MGP Manufactured gas plant 5
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Table of Contents MISOMidcontinent 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
MW
Megawatt, a unit of power equal to one million watts
NAAQS
National Ambient Air Quality Standards
NPDES
National Pollutant Discharge Elimination System, a permit system for regulating point sources of pollution under the Clean Water Act
NREPA
Part 201 of
OPEB
Other Post-Employment Benefits
OPEB Plan
Postretirement health care and life insurance plans of
PCB Polychlorinated biphenyl PPA Power purchase agreement 6
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Table of Contents PSCR Power supply cost recovery PURPA
Public Utility Regulatory Policies Act of 1978
RCRA
Federal Resource Conservation and Recovery Act of 1976
REC
Renewable energy credit
Regions Bank A subsidiary of Regions Financial Corporation, a non-affiliated company
ROA
Retail Open Access, which allows electric generation customers to choose alternative
electric suppliers pursuant to
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
SOFR
Secured overnight financing rate calculated and published by the
TAES
TCJA
Tax Cuts and Jobs Act of 2017
VIE Variable interest entity 7
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Table of Contents Filing Format
This combined Form 10-Q is separately filed by
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 2021 Form 10-K.
Available Information
Forward-Looking Statements and Information
This Form 10-Q and other
•the impact and effect of recent events, such as the war in
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•the impact of new regulation by the MPSC,
•potentially adverse regulatory treatment or failure to receive timely
regulatory orders affecting Consumers that are or could come before the MPSC,
•changes in the performance of or regulations applicable to MISO,
•the adoption of or challenges to federal or state laws or regulations or
changes in applicable laws, rules, regulations, principles, or practices, or in
their interpretation, such as those related to energy policy, ROA, PURPA,
infrastructure integrity or security, cybersecurity, gas pipeline safety, gas
pipeline capacity, energy waste reduction, the environment, regulation or
deregulation, reliability, COVID-19 vaccination and testing requirements, health
care reforms (including comprehensive health care reform enacted in 2010),
taxes, accounting matters, climate change, air emissions, renewable energy, the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and other
business issues that could have an impact on
•factors affecting operations, such as costs and availability of personnel, equipment, and materials; weather conditions; natural disasters; catastrophic weather-related damage; scheduled or unscheduled equipment outages; maintenance or repairs; environmental incidents; failures of equipment or materials; electric transmission and distribution or gas pipeline system constraints; interconnection requirements; political and social unrest; general strikes; the government and/or paramilitary response to political or social events; and changes in trade policies or regulations
•the ability of
•potentially adverse regulatory or legal interpretations or decisions regarding
environmental matters, or delayed regulatory treatment or permitting decisions
that are or could come before EGLE, the
•changes in energy markets, including availability and price of electric capacity and the timing and extent of changes in commodity prices and availability and deliverability of coal, natural gas, natural gas liquids, electricity, oil, gasoline, diesel fuel, and certain related products
•the price of
•the potential effects on the credit and capital markets of the future transition from LIBOR to an alternative reference interest rate, including SOFR, which may perform differently than LIBOR and could result in increased interest rate expense
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•the investment performance of the assets of
•the impact of the economy, particularly in
•changes in the economic and financial viability of
•population changes in the geographic areas where
•national, regional, and local economic, competitive, and regulatory policies, conditions, and developments
•loss of customer demand for electric generation supply to alternative electric suppliers, increased use of self-generation including distributed generation, or energy waste reduction and storage
•increased renewable energy demand due to customers seeking to meet their own sustainability goals
•the reputational or other impact on
•adverse consequences of employee, director, or third-party fraud or noncompliance with codes of conduct or with laws or regulations
•federal regulation of electric sales, including periodic reexamination by
federal regulators of
•any event, change, development, occurrence, or circumstance that could impact the implementation of the 2021 IRP, including any action by a regulatory authority or other third party to prohibit, delay, or impair the implementation of the 2021 IRP
•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
•factors affecting development of electric generation projects, gas transmission, and gas and electric distribution infrastructure replacement, conversion, and expansion projects, including factors related to project site identification, construction material pricing, schedule delays, availability of qualified construction personnel, permitting, acquisition of property rights, and government approvals
•potential disruption to, interruption of, or other impacts on facilities, utility infrastructure, operations, or backup systems due to accidents, explosions, physical disasters, global pandemics, cyber incidents, civil unrest, vandalism, war, or terrorism, and the ability to obtain or maintain insurance coverage for these events
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•changes or disruption in fuel supply, including but not limited to supplier bankruptcy and delivery disruptions
•potential costs, lost revenues, reputational harm, or other consequences resulting from misappropriation of assets or sensitive information, corruption of data, or operational disruption in connection with a cyberattack or other cyber incident
•potential disruption to, interruption or failure of, or other impacts on information technology backup or disaster recovery systems
•technological developments in energy production, storage, delivery, usage, and metering
•the ability to implement technology successfully
•the impact of
•adverse consequences resulting from any past, present, or future assertion of
indemnity or warranty claims associated with assets and businesses previously
owned by
•the outcome, cost, and other effects of any legal or administrative claims, proceedings, investigations, or settlements
•the reputational impact on
•restrictions imposed by various financing arrangements and regulatory
requirements on the ability of Consumers and other subsidiaries of
•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 (e.g., the adoption of the hypothetical liquidation at book value method of accounting for certain non-regulated renewable energy projects)
•other matters that may be disclosed from time to time in
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
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Table of Contents Part I-Financial Information Item 1. Financial Statements
Index to Financial Statements
Management's Discussion and Analysis of Financial Condition and Results of Operations 14 CMS Energy Consolidated Financial Statements 48 Consolidated Statements of Income (Unaudited) 48 Consolidated Statements of Comprehensive Income (Unaudited) 50 Consolidated Statements of Cash Flows (Unaudited) 51 Consolidated Balance Sheets (Unaudited) 52 Consolidated Statements of Changes in Equity (Unaudited) 54 Consumers Consolidated Financial Statements 56 Consolidated Statements of Income (Unaudited) 56 Consolidated Statements of Comprehensive Income (Unaudited) 57 Consolidated Statements of Cash Flows (Unaudited) 59 Consolidated Balance Sheets (Unaudited) 60 Consolidated Statements of Changes in Equity (Unaudited) 62 Notes to the Unaudited Consolidated Financial Statements 63 1: Regulatory Matters 63 2: Contingencies and Commitments 65 3: Financings and Capitalization 70 4: Fair Value Measurements 72 5: Financial Instruments 74 6: Retirement Benefits 75 7: Income Taxes 77 8: Earnings Per Share-CMS Energy 78 9: Revenue 79 10: Cash and Cash Equivalents 83 11: Reportable Segments 83 12: Variable Interest Entities 85 13: Exit Activities and Discontinued Operations 87 13
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Table of ContentsCMS Energy Corporation Consumers Energy Company Management's Discussion and Analysis of Financial Condition and Results of Operations
This MD&A is a combined report of
Executive Overview
•regulation and regulatory matters •state and federal legislation •economic conditions •weather •energy commodity prices •interest rates •their securities' credit ratings
The Triple Bottom Line
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the investment community, and other stakeholders, and it reflects the broader
societal impacts of
[[Image Removed: cms-20220630_g1.jpg]]
People: The people element of the triple bottom line represents
The safety of employees, customers, and the general public is a priority of
Central to Consumers' commitment to its customers are the initiatives it has undertaken to keep electricity and natural gas affordable, including:
•replacement of coal-fueled generation and PPAs with a cost-efficient mix of renewable energy, less-costly dispatchable generation sources, and energy waste reduction and demand response programs •targeted infrastructure investment to reduce maintenance costs and improve reliability and safety •supply chain optimization •economic development to increase sales and reduce overall rates •information and control system efficiencies •employee and retiree health care cost sharing •workforce productivity enhancements
While
Planet: The planet element of the triple bottom line represents
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Table of Contents and other environmental risks in strategy development, business planning, and enterprise risk management processes.
•decreased their combined percentage of electric supply (self-generated and purchased) from coal by 13 percentage points since 2015 •reduced carbon dioxide emissions by over 30 percent since 2005 •reduced the amount of water used to generate electricity by nearly 30 percent since 2012 •reduced landfill waste disposal by over 1.6 million tons since 1992 •reduced methane emissions by nearly 20 percent since 2012
Since 2005, Consumers has reduced its sulfur dioxide and particulate matter emissions by over 90 percent and its nitrogen oxides emissions by over 80 percent. Consumers began tracking mercury emissions in 2007; since that time, it has reduced such emissions by nearly 90 percent.
The 2016 Energy Law:
•raised the renewable energy standard to 15 percent in 2021; Consumers met the 15percent requirement in 2021 and expects to meet the requirement in future years with a combination of newly generated RECs and previously generated RECs carried over from prior years •established a goal of 35 percent combined renewable energy and energy waste reduction by 2025; Consumers achieved 30 percent combined renewable energy and energy waste reduction through 2021 •authorized incentives for demand response programs and energy efficiency programs, referring to the combined initiatives as energy waste reduction programs •established an integrated planning process for new capacity and energy resources
Consumers' Clean Energy Plan details its strategy to meet customers' long-term energy needs. The Clean Energy Plan was originally outlined in Consumers' 2018 IRP, which was approved by the MPSC in 2019. Under its Clean Energy Plan, Consumers will meet the requirements of the 2016 Energy Law using its clean and lean strategy, which focuses on increasing the generation of renewable energy, helping customers use less energy, and offering demand response programs to reduce demand during critical peak times.
In
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Table of Contents The 2021 IRP outlines Consumers' long-term strategy for delivering clean, reliable, resilient, and affordable energy to its customers, including plans to:
•end the use of coal-fueled generation in 2025, 15 years sooner than initially planned •purchase an existing natural gas-fueled generating unit, providing an additional 1,176 MW of nameplate capacity and allowing Consumers to continue providing controllable sources of electricity to customers •solicit approximately 700 MW of capacity through PPAs from sources inMichigan's Lower Peninsula beginning in 2025 •expand its investment in renewable energy, adding nearly 8,000 MW of solar generation by 2040
Under the 2021 IRP, Consumers will continue to earn a return equal to its weighted-average cost of capital on payments made under new competitively bid PPAs approved by the MPSC.
The 2021 IRP will allow Consumers to exceed its breakthrough goal of at least 50 percent combined renewable energy and energy waste reduction by 2030.
Presented in the following illustration is Consumers' 2021 capacity portfolio and its future capacity portfolio under its 2021 IRP. This illustration includes the effects of purchased capacity and energy waste reduction and uses the nameplate capacity for all energy sources:
[[Image Removed: cms-20220630_g2.jpg]]
1 Does not include RECs.
2 These amounts and fuel sources will vary and are dependent on a one-time
competitive solicitation to acquire approximately 700 MW of capacity through
PPAs from sources in
In addition to its plan to eliminate its use of coal-fueled generation in 2025, Consumers has set the netzero emissions goals discussed below.
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Table of Contents Net-zero methane emissions from natural gas delivery system by 2030: Under its Methane Reduction Plan, Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices. The remaining emissions will likely be offset by purchasing and/or producing renewable natural gas.
Net-zero carbon emissions from electric business by 2040: This goal includes not only emissions from Consumers' owned generation, but also emissions from the generation of power purchased through long-term PPAs and from the MISO energy market. Consumers expects to meet 90 percent of its customers' needs with clean energy sources by 2040 through execution of its Clean Energy Plan. Carbon offset measures including, but not limited to, carbon sequestration, methane emission capture, forest preservation, and reforestation may be used to close the gap to achieving net-zero carbon emissions.
Net-zero greenhouse gas emissions target for entire natural gas system by 2050:
This goal, announced in
Additionally, to advance its environmental stewardship in
•to enhance, restore, or protect 6,500 acres of land by 2026 •to increase the rate of waste diverted from landfills (through waste reduction, recycling, and reuse) to 90 percent from a baseline of 88 percent
Profit: The profit element of the triple bottom line represents
For the six months ended
Over the next five years, Consumers expects weather-normalized electric and gas deliveries to remain stable relative to 2021. This outlook reflects the effects of energy waste reduction programs offset largely by modest growth in electric and gas demand.
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Table of Contents Performance: Impacting the Triple Bottom Line
•realized approximately$55 million in cost reductions by leveraging theCE Way and through other initiatives •introduced a new economic development rate designed to attract new business toMichigan and encourage existing businesses to expand their operations •achieved five-year planet goals, set in 2018, to save one billion gallons of water; enhance, restore or protect 5,000 acres of land inMichigan ; and reduce waste sent to landfills by 35 percent •introduced a new three-year electric vehicle pilot program designed to help fleet owners transition to electric vehicles •announced plans to begin development of a renewable natural gas facility that will convert agricultural waste into clean, renewable natural gas •expanded their renewable energy programs that assist both business and residential customers in meeting their sustainability goals •received recognition as #1 utility company in theU.S. for America's Best Employers for Women and America's Best Employers for Diversity by Forbes®
Investment Plan: Consumers expects to make capital investments of
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The 2021 IRP will potentially add nearly
[[Image Removed: cms-20220630_g3.jpg]]
Of this amount, Consumers plans to spend
Regulation: Regulatory matters are a key aspect of Consumers' business, particularly rate cases and regulatory proceedings before the MPSC, which permit recovery of new investments while helping to ensure that customer rates are fair and affordable. Important regulatory events and developments not already discussed are summarized below.
2022 Electric Rate Case: In
2021 Gas Rate Case: In
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twelve-month period ending
Looking Forward
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