What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-02-11 compared with 2020-02-06 · 439 added, 344 removed, 514 unchanged (60% of the section changed)

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and EnerBank, an industrial bank located in Utah.

Consumers’ electric utility operations include the generation, purchase, transmission, distribution, and sale of electricity , and Consumers’ gas utility operations include the purchase, transmission, storage, distribution, and sale of natural gas .

Consumers’ customer base consists of a mix of residential, commercial, and diversified industrial customers.

Consumers’ electric utility operations include the generation, purchase, distribution, and sale of electricity, and Consumers’ gas utility operations include the purchase, transmission, storage, distribution, and sale of natural gas.

Consumers’ customer base consists of a mix of primarily residential, commercial, and diversified industrial customers.

CMS Enterprises, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production.

EnerBank provides unsecured consumer installment loans, largely for financing home improvements .

EnerBank provides primarily unsecured, fixed-rate installment loans throughout the U.S.

to finance home improvements.

CMS Energy and Consumers manage their businesses by the nature of services each provides.

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• their securities’ credit ratings

COVID-19 Pandemic

CMS Energy and Consumers continue to respond to the public health emergency caused by the COVID‑19 pandemic by instituting and maintaining measures consistent with guidance provided by local, state, and federal agencies.

CMS Energy and Consumers maintain over 60 departmental business continuity plans;

these plans were reviewed and enhanced in early 2020 to ensure readiness for the COVID-19 pandemic.

CMS Energy and Consumers continue to take steps to protect the safety of employees, customers, and contractors, and have executed their business continuity plans to ensure the continued delivery of critical energy services.

Additionally, CMS Energy and Consumers have mitigated the potential impact of the pandemic on their liquidity by completing financing transactions and reducing the need for additional external funding.

The COVID‑19 pandemic is a continually evolving situation.

As a result of the pandemic, Consumers has experienced a decline in electric deliveries to commercial and industrial customers, offset partially by an increase in deliveries to residential customers.

It has also experienced increased uncollectible accounts and workforce-related expenses, among other cost increases directly attributable to the pandemic.

Consumers anticipates that these trends will continue in the near term.

In April 2020, the MPSC issued an

order authorizing Consumers to defer incremental uncollectible accounts expense associated with the pandemic.

Additionally, EnerBank anticipates it could experience slower lending growth, higher loan write-offs, and increased loan modifications in the future as a result of the pandemic.

The companies cannot predict the long-term impact of the pandemic on their business, results of operations, financial condition, capital investment program, liquidity, and cash flows.

More detailed discussion of the near-term impacts of and future uncertainties related to the COVID‑19 pandemic can be found in Item 1A.

Risk Factors and throughout this Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Triple Bottom Line

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Over the last ten years, Consumers’ OSHA recordable incident rate has decreased by over 53 percent.

In response to the COVID-19 pandemic, CMS Energy and Consumers have issued a response plan that is focused on the health, safety, and well-being of their co-workers, customers, and communities.

CMS Energy and Consumers have aligned with safety and health guidelines from the CDC, OSHA, and the Michigan Department of Health and Human Services in order to protect their employees, customers,

and contractors to ensure the continued delivery of critical energy services.

To align with, and in addition to, these guidelines, CMS Energy and Consumers have:

• secured the supply chain necessary to provide front-line workers with appropriate personal protective equipment and cleaning supplies

• worked with local health departments and hospital systems to begin administering vaccinations to essential front-line employees

• when necessary, sequestered employees with critical roles at generating plants, gas compression facilities, and electric control rooms

• implemented a paid self-quarantine requirement for employees who are exhibiting symptoms of COVID-19 or who have come into contact with a person suspected to have COVID-19

• prohibited business-related international travel and instituted a mandatory ten-day work remote period for employees who return from personal travel to heavily impacted areas

• required employees to work remotely when possible

• when necessary, reduced service at 13 direct payment offices to drop box and drive-through services only

• initially adjusted work to focus on emergent and critical activities such as electric outages, gas leaks, and other public safety and reliability work;

as work restrictions have gradually lifted in Michigan, the companies have resumed normal work with safety measures in place

• contracted a chief medical officer to guide the companies’ response and provide rapid support and supplies for the workforce

• limited access to company facilities, enhanced cleaning protocols, and established a mask-wearing policy

• offered additional paid leave to employees to alleviate child care-related burdens and implemented other interim workforce policies to offer flexibility and reduce employee concerns

In response to the pandemic, CMS Energy and Consumers initially suspended shut-offs of service for non-payment and extended payment protection plans for low-income and senior customers.

CMS Energy and Consumers slowly began resuming shut-offs of service for non-payment in late July 2020 for commercial and industrial customers and in October 2020 for residential customers.

CMS Energy and Consumers remain committed to assisting customers impacted by the pandemic.

During 2020, Consumers provided $12 million to help Michigan residents and small businesses who had experienced difficulty paying their energy bill due to the pandemic.

Additionally, in December 2020, Consumers donated another $3 million to agencies that provide energy bill assistance to low-income households.

CMS Energy and Consumers also place a high priority on customer value and on providing a hometown customer experience.

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Central to Consumers’ commitment to its customers are the initiatives it has undertaken to keep electricity and natural gas affordable, including:

replacement of coal-fueled generation and PPAs with renewable energy and energy waste reduction and demand response programs

targeted infrastructure investment to improve reliability and safety and to reduce maintenance costs

• replacement of coal-fueled generation and PPAs with a cost-efficient mix of renewable energy and energy waste reduction and demand response programs

• targeted infrastructure investment to reduce maintenance costs and improve reliability and safety

• supply chain optimization

• information and control system efficiencies

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This commitment extends beyond compliance with various state and federal environmental, health, and safety laws and regulations.

Management considers climate change

and other environmental risks in the companies’ strategy development, business planning, and enterprise risk management processes.

Management considers climate change and other environmental risks in the companies’ strategy development, business planning, and enterprise risk management processes.

CMS Energy and Consumers continue to focus on opportunities to protect the environment and to reduce their carbon footprint.

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• reduced carbon dioxide emissions by over 35 percent since 2005

reduced the amount of water used to generate electricity by 31 percent since 2012

• reduced the amount of water used to generate electricity by over 30 percent since 2012

• reduced landfill waste disposal by over 1.5 million tons since 1992

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• raised the renewable energy standard to 12.5 percent in 2019 and 15 percent in 2021;

Consumers met the 12.5-percent requirement in 2019 with a combination of newly generated RECs and previously generated RECs carried over from prior years

Consumers met the 12.5-percent requirement in 2019 and 2020 with a combination of newly generated RECs and previously generated RECs carried over from prior years

• established a goal of 35 percent combined renewable energy and energy waste reduction by 2025;

Consumers has achieved 22 percent of the combined renewable energy and energy waste reduction goal through 2019

Consumers has achieved 25 percent combined renewable energy and energy waste reduction through 2020

• authorized incentives for demand response programs and expanded existing incentives for energy efficiency programs, referring to the combined initiatives as energy waste reduction programs

• established an integrated planning process for new generation resources

Consumers filed an IRP with the MPSC in June 2018, detailing its Clean Energy Plan.

In March 2019, Consumers and a broad coalition of key stakeholders, including business customers, environmental groups, the MPSC Staff, and the Michigan Attorney General, filed an agreement settling the IRP with the MPSC and the MPSC approved it in June 2019.

In 2019, the MPSC approved the IRP that Consumers filed in 2018, which details its Clean Energy Plan.

Under its Clean Energy Plan, Consumers will meet the requirements of the 2016 Energy Law using its clean and lean strategy, which focuses on increasing the generation of renewable energy, helping customers use less energy, and offering demand response programs to reduce demand during critical peak times.

Further, Consumers plans to replace its coal-fueled generation predominantly with investment in renewable energy, which will enable Consumers to meet and exceed the 2016 Energy Law renewable energy requirements and fulfill increasing customer demand for renewable energy.

Through its Clean Energy Plan, Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040 .

Additionally, the plan will allow Consumers to achieve a breakthrough goal of at least 50 percent combined renewable energy and energy waste reduction by 2030.

The Clean Energy Plan will also allow Consumers to achieve a breakthrough goal of at least 50 percent combined renewable energy and energy waste reduction by 2030.

In February 2020, Consumers announced a goal of achieving net-zero carbon emissions from its electric business by 2040.

This goal includes not only emissions from Consumers’ owned generation, but also emissions from the generation of power purchased through long-term PPAs and from the MISO energy market.

Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040 through execution of its Clean Energy Plan.

The remaining emissions will be offset through alternative measures including, but not limited to, carbon sequestration, landfill methane emission capture, and large-scale tree planting.

Presented in the following illustration is Consumers’ 2020 capacity portfolio and its future capacity portfolio as projected in the IRP.

This illustration includes the effects of purchased capacity and energy waste reduction and uses the nameplate capacity of renewable energy sources:

In September 2020, Michigan’s Governor signed an executive order creating the Michigan Healthy Climate Plan, which outlines goals for Michigan to achieve economy-wide net-zero greenhouse gas emissions and to be carbon neutral by 2050.

The executive order aims for a 28-percent reduction below 2005 levels of greenhouse gas emissions by 2025.

Consumers has already surpassed the 28-percent reduction milestone for its owned electric generation and previously announced, in February 2020, a goal of achieving net-zero carbon emissions from its electric business by 2040.

In addition to Consumers’ efforts to reduce the electric utility’s carbon footprint, it is also making efforts to reduce the gas utility’s methane footprint.

In October 2019, Consumers set a goal of net-zero methane emissions from its natural gas delivery system by 2030.

Consumers’ Methane Reduction Plan, released in November 2019, outlines its plan to reach this net-zero emissions goal.

In 2019, Consumers released its Methane Reduction Plan, which set a goal of net-zero methane emissions from its natural gas delivery system by 2030.

Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices.

The remaining emissions will be eliminated by purchasing and/or producing renewable natural gas.

The remaining emissions will be offset by purchasing and/or producing renewable natural gas.

Additionally, to advance its environmental stewardship in Michigan and to minimize the impact of future regulations, Consumers announced the following five‑year targets during 2018:

• to reduce its water use by one billion gallons;

during 2018 and 2019, Consumers reduced its water usage by over 400 million gallons

to reduce the amount of waste taken to landfills by 35 percent;

during 2018 and 2019, Consumers reduced its waste to landfills by 10 percent

since 2017, Consumers reduced its water usage by over 880 million gallons cumulatively

• to enhance, restore, or protect 5,000 acres of land;

during 2018 and 2019, Consumers enhanced, restored, or protected over 2,200 acres of land

CMS Energy, through its non‑utility businesses, continues to pursue further opportunities for the development of renewable generation projects.

In recent years, CMS Enterprises completed the development of and now operates a wind generation project and three solar generation projects.

since 2017, Consumers enhanced, restored, or protected over 4,600 acres of land cumulatively

• to reduce the amount of waste taken to landfills by 35 percent;

compared to 2017, Consumers reduced its waste to landfills by 54 percent in 2020

CMS Energy, through CMS Enterprises, continues to pursue further opportunities for the development of renewable generation projects.

In July 2020, CMS Enterprises purchased an ownership interest in Aviator Wind, a 525-MW wind generation project in Coke County, Texas.

The project was completed and became operational in September 2020.

CMS Energy and Consumers are monitoring numerous legislative, policy, and regulatory initiatives, including those to regulate greenhouse gases, and related litigation.

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This compares with net income available to common stockholders of $680 million and diluted EPS of $2.39 in 2019.

In 2019 , the benefits from electric and gas rate increases, higher gas sales due primarily to colder weather, cost control measures, and the gain on the sale of transmission equipment were offset partially by lower electric sales due primarily to unfavorable weather, higher depreciation and maintenance, higher service restoration costs from 2019 storms, lower earnings at the enterprises segment, and an accrual for a legacy legal obligation.

In 2020, the benefits from gas and electric rate increases and lower operating and maintenance expenses were offset partially by higher depreciation and property taxes reflecting higher capital spending, lower gas sales due primarily to unfavorable weather, and higher donations.

A more detailed discussion of the factors affecting CMS Energy’s and Consumers’ performance can be found in the Results of Operations section that follows this Executive Overview.

Consumers projects that its electric weather-normalized deliveries will decrease slightly and gas weather-normalized deliveries will remain stable through 2024 .

Consumers has experienced a decline in electric deliveries to commercial and industrial customers as a result of the COVID-19 pandemic.

Over the next five years, Consumers expects weather-normalized electric and gas deliveries to remain stable relative to 2020.

This outlook reflects the effects of energy waste reduction programs offset largely by modest growth in electric and gas demand.

Impacting the Triple Bottom Line

CMS Energy and Consumers remain committed to achieving world class performance while delivering hometown service.

Leveraging the Consumers Energy Way, CMS Energy and Consumers accomplished the following during 2019 :

received approval of Consumers’ IRP, which supports the companies’ clean energy goals

launched a three-year electric vehicle pilot program

committed to invest $7.5 billion in Michigan businesses over the next five years;

of that amount,$1.5 billion will be invested in diverse suppliers

completed the deployment of automated gas meters in areas where Consumers provides only natural gas to customers, allowing for drive-by meter reading

ranked the highest in customer satisfaction among large natural gas providers in the Midwest, according to a residential customer satisfaction study conducted by J.D.

Power, a global marketing information company

CMS Energy and Consumers remain committed to achieving world class performance while delivering hometown service and positively impacting the triple bottom line of people, planet, and profit.

During 2020, CMS Energy and Consumers:

• realized over $100 million in cost reductions by leveraging the Consumers Energy Way and through other initiatives

• named a Chief Diversity Officer responsible for setting and monitoring the companies’ diversity, equity, and inclusion strategy

• completed a 90-mile gas pipeline construction project to upgrade gas pipelines and infrastructure throughout three Michigan counties

• announced a new parental leave policy for employees, allowing six months of paid leave to mothers and four months of paid leave to a nonbirthing parent

• pledged to join five other energy companies in facilitating the construction of a Midwest electric vehicle charging network

CMS Energy and Consumers will continue to utilize the Consumers Energy Way to enable them to achieve world class performance and positively impact the triple bottom line.

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Consumers expects to make capital investments of $25 billion over the next ten years.

Over the next five years, Consumers expects to make significant expenditures on infrastructure upgrades

and replacements and electric supply projects.

Over the next five years, Consumers expects to make significant expenditures on infrastructure upgrades and replacements and electric supply projects.

While it has a large number of potential investment opportunities that would add customer value, Consumers has prioritized its spending based on the criteria of enhancing public safety, increasing reliability, maintaining affordability for its customers, and advancing its environmental stewardship.

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Presented in the following illustration are planned capital expenditures of $13.2 billion that Consumers expects to make from 2021 through 2025:

Of this amount, Consumers plans to spend $9.4 billion over the next five years to maintain and upgrade its gas infrastructure and electric distribution systems in order to enhance safety and reliability, improve customer satisfaction, and reduce energy waste on those systems.

The gas infrastructure projects comprise $5.0 billion to sustain deliverability and enhance pipeline integrity and safety.

These projects, which involve replacement of mains and services and enhancement of transmission and storage systems, should reduce the minor quantity of methane emissions released as gas is transported.

The electric distribution projects comprise $4.4 billion to strengthen circuits and substations and replace poles.

Consumers also expects to spend $2.8 billion on electric supply projects, primarily new renewable generation.

Of this amount, Consumers plans to spend $10.0 billion over the next five years to maintain and upgrade its gas infrastructure and electric distribution systems in order to enhance safety and reliability, improve customer satisfaction, reduce energy waste on those systems, and facilitate its clean energy transition.

The gas infrastructure projects comprise $5.3 billion to sustain deliverability, enhance pipeline integrity and safety, and reduce methane emissions.

The electric distribution projects comprise $4.7 billion to strengthen circuits and substations, replace poles, and interconnect clean energy resources.

Consumers also expects to spend $2.4 billion for new clean generation, which includes investments in wind, solar, and hydro electric generation resources, and $0.8 billion for other electric supply projects.

In response to the COVID‑19 pandemic, Consumers has rescheduled some capital investment projects, but has not made any changes to its long-term capital investment program at this time.

Regulatory matters are a key aspect of Consumers’ business, particularly rate cases and regulatory proceedings before the MPSC, which permit recovery of new investments while helping to ensure that customer rates are fair and affordable.

Important regulatory events and developments not already discussed are summarized below.

2018 Electric Rate Case:

In May 2018, Consumers filed an application with the MPSC seeking an annual rate increase of $58 million , based on a 10.75 percent authorized return on equity.

In October 2018, Consumers reduced its requested annual rate increase to $44 million .

In January 2019, the MPSC approved a settlement agreement authorizing an annual rate decrease of $24 million , based on a 10.0 percent authorized return on equity.

With the elimination of the

$113 million TCJA credit to customer bills, the approved settlement agreement resulted in an $89 million net increase in annual rates.

The settlement agreement also provided for deferred accounting treatment for distribution-related capital investments exceeding certain amounts.

Consumers also agreed to not file a new electric rate case prior to January 2020.

• 2019 Gas Rate Case:

In November 2018, Consumers filed an application with the MPSC seeking an annual rate increase of $229 million , based on a 10.75 percent authorized return on equity.

In April 2019, Consumers reduced its requested annual rate increase to $204 million .

In September 2019, the MPSC approved an annual rate increase of $144 million , based on a 9.9 percent authorized return on equity.

This increase includes a $13 million adjustment to begin returning net regulatory tax liabilities associated with the TCJA to customers.

In December 2019, Consumers filed an application with the MPSC seeking an annual rate increase of $245 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending September 30, 2021.

In May 2020, Consumers reduced its requested annual rate increase to $229 million.

In September 2020, the MPSC approved a settlement agreement authorizing an annual rate increase of $144 million, based on a 9.9 percent authorized return on equity.

As part of that agreement, Consumers agreed not to file a new gas rate case prior to December 2021.

The MPSC also approved the continuation of a revenue decoupling mechanism, which annually reconciles Consumers’ actual weather-normalized non-fuel revenues with the revenues approved by the MPSC.

2019 Gas Rate Case:

In December 2019, Consumers filed an application with the MPSC seeking an annual rate increase of $245 million, based on a 10.5 percent authorized return on equity .

The filing also seeks approval of a revenue decoupling mechanism that would annually reconcile Consumers’ actual weather-normalized non‑fuel revenues with the revenues approved by the MPSC.

Tax Cuts and Jobs Act:

The TCJA, which changed existing federal tax law and included numerous provisions that affect businesses, was signed into law in December 2017.

In October 2018, Consumers filed an application to address the December 31, 2017 remeasurement of its deferred income taxes and other base rate impacts of the TCJA on customers.

In September 2019, the MPSC authorized Consumers to begin returning net regulatory tax liabilities of $0.4 billion to gas customers through rates approved in the 2018 gas rate case and $1.2 billion to electric customers through rates to be determined in Consumers’ next electric rate case.

Until then, the MPSC authorized Consumers to refund $32 million to electric customers through a temporary bill credit.

For details on these proceedings, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements— Note 3, Regulatory Matters .

• 2020 Electric Rate Case:

In February 2020, Consumers filed an application with the MPSC seeking an annual rate increase of $244 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending December 31, 2021.

In July 2020, Consumers reduced its requested annual rate increase to $230 million.

In December 2020, the MPSC approved an annual rate increase of $90 million, based on a 9.9 percent authorized return on equity.

This increase reflects a $36 million refund to customers of regulatory tax liabilities associated with the remeasurement of Consumers’ deferred income taxes as a result of the TCJA;

excluding the impacts of this refund, the order resulted in a $126 million increase in annual rates.

The order also approved the recovery of $13 million associated with Consumers’ deferral of depreciation and property tax expense and the overall rate of return on distribution-related capital investments exceeding certain threshold amounts.

Additionally, the order approved the method of recovering amounts earned under the financial compensation mechanism approved by the MPSC in Consumers’ IRP.

This mechanism allows Consumers to earn a return on payments made under PPAs approved by the MPSC after January 1, 2019.

Looking Forward

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Diluted Earnings Per Average Common Share $ 2.64 $ 2.39 $ 2.32

Years Ended December 31

Years Ended December 31 2020 2019 Change 2019 2018 Change

Electric utility $ 554 $ 509 $ 45 $ 509 $ 535 $ (26)

Gas utility 261 233 28 233 169 64

Enterprises 36 33 3 33 34 (1)

EnerBank 58 49 9 49 38 11

Corporate interest and other (154) (144) (10) (144) (119) (25)

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Electric sales $ 16

Electric rate increase

Gas sales (39)

Electric rate increase, including return on higher renewable capital spending 19

Gas rate increase 105

Gain on sale of transmission equipment, net of voluntary gain sharing 1

Lower pipeline integrity expenses

Lower distribution and transmission expenses

Depreciation and amortization

Higher service restoration costs

Absence of 2018 income tax benefit associated with electric cost of removal 2

Lower distribution, transmission, generation, and compression expenses 21

Lower corporate and IT expenses 20

Lower OPEB expenses 19

Lower service restoration costs 16

Gain on sale of electric transmission assets in 2020, net of voluntary gain sharing 1

Higher depreciation and amortization (36)

Higher donations (22)

Voluntary revenue refund 2

Higher property tax, reflecting higher capital spending (21)

Absence of 2018 research and development tax credits 2

Absence of 2018 settlement of a property tax appeal related to the J.H.

Campbell plant

Gain on sale of transmission equipment 1

Lower expenses from legacy obligations, net

Lower earnings due primarily to lower capacity revenue and higher operating and maintenance costs

Higher earnings based on growth in consumer lending

Absence of 2019 gain on sale of electric transmission assets, net of voluntary gain sharing (13)

Enterprises 3

Corporate interest and other (10)

Absence of 2018 loss on early extinguishment of debt

2019 tax deductions primarily attributable to asset sales

Accrual for legacy legal obligation 3

Higher fixed charges due to higher debt

Higher administrative and other expenses

Year Ended December 31, 2020 $ 755

See Note 3, Regulatory Matters and Note 22, Asset Sales and Exit Activities .

See Note 14, Income Taxes .

See Note 4, Contingencies and Commitments—CMS Energy Contingencies—Gas Index Price Reporting Litigation .

1 See Note 3, Regulatory Matters and Note 22, Asset Sale and Exit Activities.

2 See Note 3, Regulatory Matters.

For specific after-tax changes to net income available to common stockholders for 2019 versus 2018, see Item 7.

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Electric deliveries 1 and rate increases

Rate increase, including the impacts of the January 2019 order

Lower sales due primarily to unfavorable weather

Effect of new leases accounting standard 2

Other revenues

Rate increase, including return on higher renewable capital spending $ 26

Higher sales due primarily to favorable weather and sales mix, offset partially by lower deliveries to commercial and industrial customers 24

Higher energy waste reduction program revenues 19

Voluntary revenue refund 2

Lower other revenues (6)

Maintenance and other operating expenses

Gain on sale of transmission equipment, net of voluntary gain sharing 3

Lower other distribution, transmission, and generation expenses

Litigation settlement

Higher service restoration costs from 2019 winter storms

Lower service restoration costs 21

Lower corporate and IT expenses 17

Gain on sale of transmission assets in 2020, net of voluntary gain sharing 3

Lower distribution, transmission, and generation expenses 13

Higher mutual insurance distribution 7

Higher energy waste reduction program costs (19)

Absence of 2019 gain on sale of transmission assets, net of voluntary gain sharing (17)

Absence of favorable 2019 litigation settlement (8)

Retention benefits related to D.E.

Voluntary separation plan expenses (6)

Lower maintenance and other operating expenses 13

Depreciation and amortization

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General taxes

Absence of 2018 settlement of a property tax appeal related to the J.H.

Campbell plant

Higher property tax, reflecting higher capital spending (12)

Lower other general taxes

Other income, net of expenses

Lower donations in 2019

Lower OPEB expenses 13

Higher donations (19)

Higher other income, net of expenses 2

Interest charges (4)

Effect of new leases accounting standard 2

Lower PSCR and other interest charges

Absence of 2018 income tax benefit associated with cost of removal 4

Absence of 2018 research and development tax credits 4

Lower tax expense due primarily to research and development tax credits 5

Higher production tax credits attributable primarily to Cross Winds ® Energy Park

Higher electric utility pre-tax earnings (7)

Lower other income taxes 12

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1 Deliveries to end-use customers were 35.4 billion kWh in 2020 and 36.8 billion kWh in 2019.

Under the provisions of ASU 2016-02, Leases , fixed energy and capacity costs associated with Consumers’ PPAs that are accounted for as finance leases are presented as amortization and interest expense, rather than purchased power expense.

See Note 10, Leases and Palisades Financing for more information about Consumers’ leases.

See Note 3, Regulatory Matters and Note 22, Asset Sales and Exit Activities .

2 See Note 3, Regulatory Matters.

3 See Note 3, Regulatory Matters and Note 22, Asset Sale and Exit Activities.

4 See Note 22, Asset Sale and Exit Activities.

5 See Note 14, Income Taxes.

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Gas deliveries 1 and rate increases

Rate increase, including the impacts of the September 2019 order

Higher sales, due primarily to colder weather

Rate increase $ 141

Lower sales due primarily to unfavorable weather (73)

Voluntary revenue refund 2

Disallowance of incremental gas purchased during the Ray Compressor Station fire 3

Lower energy waste reduction program revenues (3)

Higher other revenues 20

Maintenance and other operating expenses

Lower pipeline integrity expenses

Higher leak repair and survey expenses

Lower distribution, transmission, and compression expenses 15

Lower corporate and IT expenses 10

Lower energy waste reduction program costs 3

Voluntary separation plan expenses (4)

Lower maintenance and other operating expenses 3

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Higher property tax, reflecting higher capital spending (16)

Lower other general taxes 2

Other income, net of expenses

Lower donations in 2019

Higher AFUDC interest income and other income, net of expenses

Lower OPEB expenses 12

Higher donations (11)

Lower other income, net of expenses (4)

Interest charges (19)

Higher gas utility pre-tax earnings (7)

Lower other income taxes

Lower tax expense due primarily to research and development tax credits 4

Higher other income taxes (1)

Year Ended December 31, 2020 $ 261

1 Deliveries to end-use customers were 283 bcf in 2020 and 313 bcf in 2019.

2 See Note 3, Regulatory Matters.

3 See Note 4, Contingencies and Commitments—Consumers Gas Utility Contingencies.

4 See Note 14, Income Taxes.

For detailed changes to the gas utility’s net income available to common stockholders for 2019 versus 2018, see Item 7.

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Reason for the change

Gain on sale of transmission equipment 1

Lower expenses from legacy obligations, net

Lower earnings due primarily to lower capacity revenue and higher operating and maintenance costs

Higher earnings due primarily to improved receivables management and DIG operations $ 11

Income tax benefit due to restoring previously sequestered alternative minimum tax credits 1

Absence of 2019 gain on sale of transmission equipment (12)

Year Ended December 31, 2020 $ 36

See Note 22, Asset Sales and Exit Activities .

1 See Note 14, Income Taxes.

For detailed after-tax changes to the enterprises segment’s net income available to common stockholders for 2019 versus 2018, see Item 7.

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Reason for the change

Higher earnings based on growth in consumer lending

Year Ended December 31, 2019

Presented in the following table are the detailed after-tax changes to EnerBank’s net income available to common stockholders for 2018 versus 2017 :

Year Ended December 31, 2017

Reasons for the change

Reduction of corporate income tax rate due to the impacts of the TCJA 1

Deferred income tax adjustment due to the TCJA, primarily the absence of the 2017 adjustment 1

Higher earnings due primarily to growth in consumer lending $ 25

Implementation of new credit losses standard 1

Year Ended December 31, 2020 $ 58

See Note 14, Income Taxes .

1 See Note 2, New Accounting Standards.

For detailed after-tax changes to EnerBank’s net income available to common stockholders for 2019 versus 2018, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—EnerBank Results of Operations, in the Form 10‑K for the fiscal year ended December 31, 2019, filed February 6, 2020 .

Corporate Interest and Other Results of Operations

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Reasons for the change

Absence of 2018 loss on early extinguishment of debt

2019 tax deductions primarily attributable to asset sales

Accrual for legacy legal obligation 1

Absence of 2019 accrual for legacy legal obligation $ 22

Income tax benefit due to restoring previously sequestered alternative minimum tax credits 1

Higher fixed charges due to higher debt (16)

Higher administrative and other expenses

Year Ended December 31, 2019

See Note 4, Contingencies and Commitments—CMS Energy Contingencies—Gas Index Price Reporting Litigation .

Presented in the following table are the detailed after-tax changes to corporate interest and other results for 2018 versus 2017 :

Year Ended December 31, 2017

Reasons for the change

Deferred income tax adjustment due to the TCJA, primarily the absence of the 2017 adjustment 1

2017 elimination of an intercompany gain on the donation of CMS Energy stock 2

Lower fixed charges and administrative and other expenses

Lower tax benefit due to the impacts of the TCJA 1

Loss on early extinguishment of debt (12)

Absence of 2019 tax benefits recognized as a result of asset sales (4)

Year Ended December 31, 2020 $ (154)

1 See Note 14, Income Taxes.

Eliminated on CMS Energy’s consolidated statements of income.

For detailed after-tax changes to corporate interest and other’s net income available to common stockholders for 2019 versus 2018, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Corporate Interest and Other Results of Operations, in the Form 10‑K for the fiscal year ended December 31, 2019, filed February 6, 2020 .

Cash Position, Investing, and Financing

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Non‑cash transactions 1

Lower postretirement benefits contributions

Unfavorable impact of changes in core working capital, 2 due primarily to lower accounts payable and lower AMT credit refunds, 3 offset partially by higher customer collections and lower gas inventories

Unfavorable impact of changes in other assets and liabilities, due primarily to refunds to customers related to the TCJA and self-implemented electric rates

Higher contributions to postretirement benefit plans, primarily to pension plans (702)

Favorable impact of changes in core working capital, 2 due primarily to extended payment terms for vendors in 2020 and higher vendor payments in 2019, offset partially by lower customer receipts due to lower electric and gas deliveries

Unfavorable impact of changes in other assets and liabilities, due primarily to higher property tax payments, a payment to settle litigation, and higher energy waste reduction spending in excess of collections, offset partially by the absence of 2019 refunds to customers related to the TCJA and self-implemented electric rates (67)

Year Ended December 31, 2020 $ 1,276

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Non‑cash transactions 1

Lower postretirement benefits contributions

Unfavorable impact of changes in core working capital, 2 due primarily to lower accounts payable, offset partially by higher customer collections and lower gas inventories

Unfavorable impact of changes in other assets and liabilities, due primarily to refunds to customers related to the TCJA and self-implemented electric rates

Higher contributions to postretirement benefit plans, primarily to pension plans (683)

Unfavorable impact of changes in other assets and liabilities, due primarily to higher property tax payments and higher energy waste reduction spending in excess of collections, offset partially by lower income taxes payments to CMS Energy and the absence of 2019 refunds to customers related to the TCJA and self-implemented electric rates (7)

Year Ended December 31, 2020 $ 1,218

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2 Core working capital comprises accounts receivable, notes receivable, accrued revenue, inventories, accounts payable, and accrued rate refunds.

CMS Energy received alternative minimum tax (AMT) credit refunds of $68 million in 2019 and $125 million in 2018.

For specific components of net cash provided by operating activities for 2019 versus 2018, see Item 7.

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Reasons for the change

Higher capital expenditures at Consumers, offset partially by the absence of the 2018 purchase of a wind generation project

Higher capital expenditures (213)

Changes in EnerBank notes receivable, reflecting growth in consumer lending (256)

Higher purchases of notes receivable by EnerBank

Absence of 2018 proceeds from DB SERP investments 1

Proceeds from sale of EnerBank notes receivable

Proceeds from sale of transmission equipment in 2019 2

Other investing activities, primarily lower costs to retire property

Lower purchases of notes receivable by EnerBank 326

Higher proceeds from sale of EnerBank notes receivable in 2020 130

Lower proceeds from sale of transmission equipment in 2020 1

Other investing activities 1

Year Ended December 31, 2020 $ (2,867)

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Higher capital expenditures (85)

Proceeds from sale of transmission equipment in 2019 2

Other investing activities, primarily lower costs to retire property

DB SERP investment in note receivable – related party (5)

Lower proceeds from sale of transmission equipment in 2020 1

Year Ended December 31, 2020 $ (2,246)

See Note 7, Financial Instruments .

See Note 22, Asset Sales and Exit Activities

1 See Note 22, Asset Sale and Exit Activities

For specific components of net cash used in investing activities for 2019 versus 2018, see Item 7.

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Reasons for the change

Lower debt issuances

Lower debt retirements

Increases in EnerBank certificates of deposit, reflecting higher borrowings

Lower repayments under Consumers’ commercial paper program

Lower issuances of common stock under the continuous equity offering program

Higher payments of dividends on common and preferred stock

Lower debt prepayment costs

Other financing activities, primarily lower debt issuance costs and higher customer advances for construction

Higher debt issuances 1,028

Higher debt retirements (725)

Lower borrowings of certificates of deposit at EnerBank (215)

Higher repayments under Consumers’ commercial paper program (83)

Higher issuances of common stock, primarily the settlement of equity forward sale contracts 241

Higher payments of dividends on common stock (31)

Higher debt prepayment costs (51)

Proceeds from the sale of membership interest in VIE to tax equity investor 417

Contribution from noncontrolling interest 31

Other financing activities (1)

Year Ended December 31, 2020 $ 1,619

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Reasons for the change

Lower debt issuances

Lower debt retirements

Lower repayments under Consumers’ commercial paper program

Higher stockholder contribution from CMS Energy

Higher payments of dividends on common and preferred stock

Lower debt prepayment costs

Other financing activities, primarily lower debt issuance costs and higher customer advances for construction

Higher debt issuances 961

Higher debt retirements (545)

Higher repayments under Consumers’ commercial paper program (83)

Borrowings from CMS Energy 307

Lower stockholder contribution from CMS Energy (25)

Higher payments of dividends on common stock (45)

Higher debt prepayment costs (35)

Other financing activities, primarily higher debt issuance costs (8)

Year Ended December 31, 2020 $ 1,035

For specific components of net cash provided by (used in) financing activities for 2018 versus 2017 , see Item 7.

For specific components of net cash provided by financing activities for 2019 versus 2018, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cash Position, Investing, and Financing—Financing Activities, in the Form 10‑K for the fiscal year ended December 31, 2019, filed February 6, 2020 .

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For the year ended December 31, 2020, Consumers paid $637 million in dividends on its common stock to CMS Energy.

As a result of a provision in the TCJA, CMS Energy is required to recover all alternative minimum tax credits over four years through offsets of regular tax and through cash refunds.

CMS Energy expects to be able to offset regular tax primarily through the use of federal net operating loss carryforwards and, accordingly, receive alternative minimum tax credit refunds through 2021.

Another provision in the TCJA excludes rate-regulated utilities from 100 percent cost expensing of certain property.

This provision will cause Consumers to make higher tax-sharing payments to CMS Energy, which in turn might permit CMS Energy to maintain lower levels of debt in order to invest in its businesses, pay dividends, and fund its general obligations.

Consumers expects to have sufficient funding sources available to issue credits to customers for all impacts of the TCJA.

In 2018, CMS Energy entered into an equity offering program under which it may sell, from time to time, shares of CMS Energy common stock having an aggregate sales price of up to $250 million .

Under this program, CMS Energy may sell its common stock in privately negotiated transactions, in “at the market” offerings, through forward sales transactions or otherwise.

CMS Energy has entered into forward sales contracts having an aggregate sales price of $250 million .

These contracts allow CMS Energy to either physically settle the contracts by issuing shares of its common stock at the then-applicable forward sale price specified by the agreement or net settle the contracts through the delivery or receipt of cash or shares.

Consumers uses cash flows generated from operations and external financing transactions, as well as stockholder contributions from CMS Energy, to fund capital expenditures, retire debt, pay dividends, and fund its other obligations.

Consumers also uses these sources of funding to contribute to its employee benefit plans.

CMS Energy and Consumers expect to have sufficient liquidity to fund their commitments despite potential material uncertainties that may impact their cash management and financing strategies as a result of the COVID‑19 pandemic.

CMS Energy and Consumers rely on the capital markets to fund their robust capital plan and those markets have faced significant strain.

CMS Energy and Consumers have mitigated the potential impact of the pandemic on their liquidity by completing financing transactions and reducing the need for additional external funding.

For more information on CMS Energy’s and Consumers’ financing transactions, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5, Financings and Capitalization.

Barring any sustained market dislocations or disruptions, CMS Energy and Consumers expect to continue to have ready access to the financial and capital markets and will continue to explore possibilities to take advantage of market opportunities as they arise with respect to future funding needs.

If access to these markets were to diminish or otherwise become restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending.

The COVID‑19 pandemic is a continually evolving situation and CMS Energy and Consumers cannot predict the ultimate impact it will have on their debt covenants, business, results of operations, financial condition, capital investment program, liquidity, and cash flows.

CMS Energy will make a change in method of tax accounting in its 2020 tax return to take advantage of IRS tax guidance that allows certain costs to maintain, replace, or improve electric assets to be deducted as repairs for tax purposes.

Under this guidance, the costs can be deducted immediately rather than capitalized and depreciated over a 20-year period.

This change will allow CMS Energy to claim accelerated one-time federal tax deductions of approximately $975 million upon initial adoption, with favorable ongoing annual deductions thereafter, placing CMS Energy in a net operating loss carryforward position until 2023.

In 2020, CMS Energy entered into an equity offering program under which it may sell shares of its common stock having an aggregate sales price of up to $500 million in privately negotiated transactions, in “at the market” offerings, through forward sales transactions, or otherwise.

CMS Energy has entered into forward sales transactions under this program, which allow CMS Energy to either physically settle the contracts by issuing shares of its common stock at the then-applicable forward sale price specified by the agreement or net settle the contracts through the delivery or receipt of cash or

CMS Energy may settle the contracts at any time through their maturity dates, and presently intends to physically settle the contracts by delivering shares of its common stock.

For more information on the forward sale contracts, see Item 8.

For more information on these forward sale contracts, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5, Financings and Capitalization—Issuance of Common Stock.

Accelerated pension funding in prior years and several initiatives to reduce costs have helped improve cash flows from operating activities.

Access to the financial and capital markets depends on CMS Energy’s and Consumers’ credit ratings and on market conditions.

As evidenced by past financing transactions, CMS Energy and Consumers have had ready access to these markets.

Barring major market dislocations or disruptions, CMS Energy and Consumers expect to continue to have ready access to the financial and capital markets.

At December 31, 2020, CMS Energy had $532 million of its revolving credit facility available and Consumers had $1.1 billion available under its revolving credit facilities.

CMS Energy and Consumers use these credit facilities for general working capital purposes and to issue letters of credit.

An additional source of liquidity is Consumers’ commercial paper program , which allows Consumers to issue, in one or

more placements , up to $500 million in the aggregate in commercial paper notes with maturities of up to 365 days at market interest rates.

An additional source of liquidity is Consumers’ commercial paper program, which allows Consumers to issue, in one or more placements, up to $500 million in the aggregate in commercial paper notes with maturities of up to 365 days at market interest rates.

These issuances are supported by Consumers’ revolving credit facilities.

While the amount of outstanding commercial paper does not reduce the available capacity of the revolving credit facilities, Consumers does not intend to issue commercial paper in an amount exceeding the available capacity of the facilities.

At December 31, 2019 , there were $90 million commercial paper notes outstanding under this program .

At December 31, 2020, there were no commercial paper notes outstanding under this program.

For additional details on CMS Energy’s and Consumers’ secured revolving credit facilities and commercial paper program, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5, Financings and Capitalization.

Certain of CMS Energy’s and Consumers’ credit agreements, debt indentures, and other facilities contain covenants that require CMS Energy and Consumers to maintain certain financial ratios, as defined therein.

At December 31, 2019 , no default had occurred with respect to any financial covenants contained in CMS Energy’s and Consumers’ credit agreements, debt indentures, or other facilities.

Certain of CMS Energy’s and Consumers’ credit agreements contain covenants that require CMS Energy and Consumers to maintain certain financial ratios, as defined therein.

At December 31, 2020, no default had occurred with respect to any financial covenants contained in CMS Energy’s and Consumers’ credit agreements.

CMS Energy and Consumers were each in compliance with these covenants as of December 31, 2020, as presented in the following table:

Credit Agreement, Indenture, or Facility

Credit Agreement Limit Actual

CMS Energy, parent only

Debt to EBITDA¹

Debt to Capital 1

Applies to CMS Energy’s $550 million revolving credit agreement.

Applies to Consumers’ $850 million and $250 million revolving credit agreements and its $30 million and $35 million reimbursement agreements.

< 0.70 to 1.0

Debt to Capital 2

< 0.65 to 1.0

1 Applies to CMS Energy’s revolving credit agreement and term loan credit agreement.

In April 2020, amendments to these agreements changed the required financial covenant from a leverage ratio to a capitalization ratio.

2 Applies to Consumers’ revolving credit agreements and letter of credit agreement.

Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing and refinancing opportunities.

CMS Energy’s and Consumers’ present level of cash and expected cash flows from operating activities, together with access to sources of liquidity, are anticipated to be sufficient to fund the companies’ contractual obligations for 2021 and beyond.

CMS Energy is also required both by law and by contract to provide financial support, including infusing additional capital, to ensure that EnerBank satisfies mandated capital requirements and has sufficient liquidity to operate.

With its self-funding plan, EnerBank has exceeded these requirements historically and exceeded them as of December 31, 2020.

In addition, EnerBank has access to contingent funding sources, including the Discount Window and a $50 million uncommitted federal funds line of credit.

Each month, EnerBank pledges a subset of its eligible loans to the Federal Reserve to ensure a seamless

borrowing capability should the need arise.

At December 31, 2020, there were no outstanding borrowings under EnerBank’s contingent funding sources.

Contractual Obligations:

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The table excludes all amounts classified as current liabilities on CMS Energy’s and Consumers’ consolidated balance sheets, other than the current portion of long-term debt, leases, and other financing.

December 31, 2019

Less Than One Year

One to Three Years

Three to Five Years

More Than Five Years

December 31, 2020 Total Less Than One Year One to Three Years Three to Five Years More Than Five Years

CMS Energy, including Consumers

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Operating leases 52 10 6 2 34

AROs 1,971 43 62 50 1,816

Deferred investment tax credit 115 5 10 10 90

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Purchase obligations

Total PPAs 8,898 1,057 1,522 1,516 4,803

3,179 1,391 1,136 370 282

Total contractual obligations $ 42,388 $ 4,540 $ 5,549 $ 4,373 $ 27,926

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Operating leases 43 8 6 2 27

AROs 1,908 43 62 50 1,753

Deferred investment tax credit 115 5 10 10 90

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Purchase obligations

MCV PPA 2,815 349 698 705 1,063

Palisades PPA 517 398 119 — —

Related-party PPAs 2

318 58 116 97 47

Other PPAs 5,248 252 589 714 3,693

Total PPAs $ 8,898 $ 1,057 $ 1,522 $ 1,516 $ 4,803

2,605 1,333 984 284 4

Total contractual obligations

$ 28,687 $ 3,130 $ 3,897 $ 2,788 $ 18,872

1 Long-term contracts for the purchase of commodities and related services, and construction and service agreements.

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These items, which are excluded from the table above, include regulatory liabilities, deferred income taxes, workers’ compensation liabilities, accrued liabilities under renewable energy programs, and other liabilities.

Retirement benefits are also excluded from the table

Retirement benefits are also excluded from the table above.

For details related to benefit payments, see Item 8.

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Additionally, CMS Energy has entered into forward sales contracts to sell its common stock in order to invest in its utility and non-utility businesses;

these contracts have an aggregate sales price of $250 million and mature in 2020.

as of December 31, 2020, these contracts have an aggregate sales price of $58 million, maturing through 2022.

For additional details on the companies’ indemnity and guarantee arrangements, see Item 8.

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Presented in the following table are Consumers’ estimated capital expenditures, including lease commitments, for 2021 through 2025:

2021 2022 2023 2024 2025 Total

Electric utility operations $ 1.4 $ 1.8 $ 1.6 $ 1.5 $ 1.6 $ 7.9

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Clean Energy Plan:

While Consumers continues to experience modest growth in demand for electricity due to Michigan’s growing economy and increased use of air conditioning, consumer electronics, and other electric devices, it expects that increase in demand to be offset by the effects of energy efficiency and conservation.

In June 2018, Consumers filed an IRP with the MPSC detailing its Clean Energy Plan.

In 2019, the MPSC approved the IRP that Consumers filed in 2018, which details its Clean Energy Plan.

Through its Clean Energy Plan, Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040 and eliminate the use of coal to generate electricity by 2040.

The Clean Energy Plan provides the foundation for Consumers’ goal to achieve net-zero carbon emissions from its electric business by 2040.

Under this net-zero goal, Consumers plans to eliminate the impact of carbon emissions created by the electricity it generates or purchases for customers.

Consumers is required to file a new IRP by June 2021.

Specifically, the Clean Energy Plan provides for:

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Karn 1 & 2 coal-fueled generating units, totaling 460 MW, in 2023

the continued assessment in future IRP filings concerning the retirement of the J.H.

• the potential retirement of the J.H.

Campbell 1 & 2 coal-fueled generating units, totaling 540 MW, in 2031 or earlier

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the remainder will be owned and operated by Consumers.

In support of its Clean Energy Plan, Consumers issued a request for proposals in September 2019 to acquire up to 300 MW of new capacity from projects to be operational in Michigan’s Lower Peninsula by May 2022.

In support of its Clean Energy Plan, Consumers issued requests for proposals in September 2019 and July 2020, each to acquire up to 300 MW of new capacity from projects to be operational in Michigan’s Lower Peninsula by May 2023.

Specifically, Consumers solicited offers to enter into PPAs with or purchase solar generation projects ranging in size from 20 MW to 150 MW and to enter into PPAs with PURPA qualifying facilities up to 20 MW.

Any contracts entered into as a result of the request for proposals would be subject to MPSC approval.

As approved by the MPSC, the IRP allows Consumers to earn a financial incentive on PPAs approved by the MPSC after January 1, 2019.

Additionally, the IRP allows for recovery of significant increases in demand response costs.

The MPSC separately approved an associated financial incentive for exceeding certain demand response targets.

Consumers is required to file a new IRP by June 2021.

PURPA requires Consumers to purchase power from qualifying cogeneration and small power production facilities at a price approved by the MPSC that is meant to represent Consumers’ “avoided cost” of generating power or purchasing power from another source.

In 2017, the MPSC issued an order establishing an avoided-cost methodology for determining the price that Consumers must pay to purchase power under PURPA.

Among other things, the MPSC’s order changed the basis of Consumers’ avoided cost from the cost of coal-fueled generating units to that of natural gas-fueled generating units.

In order to address various complaints raised concerning the 2017 order, Consumers and various PURPA developers filed a settlement agreement with the MPSC in August 2019.

Under the settlement agreement, which the MPSC approved in September 2019, Consumers will enter into contracts to purchase 584 MW of power from qualifying solar generation projects by September 2023.

Of this amount, 170 MW will be purchased at the full avoided-cost rates set in the 2017 order.

The remaining 414 MW will be purchased at a capacity payment equal to the MISO planning resource auction price and a designated energy price previously approved by the MPSC.

In the approved IRP settlement agreement, Consumers agreed to a new method of calculating avoided cost going forward, based on a competitive bidding process that will enable Consumers to purchase energy from new generation at competitive prices and mitigate the risk of forced purchases of unneeded or uneconomical renewable generation.

In September 2019, FERC issued a notice of proposed rulemaking that could result in modifications to the present federal regulations implementing PURPA.

Among other things, the proposal would change the rules for measuring the size of qualifying facilities and determining whether certain PURPA projects have

access to wholesale markets.

The proposal would also provide states with more flexibility to set the prices paid to PURPA projects.

Consumers does not anticipate the proposed rulemaking will affect the PURPA projects with which it has agreements.

Consumers cannot predict the outcome of this proposed rulemaking.

As a result of the 2019 request for proposals, in December 2020, Consumers entered into a 25-year PPA under which it will purchase 140 MW of renewable capacity, energy, and RECs from a solar generating facility to be constructed in Calhoun County, Michigan.

The facility is expected to be operational in 2022.

Also, in January 2021, Consumers entered into an agreement to purchase a solar generating facility under development in Michigan, with capacity of up to 150 MW.

Consumers expects to take full ownership and begin commercial operation of the project in 2022.

Both of these agreements are subject to MPSC approval.

Renewable Energy Plan:

The 2016 Energy Law raised the renewable energy standard to 15 percent in 2021, with an interim target of 12.5 percent in 2019.

Consumers met the interim target for 2019 and demonstrated its compliance in the 2019 renewable energy cost reconciliation that the MPSC approved in February 2021.

Consumers is required to submit RECs, which represent proof that the associated electricity was generated from a renewable energy resource, in an amount equal to at least the required percentage of Consumers’ electric sales volume each year.

Under its renewable energy plan, Consumers expects to meet its renewable energy requirement each year with a combination of newly generated RECs and previously generated RECs carried over from prior years.

Consumers met the interim target of 12.5 percent for 2019 and will demonstrate its compliance by filing the 2019 renewable energy cost reconciliation with the MPSC in June 2020.

In conjunction with its renewable energy plan, a third phase of Consumers’ Cross Winds ® Energy Park, with nameplate capacity of 76 MW, began operations in December 2019.

This project qualifies for certain federal production tax credits, generating cost savings that will be passed on to customers.

In February 2019, the MPSC issued an order ruling on amendments Consumers had requested to its renewable energy plan, and approved the acquisition of up to 525 MW of new wind generation projects.

Under the renewable energy plan, Consumers is authorized to earn a 10.7 percent return on equity on any projects approved by the MPSC.

Also in February 2019, the MPSC approved an agreement under which Consumers purchased a wind generation project under development, with capacity of up to 150 MW, in Gratiot County, Michigan.

Consumers began on-site construction of this project during the fourth quarter of 2019 and expects that it will be complete and operational in 2020.

In June 2019, Consumers entered into an agreement to purchase a wind generation project under development in Hillsdale, Michigan, with capacity of up to 166 MW.

Under the agreement, which the MPSC unconditionally approved in December 2019, Consumers expects to take full ownership and begin commercial operation of the project in 2020.

Additionally, in September 2019, the MPSC approved a 20‑year agreement under which Consumers will purchase 100 MW of renewable capacity, energy, and RECs from a 149‑MW solar generating facility to be constructed in Calhoun County, Michigan.

Under Consumers’ renewable energy plan, the MPSC has approved the acquisition of up to 525 MW of new wind generation projects and authorized Consumers to earn a 10.7 percent return on equity on any projects approved by the MPSC.

Specifically, the MPSC has approved the following:

• purchase and construction of a 150-MW wind generation project in Gratiot County, Michigan;

the project became operational in December 2020

• purchase of a wind generation project under development, with capacity of up to 166 MW, in Hillsdale, Michigan;

Consumers expects to take full ownership and begin commercial operation of the project in early 2021

In December 2020, Consumers entered into an agreement to purchase a wind generation project under development, with capacity of up to 201 MW, in Gratiot County, Michigan.

Consumers expects to take full ownership and begin commercial operation of the project in 2022.

The agreement is subject to MPSC approval.

The MPSC also approved the execution of a 20-year PPA under which Consumers will purchase 100 MW of renewable capacity, energy, and RECs from a 149-MW solar generating facility to be constructed in Calhoun County, Michigan;

the facility is expected to be operational in 2022.

These agreements resulted from a request for proposals that Consumers issued in June 2018 to acquire up to 400 MW of wind generation projects and up to 100 MW of solar generation projects in Michigan.

Electric Customer Deliveries and Revenue:

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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.

Beginning in June 2020, electric residential customers will transition to a summer peak time-of-use rate that will allow them to take advantage of lower-cost energy during off-peak times during the summer months.

Thus, customers could reduce their electric bills by shifting their consumption from on-peak to off-peak times.

Consumers expects weather-normalized electric deliveries over the next five years to decrease slightly .

As a result of the COVID-19 pandemic, Consumers has delayed implementation of a summer peak time-of-use rate for electric residential customers, originally planned to begin in June 2020.

The summer peak time-of-use rate will allow customers to take advantage of lower-cost energy during off-peak times during the summer months.

Customers could reduce their electric bills by shifting their consumption from on‑peak to off‑peak times.

The MPSC approved delaying implementation of the summer peak time-of-use rate to 2021, recognizing that more customers may be at home during the pandemic and may not have the same opportunities to manage peak power consumption.

In response to the COVID‑19 pandemic, Michigan’s Governor issued various executive orders requiring all non-essential businesses to close temporarily and Michigan residents to stay home during the period from March 23, 2020 to June 8, 2020.

Subsequent executive orders gradually eased restrictions.

In October 2020, the Michigan Supreme Court issued an opinion that limits the governor’s authority to issue executive orders relating to the COVID-19 pandemic.

Subsequently, the Michigan Department of Health and Human Services issued emergency orders maintaining and then increasing restrictions on indoor gatherings.

Most recent orders have resulted in stepped-up enforcement of remote work in lieu of in-person work when possible and restrictions on certain entertainment venues and indoor dining at restaurants.

Presently, most businesses are now open at limited capacity and with safety measures in place.

During the period from April 1, 2020 through December 31, 2020, a period covering the majority of the pandemic to date, weather-normalized electric deliveries were approximately five percent lower than deliveries during the same period in 2019, due mainly to a decline in deliveries to commercial and industrial customers of approximately 13 percent.

This decline, however, was offset partially by an increase of approximately seven percent in deliveries to residential customers.

Consumers cannot predict the long-term impact of the COVID-19 pandemic.

In response to the pandemic, Consumers initially suspended shut-offs of service for non-payment and extended payment protection plans for low-income and senior customers.

Consumers slowly began resuming shut-offs of service for non-payment in late July 2020 for commercial and industrial customers and in October 2020 for residential customers.

Consumers has experienced and anticipates it will continue to experience increased uncollectible accounts in the near term, but cannot predict the long-term impact of the pandemic on Michigan’s economy or its customers.

Over the next five years, Consumers expects weather-normalized electric deliveries to remain stable relative to 2020.

This outlook reflects the effects of energy waste reduction programs and appliance efficiency standards offset largely by modest growth in electric demand.

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Electric ROA:

Michigan law allows electric customers in Consumers’ service territory to buy electric generation service from alternative electric suppliers in an aggregate amount capped at ten percent, with certain exceptions.

At December 31, 2020, electric deliveries under the ROA program were at the ten‑percent limit.

Of Consumers’ 1.8 million electric customers, 285 customers , or 0.02 percent , purchased electric generation service under the ROA program.

Of Consumers’ 1.9 million electric customers, fewer than 300, or 0.02 percent, purchased electric generation service under the ROA program.

The 2016 Energy Law established a path to ensure that forward capacity is secured for all electric customers in Michigan, including customers served by alternative electric suppliers under ROA.

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All alternative electric suppliers have demonstrated that they have procured their capacity requirements through the MISO planning year beginning June 1, 2023.

In June 2018, the MPSC issued an order requiring all electric suppliers to demonstrate that a portion of the capacity procured to serve customers during peak demand times is located in the MISO footprint in Michigan’s Lower Peninsula.

In July 2018, the Michigan Court of Appeals issued a decision that the MPSC does not have statutory authority to implement such a requirement for alternative electric suppliers.

Consumers believes the 2016 Energy Law does give such authorization to the MPSC.

The MPSC and Consumers have filed applications for leave to appeal the Court of Appeals’ decision to the Michigan Supreme Court.

In June 2019, the Michigan Supreme Court issued orders directing the filing of supplemental briefs and the scheduling of oral arguments in the case, and will ultimately decide whether to consider and rule on the appeals.

Oral arguments occurred in November 2019, and the Michigan Supreme Court will issue an order on the application for leave to appeal.

During 2017, the MPSC issued orders finding that it has statutory authority to determine and implement a local clearing requirement, which requires all electric suppliers to demonstrate that a portion of the capacity procured to serve customers during peak demand times is located in the MISO footprint in Michigan’s Lower Peninsula.

In 2018, the Michigan Court of Appeals issued a decision that the MPSC does not have statutory authority to implement such a requirement for individual alternative electric suppliers.

In April 2020, the Michigan Supreme Court issued a unanimous opinion reversing the Court of Appeals’ decision and determined that the 2016 Energy Law authorizes the MPSC to implement a local clearing requirement on individual alternative electric suppliers.

The Michigan Supreme Court remanded the case to the Court of Appeals to consider a procedural challenge previously undecided by the Court of Appeals;

this challenge concerns the process that the MPSC used in 2017 to consider a local clearing requirement and does not affect the substance of the MPSC’s authority to implement a local clearing requirement for future planning periods.

In April 2020, ABATE filed a motion for rehearing of the Michigan Supreme Court’s decision;

the Michigan Supreme Court denied ABATE’s motion in May 2020.

In June 2020, the Michigan Court of Appeals issued a letter resubmitting the case for its consideration of the Michigan Supreme Court’s remand of the procedural issue.

In December 2020, the Michigan Court of Appeals issued a decision in response to the Michigan Supreme Court’s procedural remand upholding the MPSC’s procedure for determining capacity obligations of electric providers under the 2016 Energy Law.

The Michigan Court of Appeals also held that the 2016 Energy Law’s provision for the MPSC to implement a local clearing requirement does not constitute an unlawful delegation of the Michigan Legislature’s authority.

In September 2020, ABATE and another intervenor filed a complaint against the MPSC in the U.S.

District Court for the Eastern District of Michigan challenging the constitutionality of a local clearing requirement.

The complaint requests the federal court to issue a permanent injunction prohibiting the MPSC from implementing a local clearing requirement on individual electric providers.

December 2020, Consumers filed a motion to intervene and defend the local clearing requirement in that federal litigation;

this motion was granted in January 2021.

Electric Rate Matters:

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For additional details on rate matters, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements— Note 3, Regulatory Matters .

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Regulatory Matters and Note 4, Contingencies and Commitments.

Depreciation Rate Case:

In July 2020, Consumers filed a depreciation case related to Ludington, requesting to increase depreciation expense, and its recovery of that expense, by $17 million annually.

In February 2021, the MPSC approved a settlement agreement that decreases depreciation expense by $9 million annually based on December 31, 2019 balances.

The new depreciation rates will be reflected in rates determined in Consumers’ next-filed electric rate case.

Consumers submitted its 2021 PSCR plan to the MPSC in September 2020 and, in accordance with its proposed plan, self-implemented the 2021 PSCR charge beginning in January 2021.

In January 2021, Consumers filed an amendment to its plan with the MPSC and will self-implement a new 2021 PSCR charge beginning in May 2021.

Electric Environmental Outlook:

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In 2016, the EPA finalized new ozone season standards for CSAPR, which became effective in 2017.

Any litigation or remand to the EPA is not expected to impact Consumers’ compliance strategy, as Consumers expects its emissions to be within the CSAPR allowance allocations.

In October 2020, in response to a court-ordered remand due to litigation, the EPA proposed a revised CSAPR rule to reflect updated emission reductions from electric generating units in 12 states, including Michigan.

The EPA intends to finalize the rule by March 2021, and has made provisions for program implementation by May 2021, with continued emission reductions through 2024.

Consumers is evaluating its emission compliance strategy for existing units based on the proposed number of allowances allocated to Michigan for 2021 through 2024.

In 2012, the EPA published emission standards for electric generating units, known as MATS, based on Section 112 of the Clean Air Act.

Under MATS, all of Consumers’ existing coal-fueled electric generating units were required to add additional controls for hazardous air pollutants.

Consumers met the extended deadline of April 2016 for five coal-fueled units and two oil/gas-fueled units it continues to operate and retired its seven remaining coal-fueled units.

MATS is presently being litigated.

In addition, in December 2018, the EPA proposed changes to the supporting analysis used to justify MATS, but did not propose any changes to the MATS regulations.

Any changes resulting from litigation or rulemaking are expected to be minor and should not impact Consumers’ MATS compliance strategy.

If the MATS regulations were repealed, Consumers would then be required to comply with the Michigan Mercury Rule, which has similar requirements to MATS.

In addition, Consumers must comply with its settlement agreement with the EPA entered into in 2014 concerning opacity and NSR, which has similar emission requirements to MATS.

Consumers met the deadline for five coal-fueled units and two oil/gas-fueled units it continues to operate and retired its seven remaining coal-fueled units.

In addition, in May 2020, the EPA finalized changes to the supporting analysis used to enact MATS, but did not make any changes to the MATS regulations.

These changes do not impact Consumers’ MATS compliance strategy because, if the MATS regulations were repealed, Consumers would then be required to comply with the Michigan Mercury Rule, which has similar requirements to MATS.

In addition, Consumers must comply with emission limits in its renewable operating permits, which have similar emission requirements to MATS.

In 2015, the EPA lowered the NAAQS for ozone.

The new ozone NAAQS will make it more difficult to construct or modify power plants and other emission sources in areas of the country that have not met the new ozone standard.

In April 2018, the EPA designated certain areas of Michigan as not meeting the new standard with an August 2018 effective date.

The 2015 ozone NAAQS made it more difficult to construct or modify power plants and other emission sources in areas of the country that have not met the 2015 ozone standard.

In 2018, the EPA designated certain areas of Michigan as not meeting the ozone standard.

None of Consumers’ fossil-fuel-fired generating units are located in these areas.

Some of Consumers’ compressor stations are located in areas impacted by the rule, but Consumers expects only minor permitting impacts if those units are modified in the future.

Additionally,

the State of Michigan has convened industry workgroups to seek implementation and control strategy ideas for statewide compliance of the 2015 ozone standard.

In August 2020, the EPA proposed to retain the 2015 NAAQS for ozone without revision, and finalized this regulatory decision in December 2020.

Consumers does not expect that any litigation involving NAAQS for ozone will have a material adverse impact on its generating assets.

Consumers’ strategy to comply with air quality regulations, including CSAPR, NAAQS, and MATS, as well as its legal obligations, involved the installation and operation of emission control equipment at some facilities and the suspension of operations at others;

however, Consumers continues to evaluate these rules in conjunction with other EPA and EGLE rulemakings, litigation, and congressional action.

however, Consumers continues to evaluate these rules in conjunction with other EPA and EGLE rulemakings, litigation, executive orders, treaties, and congressional action.

This evaluation could result in:

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Consumers continues to monitor and comment on these initiatives and to follow litigation involving greenhouse gases.

In 2015, the EPA finalized new rules pursuant to Section 111(b) of the Clean Air Act to limit carbon dioxide emissions from new electric generating units, as well as modified or reconstructed electric

generating units.

New coal-fueled units would not be able to meet this limit without installing carbon dioxide control equipment using such methods as carbon capture and sequestration.

In December 2018, the EPA proposed a revised Section 111(b) regulation to replace the 2015 standard rule limiting carbon dioxide emissions from new electric generating units, citing limited availability and high costs of carbon capture and sequestration equipment as reasons to change the 2015 rule.

The revised Section 111(b) regulation requires new coal-fueled generating units to meet a highly efficient steam cycle performance standard.

Consumers does not expect this proposal to change its existing environmental strategy.

In June 2019, the EPA finalized the Affordable Clean Energy rule.

In 2018, the EPA proposed a revised Section 111(b) regulation to replace the 2015 standard rule limiting carbon dioxide emissions from new electric generating units, citing limited availability and high costs of carbon capture and sequestration equipment as reasons to change the 2015 rule.

The revised Section 111(b) regulation would require new coal-fueled generating units to meet a highly efficient steam cycle performance standard.

If finalized, Consumers does not expect this proposal to change its existing environmental strategy.

In 2019, the EPA finalized the Affordable Clean Energy rule.

The rule requires individual states to evaluate coal‑fueled power plants for heat‑rate improvements that could increase overall plant efficiency.

The evaluations to be performed by the State of Michigan under the final rule may require Consumers to make heat-rate improvements at its remaining coal-fueled units beginning in the mid‑2020s.

This rule is presently being litigated.

Consumers cannot evaluate the potential impact of the rule until the State of Michigan completes its evaluations.

The evaluations to be performed by the State of Michigan may require Consumers to make heat-rate improvements at its J.H.

Campbell plant beginning in the mid‑2020s.

However, the D.C.

Circuit Court of Appeals vacated and remanded this rule to the EPA in January 2021.

Consumers cannot evaluate the potential impact of the remand until the EPA acts and any additional appeals are extinguished.

In 2015, a group of 195 countries, including the U.S., finalized the Paris Agreement, which governs carbon dioxide reduction measures beginning in 2020.

Although the U.S.

has begun the process of withdrawing from the Paris Agreement, it has stated a desire to renegotiate a new agreement in the future.

While the U.S.

withdrew from the Paris Agreement, it has taken the necessary steps to rejoin the Paris Agreement in 2021.

At this time, Consumers does not expect any adverse changes to its environmental strategy as a result of these events.

The executive order aims for a 28-percent reduction below 2005 levels of greenhouse gas emissions by 2025.

Consumers has already surpassed the 28-percent reduction milestone for its owned electric generation and previously announced, in February 2020, a goal

of achieving net-zero carbon emissions from its electric business by 2040.

The order directs EGLE to develop and oversee an action plan for achieving these goals.

In addition, the Governor established the Council on Climate Solutions, an advisory group of key stakeholders to be appointed by the Governor that will assist EGLE in implementing the plan.

These goals are aspirational in nature and any changes in law or regulation to achieve these goals would need to be approved by Michigan Legislature or the relevant regulatory agency.

The MPSC has requested comments from utilities and other stakeholders on how the Governor’s goal should be incorporated into future IRP filings.

Consumers does not expect any adverse changes to its environmental strategy as a result of these events.

While Consumers cannot predict the outcome of changes in U.S.

policy or of other legislative or regulatory initiatives involving the potential regulation of greenhouse gases, it intends to continue to move forward with its Clean Energy Plan, its present carbon reduction goal, and its emphasis on supply diversity.

policy or of other legislative or regulatory initiatives involving the potential regulation of greenhouse gases, it intends to continue to move forward with its Clean Energy Plan, its present net-zero carbon reduction goal, and its emphasis on supply diversity.

Consumers will continue to monitor regulatory and legislative activity and related litigation regarding greenhouse gas emissions standards that may affect electric generating units.

Severe weather events and climate change associated with increasing levels of greenhouse gases could affect Consumers’ facilities and energy sales and could have a material impact on its future results of operations.

Increased frequency of severe weather events, including those due to climate change, could materially impact Consumers’ facilities, energy sales, and results of operations.

Consumers is unable to predict these events or their financial impact;

however, Consumers plans for adverse weather and takes steps to reduce its potential impact.

Litigation, international treaties, federal laws and regulations (including regulations by the EPA), and state laws and regulations, if enacted or ratified, could ultimately require Consumers to replace equipment, install additional emission control equipment, purchase emission allowances or credits, curtail operations, arrange for alternative sources of supply, mothball or retire facilities that generate certain emissions, pursue energy efficiency or demand response measures more swiftly, or take other steps to manage or lower the emission of greenhouse gases.

however, Consumers evaluates the potential physical impacts of climate change on its operations, including increased storm activity, increased rainfall, and higher lake and river levels.

Consumers is taking steps to mitigate these risks as appropriate.

Litigation, international treaties, executive orders, federal laws and regulations (including regulations by the EPA), and state laws and regulations, if enacted or ratified, could ultimately require Consumers to replace equipment, install additional emission control equipment, purchase emission allowances or credits, curtail operations, arrange for alternative sources of supply, mothball or retire facilities that generate certain emissions, pursue energy efficiency or demand response measures more swiftly, or take other steps to manage or lower the emission of greenhouse gases.

Although associated capital or operating costs relating to greenhouse gas regulation or legislation could be material and cost recovery cannot be assured, Consumers expects to recover these costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with environmental laws and regulations.

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Consumers has aligned with EGLE on closure plans for each of its unlined ash ponds to ensure coordination between federal and state requirements.

The unlined ash ponds have ceased operation and have been replaced with

double-lined ash ponds or concrete tanks.

The unlined ash ponds have ceased operation and, where applicable, have been replaced with double-lined ash ponds or concrete tanks.

Significant closure work has been completed at the remaining ash ponds.

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Separately, Congress passed legislation in 2016 allowing participating states to develop permitting programs for CCRs under RCRA.

In December 2018, the Michigan Legislature adopted a permitting program, which requires the EPA’s authorization.

In 2018, the Michigan Legislature adopted a permitting program, which requires the EPA’s authorization.

This program should reduce costly, duplicative oversight over CCRs and provide local oversight to CCR issues unique to Michigan.

EGLE submitted the state CCR permit program application to Michigan’s Attorney General in June 2019 for review and signature.

The Attorney General’s office is engaged in a detailed review of the program and application with EGLE.

In April 2020, EGLE submitted a regulatory package for Michigan’s permit program to the EPA for its review.

Federal rulemaking challenges may delay EPA approval of the Michigan permitting program.

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The EPA regulates cooling water intake systems of existing electric generating plants under Section 316(b) of the Clean Water Act and the corresponding rules that were revised in 2014.

The rules are aimed at reducing alleged harmful impacts on aquatic organisms, such as fish.

In April 2018, Consumers submitted to EGLE for review and approval all required studies and recommended plans to comply with Section 316(b), but has not yet received final approval.

The rules seek to reduce alleged harmful impacts on aquatic organisms, such as fish.

In 2018, Consumers submitted to EGLE for approval all required studies and recommended plans to comply with Section 316(b), but has not yet received final approval.

In 2015, the EPA released its final effluent limitation guidelines for steam electric generating plants.

These guidelines, which are presently being litigated, set stringent new requirements for the discharge from electric generating units into wastewater streams.

In 2017, the EPA announced that it will undertake a rulemaking to replace specific portions of the rule and proposed delaying the compliance start dates for two years, but maintained the compliance end dates.

Additional rulemaking began in November 2019 and will continue in 2020.

Consumers does not expect any adverse changes to its environmental strategy as a result of any revisions to the rule.

These guidelines, which are presently being litigated, set stringent new requirements for the discharge from electric generating units into surface waters.

The EPA published a final rule in October 2020, with an effective date of December 2020, revising the 2015 guidelines related to the discharge of certain wastewater streams from electric generating units.

The rule also allows for extension of the compliance deadline from the end of 2023 to the end of 2025, upon approval by EGLE through the NPDES permitting process.

Consumers does not expect any adverse changes to its environmental strategy as a result of these revisions to the rule.

In recent years, the EPA and the U.S.

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For example, the EPA recently finalized a rule repealing the 2015 definition of “Waters of the United States” and, in January 2020, released a rule with its new definition.

These rules are presently being, or are likely to be, litigated.

A final definition would change the scope of water and wetlands regulations under the Clean Water Act.

The EPA has delegated authority to manage the Michigan wetlands program to EGLE for a large portion of Consumers’ service territory, but dual jurisdiction exists between the EPA and the U.S.

Army Corps of Engineers in some locations in Michigan.

As a result, regardless of the ultimate outcome of the EPA’s rules, Consumers expects to continue to operate under Michigan’s wetlands regulations, and under the applicable state and federal water jurisdictional regulations.

Thus, Consumers does not expect any material adverse changes to its environmental strategy as a result of these events, but under an expanded federal definition, could experience permitting delays for infrastructure projects where dual jurisdiction exists.

The new definition narrows the scope of federal jurisdiction and reduces the frequency of dual jurisdiction in states with authority to regulate the same waters;

Michigan is one such state.

Consumers does not expect adverse changes to its environmental strategy as a result of the new definition, which is presently being litigated in multiple jurisdictions.

Many of Consumers’ facilities maintain NPDES permits, which are renewed every five years and are vital to the facilities’ operations.

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In October 2019, Consumers announced a retention incentive program to ensure necessary staffing at the D.E.

Karn generating complex through the anticipated retirement of the coal-fueled electric generating units.

Karn generating complex through the anticipated retirement of the coal-fueled generating units.

Based on the number of employees that have chosen to participate, the aggregate cost of the program through 2023 is estimated to be $35 million.

Consumers expects to recognize $15 million of expense related to retention and severance benefits in 2020.

Consumers will seek recovery of these costs from customers.

For additional details on this program, see Note 22, Asset Sales and Exit Activities .

Consumers expects to recognize $8 million of retention benefit costs in 2021;

this expense will be deferred as a regulatory asset.

In its order in Consumers’ 2020 electric rate case, the MPSC approved deferred accounting treatment for these costs.

For additional details on this program, see Note 22, Asset Sale and Exit Activities.

Consumers Gas Utility Outlook and Uncertainties

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The peak demand for natural gas typically occurs in the winter due to colder temperatures and the resulting use of natural gas as heating fuel.

Consumers expects weather-normalized gas deliveries over the next five years to remain stable relative to 2019 .

The impact of the COVID-19 pandemic on weather-normalized gas deliveries during 2020 was not material.

Over the next five years, Consumers expects weather-normalized gas deliveries to remain stable relative to 2020.

This outlook reflects modest growth in gas demand offset by the predicted effects of energy efficiency and conservation.

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For additional details on rate matters, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements— Note 3, Regulatory Matters .

Gas Rate Case:

The filing requests authority to recover new infrastructure investment and related costs that will allow Consumers to improve system safety and reliability.

Presented in the following table are the components of the requested increase in revenue:

Projected Twelve-Month Period Ending September 30

Components of the requested rate increase

Investment in rate base

Operating and maintenance costs

Cost of capital

The filing also seeks approval of a revenue decoupling mechanism that would annually reconcile Consumers’ actual weather-normalized non‑fuel revenues with the revenues approved by the MPSC.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Regulatory Matters and Note 4, Contingencies and Commitments.

Consumers submitted its 2021-2022 GCR plan to the MPSC in December 2020 and, in accordance with its proposed plan, expects to self-implement the 2021-2022 GCR charge beginning in April 2021.

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To comply with the rule, Consumers will incur increased capital costs to install and remediate pipelines as well as increased operating and maintenance costs to expand inspections, maintenance, and monitoring of its existing pipelines.

The requirements in the regulation take effect July 1, 2020, with various implementation phases over numerous years.

In 2016, PHMSA published an interim final rule that established minimum federal safety standards for underground natural gas storage facilities.

To comply with the interim rule, Consumers incurred increased capital and operating and maintenance costs to expand inspections, maintenance, and monitoring of its underground gas storage facilities.

PHMSA expects to finalize additional requirements in early 2020.

The requirements in the regulation took effect July 1, 2020, with various implementation phases over numerous years.

In February 2020, PHMSA finalized an interim rule it had published in 2016;

this rule established minimum federal safety standards for underground natural gas storage facilities.

To comply with the rule, Consumers incurred increased capital and operating and maintenance costs to expand inspections, maintenance, and monitoring of its underground gas storage facilities.

Although associated capital or operating and maintenance costs relating to these regulations could be material and cost recovery cannot be assured, Consumers expects to recover such costs and capital expenditures in rates consistent with the recovery of other reasonable costs of complying with laws and regulations.

Consumers will continue to monitor gas safety regulations and is implementing the American Petroleum Institute’s Recommended Practice 1173, Pipeline Safety Management Systems.

This program ensures that there are policies, procedures, work instructions, forms, and records in place to streamline adoption and deployment of any existing or future regulations.

Consumers will continue to monitor gas safety regulations and continue implementation of the American Petroleum Institute’s Recommended Practice 1173, Pipeline Safety Management Systems.

This program minimizes gas system asset- and performance-related risks by ensuring that there are policies, procedures, work instructions, forms, and records in place to streamline adoption and deployment of any existing or future regulations.

Gas Environmental Outlook:

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Consumers is making voluntary efforts to reduce its gas utility’s methane emissions.

In October 2019, Consumers set a goal of net-zero methane emissions from its natural gas delivery system by 2030.

Under its Methane Reduction Plan, Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring

outdated infrastructure, and adopting new technologies and practices.

The remaining emissions will be eliminated by purchasing and/or producing renewable natural gas.

There is also increasing interest at the federal, state, and local levels involving potential regulation of greenhouse gases or its sources, which include methane emissions and carbon dioxide from Consumers’ gas utility.

Such regulation, if adopted, may involve requirements to reduce methane emissions from natural gas use.

In 2019, Consumers released its Methane Reduction Plan, which set a goal of net-zero methane emissions from its natural gas delivery system by 2030.

Under its Methane Reduction Plan, Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices.

The remaining emissions will be offset by purchasing and/or producing renewable natural gas.

The executive order aims for a 28-percent reduction below 2005 levels of greenhouse gas emissions by 2025.

These new goals could have an impact on Consumers’ gas business over the long term.

For additional details on the executive order, see Consumers Electric Utility Outlook and Uncertainties—Electric Environmental Outlook.

There is increasing interest at the federal, state, and local levels involving potential regulation of greenhouse gases or its sources.

Such regulation, if adopted, may involve requirements to reduce methane emissions from Consumers’ gas utility operations and carbon dioxide emissions from natural gas customer use.

No such measures apply to Consumers at this time.

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• established a goal of 35 percent combined renewable energy and energy waste reduction by 2025;

Consumers has achieved 22 percent of the combined renewable energy and energy waste reduction goal through 2019

Consumers has achieved 25 percent combined renewable energy and energy waste reduction through 2020

Additionally, the MPSC has approved the recovery of demand response costs and an associated financial incentive based on demand response target performance.

Under its energy waste reduction plan, Consumers provides its customers with incentives to reduce usage by offering energy audits, rebates and discounts on purchases of highly efficient appliances, and other incentives and programs.

The COVID‑19 pandemic may impact Consumers’ ability to execute energy efficiency programs effectively and, accordingly, could affect Consumers’ ability to exceed its statutory savings targets and earn the maximum energy waste reduction incentive for 2021.

Consumers cannot predict the ultimate financial impact of the pandemic on its 2021 energy waste reduction incentive.

Enterprises Outlook and Uncertainties

CMS Energy’s primary focus with respect to its enterprises businesses is to maximize the value of generating assets, its share of which represents 1,480 MW of capacity, and to pursue opportunities for the development of renewable generation projects.

In July 2020, CMS Enterprises purchased an ownership interest in Aviator Wind, a 525-MW wind generation project in Coke County, Texas.

The project was completed and became operational in September 2020.

Of the project’s 525-MW nameplate capacity, 420 MW has been committed under long-term PPAs.

For additional details, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 21, Variable Interest Entities.

The enterprises segment’s assets may be affected by environmental laws and regulations.

The new ozone NAAQS will make it more difficult to construct or modify power plants and other emission sources in areas of the country that have not met the new ozone standard.

In April 2018, the EPA designated certain areas of Michigan as not meeting the new standard with an August 2018 effective date.

The 2015 ozone NAAQS made it more difficult to construct or modify power plants and other emission sources in areas of the country that have not met the 2015 ozone standard.

In 2018, the EPA designated certain areas of Michigan as not meeting the ozone standard.

The enterprises segment’s DIG plant located in Dearborn, Michigan is in one such area and, as a result, would be subject to additional permitting restrictions in the event of any future modifications.

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• changes in various environmental laws, regulations, principles, or practices, or in their interpretation

the outcome of certain legal proceedings, including gas price reporting litigation

indemnity and environmental remediation obligations at Bay Harbor, including an inability to renew an NPDES permit in 2020

• indemnity and environmental remediation obligations at Bay Harbor, including an inability to renew an NPDES permit

• obligations related to a tax claim from the government of Equatorial Guinea

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EnerBank Outlook and Uncertainties

EnerBank is a Utah state-chartered, FDIC-insured industrial bank providing unsecured consumer installment loans, largely for financing home improvements .

EnerBank is a Utah state-chartered, FDIC-insured industrial bank providing primarily unsecured, fixed-rate installment loans throughout the U.S.

to finance home improvements.

The carrying value of EnerBank’s loan portfolio was $2.9 billion at December 31, 2020.

The 12-month rolling average net default rate on loans held by EnerBank was 1.1 percent at December 31, 2020.

EnerBank expects lending growth of up to ten percent annually over the next five years.

EnerBank’s loan portfolio was funded primarily by certificates of deposit of $2.4 billion .

CMS Energy is required both by law and by contract to provide financial support, including infusing additional capital, to ensure that EnerBank satisfies mandated capital requirements and has sufficient liquidity to operate.

With its self-funding plan, EnerBank has exceeded these requirements historically and exceeded them as of December 31, 2019 .

For additional details regarding EnerBank’s loan portfolio, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 8, Notes Receivable.

EnerBank’s loan portfolio was funded primarily by certificates of deposit of $2.8 billion at December 31, 2020.

With its loan portfolio funded by certificates of deposit, EnerBank has not had to rely

on access to the financial and capital markets in order to fund loan growth during the COVID-19 pandemic.

As a result, EnerBank has experienced market share gains as new customers have transitioned from less financially stable competitors.

Accordingly, EnerBank has experienced increased lending growth in recent months and expects this trend to continue during 2021.

Over the next five years, EnerBank expects lending growth of approximately seven percent annually.

For additional details regarding EnerBank’s capital and liquidity, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity

In response to the COVID-19 pandemic, and consistent with FDIC guidance, EnerBank offered new payment accommodations for current qualifying customers.

EnerBank cannot predict the longer-term impacts of the pandemic, but could experience slower lending growth, higher loan write-offs, and increased loan modifications.

Other Outlook and Uncertainties

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In December 2019, CMS Energy and Consumers announced a voluntary separation program for non-union employees.

Under the program, employees elected to request separation, and management decided which requests to accept.

In January 2020, management communicated its decisions to affected employees, who will have 45 days to decide whether to separate.

CMS Energy and Consumers estimate that they will recognize an after-tax charge of up to $10 million in 2020 related to the program.

As a result of the program, however, CMS Energy and Consumers expect to benefit from future cost savings, as employee staffing levels will be better matched to workload demand, which reflects the companies’ ongoing workforce productivity improvements.

For the year ended December 31, 2020, CMS Energy and Consumers recorded an after-tax charge of $9 million related to the program, under which 140 employees accepted and were approved for early separation.

As a result of the program, CMS Energy and Consumers expect to benefit from future cost savings, as employee staffing levels will be better matched to workload demand, which reflects the companies’ ongoing workforce productivity improvements.

Union Contracts:

The UWUA represents Consumers’ operating, maintenance, construction, and customer contact center employees.

The USW represents Zeeland plant employees.

The UWUA and USW agreements expired and new agreements were ratified in 2020.

The new agreements ratified in 2020 provide the following:

• three-percent pay increases to operating, maintenance, and construction employees and the same annual increase through 2024

• three-and-a-half-percent pay increases to customer contact center employees

• three-percent pay increases to Zeeland Plant employees and the same annual increase through 2024

CMS Energy, Consumers, and certain of their subsidiaries are named as parties in various litigation matters, as well as in administrative proceedings before various courts and governmental agencies, arising in the ordinary course of business.

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In the preparation of CMS Energy’s and Consumers’ consolidated financial statements, estimates and assumptions are used that may affect reported amounts and disclosures.

CMS Energy and Consumers use accounting estimates for asset valuations, unbilled revenue, depreciation, amortization, financial and derivative instruments, employee benefits, stock-based compensation, the effects of regulation, indemnities, and contingencies.

Actual results may differ from estimated results due to changes in the regulatory environment, regulatory decisions, lawsuits, competition, and other factors.

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The criteria used to determine if an instrument qualifies for derivative accounting or for an exception from derivative accounting are complex and often require judgment in application.

Changes in business strategies or market conditions, as well as a requirement to apply different interpretations of the derivative accounting literature, could result in changes in accounting for a single contract or groups of contracts, which could have a material impact on CMS Energy’s and Consumers’ financial statements.

additional details on CMS Energy’s and Consumers’ derivatives and how the fair values of derivatives are determined, see Item 8.

which could have a material impact on CMS Energy’s and Consumers’ financial statements.

For additional details on CMS Energy’s and Consumers’ derivatives and how the fair values of derivatives are determined, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 6, Fair Value Measurements.

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A change in these assumptions could change significantly CMS Energy’s and Consumers’ recorded liabilities and associated expenses.

Presented in the following table are estimates of costs and cash contributions through 2022 for the DB Pension Plans and OPEB Plan.

Actual future costs and contributions will depend on future investment performance, discount rates, and various factors related to the participants of the DB Pension Plans and OPEB Plan.

Presented in the following table are estimates of costs (credits) and cash contributions through 2023 for the DB Pension Plans and OPEB Plan.

Actual future costs and contributions will depend on future investment performance, discount rates, and various factors related to the participants of the DB Pension

Plans and OPEB Plan.

CMS Energy and Consumers will, at a minimum, contribute to the plans as needed to comply with federal funding requirements.

DB Pension Plans

Contribution¹

DB Pension Plans OPEB Plan

Cost (Credit) Contribution Cost (Credit) Contribution

CMS Energy, including Consumers

Contribution occurred in January 2020.

2021 $ 17 $ — $ (113) $ —

2022 7 — (113) —

2023 (8) — (107) —

2021 $ 19 $ — $ (105) $ —

2022 10 — (105) —

2023 (5) — (99) —

1 Consumers’ pension and OPEB costs are recoverable through its general ratemaking process.

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New Accounting Standards

For details regarding new accounting standards issued but not yet effective, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements— Note 2, New Accounting Standards .

There are no new accounting standards issued but not yet effective that are expected to have a material impact on CMS Energy’s or Consumers’ consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis