decommissioning order, see Note 6, Regulatory
Matters. Other miscellaneous revenue increases totaled
$10 million. Overall, deliveries to end-use customers were
37.7 billion kWh in 2010, an increase of 1.9 billion
kWh or 5.3 percent compared with 2009.
For 2009, electric delivery revenues decreased $6 million
compared with 2008. This variance resulted from $43 million
associated with unfavorable weather in 2009, $10 million
from lower customer usage, and $99 million from a refund
order related to the Big Rock decommissioning case, offset
largely by $146 million of additional revenues from
authorized rate increases in June 2008 and November 2009.
Overall, deliveries to end-use customers were 35.8 billion
kWh in 2009, a decrease of 1.7 billion kWh or
4.5 percent compared with 2008.
Other income, net of expenses:
For 2010, other
income decreased $27 million compared with 2009, due
primarily to a reduction of $8 million in interest income
recorded on regulatory assets and the absence, in 2010, of
$9 million of gains recognized on land sales in 2009.
For 2009, other income increased $14 million compared with
2008, due primarily to $9 million of gains recognized on
land sales in 2009 and an $11 million impairment charge
recorded on Consumers’ SERP investments in 2008.
Maintenance and other operating expenses:
For 2010,
maintenance and other operating expenses increased
$59 million compared with 2009. The increase was due
primarily to higher retirement benefit expenses of
$32 million and a $22 million impairment charge
related to Consumers’ decision to defer the development of
its proposed coal-fueled plant.
For 2009, maintenance and other operating expenses increased
$77 million compared with 2008. The increase was due
primarily to $24 million of higher plant maintenance
expenses, $23 million related to energy optimization
program costs, and higher benefit expenses of $7 million.
In addition, expenses increased $35 million in 2009 due to
sulfur dioxide credits and RCP savings on Consumers’ MCV
PPA contract recorded in 2008.
Interest charges:
For 2010, interest charges
decreased $23 million compared with 2009. The decrease was
due to the absence, in 2010, of $31 million of interest
expense associated with the 2009 Big Rock decommissioning order,
offset partially by an $8 million increase in other
interest charges in 2010.
For 2009, interest charges increased $42 million compared
with 2008, due to higher interest expense of $31 million
associated with the Big Rock decommissioning order and an
$11 million increase in other interest charges.
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Table of Contents
Income taxes:
For 2010, income taxes increased
$80 million compared with 2009, due to higher electric
utility earnings. For 2009, income taxes decreased
$47 million compared with 2008, due to lower electric
utility earnings.
Consumers’
Gas Utility Results of Operations
|
Years Ended December 31
|
2010 | 2009 | Change | 2009 | 2008 | Change | ||||||||||||||||||
| In Millions | ||||||||||||||||||||||||
|
Net Income Available to Common Stockholders
|
$ | 127 | $ | 96 | $ | 31 | $ | 96 | $ | 89 | $ | 7 | ||||||||||||
|
Reasons for the change:
|
||||||||||||||||||||||||
|
Gas deliveries and rate increases
|
$ | 60 | $ | 29 | ||||||||||||||||||||
|
Other income, net of expenses
|
(2 | ) | 13 | |||||||||||||||||||||
|
Maintenance and other operating expenses
|
(7 | ) | (32 | ) | ||||||||||||||||||||
|
Depreciation and amortization
|
(4 | ) | 18 | |||||||||||||||||||||
|
General taxes
|
2 | (4 | ) | |||||||||||||||||||||
|
Interest charges
|
(7 | ) | (5 | ) | ||||||||||||||||||||
|
Income taxes
|
(11 | ) | (12 | ) | ||||||||||||||||||||
|
Total change
|
$ | 31 | $ | 7 | ||||||||||||||||||||
Gas deliveries and rate increases:
For 2010, gas
delivery revenues increased $60 million compared with 2009,
due primarily to additional revenues of $54 million from an
authorized rate increase in May 2010. In addition, surcharge and
other miscellaneous revenues increased $30 million. These
increases were offset partially by a $24 million reduction
due to unfavorable weather in 2010. Gas deliveries, including
miscellaneous transportation to end-use customers, were 273.1
bcf in 2010, a decrease of 11.2 bcf or 3.9 percent compared
with 2009.
For 2009, gas delivery revenues increased $29 million
compared with 2008, due to additional revenues of
$32 million from an authorized rate increase in December
2008 and a self-implemented rate increase in November 2009. In
addition, surcharge and other miscellaneous revenues increased
$28 million. These increases were offset by
$10 million associated with unfavorable weather in 2009 and
$21 million due to lower customer usage. Gas deliveries,
including miscellaneous transportation to end-use customers,
were 284.3 bcf in 2009, a decrease of 19.4 bcf or
6.4 percent compared with 2008.
Other income, net of expenses:
Other income in 2010
was not materially different from other income in 2009.
For 2009, other income increased $13 million compared with
2008 due to $8 million of higher interest income on secured
borrowing agreements and a $5 million impairment charge
recorded on Consumers’ SERP investments in 2008.
Maintenance and other operating expenses:
For 2010,
maintenance and other operating expenses increased
$7 million compared with 2009 due primarily to energy
optimization program costs.
For 2009, maintenance and other operating expenses increased
$32 million compared with 2008, due primarily to
$14 million related to energy optimization program costs
and higher benefit expenses of $12 million.
Depreciation and amortization:
For 2010,
depreciation and amortization expense increased $4 million
compared with 2009, due primarily to increased plant in service.
For 2009, depreciation and amortization expense decreased
$18 million compared with 2008 due to the December 2008 gas
rate order, which reduced depreciation expense.
Income taxes:
For 2010, income taxes increased
$11 million compared with 2009, and for 2009, income taxes
increased $12 million compared with 2008. Both increases
were due to higher gas utility earnings.
Enterprises
Results of Operations
|
Years Ended December 31
|
2010 | 2009 | Change | 2009 | 2008 | Change | ||||||||||||||||||
| In Millions | ||||||||||||||||||||||||
|
Net Income (Loss) Available to Common Stockholders
|
$ | 36 | $ | (7 | ) | $ | 43 | $ | (7 | ) | $ | 13 | $ | (20 | ) | |||||||||
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Table of Contents
For 2010, the enterprises segment reported net income of
$36 million, compared with a net loss of $7 million
for 2009. The $43 million change reflected income of
$31 million from the settlement of an insurance claim
related to a previously sold asset and a $9 million tax
benefit related to the Michigan Business Tax. Additionally,
income increased $6 million due to higher gas and power
sales offset partially by increased maintenance and other
operating expenses. These increases were offset by a
$3 million decrease associated with Bay Harbor; in 2010,
the enterprises segment recorded a $25 million after-tax
increase in the environmental remediation liability associated
with Bay Harbor, compared with a $22 million after-tax
increase in 2009. For more details regarding Bay Harbor, see
Note 5, Contingencies and Commitments.
For 2009, the enterprises segment reported a net loss of
$7 million compared with net income of $13 million for
2008. The $20 million change was due primarily to a
$22 million after-tax increase in the environmental
remediation liability associated with Bay Harbor.
Corporate
Interest and Other Results of Operations
|
Years Ended December 31
|
2010 | 2009 | Change | 2009 | 2008 | Change | ||||||||||||||||||
| In Millions | ||||||||||||||||||||||||
|
Net Loss Available to Common Stockholders
|
$ | (119 | ) | $ | (85 | ) | $ | (34 | ) | $ | (85 | ) | $ | (90 | ) | $ | 5 | |||||||
For 2010, corporate interest and other net expenses increased
$34 million compared with 2009, reflecting an
$18 million gain recognized in 2009 on the early retirement
of long-term debt — related parties and
$15 million due primarily to higher tax expense in 2010
related to the Michigan Business Tax. Additionally, interest
expense increased $10 million due to higher debt levels at
higher average interest rates. These items were offset partially
by $9 million of higher net earnings at EnerBank and lower
legal fees.
For 2009, corporate interest and other net expenses decreased
$5 million, reflecting an $18 million gain on the
early retirement of long-term debt — related parties,
offset partially by $11 million in premiums paid on the
early retirement of senior notes.
Discontinued
Operations
For 2010, a loss of $23 million was recorded from
discontinued operations, compared with income of
$20 million for 2009. The $43 million change was due
primarily to a $28 million gain recognized in 2009 on the
expiration of an indemnity for a 2007 asset sale and
$10 million of additional tax expense in 2010 resulting
from an IRS audit adjustment related to a 2003 asset sale.
For 2009, income of $20 million was recorded from
discontinued operations, compared with income of $1 million
for 2008. The $19 million change was due primarily to a
$28 million gain on the expiration of an indemnity for a
2007 asset sale, offset partially by a loss of $8 million,
reflecting operating results at Exeter.
Cash
Position, Investing, and Financing
At December 31, 2010, CMS Energy had $270 million of
consolidated cash and cash equivalents, which included
$23 million of restricted cash and cash equivalents. At
December 31, 2010, Consumers had $94 million of
consolidated cash and cash equivalents, which included
$23 million of restricted cash and cash equivalents.
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Table of Contents
Operating
Activities
Presented in the following table are specific components of net
cash provided by operating activities for the years ended
December 31, 2010 and 2009:
|
Years Ended December 31
|
2010 | 2009 | Change | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
• Net income
|
$ | 343 | $ | 240 | $ | 103 | ||||||
|
• Non-cash transactions(a)
|
1,112 | 877 | 235 | |||||||||
| $ | 1,455 | $ | 1,117 | $ | 338 | |||||||
|
• Sale of gas purchased in the prior year
|
756 | 845 | (89 | ) | ||||||||
|
• Purchase of gas in the current year
|
(663 | ) | (718 | ) | 55 | |||||||
|
• Accounts receivable sales, net
|
(50 | ) | (120 | ) | 70 | |||||||
|
• Postretirement benefits contributions
|
(463 | ) | (262 | ) | (201 | ) | ||||||
|
• Change in other core working capital(b)
|
(22 | ) | (62 | ) | 40 | |||||||
|
• Other changes in assets and liabilities,
net
|
(54 | ) | 48 | (102 | ) | |||||||
|
Net cash provided by operating activities
|
$ | 959 | $ | 848 | $ | 111 | ||||||
|
Consumers
|
||||||||||||
|
• Net income
|
$ | 434 | $ | 293 | $ | 141 | ||||||
|
• Non-cash transactions(a)
|
1,103 | 841 | 262 | |||||||||
| $ | 1,537 | $ | 1,134 | $ | 403 | |||||||
|
• Sale of gas purchased in the prior year
|
756 | 845 | (89 | ) | ||||||||
|
• Purchase of gas in the current year
|
(663 | ) | (718 | ) | 55 | |||||||
|
• Accounts receivable sales, net
|
(50 | ) | (120 | ) | 70 | |||||||
|
• Postretirement benefits contributions
|
(447 | ) | (254 | ) | (193 | ) | ||||||
|
• Change in other core working capital(b)
|
(19 | ) | (58 | ) | 39 | |||||||
|
• Other changes in assets and liabilities,
net
|
(204 | ) | 93 | (297 | ) | |||||||
|
Net cash provided by operating activities
|
$ | 910 | $ | 922 | $ | (12 | ) | |||||
| (a) | Non-cash transactions comprise depreciation and amortization, changes in deferred income taxes, postretirement benefits expense, and other non-cash items. | |
| (b) | Other core working capital comprises other changes in accounts receivable and accrued revenues, inventories, and accounts payable. |
For the year ended December 31, 2010, net cash provided by
operating activities at CMS Energy increased $111 million
compared with 2009. The increase was due primarily to higher net
income, net of non-cash transactions, offset partially by higher
pension contributions.
For the year ended December 31, 2010, net cash provided by
operating activities at Consumers decreased $12 million
compared with 2009. The decrease was due primarily to higher
pension contributions and refunds to customers. These changes
were offset largely by increased billings due to recent
regulatory actions.
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Table of Contents
Presented in the following table are specific components of net
cash provided by operating activities for the years ended
December 31, 2009 and 2008:
|
Years Ended December 31
|
2009 | 2008 | Change | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
• Net income
|
$ | 240 | $ | 302 | $ | (62 | ) | |||||
|
• Non-cash transactions(a)
|
877 | 911 | (34 | ) | ||||||||
| $ | 1,117 | $ | 1,213 | $ | (96 | ) | ||||||
|
• Sale of gas purchased in the prior year
|
845 | 915 | (70 | ) | ||||||||
|
• Purchase of gas in the current year
|
(718 | ) | (963 | ) | 245 | |||||||
|
• Electric sales contract termination
payment
|
— | (275 | ) | 275 | ||||||||
|
• Accounts receivable sales, net
|
(120 | ) | 170 | (290 | ) | |||||||
|
• Postretirement benefits contributions
|
(262 | ) | (51 | ) | (211 | ) | ||||||
|
• Change in other core working capital(b)
|
(62 | ) | (278 | ) | 216 | |||||||
|
• Other changes in assets and liabilities,
net
|
48 | (174 | ) | 222 | ||||||||
|
Net cash provided by operating activities
|
$ | 848 | $ | 557 | $ | 291 | ||||||
|
Consumers
|
||||||||||||
|
• Net income
|
$ | 293 | $ | 364 | $ | (71 | ) | |||||
|
• Non-cash transactions(a)
|
841 | 956 | (115 | ) | ||||||||
| $ | 1,134 | $ | 1,320 | $ | (186 | ) | ||||||
|
• Sale of gas purchased in the prior year
|
845 | 915 | (70 | ) | ||||||||
|
• Purchase of gas in the current year
|
(718 | ) | (963 | ) | 245 | |||||||
|
• Accounts receivable sales, net
|
(120 | ) | 170 | (290 | ) | |||||||
|
• Postretirement benefits contributions
|
(254 | ) | (50 | ) | (204 | ) | ||||||
|
• Change in other core working capital(b)
|
(58 | ) | (289 | ) | 231 | |||||||
|
• Other changes in assets and liabilities,
net
|
93 | (230 | ) | 323 | ||||||||
|
Net cash provided by operating activities
|
$ | 922 | $ | 873 | $ | 49 | ||||||
| (a) | Non-cash transactions comprise depreciation and amortization, changes in deferred income taxes, postretirement benefits expense, and other non-cash items. | |
| (b) | Other core working capital comprises other changes in accounts receivable and accrued revenues, inventories, and accounts payable. |
For the year ended December 31, 2009, net cash provided by
operating activities at CMS Energy increased $291 million
compared with 2008. This increase was due primarily to the
absence in 2009 of a payment made by CMS ERM in 2008 to
terminate electricity sales agreements and the changes affecting
Consumers’ cash provided by operating activities described
in the following paragraph.
For the year ended December 31, 2009, net cash provided by
operating activities at Consumers increased $49 million
compared with 2008. This increase was due primarily to the
impact of lower gas prices on inventory purchased in 2009,
increased billings due to recent regulatory actions, the
absence, in 2009, of refunds to customers of excess Palisades
decommissioning funds, and other timing differences. These
changes were offset partially by the pension contribution of
$199 million and lower sales of accounts receivable in 2009.
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Table of Contents
Investing
Activities
Presented in the following table are specific components of cash
used in investing activities for the years ended
December 31, 2010 and 2009:
|
Years Ended December 31
|
2010 | 2009 | Change | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
• Capital expenditures
|
$ | (821 | ) | $ | (818 | ) | $ | (3 | ) | |||
|
• Cash effect of deconsolidation of
partnerships
|
(10 | ) | — | (10 | ) | |||||||
|
• Increase in loans and notes receivable
|
(131 | ) | (83 | ) | (48 | ) | ||||||
|
• Costs to retire property and other
|
(41 | ) | (34 | ) | (7 | ) | ||||||
|
Net cash used in investing activities
|
$ | (1,003 | ) | $ | (935 | ) | $ | (68 | ) | |||
|
Consumers
|
||||||||||||
|
• Capital expenditures
|
$ | (815 | ) | $ | (811 | ) | $ | (4 | ) | |||
|
• Costs to retire property and other
|
(44 | ) | (39 | ) | (5 | ) | ||||||
|
Net cash used in investing activities
|
$ | (859 | ) | $ | (850 | ) | $ | (9 | ) | |||
For the year ended December 31, 2010, net cash used in
investing activities at CMS Energy increased $68 million
compared with 2009. The change was due primarily to an increase
in EnerBank consumer lending. For the year ended
December 31, 2010, net cash used in investing activities at
Consumers increased $9 million compared with 2009, due to
increases in capital expenditures and costs to retire property.
Presented in the following table are specific components of cash
used in investing activities for the years ended
December 31, 2009 and 2008:
|
Years Ended December 31
|
2009 | 2008 | Change | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
• Capital expenditures
|
$ | (818 | ) | $ | (792 | ) | $ | (26 | ) | |||
|
• Increase in non-current notes receivable
|
(83 | ) | (19 | ) | (64 | ) | ||||||
|
• Costs to retire property and other
|
(34 | ) | (28 | ) | (6 | ) | ||||||
|
Net cash used in investing activities
|
$ | (935 | ) | $ | (839 | ) | $ | (96 | ) | |||
|
Consumers
|
||||||||||||
|
• Capital expenditures
|
$ | (811 | ) | $ | (789 | ) | $ | (22 | ) | |||
|
• Costs to retire property and other
|
(39 | ) | (34 | ) | (5 | ) | ||||||
|
Net cash used in investing activities
|
$ | (850 | ) | $ | (823 | ) | $ | (27 | ) | |||
For the year ended December 31, 2009, net cash used in
investing activities at CMS Energy increased $96 million
compared with 2008. For the year ended December 31, 2009,
net cash used in investing activities at Consumers increased
$27 million compared with 2008. The increases at CMS Energy
were due primarily to increases in EnerBank consumer lending and
in Consumers’ capital expenditures.
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Table of Contents
Financing
Activities
Presented in the following table are specific components of net
cash provided by (used in) financing activities for the years
ended December 31, 2010 and 2009:
|
Years Ended December 31
|
2010 | 2009 | Change | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
• Issuance of FMBs, convertible senior
notes, senior notes, and other debt
|
$ | 1,704 | $ | 1,374 | $ | 330 | ||||||
|
• Retirement of debt and other debt
maturity payments
|
(1,033 | ) | (1,271 | ) | 238 | |||||||
|
• Payments of common and preferred stock
dividends
|
(162 | ) | (125 | ) | (37 | ) | ||||||
|
• Redemption of preferred stock
|
(239 | ) | (4 | ) | (235 | ) | ||||||
|
• Changes in EnerBank notes payable
|
(40 | ) | 40 | (80 | ) | |||||||
|
• Other financing activities
|
(28 | ) | (49 | ) | 21 | |||||||
|
Net cash provided by (used in) financing activities
|
$ | 202 | $ | (35 | ) | $ | 237 | |||||
|
Consumers
|
||||||||||||
|
• Issuance of FMBs
|
$ | 600 | $ | 500 | $ | 100 | ||||||
|
• Retirement of debt and other debt
maturity payments
|
(482 | ) | (387 | ) | (95 | ) | ||||||
|
• Payments of common and preferred stock
dividends
|
(360 | ) | (287 | ) | (73 | ) | ||||||
|
• Stockholder’s contribution from CMS
Energy
|
250 | 100 | 150 | |||||||||
|
• Other financing activities
|
(27 | ) | (28 | ) | 1 | |||||||
|
Net cash used in financing activities
|
$ | (19 | ) | $ | (102 | ) | $ | 83 | ||||
For the year ended December 31, 2010, net cash provided by
financing activities at CMS Energy increased $237 million
compared to 2009. The change was due primarily to an increase in
net proceeds from borrowings by CMS Energy, offset partially by
a decrease in borrowings by EnerBank.
For the year ended December 31, 2010, net cash used in
financing activities at Consumers decreased $83 million
compared with 2009. The change was due primarily to a
stockholder’s contribution from CMS Energy, offset
partially by an increase in common dividend payments.
Presented in the following table are specific components of net
cash provided by (used in) financing activities for the years
ended December 31, 2009 and 2008:
|
Years Ended December 31
|
2009 | 2008 | Change | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
• Issuance of FMBs, convertible senior
notes, senior notes, and other debt
|
$ | 1,374 | $ | 1,396 | $ | (22 | ) | |||||
|
• Retirement of debt and other debt
maturity payments
|
(1,271 | ) | (1,130 | ) | (141 | ) | ||||||
|
• Payments of common and preferred stock
dividends
|
(125 | ) | (93 | ) | (32 | ) | ||||||
|
• Changes in EnerBank notes payable
|
40 | — | 40 | |||||||||
|
• Other financing activities
|
(53 | ) | (26 | ) | (27 | ) | ||||||
|
Net cash provided by (used in) financing activities
|
$ | (35 | ) | $ | 147 | $ | (182 | ) | ||||
|
Consumers
|
||||||||||||
|
• Issuance of FMBs
|
$ | 500 | $ | 600 | $ | (100 | ) | |||||
|
• Retirement of debt and other debt
maturity payments
|
(387 | ) | (444 | ) | 57 | |||||||
|
• Payments of common and preferred stock
dividends
|
(287 | ) | (299 | ) | 12 | |||||||
|
• Stockholder’s contribution from CMS
Energy
|
100 | — | 100 | |||||||||
|
• Other financing activities
|
(28 | ) | (33 | ) | 5 | |||||||
|
Net cash used in financing activities
|
$ | (102 | ) | $ | (176 | ) | $ | 74 | ||||
For the year ended December 31, 2009, net cash used in
financing activities at CMS Energy increased by
$182 million compared with 2008. The increase in net cash
used in financing activities was due primarily to an increase in
net debt retirements.
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Table of Contents
For the year ended December 31, 2009, net cash used in
financing activities at Consumers decreased $74 million
compared with 2008. This decrease was due primarily to a
stockholder’s contribution from CMS Energy, offset
partially by a decrease in net proceeds from borrowings.
For additional details on long-term debt activity, see
Note 7, Financings and Capitalization.
CAPITAL
RESOURCES AND LIQUIDITY
CMS Energy uses dividends from its subsidiaries and external
financing and capital transactions to invest in its utility and
non-utility businesses, retire debt, pay dividends, and fund its
other obligations. The ability of CMS Energy’s
subsidiaries, including Consumers, to pay dividends to CMS
Energy depends upon each subsidiary’s revenues, earnings,
cash needs, and other factors. In addition, Consumers’
ability to pay dividends is restricted by certain terms included
in its articles of incorporation, as well as by FERC
requirements. For the year ended December 31, 2010,
Consumers paid $358 million in common stock dividends to
CMS Energy.
Consumers uses cash flows generated from operations and external
financing transactions, as well as stockholder’s
contributions from CMS Energy, to fund capital expenditures,
retire debt, pay dividends, contribute to its employee benefit
plans, and fund its other obligations.
CMS Energy’s and Consumers’ access to the financial
and capital markets depends on their credit ratings and on
market conditions. As evidenced by past financing transactions,
CMS Energy and Consumers have had ready access to these markets
and, barring major market dislocations or disruptions, they
expect to continue to have such access. If access to these
markets were to become diminished or otherwise restricted,
however, CMS Energy and Consumers would implement contingency
plans to address debt maturities, which could include reduced
capital spending. CMS Energy and Consumers also have the
following secured revolving credit facilities available:
|
At December 31, 2010
|
Amount of Facility | Amount Available | Expiration Date | |||||||||
| In Millions | ||||||||||||
|
CMS Energy
|
||||||||||||
|
Revolving credit facility
|
$ | 550 | $ | 547 | April 2012 | |||||||
|
Consumers
|
||||||||||||
|
Revolving credit facility
|
500 | 200 | March 2012 | |||||||||
|
Revolving credit facility
|
150 | 150 | August 2013 | |||||||||
CMS Energy and Consumers presently use these credit facilities
to issue letters of credit, and they intend to renew these
facilities at reasonable terms before their expiration. An
additional source of liquidity is Consumers’ revolving
accounts receivable sales program, which allows it to transfer
up to $250 million of accounts receivable as a secured
borrowing. At December 31, 2010, $250 million of
account receivable were eligible for transfer under this program.
Certain of CMS Energy’s and Consumers’ credit
agreements and debt indentures contain covenants that require
CMS Energy and Consumers to maintain certain financial ratios.
CMS Energy’s $550 million revolving credit agreement
specifies a maximum debt to EBITDA ratio, as defined therein,
and a minimum interest coverage ratio, as defined therein. Also,
certain of CMS Energy’s senior notes indenture supplements
specify a minimum interest coverage ratio, as defined therein.
Consumers’ revolving credit agreements specify a maximum
debt to capital ratio, as defined therein. At December 31,
2010, no events of default had occurred with respect to any debt
covenants contained in CMS Energy and Consumers’ credit
agreements or debt indentures. CMS Energy and Consumers were
each in compliance with these limits as of December 31,
2010, as presented in the following table:
|
(1)Minimum
|
||||||||||
|
(2)Maximum
|
Ratio at
|
|||||||||
|
Credit agreement or facility
|
Description
|
Limit
|
December 31, 2010
|
|||||||
|
CMS Energy’s revolving credit agreement
|
Debt to EBITDA | (2)7.0 to 1.0 | 4.70 to 1.0 | |||||||
|
CMS Energy’s revolving credit agreement
|
Interest Coverage | (1)1.2 to 1.0 | 3.62 to 1.0 | |||||||
|
CMS Energy’s senior notes indenture
|
Interest Coverage | (1)1.7 to 1.0 | 3.70 to 1.0 | |||||||
|
Consumers’ revolving credit agreements
|
Debt to Capital | (2)0.7 to 1.0 | 0.51 to 1.0 | |||||||
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Table of Contents
Components of CMS Energy’s and Consumers’ cash
management plan include controlling operating expenses and
capital expenditures and evaluating market conditions for
financing and refinancing opportunities. CMS Energy and
Consumers believe that their present level of cash and their
expected cash flows from operating activities, together with
their access to sources of liquidity, will be sufficient to fund
their contractual obligations for 2011 and beyond.
Contractual Obligations:
Presented in the following table
are CMS Energy’s and Consumers’ contractual cash
obligations for each of the periods presented. The table
excludes all amounts classified as current liabilities on CMS
Energy’s and Consumers’ Consolidated Balance Sheets,
other than the current portion of long-term debt and capital and
finance leases.
| Payments Due | ||||||||||||||||||||
|
Less Than
|
One to
|
Three to
|
More Than
|
|||||||||||||||||
|
At December 31, 2010
|
Total | One Year | Three Years | Five Years | Five Years | |||||||||||||||
| In Millions | ||||||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||||||
|
Long-term debt(a)
|
$ | 7,206 | $ | 439 | $ | 1,019 | $ | 976 | $ | 4,772 | ||||||||||
|
Interest payments on long-term debt(b)
|
2,909 | 357 | 662 | 587 | 1,303 | |||||||||||||||
|
Capital and finance leases(c)
|
212 | 23 | 50 | 42 | 97 | |||||||||||||||
|
Interest payments on capital and finance leases(d)
|
98 | 14 | 22 | 18 | 44 | |||||||||||||||
|
Operating leases(e)
|
260 | 29 | 57 | 51 | 123 | |||||||||||||||
|
Purchase obligations(f)
|
15,794 | 1,996 | 2,613 | 1,751 | 9,434 | |||||||||||||||
|
Purchase obligations — related parties(f)
|
1,735 | 87 | 180 | 193 | 1,275 | |||||||||||||||
|
Total contractual obligations
|
$ | 28,214 | $ | 2,945 | $ | 4,603 | $ | 3,618 | $ | 17,048 | ||||||||||
|
Consumers
|
||||||||||||||||||||
|
Long-term debt(a)
|
$ | 4,529 | $ | 37 | $ | 755 | $ | 567 | $ | 3,170 | ||||||||||
|
Interest payments on long-term debt(b)
|
1,899 | 238 | 436 | 365 | 860 | |||||||||||||||
|
Capital and finance leases(c)
|
212 | 23 | 50 | 42 | 97 | |||||||||||||||
|
Interest payments on capital and finance leases(d)
|
98 | 14 | 22 | 18 | 44 | |||||||||||||||
|
Operating leases(e)
|
260 | 29 | 57 | 51 | 123 | |||||||||||||||
|
Purchase obligations(f)
|
15,794 | 1,996 | 2,613 | 1,751 | 9,434 | |||||||||||||||
|
Purchase obligations — related parties(f)
|
1,735 | 87 | 180 | 193 | 1,275 | |||||||||||||||
|
Total contractual obligations
|
$ | 24,527 | $ | 2,424 | $ | 4,113 | $ | 2,987 | $ | 15,003 | ||||||||||
| (a) | Principal amounts due on outstanding debt obligations, current and long-term, at December 31, 2010. For additional details on long-term debt, see Note 7, Financings and Capitalization. | |
| (b) | Scheduled interest payments on both variable-rate and fixed-rate long-term debt, current and long-term. Variable interest payments are based on contractual rates in effect at December 31, 2010. | |
| (c) | Principal portion of lease payments under capital and finance leases, comprising mainly leased service vehicles and certain PPAs. | |
| (d) | Imputed interest on capital and finance leases. | |
| (e) | Minimum noncancelable lease payments under leases of railroad cars and miscellaneous office buildings and equipment, which are accounted for as operating leases. | |
| (f) | Long-term contracts for purchase of commodities and services. These obligations include operating contracts used for the purchase of capacity and energy from PURPA qualifying facilities. These commodities and services include natural gas and associated transportation, electricity, and coal and associated transportation. |
For details related to benefit payments, see Note 11,
Retirement Benefits.
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Off-Balance-Sheet Arrangements:
CMS Energy,
Consumers, and certain of their subsidiaries also enter into
various arrangements in the normal course of business to
facilitate commercial transactions with third parties. These
arrangements include indemnities, surety bonds, letters of
credit, and financial and performance guarantees. Indemnities
are usually agreements to reimburse a counterparty that may
incur losses due to outside claims or breach of contract terms.
The maximum payment that could be required under a number of
these indemnity obligations is not estimable. While CMS Energy
and Consumers believe it is unlikely that they will incur any
material losses related to indemnities they have not recorded as
liabilities, they cannot predict the impact of these contingent
obligations on their liquidity and financial condition. For
additional details on these and other guarantee arrangements,
see Note 5, Contingencies and Commitments,
“Guarantees.”
Capital Expenditures:
Over the next five years, CMS
Energy and Consumers expect to make capital investments of more
than $6 billion. CMS Energy and Consumers may revise their
forecasts of capital expenditures periodically due to a number
of factors, including environmental regulations, business
opportunities, market volatility, economic trends, and the
ability to access capital. Presented in the following table are
CMS Energy’s and Consumers’ estimated capital
expenditures, including lease commitments, for 2011 through 2015:
|
Five Years
|
||||||||||||||||||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | Total | |||||||||||||||||||
| In Millions | ||||||||||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||||||||||
|
Consumers
|
$ | 1,070 | $ | 1,290 | $ | 1,280 | $ | 1,530 | $ | 1,260 | $ | 6,430 | ||||||||||||
|
Enterprises
|
6 | 8 | 1 | 1 | 1 | 17 | ||||||||||||||||||
|
Total CMS Energy
|
$ | 1,076 | $ | 1,298 | $ | 1,281 | $ | 1,531 | $ | 1,261 | $ | 6,447 | ||||||||||||
|
Consumers
|
||||||||||||||||||||||||
|
Electric utility operations(a)(b)
|
$ | 790 | $ | 1,060 | $ | 1,060 | $ | 1,310 | $ | 1,030 | $ | 5,250 | ||||||||||||
|
Gas utility operations(b)
|
280 | 230 | 220 | 220 | 230 | 1,180 | ||||||||||||||||||
|
Total Consumers
|
$ | 1,070 | $ | 1,290 | $ | 1,280 | $ | 1,530 | $ | 1,260 | $ | 6,430 | ||||||||||||
| (a) | These amounts include estimates for capital expenditures that may be required by environmental laws, regulations, or potential consent decrees. | |
| (b) | These amounts include estimates for capital expenditures related to information technology projects, facility improvements, and vehicle leasing. |
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Presented in the following illustration are the components of
CMS Energy’s (including Consumers’) planned capital
spending for 2011 through 2015:
OUTLOOK
Several business trends and uncertainties may affect CMS
Energy’s and Consumers’ financial condition and
results of operations. These trends and uncertainties could have
a material impact on CMS Energy’s and Consumers’
consolidated income, cash flows, or financial position. For
additional details regarding these and other uncertainties, see
“Forward-Looking Statements and Information;”
Note 5, Contingencies and Commitments; and Part I,
Item 1A. Risk Factors.
Consumers’
Electric Utility Business Outlook and Uncertainties
Balanced Energy Initiative:
Consumers’ balanced
energy initiative is a comprehensive energy resource plan
designed to meet its projected short-term and long-term electric
power requirements through:
| • | energy efficiency; | |
| • | demand management; | |
| • | expanded use of renewable energy; | |
| • | development of new power plants; | |
| • | pursuit of additional PPAs to complement existing generating sources; | |
| • | continued operation of existing units; and | |
| • | potential retirement or mothballing of older generating units. |
In May 2010, Consumers announced plans to defer the development
of its proposed 830 MW coal-fueled plant at its
Karn/Weadock generating complex. This decision reflects reduced
customer demand for electricity due to the recession, forecasted
lower natural gas prices due to recent developments in shale gas
recovery technology, and projected surplus generating capacity
in the MISO market. Consumers has been monitoring customer
demand, fuel and power prices, and other market conditions, and
has not set a timetable for a future decision about the project;
however, the likelihood that the plant will be constructed has
diminished significantly. Consumers’ alternatives to
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constructing the proposed coal-fueled plant include constructing
new gas-fueled generation, relying on additional market
purchases, as well as continued operation of several existing
generating units.
Renewable Energy Plan:
Consumers’ renewable
energy plan details how Consumers will meet REC and capacity
standards prescribed by the 2008 Energy Legislation. This
legislation requires Consumers to obtain RECs in an amount equal
to at least ten percent of its electric sales volume (estimated
to be 3.6 million RECs annually) by 2015. RECs represent
proof that the associated electricity was generated from a
renewable energy resource. The legislation also requires
Consumers to obtain 500 MW of capacity from renewable
energy resources by 2015, either through generation resources
owned by Consumers or through agreements to purchase capacity
from other parties.
Under its renewable energy plan, Consumers expects to secure its
required RECs each year with a combination of newly generated
RECs and previously generated RECs carried over from prior
years. Presently, Consumers generates or purchases
1.6 million RECs per year, which represents 44 percent
of the 2015 renewable energy requirement. In 2010, Consumers
contracted for the purchase of 900,000 RECs per year, which
represents an additional 25 percent of the 2015 renewable
energy requirement. In addition, at December 2010, Consumers
held three million RECs in inventory for use over the next
15 years beginning in 2015. This inventory will provide
200,000 RECs per year, or 5.5 percent of the 2015 renewable
energy requirement.
To meet its renewable capacity requirements, Consumers expects
to add more than 500 MW of owned or contracted renewable
capacity by 2015. Through December 2010, Consumers has
contracted for the purchase of 296 MW of nameplate capacity
from renewable energy suppliers, which represents
59 percent of the 2015 renewable capacity requirement.
Consumers has secured more than 79,000 acres of land
easements in Michigan’s Huron, Mason, and Tuscola Counties
for the potential development of wind generation, and is
presently collecting wind speed and other meteorological data at
those sites. Consumers has entered into construction and supply
contracts as well as a contract to purchase wind turbine
generators for the construction of a
100-MW
wind
farm in Mason County, the Lake Winds Energy Park, which
Consumers expects to be operational in late 2012. Consumers will
continue to seek opportunities for wind generation development
in support of the renewable capacity standards.
Electric Customer Deliveries and
Revenue:
Consumers’ electric customer deliveries
are largely dependent on Michigan’s economy, which has
suffered from economic and financial instability in the
automotive and real estate sectors.
Consumers expects weather-adjusted electric deliveries to
increase in 2011 by two percent compared with 2010.
Consumers’ outlook for 2011 includes continuing growth in
deliveries to its largest customer, which produces
energy-related and computer components. Consumers has a
long-term contract with this customer to provide electricity at
a discounted rate for economic development purposes. Excluding
this customer’s growth, Consumers expects weather-adjusted
electric deliveries in 2011 to be at a similar level to 2010.
Consumers’ outlook reflects the impact of reduced
deliveries associated with its investment in energy efficiency
programs prescribed by the 2008 Energy Legislation, as well as
recent projections of Michigan’s economic conditions.
Consumers believes economic conditions have stabilized.
Consumers’ present outlook for electric delivery growth is
about 1.5 percent annually on average through 2016. This
reflects growth in electric deliveries offset by the predicted
effects of energy efficiency programs and appliance efficiency
standards. Actual deliveries will depend on:
| • | energy conservation measures and results of energy efficiency programs; | |
| • | fluctuations in weather; and | |
| • | changes in economic conditions, including utilization and expansion or contraction of manufacturing facilities, population trends, and housing activity. |
A decoupling mechanism, authorized by the MPSC in
Consumers’ 2009 electric rate case order and extended in
the 2010 electric rate case order, allows Consumers to adjust
future electric rates to compensate for changes in sales volumes
resulting from weather fluctuations, energy efficiency, and
conservation. Consumers expects this mechanism to reduce
volatility of electric utility revenue.
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Electric ROA:
The Customer Choice Act allows all of
Consumers’ electric customers to buy electric generation
service from Consumers or from an alternative electric supplier.
The 2008 Energy Legislation revised the Customer Choice Act by
limiting alternative electric supply to ten percent of
Consumers’ weather-adjusted retail sales of the preceding
calendar year. At December 31, 2010, electric deliveries
under the ROA program were at the ten percent limit and
alternative electric suppliers were providing 807 MW of
generation service to ROA customers. Based on 2010
weather-adjusted retail sales, Consumers expects 2011 electric
deliveries under the ROA program to be at a similar level to
2010.
In May 2010, a bill was introduced to the Michigan Senate and
House of Representatives that would increase from ten percent to
25 percent the proportion of an electric utility’s
sales for which service may be provided by an alternative
electric supplier. The 2010 legislative session ended without
any definitive action being taken on this bill.
Electric Environmental Estimates:
Consumers’
operations are subject to various state and federal
environmental laws and regulations. Consumers continues to focus
on complying with the Clean Air Act, Clean Water Act, and
numerous state and federal environmental regulations. Consumers
estimates that it will incur expenditures of $1.9 billion
from 2011 through 2018 to comply with these regulations.
Consumers expects to recover these costs in customer rates, but
cannot guarantee this result. Consumers’ primary
environmental compliance focus includes, but is not limited to,
the following matters:
Clean Air Interstate Rule/Clean Air Transport
Rule:
Due to a December 2008 court decision that
remanded CAIR back to the EPA, CAIR remains in effect at this
time, pending the EPA’s finalization of a new rule. In July
2010, the EPA released CATR, a proposed rule that would replace
CAIR. Consumers is evaluating this proposed rule. If adopted in
its present form, CATR could result in additional or accelerated
environmental compliance costs related to Consumers’
fossil-fueled power plants and retirement of some or all of the
older, smaller generating units in Consumers’ fleet.
Presently, Consumers’ strategy to comply with CAIR involves
the installation of
state-of-the-art
emission control equipment.
Federal Hazardous Air Pollutant Regulation:
The EPA
is developing Maximum Achievable Control Technology emission
standards for electric generating units, based on
Section 112 of the Clean Air Act. Consumers is unable to
predict the impact of this proposed regulation, but expects to
have a better understanding of the potential impact upon the
release a proposed rule, which is expected in March 2011.
Existing sources must meet the standards generally within three
years of issuance of the final rule. The final rule is expected
to be issued in November 2011.
Greenhouse Gases:
There are numerous legislative and
regulatory initiatives at the state, regional, and national
levels that involve the regulation of greenhouse gases.
Consumers monitors and comments on these initiatives and also
follows litigation involving greenhouse gases. Consumers
believes Congress may eventually pass greenhouse gas
legislation, but is unable to predict the form and timing of any
final legislation.
In May 2010, the EPA released its Prevention of Significant
Deterioration and Title V Greenhouse Gas Tailoring Rule.
The final rule, which numerous parties have challenged in the
U.S. Court of Appeals for the D.C. Circuit, sets limits for
greenhouse gas emissions that define when permits are required
for new and existing industrial facilities under NSR PSD and
Title V Operating Permit programs. Consumers does not
expect that this regulation will require it to incur significant
expenditures for efficiency upgrades for modified or new
facilities at this time.
Litigation, as well as federal laws, EPA regulations regarding
greenhouse gases, or similar treaties, state laws, or rules, if
enacted, could require Consumers to replace equipment, install
additional equipment for emission controls, purchase emission
allowances, curtail operations, arrange for alternative sources
of supply, or take other steps to manage or lower the emission
of greenhouse gases. Although associated capital or operating
costs relating to greenhouse gas regulation or legislation could
be material and cost recovery cannot be assured, Consumers
expects to recover these costs and capital expenditures in rates
consistent with the recovery of other reasonable costs of
complying with environmental laws and regulations.
In 2010, carbon dioxide emissions from fossil-fueled power
plants owned by Consumers, excluding the portion of Campbell
Unit 3 that is owned by others, exceeded 18 million metric
tons. During the same period, coal-fueled plants owned by the
enterprises segment emitted about 700,000 metric tons of carbon
dioxide.
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Coal Combustion By-Products:
In June 2010, the EPA
proposed rules regulating CCBs, such as coal ash, under the
Resource Conservation and Recovery Act. Michigan already
regulates CCBs as low-hazard industrial waste. The EPA proposed
a range of alternatives for regulating CCBs, including
regulation as either a non-hazardous waste or a hazardous waste.
If coal ash were regulated as a hazardous waste, Consumers would
likely cease the beneficial re-use of this product, resulting in
significantly more coal ash requiring costly disposal.
Additionally, it is possible that existing coal ash disposal
areas could be closed and costly alternative arrangements for
coal ash disposal could be required if the upgrades to hazardous
waste landfill standards are economically prohibitive. Consumers
is unable to predict accurately the full impacts from this wide
range of possible outcomes, but significant expenditures are
likely.
Water:
In 2004, the EPA issued rules that govern
existing electric generating plant cooling water intake systems.
These rules require a significant reduction in the number of
fish harmed by cooling water intake structures at existing power
plants. The EPA compliance options in the rule were challenged
before the U.S. Court of Appeals for the Second Circuit,
which remanded the bulk of the rule back to the EPA for
reconsideration in 2007. In April 2009, the U.S. Supreme
Court ruled in favor of the utility industry’s position
that the EPA can rely on a cost-benefit analysis in setting the
national performance standards for fish protection. The EPA is
scheduled to issue a draft rule in the first half of 2011 and a
final rule in 2012.
Advance Notice of Proposed Rulemaking on PCBs:
In
April 2010, the EPA issued an Advance Notice of Proposed
Rulemaking, indicating that it is considering a variety of
regulatory actions with respect to PCBs. One proposal aims to
phase out equipment containing PCBs by 2025. Another proposal
eliminates an exemption for small equipment containing PCBs.
Consumers could incur substantial costs associated with the
regulation of PCBs due to prior installation of electrical
equipment potentially containing PCBs.
Other electric environmental matters could have a major impact
on Consumers’ outlook. For additional details on other
electric environmental matters, see Note 5, Contingencies
and Commitments, “Consumers’ Electric Utility
Contingencies — Electric Environmental Matters.”
Electric Transmission:
In June 2010, FERC issued a
Notice of Proposed Rulemaking to establish a closer link between
regional electric transmission planning and cost allocations to
ensure the construction of required transmission facilities. In
a related matter, MISO filed a tariff revision with FERC in July
2010, proposing a cost allocation methodology for a new category
of transmission projects. In December 2010, FERC approved
MISO’s cost allocation proposal. Under this tariff
revision, the cost of these new transmission projects will be
spread proportionally across the Midwest Energy Market.
Consumers believes that Michigan customers will bear additional
costs under MISO’s tariff without receiving comparable
benefits from these projects. In January 2011, Consumers, along
with the Michigan Attorney General, ABATE, Detroit Edison, the
Michigan Municipal Electric Association, and the Michigan Public
Power Agency, filed a protest and request for rehearing with
FERC, opposing the allocation methodology in the MISO tariff
revision. Consumers expects to continue to recover transmission
expenses, including those associated with the MISO tariff
revision, through the PSCR process.
Electric Rate Matters:
Rate matters are critical to
Consumers’ electric utility business. For details on
Consumers’ electric rate cases, PSCR, electric operation
and maintenance expenditures show-cause order, electric
depreciation cases, renewable energy plan, and energy
optimization plan, see Note 6, Regulatory Matters,
“Consumers’ Electric Utility.”
Consumers’
Gas Utility Business Outlook and Uncertainties
Gas Deliveries:
Consumers expects 2011
weather-adjusted gas deliveries to decline by one percent
compared with 2010, due to continuing conservation and overall
economic conditions in Michigan. In addition, Consumers expects
weather-adjusted gas deliveries to decline an average of one
percent annually from 2012 through 2016, which includes expected
effects of energy efficiency programs and continued
conservation. Actual delivery levels from year to year may vary
from this trend due to:
| • | fluctuations in weather; | |
| • | use by IPPs; |
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| • | availability and development of renewable energy sources; | |
| • | changes in gas prices; | |
| • | Michigan economic conditions, including population trends and housing activity; | |
| • | the price of competing energy sources or fuels; and | |
| • | energy efficiency and conservation. |
A decoupling mechanism, authorized by the MPSC in
Consumers’ 2009 gas rate case order, allows Consumers to
adjust future gas rates to compensate for changes in sales
volumes by class arising from the difference between the level
of average sales per customer adopted in the order and actual
average weather-adjusted sales per customer. The mechanism will
not provide rate adjustments for changes in sales volumes
arising from weather fluctuations. Consumers expects this
mechanism to mitigate the impacts of energy efficiency programs,
conservation, and changes in economic conditions on its gas
revenue.
Gas Pipeline Safety:
In September 2010, the
U.S. House of Representatives passed the Corporate
Liability and Emergency Accident Notification Act, which would
require oil and natural gas pipeline operators to notify
regulators within one hour following the discovery of certain
oil spills or natural gas leaks. The bill also would increase
civil fines for delayed reporting of oil spills and natural gas
leaks and would establish an online database of safety
violations searchable by pipeline owner or operator.
In response to the natural gas pipeline explosion that occurred
in San Bruno, California in September 2010, the
U.S. House of Representatives and the U.S. Senate have
proposed bills stipulating stricter regulation of natural gas
pipelines nationwide. These proposed bills affect primarily
transmission pipelines and contain provisions mandating:
| • | the use of internal inspection devices or comparable methods effective in detecting pipeline deterioration; | |
| • | the installation of automatic shutoff equipment in high-consequence areas; and | |
| • | certain disclosures to homeowners and regulatory agencies. |
Consumers continues to comply with laws and regulations
governing natural gas pipeline safety. If these proposed laws
are put into effect, Consumers could incur significant
additional costs related to its natural gas pipeline safety
programs. Consumers expects that it would be able to recover the
costs in rates, consistent with the recovery of other reasonable
costs of complying with laws and regulations.
Gas Environmental Estimates:
Consumers expects to
incur response activity costs at a number of sites, including 23
former MGP sites. For additional details, see Note 5,
Contingencies and Commitments, “Consumers’ Gas Utility
Contingencies — Gas Environmental Matters.”
The Mandatory Reporting of Greenhouse Gases Rule requires
facilities engaging in the distribution of natural gas to
collect data on greenhouse gas emissions resulting from the
combustion of natural gas. In 2010, Consumers estimated that
carbon dioxide emissions from its customers were 15 million
metric tons.
Gas Rate Matters:
Rate matters are critical to
Consumers’ gas utility business. For details on
Consumers’ gas rate cases and GCR, see Note 6,
Regulatory Matters, “Consumers’ Gas Utility.”
Consumers’
Other Outlook and Uncertainties
Smart Grid:
Consumers’ grid modernization
effort continues to move forward. The foundation of this effort
is the installation of advanced metering and the infrastructure
to support it. The installation will include smart meters that
are capable of transmitting and receiving data, a two-way
communications network, and modifications to Consumers’
existing information technology systems to manage the data and
enable changes to key business processes. It is intended to
allow customers to monitor and manage their energy usage and
help reduce demand during critical peak times, resulting in
lower peak capacity requirements. Due to this system’s
complexity and relative market immaturity, Consumers intends to
continue its phased implementation approach. Consumers has
concluded the testing and assessment phase of the project and
will begin full deployment of meters in early 2012.
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Enterprises
Outlook and Uncertainties
The primary focus with respect to CMS Energy’s remaining
non-utility businesses is to optimize cash flow and maximize the
value of their assets.
Trends, uncertainties, and other matters that could have a
material impact on CMS Energy’s consolidated income, cash
flows, or financial position include:
| • | indemnity and environmental remediation obligations at Bay Harbor; | |
| • | the outcome of certain legal proceedings; | |
| • | impacts of declines in electricity prices on the profitability of the enterprises segment’s generating units; | |
| • | representations, warranties, and indemnities provided by CMS Energy or its subsidiaries in connection with previous sales of assets; | |
| • | 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; | |
| • | changes in various environmental laws, regulations, principles, practices, or in their interpretation; and | |
| • | economic conditions in Michigan, including population trends and housing activity. |
For additional details regarding the enterprises segment’s
uncertainties, see Note 5, Contingencies and Commitments.
Other
Outlook and Uncertainties
Litigation:
CMS Energy, Consumers, and certain of
their subsidiaries are named as parties in various litigation
matters, as well as in administrative proceedings before various
courts and governmental agencies, arising in the ordinary course
of business. For additional details regarding these and other
legal matters, see Note 5, Contingencies and Commitments
and Note 6, Regulatory Matters.
EnerBank:
EnerBank, a wholly owned subsidiary of CMS
Capital that represents one percent of CMS Energy’s net
assets and three percent of CMS Energy’s Net Income
Available to Common Stockholders, is a Utah state-chartered,
FDIC-insured industrial bank providing unsecured home
improvement loans. The carrying value of EnerBank’s loan
portfolio was $385 million at December 31, 2010. Its
loan portfolio was funded primarily by deposit liabilities of
$363 million. Twelve-month rolling average default rates on
loans held by EnerBank have declined from 2.1 percent at
December 31, 2009 to 1.4 percent at December 31,
2010. EnerBank expects the rate of loan defaults to decline
further, and to level out at about 1.0 percent. CMS Energy
is required to ensure that EnerBank remains well capitalized.
CRITICAL
ACCOUNTING POLICIES
The following accounting policies and related information are
important to an understanding of CMS Energy’s and
Consumers’ results of operations and financial condition
and should be considered an integral part of their MD&A.
For additional accounting policies, see Note 1, Significant
Accounting Policies.
Use
of Estimates and Assumptions
In the preparation of CMS Energy’s and Consumers’
Consolidated Financial Statements, estimates and assumptions are
used that may affect reported amounts and disclosures. CMS
Energy and Consumers use accounting estimates for asset
valuations, unbilled revenue, depreciation, amortization,
financial and derivative instruments, employee benefits, the
effects of regulation, indemnities, and contingencies. Actual
results may differ from estimated results due to changes in the
regulatory environment, regulatory decisions, lawsuits,
competition, and other factors. CMS Energy and Consumers
consider all relevant factors in making these assessments.
Fair Value Measurements:
CMS Energy and Consumers
have assets and liabilities that are accounted for or disclosed
at fair value. Fair value measurements incorporate assumptions
that market participants would use in
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pricing an asset or liability, including assumptions about risk.
Development of these assumptions may require significant
judgment. For a detailed discussion of the valuation techniques
and inputs used to calculate fair value measurements, see
Note 4, Fair Value Measurements. Details about the fair
value measurements for the Pension Plan and OPEB plan assets are
included in Note 11, Retirement Benefits.
Income Taxes:
The amount of income taxes paid by CMS
Energy is subject to ongoing audits by federal, state, and
foreign tax authorities, which can result in proposed
assessments. An estimate of the potential outcome of any
uncertain tax issue is highly judgmental. CMS Energy believes
adequate reserves have been provided for these exposures;
however, future results may include favorable or unfavorable
adjustments to the estimated tax liabilities in the period the
assessments are made or resolved or when statutes of limitation
on potential assessments expire. Additionally, CMS Energy’s
judgment as to the ability to recover its deferred tax assets
may change. CMS Energy believes the valuation allowances related
to its deferred tax assets are adequate, but future results may
include favorable or unfavorable adjustments. As a result, CMS
Energy’s effective tax rate may fluctuate significantly
over time.
Long-Lived Assets and Equity Method Investments:
CMS
Energy and Consumers assess the recoverability of their
long-lived assets and equity method investments by performing
impairment tests if certain triggering events occur or if there
has been a decline in value that may be other than temporary.
CMS Energy and Consumers base their evaluations of impairment on
such indicators as:
| • | the nature of the assets; | |
| • | projected future economic benefits; | |
| • | regulatory and political environments; | |
| • | historical and future cash flow and profitability measurements; and | |
| • | other external market conditions and factors. |
The estimates CMS Energy and Consumers use may change over time,
which could have a material impact on their Consolidated
Financial Statements. For additional details, see Note 20,
Asset Sales, Discontinued Operations, and Impairment Charges.
Unbilled Revenues:
CMS Energy’s and
Consumers’ customers are billed monthly in cycles having
billing dates that do not generally coincide with the end of a
calendar month. This results in customers having received
electricity or gas that they have not been billed for as of the
month-end. Consumers estimates its unbilled revenues by applying
an average billed rate to total unbilled deliveries for each
customer class. Unbilled revenues, which are recorded as
Accounts receivable on CMS Energy’s and Consumers’
Consolidated Balance Sheets, were $439 million at
December 31, 2010 and $477 million at
December 31, 2009.
Accounting
for the Effects of Industry Regulation
Because Consumers has regulated operations, it uses regulatory
accounting to recognize the effects of the regulators’
decisions on its financial statements. Consumers continually
assesses whether future recovery of its regulatory assets is
probable by considering communications and experience with its
regulators and changes in the regulatory environment. If
Consumers determined that recovery of a regulatory asset were
not probable, Consumers would be required to write off the asset
and immediately recognize the expense to earnings.
Under electric and gas rate orders issued by the MPSC in 2009
and 2010, Consumers was granted authority to implement revenue
decoupling mechanisms. The electric decoupling mechanism adjusts
customer rates to collect or refund the change in marginal
revenue arising from the difference between the level of average
sales per customer adopted in the electric rate order and actual
average sales per customer. The gas decoupling mechanism is
similar, but does not adjust customer rates for changes in sales
volumes resulting from weather fluctuations. Consumers accounts
for these programs as alternative-revenue programs that meet the
criteria for recognizing the effects of decoupling adjustments
on revenue as electricity and gas are delivered.
Unless prohibited by the MPSC upon a showing of good cause,
Consumers is allowed to self-implement new energy rates six
months after a new rate case filing; however, the rates that
Consumers self-implements may be
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Table of Contents
subject to refund, with interest. Consumers recognizes revenue
associated with self-implemented rates. If Consumers considers
it probable that it will be required to refund a portion of its
self-implemented rates, it records a provision for revenue
subject to refund. A final rate order could differ materially
from Consumers’ estimates underlying its self-implemented
rates, giving rise to accounting adjustments. Under accounting
rules for prior period adjustments, CMS Energy and Consumers may
need to record such differences, if they are specifically
identifiable to prior interim periods, as revisions to those
periods.
For additional details, see Note 6, Regulatory Matters.
Financial
and Derivative Instruments and Market Risk Information
Financial Instruments:
Debt and equity securities
classified as available for sale are reported at fair value as
determined from quoted market prices or other observable,
market-based inputs. Unrealized gains and losses resulting from
changes in fair value of the equity securities are reported, net
of tax, in equity as part of AOCI, except that unrealized losses
determined to be other than temporary are reported in earnings.
Unrealized gains resulting from changes in fair value of the
debt securities are reported, net of tax, in equity as part of
AOCI. Unrealized losses on the debt securities, if significant,
are considered other than temporary and reported in earnings
since these securities are managed by an independent investment
manager that can sell the securities at its own discretion.
Derivative Instruments:
CMS Energy and Consumers
account for certain contracts as derivative instruments. The
criteria used to determine if an instrument qualifies for
derivative accounting are complex and often require significant
judgment in application. If a contract is a derivative and does
not qualify for the normal purchases and sales exception, it is
recorded on the consolidated balance sheet at its fair value.
Each quarter, the resulting asset or liability is adjusted to
reflect any change in the fair value of the contract. For
additional details on CMS Energy’s and Consumers’
derivatives, see Note 10, Derivative Instruments.
CMS Energy and Consumers generally use information from external
sources, such as quoted market prices and other valuation
information to determine the fair value of their derivatives.
For certain contracts, this information is not available and
mathematical models are used to value the derivatives. The most
material of CMS Energy’s derivative liabilities, an
electricity sales agreement held by CMS ERM, extends beyond the
term for which quoted electricity prices are available. Thus, to
value this derivative, CMS Energy uses a valuation model that
incorporates a proprietary forward pricing curve for electricity
based on forward natural gas prices and an implied heat rate.
The model incorporates discounting, credit, and modeling risks.
The model is sensitive to electricity and natural gas forward
prices, and the fair value of this derivative liability will
increase as these forward prices increase. The model is adjusted
each quarter to incorporate market data as it becomes available.
The fair values calculated for CMS Energy’s and
Consumers’ derivatives may change significantly as
commodity prices and volatilities change. The cash returns
actually realized on derivatives may be different from their
estimated fair values. For derivatives in an asset position,
calculations of fair value include reserves of less than
$1 million to reflect the credit risk of CMS Energy’s
and Consumers’ counterparties. For derivatives in a
liability position, calculations include reserves of less than
$1 million to reflect CMS Energy’s and Consumers’
own credit risk. For additional details on how the fair values
of derivatives are determined, see Note 4, Fair Value
Measurements.
The types of contracts typically classified as derivatives are
interest rate swaps, financial transmission rights, fixed price
fuel contracts, natural gas futures, electricity swaps, and
forward and option contracts for electricity, natural gas, and
foreign currencies. Most of CMS Energy’s and
Consumers’ commodity purchase and sale contracts are not
subject to derivative accounting because:
| • | they do not have a notional amount (that is, a number of units specified in a derivative instrument, such as MWh of electricity or bcf of natural gas); | |
| • | they qualify for the normal purchases and sales exception; or | |
| • | there is not an active market for the commodity. |
CMS Energy’s and Consumers’ coal purchase contracts
are not derivatives because there is not an active market for
the coal they purchase. If an active market for coal develops in
the future, some of these contracts may
71
Table of Contents
qualify as derivatives. For Consumers, which is subject to
regulatory accounting, the resulting
mark-to-market
gains and losses would be offset by changes in regulatory assets
and liabilities and would not affect net income. For other
subsidiaries, CMS Energy does not believe the resulting
mark-to-market
impact on earnings would be material.
Market Risk Information:
CMS Energy and Consumers
are exposed to market risks including, but not limited to,
changes in interest rates, commodity prices, and investment
security prices. They may enter into various risk management
contracts to limit exposure to these risks, including swaps,
options, futures, and forward contracts. CMS Energy and
Consumers enter into these contracts using established policies
and procedures, under the direction of an executive oversight
committee consisting of senior management representatives and a
risk committee consisting of business unit managers.
These contracts contain credit risk, which is the risk that the
counterparties will fail to meet their contractual obligations.
CMS Energy and Consumers reduce this risk using established
policies and procedures, such as evaluating counterparties’
credit quality and setting collateral requirements as necessary.
If terms permit, standard agreements are used that allow for the
netting of positive and negative exposures associated with the
same counterparty. Given these policies, present exposures, and
credit reserves, CMS Energy and Consumers do not expect a
material adverse effect on their financial position or future
earnings because of counterparty nonperformance.
The following risk sensitivities illustrate the potential loss
in fair value, cash flows, or future earnings from financial
instruments, including derivative contracts, assuming a
hypothetical adverse change in market rates or prices of ten
percent. Potential losses could exceed the amounts shown in the
sensitivity analyses if changes in market rates or prices were
to exceed ten percent.
Interest-Rate Risk:
CMS Energy and Consumers are
exposed to interest-rate risk resulting from issuing fixed-rate
and variable-rate financing instruments. CMS Energy and
Consumers use a combination of these instruments, and may also
enter into interest-rate swap agreements, in order to manage
this risk and to achieve a reasonable cost of capital.
Interest-Rate Risk Sensitivity Analysis (assuming an adverse
change in market interest rates of ten percent):
|
December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
Fixed-rate financing — potential loss in fair value
CMS Energy, including Consumers |
$ | 187 | $ | 183 | ||||
|
Consumers
|
113 | 122 | ||||||
The fair value losses in the above table could be realized only
if CMS Energy and Consumers transferred all of their fixed-rate
financing to other creditors. The annual earnings exposure
related to variable-rate financing was insignificant for both
CMS Energy and Consumers at December 31, 2010 and 2009,
assuming an adverse change in market interest rates of ten
percent.
Commodity Price Risk:
CMS Energy and Consumers are
exposed to commodity price risk, which arises from fluctuations
in the price of electricity, natural gas, coal, and other
commodities. Commodity prices are influenced by a number of
factors, including weather, changes in supply and demand, and
liquidity of commodity markets. In order to manage commodity
price risk, they may enter into various non-trading derivative
contracts, such as forward purchase and sale contracts, options,
and swaps.
An adverse change in market prices of ten percent would result
in a potential reduction in fair value of less than
$1 million for CMS Energy’s and Consumers’
derivative contracts.
Investment Securities Price Risk:
Through
investments in debt and equity securities, CMS Energy and
Consumers are exposed to changes in interest rates and price
fluctuations in equity markets. The following table shows the
potential effect of adverse changes in interest rates and
fluctuations in equity prices on CMS Energy’s and
Consumers’
available-for-sale
investments.
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Table of Contents
Investment Securities Price Risk Sensitivity Analysis (assuming
an adverse change in market interest rates or prices of ten
percent):
|
December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
CMS Energy, including
Consumers
|
||||||||
|
Potential reduction in fair value of
available-for-sale:
|
||||||||
|
SERP:
|
||||||||
|
Mutual fund
|
$ | 6 | $ | — | ||||
|
State & municipal bonds
|
— | 1 | ||||||
|
Consumers
|
||||||||
|
Potential reduction in fair value of
available-for-sale:
|
||||||||
|
SERP:
|
||||||||
|
Mutual fund
|
$ | 4 | $ | — | ||||
|
CMS Energy common stock
|
3 | 3 | ||||||
Shares in the mutual fund were acquired during the year ended
December 31, 2010.
Notes Receivable Risk:
CMS Energy is exposed to
interest-rate risk resulting from EnerBank’s fixed-rate
installment loans. EnerBank provides these loans to homeowners
to finance home improvements.
Notes Receivable Sensitivity Analysis (assuming an adverse
change in market interest rates of ten percent):
|
December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
CMS Energy, including
Consumers
|
||||||||
|
Potential reduction in fair value:
|
||||||||
|
Notes receivable
|
$ | 6 | $ | 5 | ||||
The fair value losses in the above table could be realized only
if EnerBank sold its loans to other parties. For additional
details on market risk, financial instruments, and derivatives,
see Note 9, Financial Instruments and Note 10,
Derivative Instruments.
Retirement
Benefits
Pension:
CMS Energy and Consumers have external
trust funds to provide retirement pension benefits to their
employees under a non-contributory, defined benefit Pension
Plan. On September 1, 2005, the defined benefit Pension
Plan was closed to new participants and CMS Energy and Consumers
implemented the qualified DCCP, which provides an employer
contribution of six percent of base pay to the existing 401(k)
plan. An employee contribution is not required to receive the
plan’s employer cash contribution. All employees hired on
or after September 1, 2005 participate in this plan as part
of their retirement benefit program. Previous cash balance
Pension Plan participants also participate in the DCCP as of
September 1, 2005. Additional pay credits under the cash
balance Pension Plan were discontinued as of that date.
401(k):
CMS Energy and Consumers provide an employer
match in their 401(k) plan equal to 60 percent on eligible
contributions up to the first six percent of an employee’s
wages.
OPEB:
CMS Energy and Consumers provide
postretirement health and life benefits under their OPEB plan to
qualifying retired employees.
CMS Energy and Consumers record liabilities for pension and OPEB
on their Consolidated Balance Sheets at the present value of the
future obligations, net of any plan assets. The calculation of
the liabilities and associated expenses requires the expertise
of actuaries, and requires many assumptions, including:
| • | life expectancies; | |
| • | discount rates; |
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Table of Contents
| • | expected long-term rate of return on plan assets; | |
| • | rate of compensation increases; and | |
| • | anticipated health care costs. |
A change in these assumptions could change significantly CMS
Energy’s and Consumers’ recorded liabilities and
associated expenses.
Presented in the following table are estimates of CMS
Energy’s and Consumers’ pension cost, OPEB cost, and
cash contributions through 2013:
| Pension Cost | OPEB Cost | Pension Contribution | OPEB Contribution | |||||||||||||
| In Millions | ||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||
|
2011
|
$ | 104 | $ | 49 | $ | — | $ | 65 | ||||||||
|
2012
|
106 | 57 | — | 49 | ||||||||||||
|
2013
|
102 | 53 | 154 | 57 | ||||||||||||
|
Consumers
|
||||||||||||||||
|
2011
|
$ | 101 | $ | 51 | $ | — | $ | 64 | ||||||||
|
2012
|
103 | 59 | — | 48 | ||||||||||||
|
2013
|
99 | 55 | 149 | 56 | ||||||||||||
Contribution estimates include amounts required and
discretionary contributions. Consumers’ pension and OPEB
costs are recoverable through its general ratemaking process.
Actual future pension cost and contributions will depend on
future investment performance, changes in future discount rates,
and various other factors related to the populations
participating in the Pension Plan.
Lowering the expected long-term rate of return on the Pension
Plan assets by 0.25 percentage point (from 8.0 percent
to 7.75 percent) would increase estimated pension cost for
2011 by $4 million for both CMS Energy and Consumers.
Lowering the discount rate by 0.25 percentage point (from
5.40 percent to 5.15 percent) would increase estimated
pension cost for 2011 by $5 million for both CMS Energy and
Consumers.
For additional details on postretirement benefits, see
Note 11, Retirement Benefits.
Asset
Retirement Obligations
CMS Energy and Consumers are required to record the fair value
of the cost to remove assets at the end of their useful lives if
there is a legal obligation to remove them. CMS Energy and
Consumers have legal obligations to remove some of their assets
at the end of their useful lives. CMS Energy and Consumers
calculate the fair value of ARO liabilities using an expected
present value technique that reflects assumptions about costs,
inflation, and profit margin that third parties would require to
assume the obligation. CMS Energy and Consumers did not include
market risk premiums in their ARO fair value estimates since
reasonable estimates could not be made.
If a reasonable estimate of fair value cannot be made in the
period in which the ARO is incurred, such as for assets with
indeterminate lives, the liability is recognized when a
reasonable estimate of fair value can be made. CMS Energy and
Consumers have not recorded liabilities for assets that have
insignificant cumulative disposal costs, such as substation
batteries. For additional details, see Note 16, Asset
Retirement Obligations.
NEW ACCOUNTING
STANDARDS
For details regarding the implementation of new accounting
standards and new accounting standards issued that are not yet
effective, see Note 2, New Accounting Standards.
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CMS Energy
Corporation
CONSOLIDATED
STATEMENTS OF INCOME
| Years Ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| In Millions | ||||||||||||
|
Operating Revenue
|
$ | 6,432 | $ | 6,205 | $ | 6,807 | ||||||
|
Operating Expenses
|
||||||||||||
|
Fuel for electric generation
|
604 | 541 | 600 | |||||||||
|
Purchased and interchange power
|
1,239 | 1,163 | 1,335 | |||||||||
|
Purchased power — related parties
|
85 | — | — | |||||||||
|
Cost of gas sold
|
1,590 | 1,866 | 2,277 | |||||||||
|
Maintenance and other operating expenses
|
1,206 | 1,163 | 1,019 | |||||||||
|
Depreciation and amortization
|
576 | 570 | 588 | |||||||||
|
General taxes
|
210 | 217 | 203 | |||||||||
|
Insurance settlement
|
(50 | ) | — | — | ||||||||
|
Gain on asset sales, net
|
(6 | ) | (13 | ) | (9 | ) | ||||||
|
Total operating expenses
|
5,454 | 5,507 | 6,013 | |||||||||
|
Operating Income
|
978 | 698 | 794 | |||||||||
|
Other Income (Expense)
|
||||||||||||
|
Interest and dividends
|
19 | 18 | 24 | |||||||||
|
Allowance for equity funds used during construction
|
5 | 6 | 6 | |||||||||
|
Income (loss) from equity method investees
|
11 | (2 | ) | 5 | ||||||||
|
Other income
|
32 | 80 | 48 | |||||||||
|
Other expense
|
(24 | ) | (30 | ) | (37 | ) | ||||||
|
Total other income
|
43 | 72 | 46 | |||||||||
|
Interest Charges
|
||||||||||||
|
Interest on long-term debt
|
394 | 383 | 371 | |||||||||
|
Other interest
|
40 | 56 | 33 | |||||||||
|
Allowance for borrowed funds used during construction
|
(3 | ) | (4 | ) | (4 | ) | ||||||
|
Total interest charges
|
431 | 435 | 400 | |||||||||
|
Income Before Income Taxes
|
590 | 335 | 440 | |||||||||
|
Income Tax Expense
|
224 | 115 | 139 | |||||||||
|
Income From Continuing Operations
|
366 | 220 | 301 | |||||||||
|
Income (Loss) From Discontinued Operations, Net of Tax
Expense of $2, $13, and $1 |
(23 | ) | 20 | 1 | ||||||||
|
Net Income
|
343 | 240 | 302 | |||||||||
|
Income Attributable to Noncontrolling Interests
|
3 | 11 | 7 | |||||||||
|
Net Income Attributable to CMS Energy
|
340 | 229 | 295 | |||||||||
|
Charge for Deferred Issuance Costs on Preferred Stock
|
8 | — | — | |||||||||
|
Preferred Stock Dividends
|
8 | 11 | 11 | |||||||||
|
Net Income Available to Common Stockholders
|
$ | 324 | $ | 218 | $ | 284 | ||||||
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Table of Contents
| Years Ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
In Millions, Except Per
|
||||||||||||
| Share Amounts | ||||||||||||
|
Net Income Attributable to Common Stockholders
|
||||||||||||
|
Amounts Attributable to Continuing Operations
|
$ | 347 | $ | 198 | $ | 283 | ||||||
|
Amounts Attributable to Discontinued Operations
|
(23 | ) | 20 | 1 | ||||||||
|
Net Income Available to Common Stockholders
|
$ | 324 | $ | 218 | $ | 284 | ||||||
|
Income Attributable to Noncontrolling Interests
|
||||||||||||
|
Amounts Attributable to Continuing Operations
|
$ | 3 | $ | 11 | $ | 7 | ||||||
|
Amounts Attributable to Discontinued Operations
|
— | — | — | |||||||||
|
Income Attributable to Noncontrolling Interests
|
$ | 3 | $ | 11 | $ | 7 | ||||||
|
Basic Earnings Per Average Common Share
|
||||||||||||
|
Basic Earnings from Continuing Operations
|
$ | 1.50 | $ | 0.87 | $ | 1.25 | ||||||
|
Basic Earnings (Loss) from Discontinued Operations
|
(0.10 | ) | 0.09 | — | ||||||||
|
Basic Earnings Attributable to Common Stock
|
$ | 1.40 | $ | 0.96 | $ | 1.25 | ||||||
|
Diluted Earnings Per Average Common Share
|
||||||||||||
|
Diluted Earnings from Continuing Operations
|
$ | 1.36 | $ | 0.83 | $ | 1.20 | ||||||
|
Diluted Earnings (Loss) from Discontinued Operations
|
(0.08 | ) | 0.08 | — | ||||||||
|
Diluted Earnings Attributable to Common Stock
|
$ | 1.28 | $ | 0.91 | $ | 1.20 | ||||||
|
Dividends Declared Per Common Share
|
$ | 0.66 | $ | 0.50 | $ | 0.36 | ||||||
The accompanying notes are an integral part of these statements.
76
Table of Contents
CMS Energy
Corporation
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| Years Ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| In Millions | ||||||||||||
|
Cash Flows from Operating Activities
|
||||||||||||
|
Net Income
|
$ | 343 | $ | 240 | $ | 302 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities |
||||||||||||
|
Depreciation and amortization
|
576 | 570 | 589 | |||||||||
|
Deferred income taxes and investment tax credit
|
227 | 122 | 126 | |||||||||
|
Postretirement benefits expense
|
213 | 181 | 144 | |||||||||
|
Capital lease and other amortization
|
40 | 42 | 44 | |||||||||
|
Bad debt expense
|
57 | 54 | 51 | |||||||||
|
Gain due to expiration of indemnification obligation
|
— | (50 | ) | — | ||||||||
|
Other non-cash operating activities
|
(1 | ) | (42 | ) | (43 | ) | ||||||
|
Postretirement benefits contributions
|
(463 | ) | (262 | ) | (51 | ) | ||||||
|
Electric sales contract termination payment
|
— | — | (275 | ) | ||||||||
|
Changes in other assets and liabilities:
|
||||||||||||
|
Increase in accounts receivable, notes receivable, and accrued
revenue
|
(105 | ) | (91 | ) | (80 | ) | ||||||
|
Decrease (increase) in accrued power supply revenue
|
33 | (41 | ) | 35 | ||||||||
|
Decrease (increase) in inventories
|
133 | 86 | (71 | ) | ||||||||
|
Decrease in accounts payable
|
(7 | ) | (50 | ) | (5 | ) | ||||||
|
Increase (decrease) in accrued expenses
|
22 | (6 | ) | (31 | ) | |||||||
|
Decrease (increase) in other current and non-current assets
|
(28 | ) | 59 | 12 | ||||||||
|
Increase (decrease) in current and non-current regulatory
liabilities
|
(69 | ) | 102 | (178 | ) | |||||||
|
Decrease in other current and non-current liabilities
|
(12 | ) | (66 | ) | (12 | ) | ||||||
|
Net cash provided by operating activities
|
959 | 848 | 557 | |||||||||
|
Cash Flows from Investing Activities
|
||||||||||||
|
Capital expenditures (excludes assets placed under capital lease)
|
(821 | ) | (818 | ) | (792 | ) | ||||||
|
Cost to retire property
|
(43 | ) | (49 | ) | (34 | ) | ||||||
|
Cash effect of deconsolidation of partnerships
|
(10 | ) | — | — | ||||||||
|
Increase in loans and notes receivable
|
(131 | ) | (83 | ) | (19 | ) | ||||||
|
Other investing activities
|
2 | 15 | 6 | |||||||||
|
Net cash used in investing activities
|
(1,003 | ) | (935 | ) | (839 | ) | ||||||
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Table of Contents
| Years Ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| In Millions | ||||||||||||
|
Cash Flows from Financing Activities
|
||||||||||||
|
Proceeds from issuance of long-term debt
|
1,400 | 1,218 | 1,265 | |||||||||
|
Proceeds from EnerBank notes, net
|
149 | 39 | 23 | |||||||||
|
Issuance of common stock
|
10 | 9 | 9 | |||||||||
|
Retirement of long-term debt
|
(878 | ) | (1,154 | ) | (1,022 | ) | ||||||
|
Payment of common stock dividends
|
(154 | ) | (114 | ) | (82 | ) | ||||||
|
Payment of preferred stock dividends
|
(8 | ) | (11 | ) | (11 | ) | ||||||
|
Redemption of preferred stock
|
(239 | ) | (4 | ) | (1 | ) | ||||||
|
Payment of capital and finance lease obligations
|
(23 | ) | (23 | ) | (26 | ) | ||||||
|
Increase (decrease) in notes payable
|
(40 | ) | 40 | — | ||||||||
|
Other financing costs
|
(15 | ) | (35 | ) | (8 | ) | ||||||
|
Net cash (used in) provided by financing activities
|
202 | (35 | ) | 147 | ||||||||
|
Net Increase (Decrease) in Cash and Cash Equivalents,
Including Assets Held for Sale
|
158 | (122 | ) | (135 | ) | |||||||
|
Decrease (Increase) in Cash and Cash Equivalents Included in
Assets Held for Sale
|
(1 | ) | 5 | (2 | ) | |||||||
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
157 | (117 | ) | (137 | ) | |||||||
|
Cash and Cash Equivalents, Beginning of Period
|
90 | 207 | 344 | |||||||||
|
Cash and Cash Equivalents, End of Period
|
$ | 247 | $ | 90 | $ | 207 | ||||||
|
Other cash flow activities and non-cash investing and
financing activities were:
|
||||||||||||
|
Cash transactions
|
||||||||||||
|
Interest paid (net of amounts capitalized)
|
$ | 405 | $ | 422 | $ | 372 | ||||||
|
Income taxes paid (net of refunds of $-, $-, and $2)
|
14 | 17 | 3 | |||||||||
|
Non-cash transactions
|
||||||||||||
|
Capital expenditures not paid
|
$ | 56 | $ | 15 | $ | 31 | ||||||
|
Other assets placed under capital lease
|
16 | 16 | 5 | |||||||||
The accompanying notes are an integral part of these statements.
78
Table of Contents
CMS Energy
Corporation
CONSOLIDATED BALANCE
SHEETS
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| In Millions | ||||||||
|
ASSETS
|
||||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 247 | $ | 90 | ||||
|
Restricted cash and cash equivalents
|
23 | 32 | ||||||
|
Accounts receivable and accrued revenue,
less allowances of $25 in 2010 and $23 in 2009 |
981 | 948 | ||||||
|
Notes receivable
|
70 | 81 | ||||||
|
Accounts receivable — related parties
|
10 | — | ||||||
|
Accrued power supply revenue
|
15 | 48 | ||||||
|
Inventories at average cost
|
||||||||
|
Gas in underground storage
|
946 | 1,043 | ||||||
|
Materials and supplies
|
104 | 118 | ||||||
|
Generating plant fuel stock
|
125 | 158 | ||||||
|
Deferred property taxes
|
180 | 172 | ||||||
|
Regulatory assets
|
19 | 19 | ||||||
|
Assets held for sale
|
2 | 2 | ||||||
|
Prepayments and other current assets
|
37 | 31 | ||||||
|
Total current assets
|
2,759 | 2,742 | ||||||
|
Plant, Property & Equipment (at cost)
|
||||||||
|
Plant, property & equipment, gross
|
14,145 | 13,716 | ||||||
|
Less accumulated depreciation, depletion and amortization
|
4,646 | 4,540 | ||||||
|
Plant, property & equipment, net
|
9,499 | 9,176 | ||||||
|
Construction work in progress
|
570 | 506 | ||||||
|
Total plant, property & equipment
|
10,069 | 9,682 | ||||||
|
Non-current Assets
|
||||||||
|
Regulatory assets
|
2,093 | 2,291 | ||||||
|
Notes receivable, less allowances of $5 in 2010 and $6 in 2009
|
397 | 297 | ||||||
|
Investments
|
49 | 9 | ||||||
|
Assets held for sale
|
4 | 9 | ||||||
|
Other non-current assets
|
245 | 226 | ||||||
|
Total non-current assets
|
2,788 | 2,832 | ||||||
|
Total Assets
|
$ | 15,616 | $ | 15,256 | ||||
79
Table of Contents
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| In Millions | ||||||||
|
LIABILITIES AND EQUITY
|
||||||||
|
Current Liabilities
|
||||||||
|
Current portion of long-term debt, capital and finance lease
obligations
|
$ | 750 | $ | 694 | ||||
|
Notes payable
|
— | 40 | ||||||
|
Accounts payable
|
492 | 509 | ||||||
|
Accounts payable — related parties
|
9 | — | ||||||
|
Accrued rate refunds
|
19 | 21 | ||||||
|
Accrued interest
|
102 | 96 | ||||||
|
Accrued taxes
|
302 | 283 | ||||||
|
Deferred income taxes
|
180 | 43 | ||||||
|
Regulatory liabilities
|
22 | 145 | ||||||
|
Liabilities held for sale
|
1 | — | ||||||
|
Other current liabilities
|
144 | 123 | ||||||
|
Total current liabilities
|
2,021 | 1,954 | ||||||
|
Non-current Liabilities
|
||||||||
|
Long-term debt
|
6,448 | 5,895 | ||||||
|
Non-current portion of capital and finance lease obligations
|
188 | 197 | ||||||
|
Regulatory liabilities
|
1,988 | 1,991 | ||||||
|
Postretirement benefits
|
1,135 | 1,460 | ||||||
|
Asset retirement obligations
|
245 | 229 | ||||||
|
Deferred investment tax credit
|
49 | 51 | ||||||
|
Deferred income taxes
|
438 | 231 | ||||||
|
Other non-current liabilities
|
267 | 310 | ||||||
|
Total non-current liabilities
|
10,758 | 10,364 | ||||||
|
Commitments and Contingencies (Notes 5, 6, 7, 9, and 10)
|
||||||||
|
Equity
|
||||||||
|
Common stockholders’ equity
|
||||||||
|
Common stock, authorized 350.0 shares; outstanding
249.6 shares in 2010 and 227.9 shares in 2009
|
2 | 2 | ||||||
|
Other paid-in capital
|
4,588 | 4,560 | ||||||
|
Accumulated other comprehensive loss
|
(40 | ) | (33 | ) | ||||
|
Accumulated deficit
|
(1,757 | ) | (1,927 | ) | ||||
|
Total common stockholders’ equity
|
2,793 | 2,602 | ||||||
|
Preferred stock
|
— | 239 | ||||||
|
Noncontrolling interests
|
44 | 97 | ||||||
|
Total equity
|
2,837 | 2,938 | ||||||
|
Total Liabilities and Equity
|
$ | 15,616 | $ | 15,256 | ||||
The accompanying notes are an integral part of these statements.
80
Table of Contents
CMS Energy
Corporation
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
| Years Ended December 31 | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
| Number of Shares in Thousands | In Millions | |||||||||||||||||||||||
|
Common Stock
|
||||||||||||||||||||||||
|
At beginning and end of period
|
$ | 2 | $ | 2 | $ | 2 | ||||||||||||||||||
|
Other Paid-in Capital
|
||||||||||||||||||||||||
|
At beginning of period
|
227,891 | 226,414 | 225,146 | 4,560 | 4,533 | 4,517 | ||||||||||||||||||
|
Common stock issued
|
22,090 | 1,793 | 1,751 | 22 | 17 | 17 | ||||||||||||||||||
|
Common stock repurchased
|
(148 | ) | (78 | ) | (38 | ) | (2 | ) | (1 | ) | (1 | ) | ||||||||||||
|
Common stock reacquired
|
(205 | ) | (238 | ) | (445 | ) | — | — | — | |||||||||||||||
|
Conversion option on convertible debt
|
— | — | — | — | 11 | — | ||||||||||||||||||
|
Charge for deferred issuance costs
|
— | — | — | 8 | — | — | ||||||||||||||||||
|
At end of period
|
249,628 | 227,891 | 226,414 | 4,588 | 4,560 | 4,533 | ||||||||||||||||||
|
Accumulated Other Comprehensive Loss
|
||||||||||||||||||||||||
|
Retirement benefits liability
|
||||||||||||||||||||||||
|
At beginning of period
|
(32 | ) | (27 | ) | (15 | ) | ||||||||||||||||||
|
Net loss arising during the period(a)
|
(9 | ) | (6 | ) | (12 | ) | ||||||||||||||||||
|
Amortization of net actuarial loss(a)
|
1 | 1 | — | |||||||||||||||||||||
|
Prior service credit adjustment(a)
|
1 | — | — | |||||||||||||||||||||
|
At end of period
|
(39 | ) | (32 | ) | (27 | ) | ||||||||||||||||||
|
Investments
|
||||||||||||||||||||||||
|
At beginning of period
|
— | — | — | |||||||||||||||||||||
|
Unrealized gain (loss) on investments(a)
|
— | 5 | (15 | ) | ||||||||||||||||||||
|
Reclassification adjustments included in net income(a)
|
— | (5 | ) | 15 | ||||||||||||||||||||
|
At end of period
|
— | — | — | |||||||||||||||||||||
|
Derivative instruments
|
||||||||||||||||||||||||
|
At beginning and end of period
|
(1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||
|
Foreign currency translation
|
||||||||||||||||||||||||
|
At beginning of period
|
— | — | (128 | ) | ||||||||||||||||||||
|
Sale of interests in TGN(a)
|
— | — | 128 | |||||||||||||||||||||
|
At end of period
|
— | — | — | |||||||||||||||||||||
|
At end of period
|
(40 | ) | (33 | ) | (28 | ) | ||||||||||||||||||
|
Accumulated Deficit
|
||||||||||||||||||||||||
|
At beginning of period
|
(1,927 | ) | (2,031 | ) | (2,227 | ) | ||||||||||||||||||
|
Effects of changing the retirement plans measurement date
|
||||||||||||||||||||||||
|
Service cost, interest cost, and expected return on plan assets
for December 1 through December 31, 2007, net of tax
|
— | — | (4 | ) | ||||||||||||||||||||
|
Additional loss from December 1 through December 31, 2007,
net of tax
|
— | — | (2 | ) | ||||||||||||||||||||
|
Net income attributable to CMS Energy(a)
|
340 | 229 | 295 | |||||||||||||||||||||
|
Common stock dividends declared
|
(154 | ) | (114 | ) | (82 | ) | ||||||||||||||||||
|
Preferred stock dividends declared
|
(8 | ) | (11 | ) | (11 | ) | ||||||||||||||||||
|
Charge for deferred issuance costs
|
(8 | ) | — | — | ||||||||||||||||||||
|
At end of period
|
(1,757 | ) | (1,927 | ) | (2,031 | ) | ||||||||||||||||||
|
Preferred Stock
|
||||||||||||||||||||||||
|
At beginning of period
|
239 | 243 | 250 | |||||||||||||||||||||
|
Conversion of preferred stock
|
(239 | ) | (4 | ) | (7 | ) | ||||||||||||||||||
|
At end of period
|
— | 239 | 243 | |||||||||||||||||||||
|
Noncontrolling Interests
|
||||||||||||||||||||||||
|
At beginning of period
|
97 | 96 | 97 | |||||||||||||||||||||
|
Income attributable to noncontrolling interests
|
3 | 11 | 7 | |||||||||||||||||||||
|
Distributions and other changes in noncontrolling interests
|
(56 | ) | (10 | ) | (8 | ) | ||||||||||||||||||
|
At end of period
|
44 | 97 | 96 | |||||||||||||||||||||
|
Total Equity
|
$ | 2,837 | $ | 2,938 | $ | 2,815 | ||||||||||||||||||
81
Table of Contents
| Years Ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| In Millions | ||||||||||||
|
(a) Disclosure of Comprehensive Income:
|
||||||||||||
|
Net income
|
$ | 343 | $ | 240 | $ | 302 | ||||||
|
Income attributable to noncontrolling interests
|
3 | 11 | 7 | |||||||||
|
Net income attributable to CMS Energy
|
$ | 340 | $ | 229 | $ | 295 | ||||||
|
Retirement benefits liability:
|
||||||||||||
|
Net loss arising during the period, net of tax benefit of ($6)
in 2010, ($3) in 2009, and ($6) in 2008
|
(9 | ) | (6 | ) | (12 | ) | ||||||
|
Amortization of net actuarial loss, net of tax of $- in 2010 and
2009
|
1 | 1 | — | |||||||||
|
Prior service credit adjustment, net of tax of $1 in 2010
|
1 | — | — | |||||||||
|
Investments:
|
||||||||||||
|
Unrealized gain (loss) on investments, net of tax (tax benefit)
of $- in 2010, $3 in 2009, and ($9) in 2008
|
— | 5 | (15 | ) | ||||||||
|
Reclassification adjustments included in net income (loss), net
of tax (tax benefit) of $- in 2010, ($3) in 2009, and $9 in 2008
|
— | (5 | ) | 15 | ||||||||
|
Foreign currency translation:
|
||||||||||||
|
Sale of interests in TGN, net of tax of $69
|
— | — | 128 | |||||||||
|
Total Comprehensive Income
|
$ | 333 | $ | 224 | $ | 411 | ||||||
The accompanying notes are an integral part of these statements.
82
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83
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Consumers Energy
Company
CONSOLIDATED
STATEMENTS OF INCOME
| Years Ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| In Millions | ||||||||||||
|
Operating Revenue
|
$ | 6,156 | $ | 5,963 | $ | 6,421 | ||||||
|
Operating Expenses
|
||||||||||||
|
Fuel for electric generation
|
520 | 460 | 483 | |||||||||
|
Purchased and interchange power
|
1,224 | 1,151 | 1,313 | |||||||||
|
Purchased power — related parties
|
84 | 81 | 75 | |||||||||
|
Cost of gas sold
|
1,516 | 1,778 | 2,079 | |||||||||
|
Maintenance and other operating expenses
|
1,109 | 1,045 | 935 | |||||||||
|
Depreciation and amortization
|
572 | 559 | 574 | |||||||||
|
General taxes
|
205 | 209 | 195 | |||||||||
|
Loss (gain) on asset sales, net
|
— | (9 | ) | 1 | ||||||||
|
Total operating expenses
|
5,230 | 5,274 | 5,655 | |||||||||
|
Operating Income
|
926 | 689 | 766 | |||||||||
|
Other Income (Expense)
|
||||||||||||
|
Interest and dividends
|
18 | 17 | 20 | |||||||||
|
Allowance for equity funds used during construction
|
5 | 6 | 6 | |||||||||
|
Other income
|
31 | 47 | 45 | |||||||||
|
Other expense
|
(15 | ) | (11 | ) | (28 | ) | ||||||
|
Total other income
|
39 | 59 | 43 | |||||||||
|
Interest Charges
|
||||||||||||
|
Interest on long-term debt
|
246 | 250 | 229 | |||||||||
|
Other interest
|
34 | 46 | 22 | |||||||||
|
Allowance for borrowed funds used during construction
|
(3 | ) | (4 | ) | (4 | ) | ||||||
|
Total interest charges
|
277 | 292 | 247 | |||||||||
|
Income Before Income Taxes
|
688 | 456 | 562 | |||||||||
|
Income Tax Expense
|
254 | 163 | 198 | |||||||||
|
Net Income
|
434 | 293 | 364 | |||||||||
|
Preferred Stock Dividends
|
2 | 2 | 2 | |||||||||
|
Net Income Available to Common Stockholder
|
$ | 432 | $ | 291 | $ | 362 | ||||||
The accompanying notes are an integral part of these statements.
84
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intentionally left blank)
85
Table of Contents
Consumers Energy
Company
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| Years Ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| In Millions | ||||||||||||
|
Cash Flows from Operating Activities
|
||||||||||||
|
Net Income
|
$ | 434 | $ | 293 | $ | 364 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
||||||||||||
|
Depreciation and amortization
|
572 | 559 | 574 | |||||||||
|
Deferred income taxes and investment tax credit
|
246 | 67 | 196 | |||||||||
|
Postretirement benefits expense
|
208 | 177 | 141 | |||||||||
|
Capital lease and other amortization
|
24 | 26 | 30 | |||||||||
|
Bad debt expense
|
53 | 47 | 47 | |||||||||
|
Other non-cash operating activities
|
— | (35 | ) | (32 | ) | |||||||
|
Postretirement benefits contributions
|
(447 | ) | (254 | ) | (50 | ) | ||||||
|
Changes in other assets and liabilities:
|
||||||||||||
|
Increase in accounts receivable, notes receivable, and accrued
revenue
|
(92 | ) | (92 | ) | (79 | ) | ||||||
|
Decrease (increase) in accrued power supply revenue
|
33 | (41 | ) | 35 | ||||||||
|
Decrease (increase) in inventories
|
132 | 91 | (89 | ) | ||||||||
|
Increase (decrease) in accounts payable
|
(16 | ) | (50 | ) | 1 | |||||||
|
Increase (decrease) in accrued expenses
|
(83 | ) | 2 | (79 | ) | |||||||
|
Decrease (increase) in other current and non-current assets
|
(21 | ) | 60 | 14 | ||||||||
|
Increase (decrease) in current and non-current regulatory
liabilities
|
(69 | ) | 101 | (178 | ) | |||||||
|
Decrease in other current and non-current liabilities
|
(64 | ) | (29 | ) | (22 | ) | ||||||
|
Net cash provided by operating activities
|
910 | 922 | 873 | |||||||||
|
Cash Flows from Investing Activities
|
||||||||||||
|
Capital expenditures (excludes assets placed under capital lease)
|
(815 | ) | (811 | ) | (789 | ) | ||||||
|
Cost to retire property
|
(43 | ) | (49 | ) | (34 | ) | ||||||
|
Other investing activities
|
(1 | ) | 10 | — | ||||||||
|
Net cash used in investing activities
|
(859 | ) | (850 | ) | (823 | ) | ||||||
86
Table of Contents
| Years Ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| In Millions | ||||||||||||
|
Cash Flows from Financing Activities
|
||||||||||||
|
Proceeds from issuance of long-term debt
|
600 | 500 | 600 | |||||||||
|
Retirement of long-term debt
|
(482 | ) | (387 | ) | (444 | ) | ||||||
|
Payment of common stock dividends
|
(358 | ) | (285 | ) | (297 | ) | ||||||
|
Payment of preferred stock dividends
|
(2 | ) | (2 | ) | (2 | ) | ||||||
|
Stockholder’s contribution
|
250 | 100 | — | |||||||||
|
Payment of capital and finance lease obligations
|
(23 | ) | (23 | ) | (26 | ) | ||||||
|
Other financing costs
|
(4 | ) | (5 | ) | (7 | ) | ||||||
|
Net cash used in financing activities
|
(19 | ) | (102 | ) | (176 | ) | ||||||
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
32 | (30 | ) | (126 | ) | |||||||
|
Cash and Cash Equivalents, Beginning of Period
|
39 | 69 | 195 | |||||||||
|
Cash and Cash Equivalents, End of Period
|
$ | 71 | $ | 39 | $ | 69 | ||||||
|
Other cash flow activities and non-cash investing and
financing activities were:
|
||||||||||||
|
Cash transactions
|
||||||||||||
|
Interest paid (net of amounts capitalized)
|
$ | 259 | $ | 276 | $ | 223 | ||||||
|
Income taxes paid
|
149 | 104 | 84 | |||||||||
|
Non-cash transactions
|
||||||||||||
|
Capital expenditures not paid
|
$ | 56 | $ | 15 | $ | 31 | ||||||
|
Other assets placed under capital lease
|
16 | 16 | 5 | |||||||||
The accompanying notes are an integral part of these statements.
