UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
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o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to_____
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Registrant; State of Incorporation; |
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IRS Employer |
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File Number |
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Address; and Telephone Number |
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Identification No. |
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1-9513 |
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CMS ENERGY CORPORATION |
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38-2726431 |
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(A Michigan Corporation) |
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One Energy Plaza, Jackson, Michigan 49201 |
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(517) 788-0550 |
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1-5611 |
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CONSUMERS ENERGY COMPANY |
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38-0442310 | |||||
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(A Michigan Corporation) |
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One Energy Plaza, Jackson, Michigan 49201 |
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(517) 788-0550 |
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Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange |
Registrant |
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Title of Class |
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on Which Registered |
CMS Energy Corporation |
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Common Stock, $0.01 par value |
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New York Stock Exchange |
Consumers Energy Company |
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Cumulative Preferred Stock, $100 par value: $4.50 Series |
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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 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 x No o Consumers Energy Company: Yes x 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 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 Registrants 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. x
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
(Do not check if a smaller reporting company)
Consumers Energy Company: Large accelerated filer o Accelerated filer o Non-Accelerated filer x 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 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 $7.253 billion for the 266,947,124 CMS Energy Common Stock shares outstanding on June 28, 2013 based on the closing sale price of $27.17 for CMS Energy Common Stock, as reported by the New York Stock Exchange on such date.
There were 267,207,862 shares of CMS Energy Common Stock outstanding on January 9, 2014, including 1,091,320 shares owned by Consumers Energy Company. On January 9, 2014, CMS Energy held all voting and non-voting common equity of Consumers. Documents incorporated by reference in Part III: CMS Energys proxy statement and Consumers information statement relating to the 2014 annual meeting of stockholders to be held May 16, 2014.
CMS Energy Corporation
Consumers Energy Company
Annual Reports on Form 10-K to the Securities and Exchange Commission for the Year Ended
December 31, 2013
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Certain Relationships and Related Transactions, and Director Independence |
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Certain terms used in the text and financial statements are defined below.
2008 Energy Law |
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Comprehensive energy reform package enacted in Michigan in 2008 |
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ABATE |
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Association of Businesses Advocating Tariff Equity |
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ABO |
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Accumulated benefit obligation; the liabilities of a pension plan based on service and pay to date, which differs from the PBO in that it does not reflect expected future salary increases |
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AFUDC |
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Allowance for borrowed and equity funds used during construction |
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AOCI |
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Accumulated other comprehensive income (loss) |
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ARO |
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Asset retirement obligation |
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Bay Harbor |
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A residential/commercial real estate area located near Petoskey, Michigan, in which CMS Energy sold its interest in 2002 |
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bcf |
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Billion cubic feet |
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Big Rock |
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Big Rock Point nuclear power plant, formerly owned by Consumers |
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Btu |
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British thermal unit |
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CAIR |
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The Clean Air Interstate Rule |
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Cantera Gas Company |
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Cantera Gas Company LLC, a non-affiliated company, formerly known as CMS Field Services |
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Cantera Natural Gas, Inc. |
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Cantera Natural Gas, Inc., a non-affiliated company that purchased CMS Field Services |
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CAO |
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Chief Accounting Officer |
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CCR |
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Coal combustion residual |
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CEO |
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Chief Executive Officer |
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CERCLA |
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Comprehensive Environmental Response, Compensation and Liability Act of 1980 |
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CFO |
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Chief Financial Officer |
city-gate contract |
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An arrangement made for the point at which a local distribution company physically receives gas from a supplier or pipeline |
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Clean Air Act |
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Federal Clean Air Act of 1963, as amended |
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Clean Water Act |
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Federal Water Pollution Control Act of 1972, as amended |
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CMS Capital |
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CMS Capital, L.L.C., a wholly owned subsidiary of CMS Energy |
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CMS Energy |
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CMS Energy Corporation, the parent of Consumers and CMS Enterprises |
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CMS Enterprises |
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CMS Enterprises Company, a wholly owned subsidiary of CMS Energy |
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CMS ERM |
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CMS Energy Resource Management Company, formerly known as CMS MST, a wholly owned subsidiary of CMS Enterprises |
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CMS Field Services |
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CMS Field Services, Inc., a former wholly owned subsidiary of CMS Gas Transmission |
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CMS Gas Transmission |
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CMS Gas Transmission Company, a wholly owned subsidiary of CMS Enterprises |
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CMS Land |
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CMS Land Company, a wholly owned subsidiary of CMS Capital |
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CMS MST |
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CMS Marketing, Services and Trading Company, a wholly owned subsidiary of CMS Enterprises, whose name was changed to CMS ERM in 2004 |
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CMS Viron |
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CMS Viron Corporation, a wholly owned subsidiary of CMS ERM |
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Consumers |
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Consumers Energy Company, a wholly owned subsidiary of CMS Energy |
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Consumers Funding |
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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, issuing Securitization bonds, and pledging its interest in Securitization property to a trustee to collateralize the Securitization bonds |
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CSAPR |
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The Cross-State Air Pollution Rule |
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DB SERP |
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Defined Benefit Supplemental Executive Retirement Plan |
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DCCP |
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Defined Company Contribution Plan |
DC SERP |
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Defined Contribution Supplemental Executive Retirement Plan |
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DIG |
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Dearborn Industrial Generation, L.L.C., a wholly owned subsidiary of Dearborn Industrial Energy, L.L.C., a wholly owned subsidiary of CMS Energy |
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Dodd-Frank Act |
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Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 |
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DOE |
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U.S. Department of Energy |
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DOJ |
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U.S. Department of Justice |
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DTE Electric |
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DTE Electric Company, a non-affiliated company |
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DTE Gas |
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DTE Gas Company, a non-affiliated company |
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EBITDA |
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Earnings before interest, taxes, depreciation, and amortization |
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EGWP |
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Employer Group Waiver Plan |
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EnerBank |
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EnerBank USA, a wholly owned subsidiary of CMS Capital |
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Entergy |
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Entergy Corporation, a non-affiliated company |
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Environmental Mitigation Projects |
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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 |
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EPA |
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U.S. Environmental Protection Agency |
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EPS |
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Earnings per share |
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Exchange Act |
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Securities Exchange Act of 1934, as amended |
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FDIC |
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Federal Deposit Insurance Corporation |
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FERC |
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The Federal Energy Regulatory Commission |
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fine particulate matter |
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Particulate matter that is 2.5 microns or less in diameter |
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First Mortgage Bond Indenture |
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The indenture dated as of September 1, 1945 between Consumers and The Bank of New York Mellon, as Trustee, as amended and supplemented |
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FLI Liquidating Trust |
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Trust formed in Missouri bankruptcy court to accomplish the liquidation of Farmland Industries, Inc., a non-affiliated entity |
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FMB |
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First mortgage bond |
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FOV |
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Finding of Violation |
FTR |
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Financial transmission right |
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GAAP |
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U.S. Generally Accepted Accounting Principles |
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GCC |
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Gas Customer Choice, which allows gas customers to purchase gas from alternative suppliers |
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GCR |
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Gas cost recovery |
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Genesee |
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Genesee Power Station Limited Partnership, a VIE in which HYDRA-CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises, has a 50 percent interest |
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Grayling |
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Grayling Generating Station Limited Partnership, a VIE in which HYDRA-CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises, has a 50 percent interest |
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GWh |
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Gigawatt-hour, a unit of energy equal to one billion watt-hours |
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Health Care Acts |
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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 |
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IRS |
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Internal Revenue Service |
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kilovolts |
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Thousand volts, a unit used to measure the difference in electrical pressure along a current |
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kVA |
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Thousand volt-amperes, a unit used to reflect the electrical power capacity rating of equipment or a system |
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kWh |
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Kilowatt-hour, a unit of energy equal to one thousand watt-hours |
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LIBOR |
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The London Interbank Offered Rate |
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Ludington |
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Ludington pumped-storage plant, jointly owned by Consumers and DTE Electric |
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MACT |
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Maximum Achievable Control Technology, which is the emission control that is achieved in practice by the best-controlled similar source |
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MATS |
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Mercury and Air Toxics Standards, which limit mercury, acid gases, and other toxic pollution from coal-fueled and oil-fueled power plants |
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MBT |
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Michigan Business Tax |
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mcf |
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Thousand cubic feet |
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MCIT |
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Michigan Corporate Income Tax |
MCV Facility |
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A 1,647 MW gas-fueled, combined-cycle cogeneration facility operated by the MCV Partnership |
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MCV Partnership |
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Midland Cogeneration Venture Limited Partnership |
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MCV PPA |
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PPA between Consumers and the MCV Partnership |
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MD&A |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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MDEQ |
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Michigan Department of Environmental Quality |
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MDL |
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A pending multi-district litigation case in Nevada arising out of several consolidated cases |
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MGP |
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Manufactured gas plant |
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MISO |
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The Midcontinent Independent System Operator, Inc. |
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mothball |
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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 |
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MPSC |
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Michigan Public Service Commission |
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MRV |
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Market-related value of plan assets |
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MW |
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Megawatt, a unit of power equal to one million watts |
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MWh |
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Megawatt-hour, a unit of energy equal to one million watt-hours |
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NAV |
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Net asset value |
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NERC |
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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 |
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NOV |
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Notice of Violation |
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NPDES |
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National Pollutant Discharge Elimination System, a permit system for regulating point sources of pollution under the Clean Water Act |
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NREPA |
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Part 201 of the Michigan Natural Resources and Environmental Protection Act, a statute that covers environmental activities including remediation |
NSR |
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New Source Review, a construction-permitting program under the Clean Air Act |
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NYMEX |
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The New York Mercantile Exchange |
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OPEB |
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Other Post-Employment Benefits |
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OPEB Plan |
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Defined benefit postretirement health-care and life insurance plans of CMS Energy, Consumers, and Panhandle |
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Palisades |
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Palisades nuclear power plant, sold by Consumers to Entergy in 2007 |
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Panhandle |
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Panhandle Eastern Pipe Line Company, a former wholly owned subsidiary of CMS Gas Transmission |
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PBO |
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Projected benefit obligation |
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PCB |
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Polychlorinated biphenyl |
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Pension Plan |
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Trusteed, non-contributory, defined benefit pension plan of CMS Energy, Consumers, and Panhandle |
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PISP |
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Performance Incentive Stock Plan |
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PPA |
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Power purchase agreement |
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PSCR |
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Power supply cost recovery |
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PSD |
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Prevention of Significant Deterioration |
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REC |
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Renewable energy credit established under the 2008 Energy Law |
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ReliabilityFirst Corporation |
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ReliabilityFirst Corporation, a non-affiliated company responsible for the preservation and enhancement of bulk power system reliability and security |
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Renewable Operating Permit |
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Michigans Title V permitting program under the Clean Air Act |
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Resource Conservation and Recovery Act |
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Federal Resource Conservation and Recovery Act of 1976 |
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RMRR |
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Routine maintenance, repair, and replacement |
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ROA |
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Retail Open Access, which allows electric generation customers to choose alternative electric suppliers pursuant to a Michigan statute enacted in 2000 |
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S&P |
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Standard & Poors Financial Services LLC |
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SEC |
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U.S. Securities and Exchange Commission |
Securitization |
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A financing method authorized by statute and approved by the MPSC which allows a utility to sell its right to receive a portion of the rate payments received from its customers for the repayment of securitization bonds issued by a special-purpose entity affiliated with such utility |
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Sherman Act |
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Sherman Antitrust Act of 1890 |
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Smart Energy |
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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 |
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T.E.S. Filer City |
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T.E.S. Filer City Station Limited Partnership, a VIE in which HYDRA-CO Enterprises, Inc., a wholly owned subsidiary of CMS Enterprises, has a 50 percent interest |
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Title V |
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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. |
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Trunkline |
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Trunkline Gas Company, LLC, a non-affiliated company and wholly owned subsidiary of Panhandle |
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TSR |
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Total shareholder return |
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USW |
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United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO-CLC |
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UWUA |
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Utility Workers Union of America, AFL-CIO |
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VEBA trust |
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Voluntary employees beneficiary association trusts accounts established specifically to set aside employer-contributed assets to pay for future expenses of the OPEB Plan |
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VIE |
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Variable interest entity |
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 Energys 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 Energys 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 Energys 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 Energys 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 new 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 Energys 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 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 Energys 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 Energys 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 Energys, 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 Energys 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 Energys 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 Energys 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 equipment outages, maintenance or repairs, environmental incidents, equipment failures, 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 Energys 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 Energys 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 Energys and Consumers SEC filings. For additional details regarding these and other uncertainties, see Item 1A. Risk Factors; Item 8. Financial Statements and Supplementary Data, MD&A Outlook; and Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements Note 2, Regulatory Matters and Note 3, Contingencies and Commitments.
GENERAL
CMS ENERGY
CMS Energy was formed as a corporation 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 independent power producer. 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 independent power production 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 Energys total assets, income, and operating revenue. CMS Energys consolidated operating revenue was $6.6 billion in 2013, $6.3 billion in 2012, and $6.5 billion in 2011.
For further information about operating revenue, operating income, and identifiable assets and liabilities attributable to all of CMS Energys business segments and operations, see Item 8. Financial Statements and Supplementary Data, CMS Energys Selected Financial Information, Consolidated Financial Statements, and Notes to the 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 6.5 million of Michigans 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 $6.3 billion in 2013, $6.0 billion in 2012, and $6.3 billion in 2011. For further information about operating revenue, 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 the 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.
In 2013, Consumers served 1.8 million electric customers and 1.7 million gas customers in Michigans Lower Peninsula. Presented in the following map is Consumers service territory:
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 $4.2 billion in 2013, $4.0 billion in 2012, and $3.9 billion in 2011. Consumers electric utility customer base consists of a mix of residential, commercial, and diversified industrial customers in Michigans Lower Peninsula.
Presented in the following illustration is Consumers 2013 electric utility operating revenue of $4.2 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 Consumers largest customers is not reasonably likely to have a material adverse effect on Consumers financial condition.
In 2013, Consumers electric deliveries were 37 billion kWh, which included ROA deliveries of four billion kWh, resulting in net bundled sales of 33 billion kWh. In 2012, Consumers electric deliveries were 38 billion kWh, which included ROA deliveries of four billion kWh, resulting in net bundled sales of 34 billion kWh.
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.
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 2013 and 2012:
Consumers 2013 summer peak demand was 8,509 MW, which included ROA demand of 556 MW. For the 2012-2013 winter period, Consumers peak demand was 5,845 MW, which included ROA demand of 461 MW. As required by MISO reserve margin requirements, Consumers owns or controls, through long-term contracts, capacity required to supply most of its projected firm peak load and necessary reserve margin for summer 2014. Consumers expects to acquire the balance of its 2014 requirements through MISOs forward capacity auction scheduled to be conducted in April 2014.
Electric Utility Properties: Consumers distribution system consists of:
· 422 miles of high-voltage distribution radial lines operating at 120 kilovolts or above;
· 4,259 miles of high-voltage distribution overhead lines operating at 23 kilovolts, 46 kilovolts, and 69 kilovolts;
· 18 miles of high-voltage distribution underground lines operating at 23 kilovolts and 46 kilovolts;
· 55,996 miles of electric distribution overhead lines;
· 10,210 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 Michigan Electric Transmission Company, LLC, a non-affiliated company, and operated by MISO. Consumers is also interconnected to neighboring utilities and to other transmission systems.
At December 31, 2013, Consumers electric generating system consisted of the following:
|
|
Number of Units and |
|
2013 Generation Capacity |
1 |
2013 Net Generation |
|
Name and Location (Michigan) |
|
Year Entered Service |
|
(MW) |
|
(GWh) |
|
Coal generation |
|
|
|
|
|
|
|
J.H. Campbell 1 & 2 West Olive |
|
2 Units, 1962-1967 |
|
607 |
|
3,167 |
|
J.H. Campbell 3 West Olive2 |
|
1 Unit, 1980 |
|
751 |
|
5,054 |
|
B.C. Cobb 4 & 5 Muskegon3 |
|
2 Units, 1956-1957 |
|
312 |
|
1,801 |
|
D.E. Karn 1 & 2 Essexville |
|
2 Units, 1959-1961 |
|
515 |
|
2,630 |
|
J.C. Weadock 7 & 8 Essexville3 |
|
2 Units, 1955-1958 |
|
290 |
|
1,639 |
|
J.R. Whiting 1-3 Erie3 |
|
3 Units, 1952-1953 |
|
324 |
|
1,660 |
|
Total coal generation |
|
|
|
2,799 |
|
15,951 |
|
Oil/Gas steam generation |
|
|
|
|
|
|
|
B.C. Cobb 1-3 Muskegon4 |
|
3 Units, 1999-2000 |
|
- |
|
- |
|
D.E. Karn 3 & 4 Essexville |
|
2 Units, 1975-1977 |
|
1,276 |
|
35 |
|
Zeeland (combined cycle) Zeeland |
|
1 Unit, 2002 |
|
519 |
|
1,209 |
|
Total oil/gas steam generation |
|
|
|
1,795 |
|
1,244 |
|
Hydroelectric |
|
|
|
|
|
|
|
Conventional hydro generation |
|
13 Plants, 1906-1949 |
|
76 |
|
443 |
|
Ludington Ludington |
|
6 Units, 1973 |
|
953 |
5 |
(371 |
)6 |
Total hydroelectric |
|
|
|
1,029 |
|
72 |
|
Gas/Oil combustion turbine |
|
|
|
|
|
|
|
Various plants |
|
7 Plants, 1966-1971 |
|
40 |
|
4 |
|
Zeeland (simple cycle) Zeeland |
|
2 Units, 2001 |
|
308 |
|
171 |
|
Total gas/oil combustion turbine |
|
|
|
348 |
|
175 |
|
Wind generation |
|
|
|
|
|
|
|
Lake Winds® Energy Park |
|
56 Turbines, 2012 |
|
13 |
|
261 |
|
Total wind generation |
|
|
|
13 |
|
261 |
|
Total owned generation |
|
|
|
5,984 |
|
17,703 |
|
Purchased and interchange power7 |
|
|
|
2,619 |
8 |
16,777 |
9 |
Total supply |
|
|
|
8,603 |
|
34,480 |
|
Generation and transmission use/loss |
|
|
|
|
|
1,582 |
|
Total net bundled sales |
|
|
|
|
|
32,898 |
|
1 Represents each plants electric generation capacity during the summer months.
2 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 Power Supply Cooperative, Inc.
3 Subject to a successful Securitization transaction, Consumers plans to retire these seven smaller coal-fueled generating units by April 2016. For further information, see Item 8. Financial Statements and Supplementary Data, MD&A Outlook, Consumers Electric Utility Business Outlook and Uncertainties Balanced Energy Initiative.
4 B.C. Cobb 1-3 were coal-fueled units that were retired and subsequently converted to gas-fueled units. B.C. Cobb 1-3 were placed back into service in the years indicated and mothballed beginning in April 2009. Subject to a successful Securitization transaction, Consumers plans to retire these units by April 2016.
5 Represents Consumers 51-percent share of the capacity of Ludington. DTE Electric holds the remaining 49-percent ownership interest.
6 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.
7 Includes purchases from the MISO energy market, long-term purchase contracts, and seasonal purchases.
8 Includes 1,240 MW of purchased contract capacity from the MCV Facility and 778 MW of purchased contract capacity from Palisades.
9 Includes 2,381 GWh of purchased energy from the MCV Facility and 6,915 GWh of purchased energy from Palisades.
Consumers generation capacity is a measure of the maximum electric output that Consumers has available to meet peak load requirements. As shown in the following illustration, Consumers 2013 generation capacity of 8,603 MW, including purchased capacity of 2,619 MW, relied on a variety of fuel sources:
Electric Utility Supply: Over the last five years, Consumers electric supply came from the following sources:
|
|
|
|
|
|
|
|
|
|
GWh |
|
Net Generation |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
2009 |
|
Owned generation |
|
|
|
|
|
|
|
|
|
|
|
Coal |
|
15,951 |
|
14,027 |
|
15,468 |
|
17,879 |
|
17,255 |
|
Gas |
|
1,415 |
|
3,003 |
|
1,912 |
|
1,043 |
|
565 |
|
Renewable energy |
|
704 |
|
433 |
|
425 |
|
365 |
|
466 |
|
Oil |
|
4 |
|
6 |
|
7 |
|
21 |
|
14 |
|
Net pumped storage1 |
|
(371 |
) |
(295 |
) |
(365 |
) |
(366 |
) |
(303 |
) |
Total owned generation |
|
17,703 |
|
17,174 |
|
17,447 |
|
18,942 |
|
17,997 |
|
Purchased and interchange power |
|
|
|
|
|
|
|
|
|
|
|
Purchased renewable energy2 |
|
2,250 |
|
1,435 |
|
1,587 |
|
1,582 |
|
1,472 |
|
Purchased generation other2 |
|
10,871 |
|
13,104 |
|
11,087 |
|
10,421 |
|
10,066 |
|
Net interchange power3 |
|
3,656 |
|
4,151 |
|
6,825 |
|
6,045 |
|
6,925 |
|
Total purchased and interchange power |
|
16,777 |
|
18,690 |
|
19,499 |
|
18,048 |
|
18,463 |
|
Total supply |
|
34,480 |
|
35,864 |
|
36,946 |
|
36,990 |
|
36,460 |
|
1 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.
2 Includes purchases from long-term purchase contracts.
3 Includes purchases from the MISO energy market and seasonal purchases.
During 2013, Consumers purchased 49 percent of the electricity it provided to customers through long-term PPAs, seasonal purchases, and the MISO energy market. Consumers offers its generation into the MISO energy 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 MISO energy market to meet its customers needs during peak demand periods.
At December 31, 2013, 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. The payments for 2014 through 2032 are estimated to total $12.1 billion and to range from $917 million to $1.1 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 8. Financial Statements and Supplementary Data, MD&A Capital Resources and Liquidity and Note 3, Contingencies and Commitments Contractual Commitments.
During 2013, 46 percent of the energy Consumers provided to customers was generated by its four coal-fueled generating sites, which burned nine million tons of coal and produced a combined total of 15,951 GWh of electricity.
In order to obtain the coal it needs, Consumers enters into physical coal supply contracts. At December 31, 2013, Consumers had contracts to purchase coal through 2015; payment obligations under these contracts totaled $163 million. Consumers rail-supplied coal contracts have fixed prices with the exception of one contract, which is for the purchase of coal through 2014 and contains market-based pricing. Consumers vessel-supplied coal contracts have fixed base prices that are adjusted monthly to reflect changes to the fuel cost of vessel transportation. At December 31, 2013, Consumers had
79 percent of its 2014 expected coal requirements under contract, as well as a 24-day supply of coal on hand.
In conjunction with its coal supply contracts, Consumers leases a fleet of rail cars and has 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 through 2014; payment obligations under these contracts totaled $227 million.
During 2013, four percent of the energy Consumers provided to customers was generated by gas-fueled generating sites, which burned 12 bcf of natural gas and produced a combined total of 1,415 GWh of electricity.
In order to obtain the gas it needs, Consumers electric utility purchases gas from the market near the time of consumption, at prices that allow it to compete in the electric generation market. For D.E. Karn, units 3 and 4, and the Zeeland plant, Consumers purchases gas from the market and transports the gas to the facilities on a firm basis. For its smaller combustion turbines, Consumers electric utility purchases and transports gas to its facilities as a bundled-rate tariff customer of either the gas utility or DTE Gas.
The cost of all fuels consumed, shown in the following table, fluctuates with the mix of fuel used.
|
|
|
|
|
|
|
|
Cost Per Million Btu |
| |||||||
Fuel Consumed |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
2009 |
| |||||
Coal |
|
$ |
2.90 |
|
$ |
2.98 |
|
$ |
2.94 |
|
$ |
2.51 |
|
$ |
2.37 |
|
Gas |
|
4.68 |
|
3.16 |
|
4.95 |
|
5.57 |
|
6.57 |
| |||||
Oil |
|
19.47 |
|
19.08 |
|
18.55 |
|
10.98 |
|
9.59 |
| |||||
Weighted average fuel cost |
|
$ |
3.07 |
|
$ |
3.05 |
|
$ |
3.18 |
|
$ |
2.71 |
|
$ |
2.56 |
|
Electric Utility 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.
A Michigan statute enacted in 2000 allows Consumers electric customers to buy electric generation service from Consumers or from alternative electric suppliers. The 2008 Energy Law revised the statute by limiting alternative electric supply to ten percent of Consumers weather-adjusted retail sales for the preceding calendar year. At December 31, 2013, Consumers electric deliveries under the ROA program were at the ten-percent limit and alternative electric suppliers were providing 787 MW of electric generation service to 310 ROA customers.
In December 2013, a bill was introduced to the Michigan House of Representatives that, if enacted, would revise the 2008 Energy Law by removing the ten-percent limit and allowing all of Consumers electric customers to take service from alternative electric suppliers. Presently, the proportion of Consumers electric deliveries under the ROA program and on the ROA waiting list is 25 percent. The bill also proposes to deregulate electric generation service in Michigan within two years. No definitive action has been taken on this bill or on a similar bill introduced to the Michigan Senate in February 2013. The Senate bill, if enacted, would revise the 2008 Energy Law and allow customers on the ROA program waiting list to take service from alternative electric suppliers. The Senate 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 these legislative proposals. In addition, the Michigan legislature has conducted hearings on the subject of energy competition. If the ROA limit were increased or if electric generation service in Michigan were deregulated, it could have a material adverse effect on Consumers financial results and operations.
Consumers also has competition or potential competition from:
· industrial customers relocating all or a portion of their production capacity outside of Consumers service territory for economic reasons;
· municipalities owning or operating competing electric delivery systems; and
· customer self-generation.
Consumers addresses this competition by monitoring activity in adjacent areas and compliance with the MPSCs and FERCs rules, by providing non-energy services and value to customers through Consumers rates and service, and by offering tariff-based incentives that support economic development.
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 $2.1 billion in 2013, $2.0 billion in 2012, and $2.3 billion in 2011. Consumers gas utility customer base consists of a mix of residential, commercial, and diversified industrial customers in Michigans Lower Peninsula.
Presented in the following illustration is Consumers 2013 gas utility operating revenue of $2.1 billion 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 Consumers largest customers is not reasonably likely to have a material adverse effect on Consumers financial condition.
In 2013, deliveries of natural gas, including off-system transportation deliveries, through Consumers pipeline and distribution network, totaled 352 bcf, which included GCC deliveries of 63 bcf. In 2012, deliveries of natural gas, including off-system transportation deliveries, through Consumers pipeline and distribution network, totaled 329 bcf, which included GCC deliveries of 49 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 2013, 53 percent of the natural gas supplied to all customers during the winter months was supplied from storage.
Presented in the following illustration are Consumers monthly weather-adjusted gas deliveries (deliveries adjusted to reflect normal weather conditions) to its customers, including GCC deliveries, during 2013 and 2012:
Gas Utility Properties: Consumers gas distribution and transmission system consists of:
· 26,819 miles of distribution mains;
· 1,661 miles of transmission lines;
· seven compressor stations with a total of 150,027 installed and available horsepower; and
· 15 gas storage fields with an aggregate storage capacity of 309 bcf and a working storage capacity of 143 bcf.
Gas Utility Supply: In 2013, Consumers purchased 66 percent of the gas it delivered from U.S. producers and 10 percent from Canadian producers. The remaining 24 percent was purchased from authorized GCC suppliers and 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 2013:
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, and Trunkline. 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 47 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.
Gas Utility Competition: Competition exists in various aspects of Consumers gas utility business. Competition comes from GCC and from alternative fuels and energy sources, such as propane, oil, and electricity.
ENTERPRISES SEGMENT NON-UTILITY OPERATIONS AND INVESTMENTS
CMS Energys enterprises segment, through various subsidiaries and certain equity investments, is engaged primarily in domestic independent power production and the marketing of independent power production. The enterprises segments operating revenue was $181 million in 2013, $183 million in 2012, and $204 million in 2011.
Independent Power Production: At December 31, 2013, CMS Energy had ownership interests in independent power plants totaling 1,135 gross MW or 1,034 net MW. (Net MW reflects that portion of the gross capacity relating to CMS Energys ownership interests.) Presented in the following table are CMS Energys interests in independent power plants at December 31, 2013:
|
|
|
|
Gross Capacity |
|
Primary |
Ownership |
Gross Capacity |
Under Long-Term |
Location |
Fuel Type |
Interest (%) |
(MW) |
Contract (%) |
Dearborn, Michigan |
Natural gas |
100 |
710 |
61 |
Gaylord, Michigan |
Natural gas |
100 |
156 |
40 |
Comstock, Michigan |
Natural gas |
100 |
68 |
40 |
Filer City, Michigan |
Coal |
50 |
73 |
100 |
Flint, Michigan |
Biomass |
50 |
40 |
100 |
Grayling, Michigan |
Biomass |
50 |
38 |
100 |
New Bern, North Carolina |
Biomass |
50 |
50 |
100 |
Total |
|
|
1,135 |
|
The operating revenue from independent power production was $17 million in 2013, $16 million in 2012, and $17 million in 2011. CMS Energys independent power production business faces competition from generators, marketers and brokers, and utilities marketing power in the wholesale market.
Energy Resource Management: CMS ERM purchases and sells energy commodities in support of CMS Energys generating facilities and continues to focus on optimizing CMS Energys independent power production portfolio. In 2013, CMS ERM marketed 11 bcf of natural gas and 3,596 GWh of electricity. Electricity marketed by CMS ERM was generated by independent power production of the enterprises segment and unrelated third parties. CMS ERMs operating revenue included in income from continuing operations in CMS Energys consolidated financial statements was $164 million in 2013, $167 million in 2012, and $187 million in 2011.
OTHER BUSINESSES
EnerBank: EnerBank is a Utah state-chartered, FDIC-insured industrial bank providing unsecured consumer installment loans for financing home improvements. EnerBanks operating revenue included in income from continuing operations in CMS Energys consolidated financial statements was $64 million in 2013, $57 million in 2012, and $46 million in 2011.
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.
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. FERC regulates limited aspects of Consumers gas business, principally compliance with FERC capacity release rules, shipping rules, the prohibition against certain buy/sell transactions, and the price-reporting rule.
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.
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, certain asset transfers, 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, MD&A Outlook and Notes to the Consolidated Financial Statements Note 2, Regulatory Matters.
OTHER REGULATION
The U.S. Secretary of Energy regulates imports and exports of natural gas and has delegated various aspects of this jurisdiction to FERC and the DOEs Office of Fossil Fuels.
The U.S. Department of Transportation Office of Pipeline Safety regulates the safety and security of gas pipelines through the Natural Gas Pipeline Safety Act of 1968 and subsequent laws.
EnerBank is regulated by the State of Utah and the FDIC.
ENERGY LEGISLATION
CMS Energy, Consumers, and their subsidiaries are subject to various legislative-driven matters, including Michigans 2008 Energy Law. This law 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. The 2008 Energy Law also requires Consumers to prepare an energy optimization plan and achieve annual sales reduction targets through at least 2015. The targets increase annually, 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. The 2008 Energy Law also revised a Michigan statute by limiting alternative energy supply to ten percent of Consumers weather-adjusted retail sales of the preceding calendar year. For additional information regarding Consumers renewable energy and energy optimization plans and electric ROA, see Item 8. Financial Statements and Supplementary Data, MD&A Outlook, Consumers Electric Utility Business Outlook and Uncertainties.
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 information concerning environmental matters, see Item 1A. Risk Factors and Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements Note 3, Contingencies and Commitments.
Consumers has recorded a significant liability for its obligations at a number of MGP sites. For additional information, see Item 1A. Risk Factors and Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements Note 3, Contingencies and Commitments.
Air: Consumers continues to install state-of-the-art emissions control equipment at its electric generating plants. Consumers estimates that it will incur expenditures of $507 million from 2014 through 2018 to comply with present and future federal and state environmental regulations that will require extensive reductions in nitrogen oxides, sulfur dioxides, particulate matter, and mercury emissions. Consumers estimate may increase if additional or more stringent laws or regulations are adopted or implemented regarding greenhouse gases, including carbon dioxide.
Solid Waste Disposal: Costs related to the construction, operation, and closure of solid waste disposal facilities for coal ash are significant. Consumers solid waste disposal areas are regulated under Michigans solid waste rules. Consumers has converted all of its fly ash handling systems to dry systems. All of Consumers ash facilities have programs designed to protect the environment and are subject to quarterly MDEQ inspections. The EPA has proposed new federal regulations for ash disposal areas. Consumers preliminarily estimates that it will incur expenditures of $204 million from 2014 through 2018 to comply with future regulations relating to ash disposal, assuming ash is regulated as a non-hazardous solid waste.
Water: Consumers uses significant amounts of water to operate and cool its electric generating plants. Water discharge quality is regulated and administered by the MDEQ 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 that likely will be finalized in early 2014. Consumers does not presently expect to incur any major expenditures to comply with future regulations relating to cooling water intake systems through 2018. Significant expenditures could be required beyond 2018, but until a rule is final, any potential expenditures are difficult to predict. Consumers also expects the EPA to issue final federal regulations for wastewater discharges from electric generating plants in 2014. Consumers preliminary estimate of expenditures to comply with these expected regulations is $131 million from 2014 through 2018.
For further information concerning estimated capital expenditures related to air, solid waste disposal, and water see Item 8. Financial Statements and Supplementary Data, MD&A Outlook, Consumers Electric Utility Business Outlook and Uncertainties Electric Environmental Estimates.
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 Energys 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
Presented in the following table are the number of employees of CMS Energy and Consumers:
December 31 |
2013 |
2012 |
2011 |
CMS Energy, including Consumers |
|
|
|
Full-time employees |
7,736 |
7,487 |
7,699 |
Part-time employees |
45 |
54 |
55 |
Total employees1 |
7,781 |
7,541 |
7,754 |
Consumers |
|
|
|
Full-time employees |
7,410 |
7,188 |
7,418 |
Part-time employees |
25 |
33 |
34 |
Total employees2 |
7,435 |
7,221 |
7,452 |
1 Excluding seasonal employees, 7,460 at December 31, 2013 and 7,503 at December 31, 2012. There were no seasonal employees at December 31, 2011.
2 Excluding seasonal employees, 7,114 at December 31, 2013 and 7,183 at December 31, 2012. There were no seasonal employees at December 31, 2011.
CMS ENERGY EXECUTIVE OFFICERS (AS OF FEBRUARY 1, 2014)
Name |
Age |
Position |
Period |
John G. Russell |
56 |
President, CEO, and Director of CMS Energy |
5/2010 Present |
|
|
President, CEO, and Director of Consumers |
5/2010 Present |
|
|
Chairman of the Board, President, CEO, and Director of CMS Enterprises |
5/2010 Present |
|
|
President and Chief Operating Officer of Consumers |
10/2004 5/2010 |
Thomas J. Webb |
61 |
Executive Vice President and CFO of CMS Energy |
8/2002 Present |
|
|
Executive Vice President and CFO of Consumers |
8/2002 Present |
|
|
Executive Vice President, CFO, and Director of CMS Enterprises |
8/2002 Present |
James E. Brunner |
61 |
Senior Vice President and Chief Legal Counsel of CMS Energy |
10/2013 Present |
|
|
Senior Vice President and Chief Legal Counsel of Consumers |
10/2013 Present |
|
|
Senior Vice President and General Counsel of CMS Enterprises |
11/2007 1/2014 |
|
|
Director of CMS Enterprises |
9/2006 1/2014 |
|
|
Senior Vice President and General Counsel of CMS Energy |
2/2006 10/2013 |
|
|
Senior Vice President and General Counsel of Consumers |
2/2006 10/2013 |
John M. Butler |
49 |
Senior Vice President of CMS Enterprises |
9/2006 Present |
|
|
Senior Vice President of CMS Energy |
7/2006 Present |
|
|
Senior Vice President of Consumers |
7/2006 Present |
David G. Mengebier |
56 |
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 |
3/2003 Present |
Catherine M. Reynolds |
56 |
Senior Vice President, General Counsel, and Director of CMS Enterprises |
1/2014 Present |
|
|
Senior Vice President and General Counsel of CMS Energy |
10/2013 Present |
|
|
Senior Vice President and General Counsel of Consumers |
10/2013 Present |
|
|
Vice President, Deputy General Counsel, and Corporate Secretary of CMS Energy |
1/2012 10/2013 |
|
|
Vice President, Deputy General Counsel, and Corporate Secretary of Consumers |
1/2012 10/2013 |
|
|
Vice President and Corporate Secretary of CMS Energy |
9/2006 1/2012 |
|
|
Vice President and Corporate Secretary of Consumers |
9/2006 1/2012 |
|
|
Vice President and Secretary of CMS Enterprises |
9/2006 1/2014 |
Glenn P. Barba |
48 |
Vice President, Controller, and CAO of CMS Enterprises |
11/2007 Present |
|
|
Vice President, Controller, and CAO of CMS Energy |
2/2003 Present |
|
|
Vice President, Controller, and CAO of Consumers |
1/2003 Present |
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 16, 2014).
CONSUMERS EXECUTIVE OFFICERS (AS OF FEBRUARY 1, 2014)
Name |
Age |
Position |
Period |
John G. Russell |
56 |
President, CEO, and Director of CMS Energy |
5/2010 Present |
|
|
President, CEO, and Director of Consumers |
5/2010 Present |
|
|
Chairman of the Board, President, CEO, and Director of CMS Enterprises |
5/2010 Present |
|
|
President and Chief Operating Officer of Consumers |
10/2004 5/2010 |
Thomas J. Webb |
61 |
Executive Vice President and CFO of CMS Energy |
8/2002 Present |
|
|
Executive Vice President and CFO of Consumers |
8/2002 Present |
|
|
Executive Vice President, CFO, and Director of CMS Enterprises |
8/2002 Present |
James E. Brunner |
61 |
Senior Vice President and Chief Legal Counsel of CMS Energy |
10/2013 Present |
|
|
Senior Vice President and Chief Legal Counsel of Consumers |
10/2013 Present |
|
|
Senior Vice President and General Counsel of CMS Enterprises |
11/2007 1/2014 |
|
|
Director of CMS Enterprises |
9/2006 1/2014 |
|
|
Senior Vice President and General Counsel of CMS Energy |
2/2006 10/2013 |
|
|
Senior Vice President and General Counsel of Consumers |
2/2006 10/2013 |
John M. Butler |
49 |
Senior Vice President of CMS Enterprises |
9/2006 Present |
|
|
Senior Vice President of CMS Energy |
7/2006 Present |
|
|
Senior Vice President of Consumers |
7/2006 Present |
David G. Mengebier |
56 |
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 |
3/2003 Present |
Jackson L. Hanson |
57 |
Senior Vice President of Consumers |
5/2010 Present |
|
|
Vice President of Consumers |
11/2006 5/2010 |
Daniel J. Malone |
53 |
Senior Vice President of Consumers |
5/2010 Present |
|
|
Vice President of Consumers |
6/2008 5/2010 |
Catherine M. Reynolds |
56 |
Senior Vice President, General Counsel, and Director of CMS Enterprises |
1/2014 Present |
|
|
Senior Vice President and General Counsel of CMS Energy |
10/2013 Present |
|
|
Senior Vice President and General Counsel of Consumers |
10/2013 Present |
|
|
Vice President, Deputy General Counsel, and Corporate Secretary of CMS Energy |
1/2012 10/2013 |
|
|
Vice President, Deputy General Counsel, and Corporate Secretary of Consumers |
1/2012 10/2013 |
|
|
Vice President and Corporate Secretary of CMS Energy |
9/2006 1/2012 |
|
|
Vice President and Corporate Secretary of Consumers |
9/2006 1/2012 |
|
|
Vice President and Secretary of CMS Enterprises |
9/2006 1/2014 |
Glenn P. Barba |
48 |
Vice President, Controller, and CAO of CMS Enterprises |
11/2007 Present |
|
|
Vice President, Controller, and CAO of CMS Energy |
2/2003 Present |
|
|
Vice President, Controller, and CAO of Consumers |
1/2003 Present |
Patricia K. Poppe |
45 |
Vice President of Consumers |
1/2011 Present |
Ronn J. Rasmussen |
57 |
Vice President of Consumers |
11/2006 Present |
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 16, 2014).
AVAILABLE INFORMATION
CMS Energys internet address is www.cmsenergy.com. Information contained on CMS Energys website is not incorporated herein. All of CMS Energys 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 are accessible free of charge on CMS Energys website. These reports are available soon after they are filed electronically with the SEC. Also on CMS Energys website are its:
· Corporate Governance Principles;
· Codes of Conduct:
· CMS Energy Corporation/Consumers Energy Company Board of Directors Code of Conduct January 2013, and
· CMS Energy Corporation/Consumers Energy Company Employees Code of Conduct and Guide to Ethical Business Behavior 2014;
· 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 SECs Public Reference Room at 100 F Street, N.E., 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.
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 Energys 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 management believes to be immaterial may also adversely affect CMS Energy or Consumers. 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. Consumers ability to pay dividends or acquire its own stock from CMS Energy is limited by restrictions contained in Consumers preferred stock provisions and potentially by other legal restrictions, such as certain terms in its articles of incorporation and FERC requirements. At December 31, 2013, under its articles of incorporation, Consumers had $662 million of unrestricted retained earnings available to pay common stock dividends. If sufficient dividends were not paid to CMS Energy by its subsidiaries, CMS Energy might not be able to generate the funds necessary to fulfill its payment obligations, which could have a material adverse effect on CMS Energys liquidity and financial condition.
CMS Energy has indebtedness that could limit its financial flexibility and its ability to meet its debt service obligations.
At December 31, 2013, CMS Energy, including Consumers, had $7.7 billion aggregate principal amount of indebtedness. Consumers had $4.6 billion aggregate principal amount of indebtedness at December 31, 2013. CMS Energy and its subsidiaries may incur additional indebtedness in the future.
The level of CMS Energys present and future indebtedness could have several important effects on its future operations, including, among others:
· a significant portion of CMS Energys 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 Energys 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 Energys 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 Energys vulnerability to adverse economic and industry conditions could increase; and
· CMS Energys future credit ratings could fluctuate.
CMS Energys 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, 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 were unable to generate sufficient cash flows from operations, it could be required to sell assets, which might require regulatory approval, or obtain additional financing. CMS Energy cannot ensure that additional financing will be available on commercially acceptable terms or at all.
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 Energys 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 Energys and Consumers liquidity, financial condition, and results of operations.
CMS Energy and Consumers may be subject to liquidity demands under commercial commitments, guarantees, indemnities, letters of credit, and other contingent liabilities. Consumers capital requirements are expected to be substantial over the next several years as it invests in the Smart Energy program, construction or acquisition of power generation, environmental controls, decommissioning of older facilities, and other electric and gas infrastructure to upgrade delivery systems. Those requirements may increase if additional laws or regulations are adopted or implemented.
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 sufficient internal funds are not available from Consumers operations and, in the case of CMS Energy, from dividends paid by Consumers and its other subsidiaries. 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 Energys and Consumers access to liquidity needed for their respective businesses, as could Consumers inability to obtain prior FERC authorization for any securities issuances, including publicly offered debt, as is required under the Federal Power Act. Any disruption or inability to obtain FERC authorization 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 Energys 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 debt, preferred stock and/or common equity, commercial paper, 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 Energys and Consumers securities 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 Energys 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 Energys 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 were unable to maintain commodity
lines of credit, CMS Energy or Consumers might 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 Energys credit ratings. CMS Energy and Consumers cannot 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.
There are risks associated with Consumers significant capital investment program planned for the next five years.
Consumers planned investments include the Smart Energy program, construction or acquisition of power generation, gas infrastructure, environmental controls, decommissioning of older facilities, and other electric and gas investments to upgrade delivery systems. The success of these capital investments depends on or could be affected by a variety of factors that include, but are not limited to:
· effective pre-acquisition evaluation of asset values, future operating costs, potential environmental and other liabilities, and other factors beyond Consumers control;
· effective cost and schedule management of new capital projects;
· future changes in commodity and other prices;
· future operational performance;
· future 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.
Electric industry legislation in Michigan, coupled with increased competition in gas and electric markets, could have a material adverse effect on CMS Energys and Consumers businesses.
The 2008 Energy Law, among other things, limits alternative electric supply to ten percent of Consumers weather-adjusted retail sales of the preceding calendar year. Lower natural gas prices due to a large supply of natural gas on the market, coupled with low capacity prices in the electric supply market, are placing increasing competitive pressure on the cost of Consumers electric supply. Presently, Consumers electric rates are above the Midwest average, while the ROA level on Consumers system is at the ten-percent limit and the proportion of Consumers electric deliveries under the ROA program and on the ROA waiting list is 25 percent. Bills have been introduced to the Michigan House of Representatives and the Michigan Senate to raise or remove the ROA limit. The House bill also proposes to deregulate electric generation service in Michigan within two years. In addition, the Michigan legislature has conducted hearings on the subject of energy competition. If the ROA limit were increased or if electric generation service in Michigan were deregulated, it could have a material adverse effect on Consumers financial results and operations.
In 2013, Michigans governor instituted a process to prepare a series of reports addressing energy efficiency, renewable energy, the electricity market and ROA, and other subjects. The process was designed to help the governor and other lawmakers determine the states next steps regarding energy policies. Following a series of public hearings, the chairman of the MPSC and Michigans Energy Office Director released four reports summarizing the information gathered. In December 2013, the governor outlined several key goals for Michigans energy policy, including reducing the states reliance on coal, increasing the use of renewable energy and natural gas, and improving energy affordability and reliability while protecting the environment.
Other new legislation or interpretations could change how the businesses of CMS Energy and Consumers operate, impact Consumers ability to recover costs through rate increases, or require CMS Energy and Consumers to incur additional expenses.
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. Consumers electric and gas rates are set by the MPSC and cannot be increased without regulatory authorization. Consumers is permitted by the 2008 Energy Law 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 the construction or acquisition of power 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 Michigans renewable resource standard, regulators could be more inclined to oppose rate increases for other requested items and investments. Rate regulators could also face pressure to avoid or limit rate increases for a number of reasons, including failure of Michigans economy to improve sufficiently 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.
Orders of the MPSC could limit recovery of costs of providing service including, but not limited to, environmental and safety related expenditures for coal-fueled plants and other utility properties, regulatory assets, power supply and natural gas supply costs, operating and maintenance expenses, additional utility-based investments, sunk investment in mothballed or retired generating plants, costs associated with the proposed retirement and decommissioning of facilities, depreciation expense, MISO energy and transmission costs, costs associated with energy efficiency investments and state or federally mandated renewable resource standards, Smart Energy program costs, or expenditures subject to tracking mechanisms. These orders could also result in adverse regulatory treatment of other matters. For example, the orders could prevent or curtail Consumers from shutting off non-paying customers, could prevent or curtail Consumers from self-implementing rate changes, could prevent or curtail the implementation of a gas revenue mechanism, or could require Consumers to refund previously self-implemented rates.
FERC authorizes certain subsidiaries of CMS Energy to sell electricity at market-based rates. Failure of these subsidiaries to maintain this FERC authority could have a material adverse effect on CMS Energys and Consumers liquidity, financial condition, and results of operations.
The various risks associated with the MPSC and FERC regulation of CMS Energys and Consumers businesses, which include the risk of adverse decisions in any number of rate or regulatory proceedings before either agency, as well as judicial proceedings challenging any agency decisions, could have a material adverse effect on CMS Energys and Consumers liquidity, financial condition, investment plans, and results of operations.
Utility regulation could have a material adverse effect on CMS Energys and Consumers businesses.
Utility regulation 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 Energys 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 Energys and Consumers business planning and management of operations, they must address the effects of existing and proposed regulations 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 Energys and Consumers liquidity, financial condition, and results of operations.
There are multiple FERC-related matters that could impact utility regulation. These include matters relating to electric industry restructuring, asset reclassification, and gas pipeline capacity matters. CMS Energy and Consumers cannot predict the impact of these utility matters on their liquidity, financial condition, and results of operations.
Periodic reviews of the values of CMS Energys and Consumers assets could result in impairment 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 and Consumers could incur significant costs to comply with environmental requirements.
CMS Energy and Consumers are subject to costly and increasingly stringent environmental regulations. They believe that environmental laws and regulations related to their operations will continue to become more stringent and require them to make additional significant capital expenditures for emissions control equipment, CCR disposal, cooling water intake equipment, effluent treatment, and PCB remediation. Present and reasonably anticipated state and federal environmental statutes and regulations, including but not limited to the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and CERCLA, will continue to have a material effect on CMS Energy and Consumers.
In 2013, 96 percent of the energy generated by Consumers came from fossil-fuel-fired power plants, with 88 percent coming from coal-fueled power plants. CMS Enterprises also has interests in fossil-fuel-fired power plants and other types of power plants that produce greenhouse gases. In June 2013, President Obama issued his Climate Action Plan. The Climate Action Plan, which is to be implemented by the EPA, will regulate greenhouse gas emissions from both new and existing electric generating units. Federal environmental laws and rules and 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-fired generating capacity, or take other significant steps to manage or lower the emission of greenhouse gases.
The following risks related to climate change and emissions could also have a material adverse impact on CMS Energys and Consumers liquidity, financial condition, and results of operations:
· litigation originated by third parties against CMS Energy, Consumers, or their subsidiaries due to CMS Energys or Consumers greenhouse gas or other emissions;
· impairment of CMS Energys or Consumers reputation due to their greenhouse gas or other emissions and public perception of their response to potential environmental regulations, rules, and legislation; and
· extreme weather conditions, such as severe storms, that may affect customer demand, company operations, or assets.
Consumers plans to retire seven smaller coal-fueled electric generating units and three smaller gas-fueled electric generating units by April 2016, subject to a successful Securitization transaction. Once the facilities and equipment on these sites are taken out of service, Consumers may encounter previously unknown environmental conditions that will need to be addressed in a timely fashion with state and federal environmental regulators.
CMS Energy and Consumers expect to collect fully from their customers, through the ratemaking process, expenditures incurred to comply with environmental regulations, but cannot guarantee this outcome. If Consumers were unable to recover these expenditures from customers in rates, it could negatively affect CMS Energys 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.
For additional information regarding compliance with environmental regulations, see Item 1. Business, CMS Energy and Consumers Environmental Compliance and Item 8. Financial Statements and Supplementary Data, MD&A Outlook, Consumers Electric Utility Business Outlook and Uncertainties.
CMS Energys 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, approvals under the MISO tariff, 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 suspension of operations at 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, and results of operations.
CMS Energy and Consumers expect to incur additional significant costs related to remediation of legacy environmental sites.
Consumers is presently monitoring or remediating 23 former MGP sites. Consumers is working collaboratively with the MDEQ to agree upon executable remediation plans. About one-third of the 23 sites have been remediated to the extent possible and are now being monitored. The MDEQ established a provision for a No Further Action status for these sites and others like them in 2010. Consumers has received the No Further Action designation for one of these sites as of December 31, 2013. The remaining sites are being actively remediated through excavation, treatment at the site, containment, and/or natural reduction; two of these sites require complex remediation plans due to the involvement of surface water.
CMS Energy and Consumers expect to incur additional significant costs related to the remediation of these former MGP sites. Based upon prior MPSC orders, Consumers expects to be able to recover the costs of these cleanup activities through its gas rates, but cannot guarantee that outcome.
In addition, CMS Energy retained environmental remediation obligations for the collection and treatment of leachate at Bay Harbor after selling its interests in the development in 2002. Leachate is produced when water enters into cement kiln dust piles left over from former cement plant operations at the site. CMS Energy has signed agreements with the EPA and the MDEQ relating to Bay Harbor. If CMS Energy were unable to meet its commitments under these agreements, or if unanticipated events occurred, CMS Energy could incur additional material costs relating to its Bay Harbor remediation obligations.
Consumers also expects to incur remediation and other response activity costs at a number of other sites under NREPA and CERCLA. Consumers believes these costs should be recoverable in rates, but cannot guarantee that outcome.
CMS Energy and Consumers could be affected adversely by legacy litigation and retained liabilities.
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 has cooperated with the DOJs investigation 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 Kansas, Missouri, 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 Energys liquidity, financial condition, and results of operations.
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 that CMS Energy and Consumers make; and
· 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 might 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 Energys or Consumers liquidity, financial condition, and results of operations.
In 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that CMS Energy owes $142 million in taxes, plus significant penalties and interest, in connection with the sale and has requested arbitration. CMS Energy is vigorously contesting the claim, and cannot predict the financial impact or outcome of this matter. It is possible that the outcome of this matter could have a material adverse effect on CMS Energys liquidity, financial condition, and results of operations.
CMS Energys and Consumers energy sales and operations are affected by seasonal factors and varying weather conditions from year to year.
CMS Energys and 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. Accordingly, CMS Energys and Consumers 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 effect on CMS Energys and Consumers liquidity, financial condition, and results of operations.
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 impacting the customers they serve. If the Michigan economy becomes sluggish or declines, Consumers could 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 and Consumers are subject to information security risks, risks of unauthorized access to their systems, and technology failures.
In the regular course of business, CMS Energy and Consumers handle a range of sensitive security and customer information. CMS Energy and Consumers are subject to laws and rules issued by various agencies concerning safeguarding and maintaining the confidentiality of this information. A security breach of CMS Energys and Consumers information systems could involve theft or the inappropriate release of certain types of information, such as confidential customer information or, separately, system operating information. These events could disrupt operations, subject CMS Energy and Consumers to possible financial liability, damage their reputation and diminish the confidence of customers, and have a material adverse effect on CMS Energys and Consumers liquidity, financial conditions, and results of operations.
CMS Energy and Consumers operate in a highly regulated industry that requires the continued operation of sophisticated information technology systems and network infrastructure. Despite implementation of security measures, CMS Energys and Consumers technology systems are vulnerable to being disabled, to failures, to cyber crime, and to unauthorized access. Such events could impact the reliability of electric and gas generation and delivery and also subject CMS Energy and Consumers to financial harm. Cyber crime, which includes the use of malware, computer viruses, and other means for disruption or unauthorized access against companies, including CMS Energy and Consumers, has increased in frequency, scope, and potential impact in recent years. While CMS Energy and Consumers have not been subject to cyber crime incidents that have had a material impact on their operations to date, their security measures in place may be insufficient to prevent a major cyber attack in the future. If CMS Energys and Consumers technology systems were to fail or be breached, CMS Energy and Consumers might not be able to fulfill critical business functions, and sensitive confidential and proprietary data could be compromised, which could have a material adverse effect on CMS Energys and Consumers liquidity, financial condition, and results of operations.
A variety of technological tools and systems, including both company-owned information technology and technological services provided by outside parties, support critical functions. The failure of these technologies, or the inability of CMS Energy and Consumers to have these technologies supported,
updated, expanded, or integrated into other technologies, could hinder their business operations and materially adversely affect their liquidity, financial condition, and results of operations.
CMS Energys and Consumers businesses have safety risks.
Consumers electric and gas delivery systems, power plants, gas infrastructure, wind energy equipment, and energy products and the independent power plants owned in whole or in part by CMS Energy 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 (subject to deductibles and self-insurance amounts that could be material), 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 Energys 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, severe weather, wars, terrorist acts, cyber intrusions, pandemics, and other catastrophic events on the facilities and operations of CMS Energy and Consumers could have a material adverse effect 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 Energys 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 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. Widespread outages in Consumers systems as a result of storms, floods, or other natural disasters could result in a prolonged loss of service to customers and significant expense to repair system damages. An outbreak of a pandemic could disrupt business operations and result in the loss of service to customers, as well as have a material adverse effect on CMS Energys and Consumers liquidity, financial condition, and results of operations. There is a risk that regulators could assess Consumers preparedness or response as inadequate and take adverse actions as a result.
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 Energys 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 Energys and Consumers liquidity, financial condition, and results of operations. It could also result in negative customer perception and increased regulatory oversight.
The markets for alternative energy and distributed generation could impact financial results.
Technology advances and government incentives and subsidies could reduce or shift the cost of alternative methods of producing electricity, such as fuel cells, microturbines, wind turbines, and photovoltaic (solar) cells, and could place additional system burdens on CMS Energy and Consumers. It is also possible that electric customers could reduce their electric consumption significantly through demand-side energy conservation and energy efficiency 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 Energys and Consumers liquidity, financial condition, or results of operations.
Energy risk management strategies might not be effective in managing fuel and electricity pricing risks, which could result in unanticipated liabilities to CMS Energy and Consumers or increased volatility in 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. If the MPSC determined that any of these contracts or related contracting policies were imprudent, recovery of these costs could be disallowed. 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 might 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 Energys and Consumers liquidity, financial condition, and results of operations. Changes in laws that limit Consumers ability to hedge could have a negative effect on CMS Energys and Consumers liquidity, financial condition, and results of operations.
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 Energys 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 Energys and Consumers liquidity, financial condition, and results of operations.
In recent years, the capital and credit markets have experienced unprecedented high levels of volatility and disruption. Market volatility and disruption could have a negative impact on CMS Energys 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 Energys banking subsidiary, EnerBank.
Consumers might not be able to obtain an adequate supply of natural gas or coal, which could limit its ability to operate its electric generation facilities or serve its natural gas customers.
Consumers has natural gas and coal supply and transportation contracts in place for the natural gas and coal it requires for its electric generating capacity. Consumers also has interstate transportation and supply agreements in place to facilitate delivery of natural gas to its customers. Apart from the contractual and monetary remedies available to Consumers in the event of a counterpartys failure to
perform under any of these contracts, there can be no assurances that the counterparties to these contracts will fulfill their obligations to provide natural gas or coal to Consumers. The counterparties under the agreements could experience financial or operational problems that inhibit their ability to fulfill their obligations to Consumers. In addition, counterparties under these contracts might not be required to supply natural gas or coal to Consumers under certain circumstances, such as in the event of a natural disaster or severe weather.
If, for its electric generating capacity, Consumers were unable to obtain its natural gas or coal requirements under existing or future natural gas and coal supply and transportation contracts, it could be required to purchase natural gas or coal at higher prices or forced to purchase electricity from higher-cost generating resources in the MISO energy market. If, for natural gas delivery to its customers, 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. These alternatives could increase Consumers working capital requirements and could decrease its revenues.
Market performance and other changes could decrease the value of employee 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 Energys 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 could fall below CMS Energys 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 could significantly increase the funding requirements of these obligations. Also, changes in demographics, including an increased number of retirements or changes in life expectancy assumptions, could significantly increase the funding requirements of the obligations related to the pension and postretirement benefit plans. Additionally, while CMS Energy and Consumers do not expect that the Health Care Acts will significantly increase obligations of their postretirement benefit plans, they cannot guarantee this outcome. If CMS Energy and Consumers are 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.
A work interruption or other union actions could adversely affect Consumers.
Over 40 percent of Consumers employees are represented by unions. If these employees were to engage in a strike, work stoppage, or other slowdown, or if the terms and conditions in labor agreements were renegotiated, Consumers could experience a significant disruption in its operations and higher ongoing labor costs. Additionally, while Consumers presently has good relationships with the unions representing its employees, Consumers cannot predict the impact of the expiration of union contracts in 2015.
Failure to attract and retain an appropriately qualified workforce could harm CMS Energys and Consumers results of operations.
The workforce of CMS Energy and Consumers is aging and a number of employees will become eligible to retire within the next few years. 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 Energys 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.
Unplanned power plant outages could be costly for Consumers.
Unforeseen maintenance of our power plants may be required for many reasons, including catastrophic events such as fires, explosions, floods or other acts of God, equipment failure, operator error, or to comply with environmental or safety regulations. When unplanned maintenance work is required on power plants or other equipment, Consumers will not only incur unexpected maintenance expenses, but it may also have to make spot market purchases of replacement electricity that exceed Consumers costs of generation. Additionally, unplanned maintenance work may reduce the capacity credit Consumers receives from MISO and may cause Consumers to incur additional capacity costs in future years. 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.
Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact CMS Energys 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 their 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.
CMS Energy and its subsidiaries, including Consumers and EnerBank, must comply with the Dodd-Frank Act and its related regulations, which are subject to change and could involve material costs or affect operations.
In 2010, the Dodd-Frank Act was passed into law. The Dodd-Frank Act is a sweeping piece of legislation, and the financial services industry is still assessing the impacts. Congress detailed some significant changes, but the Dodd-Frank Act leaves many details to be determined by regulation and further study. Regulations that are intended to implement the Dodd-Frank Act are being adopted by the appropriate agencies. The Dodd-Frank Act also created the Bureau of Consumer Financial Protection, which is part of the Federal Reserve and has been granted significant rule-making authority in the area of consumer financial products and services. The direction that the Bureau of Consumer Financial Protection will take, the regulations it will adopt, and its interpretation of existing laws and regulations are not yet fully known.
The Dodd-Frank Act added a new Section 13 to the Bank Holding Company Act. Known as the Volcker Rule, it generally restricts certain banking entities (such as EnerBank) and their subsidiaries or affiliates from engaging in proprietary trading activities and from owning equity in or sponsoring any private equity or hedge fund. The statutory effective date of the Volcker Rule was July 2012, but it is subject to certain transition periods and exceptions for permitted activities. In April 2012, the Federal Reserve Board issued a statement clarifying that banks and other financial institutions have until July 2014 to conform fully their activities and investments to the requirements. Under the statute, the activities of CMS Energy and its subsidiaries (including EnerBank) are not expected to be materially affected; however, they will be restricted from engaging in proprietary trading, investing in third-party hedge or private equity funds, and sponsoring these funds in the future unless CMS Energy qualifies for
an exemption from the rule. CMS Energy is studying the final regulations, which were issued in December 2013, but cannot predict the full impact of the Volcker Rule on CMS Energys or EnerBanks operations or financial condition.
Furthermore, effective July 2011, all companies that directly or indirectly control an FDIC-insured bank are required to serve as a source of financial strength for that institution. As a result, CMS Energy could be called upon by the FDIC to infuse additional capital into EnerBank to the extent that EnerBank fails to satisfy its capital requirements. In addition, CMS Energy is contractually required (i) to make cash capital contributions to EnerBank in the event that EnerBank does not maintain required minimum capital ratios and (ii) to provide EnerBank financial support, in an amount and duration as may be necessary for EnerBank to meet the cash needs of its depositors and other operations. EnerBank has exceeded these requirements historically and exceeds them as of February 2014.
In addition, the Dodd-Frank Act potentially provides for regulation by the Commodity Futures Trading Commission of certain energy-related contracts. Although CMS Energy and its subsidiaries qualify for an end-user exception, these regulations could affect the ability of CMS Energy and its subsidiaries to participate in these markets and could add additional regulatory oversight over their contracting activities.
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 outstanding one series of cash-convertible securities, of which an aggregate principal amount of $172 million was outstanding at December 31, 2013. If the trading price of CMS Energys common stock exceeds a specified amount at the end of a particular fiscal quarter, then holders 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 the trading price minimum is satisfied and security holders exercise their conversion rights, CMS Energy might be required to outlay a significant amount of cash to those security holders and recognize losses, which could have a material adverse effect on CMS Energys liquidity and results of operations. The trading price minimum was satisfied at December 31, 2013.
CMS Energys and Consumers financial statements, including their reported earnings, could be significantly impacted by convergence with International Financial Reporting Standards.
The Financial Accounting Standards Board 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 has been 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 Energys 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Descriptions of CMS Energys and Consumers properties are found in the following sections of Item 1. Business, all of which are incorporated by reference in this Item 2:
· General, CMS Energy;
· General, Consumers;
· Business Segments, Consumers Electric Utility Electric Utility Properties;
· Business Segments, Consumers Gas Utility Gas Utility Properties; and
· Business Segments, Enterprises Segment Non-Utility Operations and Investments Independent Power Production.
For information regarding CMS Energys, 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 the Consolidated Financial Statements Note 2, Regulatory Matters and Note 3, Contingencies and Commitments.
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
CMS ENERGY
CMS Energys common stock is traded on the New York Stock Exchange. Market prices for CMS Energys common stock and related security holder matters are contained in Item 8. Financial Statements and Supplementary Data, MD&A and Notes to the Consolidated Financial Statements Note 20, Quarterly Financial and Common Stock Information (Unaudited), which are incorporated by reference herein. At January 9, 2014, the number of registered holders of CMS Energys common stock totaled 36,670, based on the number of record holders. Presented in the following table are CMS Energys dividends on its common stock:
|
|
|
|
|
|
|
|
Per Share |
|
Period |
|
February |
|
May |
|
August |
|
November |
|
2013 |
|
$ 0.255 |
|
$ 0.255 |
|
$ 0.255 |
|
$ 0.255 |
|
2012 |
|
0.240 |
|
0.240 |
|
0.240 |
|
0.240 |
|
Information regarding securities authorized for issuance under equity compensation plans is included in CMS Energys 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 the Consolidated Financial Statements Note 4, 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 |
|
Period |
|
February |
|
May |
|
August |
|
November |
|
2013 |
|
$ 93 |
|
$ 101 |
|
$ 106 |
|
$ 106 |
|
2012 |
|
115 |
|
43 |
|
144 |
|
91 |
|
For additional information regarding dividends and dividend restrictions, see Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements Note 4, Financings and Capitalization.
ISSUER REPURCHASES OF EQUITY SECURITIES
Presented in the following table are CMS Energys repurchases of equity securities for the three months ended December 31, 2013:
|
|
|
|
|
|
Total Number of |
|
Maximum Number of |
|
|
|
|
|
|
|
Shares Purchased as |
|
Shares That May Yet Be |
|
|
|
Total Number |
|
Average |
|
Part of Publicly |
|
Purchased Under Publicly |
|
|
|
of Shares |
|
Price Paid |
|
Announced Plans or |
|
Announced Plans or |
|
Period |
|
Purchased1 |
|
per Share |
|
Programs |
|
Programs |
|
October 1, 2013 to |
|
|
|
|
|
|
|
|
|
October 31, 2013 |
|
2,211 |
|
$ 26.57 |
|
- |
|
- |
|
November 1, 2013 to |
|
|
|
|
|
|
|
|
|
November 30, 2013 |
|
- |
|
- |
|
- |
|
- |
|
December 1, 2013 to |
|
|
|
|
|
|
|
|
|
December 31, 2013 |
|
- |
|
- |
|
- |
|
- |
|
Total |
|
2,211 |
|
$ 26.57 |
|
- |
|
- |
|
1 Common shares were purchased to satisfy the minimum statutory income tax withholding obligation for common shares that have vested under the PISP. The value of shares repurchased is based on the market price on the vesting date.
UNREGISTERED SALES OF EQUITY SECURITIES
None.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial information for CMS Energy and Consumers is contained in Item 8. Financial Statements and Supplementary Data, Selected Financial Information, which is incorporated by reference herein.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements discussion and analysis of financial condition and results of operations for CMS Energy and Consumers is contained in Item 8. Financial Statements and Supplementary Data, MD&A, which is incorporated by reference herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk for CMS Energy and Consumers are contained in Item 8. Financial Statements and Supplementary Data, MD&A Critical Accounting Policies and Estimates, Financial and Derivative Instruments and Market Risk Information, which is incorporated by reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements |
Page |
Selected Financial Information |
|
48 | |
49 | |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
50 |
Consolidated Financial Statements |
|
82 | |
92 | |
99 | |
| |
160 | |
161 |
CMS ENERGY CORPORATION |
|
|
|
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
2009 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating revenue (in millions) |
|
($) |
6,566 |
|
6,253 |
|
6,503 |
|
6,432 |
|
6,205 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) from equity method investees (in millions) |
|
($) |
13 |
|
17 |
|
9 |
|
11 |
|
(2 |
) | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income from continuing operations (in millions)1 |
|
($) |
454 |
|
377 |
|
415 |
|
366 |
|
220 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income (loss) from discontinued operations (in millions) |
|
($) |
- |
|
7 |
|
2 |
|
(23 |
) |
20 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income available to common stockholders (in millions) |
|
($) |
452 |
|
382 |
|
415 |
|
324 |
|
218 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Average common shares outstanding (in thousands) |
|
|
264,511 |
|
260,678 |
|
250,824 |
|
231,473 |
|
227,169 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings from continuing operations per average common share |
|
|
|
|
|
|
|
|
|
|
|
| |
CMS Energy |
- Basic |
|
($) |
1.71 |
|
1.43 |
|
1.65 |
|
1.50 |
|
0.87 |
|
|
- Diluted |
|
($) |
1.66 |
|
1.39 |
|
1.57 |
|
1.36 |
|
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings per average common share |
|
|
|
|
|
|
|
|
|
|
|
| |
CMS Energy |
- Basic |
|
($) |
1.71 |
|
1.46 |
|
1.66 |
|
1.40 |
|
0.96 |
|
|
- Diluted |
|
($) |
1.66 |
|
1.42 |
|
1.58 |
|
1.28 |
|
0.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash provided by operations (in millions) |
|
($) |
1,421 |
|
1,241 |
|
1,169 |
|
959 |
|
848 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital expenditures, excluding assets placed under capital lease (in millions) |
|
($) |
1,325 |
|
1,227 |
|
882 |
|
821 |
|
818 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total assets (in millions) |
|
($) |
17,416 |
|
17,131 |
|
16,452 |
|
15,616 |
|
15,256 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Long-term debt, excluding current portion (in millions) |
|
($) |
7,101 |
|
6,710 |
|
6,040 |
|
6,448 |
|
5,895 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Non-current portion of capital leases and financing obligation (in millions) |
|
($) |
138 |
|
153 |
|
167 |
|
188 |
|
197 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total preferred stock (in millions) |
|
($) |
- |
|
- |
|
- |
|
- |
|
239 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash dividends declared per common share |
|
($) |
1.02 |
|
0.96 |
|
0.84 |
|
0.66 |
|
0.50 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Market price of common stock at year-end |
|
($) |
26.77 |
|
24.38 |
|
22.08 |
|
18.60 |
|
15.66 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Book value per common share at year-end |
|
($) |
12.98 |
|
12.09 |
|
11.92 |
|
11.19 |
|
11.42 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total employees at year-end |
|
|
7,781 |
|
7,541 |
|
7,754 |
|
7,859 |
|
8,075 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Electric Utility Statistics |
|
|
|
|
|
|
|
|
|
|
|
| |
Sales (billions of kWh) |
|
|
37 |
|
38 |
|
38 |
|
38 |
|
36 |
| |
Customers (in thousands) |
|
|
1,793 |
|
1,786 |
|
1,791 |
|
1,792 |
|
1,796 |
| |
Average sales rate per kWh |
|
(¢) |
11.52 |
|
10.94 |
|
10.80 |
|
10.54 |
|
9.81 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gas Utility Statistics |
|
|
|
|
|
|
|
|
|
|
|
| |
Sales and transportation deliveries (bcf) |
|
|
352 |
|
329 |
|
337 |
|
317 |
|
319 |
| |
Customers (in thousands)2 |
|
|
1,724 |
|
1,715 |
|
1,713 |
|
1,711 |
|
1,708 |
| |
Average sales rate per mcf |
|
($) |
8.51 |
|
9.55 |
|
9.98 |
|
10.60 |
|
10.73 |
|
1 Income from continuing operations includes income attributable to noncontrolling interests of $2 million in each of 2013, 2012, and 2011, $3 million in 2010, and $11 million in 2009.
2 Excludes off-system transportation customers.
CONSUMERS ENERGY COMPANY |
|
|
|
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (in millions) |
|
($) |
6,321 |
|
6,013 |
|
6,253 |
|
6,156 |
|
5,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (in millions) |
|
($) |
534 |
|
439 |
|
467 |
|
434 |
|
293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholder (in millions) |
|
($) |
532 |
|
437 |
|
465 |
|
432 |
|
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operations (in millions) |
|
($) |
1,351 |
|
1,353 |
|
1,323 |
|
910 |
|
922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, excluding assets placed under capital lease (in millions) |
|
($) |
1,320 |
|
1,222 |
|
876 |
|
815 |
|
811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (in millions) |
|
($) |
16,179 |
|
16,275 |
|
15,662 |
|
14,839 |
|
14,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion (in millions) |
|
($) |
4,579 |
|
4,297 |
|
3,987 |
|
4,488 |
|
4,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current portion of capital leases and financing obligation (in millions) |
|
($) |
138 |
|
153 |
|
167 |
|
188 |
|
197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total preferred stock (in millions) |
|
($) |
37 |
|
44 |
|
44 |
|
44 |
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of preferred stockholders at year-end |
|
|
1,248 |
|
1,378 |
|
1,428 |
|
1,496 |
|
1,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees at year-end |
|
|
7,435 |
|
7,221 |
|
7,452 |
|
7,551 |
|
7,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric Utility Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
Sales (billions of kWh) |
|
|
37 |
|
38 |
|
38 |
|
38 |
|
36 |
|
Customers (in thousands) |
|
|
1,793 |
|
1,786 |
|
1,791 |
|
1,792 |
|
1,796 |
|
Average sales rate per kWh |
|
(¢) |
11.52 |
|
10.94 |
|
10.80 |
|
10.54 |
|
9.81 |
|
|
|
|
|
|
|
|