CMS 10-Q Quarter ended Sept. 30, 2013

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2013
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from_____to_____

Indicate by check mark whether the Registrant (1) has 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

CMS Energy Corporation :  Yes T No o Consumers Energy Company :  Yes T No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

CMS Energy Corporation :  Yes T No o Consumers Energy Company :  Yes T No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

CMS Energy Corporation :

Large accelerated filer T Accelerated filer o Non-Accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Consumers Energy Company :

Large accelerated filer o Accelerated filer o Non-Accelerated filer T Smaller reporting company o

(Do not check if a smaller reporting company)

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 T Consumers Energy Company :  Yes o No T

Indicate the number of shares outstanding of each of the issuer’s classes of common stock at October 4, 2013:

CMS Energy Corporation:

CMS Energy Common Stock, $0.01 par value
(including 1,091,320 shares owned by Consumers Energy Company)		267,090,832

Consumers Energy Company:

Consumers Common Stock, $10 par value, privately held by CMS Energy Corporation

84,108,789

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CMS Energy Corporation

Consumers Energy Company

Quarterly Reports on Form 10-Q to the Securities and Exchange Commission for the Period Ended

September 30, 2013

TABLE OF CONTENTS

		Page
Glossary		3
Filing Format		8
Forward-Looking Statements and Information		8
PART I. Financial Information
Item 1.	Consolidated Financial Statements (Unaudited)
	CMS Energy Corporation	36
	Consumers Energy Company	44
	Notes to the Unaudited Consolidated Financial Statements	51
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	72
Item 4.	Controls and Procedures	72
PART II. Other Information
Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 3.	Defaults Upon Senior Securities	74
Item 4.	Mine Safety Disclosures	74
Item 5.	Other Information	74
Item 6.	Exhibits	75
Signatures		76

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GLOSSARY

Certain terms used in the text and financial statements are defined below.

2008 Energy Law		Comprehensive energy reform package enacted in Michigan in 2008
2012 Form 10-K		Each of CMS Energy’s and Consumers’ Annual Report on Form 10-K for the year ended December 31, 2012
ABATE		Association of Businesses Advocating Tariff Equity
Bay Harbor		A residential/commercial real estate area located near Petoskey, Michigan, in which CMS Energy sold its interest in 2002
bcf		Billion cubic feet
Big Rock		Big Rock Point nuclear power plant, formerly owned by Consumers
CAIR		The Clean Air Interstate Rule
Cantera Gas Company		Cantera Gas Company LLC, a non-affiliated company, formerly known as CMS Field Services
Cantera Natural Gas, Inc.		Cantera Natural Gas, Inc., a non-affiliated company that purchased CMS Field Services
CCR		Coal combustion residual
CEO		Chief Executive Officer
CFO		Chief Financial Officer
Clean Air Act		Federal Clean Air Act of 1963, as amended
Clean Water Act		Federal Water Pollution Control Act of 1972, as amended
CMS Capital		CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy
CMS Energy		CMS Energy Corporation, the parent of Consumers and CMS Enterprises
CMS Enterprises		CMS Enterprises Company, a wholly owned subsidiary of CMS Energy
CMS ERM		CMS Energy Resource Management Company, formerly known as 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

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CMS Gas Transmission		CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises
CMS Land		CMS Land Company, a wholly owned subsidiary of CMS Capital
CMS MST		CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM in 2004
Consumers		Consumers Energy Company, a wholly owned subsidiary of CMS Energy
CSAPR		The Cross-State Air Pollution Rule
DB SERP		Defined Benefit Supplemental Executive Retirement Plan
Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DOE		U.S. Department of Energy
DOJ		U.S. Department of Justice
DTE Electric		DTE Electric Company, a non-affiliated company
EBITDA		Earnings before interest, taxes, depreciation, and amortization
EGWP		Employer Group Waiver Plan
EnerBank		EnerBank USA, a wholly owned subsidiary of CMS Capital
Entergy		Entergy Corporation, a non-affiliated company
Environmental Mitigation 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
EPA		U.S. Environmental Protection Agency
EPS		Earnings per share
Exchange Act		Securities Exchange Act of 1934, as amended
FDIC		Federal Deposit Insurance Corporation
FERC		The Federal Energy Regulatory Commission
fine particulate matter		Particulate matter that is 2.5 microns or less in diameter
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

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FOV		Finding of Violation
FTR		Financial transmission right
GAAP		U.S. Generally Accepted Accounting Principles
GCR		Gas cost recovery
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
ISFSI		Independent spent fuel storage installation
kWh		Kilowatt-hour, a unit of energy equal to one thousand watt-hours
Ludington		Ludington pumped-storage plant, jointly owned by Consumers and DTE Electric
MACT		Maximum Achievable Control Technology, which is the emission control that is achieved in practice by the best-controlled similar source
MATS		Mercury and Air Toxics Standards, which limit mercury, acid gases, and other toxic pollution from coal-fueled and oil-fueled power plants
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
MDEQ		Michigan Department of Environmental Quality
MDL		A pending multi-district litigation case in Nevada
MGP		Manufactured gas plant
Michigan Business Corporation Act		Michigan Business Corporation Act of 1972, as amended
Michigan Mercury Rule		Michigan Air Pollution Control Rules, Part 15, Emission Limitations and Prohibitions – Mercury, addressing mercury emissions from coal-fueled electric generating units
MISO		The Midcontinent Independent System Operator, Inc.
mothball		To place a generating unit into a state of extended reserve shutdown in which the unit is inactive and unavailable for service for a specified period, during which the unit can be brought back into service after receiving appropriate notification and completing any necessary maintenance or other work; generation owners in MISO must request approval to mothball a unit, and MISO then evaluates the request for reliability impacts
MPSC		Michigan Public Service Commission

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MW		Megawatt, a unit of power equal to one million watts
NAV		Net asset value
NERC		The North American Electric Reliability Corporation, a non-affiliated company responsible for developing and enforcing reliability standards, monitoring the bulk power system, and educating and certifying industry personnel
NOV		Notice of Violation
NPDES		National Pollutant Discharge Elimination System, a permit system for regulating point sources of pollution under the Clean Water Act
NREPA		Part 201 of Michigan Natural Resources and Environmental Protection Act, a statute that covers environmental activities including remediation
NSR		New Source Review, a construction-permitting program under the Clean Air Act
NYMEX		The New York Mercantile Exchange
OPEB		Other Post-Employment Benefits
OPEB Plan		Defined benefit postretirement health-care and life insurance plans of CMS Energy, Consumers, and Panhandle
Palisades		Palisades nuclear power plant, sold by Consumers to Entergy in 2007
Panhandle		Panhandle Eastern Pipe Line Company, a former wholly owned subsidiary of CMS Gas Transmission
PCB		Polychlorinated biphenyl
Pension Plan		Trusteed, non-contributory, defined benefit pension plan of CMS Energy, Consumers, and Panhandle
PSCR		Power supply cost recovery
PSD		Prevention of Significant Deterioration
REC		Renewable energy credit established under the 2008 Energy Law
ReliabilityFirst Corporation		ReliabilityFirst Corporation, a non-affiliated company responsible for the preservation and enhancement of bulk power system reliability and security
Renewable Operating Permit		Michigan’s Title V permitting program under the Clean Air Act
RMRR		Routine maintenance, repair, and replacement

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ROA		Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to a Michigan statute enacted in 2000
SEC		U.S. Securities and Exchange Commission
Sherman Act		Sherman Antitrust Act of 1890
Smart Energy		Consumers’ Smart Energy grid modernization project, which includes the installation of smart meters that transmit and receive data, a two-way communications network, and modifications to Consumers’ existing information technology system to manage the data and enable changes to key business processes
Superfund		Comprehensive Environmental Response, Compensation, and Liability Act of 1980
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 non-affiliated company and wholly owned subsidiary of Panhandle

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FILING FORMAT

This combined Form 10-Q is separately filed by CMS Energy and Consumers.  Information in this combined Form 10-Q relating to each individual registrant is filed by such registrant on its own behalf.  Consumers makes no representation regarding information relating to any other companies affiliated with CMS Energy other than its own subsidiaries.  None of CMS Energy, CMS Enterprises, nor any of CMS Energy’s other subsidiaries (other than Consumers) has any obligation in respect of Consumers’ 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.

This report should be read in its entirety.  No one section of this report deals with all aspects of the subject matter of this report.  This report should be read in conjunction with the consolidated financial statements and related notes and with MD&A included in the 2012 Form 10-K.

FORWARD-LOOKING STATEMENTS AND INFORMATION

This Form 10-Q 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, but are not limited to, the following, all of which are potentially significant:

· the impact of regulation by the MPSC or FERC and other applicable governmental proceedings and regulations, including any associated impact on electric or gas rates or rate structures;

· potentially adverse regulatory treatment or failure to receive timely regulatory orders affecting Consumers that are or could come before the MPSC, FERC, or other governmental authorities;

· changes in the performance of or regulations applicable to MISO, Michigan Electric Transmission Company, pipelines, railroads, or other service providers that CMS Energy, Consumers, or any of their affiliates rely on to serve their customers;

· the adoption of federal or state laws or regulations or changes in applicable laws, rules, regulations, principles, or practices, or in their interpretation, including those related to energy policy and ROA, the environment, regulation or deregulation, health care reforms (including the Health Care Acts), taxes, accounting matters, and other business issues that could have an impact on CMS Energy’s or Consumers’ businesses or financial results, including laws or regulations regarding climate change and air emissions and potential effects of the Dodd-Frank Act and related regulations on CMS Energy, Consumers, or any of their affiliates;

· potentially adverse regulatory or legal interpretations or decisions regarding environmental matters, or delayed regulatory treatment or permitting decisions that are or could come before the MDEQ, EPA, and/or U.S. Army Corps of Engineers, and potential environmental remediation

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costs associated with these interpretations or decisions, including those that may affect Bay Harbor or Consumers’ RMRR classification under NSR regulations;

· changes in energy markets, including availability and price of electric capacity and the timing and extent of changes in commodity prices and availability of coal, natural gas, natural gas liquids, electricity, oil, and certain related products;

· the price of CMS Energy common stock, the credit ratings of CMS Energy and Consumers, capital and financial market conditions, and the effect of these market conditions on CMS Energy’s and Consumers’ interest costs and access to the capital markets, including availability of financing to CMS Energy, Consumers, or any of their affiliates;

· the investment performance of the assets of CMS Energy’s and Consumers’ pension and benefit plans and the discount rates used in calculating the plans’ obligations, and the resulting impact on future funding requirements;

· 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, ability to collect accounts receivable from customers, or cost and availability of capital;

· 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 changes in the geographic areas where CMS Energy and Consumers conduct business;

· national, regional, and local economic, competitive, and regulatory policies, conditions, and developments, including municipal bankruptcy filings;

· loss of customer demand for electric generation supply to alternative energy suppliers;

· 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;

· the impact of credit markets, economic conditions, and any new banking regulations on EnerBank;

· the availability, cost, coverage, and terms of insurance, the stability of insurance providers, and the ability of Consumers to recover the costs of any insurance from customers;

· the effectiveness of CMS Energy’s and Consumers’ risk management policies, procedures, and strategies, including strategies to hedge risk related to future prices of electricity, natural gas, and other energy-related commodities;

· factors affecting development of electric generation projects and distribution infrastructure replacement and expansion projects, including those related to project site identification, construction material pricing, availability of qualified construction personnel, permitting, and government approvals;

· factors affecting operations, such as costs and availability of personnel, equipment, and materials, unusual weather conditions, catastrophic weather-related damage, scheduled or unscheduled

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equipment outages, maintenance or repairs, environmental incidents, and electric transmission and distribution or gas pipeline system constraints;

· potential disruption to, interruption of, or other impacts on facilities, utility infrastructure, or operations due to accidents, explosions, physical disasters, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events;

· changes or disruption in fuel supply, including but not limited to rail or vessel transport of coal and pipeline transport of natural gas;

· potential costs, lost revenues, or other consequences resulting from misappropriation of assets or sensitive information, corruption of data, or operational disruption in connection with a cyber attack or other cyber incident;

· technological developments in energy production, storage, delivery, usage, and metering, including Smart Energy and the success of its implementation;

· the impact of CMS Energy’s and Consumers’ integrated business software system and its operation on their activities, including utility customer billing and collections;

· 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;

· restrictions imposed by various financing arrangements and regulatory requirements on the ability of Consumers and other subsidiaries of CMS Energy to transfer funds to CMS Energy in the form of cash dividends, loans, or advances;

· earnings volatility resulting from the application of fair value accounting to certain energy commodity contracts or interest rate contracts;

· changes in financial or regulatory accounting principles or policies, including 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 matters that may be disclosed from time to time in CMS Energy’s and Consumers’ SEC filings, or in other publicly issued documents.

All forward-looking statements should be considered in the context of the risk and other factors described above and as detailed from time to time in CMS Energy’s and Consumers’ SEC filings.  For additional details regarding these and other uncertainties, see Part I – Item 1. Consolidated Financial Statements (Unaudited) – Notes to the Unaudited Consolidated Financial Statements – Note 1, Regulatory Matters and Note 2, Contingencies and Commitments; Part I – Item 2. MD&A – Outlook; and Part II – Item 1A. Risk Factors.

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CMS Energy Corporation

Consumers Energy Company

MANAGEMENT’S DISCUSSION AND ANALY SIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 independent power producer.  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.

CMS Energy’s business strategy emphasizes the key elements depicted below:

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Accountability is part of CMS Energy’s corporate culture.  CMS Energy is committed to making the right choices to serve its customers safely and affordably and to acting responsibly as a corporate citizen.  CMS Energy holds itself accountable to the highest standards of safety, operational performance, and ethical behavior, and works diligently to comply with all laws, rules, and regulations that govern the electric and gas industry.

In October 2013, Consumers Energy released its first-ever accountability report.  The report provides an overview of Consumers’ efforts to continue meeting Michigan’s energy needs safely and efficiently, and highlights Consumers’ commitment to Michigan businesses, its corporate citizenship, and its role in reducing the state’s air emissions.

S AFE, E XCELLENT O PERATIONS

The safety of employees, customers, and the general public remains a priority of CMS Energy and Consumers.  Accordingly, CMS Energy and Consumers have worked to integrate a set of safety principles into their business operations and 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.  From 2006 to 2012, Consumers achieved a 76 percent reduction in the annual number of recordable safety incidents.

C USTOMER V ALUE

Consumers is undertaking a number of initiatives that reflect its intensified customer focus.  Consumers’ planned investments in reliability are aimed at improving safety, reducing customer outage frequency, reducing repetitive outages, and increasing customer satisfaction.  Also, in order to minimize increases in customer rates, Consumers has undertaken several initiatives to reduce costs through a voluntary separation plan in 2012, accelerated pension funding, employee and retiree health-care cost sharing, negotiated labor agreements, information system efficiencies, and productivity improvement programs.  Consumers has also filed certain applications with the MPSC that, if approved, are expected to result in cost savings for customers.  These initiatives, together with Consumers’ plans to accelerate further cost reductions, should allow Consumers to avoid increasing electric and gas base rates through 2014.  Consumers may reconsider this expectation should its assumptions change regarding the economy or other matters.

U TILITY I NVESTMENT

Consumers expects to make capital investments of about $7 billion from 2013 through 2017.  Consumers has limited its capital investment program to those investments it believes are needed to provide safe, reliable, and efficient service to its customers.  Consumers’ capital investment program is expected to result in annual rate base growth of five to seven percent while allowing Consumers to maintain sustainable customer base rate increases (excluding PSCR and GCR charges) at or below the rate of inflation.

Among the key components of Consumers’ investment program are projects that will enhance customer value.  Consumers’ planned base capital investments of $3.5 billion comprise $2.1 billion of electric utility projects to improve reliability and increase capacity and $1.4 billion of gas utility projects to increase capacity and deliverability and enhance pipeline integrity.  An additional $1.4 billion of planned reliability investments at Consumers are aimed at reducing outages and improving customer satisfaction; these investments comprise $0.6 billion at the electric utility to strengthen circuits and substations, replace poles, and upgrade the Ludington pumped-storage plant, and $0.8 billion at the gas utility to replace mains and enhance transmission and storage systems.  Consumers also expects to spend $1.0 billion on environmental investments needed to comply with state and federal laws and regulations.

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In December 2012, Consumers announced plans to build a 700-MW gas-fueled electric generating plant at its Thetford complex in Genesee County, Michigan.  In July 2013, Consumers received an air permit for the proposed plant from the MDEQ and, as allowed under the 2008 Energy Law, filed for approval of a certificate of necessity with the MPSC.  Construction of the plant, at an estimated cost of $750 million, is contingent upon obtaining the certificate of necessity and environmental permits.  Consumers expects that the plant would be operational in 2017.

While Consumers continues to move ahead with its plans to build a new gas-fueled electric generating plant, it also issued a solicitation in September 2013 seeking offers from owners of existing gas-fueled electric generating plants located in Michigan’s Lower Peninsula to sell their plants to Consumers.  The purchase by Consumers of one or more existing plants could represent a cost-effective alternative to building a new plant.

Renewable energy projects are another major component of Consumers’ planned capital investments.  Consumers expects to spend $0.3 billion on renewable energy investments, under an MPSC-approved renewable energy plan, from 2013 through 2017.  The 2008 Energy Law requires that at least ten percent of Consumers’ electric sales volume come from renewable energy sources by 2015, and it includes requirements for specific capacity additions.  Consumers has historically included renewable resources as part of its portfolio, with about eight percent of its present power supply coming from such renewable sources as hydropower, landfill gas, biomass, wind, anaerobic digestion, and solar.

Consumers’ Smart Energy program, with an estimated total project capital cost of $0.8 billion, also represents a major capital investment.  The full-scale deployment of advanced metering infrastructure began in August 2012 and is planned to continue through 2019.  Consumers has spent $0.2 billion through 2012 on its Smart Energy program, and expects to spend an additional $0.3 billion, following a phased approach, from 2013 through 2017.

R EGULATION

Regulatory matters are a key aspect of CMS Energy’s and Consumers’ businesses, particularly Consumers’ rate cases and regulatory proceedings before the MPSC.  In July 2013, Michigan Governor Rick Snyder appointed Sally Talberg to serve on the three-member MPSC for a six-year term, replacing Orjiakor Isiogu.  Ms. Talberg has served in various energy-related consulting, management, and public service roles during her career.  She represents political independents on the Commission.  Other important regulatory events and developments are summarized below.

· Electric Rate Case: Consumers filed a general electric rate case with the MPSC in September 2012, seeking an annual rate increase of $148 million.  In March 2013, Consumers self-implemented an annual rate increase of $110 million, subject to refund with interest.  The MPSC approved a partial settlement agreement in May 2013, authorizing an annual rate increase of $89 million, based on a 10.3 percent authorized rate of return on equity.  Consumers filed an application in July 2013 requesting that the MPSC find that total revenues collected during self-implementation did not exceed those that would have been collected under final rates and that no refund would be required.

· Gas Rate Case: In February 2013, Consumers filed an application with the MPSC seeking an annual rate increase of $49 million, based on a 10.5 percent authorized return on equity.  The filing requested authority to recover new investments in customer reliability, deliverability, safety, and system enhancements, and sought approval of several rate adjustment mechanisms.  Subsequent to this filing, Consumers’ projection of non-fuel costs decreased.  As a result, in June 2013, Consumers filed a petition with the MPSC to close the docket or, alternatively, to suspend and extend indefinitely the schedule in this case.  The MPSC approved Consumers’ petition to suspend and extend indefinitely the schedule.

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· Income Tax Benefits Accounting Application: In August 2013, Consumers filed an application with the MPSC requesting approval to accelerate the flow-through to electric and gas customers of certain income tax benefits associated primarily with the cost of removal of plant placed in service before 1993.  Under the accounting treatment that Consumers has been using, Consumers has estimated that it would take at least 50 years to flow through these income tax benefits to customers.  In September 2013, the MPSC approved Consumers’ application with modification, authorizing Consumers to return $211 million of income tax benefits over five years to electric customers and $264 million of income tax benefits over 12 years to gas customers.  The MPSC authorized Consumers to implement this accounting treatment effective January 2014.

· Proposals to Recover Investment in Plants: Consumers has filed two applications with the MPSC to propose alternative methods to recover its investment in seven smaller coal-fueled units that Consumers plans to mothball in 2016 and in three smaller gas-fueled units whose operations Consumers mothballed in 2009.

In August 2013, Consumers filed an application requesting MPSC advanced approval to use standard utility plant retirement accounting in the event of early retirement of these ten units.  Specifically, Consumers requested the MPSC to provide assurance that the full amount of the undepreciated investment, demolition costs, and cost of removal, including a return on the assets, would, upon their early retirement, be recovered through retail electric base rates.

In September 2013, Consumers filed an application with the MPSC requesting approval to issue up to $454 million in securitization bonds through a newly formed subsidiary.  Under Michigan law, electric utilities are permitted to use highly rated, low-cost securitization bonds to finance the recovery of qualified costs.  The qualified costs that Consumers has requested approval to securitize are principally the remaining book value and projected demolition costs of the ten units described above.  If the MPSC approves Consumers’ application and Consumers proceeds with this bond issuance, Consumers will then adjust its retail electric base rates to exclude the revenue requirement associated with these costs.  Consumers estimates that employing this recovery mechanism in place of existing ratemaking treatment would provide initial annual cost savings to full-service customers of $24 million.

· Gas Revenue Decoupling Mechanism: The gas revenue decoupling mechanism, authorized by the MPSC in its 2009 order in Consumers’ gas rate case and extended through April 2012, allowed Consumers to adjust future gas rates to the degree that actual average weather-adjusted sales per customer differed from the rate order.  In December 2012, the MPSC approved Consumers’ first reconciliation of the gas revenue decoupling mechanism, in which Consumers requested recovery of $16 million from customers for the period June 2010 through May 2011.  The MPSC authorized recovery of the full amount over a three-month period that began in February 2013.

Consumers filed its final reconciliation of the gas revenue decoupling mechanism in August 2012, requesting recovery of $17 million from customers for the period June 2011 through April 2012.  At September 30, 2013, Consumers had a $17 million regulatory asset recorded for gas revenue decoupling for that period.

The 2008 Energy Law limits alternative electric supply to ten percent of Consumers’ weather-adjusted retail sales of the preceding calendar year.  At September 30, 2013, Consumers’ electric deliveries under the ROA program were at the ten percent limit.  In February 2013, a bill was introduced to the Michigan Senate that, if enacted, would revise the 2008 Energy Law and allow customers on the ROA program waiting list to switch their service to an alternative electric supplier.  Presently, the proportion of Consumers’ electric deliveries under the ROA program and on the ROA waiting list is 25 percent.  The

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bill also proposes an increase in the cap of six percentage points per year from 2014 through 2016.  Consumers is unable to predict the outcome of this legislative proposal.

Environmental regulation is another area of importance for CMS Energy and Consumers, and they are monitoring numerous legislative and regulatory initiatives, including initiatives to regulate greenhouse gases, and related litigation.

In 2012, the EPA published its final MACT emission standards for electric generating units, based on Section 112 of the Clean Air Act, calling the final rule MATS.  Although numerous parties, including the State of Michigan, have sought to extend the deadline of MATS, it is expected to take effect in 2015.  Consumers has received from the MDEQ a one-year extension for MATS and the Michigan Mercury Rule for ten of its coal-fueled units, allowing them to run as presently configured until April 2016.  CMS Energy and Consumers are continuing to assess the impact and cost associated with these standards.

In September 2013, the EPA issued proposed rules to limit carbon dioxide emissions from new fossil-fuel-fired electric generation units.  Also, President Obama has directed the EPA to address greenhouse gas emissions of existing, modified, and reconstructed fossil-fuel-fired steam electric generating units with proposed standards, regulations, or guidelines to be completed by June 1, 2014, and final standards, regulations, or guidelines to be completed by June 1, 2015.  Subsequent state implementation plans are due by June 30, 2016.  Consumers believes that its balanced energy initiative, its present carbon reduction target, and its emphasis on supply diversity will position it favorably to deal with the impact of carbon regulation, but cannot predict the nature or outcome of these proposals.  Consumers will continue to monitor regulatory activity regarding greenhouse gas emissions standards that may affect electric generating units.

F INANCIAL P ERFORMANCE

For the nine months ended September 30, 2013, CMS Energy’s net income available to common stockholders was $350 million, and diluted EPS were $1.29.  This compares with net income available to common stockholders of $315 million and diluted EPS of $1.17 for the nine months ended September 30, 2012.  The main factors contributing to CMS Energy’s improved performance in 2013 were increased gas deliveries and the absence, in 2013, of the write-off of Consumers’ electric revenue decoupling mechanism regulatory asset in 2012.

Consumers’ 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, while peak demand for natural gas occurs in the winter due to colder temperatures and the resulting use of natural gas as heating fuel.  In addition, Consumers’ electric rates, which follow a seasonal rate design, are higher in the summer months than in the remaining months of the year.  A more detailed discussion of the factors affecting CMS Energy’s and Consumers’ performance can be found in the Results of Operations section that follows this Executive Overview.

CMS Energy and Consumers believe that economic conditions in Michigan are improving.  Consumers expects its electric sales to increase annually by about 0.5 to 1.0 percent on average through 2017, driven largely by the continued rise in industrial production.  Excluding the impacts of energy efficiency programs, Consumers expects its electric sales to increase by about 1.0 to 1.5 percent annually through 2017.  Consumers is projecting that its gas sales will remain stable through 2017.  This outlook reflects growth in gas demand offset by energy efficiency and conservation.

As Consumers seeks to continue to receive fair and timely regulatory treatment, delivering customer value will remain a key strategic priority.  To keep costs down for its utility customers, Consumers has set goals to achieve further annual productivity improvements.  Additionally, Consumers will strive to give priority to capital investments that increase customer value or lower costs.

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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.

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RESULTS OF OPERATIONS

CMS E NERGY C ONSOLIDATED R ESULTS OF O PERATIONS

					In Millions, Except Per Share Amounts
		Three Months Ended									Nine Months Ended
September 30		2013			2012			Change			2013			2012			Change
Net Income Available to Common Stockholders		$	126		$	148		$	(22	)	$	350		$	315		$	35
Basic Earnings Per Share		$	0.48		$	0.56		$	(0.08	)	$	1.32		$	1.21		$	0.11
Diluted Earnings Per Share		$	0.46		$	0.55		$	(0.09	)	$	1.29		$	1.17		$	0.12
								In Millions
		Three Months Ended									Nine Months Ended
September 30		2013			2012			Change			2013			2012			Change
Electric utility		$	156		$	165		$	(9	)	$	315		$	297		$	18
Gas utility		(4		)	(3		)	(1		)	97			61			36
Enterprises		(4		)	5			(9		)	1			9			(8		)
Corporate interest and other		(22		)	(19		)	(3		)	(63		)	(59		)	(4		)
Discontinued operations		-			-			-			-			7			(7		)
Net Income Available to Common Stockholders		$	126		$	148		$	(22	)	$	350		$	315		$	35

Presented in the following table are specific after-tax changes to net income available to common stockholders for 2013 versus 2012:

								In Millions
		September 30, 2013 better/(worse) than 2012
Reasons for the change		Three Months Ended						Nine Months Ended
Electric sales		$	(18)					$	(15)
Gas sales		-						46
Electric and gas rate orders		6						32
Depreciation and property tax		(11)						(29)
Distribution and restoration cost		6						(11)
Absence of recovery of development costs related to canceled coal-fueled plant in 2012		-						(9)
Absence of contributions related to a 2012 Michigan ballot proposal		7						7
Lower employee benefit costs, primarily OPEB		9						9
Higher income tax expense and lower subsidiary earnings of enterprises segment		(6)						(7)
Higher corporate fixed charges and other, offset by higher EnerBank earnings		(3)						(4)
Other		(9)			$	(19	)	(19)			$	-
Absence of 2012 charge to write off electric decoupling regulatory asset					-						36
Absence of voluntary separation plan cost in 2012					-						7
Other, including the absence of the elimination, in 2012, of a liability associated with a prior asset sale					(3		)				(8		)
Total change					$	(22	)				$	35

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C ONSUMERS E LECTRIC U TILITY R ESULTS OF O PERATIONS

														In Millions
		Three Months Ended									Nine Months Ended
September 30		2013			2012			Change			2013			2012			Change
Net Income Available to Common Stockholders		$	156		$	165		$	(9	)	$	315		$	297		$	18
Reasons for the change
Electric deliveries and rate increases								$	(25	)							$	53
Power supply costs and related revenue								-									(1		)
Other income, net of expenses								9									7
Maintenance and other operating expenses								12									(1		)
Depreciation and amortization								(5		)							(24		)
General taxes								(2		)							(4		)
Interest charges								-									1
Income taxes								2									(13		)
Total change								$	(9	)							$	18

Electric deliveries and rate increases: For the three months ended September 30, 2013, electric delivery revenues decreased $25 million compared with 2012.  This decrease reflected $31 million of lower deliveries, due primarily to milder weather in 2013, offset partially by a $6 million increase in other revenues attributable to a May 2013 rate increase.  Deliveries to end-use customers, excluding deliveries to Consumers’ largest customer, which is on an economic development rate, were 9.4 billion kWh in 2013, a decrease of 0.3 billion kWh, or three percent, compared with 2012.

For the nine months ended September 30, 2013, electric delivery revenues increased $53 million compared with 2012.  This increase reflected the absence, in 2013, of a $59 million charge to write off Consumers’ electric decoupling regulatory asset in 2012, and a $28 million benefit from a May 2013 rate increase that Consumers self-implemented in March 2013.  These increases were offset partially by $34 million of lower deliveries, due primarily to milder weather in 2013.  Deliveries to end-use customers, excluding deliveries to Consumers’ largest customer, which is on an economic development rate, were 26.7 billion kWh in 2013, a decrease of 0.2 billion kWh, or one percent, compared with 2012.

Other income, net of expenses: For the three months ended September 30, 2013, other income increased $9 million compared with 2012, and for the nine months ended September 30, 2013, other income increased $7 million compared with 2012.  These increases were due primarily to the absence, in 2013, of contributions related to a 2012 Michigan ballot proposal.

Maintenance and other operating expenses: For the three months ended September 30, 2013, maintenance and other operating expenses decreased $12 million compared with 2012.  This decrease was due to a $10 million reduction in OPEB cost resulting from OPEB Plan changes adopted in July 2013, and a $2 million decrease in other operating expenses.

For the nine months ended September 30, 2013, maintenance and other operating expenses increased $1 million compared with 2012.  This increase reflected the absence, in 2013, of a $14 million recovery associated with Consumers’ canceled coal-fueled plant in 2012.  This increase was offset largely by a $10 million reduction in OPEB cost resulting from OPEB Plan changes adopted in July 2013 and a $3 million reduction in OPEB cost due to favorable OPEB Plan performance.

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Depreciation and amortization: For the three months ended September 30, 2013, depreciation and amortization expense increased $5 million compared with 2012, due primarily to increased plant in service, offset partially by lower amortization expenses on certain regulatory assets.

For the nine months ended September 30, 2013, depreciation and amortization expense increased $24 million compared with 2012.  This increase was due primarily to increased plant in service and an increase in depreciation rates that took effect in June 2012, offset partially by lower amortization expense on certain regulatory assets.

General taxes: For the nine months ended September 30, 2013, general taxes increased $4 million compared with 2012, due primarily to increased property taxes, reflecting higher capital spending.

Income taxes: For the three months ended September 30, 2013, income taxes decreased $2 million compared with 2012, reflecting lower electric utility earnings for the three months ended September 30, 2013.

For the nine months ended September 30, 2013, income taxes increased $13 million compared with 2012, reflecting higher electric utility earnings for the first nine months of 2013.

C ONSUMERS G AS U TILITY R ESULTS OF O PERATIONS

														In Millions
		Three Months Ended									Nine Months Ended
September 30		2013			2012			Change			2013			2012			Change
Net Income (Reduction) Available to Common Stockholders		$	(4	)	$	(3	)	$	(1	)	$	97		$	61		$	36
Reasons for the change
Gas deliveries and rate increases								$	(1	)							$	56
Other income, net of expenses								(3		)							(3		)
Maintenance and other operating expenses								2									3
Depreciation and amortization								(1		)							2
General taxes								-									(1		)
Income taxes								2									(21		)
Total change								$	(1	)							$	36

Gas deliveries and rate increases: For the nine months ended September 30, 2013, gas delivery revenues increased $56 million compared with 2012.  This increase reflected a $52 million increase in revenues from higher customer deliveries, due primarily to colder weather in 2013, which were offset partially by the impact on 2012 revenues of the gas revenue decoupling mechanism, and an $8 million benefit from a June 2012 rate increase that Consumers self-implemented in March 2012.  These increases were offset partially by a $4 million decrease in other revenues.  Deliveries to end-use customers were 206 bcf in 2013, an increase of 34 bcf, or 19.8 percent, compared with 2012.

Maintenance and other operating expenses: For the three months ended September 30, 2013, maintenance and other operating expenses decreased $2 million compared with 2012.  This decrease was due to a $6 million reduction in OPEB cost resulting from OPEB Plan changes adopted in July 2013, offset partially by a $4 million increase in other operating expenses.

For the nine months ended September 30, 2013, maintenance and other operating expenses decreased $3 million compared with 2012.  This decrease was due to a $6 million reduction in OPEB cost resulting from OPEB Plan changes adopted in July 2013 and a $2 million reduction to OPEB cost due to favorable OPEB Plan performance.  These decreases were offset partially by a $5 million increase in other operating expenses.

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Income taxes: For the nine months ended September 30, 2013, income taxes increased $21 million compared with 2012, due primarily to higher gas utility earnings for the first nine months of 2013.

E NTERPRISES R ESULTS OF O PERATIONS

														In Millions
		Three Months Ended									Nine Months Ended
September 30		2013			2012			Change			2013			2012			Change
Net Income (Reduction) Available to Common Stockholders		$	(4	)	$	5		$	(9	)	$	1		$	9		$	(8	)

For the three months ended September 30, 2013, net income of the enterprises segment decreased $9 million compared with 2012.  This decrease was due to $4 million of additional tax expense related to OPEB Plan changes adopted in July 2013 and $5 million in higher after-tax expenses due primarily to the absence in 2013 of a 2012 insurance settlement.

For the nine months ended September 30, 2013, net income of the enterprises segment decreased $8 million compared with 2012.  This decrease was due to $4 million of additional tax expense related to OPEB Plan changes adopted in July 2013 and $4 million in higher after-tax expenses due primarily to the absence in 2013 of a 2012 insurance settlement.

C ORPORATE I NTEREST AND O THER R ESULTS OF O PERATIONS

														In Millions
		Three Months Ended									Nine Months Ended
September 30		2013			2012			Change			2013			2012			Change
Net Income (Reduction) Available to Common Stockholders		$	(22	)	$	(19	)	$	(3	)	$	(63	)	$	(59	)	$	(4	)

For the three months ended September 30, 2013, corporate interest and other net expenses increased $3 million compared with 2012, due to $2 million of early debt retirement costs and a $2 million increase in interest expense, reflecting increased borrowings, offset partially by $1 million of higher earnings at EnerBank and lower expenses.

For the nine months ended September 30, 2013, corporate interest and other net expenses increased $4 million compared with 2012, due to a $5 million increase in interest expense, reflecting increased borrowings, and $2 million of early debt retirement costs, offset partially by a $3 million benefit attributable to higher earnings at EnerBank and lower expenses.

D ISCONTINUED O PERATIONS

For the three months ended September 30, 2013 and 2012, the net loss from discontinued operations was less than $1 million.

For the nine months ended September 30, 2013, the net loss from discontinued operations was less than $1 million, compared with income from discontinued operations of $7 million in 2012, reflecting the elimination of a liability related to a prior asset sale.

CASH POSITION, INVESTING, AND FINANCING

At September 30, 2013, CMS Energy had $292 million of consolidated cash and cash equivalents, which included $32 million of restricted cash and cash equivalents.  At September 30, 2013, Consumers had

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$230 million of consolidated cash and cash equivalents, which included $31 million of restricted cash and cash equivalents.

O PERATING A CTIVITIES

Presented in the following table are specific components of net cash provided by operating activities for the nine months ended September 30, 2013 and 2012:

								In Millions
Nine Months Ended September 30		2013			2012			Change
CMS Energy, including Consumers
Net income		$	352		$	317		$	35
Non-cash transactions 1		855			825			30
		1,207			1,142			65
Postretirement benefits contributions		(109		)	(54		)	(55		)
Proceeds from government grant		69			-			69
Changes in core working capital 2		125			-			125
Changes in other assets and liabilities, net		(174		)	(154		)	(20		)
Net cash provided by operating activities		$	1,118		$	934		$	184
Consumers
Net income		$	415		$	361		$	54
Non-cash transactions 1		769			712			57
		1,184			1,073			111
Postretirement benefits contributions		(106		)	(51		)	(55		)
Proceeds from government grant		69			-			69
Changes in core working capital 2		137			13			124
Changes in other assets and liabilities, net		(150		)	(10		)	(140		)
Net cash provided by operating activities		$	1,134		$	1,025		$	109

1 Non-cash transactions comprise depreciation and amortization, changes in deferred income taxes, postretirement benefits expense, and other non-cash items.

2 Core working capital comprises accounts receivable and accrued revenues, inventories, and accounts payable.

For the nine months ended September 30, 2013, net cash provided by operating activities at CMS Energy increased $184 million compared with 2012, and net cash provided by operating activities at Consumers increased $109 million compared with 2012.  The increases were due primarily to higher net income, net of non-cash transactions, the receipt of a $69 million renewable energy grant for Lake Winds ® Energy Park, and a reduction in working capital due to higher usage of gas and other fuel from inventory. These changes were offset partially by higher pension contributions.  At Consumers, these changes were also offset partially by an increase in tax payments to CMS Energy.

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I NVESTING A CTIVITIES

Presented in the following table are specific components of net cash used in investing activities for the nine months ended September 30, 2013 and 2012:

								In Millions
Nine Months Ended September 30		2013			2012			Change
CMS Energy, including Consumers
Capital expenditures		$	(900	)	$	(861	)	$	(39	)
Costs to retire property and other		(104		)	(77		)	(27		)
Net cash used in investing activities		$	(1,004	)	$	(938	)	$	(66	)
Consumers
Capital expenditures		$	(895	)	$	(857	)	$	(38	)
Costs to retire property and other		(50		)	(43		)	(7		)
Net cash used in investing activities		$	(945	)	$	(900	)	$	(45	)

For the nine months ended September 30, 2013, net cash used in investing activities at CMS Energy increased $66 million compared with 2012, and net cash used in investing activities at Consumers increased $45 million compared with 2012.  The increases were due primarily to a slight increase in capital expenditures under Consumers’ capital investment program. At CMS Energy, these changes were also due to an increase in EnerBank consumer lending.

F INANCING A CTIVITIES

Presented in the following table are specific components of net cash provided by (used in) financing activities for the nine months ended September 30, 2013 and 2012:

								In Millions
Nine Months Ended September 30		2013			2012			Change
CMS Energy, including Consumers
Issuance of debt		$	1,294		$	1,541		$	(247	)
Retirement of debt		(926		)	(1,382		)	456
Payment of common stock dividends		(203		)	(188		)	(15		)
Redemption of preferred stock		(7		)	-			(7		)
Decrease in notes payable		(110		)	-			(110		)
Other financing activities		5			-			5
Net cash provided by (used in) financing activities		$	53		$	(29	)	$	82
Consumers
Issuance of debt		$	750		$	725		$	25
Retirement of debt		(455		)	(703		)	248
Payment of common and preferred stock dividends		(302		)	(304		)	2
Redemption of preferred stock		(7		)	-			(7		)
Stockholder contribution from CMS Energy		150			150			-
Decrease in notes payable		(110		)	-			(110		)
Other financing activities		(21		)	(21		)	-
Net cash provided by (used in) financing activities		$	5		$	(153	)	$	158

For the nine months ended September 30, 2013, net cash provided by financing activities at CMS Energy increased $82 million compared with 2012 and net cash provided by financing activities at Consumers increased $158 million compared with 2012.  These changes were due primarily to a decrease in net debt retirements, offset partially by repayments by Consumers under its revolving accounts receivable sales program.

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