87
Table of Contents
Consumers Energy
Company
CONSOLIDATED BALANCE
SHEETS
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| In Millions | ||||||||
|
ASSETS
|
||||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 71 | $ | 39 | ||||
|
Restricted cash and cash equivalents
|
23 | 22 | ||||||
|
Accounts receivable and accrued revenue,
less allowances of $23 in 2010 and $21 in 2009 |
963 | 935 | ||||||
|
Notes receivable
|
55 | 79 | ||||||
|
Accrued power supply revenue
|
15 | 48 | ||||||
|
Accounts receivable — related parties
|
1 | 2 | ||||||
|
Inventories at average cost
|
||||||||
|
Gas in underground storage
|
941 | 1,038 | ||||||
|
Materials and supplies
|
100 | 111 | ||||||
|
Generating plant fuel stock
|
124 | 148 | ||||||
|
Deferred property taxes
|
180 | 172 | ||||||
|
Regulatory assets
|
19 | 19 | ||||||
|
Prepayments and other current assets
|
27 | 23 | ||||||
|
Total current assets
|
2,519 | 2,636 | ||||||
|
Plant, Property & Equipment (at cost)
|
||||||||
|
Plant, property & equipment, gross
|
14,022 | 13,352 | ||||||
|
Less accumulated depreciation, depletion, and amortization
|
4,593 | 4,386 | ||||||
|
Plant, property & equipment, net
|
9,429 | 8,966 | ||||||
|
Construction work in progress
|
566 | 505 | ||||||
|
Total plant, property & equipment
|
9,995 | 9,471 | ||||||
|
Non-current Assets
|
||||||||
|
Regulatory assets
|
2,093 | 2,291 | ||||||
|
Investments
|
34 | 29 | ||||||
|
Other non-current assets
|
198 | 195 | ||||||
|
Total non-current assets
|
2,325 | 2,515 | ||||||
|
Total Assets
|
$ | 14,839 | $ | 14,622 | ||||
88
Table of Contents
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| In Millions | ||||||||
|
LIABILITIES AND EQUITY
|
||||||||
|
Current Liabilities
|
||||||||
|
Current portion of long-term debt, capital and finance lease
obligations
|
$ | 61 | $ | 365 | ||||
|
Accounts payable
|
471 | 490 | ||||||
|
Accounts payable — related parties
|
11 | 11 | ||||||
|
Accrued rate refunds
|
19 | 21 | ||||||
|
Accrued interest
|
74 | 70 | ||||||
|
Accrued taxes
|
199 | 277 | ||||||
|
Deferred income taxes
|
209 | 206 | ||||||
|
Regulatory liabilities
|
22 | 145 | ||||||
|
Other current liabilities
|
95 | 86 | ||||||
|
Total current liabilities
|
1,161 | 1,671 | ||||||
|
Non-current Liabilities
|
||||||||
|
Long-term debt
|
4,488 | 4,063 | ||||||
|
Non-current portion of capital and finance lease obligations
|
188 | 197 | ||||||
|
Regulatory liabilities
|
1,988 | 1,991 | ||||||
|
Postretirement benefits
|
1,076 | 1,396 | ||||||
|
Asset retirement obligations
|
244 | 228 | ||||||
|
Deferred investment tax credit
|
49 | 51 | ||||||
|
Deferred income taxes
|
1,289 | 926 | ||||||
|
Other non-current liabilities
|
176 | 241 | ||||||
|
Total non-current liabilities
|
9,498 |
9,093
|
||||||
|
Commitments and Contingencies (Notes 5, 6, 7, 9, and 10)
|
||||||||
|
Equity
|
||||||||
|
Common stockholder’s equity
|
||||||||
|
Common stock, authorized 125.0 shares; outstanding
84.1 shares for both periods
|
841 | 841 | ||||||
|
Other paid-in capital
|
2,832 | 2,582 | ||||||
|
Accumulated other comprehensive income
|
— | 2 | ||||||
|
Retained earnings
|
463 | 389 | ||||||
|
Total common stockholder’s equity
|
4,136 | 3,814 | ||||||
|
Preferred stock
|
44 | 44 | ||||||
|
Total equity
|
4,180 | 3,858 | ||||||
|
Total Liabilities and Equity
|
$ | 14,839 | $ | 14,622 | ||||
The accompanying notes are an integral part of these statements.
89
Table of Contents
Consumers Energy
Company
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
| Years Ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| In Millions | ||||||||||||
|
Common Stock
|
||||||||||||
|
At beginning and end of period(a)
|
$ | 841 | $ | 841 | $ | 841 | ||||||
|
Other Paid-in Capital
|
||||||||||||
|
At beginning of period
|
2,582 | 2,482 | 2,482 | |||||||||
|
Stockholder’s contribution
|
250 | 100 | — | |||||||||
|
At end of period
|
2,832 | 2,582 | 2,482 | |||||||||
|
Accumulated Other Comprehensive Income (Loss)
|
||||||||||||
|
Retirement benefits liability
|
||||||||||||
|
At beginning of period
|
(11 | ) | (7 | ) | (15 | ) | ||||||
|
Retirement benefits liability adjustments(b)
|
— | — | 6 | |||||||||
|
Net gain (loss) arising during the period(b)
|
(5 | ) | (4 | ) | 2 | |||||||
|
At end of period
|
(16 | ) | (11 | ) | (7 | ) | ||||||
|
Investments
|
||||||||||||
|
At beginning of period
|
13 | 6 | 15 | |||||||||
|
Unrealized gain (loss) on investments(b)
|
3 | 10 | (19 | ) | ||||||||
|
Reclassification adjustments included in net income(b)
|
— | (3 | ) | 10 | ||||||||
|
At end of period
|
16 | 13 | 6 | |||||||||
|
At end of period
|
— | 2 | (1 | ) | ||||||||
|
Retained Earnings
|
||||||||||||
|
At beginning of period
|
389 | 383 | 324 | |||||||||
|
Effects of changing the retirement plans measurement date
|
||||||||||||
|
Service cost, interest cost, and expected return on plan assets
for
December 1 through December 31, 2007, net of tax |
— | — | (4 | ) | ||||||||
|
Additional loss from December 1 through December 31, 2007,
net of tax
|
— | — | (2 | ) | ||||||||
|
Net income(b)
|
434 | 293 | 364 | |||||||||
|
Common stock dividends declared
|
(358 | ) | (285 | ) | (297 | ) | ||||||
|
Preferred stock dividends declared
|
(2 | ) | (2 | ) | (2 | ) | ||||||
|
At end of period
|
463 | 389 | 383 | |||||||||
|
Preferred Stock
|
||||||||||||
|
At beginning and end of period
|
44 | 44 | 44 | |||||||||
|
Total Equity
|
$ | 4,180 | $ | 3,858 | $ | 3,749 | ||||||
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| Years Ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| In Millions | ||||||||||||
|
(a) Number of shares of common stock outstanding was
84,108,789 for all periods presented.
|
||||||||||||
|
(b) Disclosure of Comprehensive Income:
|
||||||||||||
|
Net income
|
$ | 434 | $ | 293 | $ | 364 | ||||||
|
Retirement benefits liability
|
||||||||||||
|
Retirement benefits liability adjustments, net of tax of $2 in
2008
|
— | — | 6 | |||||||||
|
Net gain (loss) arising during the period, net of tax (tax
benefit) of $(3) in 2010, $(2) in 2009 and $1 in 2008
|
(5 | ) | (4 | ) | 2 | |||||||
|
Investments
|
||||||||||||
|
Unrealized gain (loss) on investments, net of tax (tax benefit)
of $2 in 2010, $6 in 2009, and $(10) in 2008
|
3 | 10 | (19 | ) | ||||||||
|
Reclassification adjustments included in net income, net of tax
(tax benefit) of $- in 2010, $(2) in 2009 and $6 in 2008
|
— | (3 | ) | 10 | ||||||||
|
Total Comprehensive Income
|
$ | 432 | $ | 296 | $ | 363 | ||||||
The accompanying notes are an integral part of these statements.
91
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Consumers Energy
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
| 1: | SIGNIFICANT ACCOUNTING POLICIES |
Corporate Structure:
CMS Energy is an energy company
operating primarily in Michigan. It is the parent holding
company of several subsidiaries, including Consumers, an
electric and gas utility, and CMS Enterprises, primarily a
domestic IPP. CMS Energy and Consumers manage their businesses
by the nature of services each provides. CMS Energy operates
principally in three business segments: electric utility; gas
utility; and enterprises, its non-utility investments and
operations. Consumers operates principally in two business
segments: electric utility and gas utility.
Principles of Consolidation:
CMS Energy and
Consumers prepare their Consolidated Financial Statements in
conformity with GAAP. CMS Energy’s Consolidated Financial
Statements comprise CMS Energy, Consumers, CMS Enterprises, and
all other entities in which CMS Energy has a controlling
financial interest or is the primary beneficiary.
Consumers’ Consolidated Financial Statements comprise
Consumers and all other entities in which it has a controlling
financial interest or is the primary beneficiary. CMS Energy
uses the equity method of accounting for investments in
companies and partnerships that are not consolidated, where they
have significant influence over operations and financial
policies but are not the primary beneficiary. CMS Energy and
Consumers eliminate intercompany transactions and balances.
Use of Estimates:
CMS Energy and Consumers are
required to make estimates using assumptions that may affect
reported amounts and disclosures. Actual results could differ
from those estimates.
CMS Energy and Consumers record estimated liabilities for
contingencies in their Consolidated Financial Statements when it
is probable that a liability has been incurred and when the
amount of loss can be reasonably estimated. For additional
details, see Note 5, Contingencies and Commitments.
Revenue Recognition Policy:
CMS Energy and Consumers
recognize revenue from deliveries of electricity and natural
gas, and from the transportation, processing, and storage of
natural gas, when services are provided. CMS Energy and
Consumers record unbilled revenue for the estimated amount of
energy delivered to customers but not yet billed. CMS Energy and
Consumers record sales tax net and exclude it from revenue. CMS
Energy recognizes revenue on sales of marketed electricity,
natural gas, and other energy products at delivery.
Alternative-Revenue Programs:
In September 2009, the
MPSC approved an energy optimization incentive mechanism that
provides a financial incentive if the energy savings of
Consumers’ customers exceed annual targets established by
the MPSC. Consumers accounts for this program as an
alternative-revenue program that meets the criteria for
recognizing revenue related to the incentive as soon as energy
savings exceed the annual targets established by the MPSC.
Under electric and gas rate orders issued by the MPSC in 2009
and 2010, Consumers was granted authority to implement revenue
decoupling mechanisms. The electric decoupling mechanism adjusts
customer rates to collect or refund the change in marginal
revenue arising from the difference between the level of average
sales per customer adopted in the electric rate order and actual
average sales per customer. The gas decoupling mechanism is
similar, but does not adjust customer rates for changes in sales
volumes resulting from weather fluctuations. Consumers accounts
for these programs as alternative-revenue programs that meet the
criteria for recognizing the effects of decoupling adjustments
on revenue as electricity and gas are delivered. For details on
Consumers’ decoupling mechanisms, see Note 6,
Regulatory Matters.
Self-Implemented Rates:
Unless prohibited by the
MPSC upon a showing of good cause, Consumers is allowed to
self-implement new energy rates six months after a new rate case
filing if the MPSC has not issued an order in the case. The MPSC
then has another six months to issue a final order. If the MPSC
does not issue an order, the filed rates are considered
approved. If the MPSC issues an order, the rates that Consumers
self-implemented may be subject to refund, with interest.
Consumers recognizes revenue associated with self-implemented
rates. If Consumers considers it probable that it will be
required to refund a portion of its self-implemented rates, then
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CMS Energy
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Consumers Energy
Company
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consumers records a provision for revenue subject to refund. For
details on Consumers’ self-implemented rates, see
Note 6, Regulatory Matters.
Accounting for Legal Fees:
CMS Energy and Consumers
expense legal fees as incurred; fees incurred but not yet billed
are accrued based on estimates of work performed. This policy
also applies to any fees incurred on behalf of employees and
officers under indemnification agreements; such fees are billed
directly to CMS Energy or Consumers.
Accounting for MISO Transactions:
MISO requires the
submission of hourly day-ahead and real-time bids and offers for
energy at locations across the MISO region. Consumers and CMS
ERM account for MISO transactions on a net hourly basis in each
of the real-time and day-ahead markets, and they net
transactions across all MISO energy market locations. CMS Energy
and Consumers record net purchases in a single hour in Purchased
and interchange power and net sales in a single hour in
Operating Revenue on the Consolidated Statements of Income. They
record net sale billing adjustments upon invoice receipt, record
expense accruals for future net purchases adjustments based on
historical experience, and reconcile accruals to actual expenses
upon invoice receipt.
Accounts Receivable:
Accounts receivable comprise
trade receivables and unbilled receivables. CMS Energy and
Consumers record their accounts receivable at cost, which
approximates fair value. CMS Energy and Consumers establish an
allowance for uncollectible accounts and loan losses based on
historical losses, management’s assessment of existing
economic conditions, customer trends, and other factors. CMS
Energy and Consumers assess late payment fees on trade
receivables based on contractual past-due terms established with
customers. CMS Energy and Consumers charge off accounts deemed
uncollectible to operating expense.
Cash and Cash Equivalents:
Cash and cash equivalents
include short-term, highly liquid investments with original
maturities of three months or less.
Derivative Instruments:
CMS Energy and Consumers
record derivative contracts that do not qualify for the normal
purchases and sales exception at fair value on their
Consolidated Balance Sheets. If a derivative qualifies for cash
flow hedge accounting, changes in the fair value are recorded in
AOCI; otherwise, changes are reported in earnings. For
additional details regarding derivative instruments, see
Note 10, Derivative Instruments.
Determination of Pension and OPEB MRV of Plan
Assets:
CMS Energy and Consumers determine the MRV for
pension plan assets as the fair value of plan assets on the
measurement date, adjusted by the gains or losses that will not
be admitted into the MRV until future years. CMS Energy and
Consumers reflect each year’s gain or loss in the MRV in
equal amounts over a five-year period beginning on the date the
original amount was determined. CMS Energy and Consumers
determine the MRV for OPEB plan assets as the fair value of
assets on the measurement date. CMS Energy and Consumers use the
MRV in the calculation of net pension and OPEB costs.
Earnings Per Share:
CMS Energy calculates basic and
diluted EPS using the weighted-average number of shares of
common stock and dilutive potential common stock outstanding
during the period. Potential common stock, for purposes of
determining diluted EPS, includes the effects of dilutive stock
options, warrants, and convertible securities. CMS Energy
computes the effect on potential common stock using the treasury
stock method or the if-converted method, as applicable. Diluted
EPS excludes the impact of antidilutive securities, which are
those securities resulting in an increase in EPS or a decrease
in loss per share. For EPS computations, see Note 8,
Earnings Per Share — CMS Energy.
Financial Instruments:
CMS Energy and Consumers
record debt and equity securities classified as available for
sale at fair value as determined from quoted market prices or
other observable, market-based inputs. Unrealized gains and
losses on these securities are determined on a
specific-identification basis. CMS Energy and Consumers report
unrealized gains and losses from changes in fair value of the
equity securities, net of tax, in equity as part of AOCI, except
that unrealized losses determined to be other than temporary are
reported in earnings. CMS Energy
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and Consumers report unrealized gains resulting from changes in
fair value of the debt securities, net of tax, in equity as part
of AOCI. Unrealized losses on the debt securities, if
significant, are considered other than temporary and reported in
earnings since these securities are managed by an independent
investment manager that can sell the securities at its own
discretion. For additional details regarding financial
instruments, see Note 9, Financial Instruments.
Impairment of Long-Lived Assets and Equity Method
Investments:
CMS Energy and Consumers perform tests of
impairment if certain triggering events occur, or if there has
been a decline in value that may be other than temporary.
CMS Energy and Consumers evaluate long-lived assets held in use
for impairment by calculating the undiscounted future cash flows
expected to result from the use of the asset and its eventual
disposition. If the undiscounted future cash flows are less than
the carrying amount, CMS Energy and Consumers recognize an
impairment loss equal to the amount by which the carrying amount
exceeds the fair value. CMS Energy and Consumers estimate the
fair value of the asset using quoted market prices, market
prices of similar assets, or discounted future cash flow
analyses.
CMS Energy also assesses equity method investments for
impairment whenever there has been a decline in value that is
other than temporary. This assessment requires CMS Energy to
determine the fair value of the equity method investment. CMS
Energy determines fair value using valuation methodologies,
including discounted cash flows, and assesses the ability of the
investee to sustain an earnings capacity that justifies the
carrying amount of the investment. CMS Energy records an
impairment if the fair value is less than the carrying amount
and the decline in value is considered to be other than
temporary.
For additional details, see Note 20, Asset Sales,
Discontinued Operations, and Impairment Charges.
Inventory:
CMS Energy and Consumers use the
weighted-average cost method for valuing working gas,
recoverable base gas in underground storage facilities, and
materials and supplies inventory. CMS Energy and Consumers also
use this method for valuing coal inventory, and they classify
these amounts as Generating plant fuel stock on their
Consolidated Balance Sheets.
CMS Energy and Consumers classify RECs and emission allowances
as materials and supplies inventory and use the average cost
method to remove amounts from inventory. RECs and emission
allowances are used to satisfy compliance obligations related to
the generation of power.
CMS Energy and Consumers use the
lower-of-cost-or-market
method to evaluate inventory for impairment.
Maintenance and Depreciation:
CMS Energy and
Consumers record property repairs and minor property replacement
as maintenance expense. CMS Energy and Consumers record planned
major maintenance activities as operating expense unless the
cost represents the acquisition of additional long-lived assets
or the replacement of an existing long-lived asset.
Consumers depreciates utility property on an asset-group basis,
in which it applies a single MPSC-approved depreciation rate to
the gross investment in a particular class of property within
the electric and gas segments. Consumers performs depreciation
studies periodically to determine appropriate group lives.
Presented in the following table are the composite depreciation
rates for Consumers’ segment properties:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
|
Electric utility property
|
3.0 | % | 3.0 | % | 3.0 | % | ||||||
|
Gas utility property
|
2.9 | % | 2.9 | % | 3.6 | % | ||||||
|
Other property
|
7.4 | % | 7.6 | % | 8.5 | % | ||||||
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Notes Receivable:
EnerBank provides unsecured
consumer installment loans for financing home improvements.
These loans totaled $385 million, net of an allowance for
loan losses of $5 million, at December 31, 2010, and
$269 million, net of an allowance for loan losses of
$6 million, at December 31, 2009. At December 31,
2010, $10 million of EnerBank’s loans were classified
as current Notes receivable and $375 million were
classified as non-current Notes receivable on CMS Energy’s
Consolidated Balance Sheets. At December 31, 2009,
$1 million of EnerBank’s loans were classified as
current Notes receivable and $268 million were classified
as non-current Notes receivable on CMS Energy’s
Consolidated Balance Sheets.
The allowance for loan losses is a valuation allowance to
reflect probable credit losses. The allowance is increased by
the provision for loan losses and decreased by loan charge-offs
net of recoveries. Management estimates the allowance balance
required using historical loan loss experience, the nature and
volume of the portfolio, economic conditions, and other factors.
Loans losses are charged against the allowance when the loss is
confirmed, but no later than the point at which a loan becomes
120 days past due.
Loans that are 30 days or more past due are considered
delinquent. Presented in the following table is the delinquency
status of EnerBank’s consumer loans at December 31,
2010:
|
Past Due
|
Past Due
|
Past Due
|
Total
|
Total
|
||||||
| 30-59 Days | 60-89 Days | Over 90 Days | Delinquent | Current | Outstanding | |||||
| In Millions | ||||||||||
|
$1
|
$1 | $— | $2 | $383 | $385 | |||||
Plant, Property, and Equipment:
CMS Energy and
Consumers record plant, property, and equipment at original cost
when placed into service. The cost includes labor, material,
applicable taxes, overhead such as pension and other benefits,
and AFUDC, if applicable. Consumers’ plant, property, and
equipment is generally recoverable through its general rate
making process. For additional details see Note 6,
Regulatory Matters.
When utility property is retired or otherwise disposed of in the
ordinary course of business, Consumers records the original cost
to accumulated depreciation, along with associated cost of
removal, net of salvage. CMS Energy and Consumers recognize
gains or losses on the retirement or disposal of non-regulated
assets in income. Cost of removal collected from customers, but
not spent, is recorded as a regulatory liability.
Consumers capitalizes AFUDC on regulated major construction
projects, except pollution control facilities on its
fossil-fueled power plants, and where financing costs are
specifically approved by the MPSC in rates. AFUDC represents the
estimated cost of debt and authorized
return-on-equity
funds used to finance construction additions. Consumers records
the offsetting credit as a reduction of interest for the amount
representing the borrowed funds component and as Other income
for the equity funds component on the Consolidated Statements of
Income. When construction is completed and the property is
placed in service, Consumers depreciates and recovers the
capitalized AFUDC from customers over the life of the related
asset. Presented in the following table are Consumers’
composite AFUDC capitalization rates:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
|
AFUDC capitalization rate
|
7.6 | % | 7.6 | % | 7.7 | % | ||||||
CMS Energy and Consumers capitalize the purchase and development
of internal-use computer software. These costs are expensed
evenly over the estimated useful life of the internal-use
computer software. If computer software is integral to computer
hardware, then its cost is capitalized and depreciated with the
hardware.
The types of costs capitalized are consistent for all periods
presented by the financial statements. For additional details on
plant, property, and equipment see Note 15, Plant,
Property, and Equipment.
Property Taxes:
Property taxes are based on the
taxable value of Consumers’ real and personal property
assessed by local taxing authorities. Consumers records property
tax expense over the fiscal year of the taxing
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
authority for which the taxes are levied based on
Consumers’ budgeted customer sales. The deferred property
tax balance represents the amount of Consumers’ accrued
property tax that will be recognized over future governmental
fiscal periods.
Reclassifications:
CMS Energy and Consumers have
reclassified certain prior-period amounts on their Consolidated
Financial Statements to conform to the presentation for the
current period. These reclassifications did not affect
consolidated net income or cash flows for the periods presented.
Restricted Cash and Cash Equivalents:
CMS Energy and
Consumers have restricted cash and cash equivalents dedicated
for repayment of Securitization bonds and for payment under
performance guarantees. CMS Energy and Consumers classify these
amounts as a current asset, as they relate to payments that
could occur within one year.
Unamortized Debt Premium, Discount, and Expense:
CMS
Energy and Consumers defer premiums, discounts, and issuance
costs of long-term debt and amortize those costs over the terms
of the debt issues. For the non-regulated portions of CMS
Energy’s and Consumers’ businesses, refinancing costs
are expensed as incurred. For the regulated portions of CMS
Energy’s and Consumers’ businesses, any remaining
unamortized premiums, discounts, and issuance costs associated
with refinanced debt are amortized over the term of the newly
issued debt.
| 2: | NEW ACCOUNTING STANDARDS |
Implementation
of New Accounting Standards
SFAS No. 166, Accounting for Transfers of Financial
Assets, an amendment of FASB Statement No. 140,
codified through
ASU
No. 2009-16,
Transfers and Servicing (Topic 860): Accounting for Transfers of
Financial Assets:
This standard, which was effective for CMS
Energy and Consumers January 1, 2010, removes the concept
of a qualifying special-purpose entity from guidance relating to
transfers of financial assets and extinguishments of
liabilities. It also removes the exceptions from applying
guidance relating to VIEs to qualifying special-purpose
entities. This standard revises and clarifies when an entity is
required to derecognize a financial asset that it has
transferred to another entity. It further clarifies how to
measure beneficial interests received as proceeds in connection
with a transfer of a financial asset, and introduces the concept
of a “participating interest,” the conditions of which
must be met for a partial asset transfer to qualify for sale
accounting treatment. The standard also requires enhanced
disclosures related to continuing involvement with financial
assets. Under this standard, transactions entered into under
Consumers’ revolving accounts receivable sales program,
discussed in Note 7, Financings and Capitalization, are
accounted for as secured borrowings rather than as sales. CMS
Energy and Consumers present outstanding amounts under the
program as short-term debt collateralized by accounts receivable.
SFAS No. 167, Amendments to FASB Interpretation
No. 46(R),
codified through
ASU
No. 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities:
This standard, which was effective for CMS Energy and
Consumers January 1, 2010, amends the criteria used to
determine which entity, if any, has a controlling financial
interest in a VIE. It replaces the quantitative calculation of
risks and rewards with a qualitative approach focused on
identifying which entity (1) has the power to direct the
activities of a VIE that most significantly impact the
VIE’s economic performance and (2) has the obligation
to absorb losses of the VIE or the right to receive benefits
from the VIE. This standard also requires ongoing assessments of
whether an entity is the primary beneficiary of a VIE. Upon
implementation of this guidance, CMS Energy concluded that it is
the primary beneficiary of CMS Energy Trust I and
consolidated the trust in its Consolidated Financial Statements
on January 1, 2010. CMS Energy also concluded that it is
not the primary beneficiary of T.E.S. Filer City, Grayling, or
Genesee and deconsolidated these partnerships in its
Consolidated Financial Statements on January 1, 2010. CMS
Energy consolidated CMS Energy Trust I at the carrying
value that would be recorded had this guidance been effective
when CMS Energy initially became involved
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with CMS Energy Trust I. CMS Energy recorded its retained
interest in the deconsolidated partnerships at the carrying
value that would be recorded had this guidance been effective
when CMS Energy initially became involved with the partnerships.
CMS Energy and Consumers have chosen not to adjust previously
reported balances. No cumulative effect adjustments were
required. For additional details, see Note 18, Variable
Interest Entities.
| 3: | OTHER INCOME AND OTHER EXPENSE |
Presented in the following table are the components of Other
income and Other expense at CMS Energy and Consumers:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Other income:
|
||||||||||||
|
Gain on early retirement of long-term debt
|
$ | — | $ | 28 | $ | — | ||||||
|
Regulatory return on capital expenditures
|
17 | 26 | 33 | |||||||||
|
Gain on SERP investment
|
— | 8 | — | |||||||||
|
Return on stranded and security costs
|
4 | 5 | 5 | |||||||||
|
Electric restructuring return
|
— | — | 1 | |||||||||
|
Foreign currency gain
|
— | — | 2 | |||||||||
|
All other
|
11 | 13 | 7 | |||||||||
|
Total other income
|
$ | 32 | $ | 80 | $ | 48 | ||||||
|
Other expense:
|
||||||||||||
|
Loss on reacquired and extinguished debt
|
$ | (8 | ) | $ | (18 | ) | $ | — | ||||
|
Unrealized investment loss
|
— | — | (24 | ) | ||||||||
|
Donations
|
(6 | ) | — | — | ||||||||
|
Civic and political expenditures
|
(3 | ) | (3 | ) | (5 | ) | ||||||
|
All other
|
(7 | ) | (9 | ) | (8 | ) | ||||||
|
Total other expense
|
$ | (24 | ) | $ | (30 | ) | $ | (37 | ) | |||
|
Consumers
|
||||||||||||
|
Other income:
|
||||||||||||
|
Regulatory return on capital expenditures
|
$ | 17 | $ | 26 | $ | 33 | ||||||
|
Gain on SERP investment
|
— | 5 | — | |||||||||
|
Return on stranded and security costs
|
4 | 5 | 5 | |||||||||
|
Electric restructuring return
|
— | — | 1 | |||||||||
|
All other
|
10 | 11 | 6 | |||||||||
|
Total other income
|
$ | 31 | $ | 47 | $ | 45 | ||||||
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Company
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
Other expense:
|
||||||||||||
|
Unrealized investment loss
|
$ | — | $ | — | $ | (16 | ) | |||||
|
Donations
|
(6 | ) | — | — | ||||||||
|
Civic and political expenditures
|
(3 | ) | (3 | ) | (5 | ) | ||||||
|
All other
|
(6 | ) | (8 | ) | (7 | ) | ||||||
|
Total other expense
|
$ | (15 | ) | $ | (11 | ) | $ | (28 | ) | |||
| 4: | FAIR VALUE MEASUREMENTS |
Accounting standards define fair value as the price that would
be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. When
measuring fair value, CMS Energy and Consumers are required to
incorporate all assumptions that market participants would use
in pricing an asset or liability, including assumptions about
risk. A fair value hierarchy prioritizes inputs used to measure
fair value according to their observability in the market. The
three levels of the fair value hierarchy are as follows:
| • | Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. | |
| • | Level 2 inputs are observable, market-based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, interest rates and yield curves observable at commonly quoted intervals, credit risks, default rates, and inputs derived from or corroborated by observable market data. | |
| • | Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities. |
To the extent possible, CMS Energy and Consumers use quoted
market prices or other observable market pricing data in valuing
assets and liabilities measured at fair value. If this
information is unavailable, they use market-corroborated data or
reasonable estimates about market participant assumptions. CMS
Energy and Consumers classify fair value measurements within the
fair value hierarchy based on the lowest level of input that is
significant to the fair value measurement in its entirety.
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Assets
and Liabilities Measured at Fair Value on a Recurring
Basis
Presented in the following table are CMS Energy’s and
Consumers’ assets and liabilities, by level within the fair
value hierarchy, reported at fair value on a recurring basis at
December 31, 2010:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| In Millions | ||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash equivalents
|
$ | 183 | $ | 183 | $ | — | $ | — | ||||||||
|
Restricted cash equivalents
|
6 | 6 | — | — | ||||||||||||
|
Nonqualified deferred compensation plan assets
|
6 | 6 | — | — | ||||||||||||
|
SERP:
|
||||||||||||||||
|
Cash equivalents
|
1 | 1 | — | — | ||||||||||||
|
Mutual fund
|
62 | 62 | — | — | ||||||||||||
|
State and municipal bonds
|
28 | — | 28 | — | ||||||||||||
|
Derivative instruments:
|
||||||||||||||||
|
Commodity contracts(a)
|
1 | — | — | 1 | ||||||||||||
|
Total(b)
|
$ | 287 | $ | 258 | $ | 28 | $ | 1 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Nonqualified deferred compensation plan liabilities
|
$ | 6 | $ | 6 | $ | — | $ | — | ||||||||
|
Derivative instruments:
|
||||||||||||||||
|
Commodity contracts(c)
|
4 | — | — | 4 | ||||||||||||
|
Total(d)
|
$ | 10 | $ | 6 | $ | — | $ | 4 | ||||||||
|
Consumers
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash equivalents
|
$ | 19 | $ | 19 | $ | — | $ | — | ||||||||
|
Restricted cash equivalents
|
6 | 6 | — | — | ||||||||||||
|
CMS Energy common stock
|
34 | 34 | — | — | ||||||||||||
|
Nonqualified deferred compensation plan assets
|
4 | 4 | — | — | ||||||||||||
|
SERP:
|
||||||||||||||||
|
Cash equivalents
|
1 | 1 | — | — | ||||||||||||
|
Mutual fund
|
39 | 39 | — | — | ||||||||||||
|
State and municipal bonds
|
17 | — | 17 | — | ||||||||||||
|
Derivative instruments:
|
||||||||||||||||
|
Commodity contracts
|
1 | — | — | 1 | ||||||||||||
|
Total(e)
|
$ | 121 | $ | 103 | $ | 17 | $ | 1 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Nonqualified deferred compensation plan liabilities
|
$ | 4 | $ | 4 | $ | — | $ | — | ||||||||
|
Total
|
$ | 4 | $ | 4 | $ | — | $ | — | ||||||||
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| (a) | This amount is gross and excludes the impact of offsetting derivative assets and liabilities under master netting arrangements, which was less than $1 million at December 31, 2010. | |
| (b) | At December 31, 2010, CMS Energy’s assets classified as Level 3 represented less than one percent of CMS Energy’s total assets measured at fair value. | |
| (c) | This amount is gross and excludes the impact of offsetting derivative assets and liabilities under master netting arrangements and offsetting cash margin deposits paid by CMS ERM to other parties, which was less than $1 million at December 31, 2010. | |
| (d) | At December 31, 2010, CMS Energy’s liabilities classified as Level 3 represented 40 percent of CMS Energy’s total liabilities measured at fair value. The Level 3 liabilities consisted primarily of an electricity sales agreement held by CMS ERM. | |
| (e) | At December 31, 2010, Consumers’ assets classified as Level 3 represented one percent of Consumers’ total assets measured at fair value. |
Presented in the following table are CMS Energy’s and
Consumers’ assets and liabilities, by level within the fair
value hierarchy, reported at fair value on a recurring basis at
December 31, 2009:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| In Millions | ||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash equivalents
|
$ | 57 | $ | 57 | $ | — | $ | — | ||||||||
|
Restricted cash equivalents
|
12 | 12 | — | — | ||||||||||||
|
Nonqualified deferred compensation plan assets
|
5 | 5 | — | — | ||||||||||||
|
SERP:
|
||||||||||||||||
|
Cash equivalents
|
49 | 49 | — | — | ||||||||||||
|
State and municipal bonds
|
27 | — | 27 | — | ||||||||||||
|
Derivative instruments:
|
||||||||||||||||
|
Commodity contracts(a)
|
1 | — | 1 | — | ||||||||||||
|
Total
|
$ | 151 | $ | 123 | $ | 28 | $ | — | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Nonqualified deferred compensation plan liabilities
|
$ | 5 | $ | 5 | $ | — | $ | — | ||||||||
|
Derivative instruments:
|
||||||||||||||||
|
Commodity contracts(b)
|
9 | 1 | 1 | 7 | ||||||||||||
|
Interest rate contracts
|
1 | — | — | 1 | ||||||||||||
|
Total(c)
|
$ | 15 | $ | 6 | $ | 1 | $ | 8 | ||||||||
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| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| In Millions | ||||||||||||||||
|
Consumers
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash equivalents
|
$ | 31 | $ | 31 | $ | — | $ | — | ||||||||
|
Restricted cash equivalents
|
5 | 5 | — | — | ||||||||||||
|
CMS Energy common stock
|
29 | 29 | — | — | ||||||||||||
|
Nonqualified deferred compensation plan assets
|
4 | 4 | — | — | ||||||||||||
|
SERP:
|
||||||||||||||||
|
Cash equivalents
|
30 | 30 | — | — | ||||||||||||
|
State and municipal bonds
|
16 | — | 16 | — | ||||||||||||
|
Total
|
$ | 115 | $ | 99 | $ | 16 | $ | — | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Nonqualified deferred compensation plan liabilities
|
$ | 4 | $ | 4 | $ | — | $ | — | ||||||||
|
Total
|
$ | 4 | $ | 4 | $ | — | $ | — | ||||||||
| (a) | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. | |
| (b) | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $1 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. | |
| (c) | At December 31, 2009, CMS Energy’s liabilities classified as Level 3 represented 53 percent of CMS Energy’s total liabilities measured at fair value. The Level 3 liabilities consisted primarily of an electricity sales agreement held by CMS ERM. |
Cash Equivalents:
Cash equivalents and restricted
cash equivalents consist of money market funds with daily
liquidity. The funds invest in U.S. Treasury notes, other
government-backed securities, and repurchase agreements
collateralized by U.S. Treasury notes.
Nonqualified Deferred Compensation Plan Assets:
CMS
Energy’s and Consumers’ nonqualified deferred
compensation plan assets are invested in various mutual funds.
CMS Energy and Consumers value these assets using a market
approach, using the daily quoted NAVs provided by the fund
managers that are the basis for transactions to buy or sell
shares in each fund. CMS Energy and Consumers report these
assets in Other non-current assets on their Consolidated Balance
Sheets.
SERP Assets:
CMS Energy and Consumers value their
SERP assets using a market approach, incorporating prices and
other relevant information from market transactions. The SERP
cash equivalents consist of a money market fund with daily
liquidity, which invests in state and municipal securities.
The SERP invests in a short-term, fixed-income mutual fund that
holds a variety of debt securities with average maturities of
one to three years. The fund invests primarily in
investment-grade debt securities but, in order to achieve its
investment objective, it may invest a portion of its assets in
high-yield securities, foreign debt, and derivative instruments.
The fair value of the fund is determined using the daily
published NAV, which is the basis for transactions to buy or
sell shares in the fund.
The SERP state and municipal bonds are investment grade
securities that are valued using a matrix pricing model that
incorporates Level 2 market-based information. The fair
value of the bonds is derived from various
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observable inputs, including benchmark yields, reported trades,
broker/dealer quotes, bond ratings, and general information on
market movements normally considered by market participants when
pricing such debt securities. CMS Energy and Consumers report
their SERP assets in Other non-current assets on their
Consolidated Balance Sheets. For additional details about SERP
securities, see Note 9, Financial Instruments.
Nonqualified Deferred Compensation Plan
Liabilities:
CMS Energy and Consumers value their
non-qualified deferred compensation plan liabilities based on
the fair values of the plan assets, as they reflect what is owed
to the plan participants in accordance with their investment
elections. CMS Energy and Consumers report these liabilities in
Other non-current liabilities on their Consolidated Balance
Sheets.
Derivative Instruments:
CMS Energy and Consumers
value their derivative instruments using either a market
approach that incorporates information from market transactions,
or an income approach that discounts future expected cash flows
to a present value amount. They use various inputs to value the
derivatives depending on the type of contract and the
availability of market data. CMS Energy has exchange-traded
derivative contracts that are valued based on Level 1
quoted prices in actively traded markets, as well as derivatives
that are valued using Level 2 inputs, including commodity
market prices, interest rates, credit ratings, default rates,
and market-based seasonality factors. CMS Energy and Consumers
have classified certain derivatives as Level 3 since the
fair value measurements incorporate pricing assumptions that
cannot be observed or confirmed through market transactions.
CMS Energy’s derivatives include an electricity sales
agreement held by CMS ERM that extends beyond the term for which
quoted electricity prices are available. To value this
agreement, CMS Energy uses an internally developed model to
project future prices. This method incorporates a proprietary
forward power pricing curve that is based on forward gas prices
and an implied heat rate. CMS Energy also increases the fair
value of the liability for this agreement by an amount that
reflects the uncertainty of its model. Since the modeling
technique is significant to the overall fair value measurement,
this agreement is classified as Level 3.
For all fair values other than Level 1 prices, CMS Energy
and Consumers incorporate adjustments for the risk of
nonperformance. For derivative assets, a credit adjustment is
applied against the asset based on the published default rate
for the credit rating that CMS Energy and Consumers assign to
the counterparty based on an internal credit-scoring model. This
model considers various inputs, including the
counterparty’s financial statements, credit reports, trade
press, and other information that would be available to market
participants. To the extent that the internal ratings are
comparable to credit ratings published by independent rating
agencies, the resulting credit adjustment is classified within
Level 2. If the internal model results in a rating that is
outside of the range of ratings given by the independent
agencies and the credit adjustment is significant to the overall
valuation, the derivative fair value is classified as
Level 3. CMS Energy and Consumers adjust their derivative
liabilities downward to reflect the risk of their own
nonperformance, based on their published credit ratings.
Adjustments for credit risk using the approach outlined within
this paragraph are not materially different from the adjustments
that would result from using credit default swap rates for the
contracts presently held. For additional details about
derivative contracts, see Note 10, Derivative Instruments.
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Assets
and Liabilities Measured at Fair Value on a Recurring Basis
using Significant Level 3 Inputs
Presented in the following table is a reconciliation of changes
in the fair values of Level 3 assets and liabilities at CMS
Energy, which includes Level 3 assets and liabilities at
Consumers:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
Balance at January 1
|
$ | (8 | ) | $ | (16 | ) | $ | (19 | ) | |||
|
Total gains included in earnings(a)
|
8 | 17 | 2 | |||||||||
|
Purchases, sales, issuances, and settlements (net)
|
(3 | ) | (9 | ) | 1 | |||||||
|
Balance at December 31
|
$ | (3 | ) | $ | (8 | ) | $ | (16 | ) | |||
|
Unrealized gains included in earnings for the years ended
December 31 relating to assets and liabilities still held at
December 31(a)
|
$ | 4 | $ | 6 | $ | 3 | ||||||
| (a) | CMS Energy records realized and unrealized gains and losses for Level 3 recurring fair values in earnings as a component of Operating Revenue, Other income, or Maintenance and other operating expenses on its Consolidated Statements of Income. |
Presented in the following table is a reconciliation of changes
in the fair values of Level 3 assets and liabilities at
Consumers:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
Balance at January 1
|
$ | — | $ | — | $ | — | ||||||
|
Total gains (losses) included in earnings(a)
|
4 | 10 | (1 | ) | ||||||||
|
Purchases, sales, issuances, and settlements (net)
|
(3 | ) | (10 | ) | 1 | |||||||
|
Balance at December 31
|
$ | 1 | $ | — | $ | — | ||||||
|
Unrealized gains included in earnings for the years ended
December 31 relating to assets and liabilities still held at
December 31(a)
|
$ | 1 | $ | — | $ | — | ||||||
| (a) | Consumers records realized and unrealized gains and losses for Level 3 recurring fair values in earnings as a component of Other income on its Consolidated Statements of Income. |
Assets
and Liabilities Measured at Fair Value on a Nonrecurring
Basis
Presented in the following table are CMS Energy’s assets,
by level within the fair value hierarchy, reported at fair value
on a nonrecurring basis during the year ended December 31,
2010:
|
Gains
|
||||||||||||||||
| Level 1 | Level 2 | Level 3 | (Losses) | |||||||||||||
| In Millions | ||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||
|
Assets held for sale
|
$ | — | $ | 5 | $ | — | $ | (6 | ) | |||||||
In 2010, CMS Energy wrote down assets held for sale from their
carrying amount of $11 million to their fair value of
$5 million, resulting in a loss of $6 million, which
was recorded in earnings as part of discontinued operations for
the year ended December 31, 2010. The fair value was
determined based on the price that CMS Energy received for the
sale of these assets, which closed in January 2011. The
reduction in fair value was due primarily to declines in forward
electricity prices. For further information, refer to the
discussion of Exeter in Note 20, Asset Sales, Discontinued
Operations, and Impairment Charges. Consumers did not have any
nonrecurring
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fair value measurements during the year ended December 31,
2010. Neither CMS Energy nor Consumers had any nonrecurring fair
value measurements during the years ended December 31, 2009
and 2008.
| 5: | CONTINGENCIES AND COMMITMENTS |
CMS
Energy Contingencies
Gas Index Price Reporting Investigation:
In 2002,
CMS Energy notified appropriate regulatory and governmental
agencies that some employees at CMS MST and CMS Field Services
appeared to have provided inaccurate information regarding
natural gas trades to various energy industry publications,
which compile and report index prices. CMS Energy cooperated
with an investigation by the DOJ regarding this matter. Although
CMS Energy has not received any formal notification that the DOJ
has completed its investigation, the DOJ’s last request for
information occurred in 2003, and CMS Energy completed its
response to this request in 2004. CMS Energy is unable to
predict the outcome of the DOJ investigation and what effect, if
any, the investigation will have on CMS Energy.
Gas Index Price Reporting Litigation:
CMS Energy,
along with CMS MST, CMS Field Services, Cantera Natural Gas,
Inc., and Cantera Gas Company, are named as defendants in
various class action and individual lawsuits arising as a result
of alleged inaccurate natural gas price reporting to
publications that report trade information. Allegations include
manipulation of NYMEX natural gas futures and options prices,
price-fixing conspiracies, restraint of trade, and artificial
inflation of natural gas retail prices in Colorado, Kansas,
Missouri, and Wisconsin. The following provides more detail on
these proceedings:
| • | In 2005, CMS MST was served with a summons and complaint that named CMS Energy, CMS MST, and CMS Field Services as defendants in a putative class action filed in Kansas state court, Learjet, Inc., et al. v. Oneok, Inc., et al. The complaint alleges that during the putative class period, January 1, 2000 through October 31, 2002, the defendants engaged in a scheme to violate the Kansas Restraint of Trade Act. The plaintiffs, who allege they purchased natural gas from the defendants and others for their facilities, are seeking statutory full consideration damages consisting of the full consideration paid by plaintiffs for natural gas. | |
| • | In 2007, a class action complaint, Heartland Regional Medical Center, et al. v. Oneok, Inc. et al., was filed in Missouri state court alleging violations of Missouri antitrust laws. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Missouri antitrust law in connection with their natural gas price reporting activities. | |
| • | Breckenridge Brewery of Colorado, LLC and BBD Acquisition Co. v. Oneok, Inc., et al., a class action complaint brought on behalf of retail direct purchasers of natural gas in Colorado, was filed in Colorado state court in May 2006. Defendants, including CMS Energy, CMS Field Services, and CMS MST, are alleged to have violated the Colorado Antitrust Act of 1992 in connection with their natural gas price reporting activities. Plaintiffs are seeking full refund damages. | |
| • | A class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in 2006 in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 1, 2000 and October 31, 2002. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute. The plaintiffs are seeking full consideration damages, plus exemplary damages, and attorneys’ fees. After dismissal on jurisdictional grounds in 2009, plaintiffs filed a new case in the U.S. District Court for the Eastern District of Michigan. In November 2010, the MDL judge issued an opinion and order granting the CMS Energy defendants’ motion to dismiss the new Michigan case on statute-of-limitations grounds and all CMS Energy defendants have been dismissed from the Arandell Michigan case. |
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| • | Another class action complaint, Newpage Wisconsin System v. CMS ERM, CMS Energy, and Cantera Gas Company, was filed in 2009 in circuit court in Wood County, Wisconsin, against CMS Energy defendants and 19 other non-CMS Energy companies. The plaintiff is seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees. | |
| • | In 2005, J.P. Morgan Trust Company, in its capacity as Trustee of the FLI Liquidating Trust, filed an action in Kansas state court against a number of energy companies, including CMS Energy, CMS MST, and CMS Field Services. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is seeking statutory full consideration damages for its purchases of natural gas between January 1, 2000 and December 31, 2001. This case is not a class action. |
After removal to federal court, the Learjet, Heartland,
Breckenridge, both Arandell cases, Newpage, and J.P. Morgan
cases were transferred to the MDL case. CMS Energy was dismissed
from the Learjet, Heartland, and J.P. Morgan cases in 2009,
but other CMS Energy defendants remain parties. All CMS Energy
defendants were dismissed from the Breckenridge case in 2009. It
is expected that the plaintiffs in this case will appeal this
decision after all claims against defendants have been
dismissed. At this time, there is no pending appeal. In June
2010, CMS Energy and Cantera Gas Company were dismissed from the
Newpage case; the Arandell (Wisconsin) case was reinstated
against CMS ERM; and the Arandell (Wisconsin) case was
consolidated with the Newpage case. These two consolidated cases
remain pending only against CMS ERM. Pending before the court in
all of the MDL cases are the defendants’ renewed motions
for summary judgment based on FERC preemption. In all but the
J.P. Morgan case, there are also pending plaintiffs’
motions for class certification. These motions are not yet
decided. In October 2010, the MDL court entered an order denying
the plaintiffs’ motion for leave to amend their complaint
to add a federal Sherman Act antitrust claim.
These cases involve complex facts, a large number of similarly
situated defendants with different factual positions, and
multiple jurisdictions. Presently, any estimate of liability
would be highly speculative; the amount of CMS Energy’s
possible loss would be based on widely varying models previously
untested in this context. Defenses are being pursued vigorously,
which could result in the dismissal of the cases completely, but
CMS Energy is unable to predict the outcome of these matters. If
the outcome is unfavorable, these cases could have a material
adverse impact on CMS Energy’s liquidity, financial
condition, and results of operations.
Bay Harbor:
As part of the development of Bay Harbor
by certain subsidiaries of CMS Energy, and under an agreement
with the MDNRE, third parties constructed a golf course and park
over several abandoned CKD piles left over from the former
cement plant operations on the Bay Harbor site. The third
parties also undertook a series of response activities,
including constructing a leachate collection system in one area
where CKD-impacted groundwater was entering Little Traverse Bay.
Leachate is produced when water enters into the CKD piles. In
2002, CMS Energy sold its interest in Bay Harbor, but retained
its obligations under environmental indemnities entered into at
the start of the project.
In 2005, the EPA, along with CMS Land and CMS Capital,
voluntarily executed an Administrative Order on Consent under
Superfund, and the EPA approved a Removal Action Work Plan to
address contamination issues. Collection systems required under
the plan have been installed and effectiveness monitoring of the
systems at the shoreline is ongoing. CMS Land, CMS Capital, and
the EPA agreed upon augmentation measures to address areas where
pH measurements were not satisfactory. Several augmentation
measures were implemented and completed in 2009, with the
remaining measure completed in 2010.
In December 2010, CMS Energy recorded a charge of
$40 million to increase the remaining liability for Bay
Harbor as a result of recent developments. The factors that
contributed to this revision of estimated costs include
anticipated cost increases for the disposal of leachate under an
NPDES permit issued by the MDNRE in December 2010, additional
costs for the scope of remediation to meet EPA and MDNRE
requirements, and increased legal, management, and engineering
costs anticipated to reach agreement with all parties on the
long-term remedy for the
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Bay Harbor site. The NPDES permit issued by the MDNRE authorizes
CMS Land to discharge treated leachate into Little Traverse Bay.
This permit requires renewal every five years. CMS Land also
completed mercury modeling studies as required by the EPA in
November 2010. The completion of these studies was necessary to
finalize the scope of remedies that was submitted to the EPA in
December 2010. Additionally, CMS Land has committed to
investigate the potential for a deep injection well on the Bay
Harbor site as an alternative long-term solution to the leachate
disposal issue. In 2008, the MDNRE and the EPA granted permits
for CMS Land or its wholly owned subsidiary, Beeland Group LLC,
to construct and operate an off-site deep injection well in
Antrim County, Michigan, to dispose of leachate from Bay Harbor.
Certain environmental groups, a local township, and a local
county filed lawsuits appealing the permits. The legal
proceeding was stayed in 2009 and can be renewed by either party
at any time.
Various claims have been brought against CMS Land or its
affiliates, including CMS Energy, alleging environmental damage
to property, loss of property value, insufficient disclosure of
environmental matters, breach of agreement relating to access,
or other matters. There is presently one lawsuit
(Jankowski v. CMS Energy, CMS Capital, and CMS Land)
pending that was filed in June 2010 in Emmet County Circuit
Court in Michigan relating to such subjects. Resolution of this
lawsuit is not expected to have a material impact on CMS
Energy’s consolidated income, cash flows, or financial
position. In October 2010, CMS Land and other parties received a
demand for payment from the EPA in the amount of
$7 million, plus interest, whereby the EPA is seeking
recovery, as allowed under Superfund, of the EPA’s response
costs incurred at the Bay Harbor site. CMS Land believes that
this is not a valid claim and intends to dispute it.
CMS Land and CMS Capital, the MDNRE, the EPA, and other parties
continue to negotiate the long-term remedy for the Bay Harbor
site, including:
| • | the disposal of leachate; | |
| • | the capping and excavation of CKD; | |
| • | the location and design of collection lines and upstream water diversion systems; | |
| • | application of criteria for various substances such as mercury; and | |
| • | other matters that are likely to affect the scope of response activities that CMS Land and CMS Capital may be obligated to undertake. |
CMS Energy has recorded a cumulative charge related to Bay
Harbor of $222 million, which with accretion expense,
includes $43 million recorded in 2010, $37 million in
2009, and $1 million in 2008, in Other operating expenses
on the Consolidated Statements of Income. At December 31,
2010, CMS Energy had a recorded liability of $98 million
for its remaining obligations. CMS Energy calculated this
liability based on discounted projected costs, using a discount
rate of 4.34 percent and an inflation rate of one percent
on annual operating and maintenance costs. CMS Energy based the
discount rate on the interest rate for
30-year
U.S. Treasury securities at December 31, 2010. The
undiscounted amount of the remaining obligation is
$121 million. CMS Energy expects to pay $34 million
during 2011, $12 million in 2012, $5 million in 2013,
$5 million in 2014, $4 million in 2015, and the
remaining amount thereafter on long-term liquid disposal and
operating and maintenance costs.
CMS Energy’s estimate of response activity costs and the
timing of expenditures could change if there are additional
major changes in circumstances or assumptions, including but not
limited to:
| • | inability to complete the present long-term water disposal strategy at a reasonable cost; | |
| • | delays in implementing the present long-term water disposal strategy; | |
| • | requirements to alter the present long-term water disposal strategy upon expiration of the NPDES permit if the MDNRE or EPA identify a more suitable alternative; |
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| • | an increase in the number of contamination areas; | |
| • | different remediation techniques; | |
| • | the nature and extent of contamination; | |
| • | inability to reach agreement with the MDNRE or the EPA over additional response activities; | |
| • | delays in the receipt of requested permits; | |
| • | delays following the receipt of any requested permits due to legal appeals of third parties; | |
| • | additional or new legal or regulatory requirements; or | |
| • | new or different landowner claims. |
Depending on the size of any indemnity obligation or liability
under environmental laws, an adverse outcome of this matter
could have a material adverse effect on CMS Energy’s
liquidity and financial condition and could negatively affect
CMS Energy’s financial results. Although a liability for
its present estimate of remaining response activity costs has
been recorded, CMS Energy cannot predict the ultimate financial
impact or outcome of this matter.
State Street Bank and TSU Litigation:
In 2002, State
Street Bank sued CMS Viron in the District Court of Harris
County, Texas, claiming primarily a breach of representations
and warranties and seeking $9 million plus interest from
CMS Viron. During the same year, CMS Viron filed a counterclaim,
as well as third-party actions against TSU, Academic Capital
Group, Inc., and Academic Services, Inc. for breach of contract
and fiduciary duties and conversion. At December 31, 2010,
CMS Energy had a recorded liability of $3 million for its
potential obligation related to this matter. This case was
resolved in January 2011 for an amount that will not have a
material impact on CMS Energy’s consolidated income, cash
flows, or financial position.
Equatorial Guinea Tax Claim:
In 2004, CMS Energy
received a request for indemnification from the purchaser of CMS
Oil and Gas. The indemnity claim relates to the sale of CMS
Energy’s oil, gas, and methanol projects in Equatorial
Guinea and the claim of the government of Equatorial Guinea that
CMS Energy owes $142 million in taxes in connection with
that sale. CMS Energy concluded that the government’s tax
claim is without merit and the purchaser of CMS Oil and Gas
submitted a response to the government rejecting the claim. The
government of Equatorial Guinea has indicated that it still
intends to pursue its claim. CMS Energy cannot predict the
financial impact or outcome of this matter.
Marathon Indemnity Claim regarding F.T. Barr
Claim:
In 2001, F.T. Barr filed a lawsuit in Harris
County District Court in Texas against CMS Energy, CMS Oil and
Gas, and other defendants alleging that his overriding royalty
payments related to Alba field production were improperly
calculated. In 2004, all parties signed a confidential
settlement agreement that resolved claims between Barr and the
defendants. The CMS Energy defendants reserved all defenses to
any indemnity claim relating to the settlement.
In April 2009, certain Marathon entities filed a case in the
U.S. District Court for the Southern District of Texas
against CMS Enterprises for indemnification in connection with
this matter. In December 2010, CMS Energy and Marathon signed a
confidential settlement agreement that resolved this matter.
This settlement did not have a material impact on CMS
Energy’s consolidated income, cash flows, or financial
position.
Former NOMECO Employees’ Litigation:
In June
2010, eight former employees of NOMECO filed a lawsuit in Ingham
County Circuit Court in Michigan against CMS Energy and three
Marathon entities (Richard Rulewicz, Trustee of the Richard
Rulewicz Revocable Living Trust, et al. v. CMS Energy)
alleging underpayment of the former employees’ overriding
royalty payments related to the Alba field production in
Equatorial Guinea, to which the plaintiffs claim to be entitled.
CMS Oil and Gas sold its interests in the Alba field to Marathon
in 2002. CMS Energy believes that it may be entitled to full or
partial indemnification from Marathon for monetary damages
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that may arise from this lawsuit. Although CMS Energy cannot
predict with certainty the ultimate outcome of this litigation,
the resolution of this matter is not expected to have a material
adverse impact on CMS Energy’s consolidated income, cash
flows, or financial position.
Consumers’
Electric Utility Contingencies
Electric Environmental Matters:
Consumers’
operations are subject to environmental laws and regulations.
Generally, Consumers has been able to recover, in customer
rates, the costs to operate its facilities in compliance with
these laws and regulations.
Cleanup and Solid Waste:
Consumers expects to incur
remediation and other response activity costs at a number of
sites under NREPA. Consumers believes that these costs should be
recoverable in rates, but cannot guarantee that outcome. At
December 31, 2010, Consumers had a recorded liability of
$2 million, its estimated probable NREPA liability.
Consumers is a potentially responsible party at a number of
contaminated sites administered under the Superfund. Superfund
liability is joint and several. In addition to Consumers, many
other creditworthy parties with substantial assets are
potentially responsible with respect to the individual sites. In
November 2010, Consumers received official notification from the
EPA that identified Consumers as a potentially responsible party
at the Kalamazoo River Superfund site. The notification claimed
that the EPA has reason to believe Consumers disposed of PCBs
and arranged for the disposal and treatment of PCB-containing
materials at portions of the site. Consumers responded to the
EPA in December 2010, stating that it has no information showing
that it disposed of PCBs or arranged for disposal or treatment
of PCB-containing material at portions of the site and
requesting further information from the EPA before Consumers
would commit to perform or finance cleanup activities at the
site. Until further information is received from the EPA,
Consumers is unable to estimate a range of potential liability
for cleanup of the river.
Based on its experience, Consumers estimates that its share of
the total liability for other known Superfund sites will be
between $2 million and $8 million. Various factors,
including the number of potentially responsible parties involved
with each site, affect Consumers’ share of the total
liability. At December 31, 2010, Consumers had a recorded
liability of $2 million, the minimum amount in the range of
its estimated probable Superfund liability.
The timing of payments related to Consumers’ remediation
and other response activities at its Superfund and NREPA sites
is uncertain. Consumers periodically reviews these cost
estimates. Any significant change in the underlying assumptions,
such as an increase in the number of sites, different
remediation techniques, nature and extent of contamination, and
legal and regulatory requirements, could affect its estimates of
NREPA and Superfund liability.
Ludington PCB:
In 1998, during routine maintenance
activities, Consumers identified PCB as a component in certain
paint, grout, and sealant materials at Ludington. Consumers
removed and replaced part of the PCB material with non-PCB
material. Since proposing a plan to take action with respect to
the remaining materials, Consumers has had several
communications with the EPA. Consumers is not able to predict
when the EPA will issue a final ruling and cannot predict the
financial impact or outcome of this matter.
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Electric Utility Plant Air Permit Issues and Notices of
Violation:
In 2007, Consumers received an NOV/FOV from the
EPA alleging that fourteen utility boilers exceeded the visible
emission limits in their associated air permits. Consumers has
responded formally to the NOV/FOV denying the allegations. In
addition, in 2008, Consumers received an NOV for three of its
coal-fueled facilities alleging, among other things, violations
of NSR PSD regulations relating to ten projects from 1986 to
1998 allegedly subject to NSR review. The EPA has alleged that
some utilities have classified incorrectly major plant
modifications as RMRR rather than seeking permits from the EPA
or state regulatory agencies to modify their plants. Consumers
responded to the information requests from the EPA on this
subject in the past. Consumers believes that it has properly
interpreted the requirements of RMRR.
Consumers is engaged in discussions with the EPA on all of these
matters. Depending upon the outcome of these discussions, the
EPA could bring legal action against Consumers
and/or
Consumers could be required to install additional pollution
control equipment at some or all of its coal-fueled electric
generating plants, surrender emission allowances, engage in
Supplemental Environmental Projects,
and/or
pay
fines. Additionally, Consumers would need to assess the
viability of continuing operations at certain plants. The
potential costs relating to these matters could be material and
the extent of cost recovery cannot be reasonably estimated.
Although Consumers cannot predict the financial impact or
outcome of these matters, Consumers expects that it would be
able to recover some or all of the costs in rates, consistent
with the recovery of other reasonable costs of complying with
environmental laws and regulations.
Nuclear
Matters:
DOE Litigation:
In 1997, a U.S. Court of
Appeals decision confirmed that the DOE was to begin accepting
deliveries of spent nuclear fuel for disposal by January 1998.
Subsequent U.S. Court of Appeals litigation, in which
Consumers and other utilities participated, has not been
successful in producing more specific relief for the DOE’s
failure to accept the spent nuclear fuel.
A number of court decisions support the right of utilities to
pursue damage claims in the U.S. Court of Claims against
the DOE for failure to take delivery of spent nuclear fuel.
Consumers filed a complaint in 2002. If Consumers’
litigation against the DOE is successful, Consumers plans to use
any recoveries as reimbursement for the incurred costs of spent
nuclear fuel storage during Consumers’ ownership of
Palisades and Big Rock. The sale of Palisades and the Big Rock
ISFSI did not transfer the right to any recoveries from the DOE
related to costs of spent nuclear fuel storage incurred during
Consumers’ ownership of Palisades and Big Rock.
Nuclear Fuel Disposal Cost:
Consumers has a recorded
liability of $163 million to fund the disposal of spent
nuclear fuel used before 1983. This balance comprises the
principal amount of $44 million collected from customers
for spent nuclear fuel disposal fees and $119 million of
interest accrued on those collections. The liability, which is
classified in Long-term debt on CMS Energy’s and
Consumers’ Consolidated Balance Sheets, is payable to the
DOE when it begins to accept delivery of spent nuclear fuel. In
conjunction with the sale of Palisades and the Big Rock ISFSI in
2007, Consumers retained this obligation and provided a letter
of credit to Entergy as security for this obligation. In its
November 2010 electric rate order, the MPSC directed Consumers
to establish, within six months of the date of the order, an
independent trust fund for the amount payable to the DOE. In
December 2010, Consumers filed a Petition for Rehearing and
Clarification, requesting that the MPSC modify its conclusion
that this amount be placed in a trust.
Consumers’
Gas Utility Contingencies
Gas Environmental Matters:
Consumers expects to
incur remediation and other response activity costs at a number
of sites under the NREPA. These sites include 23 former MGP
facilities. Consumers operated the facilities on these sites for
some part of their operating lives. For some of these sites,
Consumers has no present ownership interest or may own only a
portion of the original site. At December 31, 2010,
Consumers estimated its undiscounted remaining remediation and
other response activity costs to be between $31 million and
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$46 million. Generally, Consumers has been able to recover
most of its costs to date through proceeds from insurance
settlements and customer rates.
At December 31, 2010, Consumers had a recorded liability of
$31 million and a regulatory asset of $58 million that
included $27 million of deferred MGP expenditures. The
timing of payments related to the remediation and other response
activity at Consumers’ former MGP sites is uncertain.
Consumers expects its remediation and other response activity
costs to average $6 million annually over the next five
years. Consumers periodically reviews these cost estimates. Any
significant change in the underlying assumptions, such as an
increase in the number of sites, changes in remediation
techniques, or legal and regulatory requirements, could affect
Consumers’ estimates of annual response activity costs and
the MGP liability.
Guarantees
Presented in the following table are CMS Energy’s
guarantees at December 31, 2010:
|
Maximum
|
Carrying
|
|||||||||||
|
Guarantee Description
|
Issue Date | Expiration Date | Obligation | Amount | ||||||||
| In Millions | ||||||||||||
|
Indemnity obligations from asset sales and other agreements
|
Various
|
Various through
June 2022 |
$ | 512 | (a) | $ | 21 | |||||
|
Guarantees and put options(b)
|
Various
|
Various through
December 2011 |
36 | 1 | ||||||||
| (a) | The majority of this amount arises from stock and asset sales agreements under which CMS Energy or a subsidiary of CMS Energy, other than Consumers, indemnified the purchaser for losses resulting from various matters, including claims related to tax disputes, claims related to PPAs, and defects in title to the assets or stock sold to the purchaser by CMS Energy subsidiaries. Except for items described elsewhere in this Note, CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities. | |
| (b) | At December 31, 2010, the carrying amount of CMS Land’s put option agreements with certain Bay Harbor property owners was $1 million. If CMS Land is required to purchase a Bay Harbor property under a put option agreement, it may sell the property to recover the amount paid under the put option agreement. |
At December 31, 2010, the maximum obligation and carrying
amounts for Consumers’ guarantees were less than
$1 million.
Presented in the following table is additional information
regarding CMS Energy’s guarantees:
|
Guarantee Description
|
How Guarantee Arose | Events That Would Require Performance | ||
|
Indemnity obligations from asset sales and other agreements
|
Stock and asset sales agreements | Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances | ||
|
Guarantees and put options
|
Normal operating activity | Nonperformance or non-payment by a subsidiary under a related contract | ||
| Bay Harbor remediation efforts | Owners exercising put options requiring CMS Land to purchase property |
CMS Energy, Consumers, and certain other subsidiaries of CMS
Energy also enter into various agreements containing tax and
other indemnity provisions for which they are unable to estimate
the maximum potential
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obligation. These factors include unspecified exposure under
certain agreements. CMS Energy and Consumers consider the
likelihood that they would be required to perform or incur
substantial losses related to these indemnities to be remote.
Other
Contingencies
In addition to the matters disclosed in this Note and
Note 6, Regulatory Matters, there are certain other
lawsuits and administrative proceedings before various courts
and governmental agencies arising in the ordinary course of
business to which CMS Energy, Consumers, and certain other
subsidiaries of CMS Energy are parties. These other lawsuits and
proceedings may involve personal injury, property damage,
contracts, environmental issues, federal and state taxes, rates,
licensing, employment, and other matters. Further, CMS Energy
and Consumers occasionally self-report certain regulatory
non-compliance matters that may or may not eventually result in
administrative proceedings. CMS Energy and Consumers believe
that the outcome of any one of these proceedings will not have a
material adverse effect on their consolidated results of
operations, financial condition, or liquidity.
Contractual
Commitments
Purchase Obligations:
Presented in the following
table are Consumers’ contractual cash obligations at
December 31, 2010 for each of the periods shown. CMS Energy
did not have any contractual cash obligations at
December 31, 2010 that were not included in Consumers’
reported amounts.
| Payments Due | ||||||||||||||||||||
|
Less Than
|
One to
|
Three to
|
More Than
|
|||||||||||||||||
| Total | One Year | Three Years | Five Years | Five Years | ||||||||||||||||
| In Millions | ||||||||||||||||||||
|
Consumers
|
||||||||||||||||||||
|
Purchase obligations
|
$ | 15,794 | $ | 1,996 | $ | 2,613 | $ | 1,751 | $ | 9,434 | ||||||||||
|
Purchase obligations — related parties
|
1,735 | 87 | 180 | 193 | 1,275 | |||||||||||||||
Purchase obligations are long-term contracts for the purchase of
commodities and services. These obligations include operating
contracts used to ensure adequate supply with generating
facilities that meet PURPA requirements. The commodities and
services include natural gas and associated transportation,
electricity, and coal and associated transportation.
The MCV PPA:
Consumers has a
35-year
PPA
that began in 1990 with the MCV Partnership to purchase
1,240 MW of electricity. The MCV PPA provides for:
| • | a capacity charge of $10.14 per MWh of available capacity; | |
| • | a fixed energy charge based on Consumers’ annual average baseload coal generating plant operating and maintenance cost, fuel inventory, and average administrative and general expenses; | |
| • | a variable energy charge for all delivered energy that reflects the MCV Partnership’s cost of production; | |
| • | a $5 million annual contribution by the MCV Partnership to a renewable resources program; and | |
| • | an option for Consumers to extend the MCV PPA for five years or purchase the MCV Facility at the conclusion of the MCV PPA’s term in March 2025. |
Capacity and energy charges, net of RCP replacement energy and
benefits, under the MCV PPA were $285 million in 2010,
$246 million in 2009, and $320 million in 2008. Based
on a 2008 contract amendment and approval by the MPSC that
allows Consumers to manage the contract more cost effectively,
Consumers estimates that capacity and energy charges under the
MCV PPA will average $320 million annually. These amounts
are included in the table above.
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The Palisades PPA:
Consumers has a PPA expiring in
2022 with Entergy to purchase all of the capacity and energy
produced by Palisades, up to the annual average capacity of
798 MW. Consumers estimates that capacity and energy
payments under the Palisades PPA will average $342 million
annually. A portion of these amounts is included in the table
above. Consumers’ total purchases of capacity and energy
under the PPA were $286 million in 2010, $276 million
in 2009, and $298 million in 2008. For further details
about Palisades, see Note 14, Leases.
| 6: | REGULATORY MATTERS |
Rate
Matters
Rate matters are critical to Consumers. Depending upon the
specific issues, the outcomes of rate cases and proceedings
could have a material adverse effect on CMS Energy’s and
Consumers’ liquidity, financial condition, and results of
operations. Consumers cannot predict the outcome of these
proceedings.
Consumers’
Electric Utility
Electric Rate Cases:
The MPSC, through a final order
and rehearing in Consumers’ 2009 electric rate case,
directed Consumers to refund to customers the difference between
the rates it self-implemented in May 2009 and the rates
authorized in the order, plus interest, subject to a
reconciliation proceeding. In August 2010, the MPSC ordered
Consumers to refund self-implemented revenue of $16 million
to customers. Consumers refunded this amount in September 2010.
In January 2010, Consumers filed an application with the MPSC
seeking an annual increase in revenue of $178 million based
on an 11 percent authorized return on equity. The filing
requested authority to recover new investments in system
reliability, environmental compliance, and technology
advancements.
In July 2010, Consumers self-implemented an annual electric rate
increase of $150 million, subject to refund with interest.
Consumers self-implemented $28 million less than it
originally requested in order to respond to concerns raised by
the MPSC Staff and other intervenors and to provide a balance
between the need for investment in Michigan’s
infrastructure, which will support economic recovery in the
state, and the resulting rate impacts on customers. In its July
2010 order allowing Consumers to self-implement the
$150 million increase, the MPSC expressed concern about
utilities repeatedly self-implementing rate increases over short
time periods, and before the return of previous overcollections
of self-implemented rate increases. In August 2010, the Attorney
General filed a claim for appeal with the Michigan Court of
Appeals regarding the MPSC’s July 2010 order.
In November 2010, the MPSC issued its order in this case,
authorizing Consumers to increase its rates in an annual amount
of $146 million based on an authorized return on equity of
10.7 percent. Presented in the following table are the
components of the electric rate increase authorized by the MPSC
and Consumers’ self-implemented increase:
|
Consumers’
|
||||||||||||
|
Increase Authorized
|
Self-Implemented
|
|||||||||||
| Components of the increase in revenue | by the MPSC | Increase | Difference | |||||||||
| In Millions | ||||||||||||
|
Investment in rate base
|
$ | 102 | $ | 106 | $ | (4 | ) | |||||
|
Recovery of operating and maintenance costs
|
25 | 21 | 4 | |||||||||
|
Cost of capital
|
— | 18 | (18 | ) | ||||||||
|
Impact of sales declines
|
19 | 5 | 14 | |||||||||
|
Total
|
$ | 146 | $ | 150 | $ | (4 | ) | |||||
The MPSC directed Consumers to refund to customers the
difference between the rates it self-implemented in July 2010
and the rates authorized in the November 2010 order, plus
interest, subject to a reconciliation proceeding.
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In February 2011, Consumers filed an application to reconcile
the total revenues collected under its self-implemented rates
with those that would have been collected under the rates
authorized by the MPSC. This reconciliation found that no refund
is required.
Power Supply Cost Recovery:
The PSCR process is
designed to allow Consumers to recover all of its power supply
costs if incurred under reasonable and prudent policies and
practices. The MPSC reviews these costs, policies, and practices
in annual plan and reconciliation proceedings. Consumers adjusts
its PSCR billing factor monthly in order to minimize the
overrecovery or underrecovery amount in the annual PSCR
reconciliation.
PSCR Plans:
In September 2009, Consumers submitted
its 2010 PSCR plan to the MPSC. In accordance with its proposed
plan, Consumers self-implemented the 2010 PSCR charge beginning
in January 2010. In February 2011, the MPSC issued an order
approving Consumers’ 2010 PSCR plan with the exception of
$5 million of gas supply costs related to Zeeland.
In September 2010, Consumers submitted its 2011 PSCR plan to the
MPSC. In accordance with its proposed plan, Consumers
self-implemented the 2011 PSCR charge beginning in January 2011.
PSCR Reconciliations:
Presented in the following
table is the PSCR reconciliation filing pending with the MPSC:
|
PSCR Cost of
|
||||||||||||
| PSCR Year | Date Filed | Net Underrecovery | Power Sold | |||||||||
| 2009 | March 2010 | $39 million(a) | $ | 1.6 billion | ||||||||
| (a) | In 2005, the MPSC approved an economic development discount for a large industrial customer to promote long-term investments in the industrial infrastructure of Michigan. It was determined in the November 2009 electric rate case order that recovery of this discount should be provided through the electric general rates that Consumers self-implemented in May 2009. That order, however, did not address the recovery of the power-supply component of the discount provided from January 2009 through self-implementation, which totaled $4 million. Consumers has requested recovery of this amount through its 2009 PSCR reconciliation. In this reconciliation, intervenors are seeking disallowances ranging from $11 million to $43 million. |
The MPSC issued an order in Consumers’ 2007 PSCR
reconciliation in March 2010. In April 2010, Consumers filed for
a rehearing in its reconciliation, asking the MPSC to reconsider
its decision to disallow recovery of a $2 million economic
development discount provided in 2007 to the large industrial
customer. In June 2010, the MPSC denied Consumers’ petition
for rehearing. In July 2010, Consumers filed a claim for appeal
with the Michigan Court of Appeals regarding the MPSC’s
decision to disallow recovery of the economic development
discount. In January 2011, the Michigan Court of Appeals
dismissed Consumers’ claim.
The MPSC issued an order in Consumers’ 2008 PSCR
reconciliation in June 2010. In July 2010, Consumers filed for a
rehearing in its 2008 PSCR reconciliation, asking the MPSC to
reconsider its decision to disallow recovery of a
$3 million economic development discount. In January 2011,
the MPSC denied Consumers’ petition for rehearing.
Electric Operation and Maintenance Expenditures Show-Cause
Order:
In December 2005, the MPSC authorized Consumers
to increase its electric rates. In the same order, the MPSC
ordered Consumers to spend certain amounts on future
tree-trimming and line-clearing activities, as well as on the
operation and maintenance of Consumers’ fossil-fueled power
plants. At that time, the MPSC also ordered Consumers to
establish mechanisms to track these expenditures and stated that
the rate increase was subject to refund with interest if the
specified amounts were not spent on these activities.
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In October 2009, the MPSC issued a show-cause order alleging
that, in 2007, Consumers spent $14 million less on forestry
and fossil-fueled plant operation and maintenance activity than
the amount ordered by the MPSC and that Consumers had not
refunded this amount to customers. The order directed Consumers
to explain why it should not be found in violation of the
MPSC’s December 2005 order and subjected to applicable
sanctions, and why the refunds required by that order had not
yet occurred. Consumers’ response indicated that the total
amount it spent on forestry and fossil-fueled plant operation
and maintenance activity for the years 2006 through 2009
exceeded the total amounts included in rates for these
activities.
In March 2010, the MPSC Staff requested that the MPSC find
Consumers in violation of the December 2005 order and that the
MPSC order Consumers to refund $27 million for failure to
meet annual spending requirements during 2007 and 2008.
Consumers filed a response, stating that it would be
unreasonable and unlawful to order a refund of this amount and
that Consumers’ expenditures were consistent with the
MPSC’s orders. In March 2010, the administrative law
judge’s proposal for decision found Consumers’
expenditures to be prudent and that Consumers did not violate
the December 2005 order. The administrative law judge
recommended that the MPSC find that no violation of the December
2005 order occurred and that no refunds be made to customers.
Electric Depreciation:
In February 2010, Consumers
filed an electric depreciation case related to its wholly owned
electric utility property. As ordered by the MPSC, Consumers
prepared a traditional
cost-of-removal
study, which supported a $46 million increase in annual
depreciation expense.
Also in February 2010, Consumers filed an electric depreciation
case for Ludington, the pumped-storage plant jointly owned by
Consumers and Detroit Edison. This case, filed jointly with
Detroit Edison, requests an increase in annual depreciation
expense. Consumers’ share of this increase is
$9 million annually.
Wind Plant Depreciation:
In January 2011, Consumers
filed an application with the MPSC seeking approval of
depreciation rates for facilities to be installed in connection
with Consumers’ plans to construct a
100-MW
wind
farm, Lake Winds Energy Park, in Mason County, Michigan. This
case requests an increase of $10 million in annual
depreciation expense associated with these wind power production
facilities.
Renewable Energy Plan:
In June 2010, Consumers filed
its first annual report and reconciliation for its renewable
energy plan with the MPSC, requesting approval of
Consumers’ reconciliation of renewable energy plan costs
for 2009.
In February 2011, Consumers filed an amended renewable energy
plan to reduce the amount recoverable from customers. Consumers
proposed the amendment as a result of
lower-than-anticipated
costs to comply with the renewable energy requirements
prescribed by the 2008 Energy Legislation.
Energy Optimization Plan:
In April 2010, Consumers
filed its first annual report and reconciliation for its energy
optimization plan with the MPSC, requesting approval of
Consumers’ reconciliation of energy optimization plan costs
for 2009. Consumers also requested approval to collect
$6 million from customers as an incentive payment for
achieving savings targets under both its gas and electric energy
optimization plans during 2009.
During 2010, Consumers achieved 137 percent of its electric
savings target and 124 percent of its gas savings target.
For achieving these savings levels, Consumers will request the
MPSC’s approval to collect $8 million, the maximum
incentive, in the energy optimization reconciliation to be filed
in April 2011.
As one of the conditions to the continuation of the electric and
gas decoupling mechanisms, Consumers must exceed the statutory
savings targets specified in the 2008 Energy Legislation for
2011 through 2014. In December 2010, the MPSC approved
Consumers’ amended energy optimization plan to recover the
additional spending necessary to exceed these savings targets.
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Consumers’
Gas Utility
Gas Rate Cases:
In May 2010, the MPSC authorized
Consumers to implement an annual rate increase of
$66 million, based on an authorized return on equity of
10.55 percent. In December 2010, the MPSC directed
Consumers to refund $11 million to customers for the
difference between the rates it self-implemented in November
2009 and the rates authorized by the MPSC in its order, plus
interest, in January 2011.
In August 2010, Consumers filed an application with the MPSC
seeking an annual increase in revenue of $55 million based
on an 11 percent authorized return on equity. The filing
requested recovery for investments made to enhance safety,
system reliability, and operational efficiencies that improve
service to customers. In January 2011, the MPSC Staff
recommended a revenue increase of $5 million, based on a
10.1 percent return on equity.
In January 2011, Consumers filed testimony and exhibits with the
MPSC in support of a self-implemented annual gas rate increase
of $48 million, subject to refund with interest. In
February 2011, Consumers filed a letter with the MPSC revising
the proposed self-implemented increase to $29 million. The
MPSC issued an order in February 2011, delaying Consumers’
self-implementation in order to give other parties to the
proceeding an opportunity to respond to Consumers’ revised
self-implementation filing.
Presented in the following table are the components of the rate
increase recommended by the MPSC Staff and the self-implemented
increase proposed by Consumers:
|
Consumers’
|
||||||||||||
|
Proposed
|
||||||||||||
|
Increase Recommended
|
Self-Implemented
|
|||||||||||
| Components of the increase in revenue | by the MPSC Staff | Increase | Difference | |||||||||
| In Millions | ||||||||||||
|
Investment in rate base
|
$ | 25 | $ | 28 | $ | (3 | ) | |||||
|
Recovery of operating and maintenance costs
|
2 | 7 | (5 | ) | ||||||||
|
Cost of capital
|
(20 | ) | (9 | ) | (11 | ) | ||||||
|
Impact of sales declines
|
(2 | ) | 3 | (5 | ) | |||||||
|
Total
|
$ | 5 | $ | 29 | $ | (24 | ) | |||||
Gas Cost Recovery:
The GCR process is designed to
allow Consumers to recover all of its purchased natural gas
costs if incurred under reasonable and prudent policies and
practices. The MPSC reviews these costs, policies, and practices
in annual plan and reconciliation proceedings. Consumers adjusts
its GCR billing factor monthly in order to minimize the
overrecovery or underrecovery amount in the annual GCR
reconciliation.
GCR Plans:
In March 2010, the MPSC authorized
Consumers to implement its
2009-2010
base GCR factor and generally approved Consumers’ plan.
In December 2010, the MPSC authorized Consumers to implement its
2010-2011
base GCR factor with certain adjustments to its purchasing
guidelines and contingent cost recovery methodology.
In December 2010, Consumers filed an application with the MPSC
seeking approval of its GCR plan for the
2011-2012
GCR plan year. Consumers plans to self-implement its filed GCR
plan factor in April 2011.
GCR Reconciliation:
Presented in the following table
is the GCR reconciliation filing pending with the MPSC:
|
GCR Cost of
|
||||||||||||
| GCR Year | Date Filed | Net Overrecovery | Gas Sold | |||||||||
| 2009-2010 | June 2010 | $1 million | $ | 1.3 billion | ||||||||
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In November 2010, the MPSC issued an order in Consumers’
2008-2009
GCR reconciliation approving full recovery of $1.8 billion
in gas costs, and authorized Consumers to roll into its
2009-2010
GCR plan the underrecovery of $16 million.
Regulatory
Assets and Liabilities
Consumers is subject to the actions of the MPSC and FERC and
prepares its Consolidated Financial Statements in accordance
with the provisions of regulatory accounting. A utility must
apply regulatory accounting when its rates are designed to
recover specific costs of providing regulated services. Under
regulatory accounting, Consumers records regulatory assets or
liabilities for certain transactions that would have been
treated as expense or revenue by non-regulated businesses.
Consumers reflected the following regulatory assets and
liabilities, which included both current and non-current
amounts, on its Consolidated Balance Sheets:
|
End of
|
||||||||||
|
Recovery
|
||||||||||
|
or Refund
|
||||||||||
|
December 31
|
Period | 2010 | 2009 | |||||||
| In Millions | ||||||||||
|
Regulatory Assets:
|
||||||||||
|
Postretirement benefits (Note 11)(a)
|
various | $ | 1,383 | $ | 1,464 | |||||
|
Securitized costs (Note 7)(b)
|
2015 | 310 | 364 | |||||||
|
ARO (Note 16)(b)
|
various | 107 | 100 | |||||||
|
Big Rock nuclear decommissioning and related costs(b)(c)
|
n/a | 85 | 85 | |||||||
|
MGP sites (Note 5)(a)
|
2020 | 58 | 63 | |||||||
|
Unamortized debt costs(b)
|
n/a | 52 | 56 | |||||||
|
Stranded costs(d)
|
2013 | 46 | 67 | |||||||
|
Decoupling mechanisms(d)(e)
|
n/a | 39 | 5 | |||||||
|
Energy optimization plan incentive(b)(f)
|
various | 14 | 6 | |||||||
|
Uncollectible expense tracking mechanism(d)(g)
|
n/a | 3 | 6 | |||||||
|
Customer Choice Act(d)
|
2013 | 2 | 42 | |||||||
|
Other(d)(h)
|
various | 13 | 52 | |||||||
|
Total regulatory assets(i)
|
$ | 2,112 | $ | 2,310 | ||||||
|
Regulatory Liabilities:
|
||||||||||
|
Cost of removal(j)
|
various | $ | 1,311 | $ | 1,247 | |||||
|
Income taxes, net (Note 12)
|
various | 410 | 529 | |||||||
|
ARO (Note 16)
|
various | 122 | 130 | |||||||
|
Renewable energy plan(k)
|
n/a | 101 | 25 | |||||||
|
Energy optimization plan(k)
|
n/a | 34 | 6 | |||||||
|
Self-implemented rate refunds(l)
|
2011 | 14 | 18 | |||||||
|
Refund of revenue in excess of nuclear decommissioning costs(m)
|
2011 | 7 | 86 | |||||||
|
Palisades refund(n)
|
2011 | 2 | 85 | |||||||
|
Other(h)
|
various | 9 | 10 | |||||||
|
Total regulatory liabilities(i)
|
$ | 2,010 | $ | 2,136 | ||||||
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| (a) | The regulatory assets associated with postretirement benefits and MGP sites are offset partially by liabilities. The net amount is included in rate base (or is expected to be included, for costs incurred subsequent to the most recently approved rate case), thereby providing a return. | |
| (b) | These regulatory assets represent incurred costs for which the MPSC has provided, or Consumers expects, recovery without a return on investment. | |
| (c) | Consumers paid $30 million to Entergy to assume ownership and responsibility for the Big Rock ISFSI, and incurred $55 million for nuclear fuel storage costs as a result of the DOE’s failure to accept spent nuclear fuel. Consumers is seeking recovery of these costs from the DOE. | |
| (d) | These regulatory assets either are included in rate base (or are expected to be included, for costs incurred subsequent to the most recently approved rate case), thereby providing a return on incurred costs, or provide a specific return on investment authorized by the MPSC. | |
| (e) | A decoupling mechanism, authorized by the MPSC in Consumers’ 2009 electric rate case order and extended in the 2010 electric rate case order, allows Consumers to adjust future electric rates to compensate for changes in sales volumes resulting from weather fluctuations, energy efficiency, and conservation. Various parties have filed appeals concerning the electric decoupling mechanism. At December 31, 2010, Consumers had a $28 million non-current regulatory asset recorded for electric decoupling. At December 31, 2009, Consumers had a $5 million non-current regulatory asset recorded for electric decoupling. Consumers plans to file its first annual electric decoupling mechanism reconciliation in March 2011. | |
| Also, in its May 2010 gas rate order, the MPSC authorized Consumers to adopt a gas decoupling mechanism, which is similar to the electric decoupling mechanism except that it does not compensate for changes in sales volumes resulting from weather fluctuations. At December 31, 2010, Consumers had an $11 million non-current regulatory asset recorded for gas decoupling. Consumers plans to file its first annual gas decoupling mechanism reconciliation in September 2011. | ||
| (f) | In 2009 and 2010, Consumers exceeded annual energy savings targets established by the MPSC and, therefore, qualified for financial incentives. For achieving 2009 targets, Consumers requested $6 million from the MPSC through the energy optimization reconciliation case filed in April 2010. Consumers will request $8 million, the maximum incentive for achieving 2010 targets, from the MPSC through the energy optimization reconciliation to be filed in April 2011. Consumers reported the 2009 and 2010 incentives in non-current regulatory assets. | |
| (g) | In its November 2009 electric rate order, the MPSC authorized an uncollectible expense tracking mechanism, which allowed future rates to be adjusted to collect or refund 80 percent of the difference between the level of electric uncollectible expense included in rates and actual uncollectible expense. Various parties have filed appeals concerning the uncollectible expense tracking mechanism. In its November 2010 electric rate order, the MPSC terminated the uncollectible expense tracking mechanism as of November 2010 and ordered Consumers to file its reconciliation for the entire period of the tracker in March 2011. | |
| (h) | At December 31, 2010 and 2009, other regulatory assets included electric restructuring implementation costs, a gas inventory regulatory asset, and OPEB and pension expense incurred in excess of the MPSC-approved amounts. Consumers will recover these regulatory assets from its customers. Other regulatory liabilities included AFUDC collected in excess of the MPSC-approved amount. | |
| (i) | At December 31, 2010, Consumers had $19 million of regulatory assets classified as current regulatory assets and $22 million of regulatory liabilities classified as current regulatory liabilities. At December 31, 2009, Consumers had $19 million of regulatory assets classified as current regulatory assets and $145 million of regulatory liabilities classified as current regulatory liabilities. |
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| (j) | Consumers records a non-current regulatory liability for the amounts collected from customers to fund future asset removal costs. | |
| (k) | At December 31, 2010 and 2009, surcharges collected from customers to fund Consumers’ renewable energy plan and energy optimization plan exceeded Consumers’ spending. These excess amounts are reported in the non-current portion of regulatory liabilities, as the period in which Consumers will spend the surcharges collected is beyond one year. The regulatory liability related to the renewable energy plan will be amortized as costs are incurred to operate and depreciate Consumers’ planned wind farms and as Consumers purchases RECs under renewable energy purchase agreements. Consumers expects its first wind farm, Lake Winds Energy Park, to be operational in late 2012. Delivery of RECs under the majority of Consumers’ renewable energy purchase agreements is also expected to begin during 2012. | |
| (l) | At December 31, 2010, Consumers had a $3 million regulatory liability recorded related to its self-implemented electric rates and an $11 million regulatory liability recorded related to its self-implemented gas rates. At December 31, 2009, Consumers had a $17 million regulatory liability recorded related to its self-implemented electric rates. | |
| (m) | The MPSC and FERC regulate the recovery of Consumers’ costs to decommission Big Rock. Subsequent to 2000, Consumers stopped funding a Big Rock trust fund because the collection period for an MPSC-authorized decommissioning surcharge expired on that date. The level of funds provided by the trust fell short of the amount needed to complete decommissioning and Consumers provided $44 million of corporate contributions for decommissioning costs. | |
| In an order issued in February 2010, the MPSC concluded that certain revenues collected during a statutory rate freeze from 2001 through 2003 should have been deposited in a decommissioning trust fund. The MPSC agreed that Consumers was entitled to recover $44 million of decommissioning costs, but concluded that Consumers had collected this amount previously through the rates in effect during the rate freeze. In April 2010, the MPSC ordered Consumers to refund $85 million of revenue collected in excess of decommissioning costs plus interest, over seven months beginning in July 2010. At December 31, 2010, a $7 million regulatory liability remained to be refunded. Consumers completed this refund in January 2011. Consumers filed an appeal with the Michigan Court of Appeals in March 2010 to dispute the MPSC’s conclusion that the collections received during the rate freeze should be subject to refund. | ||
| (n) | In 2009, the MPSC required Consumers to distribute to customers proceeds from the Palisades and Big Rock ISFSI sale transaction and Palisades decommissioning fund balances. |
Consumers’ PSCR and GCR mechanisms also represent probable
future revenues that will be recovered from customers or
previously collected revenues that will be refunded to customers
through the ratemaking process. Underrecoveries are included in
Accrued power supply and overrecoveries are included in Accrued
rate refunds on Consumers’ Consolidated Balance Sheets.
Consumers reflected the following regulatory assets and
liabilities for PSCR and GCR underrecoveries and overrecoveries
on its Consolidated Balance Sheets:
|
Years Ended December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
Regulatory assets for PSCR and GCR underrecoveries
|
$ | 15 | $ | 48 | ||||
|
Regulatory liabilities for PSCR and GCR overrecoveries
|
$ | 19 | $ | 21 | ||||
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7: FINANCINGS
AND CAPITALIZATION
Presented in the following table is CMS Energy’s Long-term
debt at December 31:
| Interest Rate (%) | Maturity | 2010 | 2009 | |||||||||||
| In Millions | ||||||||||||||
|
CMS Energy
|
||||||||||||||
|
Senior notes
|
7.750 | 2010 | $ | — | $ | 67 | ||||||||
| 8.500 | 2011 | 146 | 214 | |||||||||||
| 6.300 | 2012 | 50 | 150 | |||||||||||
| Variable | (a) | 2013 | 150 | 150 | ||||||||||
| 6.875 | 2015 | 125 | 125 | |||||||||||
| 4.250 | 2015 | 250 | — | |||||||||||
| 6.550 | 2017 | 250 | 250 | |||||||||||
| 5.050 | 2018 | 250 | — | |||||||||||
| 8.750 | 2019 | 300 | 300 | |||||||||||
| 6.250 | 2020 | 300 | — | |||||||||||
| 3.375 | (b) | 2023 | 4 | 140 | ||||||||||
| 2.875 | (b) | 2024 | 288 | 288 | ||||||||||
| 5.500 | (b) | 2029 | 172 | 172 | ||||||||||
| $ | 2,285 | $ | 1,856 | |||||||||||
|
Revolving credit facility
|
— | 25 | ||||||||||||
|
Total — CMS Energy
|
$ | 2,285 | $ | 1,881 | ||||||||||
|
Consumers
|
$ | 4,529 | $ | 4,411 | ||||||||||
|
Other CMS Energy
Subsidiaries
|
||||||||||||||
|
EnerBank brokered certificates of deposit
|
1.707 | (c) | 2011-2018 | 363 | 214 | |||||||||
|
Genesee tax exempt bonds(e)
|
7.500 | 2011-2021 | — | 54 | ||||||||||
|
Grayling tax exempt bonds(e)
|
Variable | (d) | 2011-2012 | — | 15 | |||||||||
|
Trust Preferred Securities
|
7.750 | 2027 | 29 | — | ||||||||||
|
Total — other CMS Energy subsidiaries
|
$ | 392 | $ | 283 | ||||||||||
|
Long-term debt — related parties
|
7.750 | 2027 | $ | — | $ | 34 | ||||||||
|
Total CMS Energy principal amount outstanding
|
$ | 7,206 | $ | 6,609 | ||||||||||
|
Current amounts
|
(726 | ) | (672 | ) | ||||||||||
|
Net unamortized discount
|
(32 | ) | (42 | ) | ||||||||||
|
Total CMS Energy Long-term debt
|
$ | 6,448 | $ | 5,895 | ||||||||||
| (a) | CMS Energy’s variable-rate senior notes bear interest at three-month LIBOR plus 95 basis points (1.239 percent at December 31, 2010 and 1.234 percent at December 31, 2009). | |
| (b) | CMS Energy’s contingently convertible notes. See the “Contingently Convertible Securities” section in this Note for further discussion of the conversion features. | |
| (c) | The weighted-average interest rate for EnerBank’s brokered certificates of deposit was 1.707 percent at December 31, 2010 and 2.727 percent at December 31, 2009. EnerBank sells these deposits through investment brokers in large pools, with each certificate within the pool having a face value of $1,000. They cannot be withdrawn until maturity, except in the case of death or incompetence of the holder. | |
| (d) | The interest rate for Grayling’s variable-rate tax-exempt bonds was 0.270 percent at December 31, 2009. | |
| (e) | Genesee and Grayling were deconsolidated as of January 1, 2010. For details, see Note 18, Variable Interest Entities. |
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table is Consumers’ Long-term
debt at December 31:
| Interest Rate (%) | Maturity | 2010 | 2009 | |||||||||||
| In Millions | ||||||||||||||
|
Consumers
|
||||||||||||||
|
FMBs(a)
|
4.000 | 2010 | $ | — | $ | 250 | ||||||||
| 5.000 | 2012 | 300 | 300 | |||||||||||
| 5.375 | 2013 | 375 | 375 | |||||||||||
| 6.000 | 2014 | 200 | 200 | |||||||||||
| 5.000 | 2015 | 225 | 225 | |||||||||||
| 2.600 | 2015 | 50 | — | |||||||||||
| 5.500 | 2016 | 350 | 350 | |||||||||||
| 5.150 | 2017 | 250 | 250 | |||||||||||
| 3.210 | 2017 | 100 | — | |||||||||||
| 5.650 | 2018 | 250 | 250 | |||||||||||
| 6.125 | 2019 | 350 | 350 | |||||||||||
| 6.700 | 2019 | 500 | 500 | |||||||||||
| 5.650 | 2020 | 300 | 300 | |||||||||||
| 3.770 | 2020 | 100 | — | |||||||||||
| 5.300 | 2022 | 250 | — | |||||||||||
| 5.650 | 2035 | — | 139 | |||||||||||
| 5.800 | 2035 | 175 | 175 | |||||||||||
| 6.170 | 2040 | 50 | — | |||||||||||
| 4.970 | 2040 | 50 | — | |||||||||||
| $ | 3,875 | $ | 3,664 | |||||||||||
|
Senior notes
|
6.875 | 2018 | 180 | 180 | ||||||||||
|
Securitization bonds
|
5.613 | (b) | 2011-2015 | 208 | 243 | |||||||||
|
Nuclear fuel disposal liability to DOE
|
(c | ) | (c) | 163 | 163 | |||||||||
|
Tax-exempt pollution control revenue bonds
|
Various | 2018-2035 | 103 | 161 | ||||||||||
|
Total Consumers principal amount outstanding
|
$ | 4,529 | $ | 4,411 | ||||||||||
|
Current amounts
|
(37 | ) | (343 | ) | ||||||||||
|
Net unamortized discount
|
(4 | ) | (5 | ) | ||||||||||
|
Total Consumers Long-term debt
|
$ | 4,488 | $ | 4,063 | ||||||||||
| (a) | The weighted-average interest rate for Consumers’ FMBs was 5.517 percent at December 31, 2010 and 5.583 percent at December 31, 2009. | |
| (b) | The weighted-average interest rate for Consumers’ Securitization bonds was 5.613 percent at December 31, 2010 and 5.566 percent at December 31, 2009. | |
| (c) | The interest rate for Consumers’ nuclear fuel disposal liability was 0.132 percent at December 31, 2010 and 0.117 percent at December 31, 2009. The interest rate is based on the 13-week Treasury Bill rate. The maturity date of the nuclear fuel disposal liability is uncertain. For additional details, see the “Consumers’ Electric Utility Contingencies — Nuclear Matters — Nuclear Fuel Disposal Cost” section included in Note 5, Contingencies and Commitments. |
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financings:
Presented in the following table is a
summary of significant long-term debt transactions during 2010:
| Principal | Interest Rate | Issue/Retirement Date | Maturity Date | |||||||||||||
| (In Millions) | ||||||||||||||||
|
Debt
Issuances:
|
||||||||||||||||
|
CMS Energy
|
||||||||||||||||
|
Senior notes
|
$ | 300 | 6.25 | % | January 2010 | February 2020 | ||||||||||
|
Senior notes
|
250 | 4.25 | % | September 2010 | September 2015 | |||||||||||
|
Senior notes(a)
|
250 | 5.05 | % | November 2010 | February 2018 | |||||||||||
|
Consumers
|
||||||||||||||||
|
FMBs
|
250 | 5.30 | % | September 2010 | September 2022 | |||||||||||
|
FMBs
|
50 | 6.17 | % | September 2010 | September 2040 | |||||||||||
|
FMBs
|
50 | 2.60 | % | October 2010 | October 2015 | |||||||||||
|
FMBs
|
100 | 3.21 | % | October 2010 | October 2017 | |||||||||||
|
FMBs
|
100 | 3.77 | % | October 2010 | October 2020 | |||||||||||
|
FMBs
|
50 | 4.97 | % | October 2010 | October 2040 | |||||||||||
|
Debt
Retirements:
|
||||||||||||||||
|
CMS Energy
|
||||||||||||||||
|
Senior notes
|
$ | 67 | 7.75 | % | August 2010 | August 2010 | ||||||||||
|
Senior notes(b)
|
100 | 6.30 | % | December 2010 | February 2012 | |||||||||||
|
Senior notes(c)
|
68 | 8.50 | % | December 2010 | April 2011 | |||||||||||
|
Contingently convertible senior notes(a)
|
136 | 3.375 | % |
August and
December 2010 |
July 2023 | |||||||||||
|
Consumers
|
||||||||||||||||
|
FMBs
|
250 | 4.00 | % | May 2010 | May 2010 | |||||||||||
|
FMBs
|
137 | 5.65 | % | October 2010 | April 2035 | |||||||||||
|
Tax-exempt pollution control revenue bonds
|
58 | Various | June 2010 | June 2010 | ||||||||||||
| (a) | In conjunction with the issuance of the 5.05 percent senior notes due 2018, CMS Energy called for redemption on December 20, 2010 all of its outstanding 3.375 percent contingently convertible senior notes due 2023. In December 2010, holders tendered for conversion $132 million of the 3.375 percent contingently convertible senior notes due 2023. In December 2010, CMS Energy used a portion of the net proceeds from the issuance of the 5.05 percent senior notes to pay $128 million principal amount of the conversion value and issued 6,715,073 shares of its common stock to pay the common stock portion of the conversion value. In January 2011, CMS Energy paid $4 million principal amount of the conversion value and issued 197,472 shares of its common stock to pay the common stock portion of the conversion value, which completed the redemption of the 3.375 percent contingently convertible senior notes due 2023. | |
| (b) | CMS Energy retired this debt at a premium, and recorded a loss on extinguishment of debt of $6 million in Other expense on its Consolidated Statements of Income. | |
| (c) | CMS Energy retired this debt at a premium, and recorded a loss on extinguishment of debt of $2 million in Other expense on its Consolidated Statements of Income. |
FMBs:
Consumers secures its FMBs by a mortgage and
lien on substantially all of its property. Consumers’
ability to issue FMBs is restricted by certain provisions in the
First Mortgage Bond Indenture and the need for
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
regulatory approvals under federal law. Restrictive issuance
provisions in the First Mortgage Bond Indenture include
achieving a two-times interest coverage ratio and having
sufficient unfunded net property additions.
Regulatory Authorization for Financings:
FERC has
authorized Consumers to have outstanding at any one time, up to
$1.0 billion of secured and unsecured short-term securities
for general corporate purposes. The remaining availability is
$670 million at December 31, 2010. FERC has also
authorized Consumers to issue and sell up to $1.1 billion
of secured and unsecured long-term securities for general
corporate purposes. The remaining availability is
$650 million at December 31, 2010. The authorizations
are for the period ending June 30, 2012. Any long-term
issuances during the authorization period are exempt from
FERC’s competitive bidding and negotiated placement
requirements.
Securitization Bonds:
Certain regulatory assets
owned by Consumers’ subsidiary, Consumers Funding,
collateralize Consumers’ Securitization bonds. The
bondholders have no recourse to Consumers’ other assets.
Through its rate structure, Consumers bills customers for
Securitization surcharges to fund the payment of principal,
interest, and other related expenses. The surcharges collected
are remitted to a trustee and are not available to creditors of
Consumers or creditors of Consumers’ affiliates other than
Consumers Funding. Securitization surcharges totaled
$49 million in 2010 and $46 million in 2009.
Effective January 1, 2010, CMS Energy consolidated CMS
Energy Trust I, the issuer of the Trust Preferred
Securities. Accordingly, at December 31, 2010, the
trust’s obligations were included on CMS Energy’s
Consolidated Balance Sheets as Long-term debt in the amount of
$29 million.
Debt Maturities:
At December 31, 2010, the
aggregate annual contractual maturities for long-term debt for
the next five years were:
| Payments Due | ||||||||||||||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
| In Millions | ||||||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||||||
|
Long-term debt
|
$ | 439 | $ | 429 | $ | 590 | $ | 262 | $ | 714 | ||||||||||
|
Consumers
|
||||||||||||||||||||
|
Long-term debt
|
$ | 37 | $ | 339 | $ | 416 | $ | 243 | $ | 324 | ||||||||||
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revolving Credit Facilities:
The following secured
revolving credit facilities with banks were available at
December 31, 2010:
|
Letters of
|
||||||||||||||||||
|
Amount of
|
Amount
|
Credit
|
Amount
|
|||||||||||||||
|
Company
|
Expiration Date | Facility | Borrowed | Outstanding | Available | |||||||||||||
| In Millions | ||||||||||||||||||
|
CMS Energy(a)
|
April 2, 2012 | $ | 550 | $ | — | $ | 3 | $ | 547 | |||||||||
|
Consumers(b)
|
September 21, 2011 | 30 | — | 30 | — | |||||||||||||
|
Consumers
|
March 30, 2012 | 500 | — | 300 | 200 | |||||||||||||
|
Consumers
|
August 9, 2013 | 150 | — | — | 150 | |||||||||||||
| (a) | CMS Energy’s average borrowings during the year ended December 31, 2010, totaled $1 million, with a weighted-average annual interest rate of 1.0 percent, at LIBOR plus 0.75 percent. | |
| (b) | Secured revolving letter of credit facility. |
Short-term Borrowings:
Under Consumers’
revolving accounts receivable sales program, Consumers may
transfer up to $250 million of accounts receivable, subject
to certain eligibility requirements, to a wholly owned,
consolidated, bankruptcy-remote special-purpose entity. In turn,
the special purpose entity may transfer an undivided interest in
the receivables. Under accounting rules effective
January 1, 2010, transactions entered into under this
program are accounted for as secured borrowings rather than as
sales. At December 31, 2010, $250 million of accounts
receivable were eligible for transfer, and no accounts
receivable had been transferred under the program. Prior to
2010, Consumers accounted for these transfers as sales. At
December 31, 2009, $250 million of accounts receivable
were eligible for sale, of which $50 million were sold.
During the year ended December 31, 2010, Consumers’
maximum short-term borrowings totaled $50 million, and its
average short-term borrowings totaled $1 million, with a
weighted-average annual interest rate of 0.2 percent.
Contingently Convertible Securities:
Presented in
the following table are the significant terms of CMS
Energy’s contingently convertible securities at
December 31, 2010:
|
Outstanding
|
Adjusted
|
Adjusted
|
||||||||||||||
|
Security
|
Maturity | (In Millions) | Conversion Price | Trigger Price | ||||||||||||
|
2.875% senior notes
|
2024 | $ | 288 | $ | 13.09 | $ | 15.70 | |||||||||
|
3.375% senior notes
|
2023 | 4 | 9.47 | 11.36 | ||||||||||||
|
5.50% senior notes
|
2029 | 172 | 14.46 | 18.80 | ||||||||||||
The holders of the 2.875 percent senior notes have the
right to require CMS Energy to purchase the notes at par on
December 1, 2011, 2014, and 2019.
The securities become convertible for a calendar quarter if the
price of CMS Energy’s common stock remains at or above the
trigger price for 20 of 30 consecutive trading days ending on
the last trading day of the previous quarter. The trigger price
at which these securities become convertible is 120 percent
of the conversion price for the 2.875 percent senior notes
and 130 percent for the 5.5 percent senior notes. The
conversion and trigger prices are subject to adjustment in
certain circumstances, including payments or distributions to
CMS Energy’s common stockholders. The conversion and
trigger price adjustment is made when the cumulative change in
conversion and trigger prices is one percent or more. During
December 2010, trigger price contingencies were met for the
2.875 percent senior notes.
All of CMS Energy’s contingently convertible securities, if
converted, require CMS Energy to pay cash up to the principal
amount of the securities. Any conversion value in excess of that
amount is paid in shares of CMS Energy’s common stock.
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following tables are details about conversions
of contingently convertible securities during 2010:
|
4.5 percent
|
Conversion
|
Common Stock
|
Cash Paid on
|
|||||||||||||||
|
cumulative convertible
|
Conversion
|
Shares
|
Value
|
Issued
|
Settlement
|
|||||||||||||
|
preferred stock(a)
|
Date | Converted | per Share | on Settlement | (In Millions) | |||||||||||||
|
Voluntary conversion
|
June 2010 | 100 | $ | 84.75 | 228 | $ | — | |||||||||||
|
Voluntary conversion
|
July 2010 | 250,000 | $ | 89.43 | 614,940 | 13 | ||||||||||||
|
Voluntary conversion
|
October 2010 | 1,000 | $ | 102.32 | 2,852 | — | ||||||||||||
|
Voluntary conversion
|
October 2010 | 632,971 | $ | 103.88 | 1,831,604 | 32 | ||||||||||||
|
Mandatory conversion
|
October 2010 | 3,884,929 | $ | 104.22 | 11,276,277 | 194 | ||||||||||||
| 4,769,000 | 13,725,901 | $ | 239 | |||||||||||||||
|
Conversion
|
||||||||||||||||||
|
3.375 percent
|
Principal
|
Value
|
Common Stock
|
Cash Paid on
|
||||||||||||||
|
contingently convertible
|
Conversion
|
Converted
|
per $1,000 of
|
Issued
|
Settlement
|
|||||||||||||
|
senior notes due 2023(b)
|
Date | (In Millions) | principal | on Settlement | (In Millions) | |||||||||||||
|
Voluntary conversion
|
August 2010 | $ | 8 | $ | 1,666.57 | 331,008 | $ | 8 | ||||||||||
|
Voluntary conversion
|
December 2010 | 75 | $ | 1,982.59 | 3,941,770 | 75 | ||||||||||||
|
Voluntary conversion
|
December 2010 | 21 | $ | 1,987.87 | 1,102,299 | 21 | ||||||||||||
|
Voluntary conversion
|
December 2010 | 29 | $ | 1,996.32 | 1,504,074 | 29 | ||||||||||||
|
Voluntary conversion
|
December 2010 | 3 | $ | 2,006.88 | 166,930 | 3 | ||||||||||||
| $ | 136 | 7,046,081 | $ | 136 | ||||||||||||||
| (a) | In September 2010, CMS Energy exercised its mandatory conversion rights for all of its outstanding 4.50 percent cumulative convertible preferred stock. Also in September 2010, holders voluntarily tendered 633,971 shares of the 4.50 percent cumulative convertible preferred stock for conversion. In October 2010, CMS Energy paid $226 million in cash and issued 13,110,733 shares of its common stock upon conversion of 4,518,900 shares of its 4.50 percent cumulative convertible preferred stock. | |
| (b) | In December 2010, CMS Energy called all of its outstanding 3.375 percent contingently convertible senior notes for redemption. In response to the call, holders voluntarily tendered $128 million aggregate principal amount of the notes for conversion in December 2010. In December 2010, holders also voluntarily tendered $4 million aggregate principal amount of the notes for conversion in January 2011. The conversion value per $1,000 principal amount of convertible notes was $1,994.21. In January 2011, CMS Energy paid $4 million in cash and issued 197,472 shares of its common stock in exchange for the $4 million aggregate principal amount of notes tendered. |
Dividend Restrictions:
Under provisions of CMS
Energy’s senior notes indenture, at December 31, 2010,
payment of common stock dividends by CMS Energy was limited to
$959 million.
Under the provisions of its articles of incorporation, at
December 31, 2010, Consumers had $404 million of
unrestricted retained earnings available to pay common stock
dividends to CMS Energy. Provisions of the Federal Power Act and
the Natural Gas Act appear to restrict dividends payable by
Consumers to the amount of Consumers’ retained earnings.
Several decisions from FERC suggest that under a variety of
circumstances common stock dividends from Consumers would not be
limited to amounts in Consumers’ retained earnings. Any
decision by Consumers to pay common stock dividends in excess of
retained earnings would be based on specific facts and
circumstances and would result only after a formal regulatory
filing process.
During 2010, CMS Energy received $358 million of common
stock dividends from Consumers.
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Capitalization:
The authorized capital stock of CMS
Energy consists of:
| • | 350 million shares of CMS Energy Common Stock, par value $0.01 per share, and | |
| • | 10 million shares of CMS Energy Preferred Stock, par value $0.01 per share. |
Preferred Stock of Subsidiary:
Presented in the
following table are details about Consumers’ preferred
stock outstanding:
|
Optional
|
||||||||||||||||
|
Redemption
|
Number of
|
|||||||||||||||
|
December 31, 2010 and 2009
|
Series | Price | Shares | In Millions | ||||||||||||
|
Cumulative $100 par value, authorized
7,500,000 shares, with no mandatory redemption
|
$ | 4.16 | $ | 103.25 | 68,451 | $ | 7 | |||||||||
| $ | 4.50 | $ | 110.00 | 373,148 | 37 | |||||||||||
|
Total preferred stock of Consumers
|
$ | 44 | ||||||||||||||
| 8: | EARNINGS PER SHARE — CMS ENERGY |
Presented in the following table are CMS Energy’s basic and
diluted EPS computations based on Income from Continuing
Operations:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions, Except Per Share Amounts | ||||||||||||
|
Income Available to Common Stockholders
|
||||||||||||
|
Income from Continuing Operations
|
$ | 366 | $ | 220 | $ | 301 | ||||||
|
Less Income Attributable to Noncontrolling Interests
|
(3 | ) | (11 | ) | (7 | ) | ||||||
|
Less Charge for Deferred Issuance Costs on Preferred Stock
|
(8 | ) | — | — | ||||||||
|
Less Preferred Stock Dividends
|
(8 | ) | (11 | ) | (11 | ) | ||||||
|
Income from Continuing Operations Available to Common
Stockholders — Basic and Diluted
|
$ | 347 | $ | 198 | $ | 283 | ||||||
|
Average Common Shares Outstanding
|
||||||||||||
|
Weighted average shares — basic
|
231.5 | 227.2 | 225.7 | |||||||||
|
Add dilutive contingently convertible securities
|
21.3 | 10.6 | 10.3 | |||||||||
|
Add dilutive non-vested stock awards, options, and warrants
|
0.1 | 0.1 | 0.2 | |||||||||
|
Weighted average shares — diluted
|
252.9 | 237.9 | 236.2 | |||||||||
|
Income from Continuing Operations per Average Common Share
Available to Common Stockholders
|
||||||||||||
|
Basic
|
$ | 1.50 | $ | 0.87 | $ | 1.25 | ||||||
|
Diluted
|
$ | 1.36 | $ | 0.83 | $ | 1.20 | ||||||
Contingently Convertible Securities:
When CMS Energy
has earnings from continuing operations, its contingently
convertible securities dilute EPS to the extent that the
conversion value of a security, which is based on the average
market price of CMS Energy’s common stock, exceeds the
principal value of that security.
In September 2010, CMS Energy exercised its mandatory conversion
rights for all of its outstanding 4.50 percent cumulative
convertible preferred stock and charged unamortized issuance
costs of $8 million to Charge for Deferred Issuance Costs
on Preferred Stock, in Accumulated Deficit, which reduced Net
Income Available to Common Stockholders on its Consolidated
Statements of Income. In October 2010, CMS Energy
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
issued 11,276,277 shares of its common stock upon
conversion. For additional details on contingently convertible
securities, see Note 7, Financings and Capitalization.
Stock Options and Warrants:
For the year ended
December 31, 2010, outstanding options to purchase
0.4 million shares of CMS Energy common stock had no impact
on diluted EPS, since the exercise price was greater than the
average market price of CMS Energy common stock. These stock
options have the potential to dilute EPS in the future.
Non-vested Stock Awards:
CMS Energy’s
non-vested stock awards are composed of participating and
non-participating securities. The participating securities
accrue cash dividends when common stockholders receive
dividends. Since the recipient is not required to return the
dividends to CMS Energy if the recipient forfeits the award, the
non-vested stock awards are considered participating securities.
As such, the participating non-vested stock awards were included
in the computation of basic EPS. The non-participating
securities accrue stock dividends that vest concurrently with
the stock award. If the recipient forfeits the award, the stock
dividends accrued on the non-participating securities are also
forfeited. Accordingly, the non-participating awards and stock
dividends were included in the computation of diluted EPS, but
not basic EPS.
Convertible Debentures:
For the years ended
December 31, 2010, 2009, and 2008, there was no impact on
diluted EPS from CMS Energy’s 7.75 percent convertible
subordinated debentures. Using the if-converted method, the
debentures would have:
| • | increased the numerator of diluted EPS by $1 million for the year ended December 31, 2010, by $5 million for the year ended December 31, 2009, and by $9 million for the year ended December 31, 2008, from an assumed reduction of interest expense, net of tax; and | |
| • | increased the denominator of diluted EPS by 0.7 million shares for the year ended December 31, 2010, by 2.3 million shares for the year ended December 31, 2009, and by 4.2 million shares for the year ended December 31, 2008. |
CMS Energy can revoke the conversion rights if certain
conditions are met.
| 9: | FINANCIAL INSTRUMENTS |
The carrying amounts of CMS Energy’s and Consumers’
cash, cash equivalents, current accounts and notes receivable,
short-term investments, and current liabilities approximate
their fair values because of their short-term nature. Presented
in the following table are the cost or carrying amounts and fair
values of CMS Energy’s and Consumers’ long-term
financial instruments:
| 2010 | 2009 | |||||||||||||||
|
Cost or
|
Cost or
|
|||||||||||||||
|
Carrying
|
Carrying
|
|||||||||||||||
|
December 31
|
Amount | Fair Value | Amount | Fair Value | ||||||||||||
| In Millions | ||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||
|
Securities held to maturity
|
$ | 5 | $ | 6 | $ | 4 | $ | 4 | ||||||||
|
Securities available for sale
|
90 | 90 | 26 | 27 | ||||||||||||
|
Notes receivable(a)
|
386 | 407 | 269 | 279 | ||||||||||||
|
Long-term debt(b)
|
7,174 | 7,861 | 6,567 | 7,013 | ||||||||||||
|
Consumers
|
||||||||||||||||
|
Securities available for sale
|
$ | 64 | $ | 90 | $ | 24 | $ | 45 | ||||||||
|
Long-term debt(c)
|
4,525 | 4,891 | 4,406 | 4,635 | ||||||||||||
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| (a) | Includes current portion of notes receivable of $11 million at December 31, 2010 and less than $1 million at December 31, 2009. | |
| (b) | Includes current portion of long-term debt of $726 million at December 31, 2010 and $672 million at December 31, 2009. | |
| (c) | Includes current portion of long-term debt of $37 million at December 31, 2010 and $343 million at December 31, 2009. |
Notes receivable consist of EnerBank’s fixed-rate
installment loans. EnerBank estimates the fair value of these
loans using a discounted cash flows technique that incorporates
market interest rates as well as assumptions about the remaining
life of the loans and credit risk. Fair values for impaired
loans are estimated using discounted cash flows or underlying
collateral values.
CMS Energy and Consumers estimate the fair value of their
long-term debt using quoted prices from market trades of the
debt, if available. In the absence of quoted prices, CMS Energy
and Consumers calculate market yields and prices for the debt
using a matrix method that incorporates market data for
similarly rated debt. Depending on the information available,
other valuation techniques may be used that rely on internal
assumptions and models. CMS Energy includes the value of the
conversion features in estimating the fair value of its
convertible debt, and incorporates, as appropriate, information
on the market prices of CMS Energy’s common stock.
The effects of third-party credit enhancements are excluded from
the fair value measurements of long-term debt. At
December 31, 2010, CMS Energy’s long-term debt
included $103 million principal amount that was supported
by third-party credit enhancements. This entire principal amount
was at Consumers. At December 31, 2009, CMS Energy’s
long-term debt included $286 million principal amount that
was supported by third-party insurance or other credit
enhancements. Of this amount, $271 million principal amount
was at Consumers.
Presented in the following table are CMS Energy’s and
Consumers’ investment securities:
| 2010 | 2009 | |||||||||||||||||||||||||||||||
|
Unrealized
|
Unrealized
|
Fair
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||||||||||||||||
|
December 31
|
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | ||||||||||||||||||||||||
| In Millions | ||||||||||||||||||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||||||||||||||||||
|
Available for sale:
|
||||||||||||||||||||||||||||||||
|
SERP:
|
||||||||||||||||||||||||||||||||
|
Mutual fund
|
$ | 62 | $ | — | $ | — | $ | 62 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
|
State and municipal bonds
|
28 | — | — | 28 | 26 | 1 | — | 27 | ||||||||||||||||||||||||
|
Held to maturity:
|
||||||||||||||||||||||||||||||||
|
Debt securities
|
5 | 1 | — | 6 | 4 | — | — | 4 | ||||||||||||||||||||||||
|
Consumers
|
||||||||||||||||||||||||||||||||
|
Available for sale:
|
||||||||||||||||||||||||||||||||
|
SERP:
|
||||||||||||||||||||||||||||||||
|
Mutual fund
|
$ | 39 | $ | — | $ | — | $ | 39 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
|
State and municipal bonds
|
17 | — | — | 17 | 16 | — | — | 16 | ||||||||||||||||||||||||
|
CMS Energy common stock
|
8 | 26 | — | 34 | 8 | 21 | — | 29 | ||||||||||||||||||||||||
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The mutual fund classified as available for sale is a
short-term, fixed-income fund. Shares in this fund were acquired
during the year ended December 31, 2010. State and
municipal bonds classified as available for sale consist of
investment grade state and municipal bonds. Debt securities
classified as held to maturity consist primarily of
mortgage-backed securities held by EnerBank, as well as state
and municipal bonds held by EnerBank.
Presented in the following table is the sales activity for CMS
Energy’s and Consumers’ investment securities:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers:
|
||||||||||||
|
Proceeds from sales of investment securities
|
$ | 1 | $ | 53 | $ | 2 | ||||||
|
Realized gains
|
— | 8 | — | |||||||||
|
Net gains from AOCI recognized in net income
|
— | 5 | — | |||||||||
|
Consumers:
|
||||||||||||
|
Proceeds from sales of investment securities
|
$ | — | $ | 32 | $ | 2 | ||||||
|
Realized gains
|
— | 5 | — | |||||||||
|
Net gains from AOCI recognized in net income
|
— | 3 | — | |||||||||
The amounts for all periods represent sales of SERP securities
classified as available for sale. The activity during 2009
related primarily to the sale of a SERP investment in a mutual
fund, while the remainder of the activity for all three years
related to sales of state and municipal bonds held within the
SERP.
During 2008, the fair value of CMS Energy’s SERP investment
in a mutual fund declined from $63 million to
$39 million. These amounts include the decline in fair
value of Consumers’ SERP investment in the mutual fund from
$41 million to $25 million. CMS Energy and Consumers
determined that these declines in fair value were other than
temporary. Accordingly, CMS Energy recognized net unrealized
losses of $24 million ($15 million net of tax) in
Other expense on its Consolidated Statements of Income.
Consumers recognized net unrealized losses of $16 million
($10 million net of tax) in Other expense on its
Consolidated Statements of Income. These losses had been
recorded in AOCI, in accordance with applicable accounting
standards, before they were determined to be other than
temporary.
Presented in the following table are the fair values of the SERP
state and municipal bonds by contractual maturity at
December 31, 2010:
|
CMS Energy,
|
||||||||
|
including
|
||||||||
| Consumers | Consumers | |||||||
| In Millions | ||||||||
|
Due one year or less
|
$ | 1 | $ | — | ||||
|
Due after one year through five years
|
12 | 7 | ||||||
|
Due after five years through ten years
|
9 | 6 | ||||||
|
Due after ten years
|
6 | 4 | ||||||
|
Total
|
$ | 28 | $ | 17 | ||||
| 10: | DERIVATIVE INSTRUMENTS |
In order to limit exposure to certain market risks, primarily
changes in commodity prices, interest rates, and foreign
exchange rates, CMS Energy and Consumers may enter into various
risk management contracts, such as forward contracts, futures,
options, and swaps. In entering into these contracts, they
follow established policies and procedures under the direction
of an executive oversight committee consisting of senior
management
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
representatives and a risk committee consisting of business unit
managers. Neither CMS Energy nor Consumers enters into any
derivatives for trading purposes.
The contracts used to manage market risks may qualify as
derivative instruments. If a contract is a derivative and does
not qualify for the normal purchases and sales exception, the
contract is recorded on the balance sheet at its fair value.
Each reporting period, the resulting asset or liability is
adjusted to reflect any change in the fair value of the
contract. Since none of CMS Energy’s or Consumers’
derivatives have been designated as accounting hedges, all
changes in fair value are reported in earnings.
For a discussion of how CMS Energy and Consumers determine the
fair value of their derivatives, see Note 4, Fair Value
Measurements.
Commodity Price Risk:
In order to support ongoing
operations, CMS Energy and Consumers enter into contracts for
the future purchase and sale of various commodities, such as
electricity, natural gas, and coal. These forward contracts are
generally long-term in nature and result in physical delivery of
the commodity at a contracted price. Most of these contracts are
not subject to derivative accounting because:
| • | they do not have a notional amount (that is, a number of units specified in a derivative instrument, such as MWh of electricity or bcf of natural gas); | |
| • | they qualify for the normal purchases and sales exception; or | |
| • | there is not an active market for the commodity. |
CMS Energy’s and Consumers’ coal purchase contracts
are not derivatives because there is not an active market for
the coal they purchase. If an active market for coal develops in
the future, some of these contracts may qualify as derivatives.
For Consumers, which is subject to regulatory accounting, the
resulting fair value gains and losses would be offset by changes
in regulatory assets and liabilities and would not affect net
income. No other subsidiaries of CMS Energy enter into coal
purchase contracts.
CMS ERM has not designated its contracts to purchase and sell
electricity and natural gas as normal purchases and sales and,
therefore, CMS Energy accounts for those contracts as
derivatives. To manage commodity price risks associated with
these forward purchase and sale contracts, CMS ERM uses various
financial instruments, such as futures, options, and swaps. At
December 31, 2010, CMS ERM held the following derivative
contracts:
| • | a forward contract for the physical sale of 675 GWh of electricity through 2015 on behalf of one of CMS Energy’s non-utility generating plants; | |
| • | futures contracts through 2011 as an economic hedge of 20 percent of the generating plant’s natural gas requirements needed to serve a steam sales contract, for a total of 0.2 bcf of natural gas; | |
| • | a forward contract for the physical sale of 50 GWh of electricity in January 2011; | |
| • | forward contracts to purchase 2.1 bcf and sell 2.1 bcf of natural gas through October 2011 in CMS ERM’s role as a marketer of natural gas for third-party producers; and | |
| • | an option to sell 612 GWh of electricity, and as an economic hedge, contracts to purchase 0.8 bcf of natural gas through 2011. |
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table are the fair values of CMS
Energy’s and Consumers’ derivative instruments:
| Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||
|
|
Fair Value at December 31 |
Balance Sheet
|
Fair Value at December 31 | |||||||||||||||||||||
| Location | 2010 | 2009 | Location | 2010 | 2009 | |||||||||||||||||||
| In Millions | ||||||||||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||||||||||
|
Derivatives not designated as hedging instruments:
|
||||||||||||||||||||||||
|
Commodity contracts(a)
|
Other assets | $ | 1 | $ | 1 | Other liabilities(b | ) | $ | 4 | $ | 9 | |||||||||||||
|
Interest rate contracts(c)
|
Other assets | — | — | Other liabilities | — | 1 | ||||||||||||||||||
|
Total CMS Energy
|
$ | 1 | $ | 1 | $ | 4 | $ | 10 | ||||||||||||||||
|
Consumers
|
||||||||||||||||||||||||
|
Derivatives not designated as hedging instruments:
|
||||||||||||||||||||||||
|
Commodity contracts
|
Other assets | $ | 1 | $ | — | Other liabilities | $ | — | $ | — | ||||||||||||||
| (a) | Assets and liabilities are presented gross and exclude the impact of offsetting derivative assets and liabilities under master netting agreements, which was less than $1 million at December 31, 2010 and was $1 million at December 31, 2009. | |
| (b) | Liabilities exclude the impact of offsetting cash margin deposits paid by CMS ERM to other parties, which was less than $1 million at December 31, 2010 and was $1 million at December 31, 2009. CMS Energy presents these liabilities net of these impacts on its Consolidated Balance Sheets. | |
| (c) | At December 31, 2009, CMS Energy’s derivatives included an interest rate collar held by Grayling as an economic hedge of the variable interest rate charged on its outstanding revenue bonds. Effective January 1, 2010, CMS Energy deconsolidated Grayling. CMS Energy reflected its share of the loss on the interest rate collar, which was less than $1 million at December 31, 2010, in Income (loss) from equity method investees on its Consolidated Statements of Income. For additional details about the deconsolidation of Grayling, see Note 18, Variable Interest Entities. |
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table is the effect of CMS
Energy’s and Consumers’ derivative instruments on
their Consolidated Statements of Income:
|
Amount of Gain (Loss)
|
||||||||||
|
Location of Gain (Loss)
|
on Derivatives
|
|||||||||
|
on Derivatives
|
Recognized in Income | |||||||||
|
Twelve Months Ended December 31
|
Recognized in Income | 2010 | 2009 | |||||||
| In Millions | ||||||||||
|
CMS Energy, including
Consumers
|
||||||||||
|
Derivatives not designated as hedging instruments:
|
||||||||||
|
Commodity contracts
|
Operating Revenue | $ | 4 | $ | 7 | |||||
| Fuel for electric generation | 4 | (3 | ) | |||||||
| Cost of gas sold | — | (2 | ) | |||||||
| Purchased and interchange power | 2 | — | ||||||||
| Other income | 4 | 9 | ||||||||
|
Interest rate contracts
|
Other expense | — | (1 | ) | ||||||
|
Foreign exchange contracts(a)
|
Other expense | — | (1 | ) | ||||||
|
Total CMS Energy
|
$ | 14 | $ | 9 | ||||||
|
Consumers
|
||||||||||
|
Derivatives not designated as hedging instruments:
|
||||||||||
|
Commodity contracts
|
Other income | $ | 4 | $ | 9 | |||||
| (a) | This derivative loss relates to a foreign-exchange forward contract that CMS Energy settled in January 2009. |
CMS Energy’s derivative liabilities subject to
credit-risk-related contingent features were $1 million at
December 31, 2010 and less than $1 million at
December 31, 2009.
Credit Risk:
CMS Energy’s swaps, options, and
forward contracts contain credit risk, which is the risk that a
counterparty will fail to meet its contractual obligations. CMS
Energy reduces this risk through established policies and
procedures. CMS Energy assesses credit quality by considering
credit ratings, financial condition, and other available
information for counterparties. A credit limit is established
for each counterparty based on the evaluation of its credit
quality. Exposure to potential loss under each contract is
monitored and action is taken when appropriate.
CMS ERM enters into contracts primarily with companies in the
electric and gas industry. This industry concentration may have
a positive or negative impact on CMS Energy’s exposure to
credit risk based on how similar changes in economic conditions,
the weather, or other conditions affect these counterparties.
CMS ERM reduces its credit risk exposure by using
industry-standard agreements that allow for netting positive and
negative exposures associated with the same counterparty.
Typically, these agreements also allow each party to demand
adequate assurance of future performance from the other party,
when there is reason to do so.
At December 31, 2010, if counterparties within this
industry concentration all failed to meet their contractual
obligations, the loss to CMS Energy on contracts accounted for
as derivatives would be less than $1 million.
CMS Energy does not expect a material adverse effect on its
Consolidated Balance Sheets and Consolidated Statements of
Income as a result of counterparty nonperformance, given CMS
Energy’s credit policies, current exposures, and credit
reserves.
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| 11: | RETIREMENT BENEFITS |
CMS Energy and Consumers provide pension, OPEB, and other
retirement benefits to employees under a number of different
plans. These plans include:
| • | a non-contributory, qualified defined benefit Pension Plan (closed to new non-union participants as of July 1, 2003 and closed to new union participants as of September 1, 2005); | |
| • | a qualified cash balance Pension Plan for certain employees hired between July 1, 2003 and August 31, 2005; | |
| • | a non-contributory, qualified DCCP for employees hired on or after September 1, 2005; | |
| • | benefits to certain management employees under a non-contributory, nonqualified defined benefit SERP (closed to new participants as of March 31, 2006); | |
| • | a non-contributory, nonqualified DC SERP for certain management employees hired or promoted on or after April 1, 2006; | |
| • | health care and life insurance benefits under an OPEB plan; | |
| • | benefits to a selected group of management under a non-contributory, nonqualified EISP; and | |
| • | a contributory, qualified defined contribution 401(k) plan. |
Pension Plan:
Participants in the Pension Plan
include CMS Energy’s and Consumers’ present employees,
employees of their subsidiaries, and employees of Panhandle, a
former CMS Energy subsidiary. Pension Plan trust assets are not
distinguishable by company.
CMS Energy and Consumers provide an employer contribution of
five percent of base pay to the DCCP 401(k) plan for employees
hired on or after September 1, 2005. On January 1,
2011, the employer contribution was increased to six percent.
Employees are not required to contribute in order to receive the
plan’s employer contribution.
Participants in the cash balance Pension Plan, effective
July 1, 2003 to September 1, 2005, also participate in
the DCCP as of September 1, 2005. Additional pay credits
under the cash balance Pension Plan were discontinued as of
September 1, 2005. DCCP expense for CMS Energy and
Consumers was $5 million for the year ended
December 31, 2010, $4 million for the year ended
December 31, 2009, and $3 million for the year ended
December 31, 2008.
SERP:
The SERP is a non-qualified plan as defined by
the Internal Revenue Code. SERP benefits are paid from a trust
established in 1988. SERP trust earnings are taxable. Presented
in the following table are the funded status and fair value of
trust assets for CMS Energy’s and Consumers’ SERP:
|
Years Ended December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
CMS Energy, including
Consumers
|
||||||||
|
Trust assets(a)
|
$ | 91 | $ | 77 | ||||
|
ABO
|
107 | 93 | ||||||
|
Contributions
|
17 | 2 | ||||||
|
Consumers
|
||||||||
|
Trust assets(a)
|
$ | 57 | $ | 50 | ||||
|
ABO
|
66 | 54 | ||||||
|
Contributions
|
11 | 1 | ||||||
| (a) | Trust assets are included in Other non-current assets on CMS Energy’s and Consumers’ Consolidated Balance Sheets. |
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On April 1, 2006, CMS Energy and Consumers implemented a DC
SERP and froze further new participation in the SERP. The DC
SERP provides participants benefits ranging from 5 percent
to 15 percent of total compensation. The DC SERP requires a
minimum of five years of participation before vesting. CMS
Energy’s and Consumers’ contributions to the plan, if
any, are placed in a grantor trust. For CMS Energy and
Consumers, trust assets were less than $1 million at
December 31, 2010 and December 31, 2009. DC SERP
assets are included in Other non-current assets on CMS
Energy’s and Consumers’ Consolidated Balance Sheets.
CMS Energy’s and Consumers’ DC SERP expense was less
than $1 million for each of the years ended
December 31, 2010, 2009, and 2008.
401(k):
The 401(k) plan employer match equals
60 percent of eligible contributions up to the first six
percent of an employee’s wages. The total 401(k) plan cost
for CMS Energy, including Consumers, was $16 million for
each of the years ended December 31, 2010, 2009, and 2008.
The total 401(k) plan cost for Consumers was $15 million
for each of the years ended December 31, 2010, 2009, and
2008.
EISP:
In 2002, CMS Energy and Consumers implemented
a nonqualified EISP to provide flexibility in separation of
employment by officers, a selected group of management, or other
highly compensated employees. Terms of the plan include payment
of a lump sum, payment of monthly benefits for life, payment of
premiums for continuation of health care, or any other legally
permissible term deemed to be in CMS Energy’s and
Consumers’ best interest. EISP expense for CMS Energy and
Consumers was less than $1 million for each of the years
ended December 31, 2010, 2009, and 2008. The ABO for the
EISP for CMS Energy, including Consumers, was $5 million at
December 31, 2010 and $4 million at December 31,
2009. The ABO for the EISP for Consumers was $1 million at
December 31, 2010 and 2009.
OPEB:
Participants in the OPEB plan include all
regular full-time employees covered by the employee health care
plan on the day before retirement from either CMS Energy or
Consumers at age 55 or older with at least ten full years
of applicable continuous service. Regular full-time employees
who qualify for Pension Plan disability retirement and have
15 years of applicable continuous service may also
participate in the OPEB plan. Retiree health care costs were
based on the assumption that costs would increase
8.0 percent in 2011 for all retirees. In 2010, the
assumption was 8.5 percent for those under 65 and
8.0 percent for those over 65. The rate of increase was
assumed to decline to five percent for all retirees by 2017 and
thereafter.
The assumptions used in the health care cost-trend rate affect
service, interest, and PBO costs. Presented in the following
table are the effects of a one-percentage-point change in the
health care cost-trend assumption:
|
One Percentage
|
One Percentage
|
|||||||
| Point Increase | Point Decrease | |||||||
| In Millions | ||||||||
|
CMS Energy, including
Consumers
|
||||||||
|
Effect on total service and interest cost component
|
$ | 19 | $ | (16 | ) | |||
|
Effect on PBO
|
$ | 201 | $ | (175 | ) | |||
|
Consumers
|
||||||||
|
Effect on total service and interest cost component
|
$ | 18 | $ | (15 | ) | |||
|
Effect on PBO
|
$ | 196 | $ | (170 | ) | |||
In 1992, Consumers recorded a liability of $466 million for
the accumulated transition obligation and a corresponding
regulatory asset for anticipated recovery in utility rates. The
MPSC authorized recovery of the electric utility portion of
these costs in 1994 over 18 years and the gas utility
portion in 1996 over 16 years.
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Assumptions:
Presented in the following tables are
the weighted-average assumptions used in CMS Energy’s and
Consumers’ retirement benefits plans to determine benefit
obligations and net periodic benefit cost:
Weighted
Average for Benefit Obligations:
| Pension and SERP | OPEB | |||||||||||||||||||||||
|
Years Ended December 31
|
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||||||||||
|
Discount rate(a)
|
5.40 | % | 5.85 | % | 6.50 | % | 5.60 | % | 6.00 | % | 6.50 | % | ||||||||||||
|
Expected long-term rate of return on plan assets(b)
|
8.00 | % | 8.00 | % | 8.25 | % | 7.50 | % | 7.50 | % | 7.75 | % | ||||||||||||
|
Mortality table(c)
|
2000 | 2000 | 2000 | 2000 | 2000 | 2000 | ||||||||||||||||||
|
Rate of compensation increase:
|
||||||||||||||||||||||||
|
Pension
|
4.00 | % | 4.00 | % | 4.00 | % | ||||||||||||||||||
|
SERP
|
5.50 | % | 5.50 | % | 5.50 | % | ||||||||||||||||||
Weighted
Average for Net Periodic Benefit Cost:
| Pension and SERP | OPEB | |||||||||||||||||||||||
|
Years Ended December 31
|
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||||||||||
|
Discount rate(a)
|
5.85 | % | 6.50 | % | 6.40 | % | 6.00 | % | 6.50 | % | 6.50 | % | ||||||||||||
|
Expected long-term rate of return on plan assets(b)
|
8.00 | % | 8.25 | % | 8.25 | % | 7.50 | % | 7.75 | % | 7.75 | % | ||||||||||||
|
Mortality table(c)
|
2000 | 2000 | 2000 | 2000 | 2000 | 2000 | ||||||||||||||||||
|
Rate of compensation increase:
|
||||||||||||||||||||||||
|
Pension
|
4.00 | % | 4.00 | % | 4.00 | % | ||||||||||||||||||
|
SERP
|
5.50 | % | 5.50 | % | 5.50 | % | ||||||||||||||||||
| (a) | The discount rate reflects the rate at which benefits could be effectively settled and is equal to the equivalent single rate resulting from a yield curve analysis. This analysis incorporated the projected benefit payments specific to CMS Energy’s and Consumers’ Pension Plan and OPEB plan and the yields on high quality corporate bonds rated Aa or better. | |
| (b) | CMS Energy and Consumers determined the long-term rate of return using historical market returns, the present and expected future economic environment, the capital market principles of risk and return, and the expert opinions of individuals and firms with financial market knowledge. CMS Energy and Consumers considered the asset allocation of the portfolio in forecasting the future expected total return of the portfolio. The goal was to determine a long-term rate of return that could be incorporated into the planning of future cash flow requirements in conjunction with the change in the liability. Annually, CMS Energy and Consumers review for reasonableness and appropriateness the forecasted returns for various classes of assets used to construct an expected return model. CMS Energy’s and Consumers’ expected long-term rate of return on Pension Plan assets was eight percent in 2010. In 2010, the actual return on Pension Plan assets was 13 percent, in 2009 the actual return was 21 percent, and in 2008 the actual return was a negative 23 percent. | |
| (c) | The mortality assumption was based on the RP-2000 mortality tables with projection of future mortality improvements using Scale AA, which aligned with the IRS prescriptions for cash funding valuations under the Pension Protection Act of 2006. |
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Costs:
Presented in the following tables are the
costs and other changes in plan assets and benefit obligations
incurred in CMS Energy’s and Consumers’ retirement
benefits plans:
| Pension and SERP | ||||||||||||
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Net periodic pension cost
|
||||||||||||
|
Service cost
|
$ | 45 | $ | 41 | $ | 43 | ||||||
|
Interest expense
|
104 | 102 | 101 | |||||||||
|
Expected return on plan assets
|
(92 | ) | (86 | ) | (81 | ) | ||||||
|
Amortization of:
|
||||||||||||
|
Net loss
|
52 | 41 | 41 | |||||||||
|
Prior service cost
|
5 | 6 | 6 | |||||||||
|
Net periodic pension cost
|
$ | 114 | $ | 104 | $ | 110 | ||||||
|
Regulatory adjustment(a)
|
30 | — | 4 | |||||||||
|
Net periodic pension cost after regulatory adjustment
|
$ | 144 | $ | 104 | $ | 114 | ||||||
|
Consumers
|
||||||||||||
|
Net periodic pension cost
|
||||||||||||
|
Service cost
|
$ | 44 | $ | 40 | $ | 41 | ||||||
|
Interest expense
|
99 | 97 | 96 | |||||||||
|
Expected return on plan assets
|
(89 | ) | (83 | ) | (78 | ) | ||||||
|
Amortization of:
|
||||||||||||
|
Net loss
|
50 | 40 | 40 | |||||||||
|
Prior service cost
|
5 | 5 | 6 | |||||||||
|
Net periodic pension cost
|
$ | 109 | $ | 99 | $ | 105 | ||||||
|
Regulatory adjustment(a)
|
30 | — | 4 | |||||||||
|
Net periodic pension cost after regulatory adjustment
|
$ | 139 | $ | 99 | $ | 109 | ||||||
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| OPEB | ||||||||||||
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Net periodic OPEB cost
|
||||||||||||
|
Service cost
|
$ | 26 | $ | 24 | $ | 22 | ||||||
|
Interest expense
|
80 | 80 | 72 | |||||||||
|
Expected return on plan assets
|
(60 | ) | (50 | ) | (66 | ) | ||||||
|
Amortization of:
|
||||||||||||
|
Net loss
|
32 | 33 | 9 | |||||||||
|
Prior service credit
|
(17 | ) | (10 | ) | (10 | ) | ||||||
|
Net periodic OPEB cost
|
$ | 61 | $ | 77 | $ | 27 | ||||||
|
Regulatory adjustment(a)
|
5 | — | 3 | |||||||||
|
Net periodic OPEB cost after regulatory adjustment
|
$ | 66 | $ | 77 | $ | 30 | ||||||
|
Consumers
|
||||||||||||
|
Net periodic OPEB cost
|
||||||||||||
|
Service cost
|
$ | 25 | $ | 24 | $ | 21 | ||||||
|
Interest expense
|
77 | 77 | 69 | |||||||||
|
Expected return on plan assets
|
(56 | ) | (46 | ) | (61 | ) | ||||||
|
Amortization of:
|
||||||||||||
|
Net loss
|
33 | 33 | 10 | |||||||||
|
Prior service credit
|
(16 | ) | (10 | ) | (10 | ) | ||||||
|
Net periodic OPEB cost
|
$ | 63 | $ | 78 | $ | 29 | ||||||
|
Regulatory adjustment(a)
|
5 | — | 3 | |||||||||
|
Net periodic OPEB cost after regulatory adjustment
|
$ | 68 | $ | 78 | $ | 32 | ||||||
| (a) | Regulatory adjustments are the differences between amounts included in rates and the periodic benefit cost calculated. These regulatory adjustments were offset by surcharge revenues, which resulted in no impact to net income for the years presented. The pension and OPEB regulatory liability was less than $1 million at December 31, 2010. The pension and OPEB regulatory asset was $34 million at December 31, 2009. |
The estimated net loss and prior service cost for the defined
benefit Pension Plans that will be amortized into net periodic
benefit cost in 2011 for CMS Energy from the regulatory asset is
$66 million and from AOCI is $2 million. The estimated
net loss and prior service cost for the defined benefit Pension
Plans that will be amortized into net periodic benefit cost in
2011 for Consumers from the regulatory asset is
$66 million. The estimated net loss and prior service
credit for OPEB plans that will be amortized into net periodic
benefit cost in 2011 for CMS Energy from the regulatory asset is
$21 million, with a decrease from AOCI of $1 million.
The estimated net loss and prior service credit for OPEB plans
that will be amortized into net periodic benefit cost in 2011
for Consumers from the regulatory asset is $21 million.
CMS Energy and Consumers amortize net gains and losses in excess
of ten percent of the greater of the PBO or the MRV over the
average remaining service period. The estimated time of
amortization of gains and losses for CMS Energy and Consumers
was 12 years for pension and 14 years for OPEB for
each of the years ended December 31, 2010, 2009, and 2008.
Prior service cost amortization is established in the year in
which the prior service cost first
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occurred, and is based on the same amortization period for all
future years until the prior service costs are fully amortized.
The estimated time of amortization of new prior service costs
for CMS Energy and Consumers was 12 years for pension and
ten years for OPEB for each of the years ended December 31,
2010, 2009, and 2008.
Reconciliations:
Presented in the following tables
are reconciliations of the funded status of CMS Energy’s
and Consumers’ retirement benefits plans with their
retirement benefits plans’ liabilities:
| Pension Plan | ||||||||
|
Years Ended December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
Benefit obligation at beginning of period
|
$ | 1,717 | $ | 1,524 | ||||
|
Service cost
|
44 | 40 | ||||||
|
Interest cost
|
98 | 96 | ||||||
|
Actuarial loss
|
150 | 145 | ||||||
|
Benefits paid
|
(113 | ) | (88 | ) | ||||
|
Benefit obligation at end of period(a)
|
$ | 1,896 | $ | 1,717 | ||||
|
Plan assets at fair value at beginning of period
|
$ | 1,007 | $ | 724 | ||||
|
Actual return on plan assets
|
132 | 165 | ||||||
|
Company contribution
|
375 | 206 | ||||||
|
Actual benefits paid(b)
|
(113 | ) | (88 | ) | ||||
|
Plan assets at fair value at end of period
|
$ | 1,401 | $ | 1,007 | ||||
|
Funded status at December 31(c)(d)
|
$ | (495 | ) | $ | (710 | ) | ||
| SERP | OPEB | |||||||||||||||
|
Years Ended December 31
|
2010 | 2009 | 2010 | 2009 | ||||||||||||
| In Millions | ||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||
|
Benefit obligation at beginning of period
|
$ | 106 | $ | 95 | $ | 1,423 | $ | 1,266 | ||||||||
|
Service cost
|
1 | 1 | 26 | 24 | ||||||||||||
|
Interest cost
|
6 | 6 | 80 | 80 | ||||||||||||
|
Plan amendments(e)
|
— | — | (101 | ) | — | |||||||||||
|
Actuarial loss
|
11 | 9 | 36 | 106 | ||||||||||||
|
Benefits paid
|
(6 | ) | (5 | ) | (54 | ) | (53 | ) | ||||||||
|
Benefit obligation at end of period(a)
|
$ | 118 | $ | 106 | $ | 1,410 | $ | 1,423 | ||||||||
|
Plan assets at fair value at beginning of period
|
$ | — | $ | — | $ | 782 | $ | 662 | ||||||||
|
Actual return on plan assets
|
— | — | 88 | 117 | ||||||||||||
|
Company contribution
|
6 | 5 | 71 | 56 | ||||||||||||
|
Actual benefits paid(b)
|
(6 | ) | (5 | ) | (54 | ) | (53 | ) | ||||||||
|
Plan assets at fair value at end of period
|
$ | — | $ | — | $ | 887 | $ | 782 | ||||||||
|
Funded status at December 31(c)
|
$ | (118 | ) | $ | (106 | ) | $ | (523 | ) | $ | (641 | ) | ||||
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| SERP | OPEB | |||||||||||||||
|
Years Ended December 31
|
2010 | 2009 | 2010 | 2009 | ||||||||||||
| In Millions | ||||||||||||||||
|
Consumers
|
||||||||||||||||
|
Benefit obligation at beginning of period
|
$ | 67 | $ | 62 | $ | 1,373 | $ | 1,219 | ||||||||
|
Service cost
|
1 | 1 | 25 | 24 | ||||||||||||
|
Interest cost
|
4 | 4 | 77 | 77 | ||||||||||||
|
Plan amendments(e)
|
— | — | (100 | ) | — | |||||||||||
|
Actuarial loss
|
8 | 6 | 34 | 104 | ||||||||||||
|
Transfer
|
— | (4 | ) | — | — | |||||||||||
|
Benefits paid
|
(3 | ) | (2 | ) | (51 | ) | (51 | ) | ||||||||
|
Benefit obligation at end of period(a)
|
$ | 77 | $ | 67 | $ | 1,358 | $ | 1,373 | ||||||||
|
Plan assets at fair value at beginning of period
|
$ | — | $ | — | $ | 725 | $ | 612 | ||||||||
|
Actual return on plan assets
|
— | — | 81 | 108 | ||||||||||||
|
Company contribution
|
3 | 2 | 70 | 55 | ||||||||||||
|
Actual benefits paid(b)
|
(3 | ) | (2 | ) | (51 | ) | (50 | ) | ||||||||
|
Plan assets at fair value at end of period
|
$ | — | $ | — | $ | 825 | $ | 725 | ||||||||
|
Funded status at December 31(c)
|
$ | (77 | ) | $ | (67 | ) | $ | (533 | ) | $ | (648 | ) | ||||
| (a) | The Medicare Prescription Drug, Improvement and Modernization Act of 2003 established a prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy, which is tax-exempt, to sponsors of retiree health care benefit plans that provide a benefit that is actuarially equivalent to Medicare Part D. In 2010, the Health Care Acts repealed these tax-exempt deductions for years beginning after December 31, 2012. The Medicare Part D annualized reduction in net OPEB cost for CMS Energy was $28 million for 2010, $19 million for 2009, and $25 million for 2008. Consumers’ Medicare Part D annualized reduction in net OPEB costs was $26 million for 2010, $18 million for 2009, and $24 million for 2008. The reduction for CMS Energy and Consumers includes $10 million for 2010, $6 million for 2009, and $7 million for 2008 in capitalized OPEB costs. | |
| (b) | CMS Energy received payments of $5 million in 2010, $4 million in 2009, and $6 million in 2008 for the Medicare Part D subsidies. Consumers received payments of $5 million in 2010, $4 million in 2009, and $5 million in 2008 for the Medicare Part D subsidies. | |
| (c) | At December 31, 2010, CMS Energy classified $7 million as current liabilities and $1.1 billion as non-current liabilities on its Consolidated Balance Sheets. At December 31, 2009, CMS Energy classified $6 million as current liabilities and $1.5 billion as non-current liabilities on its Consolidated Balance Sheets. |
At December 31, 2010, Consumers classified $4 million
as current liabilities and $1.1 billion as non-current
liabilities on its Consolidated Balance Sheets. At
December 31, 2009, Consumers classified $3 million as
current liabilities and $1.4 billion as non-current
liabilities on its Consolidated Balance Sheets.
| (d) | At December 31, 2010, $463 million of the total funded status of the Pension Plan was attributable to Consumers based on an allocation of expenses. At December 31, 2009, $675 million of the funded status of the Pension Plan was attributable to Consumers based on an allocation of expenses. | |
| (e) | Plan amendments reflect changes resulting from an agreement reached with the Union in April 2010 on a new five-year contract for Union members. |
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Presented in the following table are the Pension Plan PBO, ABO,
and fair value of plan assets:
|
Years Ended December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
CMS Energy, including
Consumers
|
||||||||
|
Pension PBO
|
$ | 1,896 | $ | 1,717 | ||||
|
Pension ABO
|
1,517 | 1,393 | ||||||
|
Fair value of Pension Plan assets
|
1,401 | 1,007 | ||||||
Items Not Yet Recognized as a Component of Net Periodic
Benefit Cost:
Presented in the following table are the
amounts recognized in regulatory assets and AOCI that have not
been recognized as components of net periodic benefit cost. For
additional details on regulatory assets, see Note 6,
Regulatory Matters.
|
Pension and
|
||||||||||||||||
| SERP | OPEB | |||||||||||||||
|
Years Ended December 31
|
2010 | 2009 | 2010 | 2009 | ||||||||||||
| In Millions | ||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||
|
Regulatory assets
|
||||||||||||||||
|
Net loss
|
$ | 914 | $ | 860 | $ | 579 | $ | 604 | ||||||||
|
Prior service cost (credit)
|
23 | 27 | (152 | ) | (68 | ) | ||||||||||
|
AOCI
|
||||||||||||||||
|
Net loss (gain)
|
72 | 58 | (9 | ) | (11 | ) | ||||||||||
|
Prior service cost (credit)
|
2 | 3 | (4 | ) | (3 | ) | ||||||||||
|
Total amounts recognized in regulatory assets and AOCI
|
$ | 1,011 | $ | 948 | $ | 414 | $ | 522 | ||||||||
|
Consumers
|
||||||||||||||||
|
Regulatory assets
|
||||||||||||||||
|
Net loss
|
$ | 914 | $ | 860 | $ | 579 | $ | 604 | ||||||||
|
Prior service cost (credit)
|
23 | 27 | (152 | ) | (68 | ) | ||||||||||
|
AOCI
|
||||||||||||||||
|
Net loss
|
22 | 14 | — | — | ||||||||||||
|
Prior service cost
|
1 | 1 | — | — | ||||||||||||
|
Total amounts recognized in regulatory assets and AOCI
|
$ | 960 | $ | 902 | $ | 427 | $ | 536 | ||||||||
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Plan Assets:
Presented in the following tables are
the fair values of CMS Energy’s and Consumers’ Pension
Plan and OPEB plan assets at December 31, 2010 and 2009, by
asset category and by level within the fair value hierarchy. For
additional details regarding the fair value hierarchy, see
Note 4, Fair Value Measurements.
| Pension Plan | ||||||||||||
|
Year Ended December 31, 2010
|
Total | Level 1 | Level 2 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Asset Category:
|
||||||||||||
|
Cash and short-term investments(a)
|
$ | 248 | $ | 248 | $ | — | ||||||
|
U.S. government and agencies securities(b)
|
57 | — | 57 | |||||||||
|
Corporate debt(c)
|
161 | — | 161 | |||||||||
|
State and municipal bonds(e)
|
8 | — | 8 | |||||||||
|
Foreign corporate debt(f)
|
17 | — | 17 | |||||||||
|
Mutual funds(h)
|
183 | 183 | — | |||||||||
|
Pooled funds(i)
|
727 | — | 727 | |||||||||
|
Total
|
$ | 1,401 | $ | 431 | $ | 970 | ||||||
| Pension Plan | ||||||||||||
|
Year Ended December 31, 2009
|
Total | Level 1 | Level 2 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Asset Category:
|
||||||||||||
|
Cash and short-term investments(a)
|
$ | 65 | $ | 65 | $ | — | ||||||
|
U.S. government and agencies securities(b)
|
40 | — | 40 | |||||||||
|
Corporate debt(c)
|
145 | — | 145 | |||||||||
|
State and municipal bonds(e)
|
4 | — | 4 | |||||||||
|
Foreign corporate debt(f)
|
17 | — | 17 | |||||||||
|
Mutual funds(h)
|
117 | 117 | — | |||||||||
|
Pooled funds(i)
|
619 | — | 619 | |||||||||
|
Total
|
$ | 1,007 | $ | 182 | $ | 825 | ||||||
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| OPEB Plan | ||||||||||||
|
Year Ended December 31, 2010
|
Total | Level 1 | Level 2 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Asset Category:
|
||||||||||||
|
Cash and short-term investments(a)
|
$ | 56 | $ | 56 | $ | — | ||||||
|
U.S. government and agencies securities(b)
|
181 | — | 181 | |||||||||
|
Corporate debt(d)
|
20 | — | 20 | |||||||||
|
State and municipal bonds(e)
|
36 | — | 36 | |||||||||
|
Foreign corporate debt(f)
|
2 | — | 2 | |||||||||
|
Common stocks(g)
|
154 | 154 | — | |||||||||
|
Mutual funds(h)
|
23 | 23 | — | |||||||||
|
Pooled funds(j)
|
415 | — | 415 | |||||||||
|
Total
|
$ | 887 | $ | 233 | $ | 654 | ||||||
| OPEB Plan | ||||||||||||
|
Year Ended December 31, 2009
|
Total | Level 1 | Level 2 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Asset Category:
|
||||||||||||
|
Cash and short-term investments(a)
|
$ | 29 | $ | 29 | $ | — | ||||||
|
U.S. government and agencies securities(b)
|
157 | — | 157 | |||||||||
|
Corporate debt(d)
|
21 | — | 21 | |||||||||
|
State and municipal bonds(e)
|
51 | — | 51 | |||||||||
|
Foreign corporate debt(f)
|
2 | — | 2 | |||||||||
|
Common stocks(g)
|
134 | 134 | — | |||||||||
|
Mutual funds(h)
|
17 | 17 | — | |||||||||
|
Pooled funds(j)
|
371 | — | 371 | |||||||||
|
Total
|
$ | 782 | $ | 180 | $ | 602 | ||||||
| (a) | Cash and short-term investments consist of money market funds with daily liquidity. | |
| (b) | U.S. government and agencies securities consist of U.S. Treasury notes and other debt securities backed by the U.S. government and related agencies. These securities were valued based on quoted market prices. | |
| (c) | At December 31, 2010, corporate debt investments in the Pension Plan included investment grade bonds (61 percent) and non-investment grade, high-yield bonds (39 percent) of U.S. issuers from diverse industries. At December 31, 2009, corporate debt investments in the Pension Plan included investment grade bonds (63 percent) and non-investment grade, high-yield bonds (37 percent) of U.S. issuers from diverse industries. These securities are valued based on quoted market prices, when available, or yields presently available on comparable securities of issuers with similar credit ratings. | |
| (d) | At December 31, 2010, corporate debt investments in the OPEB plan included investment grade bonds (61 percent) and non-investment grade, high-yield bonds (39 percent) of U.S. issuers from diverse industries. At December 31, 2009, corporate debt investments in the OPEB plan included investment grade bonds (62 percent) and non-investment grade, high-yield bonds (38 percent) of U.S. issuers from diverse industries. |
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| These securities are valued based on quoted market prices, when available, or yields presently available on comparable securities of issuers with similar credit ratings. | ||
| (e) | State and municipal bonds were valued using a matrix-pricing model that incorporates Level 2 market-based information. The fair value of the bonds was derived from various observable inputs, including benchmark yields, reported securities trades, broker/dealer quotes, bond ratings, and general information on market movements for investment grade state and municipal securities normally considered by market participants when pricing such debt securities. | |
| (f) | Foreign corporate debt securities were valued based on quoted market prices, when available, or on yields available on comparable securities of issuers with similar credit ratings. | |
| (g) | Common stocks in the OPEB plan consist of equity securities with low transaction costs that were actively managed and tracked by the S&P 500 Index. These securities were valued at their quoted closing prices. | |
| (h) | Mutual funds represent shares in registered investment companies that are priced based on the quoted NAV that is the basis for transactions to buy or sell shares in the funds. | |
| (i) | Pooled funds in the Pension Plan include both common and collective trust funds as well as special funds that contain only employee benefit plan assets from two or more unrelated benefit plans. At December 31, 2010, these funds included investments in U.S. equity securities (55 percent), foreign equity securities (24 percent), foreign fixed-income securities (14 percent), U.S. fixed-income securities (four percent), and alternative investments (three percent). At December 31, 2009, these funds included investments in U.S. equity securities (56 percent), foreign equity securities (22 percent), foreign fixed-income securities (16 percent), U.S. fixed-income securities (three percent), and alternative investments (three percent). These investments were valued at the quoted NAV provided by the fund managers that is the basis for transactions to buy or sell shares in the funds. | |
| (j) | Pooled funds in the OPEB plan include both common and collective trust funds as well as special funds that contain only employee benefit plan assets from two or more unrelated benefit plans. At December 31, 2010, these funds included investments in U.S. equity securities (89 percent), foreign equity securities (six percent), foreign fixed-income securities (three percent), U.S. fixed-income securities (one percent), and alternative investments (one percent). At December 31, 2009, these funds included investments in U.S. equity securities (89 percent), foreign equity securities (five percent), foreign fixed-income securities (four percent), U.S. fixed-income securities (one percent), and alternative investments (one percent). These investments are valued at the quoted NAV provided by the fund managers that is the basis for transactions to buy or sell shares in the funds. |
The fair value of Pension Plan and OPEB plan assets classified
as Level 3 at December 31, 2010 and 2009 was less than
$1 million.
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table are the contributions to CMS
Energy’s and Consumers’ OPEB plan and Pension Plan:
|
Years Ended December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
CMS Energy, including
Consumers
|
||||||||
|
OPEB:
(a)
|
||||||||
|
VEBA trust
|
$ | 57 | $ | 40 | ||||
|
401(h) component
|
14 | 16 | ||||||
| $ | 71 | $ | 56 | |||||
|
Pension(b)
|
$ | 375 | $ | 206 | ||||
|
Consumers
|
||||||||
|
OPEB:
(a)
|
||||||||
|
VEBA trust
|
$ | 57 | $ | 39 | ||||
|
401(h) component
|
13 | 16 | ||||||
| $ | 70 | $ | 55 | |||||
|
Pension(b)
|
$ | 366 | $ | 199 | ||||
| (a) | CMS Energy, including Consumers, plans to contribute $65 million to the OPEB plan in 2011 and Consumers plans to contribute $64 million to the OPEB plan in 2011. | |
| (b) | CMS Energy, including Consumers, does not plan to contribute to the Pension Plan in 2011. |
Contributions include required and discretionary amounts. Actual
future contributions will depend on future investment
performance, changes in discount rates, and various factors
related to the populations participating in the plans.
In 2008, CMS Energy adjusted its target asset allocation for
Pension Plan assets to 50 percent equity, 30 percent
fixed income, and 20 percent alternative-strategy
investments. This adjustment is being made gradually by the
allocation of contributions into alternative assets and the
drawdown of equities to cover plan benefit payments and
distributions. This revised target asset allocation is expected
to continue to maximize the long-term return on plan assets,
while maintaining a prudent level of risk. The level of
acceptable risk is a function of the liabilities of the plan.
Equity investments are diversified mostly across the S&P
500 Index, with lesser allocations to the S&P MidCap and
SmallCap Indexes and Foreign Equity Funds. Fixed-income
investments are diversified across investment grade instruments
of government and corporate issuers as well as high-yield and
global bond funds. Alternative strategies are diversified across
absolute return investment approaches and global tactical asset
allocation. CMS Energy and Consumers use annual liability
measurements, quarterly portfolio reviews, and periodic
asset/liability studies to evaluate the need for adjustments to
the portfolio allocation.
CMS Energy and Consumers established union and non-union VEBA
trusts to fund their future retiree health and life insurance
benefits. These trusts are funded through the ratemaking process
for Consumers and through direct contributions from the
non-utility subsidiaries. CMS Energy and Consumers have a target
asset allocation of 60 percent equity and 40 percent
fixed-income investments.
CMS Energy and Consumers invest the equity portions of the union
and non-union health care VEBA trusts in an S&P 500 Index
fund. CMS Energy and Consumers invest the fixed-income portion
of the union health care VEBA trust in domestic investment grade
taxable instruments. CMS Energy and Consumers invest the
fixed-income portion of the non-union health care VEBA trust in
a diversified mix of domestic tax-exempt securities. The
143
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
investment selections of each VEBA trust are influenced by the
tax consequences, as well as the objective of generating asset
returns that will meet the medical and life insurance costs of
retirees.
Benefit Payments:
Presented in the following table
are the expected benefit payments for each of the next five
years and the five-year period thereafter:
| Pension | SERP | OPEB(a) | ||||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
2011
|
$ | 86 | $ | 7 | $ | 62 | ||||||
|
2012
|
96 | 7 | 64 | |||||||||
|
2013
|
106 | 6 | 67 | |||||||||
|
2014
|
115 | 7 | 71 | |||||||||
|
2015
|
126 | 8 | 74 | |||||||||
|
2016-2020
|
764 | 42 | 428 | |||||||||
|
Consumers
|
||||||||||||
|
2011
|
$ | 83 | $ | 4 | $ | 59 | ||||||
|
2012
|
93 | 4 | 61 | |||||||||
|
2013
|
103 | 3 | 64 | |||||||||
|
2014
|
112 | 4 | 67 | |||||||||
|
2015
|
122 | 4 | 71 | |||||||||
|
2016-2020
|
741 | 22 | 407 | |||||||||
| (a) | CMS Energy’s and Consumers’ OPEB benefit payments are net of employee contributions and expected Medicare Part D prescription drug subsidy payments. For CMS Energy, subsidies to be received are estimated to be $6 million for 2011, $7 million for 2012 and 2013, $8 million for 2014 and 2015, and $51 million combined for 2016 through 2020. For Consumers, subsidies to be received are estimated to be $6 million for 2011 and 2012, $7 million for 2013 and 2014, $8 million for 2015, and $49 million combined for 2016 through 2020. |
Collective Bargaining Agreements:
At
December 31, 2010, the Union represented 42 percent of
CMS Energy’s employees and 44 percent of
Consumers’ employees. The Union represents Consumers’
operating, maintenance, construction, and call center employees.
Union contracts expire in 2015. In October 2010, the United
Steelworkers ratified a new agreement with Consumers for Zeeland
employees, which became effective in January 2011.
| 12: | INCOME TAXES |
CMS Energy and its subsidiaries file a consolidated
U.S. federal income tax return and a unitary Michigan
income tax return. Income taxes are allocated based on each
company’s separate taxable income in accordance with the
CMS Energy tax sharing agreement.
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table is the difference between
actual income tax expense on continuing operations, excluding
noncontrolling interests, and income tax expense computed by
applying the statutory U.S. federal income tax rate:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Income from continuing operations before income taxes
|
$ | 587 | $ | 324 | $ | 433 | ||||||
|
Income tax expense at statutory rate
|
205 | 114 | 152 | |||||||||
|
Increase (decrease) in income taxes from:
|
||||||||||||
|
State and local income taxes, net of federal benefit
|
26 | 21 | 3 | |||||||||
|
Income tax credit amortization
|
(4 | ) | (4 | ) | (4 | ) | ||||||
|
Medicare Part D exempt income(a)
|
(6 | ) | (6 | ) | (9 | ) | ||||||
|
Property differences
|
2 | 1 | 3 | |||||||||
|
Research and development credit, net
|
(3 | ) | (9 | ) | — | |||||||
|
Valuation allowance
|
1 | 2 | (6 | ) | ||||||||
|
Other, net
|
3 | (4 | ) | — | ||||||||
|
Income tax expense
|
$ | 224 | $ | 115 | $ | 139 | ||||||
|
Effective tax rate
|
38.2 | % | 35.5 | % | 32.1 | % | ||||||
|
Consumers
|
||||||||||||
|
Income from continuing operations before income taxes
|
$ | 688 | $ | 456 | $ | 562 | ||||||
|
Income tax expense at statutory rate
|
241 | 160 | 197 | |||||||||
|
Increase (decrease) in income taxes from:
|
||||||||||||
|
State and local income taxes, net of federal benefit
|
26 | 19 | 8 | |||||||||
|
Income tax credit amortization
|
(4 | ) | (4 | ) | (4 | ) | ||||||
|
Medicare Part D exempt income(a)
|
(9 | ) | (6 | ) | (8 | ) | ||||||
|
Property differences
|
2 | 1 | 3 | |||||||||
|
Research and development credit, net
|
(3 | ) | (7 | ) | — | |||||||
|
Other, net
|
1 | — | 2 | |||||||||
|
Income tax expense
|
$ | 254 | $ | 163 | $ | 198 | ||||||
|
Effective tax rate
|
36.9 | % | 35.7 | % | 35.2 | % | ||||||
| (a) | For taxable years beginning after December 31, 2012, the Health Care Acts prospectively repealed the tax deduction for the portion of health care costs that are reimbursed by the Medicare Part D subsidy. To reflect the law change, CMS Energy recognized deferred tax expense of $3 million during 2010. Consumers expects to recover this lost benefit through the ratemaking process and therefore continued to recognize the tax benefit during 2010. The total anticipated recovery was recorded as a regulatory asset of $74 million (not including the effects of ratemaking tax gross-ups) at December 31, 2010. |
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table are the significant components
of income tax expense on continuing operations:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Current income taxes:
|
||||||||||||
|
Federal
|
$ | (21 | ) | $ | (12 | ) | $ | 4 | ||||
|
State and local
|
26 | 17 | 9 | |||||||||
| $ | 5 | $ | 5 | $ | 13 | |||||||
|
Deferred income taxes:
|
||||||||||||
|
Federal
|
$ | 210 | $ | 86 | $ | 134 | ||||||
|
State and local
|
13 | 28 | (4 | ) | ||||||||
| $ | 223 | $ | 114 | $ | 130 | |||||||
|
Deferred income tax credit, net
|
(4 | ) | (4 | ) | (4 | ) | ||||||
|
Tax expense
|
$ | 224 | $ | 115 | $ | 139 | ||||||
|
Consumers
|
||||||||||||
|
Current income taxes:
|
||||||||||||
|
Federal
|
$ | (17 | ) | $ | 72 | $ | (10 | ) | ||||
|
State and local
|
25 | 24 | 12 | |||||||||
| $ | 8 | $ | 96 | $ | 2 | |||||||
|
Deferred income taxes:
|
||||||||||||
|
Federal
|
$ | 236 | $ | 66 | $ | 200 | ||||||
|
State and local
|
14 | 5 | — | |||||||||
| $ | 250 | $ | 71 | $ | 200 | |||||||
|
Deferred income tax credit, net
|
(4 | ) | (4 | ) | (4 | ) | ||||||
|
Tax expense
|
$ | 254 | $ | 163 | $ | 198 | ||||||
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Presented in the following table are the principal components of
deferred income tax assets (liabilities) recognized:
|
December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
CMS Energy, including
Consumers
|
||||||||
|
Employee benefits
|
$ | (76 | ) | $ | 65 | |||
|
Gas inventory
|
(177 | ) | (201 | ) | ||||
|
Plant, property, and equipment
|
(1,382 | ) | (1,145 | ) | ||||
|
Regulatory tax liability
|
162 | 209 | ||||||
|
Reserves and accruals
|
101 | 83 | ||||||
|
Securitized costs
|
(120 | ) | (141 | ) | ||||
|
Tax loss and credit carryforwards
|
996 | 919 | ||||||
|
Other
|
(103 | ) | (29 | ) | ||||
| $ | (599 | ) | $ | (240 | ) | |||
|
Less: valuation allowance
|
(19 | ) | (34 | ) | ||||
|
Total net deferred income tax liabilities
|
$ | (618 | ) | $ | (274 | ) | ||
|
Deferred tax assets, net of valuation reserves
|
$ | 1,240 | $ | 1,242 | ||||
|
Deferred tax liabilities
|
(1,858 | ) | (1,516 | ) | ||||
|
Total net deferred income tax liabilities
|
$ | (618 | ) | $ | (274 | ) | ||
|
Consumers
|
||||||||
|
Employee benefits
|
$ | (110 | ) | $ | 28 | |||
|
Gas inventory
|
(177 | ) | (201 | ) | ||||
|
Plant, property, and equipment
|
(1,464 | ) | (1,237 | ) | ||||
|
Regulatory tax liability
|
162 | 209 | ||||||
|
Reserves and accruals
|
45 | 29 | ||||||
|
Securitized costs
|
(120 | ) | (141 | ) | ||||
|
Tax loss and credit carryforwards
|
281 | 232 | ||||||
|
Other
|
(115 | ) | (51 | ) | ||||
|
Total net deferred income tax liabilities
|
$ | (1,498 | ) | $ | (1,132 | ) | ||
|
Deferred tax assets, net of valuation reserves
|
$ | 488 | $ | 498 | ||||
|
Deferred tax liabilities
|
(1,986 | ) | (1,630 | ) | ||||
|
Total net deferred income tax liabilities
|
$ | (1,498 | ) | $ | (1,132 | ) | ||
Deferred tax assets and liabilities are recognized for the
estimated future tax effect of temporary differences between the
tax basis of assets or liabilities and the reported amounts in
CMS Energy’s and Consumers’ Consolidated Financial
Statements. Deferred tax assets and liabilities are classified
as current or non-current according to the classification of the
related assets or liabilities. Deferred tax assets and
liabilities not related to assets or liabilities are classified
according to the expected reversal date of the temporary
differences.
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table are the loss and credit
carryforwards at December 31, 2010:
| Gross Amount | Tax Attribute | Expiration | ||||||||
| In Millions | ||||||||||
|
CMS Energy, including
Consumers
|
||||||||||
|
Federal net operating loss carryforward
|
$1,466 | $ | 513 | 2023 - 2030 | ||||||
|
State and local net operating loss carryforwards(a)
|
450 | 5 | 2023 - 2030 | |||||||
|
Future state tax deductions(b)
|
— | 170 | No expiration | |||||||
|
Alternative minimum tax credits
|
269 | 269 | No expiration | |||||||
|
General business credits(a)
|
39 | 39 | 2011 - 2030 | |||||||
|
Total tax attributes
|
$ | 996 | ||||||||
|
Consumers
|
||||||||||
|
Federal net operating loss carryforward
|
$184 | $ | 64 | 2023 - 2030 | ||||||
|
State capital loss carryforward
|
10 | 1 | 2014 | |||||||
|
Future state tax deductions(b)
|
— | 203 | No expiration | |||||||
|
General business credits
|
13 | 13 | 2011 - 2030 | |||||||
|
Total tax attributes
|
$ | 281 | ||||||||
| (a) | CMS Energy has provided a valuation allowance of $2 million for the local loss carryforward and a valuation allowance of $2 million for general business credits. CMS Energy and Consumers expect to utilize fully loss and credit carryforwards for which no valuation has been provided. It is reasonably possible that further adjustments will be made to the valuation allowances within one year. | |
| (b) | This State of Michigan tax deduction was granted as part of the enactment of the Michigan Business Tax. Under the Michigan Business Tax, the amount of future deduction is intended to offset the financial statement impact that would have been recognized upon enactment in 2007. Utilization of the deduction begins in 2015. Due to various limitations, the gross amount of this deduction is not meaningful. |
Presented in the following table is a reconciliation of the
beginning and ending amount of uncertain tax benefits:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Balance at beginning of period
|
$ | 62 | $ | 65 | $ | 51 | ||||||
|
Reductions for prior year tax positions
|
(58 | ) | (6 | ) | — | |||||||
|
Additions for prior year tax positions
|
— | 2 | 12 | |||||||||
|
Additions for current year tax positions
|
— | 1 | 2 | |||||||||
|
Balance at end of period
|
$ | 4 | $ | 62 | $ | 65 | ||||||
|
Consumers
|
||||||||||||
|
Balance at beginning of period
|
$ | 57 | $ | 55 | $ | 41 | ||||||
|
Reductions for prior year tax positions
|
(54 | ) | (1 | ) | — | |||||||
|
Additions for prior year tax positions
|
— | 2 | 12 | |||||||||
|
Additions for current year tax positions
|
— | 1 | 2 | |||||||||
|
Balance at end of period
|
$ | 3 | $ | 57 | $ | 55 | ||||||
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CMS Energy, including Consumers, had uncertain tax benefits of
$4 million at December 31, 2010, $8 million at
December 31, 2009, and $10 million at
December 31, 2008 that, if recognized, would affect the
annual effective tax rate in future years. Consumers had
uncertain tax benefits of $3 million at December 31,
2010 and 2009. There were no uncertain tax benefits that would
reduce Consumers’ effective tax rate at December 31,
2008.
CMS Energy and Consumers recognize accrued interest and
penalties, where applicable, as part of income tax expense. CMS
Energy, including Consumers, recognized no interest for the
years ended December 31, 2010 and 2009, and $1 million
for the year ended December 31, 2008. In 2010, CMS Energy
settled with the IRS and, as a result, paid $6 million of
accrued interest in December. At that time, a remaining accrued
interest balance of $3 million was eliminated. Consumers
recognized no interest for the years ended December 31,
2010 and 2009, and $1 million for the year ended
December 31, 2008. Upon settlement with the IRS, Consumers
paid $4 million to CMS Energy and eliminated a remaining
accrued interest balance of $1 million.
In November 2010, the IRS concluded its most recent audit of CMS
Energy and its subsidiaries, and proposed changes of
$132 million to taxable income for the years ended
December 31, 2002 through December 31, 2007. Of this
amount, $82 million resulted in an adjustment to the
existing net operating loss carryforward; the remaining
$50 million increased taxable income. Most of the
adjustments related to the timing of deductions, not the
disallowance of deductions. CMS Energy accepted the proposed
adjustments to taxable income, which resulted in the payment of
$15 million of tax and accrued interest. The tax
adjustments were allocated based on the companies’ separate
taxable income, in accordance with CMS Energy’s tax sharing
agreement. The impact to net income was less than
$1 million.
In December 2010, the IRS began its audit of CMS Energy and its
subsidiaries’ 2008 and 2009 federal tax returns. The IRS
also is auditing CMS Energy’s research and development tax
credit claims for 2001 through 2009. These credits are part of
CMS Energy’s overall general business credit carryforward.
It is reasonably possible that, within the next twelve months, a
settlement will be reached with the IRS on CMS Energy’s
research and development tax credit claim. The total claimed
credit is $21 million.
The amount of income taxes paid is subject to ongoing audits by
federal, state, and foreign tax authorities, which can result in
proposed assessments. CMS Energy’s and Consumers’
estimate of the potential outcome for any uncertain tax issue is
highly judgmental. CMS Energy and Consumers believe that their
accrued tax liabilities at December 31, 2010 were adequate
for all years.
| 13: | STOCK-BASED COMPENSATION |
CMS Energy and Consumers provide a PISP to key employees and
non-employee directors based on their contributions to the
successful management of the company. The PISP has a five-year
term, expiring in May 2014.
All grants under the PISP for 2010, 2009, and 2008 were in the
form of TSR restricted stock and time-lapse restricted stock.
Restricted stock recipients receive shares of CMS Energy common
stock. Restricted stock shares granted prior to August 1,
2010 have full dividend and voting rights. The TSR restricted
stock shares granted in 2010 have full voting rights. In lieu of
cash dividend payments, however, the TSR restricted stock shares
granted in 2010 receive additional restricted shares equal to
the value of the dividend. These additional restricted shares
are subject to the same vesting conditions as the underlying
restricted stock shares.
TSR restricted stock vesting is contingent on meeting a
three-year service requirement and specific market conditions.
For awards granted in 2008, half of the market condition is
based on the achievement of specified levels of TSR over a
three-year period and half is based on a comparison of CMS
Energy’s TSR with the median TSR of a peer group over the
same three-year period. Depending on the outcome of the market
condition, a recipient may earn a total award ranging from zero
to 150 percent of the initial grant. For awards granted in
2010 and 2009, the market condition is based entirely on a
comparison of CMS Energy’s TSR with the median TSR of a
peer group over the same three-year period. Depending on the
outcome of the market condition, a recipient may earn a total
award
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ranging from zero to 200 percent of the initial grant.
Time-lapse restricted stock vests after a service period of
three years.
Restricted stock awards granted to officers in 2008 were
80 percent TSR restricted stock and 20 percent
time-lapsed restricted stock. Awards granted to officers in 2010
and 2009 were 67 percent TSR restricted stock and
33 percent time-lapse restricted stock.
For awards granted prior to August 1, 2010, restricted
shares may vest fully upon retirement, disability, or change of
control of CMS Energy if certain minimum service requirements
are met or are waived by action of the C&HR Committees. If
employment terminates for any other reason (other than death) or
the minimum service requirements are not met or waived, the
restricted shares will be fully forfeited. For awards granted
after August 1, 2010, a pro-rata portion of the award equal
to the portion of the service period served between the award
grant date and the employee’s termination date will vest
upon termination of an employee due to retirement, disability,
or change of control of CMS Energy. The remaining portion of the
award will be forfeited. All awards vest fully upon death.
The PISP also allows for stock options, stock appreciation
rights, phantom shares, performance units, and incentive
options, none of which was granted in 2010, 2009, or 2008.
Shares awarded or subject to stock options, phantom shares, or
performance units may not exceed 6 million shares from June
2009 through May 2014, nor may such awards to any recipient
exceed 500,000 shares in any fiscal year. CMS Energy and
Consumers may issue awards of up to 4,650,719 shares of
common stock under the PISP at December 31, 2010. Shares
for which payment or exercise is in cash, as well as shares or
stock options forfeited for any reason other than failure to
meet a market condition, may be awarded or granted again under
the PISP.
Presented in the following table is restricted stock activity
under the PISP:
|
Weighted-Average Grant
|
||||||||
|
Restricted Stock
|
Number of Shares | Date Fair Value per Share | ||||||
|
CMS Energy, including
Consumers
|
||||||||
|
Nonvested at December 31, 2009
|
2,019,777 | $ | 12.52 | |||||
|
Granted(a)
|
636,273 | 16.22 | ||||||
|
Vested
|
(457,430 | ) | 14.41 | |||||
|
Forfeited(b)
|
(205,155 | ) | 12.62 | |||||
|
Nonvested at December 31, 2010
|
1,993,465 | 13.26 | ||||||
|
Consumers
|
||||||||
|
Nonvested at December 31, 2009
|
1,809,987 | $ | 12.50 | |||||
|
Granted(a)
|
575,895 | 16.27 | ||||||
|
Vested
|
(396,760 | ) | 14.38 | |||||
|
Forfeited(b)
|
(184,099 | ) | 12.62 | |||||
|
Nonvested at December 31, 2010
|
1,805,023 | 13.28 | ||||||
| (a) | During 2010, CMS Energy granted 285,212 TSR shares and 351,061 time-lapse shares of restricted stock. During 2010, Consumers granted 254,234 TSR shares and 321,661 time-lapse shares of restricted stock. | |
| (b) | During 2010, 204,155 TSR shares granted by CMS Energy in 2007 were forfeited due to the failure to meet the specific market conditions. During 2010, 183,099 TSR shares granted by Consumers in 2007 were forfeited due to the failure to meet the specific market conditions. |
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CMS Energy and Consumers charge the fair value of the awards to
expense over the required service period. As a result, for
awards granted prior to August 1, 2010, CMS Energy and
Consumers recognize all compensation expense for share-based
awards that have accelerated service provisions upon retirement
by the period in which the employee becomes eligible to retire.
TSR restricted stock awards granted after August 1, 2010
have graded vesting features, and CMS Energy and Consumers
recognize expense for those awards on a graded vesting schedule
over the required service period. Expense for time-lapse awards
is recognized on a straight-line basis over the required service
period. CMS Energy and Consumers calculate the fair value
of time-lapse restricted stock based on the price of CMS
Energy’s common stock on the grant date. CMS Energy and
Consumers calculate the fair value of TSR restricted stock
awards on the grant date using a Monte Carlo simulation. CMS
Energy and Consumers base expected volatilities on the
historical volatility of the price of CMS Energy common stock.
The risk-free rate for each valuation was based on the
three-year U.S. Treasury yield at the award grant date.
Presented in the following table are the significant assumptions
used to estimate the fair value of the TSR restricted stock
awards:
| 2010 | 2009 | 2008 | ||||||||||
|
Expected volatility
|
30.1 | % | 29.8 | % | 19.7 | % | ||||||
|
Expected dividend yield
|
2.4 | % | 2.0 | % | 2.7 | % | ||||||
|
Risk-free rate
|
0.9 | % | 1.8 | % | 2.8 | % | ||||||
Presented in the following table are amounts related to
restricted stock awards:
| 2010 | 2009 | 2008 | ||||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Fair value of shares that vested during the year
|
$ | 7 | $ | 4 | $ | 2 | ||||||
|
Compensation expense recognized
|
9 | 9 | 8 | |||||||||
|
Income tax benefit recognized
|
4 | 3 | 3 | |||||||||
|
Consumers
|
||||||||||||
|
Fair value of shares that vested during the year
|
$ | 6 | $ | 4 | $ | 2 | ||||||
|
Compensation expense recognized
|
9 | 8 | 7 | |||||||||
|
Income tax benefit recognized
|
3 | 3 | 2 | |||||||||
At December 31, 2010, $10 million of total
unrecognized compensation cost was related to restricted stock
for CMS Energy, including Consumers, and $9 million of
total unrecognized compensation cost was related to restricted
stock for Consumers. CMS Energy and Consumers expect to
recognize this cost over a weighted-average period of
2.1 years.
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table is stock option activity under
the PISP:
|
Options
|
Weighted-
|
Weighted-
|
||||||||||||||
|
Outstanding,
|
Average
|
Average
|
Aggregate
|
|||||||||||||
|
Fully Vested,
|
Exercise
|
Remaining
|
Intrinsic
|
|||||||||||||
|
and
|
Price per
|
Contractual
|
Value
|
|||||||||||||
|
Stock Options
|
Exercisable | Share | Term | (in millions) | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||
|
Outstanding at December 31, 2009
|
581,040 | $ | 19.79 | 2.0 years | $(2) | |||||||||||
|
Granted
|
— | — | ||||||||||||||
|
Exercised
|
(74,000 | ) | $ | 6.59 | ||||||||||||
|
Cancelled or Expired
|
(69,960 | ) | $ | 17.86 | ||||||||||||
|
Outstanding at December 31, 2010
|
437,080 | $ | 22.34 | 1.1 years | $(2) | |||||||||||
|
Consumers
|
||||||||||||||||
|
Outstanding at December 31, 2009
|
378,786 | $ | 17.74 | 2.3 years | $(1) | |||||||||||
|
Granted
|
— | — | ||||||||||||||
|
Exercised
|
(68,818 | ) | $ | 6.61 | ||||||||||||
|
Cancelled or Expired
|
(42,500 | ) | $ | 17.52 | ||||||||||||
|
Outstanding at December 31, 2010
|
267,468 | $ | 20.64 | 1.2 years | $(1) | |||||||||||
Stock options give the holder the right to purchase common stock
at the market price on the grant date. Stock options are
exercisable upon grant, and expire up to ten years and one month
from the grant date. CMS Energy and Consumers issue new shares
when recipients exercise stock options. The total intrinsic
value of stock options exercised for CMS Energy was
$1 million in 2010, less than $1 million in 2009, and
$1 million in 2008. The total intrinsic value of stock options
exercised for Consumers was $1 million in 2010 and less
than $1 million in 2009 and 2008. Cash received from
exercise of these stock options in 2010 was less than
$1 million for CMS Energy and Consumers.
Since CMS Energy has utilized tax loss carryforwards, CMS Energy
was unable to realize excess tax benefits upon exercise of stock
options and vesting of restricted stock. Therefore, CMS Energy
did not recognize the related excess tax benefits in equity. As
of December 31, 2010, CMS Energy has $20 million of
unrealized excess tax benefits.
Presented in the following table is the weighted-average
grant-date fair value of awards under the PISP:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Weighted-average grant-date fair value per share
|
||||||||||||
|
Restricted stock granted
|
$ | 16.22 | $ | 13.49 | $ | 10.38 | ||||||
|
Consumers
|
||||||||||||
|
Weighted-average grant-date fair value per share
|
||||||||||||
|
Restricted stock granted
|
$ | 16.27 | $ | 13.44 | $ | 10.43 | ||||||
| 14: | LEASES |
CMS Energy and Consumers lease various assets, including service
vehicles, railcars, gas pipeline capacity, and buildings. In
addition, CMS Energy and Consumers account for a number of their
PPAs as capital and operating leases.
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Operating leases for coal-carrying railcars have lease terms
expiring without extension provisions over the next
13 years and with extension provisions over the next
16 years. These leases contain fair market value extension
and buyout provisions, with some providing for predetermined
extension period rentals. Capital leases for Consumers’
vehicle fleet operations have a maximum term of 120 months
with some having Terminal Rental Adjustment Clause
end-of-life
provisions and others having fixed percentage purchase options.
Consumers has capital leases for gas transportation pipelines to
the Karn generating complex and Zeeland. The capital lease for
the gas transportation pipeline into the Karn generating complex
has a term of 15 years with a provision to extend the
contract from month to month. The remaining term of the contract
was 11 years at December 31, 2010. The capital lease
for the gas transportation pipeline to Zeeland has a term of
12 years with a renewal provision at the end of the
contract. The remaining term of the contract was one year at
December 31, 2010. The remaining terms of Consumers’
long-term PPAs range between two and 20 years. Most of
these PPAs contain provisions at the end of the initial contract
terms to renew the agreements annually.
Consumers is authorized by the MPSC to record operating lease
payments as operating expense and recover the total cost from
customers. Presented in the following table is CMS Energy’s
and Consumers’ operating lease expense:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Operating lease expense
|
$ | 28 | $ | 34 | $ | 28 | ||||||
|
Income from subleases
|
— | — | (1 | ) | ||||||||
|
Consumers
|
||||||||||||
|
Operating lease expense
|
$ | 28 | $ | 34 | $ | 27 | ||||||
Presented in the following table are the minimum annual rental
commitments under Consumers’ non-cancelable leases at
December 31, 2010. CMS Energy did not have any
non-cancelable leases at December 31, 2010 that were not
included in Consumers’ amounts.
|
Capital
|
Finance
|
Operating
|
||||||||||
| Leases | Lease(a) | Leases | ||||||||||
| In Millions | ||||||||||||
|
Consumers
|
||||||||||||
|
2011
|
$ | 17 | $ | 21 | $ | 29 | ||||||
|
2012
|
20 | 20 | 30 | |||||||||
|
2013
|
12 | 20 | 27 | |||||||||
|
2014
|
11 | 19 | 26 | |||||||||
|
2015
|
12 | 18 | 25 | |||||||||
|
2016 and thereafter
|
44 | 96 | 123 | |||||||||
|
Total minimum lease payments
|
$ | 116 | $ | 194 | $ | 260 | ||||||
|
Less imputed interest
|
52 | 46 | ||||||||||
|
Present value of net minimum lease payments
|
$ | 64 | $ | 148 | ||||||||
|
Less current portion
|
11 | 13 | ||||||||||
|
Non-current portion
|
$ | 53 | $ | 135 | ||||||||
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| (a) | In 2007, Consumers sold Palisades to Entergy and entered into a 15-year PPA to buy all of the capacity and energy then capable of being produced by Palisades. Consumers has continuing involvement with Palisades through security provided to Entergy for Consumers’ PPA obligation, Consumers’ DOE liability, and other forms of involvement. Because of these ongoing arrangements, Consumers accounted for the transaction as a financing of Palisades and not a sale. Accordingly, no gain on the sale of Palisades was recognized on the Consolidated Statements of Income. Consumers accounted for the remaining non-real-estate assets and liabilities associated with the transaction as a sale. |
Palisades remains on Consumers’ Consolidated Balance Sheets
and Consumers continues to depreciate it. Consumers recorded the
related proceeds as a finance obligation with payments recorded
to interest expense and the finance obligation based on the
amortization of the obligation over the life of the Palisades
PPA. The value of the finance obligation was determined based on
an allocation of the transaction proceeds to the fair values of
the net assets sold and fair value of the plant asset under the
financing. Total amortization and interest charges under the
financing were $22 million and $23 million,
respectively, for each of the years ended December 31, 2010
and 2009.
| 15: | PLANT, PROPERTY, AND EQUIPMENT |
Presented in the following table are CMS Energy’s and
Consumers’ plant, property, and equipment:
|
Estimated
|
||||||||||||
|
Depreciable
|
||||||||||||
|
Years Ended December 31
|
Life in Years | 2010 | 2009 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Electric:
|
||||||||||||
|
Generation
|
18-85 | $ | 3,812 | $ | 3,671 | |||||||
|
Distribution
|
12-75 | 5,250 | 4,991 | |||||||||
|
Other
|
7-40 | 609 | 574 | |||||||||
|
Capital and finance leases(a)
|
273 | 289 | ||||||||||
|
Gas:
|
||||||||||||
|
Underground storage facilities(b)
|
30-65 | 311 | 299 | |||||||||
|
Transmission
|
13-75 | 713 | 573 | |||||||||
|
Distribution
|
30-80 | 2,654 | 2,557 | |||||||||
|
Other
|
5-50 | 380 | 366 | |||||||||
|
Capital leases(a)
|
5 | 17 | ||||||||||
|
Enterprises:
|
||||||||||||
|
IPP
|
5-30 | 85 | 329 | |||||||||
|
Other
|
3-40 | 17 | 16 | |||||||||
|
Other:
|
1-71 | 36 | 34 | |||||||||
|
Construction work in progress
|
570 | 506 | ||||||||||
|
Less accumulated depreciation, depletion, and amortization(c)
|
4,646 | 4,540 | ||||||||||
|
Net plant, property, and equipment(d)
|
$ | 10,069 | $ | 9,682 | ||||||||
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
Estimated
|
||||||||||||
|
Depreciable
|
||||||||||||
|
Years Ended December 31
|
Life in Years | 2010 | 2009 | |||||||||
| In Millions | ||||||||||||
|
Consumers
|
||||||||||||
|
Electric:
|
||||||||||||
|
Generation
|
18-85 | $ | 3,812 | $ | 3,671 | |||||||
|
Distribution
|
12-75 | 5,250 | 4,991 | |||||||||
|
Other
|
7-40 | 609 | 574 | |||||||||
|
Capital and finance leases(a)
|
273 | 289 | ||||||||||
|
Gas:
|
||||||||||||
|
Underground storage facilities(b)
|
30-65 | 311 | 299 | |||||||||
|
Transmission
|
13-75 | 713 | 573 | |||||||||
|
Distribution
|
30-80 | 2,654 | 2,557 | |||||||||
|
Other
|
5-50 | 380 | 366 | |||||||||
|
Capital leases(a)
|
5 | 17 | ||||||||||
|
Other non-utility property
|
7-71 | 15 | 15 | |||||||||
|
Construction work in progress
|
566 | 505 | ||||||||||
|
Less accumulated depreciation, depletion, and amortization(c)
|
4,593 | 4,386 | ||||||||||
|
Net plant, property, and equipment(d)
|
$ | 9,995 | $ | 9,471 | ||||||||
| (a) | Capital and finance leases presented are gross amounts. Presented in the following table are changes in Consumers’ capital and finance leases: |
|
Years Ended December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
Consumers
|
||||||||
|
Balance at beginning of period
|
$ | 306 | $ | 312 | ||||
|
Additions
|
15 | 16 | ||||||
|
Net retirements and other adjustments
|
(43 | ) | (22 | ) | ||||
|
Balance at end of period
|
$ | 278 | $ | 306 | ||||
Accumulated amortization of capital and finance leases was
$65 million at December 31, 2010 and $84 million
at December 31, 2009 for Consumers. There were no
significant capital and finance leases at CMS Energy.
| (b) | Underground storage includes base natural gas of $26 million at December 31, 2010 and 2009. Base natural gas is not subject to depreciation. | |
| (c) | Presented in the following table is CMS Energy’s and Consumers’ accumulated depreciation, depletion, and amortization: |
|
Years Ended December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
CMS Energy, including
Consumers
|
||||||||
|
Utility plant assets
|
$ | 4,592 | $ | 4,385 | ||||
|
Non-utility plant assets
|
54 | 155 | ||||||
|
Consumers
|
||||||||
|
Utility plant assets
|
$ | 4,592 | $ | 4,385 | ||||
|
Non-utility plant assets
|
1 | 1 | ||||||
| (d) | For the year ended December 31, 2010, utility plant additions were $783 million and utility plant retirements were $85 million. For the year ended December 31, 2009, utility plant additions were $928 million and utility plant retirements were $171 million. |
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Intangible Assets:
Included in net plant,
property, and equipment are intangible assets. Presented in the
following table are CMS Energy’s and Consumers’
intangible assets:
|
Years Ended December 31
|
||||||||||||||||||||
|
Amortization
|
2010 | 2009 | ||||||||||||||||||
|
Life
|
Accumulated
|
Accumulated
|
||||||||||||||||||
|
Description
|
in years | Gross Cost(a) | Amortization | Gross Cost(a) | Amortization | |||||||||||||||
| In Millions | ||||||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||||||
|
Software development
|
3-15 | $ | 323 | $ | 125 | $ | 303 | $ | 105 | |||||||||||
|
Plant acquisition adjustments
|
40 | 213 | 16 | 214 | 11 | |||||||||||||||
|
Rights of way
|
50-75 | 140 | 37 | 134 | 35 | |||||||||||||||
|
Leasehold improvements
|
various | (b) | 13 | 9 | 13 | 9 | ||||||||||||||
|
Franchises and consents
|
5-30 | 15 | 6 | 15 | 6 | |||||||||||||||
|
Other intangibles(c)
|
various | 20 | 14 | 28 | 21 | |||||||||||||||
|
Total
|
$ | 724 | $ | 207 | $ | 707 | $ | 187 | ||||||||||||
|
Consumers
|
||||||||||||||||||||
|
Software development
|
3-15 | $ | 323 | $ | 125 | $ | 303 | $ | 105 | |||||||||||
|
Plant acquisition adjustments
|
40 | 213 | 16 | 214 | 11 | |||||||||||||||
|
Rights of way
|
50-75 | 140 | 37 | 134 | 35 | |||||||||||||||
|
Leasehold improvements
|
various | (b) | 13 | 9 | 13 | 9 | ||||||||||||||
|
Franchises and consents
|
5-30 | 15 | 6 | 15 | 6 | |||||||||||||||
|
Other intangibles
|
various | 18 | 14 | 18 | 13 | |||||||||||||||
|
Total
|
$ | 722 | $ | 207 | $ | 697 | $ | 179 | ||||||||||||
| (a) | Intangible asset additions for Consumers’ utility plant were $25 million during 2010 and $62 million during 2009. Retirements were less than $1 million in 2010 and were $110 million during 2009. | |
| (b) | Leasehold improvements are amortized over the life of the lease, which may change whenever the lease is renewed or extended. | |
| (c) | Effective January 1, 2010, CMS Energy deconsolidated Genesee. As a result of the deconsolidation, other intangible assets were reduced by $8 million. |
Presented in the following table is CMS Energy’s and
Consumers’ amortization expense related to intangible
assets:
|
CMS Energy
|
||||||||||||||||
| (including Consumers) | Consumers | |||||||||||||||
|
Total
|
Software
|
Total
|
Software
|
|||||||||||||
|
Amortization
|
Amortization
|
Amortization
|
Amortization
|
|||||||||||||
|
Years Ended December 31
|
Expense | Expense | Expense | Expense | ||||||||||||
| In Millions | ||||||||||||||||
|
2010
|
$ | 28 | $ | 19 | $ | 27 | $ | 19 | ||||||||
|
2009
|
30 | 22 | 30 | 22 | ||||||||||||
|
2008
|
32 | 27 | 32 | 23 | ||||||||||||
Amortization of intangible assets is expected to range between
$34 million and $40 million per year over the next
five years.
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2010 and 2009, CMS Energy had less than
$1 million of goodwill recorded on its Consolidated Balance
Sheets.
| 16: | ASSET RETIREMENT OBLIGATIONS |
CMS Energy and Consumers record the fair value of the cost to
remove assets at the end of their useful lives, if there is a
legal obligation to remove them. No market risk premiums were
included in CMS Energy’s and Consumers’ ARO fair value
estimates since reasonable estimates could not be made. If a
five percent market risk premium were assumed, CMS Energy’s
and Consumers’ ARO liabilities at December 31, 2010
would increase by $12 million and at December 31, 2009
would increase by $11 million, respectively.
If a reasonable estimate of fair value cannot be made in the
period in which the ARO is incurred, such as for assets with
indeterminate lives, the liability is recognized when a
reasonable estimate of fair value can be made. CMS Energy and
Consumers have not recorded liabilities for assets that have
insignificant cumulative disposal costs, such as substation
batteries.
Presented below are the categories of assets that CMS Energy and
Consumers have legal obligations to remove at the end of their
useful lives and for which they have an ARO liability recorded:
|
In-Service
|
||||
|
Company and ARO Description
|
Date |
Long-Lived Assets
|
||
|
CMS Energy, Including
Consumers
|
||||
|
Close gas treating plant and gas wells
|
Various | Gas transmission and storage | ||
|
Closure of coal ash disposal areas
|
Various | Generating plants coal ash areas | ||
|
Closure of wells at gas storage fields
|
Various | Gas storage fields | ||
|
Indoor gas services equipment relocations
|
Various | Gas meters located inside structures | ||
|
Asbestos abatement
|
1973 | Electric and gas utility plant | ||
|
Gas distribution cut, purge and cap
|
Various | Gas distribution mains and services | ||
|
Consumers
|
||||
|
Closure of coal ash disposal areas
|
Various | Generating plants coal ash areas | ||
|
Closure of wells at gas storage fields
|
Various | Gas storage fields | ||
|
Indoor gas services equipment relocations
|
Various | Gas meters located inside structures | ||
|
Asbestos abatement
|
1973 | Electric and gas utility plant | ||
|
Gas distribution cut, purge and cap
|
Various | Gas distribution mains and services |
No assets have been restricted for purposes of settling AROs.
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following tables are the changes in CMS
Energy’s and Consumers’ ARO liabilities:
|
ARO
|
ARO
|
|||||||||||||||||||||||
|
Liability
|
Cash flow
|
Liability
|
||||||||||||||||||||||
|
Company and ARO Description
|
12/31/09 | Incurred | Settled(a) | Accretion | Revisions | 12/31/10 | ||||||||||||||||||
| In Millions | ||||||||||||||||||||||||
|
CMS Energy, Including
Consumers
|
||||||||||||||||||||||||
|
Close gas treating plant and gas wells
|
$ | 1 | $ | — | $ | — | $ | — | $ | — | $ | 1 | ||||||||||||
|
Consumers
|
228 | 6 | (7 | ) | 17 | — | 244 | |||||||||||||||||
|
Total CMS Energy
|
$ | 229 | $ | 6 | $ | (7 | ) | $ | 17 | $ | — | $ | 245 | |||||||||||
|
Consumers
|
||||||||||||||||||||||||
|
Coal ash disposal areas
|
$ | 64 | $ | — | $ | (4 | ) | $ | 6 | $ | — | $ | 66 | |||||||||||
|
Wells at gas storage fields
|
1 | — | — | — | — | 1 | ||||||||||||||||||
|
Indoor gas services relocations
|
1 | — | — | — | — | 1 | ||||||||||||||||||
|
Asbestos abatement
|
38 | — | (1 | ) | 3 | — | 40 | |||||||||||||||||
|
Gas distribution cut, purge, cap
|
124 | 6 | (2 | ) | 8 | — | 136 | |||||||||||||||||
|
Total Consumers
|
$ | 228 | $ | 6 | $ | (7 | ) | $ | 17 | $ | — | $ | 244 | |||||||||||
|
ARO
|
ARO
|
|||||||||||||||||||||||
|
Liability
|
Cash flow
|
Liability
|
||||||||||||||||||||||
|
Company and ARO Description
|
12/31/08 | Incurred | Settled(a) | Accretion | Revisions | 12/31/09 | ||||||||||||||||||
| In Millions | ||||||||||||||||||||||||
|
CMS Energy, Including
Consumers
|
||||||||||||||||||||||||
|
Close gas treating plant and gas wells
|
$ | 1 | $ | — | $ | — | $ | — | $ | — | $ | 1 | ||||||||||||
|
Consumers
|
205 | 15 | (8 | ) | 16 | — | 228 | |||||||||||||||||
|
Total CMS Energy
|
$ | 206 | $ | 15 | $ | (8 | ) | $ | 16 | $ | — | $ | 229 | |||||||||||
|
Consumers
|
||||||||||||||||||||||||
|
Coal ash disposal areas
|
$ | 62 | $ | — | $ | (4 | ) | $ | 6 | $ | — | $ | 64 | |||||||||||
|
Wells at gas storage fields
|
1 | — | — | — | — | 1 | ||||||||||||||||||
|
Indoor gas services relocations
|
1 | — | — | — | — | 1 | ||||||||||||||||||
|
Asbestos abatement
|
36 | — | (1 | ) | 3 | — | 38 | |||||||||||||||||
|
Gas distribution cut, purge, cap
|
105 | 15 | (3 | ) | 7 | — | 124 | |||||||||||||||||
|
Total Consumers
|
$ | 205 | $ | 15 | $ | (8 | ) | $ | 16 | $ | — | $ | 228 | |||||||||||
| (a) | Cash payments of $7 million in 2010 and $8 million in 2009 were included in the other current and non-current liabilities line in Net cash provided by operating activities in CMS Energy’s and Consumers’ Consolidated Statements of Cash Flows. |
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| 17: | JOINTLY OWNED REGULATED UTILITY FACILITIES |
Presented in the following table are Consumers’ investments
in jointly owned regulated utility facilities:
|
Ownership
|
Accumulated
|
Construction
|
||||||||||||||||||||||||||
|
Share
|
Net Investment(a) | Depreciation | Work in Progress | |||||||||||||||||||||||||
|
December 31
|
(%) | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
| In Millions | ||||||||||||||||||||||||||||
|
Campbell Unit 3
|
93.3 | $ | 653 | $ | 662 | $ | 404 | $ | 387 | $ | 23 | $ | 14 | |||||||||||||||
|
Ludington
|
51.0 | 60 | 62 | 114 | 111 | 11 | 5 | |||||||||||||||||||||
|
Distribution
|
Various | 115 | 105 | 44 | 43 | 7 | 7 | |||||||||||||||||||||
| (a) | Net investment is the amount of utility plant in service less accumulated depreciation. |
Consumers includes its share of the direct expenses of the
jointly owned plants in Operating Expenses. Consumers shares
operation, maintenance, and other expenses of these jointly
owned utility facilities in proportion to each
participant’s undivided ownership interest. Consumers is
required to provide only its share of financing for the jointly
owned utility facilities.
| 18: | VARIABLE INTEREST ENTITIES |
Entities that are VIEs must be consolidated if the reporting
entity determines that it has a controlling financial interest.
The entity that is required to consolidate the VIE is called the
primary beneficiary. Variable interests are contractual,
ownership, or other interests in an entity that change as the
fair value of the VIE’s net assets, excluding variable
interests, changes. An entity is considered to be a VIE when its
capital is insufficient to permit it to finance its activities
without additional subordinated financial support or its equity
investors, as a group, lack the characteristics of having a
controlling financial interest.
Effective January 1, 2010, the accounting standards for
consolidation of VIEs were amended. The most significant
amendment changed the criteria for identifying the primary
beneficiary. Under the amended standard, the primary beneficiary
is the entity that has both (1) the power to direct the
activities of a VIE that most significantly impact the
VIE’s economic performance and (2) the obligation to
absorb losses of the VIE that could potentially be significant
to the VIE.
As a result of adopting this amendment, effective
January 1, 2010, CMS Energy has consolidated CMS Energy
Trust I and deconsolidated three partnerships that it had
previously consolidated.
CMS Energy has consolidated CMS Energy Trust I because CMS
Energy is the variable interest holder that designed the entity
and, through the design, has the power to direct the activities
of CMS Energy Trust I that most significantly impact the
trust’s economic performance. CMS Energy has guaranteed
payment of the Trust Preferred Securities. The sole assets
of the trust consist of subordinated notes issued by CMS Energy,
and the sole liabilities of the trust consist of
Trust Preferred Securities. Upon consolidation, CMS Energy
reduced its equity method investment by $5 million and its
Long-term debt by $34 million. CMS Energy also recorded a
$29 million liability for the mandatorily redeemable
preferred securities issued by the trust. No gain or loss was
recognized on the consolidation of CMS Energy Trust I.
CMS Energy has deconsolidated T.E.S. Filer City, Grayling, and
Genesee because CMS Energy determined that power is shared among
unrelated parties, and that no one party has the power to direct
the activities that most significantly impact the entities’
economic performance. The partners must agree on all major
decisions for each of the partnerships. As a result, CMS Energy
is not the primary beneficiary of these partnerships.
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Presented in the following table is information about these
partnerships:
|
Name (Ownership Interest)
|
Nature of the Entity
|
Financing of Partnership
|
||
|
T.E.S. Filer City (50%)
|
Coal-fueled power generator | Non-recourse long-term debt that matured in December 2007. | ||
|
Grayling (50%)
|
Wood waste-fueled power generator | Sale of revenue bonds that mature in November 2012 and bear interest at variable rates. The debt is recourse to the partnership, but not the individual partners, and secured by a letter of credit equal to the outstanding balance. | ||
|
Genesee (50%)
|
Wood waste-fueled power generator | Sale of revenue bonds that mature in 2021 and bear interest at fixed rates. The debt is non-recourse to the partnership and secured by a CMS Energy guarantee capped at $3 million annually. |
CMS Energy has operating and management contracts with Grayling
and Genesee, and Consumers is the primary purchaser of power
from each partnership through long-term PPAs. Consumers also has
reduced dispatch agreements with Grayling and Genesee, which
allow these facilities to be dispatched based on the market
price of wood waste. This results in fuel cost savings that each
partnership shares with Consumers’ customers.
CMS Energy’s investment in these partnerships is included
in Investments on its Consolidated Balance Sheets in the amount
of $49 million as of December 31, 2010. The
partnerships were consolidated at December 31, 2009. Total
assets of the partnerships were $189 million and total
liabilities were $92 million at December 31, 2009. The
partnerships had third-party debt obligations totaling
$70 million at December 31, 2009. Plant, property, and
equipment serving as collateral for these obligations had a
carrying value of $137 million at December 31, 2009.
The creditors of these partnerships do not have recourse to the
general credit of CMS Energy or Consumers, except through a
guarantee provided by CMS Energy of $3 million annually.
CMS Energy has deferred collections on certain receivables owed
by Genesee. CMS Energy’s maximum exposure to loss from
these receivables is $6 million. Consumers has not provided
any financial or other support during the periods presented that
was not previously contractually required.
| 19: | RELATED-PARTY TRANSACTIONS — CONSUMERS |
Consumers enters into a number of significant transactions with
related parties. These transactions include:
| • | purchase and sale of electricity from and to CMS Enterprises; | |
| • | payment of parent company overhead costs to CMS Energy; and | |
| • | investment in CMS Energy common stock. |
Transactions involving power supply purchases from certain
affiliates of CMS Enterprises are based on avoided costs under
PURPA, state law, and competitive bidding. The payment of parent
company overhead costs is based on the use of accepted industry
allocation methodologies. These payments are for costs that
occur in the normal course of business. Presented in the
following table are Consumers’ recorded income and expense
from related parties as of December 31:
|
Description
|
Related Party
|
2010 | 2009 | 2008 | ||||||||||
| In Millions | ||||||||||||||
|
Purchases of capacity and energy
|
Affiliates of CMS Enterprises | $ | (84 | ) | $ | (81 | ) | $ | (75 | ) | ||||
|
Dividend income
|
CMS Energy | 1 | 1 | 1 | ||||||||||
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Amounts payable to related parties for purchased power and other
services were $11 million at December 31, 2010 and
2009.
Consumers owns 1.8 million shares of CMS Energy common
stock with a fair value of $34 million at December 31,
2010. For additional details on Consumers’ investment in
CMS Energy common stock, see Note 9, Financial Instruments.
| 20: | ASSET SALES, DISCONTINUED OPERATIONS, AND IMPAIRMENT CHARGES |
Asset
Sales
The impacts of asset sales are included in Gain on asset sales,
net and Income (Loss) from Discontinued Operations in CMS
Energy’s Consolidated Statements of Income, and they are
included in Loss (gain) on asset sales, net in Consumers’
Consolidated Statements of Income. Asset sales for CMS Energy
and Consumers were immaterial for the years ended
December 31, 2010, 2009, and 2008.
In connection with the sale of CMS Energy’s Argentine and
Michigan assets to Lucid Energy in 2007, CMS Energy entered into
agreements that granted MEI, an affiliate of Lucid Energy, the
right to any proceeds from an assignment of an arbitration award
associated with TGN. The agreements also granted MEI an option
to purchase CMS Gas Transmission’s ownership interests in
TGN, and the rights to any proceeds CMS Enterprises would
receive if it sold its stock interest in CMS Generation
San Nicolas Company.
In 2008, CMS Energy executed an agreement with MEI and a third
party to assign the arbitration award and to sell its interests
in TGN directly to the third party. In accordance with the
agreements executed in 2007, the proceeds from the assignment of
the arbitration award and the sale of TGN were passed on to MEI,
and in 2008, CMS Energy recognized an $8 million gain on
the assignment of the award in Gain on asset sales, net on CMS
Energy’s Consolidated Statements of Income. CMS Energy also
recognized a $197 million cumulative net foreign currency
translation loss related to TGN, which had been deferred as a
Foreign currency translation component of stockholders’
equity. This charge was fully offset by the elimination of a
$197 million Argentine currency impairment reserve on CMS
Energy’s Consolidated Balance Sheets, created when it
impaired its investment in TGN in 2007.
In 2010, CMS Enterprises exercised its option to sell its stock
interest in CMS Generation San Nicolas Company and
transferred the sale proceeds to MEI. As a result, CMS
Enterprises recognized a $3 million net gain. In 2010, CMS
Enterprises also sold a cost-method investment with a carrying
value of zero, and recognized a $3 million gain.
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Discontinued
Operations
Discontinued operations are a component of the enterprises
segment. CMS Energy included the following amounts in Income
(Loss) From Discontinued Operations:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
Revenues
|
$ | 10 | $ | 7 | $ | 14 | ||||||
|
Discontinued operations:
|
||||||||||||
|
Pretax income (loss) from discontinued operations
|
$ | (21 | ) | $ | 33 | $ | 2 | |||||
|
Income tax expense
|
2 | 13 | 1 | |||||||||
|
Income (Loss) From Discontinued Operations, Net of Tax Expense
|
$ | (23 | )(a) | $ | 20 | (b) | $ | 1 | ||||
| (a) | Includes an operating loss of $2 million ($1 million net of tax) at Exeter, whose assets and liabilities were reclassified as held for sale in 2009. |
Also includes disposal-related losses of $10 million in
additional tax expense resulting from an IRS audit adjustment
related to a 2003 asset sale, a $6 million ($4 million
net of tax) loss for the write down of CMS Energy’s
investment in Exeter, a $5 million ($3 million net of
tax) loss for the increase in a liability for a 2007 asset sale,
and a $5 million ($3 million net of tax) loss on the
settlement of a 2002 asset sale indemnity.
| (b) | Includes an operating loss of $11 million ($7 million net of tax) at Exeter and a loss of $3 million ($2 million net of tax) related to the State Street Bank and TSU litigation at CMS Viron. For additional details on CMS Viron, see Note 5, Contingencies and Commitments. |
Also includes a gain for the expiration of an indemnity
obligation related to a 2007 asset sale. CMS Energy provided an
indemnity to TAQA in connection with the sale of its ownership
interests in businesses in the Middle East, Africa, and India,
and recorded a $50 million provision for the contingent
liability. This indemnity expired in 2009 and CMS Energy
eliminated the liability from its Consolidated Balance Sheets,
recognizing a $45 million benefit ($28 million net of
tax) to Income (Loss) from Discontinued Operations and a
$5 million benefit to Gain on asset sales, net.
Discontinued operations include a provision for closing costs
and a portion of CMS Energy’s parent company interest
expense. CMS Energy allocated interest expense of less than
$1 million in each of 2010 and 2009 and $1 million in
2008. CMS Energy allocates its interest expense by applying its
total interest expense to the net carrying amount of the asset
sold divided by CMS Energy’s total capitalization.
During the fourth quarter of 2009, CMS Energy’s management
committed to a plan to sell its interest in Exeter and initiated
an active program to locate potential buyers. CMS Energy
completed the sale of this business in
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 2011. Presented in the following table are the major
classes of assets and liabilities of Exeter classified as held
for sale on CMS Energy’s Consolidated Balance Sheets in
2010 and 2009:
|
Years Ended December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
Assets:
|
||||||||
|
Current Assets:
|
||||||||
|
Cash
|
$ | 1 | $ | 1 | ||||
|
Accounts receivable, net
|
1 | 1 | ||||||
|
Non-Current Assets:
|
||||||||
|
Plant, property, and equipment, net
|
3 | 8 | ||||||
|
Other
|
1 | 1 | ||||||
|
Total assets
|
$ | 6 | $ | 11 | ||||
|
Liabilities:
|
||||||||
|
Current Liabilities
|
$ | 1 | $ | — | ||||
|
Total liabilities
|
$ | 1 | $ | — | ||||
Impairment
Charges
In 2010, CMS Energy wrote down its investment in Exeter from its
carrying amount of $11 million to Exeter’s fair value
of $5 million. This valuation was based on the price that
CMS Energy received for the sale of Exeter, which closed in
January 2011. The impairment resulted in a loss of
$6 million, which was recorded in earnings as part of
discontinued operations for the year ended December 31,
2010.
In May 2010, Consumers announced plans to defer the development
of its proposed 830 MW coal-fueled plant at its
Karn/Weadock generating complex. At that time, Consumers
recorded a charge of $3 million to write off certain
capitalized development costs because the costs were deemed not
to have long-term value in connection with the potential future
construction of the plant. The project’s air permit, issued
by the MDNRE in December 2009, will expire in August 2011 if
construction of the coal plant has not commenced or if Consumers
has not been granted an extension of the air permit. In December
2010, Consumers determined that it would not begin construction
before August 2011 as a means of preserving the air permit. As a
result, the likelihood that the plant will be constructed has
diminished significantly. In December 2010, in accordance with
accounting standards governing impairment of plant costs for
regulated utilities, Consumers recorded an additional charge of
$19 million to write off the remaining previously
capitalized development costs associated with the proposed
plant. The total charge of $22 million was recorded in
other operating expenses for the year ended December 31,
2010.
CMS Energy and Consumers recorded no other impairments of
long-lived assets for the years ended December 31, 2010,
2009, and 2008.
| 21: | REPORTABLE SEGMENTS |
Reportable segments consist of business units defined by the
products and services they offer. CMS Energy and Consumers
evaluate the performance of each segment based on its
contribution to net income available to CMS Energy’s common
stockholders. The reportable segments for CMS Energy and
Consumers are:
CMS Energy:
| • | electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan; |
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| • | gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; | |
| • | enterprises, consisting of various subsidiaries engaging primarily in domestic IPP; and | |
| • | other, including EnerBank, corporate interest and other expenses, and discontinued operations. |
Consumers:
| • | electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan; | |
| • | gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; and | |
| • | other, including a consolidated special-purpose entity for the sale of accounts receivable. |
Accounting policies for CMS Energy’s and Consumers’
segments are as described in Note 1, Significant Accounting
Policies. The Consolidated Financial Statements reflect the
assets, liabilities, revenues, and expenses of the individual
segments when appropriate. Accounts are allocated among the
segments when common accounts are attributable to more than one
segment. The allocations are based on certain measures of
business activities, such as revenue, labor dollars, customers,
other operation and maintenance expense, construction expense,
leased property, taxes, or functional surveys. For example,
customer receivables are allocated based on revenue, and pension
provisions are allocated based on labor dollars.
Inter-segment sales and transfers are accounted for at current
market prices and are eliminated in consolidated Net Income
Available to Common Stockholders by segment.
Presented in the following tables is financial information by
reportable segment:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Operating Revenue:
|
||||||||||||
|
Electric utility
|
$ | 3,802 | $ | 3,407 | $ | 3,594 | ||||||
|
Gas utility
|
2,354 | 2,556 | 2,827 | |||||||||
|
Enterprises
|
238 | 216 | 365 | |||||||||
|
Other
|
38 | 26 | 21 | |||||||||
|
Total Operating Revenue — CMS Energy
|
$ | 6,432 | $ | 6,205 | $ | 6,807 | ||||||
|
Consumers
|
||||||||||||
|
Operating Revenue:
|
||||||||||||
|
Electric utility
|
$ | 3,802 | $ | 3,407 | $ | 3,594 | ||||||
|
Gas utility
|
2,354 | 2,556 | 2,827 | |||||||||
|
Total Operating Revenue — Consumers
|
$ | 6,156 | $ | 5,963 | $ | 6,421 | ||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Income (Loss) from Equity Method Investees:(a)
|
||||||||||||
|
Enterprises
|
$ | 11 | $ | (2 | ) | $ | 5 | |||||
|
Total Income (Loss) from Equity Method Investees — CMS
Energy
|
$ | 11 | $ | (2 | ) | $ | 5 | |||||
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Depreciation and Amortization:
|
||||||||||||
|
Electric utility
|
$ | 450 | $ | 441 | $ | 438 | ||||||
|
Gas utility
|
122 | 118 | 136 | |||||||||
|
Enterprises
|
3 | 10 | 10 | |||||||||
|
Other
|
1 | 1 | 4 | |||||||||
|
Total Depreciation and Amortization — CMS Energy
|
$ | 576 | $ | 570 | $ | 588 | ||||||
|
Consumers
|
||||||||||||
|
Depreciation and Amortization:
|
||||||||||||
|
Electric utility
|
$ | 450 | $ | 441 | $ | 438 | ||||||
|
Gas utility
|
122 | 118 | 136 | |||||||||
|
Total Depreciation and Amortization — Consumers
|
$ | 572 | $ | 559 | $ | 574 | ||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Interest Charges:
|
||||||||||||
|
Electric utility
|
$ | 202 | $ | 225 | $ | 185 | ||||||
|
Gas utility
|
73 | 66 | 60 | |||||||||
|
Enterprises
|
— | 5 | 6 | |||||||||
|
Other
|
156 | 139 | 149 | |||||||||
|
Total Interest Charges — CMS Energy
|
$ | 431 | $ | 435 | $ | 400 | ||||||
|
Consumers
|
||||||||||||
|
Interest Charges:
|
||||||||||||
|
Electric utility
|
$ | 202 | $ | 225 | $ | 185 | ||||||
|
Gas utility
|
73 | 66 | 60 | |||||||||
|
Other
|
2 | 1 | 2 | |||||||||
|
Total Interest Charges — Consumers
|
$ | 277 | $ | 292 | $ | 247 | ||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Income Tax Expense (Benefit):
|
||||||||||||
|
Electric utility
|
$ | 187 | $ | 107 | $ | 153 | ||||||
|
Gas utility
|
67 | 56 | 45 | |||||||||
|
Enterprises
|
14 | 4 | (10 | ) | ||||||||
|
Other
|
(44 | ) | (52 | ) | (49 | ) | ||||||
|
Total Income Tax Expense — CMS Energy
|
$ | 224 | $ | 115 | $ | 139 | ||||||
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CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
Consumers
|
||||||||||||
|
Income Tax Expense:
|
||||||||||||
|
Electric utility
|
$ | 187 | $ | 107 | $ | 153 | ||||||
|
Gas utility
|
67 | 56 | 45 | |||||||||
|
Total Income Tax Expense — Consumers
|
$ | 254 | $ | 163 | $ | 198 | ||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Net Income (Loss) Available to Common Stockholders:
|
||||||||||||
|
Electric utility
|
$ | 303 | $ | 194 | $ | 271 | ||||||
|
Gas utility
|
127 | 96 | 89 | |||||||||
|
Enterprises
|
36 | (7 | ) | 13 | ||||||||
|
Discontinued operations
|
(23 | ) | 20 | 1 | ||||||||
|
Other
|
(119 | ) | (85 | ) | (90 | ) | ||||||
|
Total Net Income Available to Common Stockholders —
CMS Energy
|
$ | 324 | $ | 218 | $ | 284 | ||||||
|
Consumers
|
||||||||||||
|
Net Income Available to Common Stockholder:
|
||||||||||||
|
Electric utility
|
$ | 303 | $ | 194 | $ | 271 | ||||||
|
Gas utility
|
127 | 96 | 89 | |||||||||
|
Other
|
2 | 1 | 2 | |||||||||
|
Total Net Income Available to Common Stockholder —
Consumers
|
$ | 432 | $ | 291 | $ | 362 | ||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Investments in Equity Method Investees:(a)
|
||||||||||||
|
Enterprises
|
$ | 48 | $ | 3 | $ | 5 | ||||||
|
Other
|
1 | 6 | 6 | |||||||||
|
Total Investments in Equity Method Investees — CMS
Energy
|
$ | 49 | $ | 9 | $ | 11 | ||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Plant, Property, and Equipment, Gross
|
||||||||||||
|
Electric utility
|
$ | 9,944 | $ | 9,525 | $ | 8,965 | ||||||
|
Gas utility
|
4,063 | 3,812 | 3,622 | |||||||||
|
Enterprises
|
102 | 345 | 340 | |||||||||
|
Other
|
36 | 34 | 33 | |||||||||
|
Total Plant, Property, and Equipment — CMS Energy
|
$ | 14,145 | $ | 13,716 | $ | 12,960 | ||||||
166
Table of Contents
CMS Energy
Corporation
Consumers Energy
Company
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
Consumers
|
||||||||||||
|
Plant, Property, and Equipment, Gross
|
||||||||||||
|
Electric utility
|
$ | 9,944 | $ | 9,525 | $ | 8,965 | ||||||
|
Gas utility
|
4,063 | 3,812 | 3,622 | |||||||||
|
Other
|
15 | 15 | 15 | |||||||||
|
Total Plant, Property, and Equipment — Consumers
|
$ | 14,022 | $ | 13,352 | $ | 12,602 | ||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Total Assets:
|
||||||||||||
|
Electric utility(b)
|
$ | 9,321 | $ | 9,157 | $ | 8,904 | ||||||
|
Gas utility(b)
|
4,614 | 4,594 | 4,565 | |||||||||
|
Enterprises
|
191 | 303 | 313 | |||||||||
|
Other
|
1,490 | 1,202 | 1,119 | |||||||||
|
Total Assets — CMS Energy
|
$ | 15,616 | $ | 15,256 | $ | 14,901 | ||||||
|
Consumers
|
||||||||||||
|
Total Assets:
|
||||||||||||
|
Electric utility(b)
|
$ | 9,321 | $ | 9,157 | $ | 8,904 | ||||||
|
Gas utility(b)
|
4,614 | 4,594 | 4,565 | |||||||||
|
Other
|
904 | 871 | 777 | |||||||||
|
Total Assets — Consumers
|
$ | 14,839 | $ | 14,622 | $ | 14,246 | ||||||
|
CMS Energy, including
Consumers
|
||||||||||||
|
Capital Expenditures:(c)
|
||||||||||||
|
Electric utility
|
$ | 642 | $ | 557 | $ | 553 | ||||||
|
Gas utility
|
235 | 270 | 241 | |||||||||
|
Enterprises
|
4 | 7 | 3 | |||||||||
|
Other
|
2 | — | — | |||||||||
|
Total Capital Expenditures — CMS Energy
|
$ | 883 | $ | 834 | $ | 797 | ||||||
|
Consumers
|
||||||||||||
|
Capital Expenditures:(c)
|
||||||||||||
|
Electric utility
|
$ | 642 | $ | 557 | $ | 553 | ||||||
|
Gas utility
|
235 | 270 | 241 | |||||||||
|
Total Capital Expenditures — Consumers
|
$ | 877 | $ | 827 | $ | 794 | ||||||
167
Table of Contents
CMS Energy
Corporation
Consumers Energy
Company
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Geographic
Areas:
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
CMS Energy, including
Consumers
(d)
|
||||||||||||
|
United States
|
||||||||||||
|
Operating revenue(e)
|
$ | 6,432 | $ | 6,205 | $ | 6,807 | ||||||
|
Operating income
|
$ | 978 | $ | 698 | $ | 793 | ||||||
|
Total Assets
|
$ | 15,613 | $ | 15,253 | $ | 14,898 | ||||||
|
International
|
||||||||||||
|
Operating revenue(e)
|
$ | — | $ | — | $ | — | ||||||
|
Operating income
|
$ | — | $ | — | $ | 1 | ||||||
|
Total Assets
|
$ | 3 | $ | 3 | $ | 3 | ||||||
| (a) | Consumers had no material equity method investments. | |
| (b) | Amounts include a portion of Consumers’ other common assets attributable to both the electric and gas utility businesses. | |
| (c) | Amounts include purchase of capital lease additions. Amounts also include a portion of Consumers’ capital expenditures for plant and equipment attributable to both the electric and gas utility businesses. | |
| (d) | Consumers had no international assets, international operating revenues, or international operating income. | |
| (e) | Revenues were based on the country location of customers. |
168
Table of Contents
CMS Energy
Corporation
Consumers Energy
Company
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| 22: | QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION (UNAUDITED) |
| 2010 | ||||||||||||||||
|
Quarters Ended
|
March 31 | June 30 | Sept. 30 | Dec. 31 | ||||||||||||
| In Millions, Except Per Share Amounts and Stock Prices | ||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||
|
Operating Revenue
|
$ | 1,967 | $ | 1,340 | $ | 1,443 | $ | 1,682 | ||||||||
|
Operating Income
|
239 | 262 | 319 | 158 | ||||||||||||
|
Income From Continuing Operations
|
89 | 100 | 146 | 31 | ||||||||||||
|
Loss From Discontinued Operations
|
(1 | ) | (16 | ) | — | (6 | ) | |||||||||
|
Net Income
|
88 | 84 | 146 | 25 | ||||||||||||
|
Income Attributable to Noncontrolling Interests
|
— | 2 | 1 | — | ||||||||||||
|
Net Income Attributable to CMS Energy
|
88 | 82 | 145 | 25 | ||||||||||||
|
Charge for Deferred Issuance Cost on Preferred Stock
|
— | — | 8 | — | ||||||||||||
|
Preferred Stock Dividends
|
3 | 2 | 3 | — | ||||||||||||
|
Net income Available to Common Stockholders
|
85 | 80 | 134 | 25 | ||||||||||||
|
Earnings From Continuing Operations Per Average Common
Share — Basic(a)
|
0.38 | 0.42 | 0.58 | 0.13 | ||||||||||||
|
Earnings From Continuing Operations Per Average Common
Share — Diluted(a)
|
0.35 | 0.39 | 0.53 | 0.11 | ||||||||||||
|
Basic Earnings Per Average Common Share(a)
|
0.37 | 0.35 | 0.58 | 0.11 | ||||||||||||
|
Diluted Earnings Per Average Common Share(a)
|
0.34 | 0.32 | 0.53 | 0.09 | ||||||||||||
|
Common stock prices(b)
|
||||||||||||||||
|
High
|
15.90 | 16.55 | 18.15 | 19.16 | ||||||||||||
|
Low
|
14.57 | 14.26 | 14.68 | 17.72 | ||||||||||||
|
Consumers
|
||||||||||||||||
|
Operating Revenue
|
$ | 1,890 | $ | 1,276 | $ | 1,370 | $ | 1,620 | ||||||||
|
Operating Income
|
224 | 207 | 304 | 191 | ||||||||||||
|
Net Income
|
107 | 88 | 160 | 79 | ||||||||||||
|
Preferred Stock Dividends
|
— | 1 | 1 | — | ||||||||||||
|
Net Income Available to Common Stockholder
|
107 | 87 | 159 | 79 | ||||||||||||
169
Table of Contents
CMS Energy
Corporation
Consumers Energy
Company
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| 2009 | ||||||||||||||||
|
Quarters Ended
|
March 31 | June 30 | Sept. 30 | Dec. 31 | ||||||||||||
| In Millions, Except Per Share Amounts and Stock Prices | ||||||||||||||||
|
CMS Energy, including
Consumers
|
||||||||||||||||
|
Operating Revenue
|
$ | 2,104 | $ | 1,225 | $ | 1,263 | $ | 1,613 | ||||||||
|
Operating Income
|
210 | 150 | 230 | 108 | ||||||||||||
|
Income From Continuing Operations
|
75 | 55 | 76 | 14 | ||||||||||||
|
Income (Loss) From Discontinued Operations
|
(1 | ) | 25 | (1 | ) | (3 | ) | |||||||||
|
Net Income
|
74 | 80 | 75 | 11 | ||||||||||||
|
Income Attributable to Noncontrolling Interests
|
1 | 2 | 6 | 2 | ||||||||||||
|
Net Income Attributable to CMS Energy
|
73 | 78 | 69 | 9 | ||||||||||||
|
Preferred Stock Dividends
|
3 | 3 | 2 | 3 | ||||||||||||
|
Net Income Available to Common Stockholders
|
70 | 75 | 67 | 6 | ||||||||||||
|
Earnings From Continuing Operations Per Average Common
Share — Basic(a)
|
0.32 | 0.22 | 0.30 | 0.04 | ||||||||||||
|
Earnings From Continuing Operations Per Average Common
Share — Diluted(a)
|
0.31 | 0.21 | 0.29 | 0.03 | ||||||||||||
|
Basic Earnings Per Average Common Share(a)
|
0.31 | 0.33 | 0.29 | 0.03 | ||||||||||||
|
Diluted Earnings Per Average Common Share(a)
|
0.30 | 0.32 | 0.28 | 0.02 | ||||||||||||
|
Common stock prices(b)
|
||||||||||||||||
|
High
|
12.20 | 12.30 | 13.64 | 16.04 | ||||||||||||
|
Low
|
10.09 | 10.98 | 11.78 | 13.05 | ||||||||||||
|
Consumers
|
||||||||||||||||
|
Operating Revenue
|
$ | 2,034 | $ | 1,182 | $ | 1,204 | $ | 1,543 | ||||||||
|
Operating Income
|
203 | 174 | 218 | 94 | ||||||||||||
|
Net Income
|
99 | 72 | 101 | 21 | ||||||||||||
|
Preferred Stock Dividends
|
1 | — | 1 | — | ||||||||||||
|
Net Income Available to Common Stockholder
|
98 | 72 | 100 | 21 | ||||||||||||
| (a) | The sum of the quarters may not equal the annual EPS due to changes in the number of shares outstanding. | |
| (b) | Based on New York Stock Exchange composite transactions. |
170
Table of Contents
(This page
intentionally left blank)
171
Table of Contents
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
CMS Energy Corporation
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, of cash flows,
and of changes in equity present fairly, in all material
respects, the financial position of CMS Energy Corporation and
its subsidiaries at December 31, 2010 and December 31,
2009, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2010 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedules listed in the
index appearing under Item 15(a)(2) present fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on criteria
established in
Internal Control — Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial
statements and financial statement schedules, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Management’s Annual Report
on Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedules, and
on the Company’s internal control over financial reporting
based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 24, 2011
172
Table of Contents
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholder of
Consumers Energy Company
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, of cash flows,
and of changes in equity present fairly, in all material
respects, the financial position of Consumers Energy Company and
its subsidiaries at December 31, 2010 and December 31,
2009, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2010 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
index appearing under Item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on criteria
established in
Internal Control — Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial
statements and financial statement schedules, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Management’s Annual Report
on Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedules, and
on the Company’s internal control over financial reporting
based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 24, 2011
173
Table of Contents
ON ACCOUNTING AND FINANCIAL DISCLOSURE
CMS
Energy
None.
Consumers
None.
CMS Energy
Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures:
Under the supervision and with the
participation of management, including its CEO and CFO, CMS
Energy conducted an evaluation of its disclosure controls and
procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act). Based on such evaluation, CMS
Energy’s CEO and CFO have concluded that its disclosure
controls and procedures were effective as of December 31,
2010.
Management’s Annual Report on Internal Control Over
Financial Reporting:
CMS Energy’s management is
responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Exchange Act
Rule 13a-15(f).
CMS Energy’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
GAAP and includes policies and procedures that:
| • | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of CMS Energy; | |
| • | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of CMS Energy are being made only in accordance with authorizations of management and directors of CMS Energy; and | |
| • | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of CMS Energy’s assets that could have a material effect on its financial statements. |
Management, including its CEO and CFO, does not expect that its
internal controls will prevent or detect all errors and all
fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. In addition, any evaluation
of the effectiveness of controls is subject to risks that those
internal controls may become inadequate in future periods
because of changes in business conditions, or that the degree of
compliance with the policies or procedures deteriorates.
Under the supervision and with the participation of management,
including its CEO and CFO, CMS Energy conducted an evaluation of
the effectiveness of its internal control over financial
reporting as of December 31, 2010. In making this
evaluation, management used the criteria set forth in the
framework in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on such evaluation, CMS Energy’s
management concluded that its internal control over financial
reporting was effective as of December 31, 2010. The
effectiveness of CMS Energy’s internal control over
financial reporting as of December 31, 2010 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report which appears
under Item 8.
Changes in Internal Control over Financial
Reporting:
There have been no changes in CMS
Energy’s internal control over financial reporting during
the most recently completed fiscal quarter that have materially
affected, or are reasonably likely to materially affect, its
internal control over financial reporting.
174
Table of Contents
Consumers
Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures:
Under the supervision and with the
participation of management, including its CEO and CFO,
Consumers conducted an evaluation of its disclosure controls and
procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act). Based on such evaluation,
Consumers’ CEO and CFO have concluded that its disclosure
controls and procedures were effective as of December 31,
2010.
Management’s Annual Report on Internal Control Over
Financial Reporting:
Consumers’ management is
responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Exchange Act
Rule 13a-15(f).
Consumers’ internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
GAAP and includes policies and procedures that:
| • | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Consumers; | |
| • | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of Consumers are being made only in accordance with authorizations of management and directors of Consumers; and | |
| • | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Consumers’ assets that could have a material effect on its financial statements. |
Management, including its CEO and CFO, does not expect that its
internal controls will prevent or detect all errors and all
fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. In addition, any evaluation
of the effectiveness of controls is subject to risks that those
internal controls may become inadequate in future periods
because of changes in business conditions, or that the degree of
compliance with the policies or procedures deteriorates.
Under the supervision and with the participation of management,
including its CEO and CFO, Consumers conducted an evaluation of
the effectiveness of its internal control over financial
reporting as of December 31, 2010. In making this
evaluation, management used the criteria set forth in the
framework in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on such evaluation, Consumers’
management concluded that its internal control over financial
reporting was effective as of December 31, 2010. The
effectiveness of Consumers’ internal control over financial
reporting as of December 31, 2010 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears under
Item 8.
Changes in Internal Control over Financial
Reporting:
There have been no changes in
Consumers’ internal control over financial reporting during
the most recently completed fiscal quarter that have materially
affected, or are reasonably likely to materially affect, its
internal control over financial reporting.
CMS
Energy
None.
Consumers
None.
175
Table of Contents
CMS
Energy
Information that is required in Item 10 regarding executive
officers is included in the Item 1. Business, CMS Energy
Executive Officers section, which is incorporated by reference
herein.
Information that is required in Item 10 regarding
directors, executive officers, and corporate governance is
included in CMS Energy’s definitive proxy statement, which
is incorporated by reference herein.
CODE OF
ETHICS
CMS Energy adopted a code of ethics that applies to its CEO, CFO
and CAO, as well as all other officers and employees of CMS
Energy and its affiliates, including Consumers. This code of
ethics, entitled “Code of Conduct and Guide to Ethical
Business Behavior 2010” is posted on CMS Energy’s
website at www.cmsenergy.com, under “Compliance and
Ethics”. CMS Energy’s Code of Conduct and Guide to
Ethical Business Behavior 2010 is administered by the Chief
Compliance Officer of CMS Energy, who reports directly to the
Audit Committee of the Board of Directors of CMS Energy. Any
amendment to, or waiver of, a provision of CMS Energy’s
code of ethics that applies to CMS Energy’s CEO, CFO, CAO
or persons performing similar functions will be disclosed on CMS
Energy’s website at www.cmsenergy.com under
“Compliance and Ethics.”
CMS Energy has also adopted a code of conduct that applies to
its directors, entitled “Board of Directors Code of
Conduct”. This Board of Directors Code of Conduct can also
be found on CMS Energy’s website at www.cmsenergy.com. CMS
Energy’s Board of Directors Code of Conduct is administered
by the Audit Committee of the Board of Directors of CMS Energy.
Any alleged violation of this Board of Directors Code of Conduct
by a director will be investigated by disinterested members of
the Audit Committee of the Board of Directors of CMS Energy, or
if none, by disinterested members of the entire Board of
Directors of CMS Energy.
Consumers
Information that is required in Item 10 regarding executive
officers is included in the Item 1. Business, Consumers
Executive Officers section, which is incorporated by reference
herein.
Information that is required in Item 10 regarding
Consumers’ directors, executive officers, and corporate
governance is included in CMS Energy’s definitive proxy
statement, which is incorporated by reference herein.
CODE OF
ETHICS
Consumers adopted a code of ethics that applies to its CEO, CFO
and CAO, as well as all other officers and employees of
Consumers and its affiliates. This code of ethics, entitled
“Code of Conduct and Guide to Ethical Business Behavior
2010” is posted on Consumers’ website at
www.consumersenergy.com, under “Compliance and
Ethics”. Consumers’ Code of Conduct and Guide to
Ethical Business Behavior 2010 is administered by the Chief
Compliance Officer of Consumers, who reports directly to the
Audit Committee of the Board of Directors of Consumers. Any
amendment to, or waiver of, a provision of Consumers’ code
of ethics that applies to Consumers’ CEO, CFO, CAO or
persons performing similar functions will be disclosed on
Consumers’ website at www.consumersenergy.com under
“Compliance and Ethics.”
Consumers has also adopted a code of conduct that applies to its
directors, entitled “Board of Directors Code of
Conduct”. This Board of Directors Code of Conduct can also
be found on Consumers’ website at www.consumersenergy.com.
The Consumers’ Board of Directors Code of Conduct is
administered by the Audit Committee of the Board of Directors of
Consumers. Any alleged violation of this Board of Directors Code
of Conduct by a director will be investigated by disinterested
members of the Audit Committee of the Board of Directors of
Consumers, or if none, by disinterested members of the entire
Board of Directors of Consumers.
176
Table of Contents
Information that is required in Item 11 regarding executive
compensation of CMS Energy’s and Consumers’ executive
officers is included in CMS Energy’s definitive proxy
statement, which is incorporated by reference herein.
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
CMS
Energy
Information that is required in Item 12 regarding
securities authorized for issuance under equity compensation
plans and security ownership of certain beneficial owners and
management is included in CMS Energy’s definitive proxy
statement, which is incorporated by reference herein.
Consumers
Information that is required in Item 12 regarding
securities authorized for issuance under equity compensation
plans and security ownership of certain beneficial owners and
management of Consumers is included in CMS Energy’s
definitive proxy statement, which is incorporated by reference
herein.
AND DIRECTOR INDEPENDENCE
CMS
Energy
Information that is required in Item 13 regarding certain
relationships and related transactions, and director
independence is included in CMS Energy’s definitive proxy
statement, which is incorporated by reference herein.
Consumers
Information that is required in Item 13 regarding certain
relationships and related transactions, and director
independence regarding Consumers is included in CMS
Energy’s definitive proxy statement, which is incorporated
by reference herein.
CMS
Energy
Information that is required in Item 14 regarding principal
accountant fees and services is included in CMS Energy’s
definitive proxy statement, which is incorporated by reference
herein.
Consumers
Information that is required in Item 14 regarding principal
accountant fees and services relating to Consumers is included
in CMS Energy’s definitive proxy statement, which is
incorporated by reference herein.
| (a)(1) | Financial Statements and Reports of Independent Public Accountants for CMS Energy and Consumers are included in each company’s Item 8. Financial Statements and Supplementary Data and are incorporated by reference herein. |
| (a)(2) | Index to Financial Statement Schedules. |
177
Table of Contents
| Page | ||||||
|
Schedule I
|
Condensed Financial Information of Registrant CMS Energy-Parent Company | |||||
| Condensed Statements of Income | 184 | |||||
| Statements of Cash Flows | 185 | |||||
| Condensed Balance Sheets | 186 | |||||
| Notes to Condensed Financial Statements | 188 | |||||
|
Schedule II
|
Valuation and Qualifying Accounts and Reserves | |||||
| CMS Energy | 189 | |||||
| Consumers | 189 | |||||
|
Report of Independent Registered Public Accounting Firm
|
||||||
| CMS Energy | 172 | |||||
| Consumers | 173 | |||||
Schedules other than those listed above are omitted because they
are either not required, not applicable, or the required
information is shown in the financial statements or notes
thereto. Columns omitted from schedules filed have been omitted
because the information is not applicable.
(a)(3) Exhibits for CMS Energy and Consumers are listed after
Item 15(b) below and are incorporated by reference herein.
(b) Exhibits, including those incorporated by reference.
178
Table of Contents
CMS ENERGY’S
AND CONSUMERS’ EXHIBITS
The agreements included as exhibits to this
Form 10-K
filing are included solely to provide information regarding the
terms of the agreements and are not intended to provide any
other factual or disclosure information about CMS Energy,
Consumers, or other parties to the agreements. The agreements
may contain representations and warranties made by each of the
parties to each of the agreements that were made exclusively for
the benefit of the parties involved in each of the agreements
and should not be treated as statements of fact. The
representations and warranties were made as a way to allocate
risk if one or more of those statements prove to be incorrect.
The statements were qualified by disclosures to the parties to
each of the agreements and may not be reflected in each of the
agreements. The agreements may apply standards of materiality
that are different than standards applied to other investors.
Additionally, the statements were made as of the date of the
agreements or as specified in the agreements and have not been
updated.
The representations and warranties may not describe the actual
state of affairs of the parties to each agreement. Additional
information about CMS Energy and Consumers may be found in this
filing at www.cmsenergy.com, at www.consumersenergy.com, and
through the SEC’s website at www.sec.gov.
| Previously Filed | ||||||||
|
With File
|
As Exhibit
|
|||||||
|
Exhibits
|
Number
|
Number
|
Description
|
|||||
|
3.1
|
1-9513 | (3)(a)* | — | Restated Articles of Incorporation of CMS Energy effective June 1, 2004, as amended May 22, 2009 (2nd qtr. 2009 Form 10-Q) | ||||
|
3.2
|
1-9513 | 3.1* | — | CMS Energy Corporation Bylaws, amended and restated as of January 27, 2011 (Form 8-K filed February 1, 2011) | ||||
|
3.3
|
1-5611 | 3(c) | — | Restated Articles of Incorporation of Consumers effective June 7, 2000 (2000 Form 10-K) | ||||
|
3.4
|
1-5611 | 3.2 | — | Consumers Energy Company Bylaws, amended and restated as of January 27, 2011 (Form 8-K filed February 1, 2011) | ||||
|
4.1
|
2-65973 | (b)(1)-4 | — | Indenture dated as of September 1, 1945 between Consumers and Chemical Bank (successor to Manufacturers Hanover Trust Company), as Trustee, including therein indentures supplemental thereto through the Forty-third Supplemental Indenture dated as of May 1, 1979 (Form S-16 filed November 13, 1979) | ||||
| Indentures Supplemental thereto: | ||||||||
|
4.1.a
|
1-5611 | (4)(a) | — | 71st dated as of 3/06/98 (1997 Form 10-K) | ||||
|
4.1.b
|
1-5611 | (4)(d) | — | 90th dated as of 4/30/03 (1st qtr. 2003 Form 10-Q) | ||||
|
4.1.c
|
1-5611 | (4)(b) | — | 92nd dated as of 8/26/03 (3rd qtr. 2003 Form 10-Q) | ||||
|
4.1.d
|
1-5611 | (4)(a) | — | 96th dated as of 8/17/04 (Form 8-K filed August 20, 2004) | ||||
|
4.1.e
|
1-5611 | 4.4 | — | 98th dated as of 12/13/04 (Form 8-K filed December 13, 2004) | ||||
|
4.1.f
|
1-5611 | (4)(a)(i) | — | 99th dated as of 1/20/05 (2004 Form 10-K) | ||||
|
4.1.g
|
1-5611 | 4.2 | — | 100th dated as of 3/24/05 (Form 8-K filed March 30, 2005) | ||||
|
4.1.h
|
1-5611 | 4.2 | — | 104th dated as of 8/11/05 (Form 8-K filed August 11, 2005) | ||||
|
4.1.i
|
1-5611 | 4(b) | — | 105th dated as of 3/30/07 (2007 Form 10-K) | ||||
|
4.1.j
|
1-5611 | 4(a) | — | 106th dated as of 11/30/07 (2007 Form 10-K) | ||||
|
4.1.k
|
1-5611 | 4.1 | — | 108th dated as of 3/14/08 (Form 8-K filed March 14, 2008) | ||||
|
4.1.l
|
1-5611 | 4.1 | — | 109th dated as of 9/11/08 (Form 8-K filed September 16, 2008) | ||||
|
4.1.m
|
1-5611 | 4.1 | — | 110th dated as of 9/12/08 (Form 8-K filed September 12, 2008) | ||||
|
4.1.n
|
1-5611 | 4.1 | — | 111th dated as of 3/6/09 (Form 8-K filed March 6, 2009) | ||||
|
4.1.o
|
1-5611 | 4.1 | — | 112th dated as of 9/1/10 (Form 8-K filed September 7, 2010) | ||||
|
4.1.p
|
1-5611 | 4.1 | — | 113th dated as of 10/15/10 (Form 8-K filed October 20, 2010) | ||||
|
4.2
|
1-5611 | (4)(b) | — | Indenture dated as of January 1, 1996 between Consumers and The Bank of New York Mellon, as Trustee (1995 Form 10-K) | ||||
|
4.3
|
1-5611 | (4)(c) | — | Indenture dated as of February 1, 1998 between Consumers and The Bank of New York Mellon (formerly The Chase Manhattan Bank), as Trustee (1997 Form 10-K) | ||||
179
Table of Contents
| Previously Filed | ||||||||
|
With File
|
As Exhibit
|
|||||||
|
Exhibits
|
Number
|
Number
|
Description
|
|||||
|
4.4
|
33-47629 | (4)(a)* | — | Indenture dated as of September 15, 1992 between CMS Energy and NBD Bank, as Trustee (Form S-3 filed May 1, 1992) | ||||
| Indentures Supplemental thereto: | ||||||||
|
4.4.a
|
333-58686 | (4)(a)* | — | 11th dated as of 3/29/01 (Form S-8 filed April 11, 2001) | ||||
|
4.4.b
|
1-9513 | (4)(d)(ii)* | — | 16th dated as of 12/16/04 (2004 Form 10-K) | ||||
|
4.4.c
|
1-9513 | 4.2* | — | 17th dated as of 12/13/04 (Form 8-K filed December 13, 2004) | ||||
|
4.4.d
|
1-9513 | 4.2* | — | 18th dated as of 1/19/05 (Form 8-K filed January 20, 2005) | ||||
|
4.4.e
|
1-9513 | 4.2* | — | 19th dated as of 12/13/05 (Form 8-K filed December 15, 2005) | ||||
|
4.4.f
|
1-9513 | 4.2* | — | 20th dated as of 7/3/07 (Form 8-K filed July 5, 2007) | ||||
|
4.4.g
|
1-9513 | 4.3* | — | 21st dated as of 7/3/07 (Form 8-K filed July 5, 2007) | ||||
|
4.4.h
|
1-9513 | 4.1* | — | 22nd dated as of 6/15/09 (Form 8-K filed June 15, 2009) | ||||
|
4.4.i
|
1-9513 | 4.3* | — | 23rd dated as of 6/15/09 (Form 8-K filed June 15, 2009) | ||||
|
4.4.j
|
1-9513 | 4.1* | — | 24th dated as of 1/14/10 (Form 8-K filed January 14, 2010) | ||||
|
4.4.k
|
1-9513 | 4.1* | — | 25th dated as of 9/23/10 (Form 8-K filed September 23, 2010) | ||||
|
4.4.l
|
1-9513 | 4.1* | — | 26th dated as of 11/19/10 (Form 8-K filed November 19, 2010) | ||||
|
4.5
|
1-9513 | (4a)* | — | Indenture dated as of June 1, 1997 between CMS Energy and The Bank of New York Mellon, as Trustee (Form 8-K filed July 1, 1997) | ||||
| Indentures Supplemental thereto: | ||||||||
|
4.5.a
|
1-9513 | (4)(b)* | — | 1st dated as of 6/20/97 (Form 8-K filed July 1, 1997) | ||||
|
10.1
|
1-9513 | (10)(d)* | — | $300 million Seventh Amended and Restated Credit Agreement dated as of April 2, 2007 among CMS Energy Corporation, the Banks, the Administrative Agent, Collateral Agent, Syndication Agent and Documentation Agents, all defined therein and Amendment No. 1 dated as of December 19, 2007 (3rd qtr. 2009 Form 10-Q) | ||||
|
10.2
|
1-9513 | (10)(b)* | — | Amendment No. 2 dated as of January 23, 2009 to the $300 million Seventh Amended and Restated Credit Agreement (2008 Form 10-K) | ||||
|
10.3
|
1-9513 | (10)(e)* | — | Assumption and Acceptance dated January 8, 2008 to the $300 million Seventh Amended and Restated Credit Agreement (3rd qtr. 2009 Form 10-Q) | ||||
|
10.4
|
1-9513 | 10(b)* | — | Fourth Amended and Restated Pledge and Security Agreement dated as of April 2, 2007 among CMS Energy and Collateral Agent, as defined therein (2007 Form 10-K) | ||||
|
10.5
|
1-9513 | 10(c)* | — | Amended and Restated Cash Collateral Agreement dated as of April 2, 2007, made by CMS Energy to the Administrative Agent for the lenders and Collateral Agent, as defined therein (2007 Form 10-K) | ||||
|
10.6
|
1-5611 | (10)(f) | — | $500 million Fourth Amended and Restated Credit Agreement dated as of March 30, 2007 among Consumers Energy Company, the Banks, the Administrative Agent, the Collateral Agent, the Syndication Agent and the Documentation Agents, all as defined therein (3rd qtr. 2009 Form 10-Q) | ||||
|
10.7
|
1-9513 | (10)(g) | — | 2004 Form of Executive Severance Agreement (3rd qtr. 2009 Form 10-Q) | ||||
|
10.8
|
1-9513 | (10)(h) | — | 2004 Form of Officer Severance Agreement (3rd qtr. 2009 Form 10-Q) | ||||
|
10.9
|
1-9513 | (10)(g) | — | 2004 Form of Change-in-Control Agreement (2007 Form 10-K) | ||||
|
10.10
|
1-9513 | 10.1 | — | CMS Energy’s Performance Incentive Stock Plan, effective February 3, 1988, amended and restated effective August 1, 2010 (2nd qtr. 2010 Form 10-Q) | ||||
180
Table of Contents
| Previously Filed | ||||||||
|
With File
|
As Exhibit
|
|||||||
|
Exhibits
|
Number
|
Number
|
Description
|
|||||
|
10.11
|
1-9513 | (10)(i) | — | CMS Deferred Salary Savings Plan effective December 1, 1989 and as further amended effective December 1, 2007 (2007 Form 10-K) | ||||
|
10.12
|
1-9513 | (10)(l) | — | Amendment to the Deferred Salary Savings Plan dated December 21, 2008 (2008 Form 10-K) | ||||
|
10.13
|
1-9513 | (10)(k) | — | Supplemental Executive Retirement Plan for Employees of CMS Energy/Consumers Energy Company effective January 1, 1982 and as further amended effective December 1, 2007 (2007 Form 10-K) | ||||
|
10.14
|
1-9513 | (10)(p) | — | Amendment to the Defined Benefit Supplemental Executive Retirement Plan dated December 21, 2008 (2008 Form 10-K) | ||||
|
10.15
|
1-9513 | (10)(l) | — | Defined Contribution Supplemental Executive Retirement Plan effective April 1, 2006 and as further amended effective December 1, 2007 (2007 Form 10-K) | ||||
|
10.16
|
1-9513 | (10)(r) | — | Amendment to the Defined Contribution Supplemental Executive Retirement Plan dated December 21, 2008 (2008 Form 10-K) | ||||
|
10.17
|
1-9513 | (10)(t) | — | 2009 Form of Officer Separation Agreement (2008 Form 10-K) | ||||
|
10.18
|
1-9513 | (10)(v) | — | Amended and Restated Investor Partner Tax Indemnification Agreement dated as of June 1, 1990 among Investor Partners, CMS Midland as Indemnitor and CMS Energy as Guarantor (1990 Form 10-K) | ||||
|
10.19
|
1-9513 | (10)(y)* | — | Environmental Agreement dated as of June 1, 1990 made by CMS Energy to The Connecticut National Bank and Others (1990 Form 10-K) | ||||
|
10.20
|
1-5611 | (10)(y) | — | Unwind Agreement dated as of December 10, 1991 by and among CMS Energy, Midland Group, Ltd., Consumers, CMS Midland, Inc., MEC Development Corp. and CMS Midland Holdings Company (1991 Form 10-K) | ||||
|
10.21
|
1-5611 | (10)(aa)* | — | Parent Guaranty dated as of June 14, 1990 from CMS Energy to MCV, each of the Owner Trustees, the Indenture Trustees, the Owner Participants and the Initial Purchasers of Senior Bonds in the MCV Sale Leaseback transaction, and MEC Development (1991 Form 10-K) | ||||
|
10.22
|
1-5611 | (10)(i) | — | Asset Sale Agreement dated as of July 11, 2006 by and among Consumers Energy Company as Seller and Entergy Nuclear Palisades, LLC as Buyer (3rd qtr. 2009 Form 10-Q) | ||||
|
10.23
|
1-5611 | (10)(j) | — | Palisades Nuclear Power Plant Power Purchase Agreement dated as of July 11, 2006 between Entergy Nuclear Palisades, LLC and Consumers Energy Company (3rd qtr. 2009 Form 10-Q) | ||||
|
10.24
|
1-9513 | (10)(k)* | — | Agreement of Purchase and Sale by and between CMS Enterprises Company and Abu Dhabi National Energy Company PJSC dated as of February 3, 2007 (3rd qtr. 2009 Form 10-Q) | ||||
|
10.25
|
1-9513 | 10.1* | — | Common Agreement dated March 12, 2007 between CMS Enterprises Company and Lucid Energy, LLC (Form 8-K filed March 14, 2007) | ||||
|
10.26
|
1-9513 | (10)(l)* | — | Agreement of Purchase and Sale dated March 12, 2007 by and among CMS Enterprises Company, CMS Energy Investment, LLC, and Lucid Energy, LLC, and Michigan Pipeline and Processing, LLC (3rd qtr. 2009 Form 10-Q) | ||||
181
Table of Contents
| Previously Filed | ||||||||
|
With File
|
As Exhibit
|
|||||||
|
Exhibits
|
Number
|
Number
|
Description
|
|||||
|
10.27
|
1-9513 | (10)(m)* | — | Agreement of Purchase and Sale dated March 12, 2007 by and among CMS Enterprises Company, CMS Generation Holdings Company, CMS International Ventures, LLC, and Lucid Energy, LLC, and New Argentine Generation Company, LLC (3rd qtr. 2009 Form 10-Q) | ||||
|
10.28
|
1-9513 | (10)(a)* | — | Form of Indemnification Agreement between CMS Energy Corporation and its Directors effective as of November 1, 2007 (3rd qtr. 2007 Form 10-Q) | ||||
|
10.29
|
1-5611 | (10)(b) | — | Form of Indemnification Agreement between Consumers Energy Company and its Directors effective as of November 1, 2007 (3rd qtr. 2007 Form 10-Q) | ||||
|
10.30
|
1-5611 | 10.3 | — | Amended and Restated Letter of Credit Reimbursement Agreement between Consumers and U.S. Bank National Association dated as of September 21, 2010 (3rd qtr. 2010 Form 10-Q) | ||||
|
10.31
|
1-5611 | 10.1 | — | $150,000,000 Second Amended and Restated Revolving Credit Agreement dated as of August 11, 2010 among Consumers Energy Company, the Banks, Agent, Co-Syndication Agents and Documentation Agent, all as defined therein (Form 8-K filed August 16, 2010) | ||||
|
10.32
|
1-5611 | (10)(t) | — | Settlement Agreement and Amended and Restated Power Purchase Agreement between Consumers Energy Company and Midland Cogeneration Venture Limited Partnership dated as of June 9, 2008 (3rd qtr. 2009 Form 10-Q) | ||||
|
10.33
|
1-5611 | 10.4 | — | 1st Amendment to the Amended and Restated Power Purchase Agreement between Consumers and MCV Partnership dated as of March 1, 2010 (3rd qtr. 2010 Form 10-Q) | ||||
|
10.34
|
— | Amended and Restated Receivables Purchase Agreement dated as of November 23, 2010 among Consumers Receivables Funding II, LLC, Consumers Energy Company, The Conduits from time to time party thereto, The Financial Institutions from time to time party thereto, The Managing Agents from time to time party thereto, and JPMorgan Chase Bank, NA, as Administrative Agent | ||||||
|
10.35
|
1-5611 | (10)(v) | — | Receivables Sale Agreement dated as of May 22, 2003 between Consumers Energy Company as Originator and Consumers Receivables Funding II, LLC as Buyer, as amended by Amendment No. 1 dated as of May 20, 2004 and as amended by Amendment No. 2 dated as of August 15, 2006 (3rd qtr. 2009 Form 10-Q) | ||||
|
10.36
|
1-5611 | (10)(rr) | — | Amendment No. 3 to the Receivables Sale Agreement dated as of September 3, 2009 (2009 Form 10-K) | ||||
|
10.37
|
1-5611 | (10)(ss) | — | Amendment No. 4 to the Receivables Sale Agreement dated as of February 12, 2010 (2009 Form 10-K) | ||||
|
10.38
|
1-5611 | (10)(b) | — | Amendment No. 5 to the Receivables Sale Agreement dated as of March 17, 2010 (1st qtr. 2010 Form 10-Q) | ||||
|
10.39
|
1-5611 | (10)(d) | — | Amendment No. 6 to the Receivables Sale Agreement dated as of April 20, 2010 (1st qtr. 2010 Form 10-Q) | ||||
|
10.40
|
— | Amendment No. 7 to the Receivables Sale Agreement dated as of November 23, 2010 | ||||||
|
10.41
|
1-9513 | (10)(e) | — | CMS Incentive Compensation Plan for CMS Energy and its Subsidiaries effective January 1, 2004, amended and restated effective as of January 1, 2010 (1st qtr. 2010 Form 10-Q) | ||||
182
Table of Contents
| Previously Filed | ||||||||
|
With File
|
As Exhibit
|
|||||||
|
Exhibits
|
Number
|
Number
|
Description
|
|||||
|
10.42
|
1-9513 | (10)(f) | — | Form of Change in Control Agreement as of March 2010 (1st qtr. 2010 Form 10-Q) | ||||
|
10.43
|
1-9513 | (10)(g)* | — | Agreement between David W. Joos and CMS Energy Board of Directors (1st qtr. 2010 Form 10-Q) | ||||
|
10.44
|
1-5611 | (10)(h) | — | Bond Purchase Agreement between Consumers and each of the Purchasers named therein dated as of April 19, 2010 (1st qtr. 2010 Form 10-Q) | ||||
|
10.45
|
1-5611 | 10.1 | — | Bond Purchase Agreement between Consumers and each of the Purchasers named therein dated as of September 27, 2010 (Form 8-K filed September 30, 2010) | ||||
|
12.1
|
— | Statement regarding computation of CMS Energy’s Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends | ||||||
|
12.2
|
— | Statement regarding computation of Consumers’ Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends | ||||||
|
21.1
|
— | Subsidiaries of CMS Energy and Consumers | ||||||
|
23.1
|
— | Consent of PricewaterhouseCoopers LLP for CMS Energy | ||||||
|
23.2
|
— | Consent of PricewaterhouseCoopers LLP for Consumers | ||||||
|
24.1
|
— | Power of Attorney for CMS Energy | ||||||
|
24.2
|
— | Power of Attorney for Consumers | ||||||
|
31.1
|
— | CMS Energy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||
|
31.2
|
— | CMS Energy’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||
|
31.3
|
— | Consumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||
|
31.4
|
— | Consumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||
|
32.1
|
— | CMS Energy’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||
|
32.2
|
— | Consumers’ certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||
|
99.1
|
— | CMS Energy Corporation Stock Purchase Plan, amended and restated as of December 1, 2010 | ||||||
|
101.INS**
|
— | XBRL Instance Document | ||||||
|
101.SCH**
|
— | XBRL Taxonomy Extension Schema | ||||||
|
101.CAL**
|
— | XBRL Taxonomy Extension Calculation Linkbase | ||||||
|
101.DEF**
|
— | XBRL Taxonomy Extension Definition Linkbase | ||||||
|
101.LAB**
|
— | XBRL Taxonomy Extension Labels Linkbase | ||||||
|
101.PRE**
|
— | XBRL Taxonomy Extension Presentation Linkbase | ||||||
| * | Obligations of CMS Energy or its subsidiaries, but not of Consumers. | |
| ** | In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 shall be deemed to be “furnished” and not “filed”. The financial information contained in the XBRL-related information is “unaudited” and “unreviewed.” |
Exhibits listed above that have heretofore been filed with the
SEC pursuant to various acts administered by the SEC, and which
were designated as noted above, are hereby incorporated herein
by reference and made a part hereof with the same effect as if
filed herewith.
183
Table of Contents
CMS ENERGY
CORPORATION
SCHEDULE I —
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CMS
Energy — Parent Company
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
Operating Expenses
|
||||||||||||
|
Depreciation and amortization
|
$ | — | $ | — | $ | 3 | ||||||
|
Other operating expense
|
6 | 10 | 5 | |||||||||
|
Total Operating Expenses
|
6 | 10 | 8 | |||||||||
|
Operating Loss
|
(6 | ) | (10 | ) | (8 | ) | ||||||
|
Other Income
|
||||||||||||
|
Equity earnings of subsidiaries
|
464 | 310 | 433 | |||||||||
|
Interest income
|
1 | — | 1 | |||||||||
|
Other income (expense)
|
(8 | ) | 12 | (4 | ) | |||||||
|
Total Other Income
|
457 | 322 | 430 | |||||||||
|
Interest Charges
|
||||||||||||
|
Interest on long-term debt
|
147 | 124 | 127 | |||||||||
|
Interest on preferred securities
|
— | 8 | 14 | |||||||||
|
Intercompany interest expense and other
|
4 | 8 | 48 | |||||||||
|
Total Interest Charges
|
151 | 140 | 189 | |||||||||
|
Income Before Income Taxes
|
300 | 172 | 233 | |||||||||
|
Income Tax Benefit
|
(50 | ) | (57 | ) | (62 | ) | ||||||
|
Income From Continuing Operations
|
350 | 229 | 295 | |||||||||
|
Loss From Discontinued Operations
|
(10 | ) | — | — | ||||||||
|
Net Income
|
340 | 229 | 295 | |||||||||
|
Preferred Dividends
|
8 | 11 | 11 | |||||||||
|
Redemption Premium on Preferred Stock
|
8 | — | — | |||||||||
|
Net Income Available to Common Stockholders
|
$ | 324 | $ | 218 | $ | 284 | ||||||
The accompanying condensed notes are an integral part of these
statements.
184
Table of Contents
CMS ENERGY
CORPORATION
SCHEDULE I —
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CMS
Energy — Parent Company
|
Years Ended December 31
|
2010 | 2009 | 2008 | |||||||||
| In Millions | ||||||||||||
|
Cash Flows From Operating Activities
|
||||||||||||
|
Net income
|
$ | 340 | $ | 229 | $ | 295 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||||||
|
Equity earnings of subsidiaries
|
(464 | ) | (310 | ) | (433 | ) | ||||||
|
Dividends received from subsidiaries
|
358 | 340 | 1,247 | |||||||||
|
Depreciation and amortization
|
— | — | 3 | |||||||||
|
Increase in accounts receivable
|
— | (2 | ) | — | ||||||||
|
Increase (decrease) in accounts payable
|
(16 | ) | 16 | (2 | ) | |||||||
|
Change in other assets and liabilities
|
117 | 7 | (55 | ) | ||||||||
|
Net cash provided by operating activities
|
335 | 280 | 1,055 | |||||||||
|
Cash Flows From Investing Activities
|
||||||||||||
|
Investment in subsidiaries
|
(250 | ) | (100 | ) | (22 | ) | ||||||
|
Net cash used in investing activities
|
(250 | ) | (100 | ) | (22 | ) | ||||||
|
Cash Flows From Financing Activities
|
||||||||||||
|
Proceeds from bank loans and notes
|
800 | 718 | 665 | |||||||||
|
Proceeds from issuance of common stock
|
8 | 9 | 9 | |||||||||
|
Retirement of bank loans and notes
|
(396 | ) | (788 | ) | (570 | ) | ||||||
|
Payment of common stock dividends
|
(154 | ) | (114 | ) | (82 | ) | ||||||
|
Payment of preferred stock dividends
|
(8 | ) | (11 | ) | (11 | ) | ||||||
|
Redemption of preferred stock
|
(239 | ) | (4 | ) | (1 | ) | ||||||
|
Debt issuance costs and financing fees
|
(11 | ) | (5 | ) | — | |||||||
|
Increase (decrease) in notes payable, net
|
(85 | ) | 15 | (1,043 | ) | |||||||
|
Net cash used in financing activities
|
(85 | ) | (180 | ) | (1,033 | ) | ||||||
|
Net Change in Cash and Temporary Cash Investments
|
$ | — | $ | — | $ | — | ||||||
|
Cash and Temporary Cash Investments, Beginning of Period
|
$ | — | $ | — | $ | — | ||||||
|
Cash and Temporary Cash Investments, End of Period
|
$ | — | $ | — | $ | — | ||||||
The accompanying condensed notes are an integral part of these
statements.
185
Table of Contents
CMS ENERGY
CORPORATION
SCHEDULE I —
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CMS
Energy — Parent Company
|
December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
Assets
|
||||||||
|
Current Assets
|
||||||||
|
Notes and accrued interest receivable
|
$ | 1 | $ | 1 | ||||
|
Accounts receivable, including intercompany and related parties
|
5 | 6 | ||||||
|
Deferred income taxes
|
13 | 7 | ||||||
|
Total current assets
|
19 | 14 | ||||||
|
Plant, Property, and Equipment, at cost
|
16 | 16 | ||||||
|
Less accumulated depreciation
|
(16 | ) | (15 | ) | ||||
|
Total plant, property, and equipment
|
— | 1 | ||||||
|
Non-current Assets
|
||||||||
|
Deferred income taxes
|
372 | 371 | ||||||
|
Investment in Subsidiaries
|
4,942 | 4,591 | ||||||
|
Other investment — SERP
|
19 | 17 | ||||||
|
Other
|
26 | 46 | ||||||
|
Total non-current assets
|
5,359 | 5,025 | ||||||
|
Total Assets
|
$ | 5,378 | $ | 5,040 | ||||
The accompanying condensed notes are an integral part of these
statements.
186
Table of Contents
CMS ENERGY
CORPORATION
SCHEDULE I —
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CMS
ENERGY — PARENT COMPANY
Condensed Balance
Sheets
|
December 31
|
2010 | 2009 | ||||||
| In Millions | ||||||||
|
Liabilities and Equity
|
||||||||
|
Current Liabilities
|
||||||||
|
Current portion of long-term debt
|
$ | 437 | $ | 207 | ||||
|
Accounts and notes payable, including intercompany and related
parties
|
156 | 258 | ||||||
|
Accrued interest, including intercompany
|
27 | 24 | ||||||
|
Accrued taxes
|
81 | 13 | ||||||
|
Other
|
5 | 5 | ||||||
|
Total current liabilities
|
706 | 507 | ||||||
|
Non-Current Liabilities
|
||||||||
|
Long-term debt
|
||||||||
|
Senior notes
|
1,848 | 1,673 | ||||||
|
Intercompany notes
|
34 | — | ||||||
|
Related party
|
— | 34 | ||||||
|
Unamortized discount
|
(28 | ) | (37 | ) | ||||
|
Postretirement benefits
|
23 | 22 | ||||||
|
Other non-current liabilities
|
2 | — | ||||||
|
Total non-current liabilities
|
1,879 | 1,692 | ||||||
|
Equity
|
||||||||
|
Common stockholders’ equity
|
2,793 | 2,602 | ||||||
|
Nonredeemable preferred stock
|
— | 239 | ||||||
|
Total equity
|
2,793 | 2,841 | ||||||
|
Total Liabilities and Equity
|
$ | 5,378 | $ | 5,040 | ||||
The accompanying condensed notes are an integral part of these
statements.
187
Table of Contents
CMS ENERGY
CORPORATION
SCHEDULE I —
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CMS
Energy — Parent Company
| 1: | Basis of Presentation |
CMS Energy’s condensed financial statements have been
prepared on a parent-only basis. In accordance with
Rule 12-04
of
Regulation S-X,
these parent-only financial statements do not include all of the
information and notes required by GAAP for annual financial
statements and therefore, these parent-only financial statements
and other information included should be read in conjunction
with CMS Energy’s audited Consolidated Financial Statements
contained within Part II, Item 8 of this
Form 10-K
for the year ended December 31, 2010.
| 2: | Guaranty |
CMS Energy has issued a guaranty on behalf of its wholly owned
subsidiary, CMS ERM, to support its payment obligations to a
third party under certain commodity purchase or swap agreements.
CMS Energy’s maximum potential obligation under the
guaranty is $5 million, plus expenses.
188
Table of Contents
CMS ENERGY
CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 2010, 2009, and 2008
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 2010, 2009, and 2008
|
Balance at
|
Charged
|
Charged to
|
Balance
|
|||||||||||||||||
|
Beginning
|
to
|
Other
|
at End
|
|||||||||||||||||
|
Description
|
of Period | Expense | Accounts | Deductions | of Period | |||||||||||||||
| (In Millions) | ||||||||||||||||||||
|
Allowance for uncollectible accounts(a)
|
||||||||||||||||||||
|
2010
|
$ | 23 | $ | 53 | $ | — | $ | 51 | $ | 25 | ||||||||||
|
2009
|
$ | 26 | $ | 47 | $ | — | $ | 50 | $ | 23 | ||||||||||
|
2008
|
$ | 21 | $ | 47 | $ | — | $ | 42 | $ | 26 | ||||||||||
|
Deferred tax valuation allowance
|
||||||||||||||||||||
|
2010
|
$ | 34 | $ | 1 | $ | (15 | ) | $ | 1 | $ | 19 | |||||||||
|
2009
|
$ | 32 | $ | 2 | $ | — | $ | — | $ | 34 | ||||||||||
|
2008
|
$ | 32 | $ | — | $ | 7 | $ | 7 | $ | 32 | ||||||||||
|
Allowance for notes receivable(a)
|
||||||||||||||||||||
|
2010
|
$ | 6 | $ | 4 | $ | — | $ | 5 | $ | 5 | ||||||||||
|
2009
|
$ | 34 | $ | 7 | $ | — | $ | 35 | $ | 6 | ||||||||||
|
2008
|
$ | 33 | $ | 4 | $ | — | $ | 3 | $ | 34 | ||||||||||
| (a) | Deductions are write-offs of uncollectible accounts, net of recoveries. |
CONSUMERS ENERGY
COMPANY
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 2010, 2009, and 2008
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 31, 2010, 2009, and 2008
|
Balance at
|
Charged
|
Charged to
|
Balance at
|
|||||||||||||||||
|
Beginning
|
to
|
Other
|
End of
|
|||||||||||||||||
|
Description
|
of Period | Expense | Accounts | Deductions | Period | |||||||||||||||
| (In Millions) | ||||||||||||||||||||
|
Allowance for uncollectible accounts(a)
|
||||||||||||||||||||
|
2010
|
$ | 21 | $ | 53 | $ | — | $ | 51 | $ | 23 | ||||||||||
|
2009
|
$ | 24 | $ | 47 | $ | — | $ | 50 | $ | 21 | ||||||||||
|
2008
|
$ | 16 | $ | 47 | $ | — | $ | 39 | $ | 24 | ||||||||||
| (a) | Deductions are write-offs of uncollectible accounts, net of recoveries. |
189
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, CMS Energy Corporation has duly
caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 24th day of
February 2011.
CMS ENERGY CORPORATION
| By |
/s/
John
G. Russell
|
John G. Russell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following
persons on behalf of CMS Energy Corporation and in the
capacities indicated and on the 24th day of February 2011.
|
Signature
|
Title
|
|||
|
(i)
|
Principal executive officer: | |||
|
/s/
John
G. Russell
|
President and Chief Executive Officer | |||
|
(ii)
|
Principal financial officer: | |||
|
/s/
Thomas
J. Webb
|
Executive Vice President and
Chief Financial Officer |
|||
|
(iii)
|
Controller or principal accounting officer: | |||
|
/s/
Glenn
P. Barba
|
Vice President, Controller
and Chief Accounting Officer |
|||
|
(iv)
|
A majority of the Directors: | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
190
Table of Contents
|
Signature
|
Title
|
|||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
| *By |
/s/
Thomas
J. Webb
Attorney-in-Fact |
|||
191
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Consumers Energy Company has
duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 24th day of
February 2011.
CONSUMERS ENERGY COMPANY
| By |
/s/
John
G. Russell
|
John G. Russell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following
persons on behalf of Consumers Energy Company and in the
capacities indicated and on the 24th day of February 2011.
|
Signature
|
Title
|
|||
|
(i)
|
Principal executive officer: | |||
|
/s/
John
G. Russell
|
President and Chief Executive Officer | |||
| (ii) | Principal financial officer: | |||
|
/s/
Thomas
J. Webb
|
Executive Vice President and
Chief Financial Officer |
|||
| (iii) | Controller or principal accounting officer: | |||
|
/s/
Glenn
P. Barba
|
Vice President, Controller
and Chief Accounting Officer |
|||
| (iv) | A majority of the Directors: | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
192
Table of Contents
|
Signature
|
Title
|
|||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
| *By |
/s/
Thomas
J. Webb
Attorney-in-Fact |
|||
193
Table of Contents
(This page
intentionally left blank)
194
Table of Contents
EXHIBITS
195
Table of Contents
CMS ENERGY’S
AND CONSUMERS’ EXHIBIT INDEX
|
Exhibits
|
Description
|
|||||
| 10 | .34 | — | Amended and Restated Receivables Purchase Agreement dated as of November 23, 2010 among Consumers Receivables Funding II, LLC, Consumers Energy Company, The Conduits from time to time party thereto, The Financial Institutions from time to time party thereto, The Managing Agents from time to time party thereto, and JPMorgan Chase Bank, NA, as Administrative Agent | |||
| 10 | .40 | — | Amendment No. 7 to the Receivables Sale Agreement dated as of November 23, 2010 | |||
| 99 | .1 | — | CMS Energy Corporation Stock Purchase Plan, amended and restated as of December 1, 2010 | |||
| 12 | .1 | — | Statement regarding computation of CMS Energy’s Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends | |||
| 12 | .2 | — | Statement regarding computation of Consumers’ Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends | |||
| 21 | .1 | — | Subsidiaries of CMS Energy and Consumers | |||
| 23 | .1 | — | Consent of PricewaterhouseCoopers LLP for CMS Energy | |||
| 23 | .2 | — | Consent of PricewaterhouseCoopers LLP for Consumers | |||
| 24 | .1 | — | Power of Attorney for CMS Energy | |||
| 24 | .2 | — | Power of Attorney for Consumers | |||
| 31 | .1 | — | CMS Energy’s certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
| 31 | .2 | — | CMS Energy’s certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
| 31 | .3 | — | Consumers’ certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
| 31 | .4 | — | Consumers’ certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
| 32 | .1 | — | CMS Energy’s certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
| 32 | .2 | — | Consumers’ certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
| 101 | .INS* | — | XBRL Instance Document | |||
| 101 | .SCH* | — | XBRL Taxonomy Extension Schema | |||
| 101 | .CAL* | — | XBRL Taxonomy Extension Calculation Linkbase | |||
| 101 | .DEF* | — | XBRL Taxonomy Extension Definition Linkbase | |||
| 101 | .LAB* | — | XBRL Taxonomy Extension Labels Linkbase | |||
| 101 | .PRE* | — | XBRL Taxonomy Extension Presentation Linkbase | |||
| * | In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 shall be deemed to be “furnished” and not “filed”. The financial information contained in the XBRL-related information is “unaudited” and “unreviewed.” |
196
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Removed and ReservedPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules