What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-11 compared with 2020-02-06 · 889 added, 553 removed, 1833 unchanged (44% of the section changed)

33 unchanged sentences

Variable Interest Entities

Asset Sales and Exit Activities

Asset Sale and Exit Activities

Quarterly Financial and Common Stock Information (Unaudited)

17 unchanged sentences

Interest income 4 7 11

Interest income – related parties 7 — —

Allowance for equity funds used during construction 6 10 6

1 unchanged sentence

Nonoperating retirement benefits, net 118 91 90

Other income 6 4 2

Other expense ( 62 ) ( 13 ) ( 48 )

Total other income (expense)

Total other income 84

Interest Charges

6 unchanged sentences

Income Tax Expense 133 147 115

Income Attributable to Noncontrolling Interests

Net Income 752 682 659

Income (Loss) Attributable to Noncontrolling Interests ( 3 ) 2 2

Net Income Available to Common Stockholders $ 755 $ 680 $ 657

5 unchanged sentences

Years Ended December 31 2020 2019 2018

Net Income $ 752 $ 682 $ 659

Retirement Benefits Liability

Net loss arising during the period, net of tax of $( 4 ), $( 3 ), and $( 1 )

Prior service credit adjustment, net of tax of $-, $-, and $3

( 15 ) ( 7 ) ( 4 )

Settlement arising during the period, net of tax of $ — for all periods

Prior service credit adjustment, net of tax of $ — for all periods

( 1 ) — ( 1 )

Amortization of net actuarial loss, net of tax of $ 1 for all periods

Amortization of prior service credit, net of tax of $ — , $ — , and $( 1 )

( 1 ) ( 2 ) ( 1 )

Unrealized loss on derivative instruments, net of tax of $( 2 ), $( 1 ), and $ —

( 4 ) ( 3 ) ( 2 )

Reclassification adjustments included in net income, net of tax of $ — for all periods

1 unchanged sentence

Comprehensive Income 739 674 655

Comprehensive Income Attributable to Noncontrolling Interests

Comprehensive Income (Loss) Attributable to Noncontrolling Interests ( 3 ) 2 2

Comprehensive Income Attributable to CMS Energy $ 742 $ 672 $ 653

4 unchanged sentences

Cash Flows from Operating Activities

Net income $ 752 $ 682 $ 659

Adjustments to reconcile net income to net cash provided by operating activities

6 unchanged sentences

Accounts and notes receivable and accrued revenue ( 12 ) 45 15

Inventories 28 44 14

Accounts payable and accrued rate refunds 54 ( 69 ) 22

15 unchanged sentences

Decrease in notes payable ( 90 ) ( 7 ) ( 73 )

Issuance of common stock

Issuance of common stock, net of issuance costs 253 12 41

Payment of dividends on common and preferred stock ( 467 ) ( 436 ) ( 407 )

Debt prepayment costs ( 59 ) ( 8 ) ( 36 )

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

Contribution from noncontrolling interest 31 — —

Other financing costs ( 51 ) ( 50 ) ( 61 )

Net cash provided by financing activities 1,619

Net Decrease in Cash and Cash Equivalents, Including Restricted Amounts

Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts 28 ( 18 ) ( 29 )

Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period 157 175 204

7 unchanged sentences

Capital expenditures not paid 141 170 158

Other assets placed under finance lease

The accompanying notes are an integral part of these statements.

1 unchanged sentence

Consolidated Balance Sheets

December 31 2020 2019

Current Assets

1 unchanged sentence

Restricted cash and cash equivalents 17 17

Accounts receivable and accrued revenue, less allowances of $20 in both periods

Notes receivable, less allowances of $33 in 2019 and $24 in 2018

Notes receivable held for sale

Accounts receivable and accrued revenue, less allowance of $ 29 in 2020 and $ 20 in 2019

Notes receivable, less allowance of $ 32 in 2020 and $ 33 in 2019

Accounts receivable – related parties 19 17

Accrued gas revenue

Inventories at average cost

14 unchanged sentences

Regulatory assets 2,653 2,489

Accounts and notes receivable

Accounts and notes receivable, less allowance of $ 91 in 2020 and $ — in 2019

Investments 70 71

Other 869 739

Total other non‑current assets 6,223

Total Assets $ 29,666

LIABILITIES AND EQUITY

December 31 2020 2019

Current Liabilities

25 unchanged sentences

Accumulated other comprehensive loss ( 86 ) ( 73 )

Accumulated deficit

Retained earnings (accumulated deficit) 214 ( 25 )

Total common stockholders’ equity 5,496 5,018

Noncontrolling interests 581 37

Total equity 6,077

Total Liabilities and Equity $ 29,666

20 unchanged sentences

Net loss arising during the period ( 15 ) ( 7 ) ( 4 )

Settlement arising during the period 1 — —

Prior service credit adjustment ( 1 ) — ( 1 )

4 unchanged sentences

At beginning of period

( 4 ) ( 2 ) —

Unrealized loss on derivative instruments

( 4 ) ( 3 ) ( 2 )

Reclassification adjustments included in net income 2 1 —

At end of period

( 6 ) ( 4 ) ( 2 )

At end of period ( 86 ) ( 73 ) ( 65 )

2 unchanged sentences

Years Ended December 31 2020 2019 2018 2020 2019 2018

Accumulated Deficit

Retained Earnings (Accumulated Deficit)

At beginning of period ( 25 ) ( 271 ) ( 531 )

5 unchanged sentences

At beginning of period 37 37 37

Income attributable to noncontrolling interests

Impact of purchase and consolidation of VIE 101 — —

Sale of membership interest in VIE to tax equity investor 417 — —

Contribution from noncontrolling interest 31 — —

Income (loss) attributable to noncontrolling interests ( 3 ) 2 2

Distributions and other changes in noncontrolling interests ( 2 ) ( 2 ) ( 2 )

22 unchanged sentences

Nonoperating retirement benefits, net 112 85 83

Other income 5 3 2

Other expense ( 43 ) ( 13 ) ( 30 )

Total other income (expense)

Total other income 88

Interest Charges

6 unchanged sentences

Income Tax Expense 173 185 142

Net Income 816

Preferred Stock Dividends 2 2 2

4 unchanged sentences

Years Ended December 31 2020 2019 2018

Net Income $ 816 $ 743 $ 705

Retirement Benefits Liability

Net gain (loss) arising during the period, net of tax of $( 3 ), $( 3 ), and $ 2

Amortization of net actuarial loss, net of tax of $- for all periods

Unrealized gain (loss) on investments, net of tax of $-, $-, and $1

Reclassification adjustments included in net income, net of tax of $-, $-, and $(6)

( 9 ) ( 8 ) 6

Amortization of net actuarial loss, net of tax of $ 1 , $ — , and $ —

Unrealized loss on investments, net of tax of $ — for all periods

Reclassification adjustments included in net income, net of tax of $ — for all periods

Other Comprehensive Income (Loss) ( 8 ) ( 7 ) 8

5 unchanged sentences

Cash Flows from Operating Activities

Net income $ 816 $ 743 $ 705

Adjustments to reconcile net income to net cash provided by operating activities

6 unchanged sentences

Accounts and notes receivable and accrued revenue ( 46 ) 8 ( 26 )

Inventories 26 40 15

Accounts payable and accrued rate refunds 45 ( 63 ) 12

12 unchanged sentences

Decrease in notes payable ( 90 ) ( 7 ) ( 73 )

Increase in notes payable – related parties 307 — —

Stockholder contribution 650 675 250

2 unchanged sentences

Other financing costs ( 18 ) ( 10 ) ( 24 )

Net cash provided by (used in) financing activities

Net Decrease in Cash and Cash Equivalents, Including Restricted Amounts

Net cash provided by financing activities 1,035

Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts 7 ( 28 ) ( 9 )

Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period 28 56 65

4 unchanged sentences

Interest paid (net of amounts capitalized) $ 305 $ 279 $ 287

Income taxes paid (refunds received), net

Income taxes paid 51 132 156

Non‑cash transactions

Capital expenditures not paid 130 160 143

Other assets placed under finance lease

The accompanying notes are an integral part of these statements.

1 unchanged sentence

Consolidated Balance Sheets

December 31 2020 2019

Current Assets

1 unchanged sentence

Restricted cash and cash equivalents 15 17

Accounts receivable and accrued revenue, less allowances of $20 in both periods

Accounts receivable and accrued revenue, less allowance of $ 29 in 2020 and $ 20 in 2019

Accounts and notes receivable – related parties 18 9

Accrued gas revenue

Inventories at average cost

16 unchanged sentences

Accounts and notes receivable – related parties 105 102

Other 753 637

Total other non-current assets 3,536

Total Assets $ 25,399

LIABILITIES AND EQUITY

December 31 2020 2019

Current Liabilities

1 unchanged sentence

Notes payable — 90

Notes payable – related parties 307 —

Accounts payable 636 593

25 unchanged sentences

Cumulative preferred stock, $4.50 series

Total equity 8,556

Total Liabilities and Equity $ 25,399

19 unchanged sentences

Cumulative effect of change in accounting principle — — ( 12 )

Unrealized gain (loss) on investments

Unrealized loss on investments — — ( 1 )

Reclassification adjustments included in net income — — 1

4 unchanged sentences

Cumulative effect of change in accounting principle — — 19

Net income 816 743 705

Dividends declared on common stock ( 637 ) ( 592 ) ( 531 )

93 unchanged sentences

• Note 18, Cash and Cash Equivalents

• Note 21, Variable Interest Entities

New Accounting Standards

Implementation of New Accounting Standards

ASU 2016 ‑ 02, Leases:

This standard, which was effective on January 1, 2019 for CMS Energy and Consumers, establishes a new accounting model for leases.

The standard requires lessees to recognize

lease assets and liabilities on the balance sheet for all leases with a term of more than one year, including operating leases, which were not recorded on the balance sheet under previous standards.

The new guidance also amends the definition of a lease to require that a lessee have the right to control the use of a specified asset, and not simply control or take the output of the asset.

On the statement of income, operating leases are generally accounted for under a straight-line expense model, while finance leases, which were previously referred to as capital leases, are generally accounted for under a financing model.

Consistent with the previous lease guidance, however, the standard allows rate-regulated utilities to recognize expense consistent with the timing of recovery in rates.

CMS Energy and Consumers elected to use certain practical expedients permitted by the standard, under which they were not required to perform lease assessments or reassessments for agreements existing on the effective date.

They also elected a transition method under which they initially applied the standard on January 1, 2019, without adjusting amounts presented for prior periods.

Under the standard, CMS Energy and Consumers recognized additional lease assets and liabilities on their consolidated balance sheets as of January 1, 2019 for their operating leases.

In addition, in accordance with the standard, they have provided additional disclosures about their leases in Note 10, Leases and Palisades Financing .

The standard did not have any impact on CMS Energy’s and Consumers’ consolidated net income or cash flows, and there was no cumulative-effect adjustment recorded to beginning retained earnings.

New Accounting Standards Not Yet Effective

ASU 2016‑13, Measurement of Credit Losses on Financial Instruments:

This standard, effective January 1, 2020 for CMS Energy and Consumers, provides new guidance for measuring and recognizing credit losses on financial instruments.

This standard, which was effective on January 1, 2020 for CMS Energy and Consumers, provides new guidance for measuring and recognizing credit losses on financial instruments.

The standard applies to financial assets that are not measured at fair value through net income as well as to certain off‑balance-sheet credit exposures.

Entities will apply the standard using a modified retrospective approach, with a cumulative‑effect adjustment recorded to beginning retained earnings on the effective date.

The standard will require an increase to the allowance for loan losses at EnerBank.

At December 31, 2019, the allowance reflected expected credit losses over a 12‑month period, but the new standard will require the allowance to reflect expected credit losses over the entire life of the loans.

EnerBank expects to record a $ 65 million increase to its expected credit loss reserves on January 1, 2020, with the offsetting adjustment recorded to retained earnings, net of taxes.

The standard will also require an increase in the initial provision for loan losses recognized in net income for new loans originated in 2020 and beyond.

At Consumers, the new guidance will apply to the allowance for uncollectible accounts;

however, Consumers does not expect material impacts from the standard.

CMS Energy and Consumers were required to apply the standard using a modified retrospective approach, under which the initial impacts of the standard are recorded through a cumulative-effect adjustment to beginning retained earnings on the effective date.

The standard required an increase to the allowance for loan losses at EnerBank.

Prior to the standard, the allowance reflected expected credit losses over a 12‑month period, but the new guidance requires the allowance to reflect expected credit losses over the entire life of the loans.

As a result, CMS Energy recorded a $ 65 million increase to its expected credit loss reserves on January 1, 2020, with the offsetting adjustment recorded to retained earnings, net of taxes of $ 14 million.

The standard also requires an increase in the initial provision for loan losses recognized in net income for new loans originated in 2020 and beyond.

The adoption of this standard resulted in a $ 21 million reduction to CMS Energy’s income before income taxes for the year ended December 31, 2020.

For further information on EnerBank’s loans and the related allowance for loan losses see Note 8, Notes Receivable.

At Consumers, the standard applies to the allowance for uncollectible accounts, but did not result in any significant changes to the allowance methodology and did not have a material impact on Consumers’ consolidated financial statements.

ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting:

This standard, which was effective as of March 12, 2020 for CMS Energy and Consumers, provides optional guidance intended to ease the potential burden in accounting for the expected discontinuation of LIBOR as a reference rate in the financial markets.

The guidance can be applied to modifications made to certain contracts to replace LIBOR with a new reference rate.

The guidance, if elected, will permit entities to treat such modifications as the continuation of the original contract, without any required accounting reassessments or remeasurements.

The guidance will also facilitate the continuation of hedge accounting for derivatives that may have to be modified to incorporate a new rate.

The guidance is effective through December 31, 2022.

CMS Energy and Consumers presently have various contracts that reference LIBOR and they are assessing how this standard may be applied to specific contract modifications.

Regulatory Matters

12 unchanged sentences

Presented in the following table are the regulatory assets and liabilities on Consumers’ consolidated balance sheets:

End of Recovery

or Refund Period

December 31 End of Recovery or Refund Period 2020 2019

Regulatory assets

Energy waste reduction plan incentive 1

2021 $ 34 $ 33

Deferred capital spending 2

Other 2021 2 —

Total current regulatory assets $ 42 $ 33

Postretirement benefits 3

various $ 1,231 $ 1,130

Costs of coal-fueled electric generating units to be retired 2

various 678 667

Securitized costs 2

various 216 191

various 120 130

Unamortized loss on reacquired debt 4

various 108 70

Energy waste reduction plan incentive 1

Energy waste reduction plan 4

Deferred capital spending 4

Gas storage inventory adjustments 4

various 16 10

Demand response program 4

COVID-19 costs accounting deferral 4

Other various 7 9

Total non-current regulatory assets $ 2,653 $ 2,489

2 unchanged sentences

Income taxes, net 2021 $ 105 $ 65

Gain to be shared with customers

Reserve for customer refunds 2021 28 2

TCJA reserve for refund

Voluntary transmission asset sale gain share 2021 14 17

Other 2021 4 3

Total current regulatory liabilities $ 151 $ 87

Cost of removal

Income taxes, net

Cost of removal various $ 2,245 $ 2,126

Income taxes, net various 1,419 1,510

Renewable energy grant 2043 49 52

ARO various 11 26

Renewable energy plan 2028 9 17

TCJA reserve for refund

Other various 11 11

Total non-current regulatory liabilities $ 3,744 $ 3,742

2 unchanged sentences

Therefore, the MPSC has provided for recovery without a return.

This regulatory asset is included in rate base, thereby providing a return.

2 The MPSC has historically authorized and Consumers expects the MPSC to authorize a specific return on these regulatory assets.

3 This regulatory asset is included in rate base, thereby providing a return.

4 These regulatory assets represent incurred costs for which the MPSC has provided, or Consumers expects, recovery without a return on investment.

1 unchanged sentence

Energy Waste Reduction Plan Incentive:

In December 2019, the MPSC approved a settlement agreement authorizing Consumers to collect $ 34 million during 2020 as an incentive for exceeding its statutory savings targets in 2018 .

The energy waste reduction incentive mechanism provides a financial incentive if the energy savings of Consumers’ customers exceed annual targets established by the MPSC.

Consumers accounts for this program as an alternative-revenue program that meets the criteria for recognizing revenue related to the incentive as soon as energy savings exceed the annual targets established by the MPSC.

In November 2020, the MPSC approved a settlement agreement authorizing Consumers to collect $ 34 million during 2021 as an incentive for exceeding its statutory savings targets in 2019.

Consumers recognized incentive revenue under this program of $ 34 million in 2019.

1 unchanged sentence

Consumers recognized incentive revenue under this program of $ 42 million in 2020.

Deferred Capital Spending:

In January 2019, the MPSC approved a settlement agreement in Consumers’ 2018 electric rate case, which provided deferred accounting treatment for distribution-related capital investments exceeding certain threshold amounts.

Thus, for actual capital spending above the threshold amounts detailed in the settlement agreement, Consumers has deferred as a regulatory asset the associated depreciation and property tax expense as well as the debt component of the overall rate of return on such spending.

Postretirement Benefits:

As part of the ratemaking process, the MPSC allows Consumers to recover the costs of postretirement benefits.

Accordingly, Consumers defers the net impact of actuarial losses and gains as well as prior service costs and credits associated with postretirement benefits as a regulatory asset or liability.

Accordingly, Consumers defers the net impact of actuarial losses and gains, prior service costs and credits, and settlements associated with postretirement benefits as a regulatory asset or liability.

The asset or liability will decrease as the deferred items are amortized and recognized as components of net periodic benefit cost.

For details about the amortization periods, see Note 12, Retirement Benefits .

For details about settlements and the amortization periods, see Note 12, Retirement Benefits.

Costs of Coal-fueled Electric Generating Units to be Retired:

2 unchanged sentences

Under Michigan law, electric utilities have been permitted to use highly rated, low-cost securitization bonds to finance the recovery of qualified costs.

Consumers will file for securitization financing by May 2023, requesting the MPSC’s approval to securitize the remaining book value of the two coal-fueled electric generating units upon their retirement.

In 2019, Consumers removed from total plant, property, and equipment an amount representing the remaining book value of the two coal-fueled electric generating units upon their retirement, and recorded it as a regulatory asset.

In 2019, Consumers removed from total plant, property, and equipment an amount representing the projected remaining book value of the two coal-fueled electric generating units upon their retirement, and recorded it as a regulatory asset.

Until securitization, the book value of the generating units will remain in rate base and receive full regulatory returns in general rate cases.

In December 2020, the MPSC issued a securitization financing order authorizing Consumers to issue securitization bonds in order to finance the recovery of the remaining book value of the two coal-fueled electric generating units upon their retirement.

An intervenor has appealed the order, contending that it should not have to pay the securitization surcharge.

Securitized Costs:

In 2013, the MPSC issued a securitization financing order authorizing Consumers to issue securitization bonds in order to finance the recovery of the remaining book value of seven smaller coal-fueled electric generating units that Consumers retired in 2016 and three smaller natural gas-fueled electric generating units that Consumers retired in 2015.

In 2013, the MPSC issued a securitization financing order authorizing Consumers to issue securitization bonds in order to finance the recovery of the remaining book value of seven smaller

coal-fueled electric generating units that Consumers retired in 2016 and three smaller natural gas-fueled electric generating units that Consumers retired in 2015.

Upon receipt of the MPSC’s order, Consumers removed the book value of the ten units from plant, property, and equipment and recorded this amount as a regulatory asset.

12 unchanged sentences

The amount of surcharges collected in excess of spending incurred is recorded as a regulatory liability and amortized as costs are incurred.

Deferred Capital Spending:

Gas Storage Inventory Adjustments:

Consumers incurs inventory expenses related to the loss of gas from its natural gas storage fields.

The MPSC allows Consumers to recover these costs from its natural gas customers over a five -year period.

Demand Response Program:

In the IRP and in general electric rate cases, the MPSC has approved the recovery of demand response costs.

Consumers annually files a reconciliation with the MPSC to review actual demand response costs against amounts approved.

The method of recovery of demand response costs will be determined in a future rate case.

COVID‑19 Costs Accounting Deferral:

In April 2020, the MPSC issued an order authorizing Consumers to defer uncollectible accounts expense incurred beginning March 24, 2020 that are in excess of the amount used to set existing rates.

Regulatory Liabilities

1 unchanged sentence

Consumers records regulatory assets and liabilities to reflect the difference between deferred income taxes recognized for financial reporting purposes and amounts previously reflected in Consumers’ rates.

This net balance will decrease over the remaining life of the related temporary differences and flow through current income tax benefit.

For additional details on deferred income taxes, see the Consumers Electric Utility and Gas Utility—Tax Cuts and Jobs Act section below and Note 14, Income Taxes .

Gain to be Shared with Customers:

In December 2019, Consumers filed an application with the MPSC requesting approval to share voluntarily with electric utility customers half of the gain recognized on a sale of a portion of its substation transmission equipment to METC.

Consumers proposed the gain sharing take place through an offset to additional spending in 2020 or through a bill credit to customers in 2021.

This net balance will decrease over the remaining life of the related temporary differences and flow through income tax expense.

The majority of the net regulatory liability recorded related to income taxes is associated with plant assets that are subject to normalization, which is governed by the Internal Revenue Code, and will be returned to customers over the remaining book life of the related plant assets, the average of which is 44 years for gas plant assets and 27 years for electric plant assets.

For additional details on deferred income taxes, see Note 14, Income Taxes.

Reserve for Customer Refunds:

At December 31, 2018, Consumers had recorded a provision for revenue subject to refund associated with electric rates it self-implemented in 2017.

In August 2019, the MPSC approved Consumers’ reconciliation of total revenues collected from rates it self-implemented to those that would have been collected under the final rates approved in June 2018 and Consumers refunded the resulting amount in September 2019.

The 2016 Energy Law eliminated utilities’ self-implementation of rates under general rate cases, but provided for more timely processing of general rate cases.

TCJA Reserve for Refund:

In early 2018, the MPSC ordered Consumers to file various proceedings to determine the reduction in its electric and gas revenue requirements as a result of the TCJA.

For further information on the various TCJA proceedings, see the Consumers Electric Utility and Gas Utility—Tax Cuts and Jobs Act section below.

In December 2020, the MPSC issued an order authorizing Consumers to refund $ 28 million voluntarily to utility customers.

Consumers is required to submit another filing by the end of February 2021 proposing an appropriate method for making this refund.

Voluntary Transmission Asset Sale Gain Share:

In October 2020, Consumers completed a sale of the electric utility’s remaining transmission equipment to METC.

In December 2020, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with electric utility customers;

this application was approved by the MPSC in February 2021.

Consumers will share the gain through an offset to additional spending in 2021 or through a bill credit to electric utility customers in 2022.

As a result, Consumers deferred $ 14 million of the gain in December 2020.

In September 2019, Consumers completed a sale of a portion of its electric utility’s substation transmission equipment to METC.

In December 2019, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with customers;

this application was approved by the MPSC in April 2020.

As a result, Consumers deferred $ 17 million of the gain in December 2019 and shared that gain with customers in 2020.

Cost of Removal:

10 unchanged sentences

Incremental costs represent costs incurred in excess of amounts recovered through the PSCR process.

Consumers Electric Utility and Gas Utility

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 early 2018, the MPSC ordered Consumers to file various proceedings to determine the reduction in its electric and gas revenue requirements as a result of the reduction in the corporate income tax rate, and to implement bill credits to reflect that reduction until customer rates could be adjusted through Consumers’ general rate cases.

Consumers filed, and the MPSC approved, such proceedings throughout 2018, resulting in credits to customer bills during 2018 to reflect reductions in Consumers’ electric and gas revenue requirements.

Consumers filed additional proceedings to address amounts collected from customers during 2018 prior to the implementation of bill credits.

In late 2018, the MPSC approved the refund of $ 31 million to gas customers over six months beginning in December 2018 and the refund of $ 70 million to electric customers over six months beginning in January 2019.

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.

Consumers’ total $ 1.6 billion of net regulatory tax liabilities comprises:

A regulatory tax liability of $ 1.7 billion associated with plant assets that are subject to normalization, which is governed by the Internal Revenue Code;

this regulatory tax liability will be returned over the remaining book life of the related plant assets, the average of which is 44 years for gas plant assets and 27 years for electric plant assets.

A regulatory tax asset of $ 0.3 billion associated with plant assets that are not subject to normalization;

this regulatory tax asset will be collected over 44 years from gas customers and over 27 years from electric customers.

A regulatory tax liability of $ 0.2 billion , which is primarily related to employee benefits;

this regulatory tax liability will be refunded to customers over ten years .

In January 2018, Consumers began to reduce the regulatory liability subject to normalization by crediting income tax expense.

Consumers fully reserved for the eventual refund of these excess deferred taxes that it credited to income tax expense in a separate non‑current regulatory liability established by reducing revenue.

As a result of an order received in September 2019, Consumers began refunding these excess deferred taxes to customers and will no longer reserve for their refund.

At the date of the order, this reserve for refund of these excess deferred taxes totaled $ 62 million .

For additional details on the remeasurement, see Note 14, Income Taxes .

Consumers Electric Utility

2020 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.

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 equal to Consumer’s weighted-average cost of capital on payments made under PPAs approved by the MPSC after January 1, 2019.

The order authorizes Consumers to recover $ 3 million, beginning in January 2021, for incentives earned and to be earned on PPA payments during 2019 through 2021.

Consumers accounts for this program as an alternative-revenue program that meets the criteria for recognizing revenue related to the mechanism as payments are made on MPSC-approved PPAs.

Consumers recognized revenue under this mechanism of $ 1 million in 2020.

Consumers is also authorized in the order to replace the current net metering tariff with a new distributed generation tariff, pursuant to the 2016 Energy Law.

The new distributed generation tariff is consistent with other distributed generation tariffs already approved by the MPSC and will reduce the subsidies paid by non-distributed generation customers under the current net metering program.

Consumers Gas Utility

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 9.90 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, effective October 1, 2020.

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.

This reconciliation would start in October 2021 and continue until the MPSC resets rates in a subsequent rate case.

Additionally, the MPSC authorized Consumers to accelerate:

• the refund of a regulatory liability associated with the unprotected, non‑property-related excess deferred income taxes resulting from the TCJA;

Consumers was previously authorized to refund this through 2029

• the flow-through of certain income tax benefits associated primarily with the cost of removal of gas plant assets placed in service before 1993;

Consumers was previously authorized to refund this through 2025

Under the settlement agreement approved by the MPSC, these benefits, which total $ 84 million, will now be passed through to customers by September 2022.

For additional details, see Note 14, Income Taxes.

Power Supply Cost Recovery and Gas Cost Recovery

4 unchanged sentences

overrecoveries represent previously collected revenues that will be refunded to customers.

Presented in the following table are the assets and liabilities for PSCR and GCR underrecoveries and overrecoveries reflected on Consumers’ consolidated balance sheets:

GCR underrecoveries

Accrued gas revenue

Presented in the following table are the liabilities for PSCR and GCR overrecoveries reflected on Consumers’ consolidated balance sheets:

December 31 2020 2019

PSCR overrecoveries $ 5 $ 33

2 unchanged sentences

PSCR Plans and Reconciliations:

In October 2019, the MPSC issued an order in Consumers’ 2017 PSCR reconciliation, authorizing recovery of $ 1.9 billion of power costs and authorizing Consumers to reflect in its 2018 PSCR reconciliation the overrecovery of $ 32 million .

In November 2019, the MPSC issued an order in Consumers’ 2018 PSCR plan authorizing the 2018 PSCR charge that Consumers self-implemented beginning in January 2018.

In March 2019, Consumers filed its 2018 PSCR reconciliation, requesting full recovery of $ 2.0 billion of power costs and authorization to reflect in its 2019 PSCR reconciliation the underrecovery of $ 31 million .

In October 2020, the MPSC issued an order in Consumers’ 2018 PSCR reconciliation, authorizing recovery of $ 2.0 billion of power costs and authorizing Consumers to reflect in its 2019 PSCR reconciliation the underrecovery of $ 28 million.

In April 2020, the MPSC issued an order in Consumers’ 2019 PSCR plan authorizing the 2019 PSCR charge that Consumers self-implemented beginning in January 2019.

In March 2020, Consumers filed its 2019 PSCR reconciliation, requesting full recovery of $ 1.9 billion of power costs and authorization to reflect in its 2020 PSCR reconciliation the overrecovery of $ 21 million.

Consumers submitted its 2020 PSCR plan to the MPSC in September 2019 and, in accordance with its proposed plan, self-implemented the 2020 PSCR charge beginning in January 2020.

GCR Plans and Reconciliations:

In September 2019, the MPSC issued an order in Consumers’ 2017-2018 GCR reconciliation, authorizing full recovery of $ 0.6 billion of gas costs and authorizing Consumers to reflect in its 2018-2019 GCR reconciliation the overrecovery of $ 1 million .

In September 2020, the MPSC issued an order in Consumers’ 2018-2019 GCR reconciliation, authorizing recovery of $ 0.6 billion of gas costs and authorizing Consumers to reflect in its 2019-2020 GCR reconciliation the underrecovery of $ 11 million.

The MPSC disallowed the recovery of $ 7 million in incremental gas purchases related to the Ray Compressor Station fire.

For additional details, see Note 4, Contingencies and Commitments—Consumers Gas Utility Contingencies.

In June 2020, Consumers filed its 2019-2020 GCR reconciliation, requesting full recovery of $ 0.5 billion of gas costs and authorization to reflect in its 2020-2021 GCR reconciliation the underrecovery of $ 1 million.

In January 2020, the MPSC issued an order in Consumers’ 2019-2020 GCR plan authorizing the 2019-2020 GCR charge that Consumers self-implemented beginning in April 2019.

In September 2020, the MPSC approved a settlement agreement in Consumers’ 2020-2021 GCR plan authorizing the 2020-2021 GCR charge that Consumers self-implemented beginning in April 2020.

Contingencies and Commitments

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Gas Index Price Reporting Litigation:

CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, were named as defendants in four class action lawsuits and one individual lawsuit arising as a result of alleged inaccurate natural gas price reporting to

publications that report trade information.

Allegations include price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in Kansas, Missouri, and Wisconsin.

CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, were named as defendants in four class action lawsuits filed in Kansas, Missouri, and Wisconsin and one individual lawsuit filed in Kansas;

these lawsuits arose as a result of alleged inaccurate natural gas price reporting to publications that report trade information.

Allegations included price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices.

In 2016, CMS Energy entities reached a settlement with the plaintiffs in the Kansas and Missouri class action cases for an amount that was not material to CMS Energy.

In 2017, the federal district court approved the settlement.

The following provides more detail on the remaining cases in which CMS Energy or its affiliates were named as parties:

In 2006, a class action complaint, Arandell Corp., et al.

XCEL Energy Inc., et al., was filed in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 2000 and October 2002.

The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute.

The plaintiffs are seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.

In 2009, a class action complaint, Newpage Wisconsin System v.

CMS ERM, et al., was filed in circuit court in Wood County, Wisconsin, against CMS Energy, CMS ERM, Cantera Gas Company, and others.

The plaintiff is seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.

In 2005, J.P.

Morgan Trust Company, N.A., in its capacity as trustee of the FLI Liquidating Trust, filed an action in Kansas state court against CMS Energy, CMS MST, CMS Field Services, and others.

The complaint alleges various claims under the Kansas Restraint of Trade Act.

The plaintiff is seeking statutory full consideration damages for its purchases of natural gas in 2000 and 2001, costs, and attorneys’ fees.

After removal to federal court, all of the cases were transferred to a single federal district court pursuant to the multidistrict litigation process.

In 2010 and 2011, all claims against CMS Energy defendants were dismissed by the district court based on FERC preemption.

In 2013, the U.S.

Court of Appeals for the Ninth Circuit reversed the district court decision.

The appellate court found that FERC preemption does not apply under the facts of these cases.

The appellate court affirmed the district court’s denial of leave to amend to add federal antitrust claims.

The matter was appealed to the U.S.

Supreme Court, which in 2015 upheld the Ninth Circuit’s decision.

The cases were remanded back to the federal district court.

In 2016, the federal district court granted the defendants’ motion for summary judgment in the individual lawsuit filed in Kansas based on a release in a prior settlement involving similar allegations;

the order of summary judgment was subsequently appealed.

In March 2018, the U.S.

Court of Appeals for the Ninth Circuit reversed the lower court’s ruling and remanded the case back to the federal district court.

In 2017, the federal district court denied plaintiffs’ motion for class certification in the two pending class action cases in Wisconsin.

The plaintiffs appealed that decision to the U.S.

Court of Appeals for the Ninth Circuit and in August 2018, the Ninth Circuit Court of Appeals reversed and remanded the matter back to the federal district court for further consideration.

In January 2019, the judge in the multidistrict litigation granted motions filed by plaintiffs for Suggestion of Remand of the actions back to the respective transferor courts in Wisconsin and Kansas for further handling.

In the Kansas action, the Judicial Panel on Multidistrict Litigation ordered the remand and the case has been transferred.

In the Wisconsin actions, oppositions to the remand were filed, but the Judicial Panel on Multidistrict Litigation granted the remand in June 2019.

CMS Energy and the plaintiffs in each of the Kansas and the Wisconsin actions engaged in settlement discussions and CMS Energy has recorded a $ 30 million liability at December 31, 2019 as a probable estimate to settle these two cases.

CMS Energy can give no assurances that it can reach a final settlement with the plaintiffs in these two cases, of the actual amount CMS Energy would have to pay in any settlement, or, in the Wisconsin case, that the Wisconsin court would approve any such settlement.

If settlement does not occur and the outcome after appeals is unfavorable to CMS Energy, these cases could negatively affect CMS Energy’s liquidity, financial condition, and results of operations.

In 2019, CMS Energy and the plaintiffs in the remaining Kansas individual lawsuit and the Wisconsin class action lawsuit engaged in settlement discussions and CMS Energy recorded a $ 30 million liability at December 31, 2019 as the probable estimate to settle the two cases.

The parties executed a settlement

agreement in the Kansas case in February 2020, and that case is now complete.

In the Wisconsin case, a settlement agreement was approved in August 2020 and that case is now complete.

CMS Land retained environmental remediation obligations for the collection and treatment of leachate at Bay Harbor after selling its interests in the development in 2002.

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In 2012, CMS Land and EGLE finalized an agreement that established the final remedies and the future water quality criteria at the site.

CMS Land completed all construction necessary to implement the remedies required by the agreement and will continue to maintain and operate a system to discharge treated leachate into Little Traverse Bay under an NPDES permit issued in 2010 and renewed in 2016.

The renewed NPDES permit is valid through September 2020.

CMS Land submitted a renewal request for the permit in April 2020.

CMS Land is allowed to continue operating under the previous NPDES permit until a response is received from EGLE.

At December 31, 2020, CMS Energy had a recorded liability of $ 45 million for its remaining obligations for environmental remediation.

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CMS Energy expects to pay the following amounts for long-term leachate disposal and operating and maintenance costs in each of the next five years:

2021 2022 2023 2024 2025

Long-term leachate disposal and operating and maintenance costs $ 4 $ 4 $ 4 $ 4 $ 4

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Cleanup and Solid Waste:

Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA.

Consumers expects to incur remediation and other response activity costs at a number of sites under NREPA.

Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome.

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the majority of the MCV Partnership’s claim, which estimated damages and interest in excess of $ 270 million, was related to this dismissed claim.

Consumers believes that the MCV Partnership’s remaining claims are without merit, but cannot predict the financial impact or outcome of the matter.

In November 2020, the MCV Partnership and Consumers signed a settlement agreement resolving all outstanding disputes between the parties, and filed the settlement and associated agreements with the MPSC for approval.

Once those are approved, the parties will dismiss this matter with prejudice.

If settlement is not approved, the arbitration panel will issue an order.

Consumers believes that the MCV Partnership’s claims are without merit, but cannot predict the financial impact or outcome of the matter.

Underwater Cables in Straits of Mackinac:

Consumers owns certain underwater electric cables in the Straits of Mackinac, which were de-energized and retired in 1990.

Consumers was notified that some of these cables were damaged as a result of vessel activity in April 2018.

Consumers was notified that some of

these cables were damaged as a result of vessel activity in 2018.

Following the notification, Consumers located, inspected, sampled, capped, and returned the damaged retired cables to their original location on the lake bottom, and did not find any substantive evidence of environmental contamination.

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Army Corps of Engineers in December 2019 for partial removal of all Consumers-owned cables.

Upon EGLE’s issuance of a permit or certificate of coverage, which is expected in early 2020, Consumers will record an ARO for the cost to remove partially its cables, estimated to be up to $ 5 million .

If Consumers were required to remove all the cables, it could incur costs of up to $ 10 million .

Consumers filed suit against the companies that own the vessels that allegedly caused the damage and settled that matter.

Consumers will seek recovery from customers of any costs incurred.

In March 2020, EGLE issued a permit for the removal work and, as a result, Consumers recorded an ARO liability of $ 5 million for the cost to remove partially its cables.

Removal work was completed in September 2020.

Consumers recovers the cost of recorded AROs through MPSC-approved depreciation rates.

Consumers Gas Utility Contingencies

Gas Environmental Matters:

Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA.

Consumers expects to incur remediation and other response activity costs at a number of sites under NREPA.

These sites include 23 former MGP facilities.

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Consumers expects to pay the following amounts for remediation and other response activity costs in each of the next five years:

2021 2022 2023 2024 2025

Remediation and other response activity costs $ 3 $ 9 $ 23 $ 10 $ 1

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On January 30, 2019, Consumers experienced a fire at the Ray Compressor Station, which resulted in the Ray Storage Field being off‑line or operating at significantly reduced capacity, which negatively affected Consumers’ natural gas supply and delivery capacity.

a curtailment of natural gas deliveries for industrial and large commercial customers pursuant to Consumers’ MPSC curtailment tariff.

This incident, which occurred during the extreme polar vortex weather condition, required Consumers to request voluntary reductions in customer load, to implement contingency gas supply purchases, and to implement a curtailment of natural gas deliveries for industrial and large commercial customers pursuant to Consumers’ MPSC curtailment tariff.

The curtailment and request for voluntary reductions of customer loads were canceled as of midnight, February 1, 2019.

Consumers investigated the cause of the incident, and filed a report on the incident with the MPSC in April 2019.

In response, the MPSC issued an order in July 2019, directing Consumers to file additional reports regarding the incident and to include detail of the resulting costs in a future rate proceeding.

In response, the MPSC issued an order in

July 2019, directing Consumers to file additional reports regarding the incident and to include detail of the resulting costs in a future rate proceeding.

The compressor station is presently operating at full capacity.

As a result of the fire and the resulting curtailment, Consumers could be subject to disallowances of gas purchased and costs associated with the repairs to the Ray Compressor Station.

Consumers’ incremental cost of gas purchased during the incident was $ 7 million .

Additionally, at December 31, 2019 , Consumers had incurred capital expenditures of $ 12 million to restore the compressor station.

Consumers may also be subject to various claims from impacted customers, claims for damages, or regulatory penalties.

In September 2020, the MPSC disallowed the recovery of $ 7 million in incremental gas purchases related to the fire.

In January 2021, the MPSC denied Consumers’ petition for a rehearing challenging this disallowance.

Consumers will file an appeal of the MPSC’s denial with the Michigan Court of Appeals.

Consumers could also be subject to disallowances of costs associated with the repair and modification of the Ray Compressor Station.

At December 31, 2020, Consumers had incurred capital expenditures of $ 17 million to restore and modify the compressor station.

In May 2020, the MPSC approved an administrative settlement agreement between Consumers and the MPSC Staff, which resulted in a $ 10,000 civil penalty in connection with the fire.

Consumers may also be subject to various claims from impacted customers and claims for damages.

At this time, Consumers cannot predict the outcome of these matters or other gas-related incidents and a reasonable estimate of a total loss cannot be made, but they could have a material adverse effect on Consumers’ results of operations, financial condition, or liquidity, and could subject Consumers’ gas utility to increased regulatory scrutiny.

Consumers Electric and Gas Utility Contingencies

Electric and Gas Staking:

In June 2019, the MPSC ordered Consumers to show cause as to why it should not be found in violation of the MISS DIG Act.

The MPSC alleges that Consumers violated the law by failing to respond in a timely manner to over 20,000 requests to mark the location of underground facilities in April and May 2019 and only partially responding to others.

The law provides the MPSC with discretion in setting fines for violations, if any;

however, the fines cannot exceed $ 5,000 per violation.

Consumers resolved the backlog of staking requests, and Consumers, the MPSC Staff, and the Michigan Attorney General filed an agreement with the MPSC settling this matter for an amount of less than $ 1 million .

The MPSC approved the settlement agreement in January 2020.

Presented in the following table are CMS Energy’s and Consumers’ guarantees at December 31, 2020:

Guarantee Description

Expiration Date

Maximum Obligation

Carrying Amount

Guarantee Description Issue Date Expiration Date Maximum Obligation Carrying Amount

CMS Energy, including Consumers

Indemnity obligations from purchase of VIE 1

September 2020 indefinite $ 349 $ —

Indemnity obligations from stock and asset sale agreements 2

various indefinite 153 2

July 2011 indefinite 30 —

July 2011 indefinite $ 30 $ —

1 In conjunction with the purchase of its interest in Aviator Wind Equity Holdings, CMS Enterprises assumed certain indemnity obligations that protect the associated tax equity investor against losses incurred as a result of breaches of representations and warranties provided by Aviator Wind Equity Holdings and its subsidiaries.

These obligations are generally capped at an amount equal to the tax equity investor’s capital contributions plus a specified return, less any distributions and tax benefits it receives, in connection with its membership interest in Aviator Wind.

CMS Enterprises would recover 49 percent of any amounts paid to the tax equity investor from the other owner of Aviator Wind Equity Holdings.

Additionally, Aviator Wind holds insurance coverage that would partially protect against losses incurred as a result of certain failures to qualify for production tax credits.

For further details on CMS Enterprises’ ownership interest in Aviator Wind Equity Holdings, see Note 21, Variable Interest Entities.

2 These obligations arose from stock and asset sale agreements under which CMS Energy or a subsidiary of CMS Energy indemnified the purchaser for losses resulting from various matters, primarily claims related to taxes.

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CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.

At Consumers, this obligation comprises a guarantee provided to the U.S.

3 This obligation comprises a guarantee provided by Consumers to the U.S.

Department of Energy in connection with a settlement agreement regarding damages resulting from the department’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers.

At CMS Energy, the

guarantee obligations comprise Consumers’ guarantee to the U.S.

Department of Energy and CMS Energy’s 1994 guarantee of non ‑ recourse revenue bonds issued by Genesee.

For additional details on this guarantee, see Note 21, Variable Interest Entities .

Additionally, in the normal course of business, CMS Energy, Consumers, and certain other subsidiaries of CMS Energy have entered into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation.

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Presented in the following table are CMS Energy’s and Consumers’ contractual purchase obligations at December 31, 2020 for each of the periods shown:

Total 2021 2022 2023 2024 2025 Beyond 2025

CMS Energy, including Consumers

Total PPAs $ 8,898 $ 1,057 $ 791 $ 731 $ 784 $ 732 $ 4,803

Other 3,179 1,391 871 265 199 171 282

MCV PPA $ 2,815 $ 349 $ 340 $ 358 $ 376 $ 329 $ 1,063

Palisades PPA 517 398 119 — — — —

Related-party PPAs 318 58 58 58 58 39 47

Consumers has a 35 -year PPA that began in 1990 with the MCV Partnership to purchase 1,240 MW of electricity.

The MCV PPA, as amended and restated, provides for:

a capacity charge of $ 10.14 per MWh of available capacity

a fixed energy charge based on Consumers’ annual average baseload coal generating plant operating and maintenance cost, fuel inventory, and administrative and general expenses

a variable energy charge based on the MCV Partnership’s cost of production when the plant is dispatched

a $ 5 million annual contribution by the MCV Partnership to a renewable resources program

an option for Consumers to extend the MCV PPA for five years or purchase the MCV Facility at the conclusion of the MCV PPA’s term in March 2025;

although Consumers is not obligated to exercise either of these options, the table above presents the impact on future cash flows of extending the MCV PPA through 2030

Other PPAs 5,248 252 274 315 350 364 3,693

Total PPAs $ 8,898 $ 1,057 $ 791 $ 731 $ 784 $ 732 $ 4,803

Other 2,605 1,333 777 207 154 130 4

Consumers has a PPA with the MCV Partnership giving Consumers the right to purchase up to 1,240 MW of capacity and energy produced by the MCV Facility.

The PPA was amended during 2020 and is pending MPSC approval.

The amended and restated MCV PPA provides for:

• an extension of the termination date from March 2025 to May 2030

• a capacity charge of $ 10.14 per MWh of available capacity through March 2025 and $ 5.00 per MWh of available capacity from March 2025 through the termination date of the PPA

• a fixed energy charge of $ 6.30 per MWh for on-peak hours and $ 6.00 for off-peak hours

• a variable energy charge based on the MCV Partnership’s cost of production for energy delivered to Consumers

• a $ 5 million annual contribution by the MCV Partnership to a renewable resources program through March 2025

Capacity and energy charges under the MCV PPA were $ 298 million in 2020, $ 318 million in 2019, and $ 353 million in 2018.

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Interest Rate

(%) Maturity 2020 2019

CMS Energy, including Consumers

CMS Energy, parent only

Total senior notes

Term loans and revolving credit agreements

Senior notes 5.050 2022 $ — $ 300

3.875 2024 250 250

3.600 2025 250 250

3.000 2026 300 300

2.950 2027 275 275

3.450 2027 350 350

4.700 2043 250 250

4.875 2044 300 300

$ 1,975 $ 2,275

Term loan facility variable 1

Junior subordinated notes 2

4.750 2050 500 —

3.750 2050 400 —

5.625 2078 200 200

5.875 2078 280 280

5.875 2079 630 630

$ 2,010 $ 1,110

Total CMS Energy, parent only $ 4,185 $ 3,385

CMS Energy subsidiaries

Consumers 8,197 7,322

CMS Enterprises, including subsidiaries

Term loan facility

Term loan facility variable 3

Certificates of deposit 1.621 4

2021-2028 2,805 2,389

Total principal amount outstanding $ 15,272 $ 13,188

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Total long-term debt $ 13,634 $ 11,951

1 At December 31, 2020, the interest rate on the balance of this term loan facility was 0.600 percent, based on an interest rate of one-week LIBOR plus 0.500 percent.

2 These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness.

3 A subsidiary of CMS Enterprises issued non ‑ recourse debt to finance the acquisition of a wind generation project in Northwest Ohio.

The debt bears interest at an annual interest rate of LIBOR plus 1.500 percent through October 2022 ( 3.445 percent at December 31, 2019 and 4.303 percent at December 31, 2018 ).

Beginning in October 2022, the debt will bear interest at an annual interest rate of LIBOR plus 1.750 percent .

The same subsidiary of CMS Enterprises entered into interest rate swaps with the lending banks to fix the interest charges associated with the debt, at a rate of 4.702 percent through October 2022 and 4.952 percent beginning in October 2022.

The interest rate for the debt is three-month LIBOR plus 1.500 percent through October 2022 and three-month LIBOR plus 1.750 percent thereafter.

At December 31, 2020 and 2019, the interest rate was 1.754 percent and 3.445 percent, respectively.

Principal and interest payments are made quarterly.

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Interest Rate

(%) Maturity 2020 2019

First mortgage bonds 3.770 2020 $ — $ 100

Total first mortgage bonds

Tax-exempt revenue bonds

2.850 2022 — 375

5.300 2022 — 250

0.350 2023 300 —

3.375 2023 325 325

3.125 2024 250 250

3.190 2024 52 52

3.680 2027 100 100

3.390 2027 35 35

3.800 2028 300 300

3.180 2032 100 100

5.800 2035 175 175

3.520 2037 335 335

4.010 2038 215 215

6.170 2040 50 50

4.970 2040 50 50

4.310 2042 263 263

3.950 2043 425 425

4.100 2045 250 250

3.250 2046 450 450

3.950 2047 350 350

4.050 2048 550 550

4.350 2049 550 550

3.750 2050 300 300

3.100 2050 550 550

3.500 2051 575 —

3.860 2052 50 50

4.280 2057 185 185

2.500 2060 525 —

4.350 2064 250 250

$ 7,897 $ 6,961

Tax-exempt revenue bonds variable 2035 — 35

Securitization bonds 3.250 3

Revolving credit agreements

Total principal amount outstanding $ 8,197 $ 7,322

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Total long-term debt $ 7,742 $ 7,048

The variable-rate bonds bear interest quarterly at a rate of three-month LIBOR minus 0.300 percent ( 1.594 percent at December 31, 2019 ).

The interest rate on these tax‑exempt revenue bonds is reset weekly and was 1.740 percent at December 31, 2019 and 1.780 percent at December 31, 2018 .

1 The variable-rate bonds bear interest quarterly at a rate of three-month LIBOR minus 0.300 percent, subject to a zero-percent floor ( zero percent at December 31, 2020).

The holders of these variable-rate bonds may put them to Consumers for redemption on certain dates prior to their stated maturity, including dates within one year of December 31, 2020.

2 The interest rate on these tax‑exempt revenue bonds will reset on October 1, 2024.

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Presented in the following table is a summary of major long-term debt issuances during the year ended December 31, 2020:

Principal (In Millions)

Interest Rate (%)

Issuance Date

Maturity Date

(In Millions) Interest Rate Issuance Date Maturity Date

CMS Energy, parent only

Term loan facility 1

December 2019

$ 300 variable February February 2021

Junior subordinated notes 2

Term loan facility

500 4.750 % May June 2050

Junior subordinated notes 3

400 3.750 % November December 2050

Total CMS Energy, parent only $ 1,200

First mortgage bonds

February 2050

First mortgage bonds

September 2069

Tax-exempt revenue bonds

Term loan facility $ 300 variable January January 2021

First mortgage bonds 575 3.500 % March August 2051

First mortgage bonds 525 2.500 % May May 2060

First mortgage bonds 134 variable May May 2070

First mortgage bonds 127 variable October October 2070

First mortgage bonds 300 0.350 % December June 2023

Total Consumers $ 1,961

Total CMS Energy $ 3,161

1 In December 2020, CMS Energy repaid $ 100 million of this facility and, in February 2021, amended the facility by extending its maturity date to November 2021.

2 These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness.

On June 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 4.116 percent.

3 These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness.

On December 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 2.900 percent.

Presented in the following table is a summary of major long-term debt retirements during the year ended December 31, 2020:

Principal (In Millions)

Interest Rate (%)

Retirement Date

Maturity Date

(In Millions) Interest Rate Retirement Date Maturity Date

CMS Energy, parent only

Term loan facility

December 2019

Term loan facility

August-December

Senior notes 1

$ 300 5.050 % December March 2022

Total CMS Energy, parent only $ 300

First mortgage bonds

First mortgage bonds $ 100 3.770 % April October 2020

First mortgage bonds 250 5.300 % June September 2022

First mortgage bonds 375 2.850 % September May 2022

Term loan facility 300 variable December January 2021

Total Consumers $ 1,025

Total CMS Energy $ 1,325

Term Loan Credit Agreement:

In January 2020, Consumers entered into a $ 300 million unsecured term loan credit agreement.

The term loan matures in January 2021.

1 CMS Energy retired these senior notes at a premium and recorded a loss on extinguishment of $ 16 million in other expense on its consolidated statements of income.

In July 2020, Consumers purchased, in lieu of redemption, $ 35 million of variable-rate tax-exempt revenue bonds due April 2035.

At December 31, 2020, Consumers held the variable-rate tax-exempt revenue bonds and may remarket the bonds or replace them with debt instruments of an equivalent value.

In September 2020, proceeds from the sale of a Class A membership interest in Aviator Wind to a tax equity investor and additional contributions from the Class B membership interest (of which CMS Enterprises owns 51 percent) were used to retire $ 492 million of debt assumed through the purchase of the VIE.

For more information, see Note 21, Variable Interest Entities.

First Mortgage Bonds:

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Consumers is required to maintain FERC authorization for financings.

Its current authorization terminates on August 31, 2021.

Its current authorization terminates on July 31, 2022.

Any long-term issuances during the authorization period are exempt from FERC’s competitive bidding and negotiated placement requirements.

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Debt Maturities:

At December 31, 2019 , the aggregate annual contractual maturities for long-term debt for the next five years were:

At December 31, 2020, the aggregate annual maturities for long-term debt for the next five years, based on stated maturities or earlier put dates, were:

2021 2022 2023 2024 2025

CMS Energy, including Consumers

Long-term debt

CMS Energy, parent only $ 200 $ — $ — $ 250 $ 250

364 28 654 332 31

CMS Enterprises, including subsidiaries 7 8 9 10 51

EnerBank 915 572 477 325 244

Total CMS Energy $ 1,486 $ 608 $ 1,140 $ 917 $ 576

Long-term debt $ 364 $ 28 $ 654 $ 332 $ 31

Revolving Credit Facilities:

The following revolving credit facilities with banks were available at December 31, 2019 :

Expiration Date

Amount of Facility

Amount Borrowed

Letters of Credit Outstanding

Amount Available

Credit Facilities:

The following credit facilities with banks were available at December 31, 2020:

Expiration Date Amount of Facility Amount Borrowed Letters of Credit Outstanding Amount Available

CMS Energy, parent only

June 5, 2023 1

$ 550 $ — $ 18 $ 532

CMS Enterprises, including subsidiaries

September 25, 2025 2

$ 39 $ — $ 39 $ —

September 30, 2025 3

June 5, 2023 $ 850 $ — $ 7 $ 843

November 19, 2022 250 — 1 249

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1 During the year ended December 31, 2020, CMS Energy’s average borrowings totaled $ 1 million with a weighted-average interest rate of 1.888 percent.

2 This letter of credit facility is available to Aviator Wind Equity Holdings.

For more information regarding the acquisition of Aviator Wind Equity Holdings, see Note 21, Variable Interest Entities.

3 Under this facility, $ 8 million is available solely for the purpose of issuing letters of credit.

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4 Obligations under these facilities are secured by first mortgage bonds of Consumers.

During the year ended December 31, 2019 , Consumers’ average borrowings totaled $ 2 million with a weighted-average interest rate of 3.225 percent .

During the year ended December 31, 2020, Consumers’ average borrowings totaled less than $ 1 million with a weighted-average interest rate of 1.425 percent.

Short-term Borrowings:

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These issuances are supported by Consumers’ revolving credit facilities and may have an aggregate principal amount outstanding of up to $ 500 million.

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 an annual interest rate of 2.050 percent , recorded as current notes payable on the consolidated balance sheets of CMS Energy and Consumers.

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

In December 2020, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $ 350 million.

For more information on the intercompany credit agreement between CMS Energy and Consumers, see Note 20, Related-Party Transactions—Consumers.

Dividend Restrictions:

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Issuance of Common Stock:

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 .

Presented in the following table are details of these contracts:

Contract Date

Maturity Date

Number of Shares

Initial Forward Price Per Share

November 16, 2018

November 20, 2018

February 21, 2019

August 21, 2020

In 2018 and 2020, CMS Energy entered into equity offering programs under which it may sell, from time to time, shares of CMS Energy common stock.

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

During 2018 and 2019, CMS Energy entered into forward sales contracts having an aggregate sales price of $ 250 million, the maximum allowed under the 2018 program.

In 2020, CMS Energy settled the forward contracts under this program by issuing 4,879,022 shares of common stock at a weighted-average price of $ 48.86 per share, resulting in net proceeds of $ 238 million.

Under the 2020 program, CMS Energy may sell shares of its common stock having an aggregate sales price of up to $ 500 million.

Presented in the following table are details of CMS Energy’s forward sales contracts under this program at December 31, 2020:

Forward Price Per Share

Contract Date Maturity Date Number of Shares Initial December 31, 2020

September 15, 2020 December 31, 2021 846,759 $ 61.04 $ 60.53

December 22, 2020 June 22, 2022 115,595 61.81 61.81

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.

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The initial forward price in the forward equity sale contracts includes a deduction for commissions and will be adjusted on a daily basis over the term based on an interest rate factor and decreased on certain dates by certain predetermined amounts to reflect expected dividend payments.

No amounts have or will be recorded on CMS Energy’s consolidated balance sheets until settlements of the forward equity sale contracts occur.

No amounts are recorded on CMS Energy’s consolidated balance sheets until settlements of the forward equity sale contracts occur.

If CMS Energy had elected to net share settle the contracts as of December 31, 2020, CMS Energy would have been required to deliver 6,666 shares.

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Presented in the following table are details of Consumers’ preferred stock at December 31, 2020 and 2019:

Number of Shares Authorized

Par Value Optional Redemption Price Number of Shares Authorized Number of Shares Outstanding

Cumulative, with no mandatory redemption

$ 100 $ 110 7,500,000 373,148

Fair Value Measurements

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Presented in the following table are CMS Energy’s and Consumers’ assets and liabilities recorded at fair value on a recurring basis:

CMS Energy, including Consumers

Cash equivalents

Restricted cash and cash equivalents

CMS Energy, including Consumers Consumers

December 31 2020 2019 2020 2019

Restricted cash equivalents $ 17 $ 17 $ 15 $ 17

CMS Energy common stock — — — 1

Nonqualified deferred compensation plan assets 23 18 18 14

Other non-current assets

Derivative instruments 1 1 1 1

Total assets $ 41 $ 36 $ 34 $ 33

Liabilities 1

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Derivative instruments 17 8 — —

Total liabilities $ 40 $ 26 $ 18 $ 14

1 All assets and liabilities were classified as Level 1 with the exception of derivative contracts, which were classified as Level 2 or Level 3.

Cash Equivalents:

Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity.

Restricted Cash Equivalents:

Restricted cash equivalents consist of money market funds with daily liquidity.

For further details, see Note 18, Cash and Cash Equivalents.

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CMS Energy uses interest rate swaps to manage its interest rate risk on certain long‑term debt obligations and certain notes receivable at EnerBank.

In 2018, a subsidiary of CMS Enterprises entered into floating-to-fixed interest rate swaps to reduce the impact of interest rate fluctuations associated with future interest payments on certain long‑term variable-rate debt.

A subsidiary of CMS Enterprises uses floating-to-fixed interest rate swaps to reduce the impact of interest rate fluctuations associated with future interest payments on certain long‑term variable-rate debt.

The interest rate swaps are accounted for as cash flow hedges of the future variability of interest payments on debt with a notional amount of $ 85 million at December 31, 2020.

Gains or losses on these swaps are initially reported in AOCI and then, as interest payments are made on the hedged debt, are recognized in earnings within other interest expense on CMS Energy’s consolidated statements of income.

CMS Energy recorded losses in AOCI of $ 4 million for the year ended December 31, 2019 and $ 2 million for the year ended December 31, 2018 .

Gains or losses on these swaps are initially reported in other comprehensive income (loss) and then, as interest payments are made on the hedged debt, are recognized in earnings within other interest expense on CMS Energy’s consolidated statements of income.

The amount of losses recorded in other comprehensive loss was $ 6 million for the

year ended December 31, 2020, $ 4 million for the year ended December 31, 2019 and $ 2 million for the year ended December 31, 2018.

There were no material impacts on other interest expense associated with these swaps during the years presented.

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the amounts associated with these swaps were not material for the years presented.

In 2019, EnerBank entered into fixed-to-floating interest rate swaps to manage interest rate risk exposure associated with changes in the fair value of certain long‑term fixed‑rate loans.

The interest rate swaps qualify as fair value hedges of long‑term, fixed‑rate notes receivable with a notional amount of $ 134 million at December 31, 2019 .

The fair value of these interest rate swaps recorded in other liabilities was $ 1 million at December 31, 2019 .

EnerBank uses fixed-to-floating interest rate swaps to manage interest rate risk exposure associated with changes in the fair value of certain long‑term fixed‑rate loans.

The interest rate swaps qualify as fair value hedges of long‑term, fixed‑rate notes receivable with a notional amount of $ 134 million at December 31, 2020 and 2019.

The fair value of these interest rate swaps recorded in other liabilities was $ 6 million at December 31, 2020 and $ 1 million at December 31, 2019.

CMS Energy is adjusting the carrying value of the hedged notes receivable for the change in their fair value due to the hedged risk.

Both gains and losses on the swaps and the changes to the carrying value of the hedged notes receivable are recorded within operating revenue on CMS Energy’s consolidated statements of income.

There were no material amounts recognized in operating revenue associated with these swaps for the year ended December 31, 2019 .

For the year ended December 31, 2020, CMS Energy recorded a $ 5 million loss within operating revenue for the change in the fair value of the interest rate swaps and a $ 5 million gain within operating revenue for the change in the carrying value of the hedged notes receivable notes.

Amounts recognized within operating revenue for the year ended December 31, 2019 were immaterial.

The majority of derivatives classified as Level 3 are FTRs held by Consumers.

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The table excludes cash, cash equivalents, short-term financial instruments, and trade accounts receivable and payable whose carrying amounts approximate their fair values.

For information about assets and liabilities

recorded at fair value and for additional details regarding the fair value hierarchy, see Note 6, Fair Value Measurements .

December 31, 2019

December 31, 2018

For information about assets and liabilities recorded at fair value and for additional details regarding the fair value hierarchy, see Note 6, Fair Value Measurements.

December 31, 2020 December 31, 2019

Carrying Amount Fair Value Carrying Amount Fair Value

Total Level Total Level

CMS Energy, including Consumers

Long-term receivables 1

$ 17 $ 17 $ — $ — $ 17 $ 20 $ 20 $ — $ — $ 20

Notes receivable 2

2,887 3,248 — — 3,248 2,500 2,652 — — 2,652

Securities held to maturity 3

28 29 — 29 — 26 26 — 26 —

Long-term debt 4

15,120 17,512 1,249 14,178 2,085 13,062 14,185 1,197 11,048 1,940

Long-term payables 5

33 35 — — 35 30 32 — — 32

Long-term receivables 1

$ 17 $ 17 $ — $ — $ 17 $ 20 $ 20 $ — $ — $ 20

Notes receivable – related party 6

107 107 — — 107 103 103 — — 103

Long-term debt 7

8,106 9,801 — 7,716 2,085 7,250 8,010 — 6,070 1,940

1 Includes current portion of long-term accounts receivable of $ 12 million at December 31, 2020 and $ 13 million at December 31, 2019.

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For further details, see Note 8, Notes Receivable.

3 These investment securities consist primarily of mortgage-backed securities and Utah Housing Corporation bonds held by EnerBank.

There were $ 1 million of unrealized gains in 2020 and no unrealized gains or losses in 2019.

4 Includes current portion of long-term debt of $ 1.5 billion at December 31, 2020 and $ 1.1 billion at December 31, 2019.

Includes current portion of long-term payables of $ 1 million at December 31, 2019 and December 31, 2018 .

Includes current portion of notes receivable – related party of $ 7 million at December 31, 2019 and December 31, 2018 .

For further details on this note receivable, see the DB SERP discussion below.

5 Includes current portion of long-term payables of $ 6 million at December 31, 2020 and $ 1 million at December 31, 2019.

6 Includes current portion of notes receivable – related party of $ 7 million at December 31, 2020 and 2019.

For further details on this note receivable, see Note 8, Notes Receivable.

7 Includes current portion of long-term debt of $ 364 million at December 31, 2020 and $ 202 million at December 31, 2019.

The effects of third-party credit enhancements were excluded from the fair value measurements of long-term debt.

The principal amount of CMS Energy’s long-term debt supported by third-party credit enhancements was $ 35 million at December 31, 2019 and December 31, 2018 .

The entirety of these amounts was at Consumers.

The principal amount of CMS Energy’s long-term debt supported by third-party credit enhancements was $ 35 million at December 31, 2019.

The entirety of this amount was at Consumers.

DB SERP Securities:

Presented in the following table is a summary of the sales activity for investment securities held within the DB SERP and classified as available for sale:

Years Ended December 31

CMS Energy, including Consumers

Proceeds from sales of investment securities

In 2018, CMS Energy and Consumers sold the DB SERP debt securities and CMS Energy issued a $ 146 million demand note payable to the DB SERP rabbi trust .

The demand note bears interest at an annual rate of 4.10 percent and has a maturity date of 2028.

The demand note payable and associated DB SERP investment were eliminated on CMS Energy’s consolidated balance sheets.

The portion of the demand note attributable to Consumers was recorded as a note receivable – related party on Consumers’ consolidated balance sheets .

During 2017, CMS Energy and Consumers sold mutual fund securities held within the DB SERP and used the proceeds to purchase the debt securities, which were later sold in 2018.

CMS Energy reclassified gains of $ 2 million ( $ 1 million , net of tax) from AOCI and included this amount in other income on the consolidated statements of income.

This amount included Consumers’ gains of $ 2 million ( $ 1 million , net of tax).

Debt securities classified as held to maturity consisted primarily of mortgage-backed securities and Utah Housing Corporation bonds held by EnerBank.

Presented in the following table are these investment securities:

December 31, 2019

December 31, 2018

Debt securities

In 2018, CMS Energy and Consumers sold available-for-sale investment securities held within the DB SERP, receiving proceeds of $ 142 million, $ 103 million of which was related to Consumers.

Notes Receivable

Presented in the following table are details of CMS Energy’s and Consumers’ current and non‑current notes receivable:

Presented in the following table are details of CMS Energy’s and Consumers’ notes receivable:

December 31 2020 2019

CMS Energy, including Consumers

EnerBank notes receivable, net of allowance for loan losses $ 275 $ 242

EnerBank notes receivable held for sale

EnerBank notes receivable

EnerBank notes receivable, net of allowance for loan losses 2,612 2,258

Total notes receivable $ 2,887 $ 2,500

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EnerBank Notes Receivable

EnerBank notes receivable are primarily unsecured consumer installment loans, largely for financing home improvements .

EnerBank notes receivable are primarily unsecured, fixed-rate installment loans provided throughout the U.S.

to finance home improvements.

EnerBank records its notes receivable at cost, less an allowance for loan losses.

During 2019, EnerBank completed sales of notes receivable, receiving proceeds of $ 67 million and recording immaterial gains.

At December 31, 2019 , $ 19 million of notes receivable were classified as held for sale;

the fair value of notes receivable held for sale exceeded their carrying value.

These notes are expected to be sold in 2020.

During 2019, EnerBank purchased a portfolio of secured and unsecured consumer installment loans with a principal value of $ 373 million .

Authorized contractors pay fees to EnerBank to provide borrowers with same-as-cash, zero interest, or reduced interest loans.

Unearned income associated with the loan fees, which is recorded as a reduction to notes receivable on CMS Energy’s consolidated balance sheets, was $ 128 million at December 31, 2020 and $ 134 million at December 31, 2019.

Unearned income associated with loan fees for notes receivable held for sale was $ 2 million at December 31, 2019 .

The allowance for loan losses is a valuation allowance to reflect estimated credit losses.

During 2020, EnerBank purchased portfolios of secured and unsecured consumer installment loans with a principal value of $ 90 million.

During 2020, EnerBank completed sales of notes receivable with a principal value of $ 246 million and recorded gains of $ 6 million.

EnerBank utilizes FICO scores as a key credit quality indicator when underwriting new loans and in assessing the credit exposures in its loan portfolio.

The score is determined at the time of a borrower’s application and is generally not updated since the average duration of loans is about two years.

At December 31, 2020, 86 percent of EnerBank’s loans had a FICO score rating between good and excellent.

At December 31, 2020, 97 percent of EnerBank’s loan portfolio was originated within the past five years.

The allowance for loan losses at December 31, 2020 reflects expected credit losses over the entire lifetime of the loan portfolio.

EnerBank estimates the allowance by using the “weighted-average remaining maturity” methodology for their term loans, and the “probability of default and loss given default” methodology for their same-as-cash loans.

These methodologies consider historical loan loss experience, prepayment expectations, and credit quality indicators.

EnerBank considers current and projected economic conditions, and other reasonable and supportable forecast information to determine if adjustments to the allowance are necessary.

The allowance is increased by the provision for loan losses and decreased by loan charge‑offs net of recoveries.

Management estimates the allowance balance required by taking into consideration historical loan loss experience, the nature and volume of the portfolio, economic conditions, and other factors.

Loan losses are charged against the allowance when the loss is confirmed, but no later than the point at which a loan becomes 120 days past due.

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Balance at beginning of period $ 33 $ 24

Effects of new accounting standard 1

Provision for loan losses 60 38

Charge-offs ( 39 ) ( 35 )

Recoveries 7 6

Balance at end of period $ 123 $ 33

1 The allowance for loan losses at December 31, 2019 reflected expected credit losses over a 12-month period.

On January 1, 2020, in accordance with ASU 2016-13, Measurement of Credit Losses on Financial Instruments , the allowance for loan losses was adjusted to reflect expected credit losses over the life of the loan.

Additionally, EnerBank recorded $ 3 million for expected credit losses related to unfunded loan commitments.

For further details, see Note 2, New Accounting Standards.

Loans that are 30 days or more past due are considered delinquent.

The balance of EnerBank’s delinquent consumer loans was $ 33 million at December 31, 2019 and $ 21 million at December 31, 2018 .

At December 31, 2019 and December 31, 2018 , EnerBank’s loans that had been modified as troubled debt restructurings were immaterial.

The balance of EnerBank’s delinquent loans was $ 32 million at December 31, 2020 and $ 33 million at December 31, 2019.

At December 31, 2020 and 2019, EnerBank’s loans that had been modified as troubled debt restructurings were immaterial.

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

At December 31, 2020, EnerBank had not experienced increased delinquent loans, charge-offs, or increased loan modifications due to the COVID-19 pandemic.

EnerBank did not make any material adjustments to their allowance for loan losses at December 31, 2020 due to the COVID-19 pandemic.

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

EnerBank issues loan commitments to meet customer-financing needs.

These commitments are agreements to provide credit as long as certain conditions are met and expire after 120 days.

EnerBank uses the same credit policies in making these commitments as it uses for loans.

EnerBank had $ 348 million of off-balance-sheet unfunded loan commitments at December 31, 2020, and had recorded a liability of $ 6 million for expected credit losses on those commitments.

EnerBank has entered into interest rate swaps on $ 134 million of its loans (notes receivable).

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Presented in the following table are details of CMS Energy’s and Consumers’ plant, property, and equipment:

Estimated Depreciable Life in Years

December 31 Estimated

Life in Years 2020 2019

CMS Energy, including Consumers

Plant, property, and equipment, gross

Consumers 3 - 125

$ 26,757 $ 24,963

Independent power production 1

EnerBank 1 - 7

Plant, property, and equipment, gross $ 27,907 $ 25,390

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Total plant, property, and equipment 2

$ 21,039 $ 18,926

Plant, property, and equipment, gross

Generation 22 - 125

$ 6,376 $ 5,942

Distribution 20 - 75

Transmission 46 - 75

Assets under finance leases and other financing 3

Distribution 20 - 85

Transmission 17 - 75

Underground storage facilities 4

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Total plant, property, and equipment 2

The majority of independent power production assets are leased to others under operating leases.

$ 19,971 $ 18,570

1 A significant portion of independent power production assets are leased to others under operating leases.

For information regarding CMS Energy’s operating leases of owned assets, see Note 10, Leases and Palisades Financing.

For information regarding the amortization terms of Consumers’ assets under finance leases and other financing, see Note 10, Leases and Palisades Financing .

Underground storage includes base natural gas of $ 26 million at December 31, 2019 and 2018 .

Base natural gas is not subject to depreciation.

For the year ended December 31, 2019 , Consumers’ plant additions were $ 2.0 billion and plant retirements were $ 380 million .

For the year ended December 31, 2018 , Consumers’ plant additions were $ 1.8 billion and plant retirements were $ 190 million .

2 Consumers’ plant additions were $ 2.0 billion for the years ended December 31, 2020 and 2019.

Consumers’ plant retirements were $ 220 million for the year ended December 31, 2020 and $ 380 million for the year ended December 31, 2019.

Consumers plans to retire the D.E.

Karn 1 & 2 coal-fueled electric generating units in 2023.

Accordingly, in 2019, Consumers removed from total plant, property, and equipment $ 667 million , representing the remaining book value of the two units upon their retirement, and recorded it as a regulatory asset.

Accordingly, in 2019, Consumers removed from total plant, property, and

equipment $ 667 million, representing the projected remaining book value of the two units upon their retirement, and recorded it as a regulatory asset.

For additional details, see Note 3, Regulatory Matters.

3 For information regarding the amortization terms of Consumers’ assets under finance leases and other financing, see Note 10, Leases and Palisades Financing.

4 Underground storage includes base natural gas of $ 26 million at December 31, 2020 and 2019.

Base natural gas is not subject to depreciation.

Intangible Assets:

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Presented in the following table are details about CMS Energy’s and Consumers’ intangible assets:

December 31, 2019

December 31, 2018

Amortization Life in Years

Accumulated Amortization

Description Amortization

Life in Years December 31, 2020 December 31, 2019

Accumulated Amortization Gross Cost 1

Accumulated Amortization

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Software development 1 - 15

$ 883 $ 577 $ 882 $ 529

Rights of way 50 - 85

197 57 180 55

Franchises and consents 5 - 50

Leasehold improvements

Other intangibles

Leasehold improvements various 2

Other intangibles various 28 16 27 15

Total $ 1,134 $ 667 $ 1,114 $ 615

Software development 3 - 15

$ 856 $ 568 $ 869 $ 521

Rights of way 50 - 85

197 57 180 55

Franchises and consents 5 - 50

Leasehold improvements

Other intangibles

For the year ended December 31, 2019 , Consumers’ intangible asset additions were $ 67 million and intangible asset retirements were $ 193 million .

For the year ended December 31, 2018 , Consumers’ intangible asset additions were $ 90 million and intangible asset retirements were $ 7 million .

Leasehold improvements various 2

Other intangibles various 25 16 26 15

Total $ 1,104 $ 658 $ 1,100 $ 607

1 Consumers’ intangible asset additions were $ 69 million for the year ended December 31, 2020 and $ 67 million for the year ended December 31, 2019.

Consumers’ intangible asset retirements were $ 65 million for the year ended December 31, 2020 and $ 193 million for the year ended December 31, 2019.

2 Leasehold improvements are amortized over the life of the lease, which may change whenever the lease is renewed or extended.

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Years Ended December 31 2020 2019 2018

Electric 6.9 % 6.4 % 6.9 %

Gas 5.7 5.8 5.9

Assets Under Finance Leases and Other Financing:

2 unchanged sentences

Balance at beginning of period $ 340 $ 309

Additions — 26

Net retirements and other adjustments ( 4 ) 5

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Assets under finance leases and other financing are presented as gross amounts.

Accumulated amortization of assets under finance leases and other financing was $ 239 million at December 31, 2019 and $ 212 million at December 31, 2018 for Consumers.

Consumers’ accumulated amortization of assets under finance leases and other financing was $ 254 million at December 31, 2020 and $ 239 million at December 31, 2019.

Depreciation and Amortization:

Presented in the following table are further details about CMS Energy’s and Consumers’ accumulated depreciation and amortization:

Years Ended December 31 2020 2019

CMS Energy, including Consumers

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Amortization expense

Software 116 121 127

Other intangible assets 4 3 3

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Amortization expense

Software 112 119 125

Other intangible assets 4 3 3

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Presented in the following table is CMS Energy’s and Consumers’ estimated amortization expense on intangible assets for each of the next five years:

2021 2022 2023 2024 2025

CMS Energy, including Consumers

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In Millions, Except Ownership Share

Campbell Unit 3

Ownership share

Campbell Unit 3 Ludington Other

Ownership share 93.3 % 51.0 % various

Utility plant in service $ 1,743 $ 489 $ 381

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In Millions, Except as Noted

CMS Energy, including Consumers Consumers

December 31 2020 2019 2020 2019

CMS Energy, including Consumers

Operating leases

Right-of-use assets 1

$ 34 $ 47 $ 28 $ 40

Lease liabilities

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Finance leases 5

1.8 % 1.9 % 1.8 % 1.9 %

1 CMS Energy’s and Consumers’ operating right-of-use lease assets are reported as other non ‑ current assets on their consolidated balance sheets.

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3 The non ‑ current portion of CMS Energy’s and Consumers’ operating lease liabilities are reported as other non ‑ current liabilities on their consolidated balance sheets.

This includes $ 25 million for leases with related parties, of which less than $ 1 million is current.

4 Includes related-party lease liabilities of $ 25 million, of which less than $ 1 million was current, at December 31, 2020 and December 31, 2019.

5 This rate excludes the impact of Consumers’ pipeline agreements and long-term PPAs accounted for as finance leases.

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Presented in the following table is a summary of CMS Energy’s and Consumers’ total lease costs:

Year Ended December 31, 2019

Years Ended December 31 2020 2019

CMS Energy, including Consumers

4 unchanged sentences

Variable lease costs 94 95

Short-term lease costs 17 16

Total lease costs $ 144 $ 146

Operating lease costs $ 9 $ 9

Finance lease costs

Amortization of right-of-use assets 6 6

Interest on lease liabilities 17 18

Variable lease costs 94 95

Short-term lease costs 16 16

Total lease costs $ 142 $ 144

Presented in the following table is cash flow information related to amounts paid on CMS Energy’s and Consumers’ lease liabilities:

Year Ended December 31, 2019

Years Ended December 31 2020 2019

CMS Energy, including Consumers

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Cash used in financing activities for finance leases 6 7

Cash paid for amounts included in the measurement of lease liabilities

Cash used in operating activities for operating leases $ 9 $ 9

Cash used in operating activities for finance leases 17 18

Cash used in financing activities for finance leases 6 7

Presented in the following table are the minimum rental commitments under CMS Energy’s and Consumers’ non-cancelable leases:

Finance Leases

December 31, 2019

Operating Leases

Pipelines and PPAs

December 31, 2020 Operating Leases Pipelines and PPAs Other Total

CMS Energy, including Consumers

2021 $ 10 $ 17 $ 5 $ 22

2022 4 14 5 19

2023 2 13 5 18

2024 1 13 3 16

2025 1 13 1 14

2026 and thereafter 34 66 11 77

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Present value of minimum lease payments $ 34 $ 33 $ 27 $ 60

2021 $ 8 $ 17 $ 5 $ 22

2022 4 14 5 19

2023 2 13 5 18

2024 1 13 3 16

2025 1 13 1 14

2026 and thereafter 27 66 11 77

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In addition to fixed payments, these agreements have variable payments based on energy delivered.

For the year ended December 31, 2019 , CMS Energy’s lease revenue from its power sales agreements was $ 174 million , which included variable lease payments of $ 119 million .

For the year ended December 31, 2020, lease revenue from these power sales agreements was $ 148 million, which included variable lease payments of $ 93 million.

For the year ended December 31, 2019, lease revenue from these power sales agreements was $ 174 million, which included variable lease payments of $ 119 million.

Presented in the following table are the minimum rental payments to be received under CMS Energy’s non‑cancelable operating leases:

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Fixed monthly payments escalate annually with inflation.

Beginning in December 2018 , Consumers and a subsidiary of CMS Energy executed a 20 ‑year natural gas transportation agreement, related to a pipeline owned by Consumers.

In December 2018, Consumers and a subsidiary of CMS Energy executed a 20 ‑year natural gas transportation agreement, related to a pipeline owned by Consumers.

This agreement is accounted for as a direct finance lease and will automatically extend annually unless terminated by either party.

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If a reasonable estimate of fair value cannot be made in the period in which the ARO is incurred, such as for assets with indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made.

CMS Energy and Consumers have not recorded liabilities associated with the closure of certain gas wells that have an indeterminate life.

CMS Energy and Consumers have not recorded liabilities for assets that have immaterial cumulative disposal costs, such as substation batteries.

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Presented below are the categories of assets that CMS Energy and Consumers have legal obligations to remove at the end of their useful lives and for which they have an ARO liability recorded:

Company and ARO Description

In-Service Date

Long-Lived Assets

Company and ARO Description In-Service Date Long-Lived Assets

CMS Energy, including Consumers

Closure of gas treating plant and gas wells

Gas transmission and storage

Closure of coal ash disposal areas

Generating plants coal ash areas

Gas distribution cut, purge, and cap

Gas distribution mains and services

Asbestos abatement

Electric and gas utility plant

Closure of renewable generation assets

Wind and solar generation facilities

Gas wells plug and abandon

Gas transmission and storage

Closure of coal ash disposal areas

Generating plants coal ash areas

Gas distribution cut, purge, and cap

Gas distribution mains and services

Asbestos abatement

Electric and gas utility plant

Closure of renewable generation assets

Wind and solar generation facilities

Gas wells plug and abandon

Gas transmission and storage

Closure of coal ash disposal areas various Generating plants coal ash areas

Gas distribution cut, purge, and cap various Gas distribution mains and services

Asbestos abatement 1973 Electric and gas utility plant

Closure of renewable generation assets various Wind and solar generation facilities

Gas wells plug and abandon various Gas transmission and storage

Closure of coal ash disposal areas various Generating plants coal ash areas

Gas distribution cut, purge, and cap various Gas distribution mains and services

Asbestos abatement 1973 Electric and gas utility plant

Closure of renewable generation assets various Wind and solar generation facilities

Gas wells plug and abandon various Gas transmission and storage

No assets have been restricted for purposes of settling AROs.

Presented in the following tables are the changes in CMS Energy’s and Consumers’ ARO liabilities:

Company and ARO Description

ARO Liability 12/31/2018

Cash Flow Revisions

ARO Liability 12/31/2019

Company and ARO Description ARO Liability 12/31/2019 Incurred Settled Accretion Cash Flow Revisions ARO Liability 12/31/2020

CMS Energy, including Consumers

Gas treating plant and gas wells

Consumers $ 474 $ 46 $ ( 41 ) $ 23 $ 28 $ 530

Renewable generation assets 3 19 — 1 — 23

5 unchanged sentences

Gas wells plug and abandon 22 16 ( 7 ) 1 — 32

Cable under Straits of Mackinac 1

— 5 ( 5 ) — — —

Total Consumers $ 474 $ 46 $ ( 41 ) $ 23 $ 28 $ 530

Company and ARO Description

ARO Liability 12/31/2017

Cash Flow Revisions

ARO Liability 12/31/2018

1 For further details, see Note 4, Contingencies and Commitments—Consumers Electric Utility Contingencies.

Company and ARO Description ARO Liability 12/31/2018 Incurred Settled Accretion Cash Flow Revisions ARO Liability 12/31/2019

CMS Energy, including Consumers

Consumers $ 428 $ 55 $ ( 37 ) $ 21 $ 7 $ 474

Gas treating plant and gas wells 1 — ( 1 ) — — —

5 unchanged sentences

Renewable generation assets 11 10 — — — 21

Gas wells plug and abandon — 23 ( 1 ) — — 22

Total Consumers $ 428 $ 55 $ ( 37 ) $ 21 $ 7 $ 474

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Maintaining separate plans for the two groups allows CMS Energy and Consumers to employ a more targeted investment strategy and provides additional opportunities to mitigate risk and volatility.

In September 2020, CMS Energy and Consumers determined it was probable that 2020 lump-sum payments to retired employees under DB Pension Plan A would exceed the plan’s service cost and interest cost components of net periodic cost for the year.

These lump-sum payments constitute pension plan liability settlements;

once such settlements meet the service and interest cost threshold, recognition in earnings is required.

As a result, in accordance with GAAP, CMS Energy, including Consumers, performed a remeasurement of DB Pension Plan A as of August 31, 2020 and recognized a settlement loss of $ 36 million;

$ 35 million of this amount was recognized by Consumers and deferred as a regulatory asset.

At December 31, 2020, CMS Energy, including Consumers, recognized an additional settlement loss of $ 10 million for the period September 1, 2020 to December 31, 2020;

$ 10 million of this amount was recognized by Consumers and deferred as a regulatory asset.

CMS Energy and Consumers will amortize the regulatory asset over nine years .

CMS Energy and Consumers provide an employer contribution to the DCCP 401(k) plan for employees hired on or after July 1, 2003.

The contribution ranges from five to seven percent of base pay, depending on years of service.

The contribution ranges from five percent to seven percent of base pay, depending on years of service.

Employees are not required to contribute in order to receive the plan’s employer contribution.

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CMS Energy, including Consumers

Trust assets $ 146 $ 143

Contributions 8 —

Trust assets $ 107 $ 104

Contributions 5 —

On April 1, 2006, CMS Energy and Consumers implemented a DC SERP and froze further new participation in the DB SERP.

The DC SERP provides participants benefits ranging from 5 percent to 15 percent of total compensation.

The DC SERP provides participants benefits ranging from five percent to 15 percent of total compensation.

The DC SERP requires a minimum of five years of participation before vesting.

2 unchanged sentences

DC SERP assets are included in other non‑current assets on CMS Energy’s and Consumers’ consolidated balance sheets.

CMS Energy’s and Consumers’ DC SERP expense was $ 2 million for the year ended December 31, 2019 , and $ 1 million for each of the years ended December 31, 2018 and 2017 .

CMS Energy’s and Consumers’ DC SERP expense was $ 2 million for the years ended December 31, 2020 and 2019, and $ 1 million for the year ended December 31, 2018.

The 401(k) plan employer match equals 100 percent of eligible contributions up to the first three percent of an employee’s wages and 50 percent of eligible contributions up to the next two percent of an employee’s wages.

5 unchanged sentences

The rate of increase was assumed to decline to 4.75 percent by 2027 and thereafter for all retirees.

In 2017, CMS Energy and Consumers approved certain amendments to the OPEB Plan.

Under these amendments, effective January 1, 2019, certain Medicare-eligible retirees will purchase health care plans from private Medicare exchanges.

CMS Energy and Consumers performed a remeasurement of the OPEB Plan as of October 31, 2017, resulting in a significant reduction in the benefit obligation.

In July 2018, CMS Energy and Consumers approved an amendment to the OPEB Plan to improve survivor benefits for certain Medicare-eligible retirees, effective January 1, 2019, resulting in a $ 26 million increase in the benefit obligation.

Presented in the following table are the weighted-average assumptions used in CMS Energy’s and Consumers’ retirement benefits plans to determine benefit obligations and net periodic benefit cost:

December 31 2020 2019 2018

CMS Energy, including Consumers

3 unchanged sentences

DB Pension Plan B 2.41 3.17 4.32

DB SERP 2.40 3.15 4.32

OPEB Plan 2.69 3.32 4.42

Rate of compensation increase

DB Pension Plan A 3.70 3.50 3.50

DB SERP 5.50 5.50 5.50

Weighted average for net periodic benefit cost 1

1 unchanged sentence

DB Pension Plan A 3.44 % 4.55 % 3.85 %

DB SERP 3.46 4.58 3.83

OPEB Plan 3.57 4.63 3.93

Interest cost discount rate 2,3

1 unchanged sentence

DB Pension Plan B 2.74 3.93 3.24

DB SERP 2.74 3.94 3.26

OPEB Plan 2.88 4.03 3.35

Expected long-term rate of return on plan assets 4

DB Pension Plans 6.75 7.00 7.00

OPEB Plan 6.75 7.00 7.00

Rate of compensation increase

DB Pension Plan A 3.50 3.50 3.50

The mortality assumption for benefit obligations was based on the Pri-2012 mortality table for 2019 and on the RP-2014 mortality table for 2018 and 2017 , with projection scales MP-2019 for 2019 , MP-2018 for 2018 , and MP-2017 for 2017 .

The mortality assumption for net periodic benefit cost for 2019 , 2018 , and 2017 was based on the RP-2014 mortality table, with projection scales MP-2018 for 2019 , MP-2017 for 2018 , and MP-2016 for 2017 .

DB SERP 5.50 5.50 5.50

1 The mortality assumption for benefit obligations was based on the Pri-2012 Mortality Table for 2020 and 2019 and the RP-2014 Mortality Table for 2018, with improvement scales MP-2020 for 2020, MP-2019 for 2019, and MP-2018 for 2018.

The mortality assumption for net periodic benefit cost was based on the Pri-2012 Mortality Table for 2020 and the RP-2014 Mortality Table for 2019 and 2018, with improvement scales MP-2019 for 2020, MP-2018 for 2019, and MP-2017 for 2018.

2 The discount rate reflects the rate at which benefits could be effectively settled and is equal to the equivalent single rate resulting from a yield-curve analysis.

2 unchanged sentences

this approach applies individual spot rates along the yield curve to future projected benefit payments based on the time of payment.

Effective December 31, 2017, CMS Energy’s and Consumers’ existing defined benefit pension plan was amended to include only retired or inactive employees;

this amended plan is referred to as DB Pension Plan B.

Active employees were moved to a newly created pension plan, referred to as DB Pension Plan A.

The assumptions used to measure the plan cost of the previous defined benefit pension plan at December 31, 2017 were:

service cost discount rate of 4.53 percent

interest cost discount rate of 3.56 percent

weighted-average rate of compensation increase of 3.60 percent

CMS Energy and Consumers determined the long-term rate of return using historical market returns, the present and expected future economic environment, the capital market principles of risk and return, and the expert opinions of individuals and firms with financial market knowledge.

4 CMS Energy and Consumers determined the long-term rate of return using historical market returns, the present and expected future economic environment, the capital market principles of risk and return, and the

expert opinions of individuals and firms with financial market knowledge.

CMS Energy and Consumers considered the asset allocation of the portfolio in forecasting the future expected total return of the portfolio.

4 unchanged sentences

Presented in the following table are the costs (credits) and other changes in plan assets and benefit obligations incurred in CMS Energy’s and Consumers’ retirement benefits plans:

DB Pension Plans and DB SERP

DB Pension Plans and DB SERP OPEB Plan

Years Ended December 31 2020 2019 2018 2020 2019 2018

1 unchanged sentence

Net periodic cost (credit)

Service cost $ 50 $ 41 $ 48 $ 16 $ 14 $ 17

Interest cost 83 103 95 33 41 34

Settlement loss 1 — — — — —

Expected return on plan assets ( 191 ) ( 162 ) ( 149 ) ( 100 ) ( 88 ) ( 97 )

Amortization of:

Net loss 95 50 76 15 26 15

Prior service cost (credit) 1 1 3 ( 56 ) ( 62 ) ( 67 )

Settlement loss 2 — — — — —

Net periodic cost (credit) $ 41 $ 33 $ 73 $ ( 92 ) $ ( 69 ) $ ( 98 )

Net periodic cost (credit)

Service cost $ 49 $ 40 $ 47 $ 15 $ 13 $ 16

Interest cost 78 97 88 31 40 33

1 unchanged sentence

Amortization of:

Net loss 90 47 73 15 26 16

Prior service cost (credit) 1 1 3 ( 54 ) ( 61 ) ( 65 )

Settlement loss 2 — — — — —

Net periodic cost (credit) $ 39 $ 32 $ 72 $ ( 86 ) $ ( 64 ) $ ( 91 )

CMS Energy and Consumers amortize net gains and losses in excess of ten percent of the greater of the PBO or the MRV over the average remaining service period for DB Pension Plan A and the OPEB Plan and, began in 2018, over the average remaining life expectancy of participants for DB Pension Plan B.

For DB Pension Plan A, the estimated period of amortization of gains and losses was nine years for the years ended December 31, 2019 and 2018 .

For DB Pension Plan B, the estimated period of amortization of gains and losses was 20 years for the years ended December 31, 2019 and 2018 .

The estimated period of amortization for gains and losses for CMS Energy and Consumers was ten years for the DB Pension Plans for the year ended December 31, 2017.

For the OPEB Plan, the estimated amortization period was ten years for the year ended December 31, 2019 and 2018 and 11 years for the year ended December 31, 2017 .

Prior service cost (credit) amortization is established in the year in which the prior service cost (credit) first occurred, and is based on the same amortization period for all future years until the prior service cost (credit) is fully amortized.

CMS Energy and Consumers had new prior service costs (credits) for OPEB in 2018 and 2017.

The estimated period of amortization of these new prior service costs (credits) for CMS Energy and Consumers is nine years .

CMS Energy and Consumers amortize net gains and losses in excess of ten percent of the greater of the PBO or the MRV over the average remaining service period for DB Pension Plan A and the OPEB Plan and over the average remaining life expectancy of participants for DB Pension Plan B.

For DB Pension Plan A, the estimated period of amortization of gains and losses was eight years for the year ended December 31, 2020, and nine years for the years ended December 31, 2019 and 2018.

For DB Pension Plan B, the estimated period of amortization of gains and losses was 19 years for the year ended December 31, 2020, and 20 years for the years ended December 31, 2019 and 2018.

For the OPEB Plan, the estimated amortization period was nine years for the year ended December 31, 2020, and ten years for the years ended December 31, 2019 and 2018.

(credit) is fully amortized.

CMS Energy and Consumers had new prior service costs for DB Pension Plan A in 2020.

The estimated period of amortization of these new prior service costs is eight years .

CMS Energy and Consumers had new prior service credits for OPEB in 2018.

The estimated period of amortization of these new prior service credits is nine years .

CMS Energy and Consumers determine the MRV for the assets of the DB Pension Plans as the fair value of plan assets on the measurement date, adjusted by the gains or losses that will not be admitted into the MRV until future years.

3 unchanged sentences

Presented in the following table are reconciliations of the funded status of CMS Energy’s and Consumers’ retirement benefits plans with their retirement benefits plans’ liabilities:

DB Pension Plans

DB Pension Plans DB SERP OPEB Plan

Years Ended December 31 2020 2019 2020 2019 2020 2019

1 unchanged sentence

Benefit obligation at beginning of period $ 2,973 $ 2,512 $ 150 $ 140 $ 1,165 $ 1,045

Service cost 50 41 — — 16 14

Interest cost 79 98 4 5 33 41

Plan amendments 24 — — — — —

Actuarial loss (gain)

Actuarial loss 355 1

Benefits paid ( 215 ) ( 154 ) ( 10 ) ( 10 ) ( 48 ) ( 45 )

6 unchanged sentences

Funded status $ 136 2

$ ( 160 ) $ ( 150 ) $ 440 $ 344

Benefit obligation at beginning of period $ 109 $ 101 $ 1,120 $ 1,004

Service cost — — 15 13

Interest cost 3 4 31 40

Plan amendments

Actuarial loss (gain)

Actuarial loss 12 11 37 1

Benefits paid ( 7 ) ( 7 ) ( 45 ) ( 43 )

6 unchanged sentences

Funded status $ ( 117 ) $ ( 109 ) $ 377 $ 290

The actuarial loss for 2019 for the DB Pension Plans was primarily the result of lower discount rates and lower interest rates used to calculate the value of lump-sum payments.

The actuarial gain for 2018 was primarily the result of higher discount rates.

The actuarial loss for 2019 for the OPEB Plan was primarily the result of lower discount rates.

The actuarial gain for 2018 was primarily the result of higher discount rates.

1 The actuarial loss for 2020 and 2019 for the DB Pension Plans was primarily the result of lower discount rates and lower interest rates used to calculate the value of lump-sum payments.

The actuarial loss for 2020 and 2019 for the OPEB Plan was primarily the result of lower discount rates.

2 The total funded status of the DB Pension Plans attributable to Consumers, based on an allocation of expenses, was $ 138 million at December 31, 2020 and $( 408 ) million at December 31, 2019.

Presented in the following table is the classification of CMS Energy’s and Consumers’ retirement benefit plans’ assets and liabilities:

December 31 2020 2019

CMS Energy, including Consumers

1 unchanged sentence

DB Pension Plans $ 136 $ 104

OPEB Plan 440 344

Current liabilities

DB SERP 10 10

Non-current liabilities

DB Pension Plans — 531

DB SERP 150 140

Non-current assets

DB Pension Plans $ 138 $ 109

OPEB Plan 377 290

Current liabilities

1 unchanged sentence

DB Pension Plans — 517

DB SERP 110 102

The ABO for the DB Pension Plans was $ 2.9 billion at December 31, 2020 and $ 2.6 billion at December 31, 2019.

Presented in the following table is information related to the defined benefit pension plan for which the PBO and the ABO exceed plan assets:

At December 31, 2019, the PBO and ABO for one of the defined benefit pension plans exceeded plan assets;

presented in the following table is information related to that plan:

December 31 2019

CMS Energy, including Consumers

3 unchanged sentences

For additional details on regulatory assets, see Note 3, Regulatory Matters.

DB Pension Plans and DB SERP

Years Ended December 31

DB Pension Plans and DB SERP OPEB Plan

December 31 2020 2019 2020 2019

CMS Energy, including Consumers

Regulatory assets

Net loss $ 1,194 $ 1,114 $ 254 $ 308

Prior service cost (credit) 29 8 ( 246 ) ( 300 )

1 unchanged sentence

Net loss (gain) 120 105 ( 10 ) ( 6 )

Prior service credit

Prior service cost (credit) 1 — ( 6 ) ( 8 )

Total amounts recognized in regulatory assets and AOCI $ 1,344 $ 1,227 $ ( 8 ) $ ( 6 )

Regulatory assets

Net loss $ 1,194 $ 1,114 $ 254 $ 308

Prior service cost (credit) 29 8 ( 246 ) ( 300 )

Regulatory assets $ 1,223 $ 1,122 $ 8 $ 8

Net loss 47 36 — —

Total amounts recognized in regulatory assets and AOCI $ 1,270 $ 1,158 $ 8 $ 8

2 unchanged sentences

DB Pension Plans

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Total Level 1 Level 2 Total Level 1 Level 2

CMS Energy, including Consumers

4 unchanged sentences

Foreign corporate bonds 41 — 41 33 — 33

December 31, 2019

December 31, 2018

Mutual funds 971 971 — 640 640 —

$ 1,828 $ 1,086 $ 742 $ 1,293 $ 684 $ 609

Pooled funds 1,574 1,253

Total $ 3,402 $ 2,546

December 31, 2020 December 31, 2019

Total Level 1 Level 2 Total Level 1 Level 2

CMS Energy, including Consumers

5 unchanged sentences

Common stocks 66 66 — 55 55 —

Mutual funds 807 807 — 713 713 —

$ 995 $ 906 $ 89 $ 865 $ 777 $ 88

Pooled funds 650 644

Total $ 1,645 $ 1,509

Cash and Short-Term Investments:

27 unchanged sentences

Presented in the following table are the investment components of the assets of CMS Energy’s DB Pension Plans and OPEB Plan as of December 31, 2020:

DB Pension Plans

DB Pension Plans OPEB Plan

Equity securities 55.0 % 50.0 %

1 unchanged sentence

Multi-asset investments 11.0 20.0

CMS Energy’s target asset allocation for the assets of the DB Pension Plans is 53 percent equity, 35 percent fixed income, and 12 percent multi-asset investments.

This target asset allocation is expected to continue to maximize the long-term return on plan assets, while maintaining a prudent level of risk.

100.0 % 100.0 %

CMS Energy’s target 2020 asset allocation for the assets of the DB Pension Plans was 53 percent equity, 35 percent fixed income, and 12 percent multi-asset investments.

The goal of this target asset allocation was to maximize the long-term return on plan assets, while maintaining a prudent level of risk.

The level of acceptable risk is a function of the liabilities of the plan.

5 unchanged sentences

These trusts are funded through the ratemaking process for Consumers and through direct contributions from the non‑utility subsidiaries.

CMS Energy’s target asset allocation for the health trusts is 50 percent equity, 30 percent fixed income, and 20 percent multi-asset investments.

CMS Energy’s target asset allocation for the life trusts is 42 percent equity, 28 percent fixed income, and 30 percent multi-asset investments.

These target allocations are expected to continue to maximize the long-term return on plan assets, while maintaining a prudent level of risk.

CMS Energy’s target 2020 asset allocation for the health trusts was 50 percent equity, 30 percent fixed income, and 20 percent multi-asset investments.

CMS Energy’s target asset allocation for the life trusts was 42 percent equity, 28 percent fixed income, and 30 percent multi-asset investments.

The goal of these target allocations was to maximize the long-term return on plan assets, while maintaining a prudent level of risk.

The level of acceptable risk is a function of the liabilities of the plans.

4 unchanged sentences

Contributions:

Presented in the following table are the contributions to CMS Energy’s and Consumers’ DB Pension Plans :

Presented in the following table are the contributions to CMS Energy’s and Consumers’ DB Pension Plans and OPEB Plan:

Years Ended December 31 2020 2019

1 unchanged sentence

DB Pension Plans $ 700 $ —

OPEB Plan 1 —

DB Pension Plans $ 682 $ —

OPEB Plan 1 —

Contributions comprise required amounts and discretionary contributions.

Neither CMS Energy nor Consumers contributed to the OPEB Plan in 2019 and 2018 .

CMS Energy, including Consumers, contributed $ 531 million to the DB Pension Plans in January 2020 .

Consumers contributed $ 518 million

to the DB Pension Plans in January 2020 .

Neither CMS Energy nor Consumers plans to contribute to the OPEB Plan in 2020 .

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

Neither CMS Energy nor Consumers plans to contribute to the DB Pension Plans or OPEB Plan in 2021.

Actual future

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.

1 unchanged sentence

Presented in the following table are the expected benefit payments for each of the next five years and the five-year period thereafter:

DB Pension Plans

DB Pension Plans DB SERP OPEB Plan

CMS Energy, including Consumers

2021 $ 191 $ 10 $ 52

2022 188 10 54

2023 184 10 56

2024 182 10 57

2025 182 10 58

2026-2030 890 46 299

2021 $ 181 $ 7 $ 50

2022 178 7 52

2023 175 7 53

2024 173 7 55

2025 172 7 56

2026-2030 845 32 286

Collective Bargaining Agreements:

At December 31, 2020, unions represented 41 percent of CMS Energy’s employees and 44 percent of Consumers’ employees.

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

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

The USW represents Zeeland plant employees.

Union contracts expire in 2020 .

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

These union contracts expire in 2025.

Stock-Based Compensation

3 unchanged sentences

The PISP also allows for unrestricted common stock, stock options, stock appreciation rights, phantom shares, performance units, and incentive options, none of which was granted in 2020, 2019, or 2018.

Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6.5 million shares from June 2014 through May 2024, nor may such awards to any recipient exceed 500,000 shares in any calendar year.

Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6.5 million shares from June 2020 through May 2030.

CMS Energy and Consumers may issue awards of up to 6,477,579 shares of common stock under the PISP as of December 31, 2020.

1 unchanged sentence

All awards under the PISP vest fully upon death.

Upon a change of control of CMS Energy or termination under an officer separation agreement, the awards will vest in accordance with specific officer agreements.

Upon a change of control of CMS Energy or termination under an officer separation agreement, the awards will vest in accordance with specific officer

If stated in the award, for restricted stock recipients who terminate employment due to retirement or disability, a pro-rata portion of the award will vest upon termination, with any market-based award also contingent upon the outcome of the market condition and any performance-based award contingent upon the outcome of the performance condition.

25 unchanged sentences

Presented in the following tables is the activity for restricted stock and restricted stock units under the PISP:

CMS Energy, including Consumers

Year Ended December 31, 2019

Number of Shares

Weighted-Average Grant Date Fair Value per Share

Number of Shares

Weighted-Average Grant Date Fair Value per Share

CMS Energy, including Consumers Consumers

Year Ended December 31, 2020 Number of

Shares Weighted-Average

Grant Date Fair Value

per Share Number of

Shares Weighted-Average

Grant Date Fair Value

Nonvested at beginning of period 1,186,962 $ 44.56 1,138,182 $ 44.57

5 unchanged sentences

Nonvested at end of period 817,357 $ 51.68 781,531 $ 51.73

Year Ended December 31, 2019

CMS Energy, including Consumers

Year Ended December 31, 2020 CMS Energy, including

Consumers Consumers

Time-lapse awards 106,520 101,439

1 unchanged sentence

Performance-based awards 123,246 118,011

Director restricted stock units

Dividend equivalents on market-based awards

Dividend equivalents on performance-based awards

Dividend equivalents on restricted stock units

Restricted stock units 13,405 12,800

Dividends on market-based awards 17,937 17,152

Dividends on performance-based awards 17,505 16,736

Dividends on restricted stock units 1,669 1,609

Additional market-based shares based on achievement of condition 71,678 68,857

10 unchanged sentences

Treasury yield at the award grant date.

Presented in the following table are the most important assumptions used to estimate the fair value of the market-based restricted stock awards:

Presented in the following table are the most significant assumptions used to estimate the fair value of the market-based restricted stock awards:

Years Ended December 31 2020 2019 2018

25 unchanged sentences

Income taxes are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing agreement.

In December 2017, the TCJA was enacted, which changed existing federal tax law and included numerous provisions that affect businesses, with the primary impact being a reduction of the corporate tax rate from 35 percent to 21 percent .

Presented in the following table is the difference between actual income tax expense on continuing operations and income tax expense computed by applying the statutory U.S.

8 unchanged sentences

TCJA excess deferred taxes 1

( 35 ) ( 31 ) ( 26 )

Production tax credits ( 28 ) ( 20 ) ( 14 )

Accelerated flow-through of regulatory tax benefits 2

( 13 ) ( 13 ) ( 39 )

Research and development tax credits, net 3

Impact of the TCJA 5

( 11 ) ( 2 ) ( 11 )

Refund of alternative minimum tax sequestration 4

Other, net ( 3 ) ( 9 ) ( 4 )

Income tax expense $ 133 $ 147 $ 115

5 unchanged sentences

TCJA excess deferred taxes 1

( 35 ) ( 31 ) ( 26 )

Accelerated flow-through of regulatory tax benefits 2

( 13 ) ( 13 ) ( 39 )

Production tax credits ( 19 ) ( 12 ) ( 12 )

Research and development tax credits, net 3

Impact of the TCJA 5

( 11 ) ( 2 ) ( 11 )

Other, net ( 4 ) ( 5 ) 1

Income tax expense $ 173 $ 185 $ 142

Effective tax rate 17.5 % 19.9 % 16.8 %

In 2017, CMS Energy completed the evaluation of its methodology for the state apportionment of Consumers’ electricity sales to MISO, taking into account recent state tax law developments in the electric utility sector.

To recognize the anticipated refund and the impact of the expected lower effective tax rate on their deferred state tax liabilities, CMS Energy, including Consumers, recorded a $ 14 million income tax benefit in 2017.

These tax benefits were net of reserves for uncertain tax positions and primarily

attributable to Consumers.

In 2018, CMS Energy amended its 2013 Michigan Corporate Income Tax return and submitted a refund claim for taxes previously paid.

The refund claim was denied by the State of Michigan.

In 2019, CMS Energy received an unfavorable informal conference decision and filed a petition with the Michigan Tax Tribunal.

A trial is anticipated in 2020.

CMS Energy’s uncertain tax position on this matter remains unchanged.

1 In December 2017, Consumers remeasured its deferred tax assets and liabilities at the new federal tax rate enacted by the TCJA and recorded a net $ 1.6 billion regulatory liability.

As a result of an order received in September 2019, Consumers began refunding these excess deferred taxes to customers.

For additional details on the order received, see Note 3, Regulatory Matters .

In 2013, the MPSC issued an order authorizing Consumers to accelerate the flow-through to electric and gas customers of certain income tax benefits associated primarily with the cost of removal of plant placed in service before 1993.

Consumers implemented this regulatory treatment beginning in 2014, with the electric portion ending in 2018 and the gas portion continuing through 2025.

In March 2018, Consumers finalized a study of research and development tax credits for the tax years 2012 through 2016.

As a result, Consumers recognized an $ 8 million increase in the credit, net of reserves for uncertain tax positions, at that time.

In December 2017, CMS Energy and Consumers recorded a reasonable estimate to measure and account for the impact of the TCJA.

In December 2018, CMS Energy recorded a true-up of their estimate and eliminated the $ 9 million valuation allowance on the sequestration of alternative minimum tax credits.

In September 2020, the MPSC approved a settlement agreement in Consumers’ 2019 gas rate case including Consumers’ request to accelerate the amortization of its regulatory liability associated with the unprotected, non ‑ property-related excess deferred income taxes resulting from the TCJA.

Consumers will increase its TCJA amortization to fully refund this regulatory liability during the period October 2021 through September 2022 instead of the previous amortization schedule through 2029.

2 In 2013, the MPSC issued an order authorizing Consumers to accelerate the flow-through to electric and gas customers of certain income tax benefits associated primarily with the cost of removal of plant placed

in service before 1993.

Consumers implemented this regulatory treatment beginning in 2014, with the electric portion ending in 2018 and the gas portion expected to continue through 2025.

In September 2020, the MPSC approved a settlement agreement in Consumers’ 2019 gas rate case including Consumers’ request to accelerate the amortization of this income tax benefit to fully amortize the balance during the period October 2021 through September 2022 instead of the previous amortization schedule through 2025.

3 In March 2020, CMS Energy finalized a study of research and development tax credits for tax years 2012 through 2018.

As a result, in 2020, CMS Energy, including Consumers, recognized a $ 9 million increase in the credit, net of reserves for uncertain tax positions.

Of this amount, $ 8 million was recognized at Consumers.

Also, in March 2018, Consumers finalized a study of research and development tax credits for the tax years 2012 through 2016.

As a result, CMS Energy and Consumers recognized an $ 8 million increase in the credit, net of reserves for uncertain tax positions, at that time.

4 In January 2020, the IRS issued a decision restoring alternative minimum tax credit refunds sequestered in years prior to 2018.

As a result, in 2020, CMS Energy recognized a $ 9 million income tax benefit for sequestered amounts related to its 2017 tax return.

CMS Energy received the refund in April 2020.

Presented in the following table are the significant components of income tax expense on continuing operations:

2 unchanged sentences

Current income taxes

Federal $ ( 35 ) $ ( 31 ) $ ( 67 )

State and local ( 2 ) 28 —

$ ( 37 ) $ ( 3 ) $ ( 67 )

Deferred income taxes

Federal 115 97 112

State and local 60 32 58

$ 175 $ 129 $ 170

Deferred income tax credit ( 5 ) 21 12

Tax expense $ 133 $ 147 $ 115

Current income taxes

Federal $ 3 $ 107 $ 6

State and local ( 7 ) 41 13

$ ( 4 ) $ 148 $ 19

Deferred income taxes

Federal 115 ( 10 ) 60

State and local 67 26 51

$ 182 $ 16 $ 111

Deferred income tax credit ( 5 ) 21 12

For the year ended December 31, 2017 , the impact of the TCJA was a $ 148 million increase in deferred income tax expense at CMS Energy, including Consumers, and a $ 33 million increase in deferred income tax expense at Consumers.

The TCJA had no impact on current income tax expense in 2017 .

Tax expense $ 173 $ 185 $ 142

Presented in the following table are the principal components of deferred income tax assets (liabilities) recognized:

December 31 2020 2019

CMS Energy, including Consumers

11 unchanged sentences

Gas inventory ( 24 ) ( 32 )

Other ( 51 ) ( 24 )

Total deferred income tax liabilities $ ( 2,779 ) $ ( 2,320 )

10 unchanged sentences

Gas inventory ( 24 ) ( 32 )

Other ( 34 ) ( 29 )

Total deferred income tax liabilities $ ( 2,706 ) $ ( 2,293 )

2 unchanged sentences

Presented in the following table are the tax loss and credit carryforwards at December 31, 2020:

Tax Attribute

Gross Amount Tax Attribute Expiration

CMS Energy, including Consumers

Federal net operating loss carryforwards $ 747 $ 157 None

State net operating loss carryforwards 1,241 78 2030

Local net operating loss carryforwards 346 3 2024 – 2040

General business credits 245 245 2026 – 2040

Alternative minimum tax credits

Not applicable

Total tax attributes $ 483

Federal net operating loss carryforwards $ 505 $ 106 None

State net operating loss carryforwards 1,026 61 2030

General business credits 49 49 2027 – 2040

1 unchanged sentence

CMS Energy has provided a valuation allowance of $ 1 million for the local tax loss carryforward.

The TCJA repealed the corporate alternative minimum tax and requires companies to recover (through offsets of regular tax and through cash refunds) all alternative minimum tax credits over the four -year period ending in 2021.

Therefore, for the year ended December 31, 2019 , CMS Energy reclassified $ 31 million of alternative minimum tax credits to a current receivable.

CMS Energy and Consumers expect to utilize fully their tax loss and credit carryforwards for which no valuation allowance has been provided.

It is reasonably possible that further adjustments will be made to the valuation allowances within one year.

As a result of a provision in the TCJA, as amended by the CARES Act, CMS Energy recovered all of its remaining alternative minimum tax credits in 2020.

CMS Energy utilized $ 7 million of these credits on its 2019 consolidated tax return, and received the remaining $ 69 million through a cash refund.

Presented in the following table is a reconciliation of the beginning and ending amount of uncertain tax benefits:

12 unchanged sentences

If recognized, all of these uncertain tax benefits would affect CMS Energy’s and Consumers’ annual effective tax rates in future years.

A trial is anticipated in 2021 with the Michigan Tax Tribunal related to the methodology of state apportionment for Consumers’ electricity sales to MISO.

A favorable outcome

of the court case or a potential settlement could result in a tax benefit of up to $ 9 million in the next 12 months.

CMS Energy and Consumers recognize accrued interest and penalties, where applicable, as part of income tax expense.

10 unchanged sentences

Income available to common stockholders

Less income attributable to noncontrolling interests

Net income $ 752 $ 682 $ 659

Less income (loss) attributable to noncontrolling interests ( 3 ) 2 2

Net income available to common stockholders – basic and diluted $ 755 $ 680 $ 657

5 unchanged sentences

Net income per average common share available to common stockholders

Basic $ 2.65 $ 2.40 $ 2.33

Diluted 2.64 2.39 2.32

Nonvested Stock Awards

7 unchanged sentences

Forward Equity Sale Contracts

In November 2018 and February 2019, CMS Energy entered into forward equity sale contracts.

CMS Energy has entered into forward equity sale contracts.

These forward equity sale contracts are non‑participating securities.

While the forward sale price in the forward equity sale contract is decreased on certain dates by certain predetermined amounts to reflect expected dividend payments, these price adjustments were set upon inception of the agreement and the forward contract does not give the owner the right to participate in undistributed earnings.

Accordingly, the forward equity sale contracts were included in the computation of diluted EPS, but not in the computation

of basic EPS.

Accordingly, the forward equity sale contracts were included in the computation of diluted EPS, but not in the computation of basic EPS.

For further details on the forward equity sale contracts, see Note 5, Financings and Capitalization.

Presented in the following tables are the components of operating revenue:

Year Ended December 31, 2019

Electric Utility

Enterprises 1

Year Ended December 31, 2020 Electric Utility Gas Utility Enterprises 1

EnerBank Consolidated

CMS Energy, including Consumers

Consumers utility revenue $ 4,348 $ 1,809 $ — $ — $ 6,157

Other — — 81 — 81

Revenue recognized from contracts with customers $ 4,348 $ 1,809 $ 81 $ — $ 6,238

2 unchanged sentences

Consumers alternative-revenue programs 29 14 — — 43

Consumers revenues to be refunded ( 16 ) ( 12 ) — — ( 28 )

Total operating revenue – CMS Energy $ 4,372 $ 1,817 $ 229 $ 262 $ 6,680

Consumers utility revenue

Residential $ 2,109 $ 1,232 $ 3,341

Commercial 1,444 337 1,781

Industrial 570 46 616

Other 225 194 419

Revenue recognized from contracts with customers $ 4,348 $ 1,809 $ 6,157

1 unchanged sentence

Alternative-revenue programs 29 14 43

Revenues to be refunded ( 16 ) ( 12 ) ( 28 )

Total operating revenue – Consumers $ 4,372 $ 1,817 $ 6,189

Amounts represent the enterprises segment’s operating revenue from independent power production and CMS ERM’s sales of energy commodities in support of the independent power production portfolio.

Year Ended December 31, 2018

Electric Utility

Enterprises 1

1 Amounts represent the enterprises segment’s operating revenue from independent power production and its sales of energy commodities.

Year Ended December 31, 2019 Electric Utility Gas Utility Enterprises 1

EnerBank Consolidated

CMS Energy, including Consumers

Consumers utility revenue $ 4,407 $ 1,922 $ — $ — $ 6,329

Other — — 74 — 74

Revenue recognized from contracts with customers $ 4,407 $ 1,922 $ 74 $ — $ 6,403

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Consumers utility revenue

Residential $ 1,988 $ 1,316 $ 3,304

Commercial 1,502 372 1,874

Industrial 669 51 720

Other 248 183 431

Revenue recognized from contracts with customers $ 4,407 $ 1,922 $ 6,329

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Total operating revenue – Consumers $ 4,439 $ 1,937 $ 6,376

Amounts represent the enterprises segment’s operating revenue from independent power production and CMS ERM’s sales of energy commodities in support of the independent power production portfolio.

1 Amounts represent the enterprises segment’s operating revenue from independent power production and its sales of energy commodities.

Year Ended December 31, 2018 Electric Utility Gas Utility Enterprises 1

EnerBank Consolidated

CMS Energy, including Consumers

Consumers utility revenue $ 4,528 $ 1,882 $ — $ — $ 6,410

Other — — 92 — 92

Revenue recognized from contracts with customers $ 4,528 $ 1,882 $ 92 $ — $ 6,502

Leasing income — — 160 — 160

Financing income 10 5 — 157 172

Consumers alternative-revenue programs 23 16 — — 39

Total operating revenue – CMS Energy $ 4,561 $ 1,903 $ 252 $ 157 $ 6,873

Consumers utility revenue

Residential $ 2,049 $ 1,284 $ 3,333

Commercial 1,545 367 1,912

Industrial 674 55 729

Other 260 176 436

Revenue recognized from contracts with customers $ 4,528 $ 1,882 $ 6,410

Financing income 10 5 15

Alternative-revenue programs 23 16 39

Total operating revenue – Consumers $ 4,561 $ 1,903 $ 6,464

1 Amounts represent the enterprises segment’s operating revenue from independent power production and its sales of energy commodities.

Electric and Gas Utilities

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Accounts receivable comprise trade receivables and unbilled receivables.

CMS Energy and Consumers record their accounts receivable at cost, which approximates fair value.

CMS Energy and Consumers establish an allowance for uncollectible accounts based on historical losses, management’s assessment of existing economic conditions, customer payment trends, and other factors.

CMS Energy and Consumers record their accounts receivable at cost less an allowance for uncollectible accounts.

The allowance is increased for uncollectible accounts expense and decreased for account write-offs net of recoveries.

CMS Energy and Consumers establish the allowance based on historical losses, management’s assessment of existing economic conditions, customer payment trends, and reasonable and supported forecast information.

CMS Energy and Consumers assess late payment fees on trade receivables based on contractual past-due terms established with customers.

CMS Energy and Consumers charge off accounts deemed uncollectible to operating expense.

Uncollectible expense for CMS Energy and Consumers was $ 29 million for the year ended December 31, 2019 and $ 29 million for the year ended December 31, 2018 .

Accounts are written off when deemed uncollectible, which is generally when they become six months past due.

CMS Energy and Consumers recorded uncollectible accounts expense of $ 33 million for the year ended December 31, 2020, and $ 29 million for the years ended December 31, 2019 and 2018.

At December 31, 2020, Consumers had deferred $ 4 million of uncollectible accounts expense as a non-current regulatory asset.

For additional information, see Note 3, Regulatory Matters.

Consumers’ customers are billed monthly in cycles having billing dates that do not generally coincide with the end of a calendar month.

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Consumers estimates its unbilled revenues by applying an average billed rate to total unbilled deliveries for each customer class.

Unbilled revenues, which are recorded as accounts receivable on CMS Energy’s and Consumers’ consolidated balance sheets, were $ 426 million at December 31, 2019 and $ 409 million at December 31, 2018 .

Unbilled revenues, which are recorded as accounts receivable and accrued revenue on CMS Energy’s and Consumers’ consolidated balance sheets, were $ 437 million at December 31, 2020 and $ 426 million at December 31, 2019.

Alternative ‑ Revenue Programs:

The energy waste reduction incentive mechanism provides a financial incentive if the energy savings of Consumers’ customers exceed annual targets established by the MPSC.

Under a gas revenue decoupling mechanism authorized by the MPSC, Consumers is allowed to adjust future gas rates for differences between Consumers’ actual weather‑normalized, non‑fuel revenues and the revenues approved by the MPSC.

Consumers accounts for this program as an alternative‑revenue program that meets the criteria for recognizing the effects of decoupling adjustments on revenue as gas is delivered.

Consumers accounts for its energy waste reduction incentive mechanism and financial compensation mechanism as alternative-revenue programs.

Consumers recognizes revenue related to the energy waste reduction incentive as soon as energy savings exceed the annual targets established by the MPSC and recognizes revenue related to the financial compensation mechanism as payments are made on MPSC-approved PPAs.

For additional information on these mechanisms, see Note 3, Regulatory Matters.

Consumers does not reclassify revenue from its alternative-revenue program to revenue from contracts with customers at the time the amounts are collected from customers.

Revenues to Be Refunded:

In December 2020, the MPSC issued an order authorizing Consumers to refund $ 28 million voluntarily to utility customers.

For additional information, see Note 3, Regulatory Matters.

Other Income and Other Expense

Other income was not significant for any of the periods presented except for a $ 14 million gain on the sale of CMS Energy common stock by Consumers in 2017.

This gain was eliminated on CMS Energy’s consolidated statements of income.

Other income was not significant for any of the periods presented.

Presented in the following table are the components of other expense at CMS Energy and Consumers:

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CMS Energy, including Consumers

Other expense

Donations $ ( 35 ) $ ( 3 ) $ ( 13 )

Civic and political expenditures ( 5 ) ( 6 ) ( 6 )

Loss on reacquired and extinguished debt ( 16 ) — ( 16 )

All other ( 6 ) ( 4 ) ( 13 )

Total other expense – CMS Energy $ ( 62 ) $ ( 13 ) $ ( 48 )

Other expense

Donations $ ( 33 ) $ ( 3 ) $ ( 13 )

Civic and political expenditures ( 5 ) ( 6 ) ( 6 )

All other ( 5 ) ( 4 ) ( 11 )

Total other expense – Consumers $ ( 43 ) $ ( 13 ) $ ( 30 )

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Presented in the following table are the components of total cash and cash equivalents, including restricted amounts, and their location on CMS Energy’s and Consumers’ consolidated balance sheets:

December 31 2020 2019

CMS Energy, including Consumers

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Restricted cash and cash equivalents 17 17

Other non‑current assets

Cash and cash equivalents, including restricted amounts $ 185 $ 157

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The segments reported for CMS Energy are:

electric utility, consisting of regulated activities associated with the generation, purchase, transmission, distribution, and sale of electricity in Michigan

• electric utility, consisting of regulated activities associated with the generation, purchase, distribution, and sale of electricity in Michigan

• gas utility, consisting of regulated activities associated with the purchase, transmission, storage, distribution, and sale of natural gas in Michigan

• enterprises, consisting of various subsidiaries engaging in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production

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

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

to finance home improvements

CMS Energy presents corporate interest and other expenses and Consumers’ other consolidated entities within other reconciling items.

In 2019, EnerBank’s assets exceeded ten percent of CMS Energy’s consolidated assets.

The segments reported for Consumers are:

electric utility, consisting of regulated activities associated with the generation, purchase, transmission, distribution, and sale of electricity in Michigan

• electric utility, consisting of regulated activities associated with the generation, purchase, distribution, and sale of electricity in Michigan

• gas utility, consisting of regulated activities associated with the purchase, transmission, storage, distribution, and sale of natural gas in Michigan

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Electric utility $ 4,372 $ 4,439 $ 4,561

Gas utility 1,817 1,937 1,903

Enterprises 229 248 252

EnerBank 262 221 157

Total operating revenue – CMS Energy $ 6,680 $ 6,845 $ 6,873

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Electric utility $ 4,372 $ 4,439 $ 4,561

Gas utility 1,817 1,937 1,903

Total operating revenue – Consumers $ 6,189 $ 6,376 $ 6,464

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Electric utility $ 739 $ 713 $ 682

Gas utility 283 261 239

Enterprises 20 14 8

EnerBank 5 3 4

Other reconciling items 1 1 —

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Electric utility $ 739 $ 713 $ 682

Gas utility 283 261 239

Other reconciling items 1 1 —

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Income from equity method investees 1

Enterprises $ 5 $ 10 $ 9

Total income from equity method investees – CMS Energy $ 5 $ 10 $ 9

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Electric utility $ 217 $ 213 $ 209

Gas utility 102 83 79

Enterprises 7 7 2

EnerBank 56 59 32

Other reconciling items 179 157 136

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Electric utility $ 217 $ 213 $ 209

Gas utility 102 83 79

Other reconciling items 1 1 1

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Electric utility $ 115 $ 134 $ 109

Gas utility 58 51 33

Enterprises ( 4 ) 2 2

EnerBank 17 16 12

Other reconciling items ( 53 ) ( 56 ) ( 41 )

Total income tax expense – CMS Energy $ 133 $ 147 $ 115

Income tax expense (benefit)

Income tax expense

Electric utility $ 115 $ 134 $ 109

Other reconciling items

Gas utility 58 51 33

Total income tax expense – Consumers $ 173 $ 185 $ 142

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Electric utility $ 554 $ 509 $ 535

Gas utility 261 233 169

Enterprises 36 33 34

EnerBank 58 49 38

Other reconciling items ( 154 ) ( 144 ) ( 119 )

Total net income available to common stockholders – CMS Energy $ 755 $ 680 $ 657

Net income (loss) available to common stoc kholder

Net income (loss) available to common stockholder

Electric utility $ 554 $ 509 $ 535

Gas utility 261 233 169

Other reconciling items ( 1 ) ( 1 ) ( 1 )

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Electric utility 2,3

$ 17,155 $ 16,158 $ 16,027

Gas utility 2

9,581 8,785 7,919

Enterprises 1,113 405 412

EnerBank 37 22 25

Other reconciling items 21 20 17

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Electric utility 2,3

$ 17,155 $ 16,158 $ 16,027

Gas utility 2

9,581 8,785 7,919

Other reconciling items 21 20 17

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Investments in equity method investees 1

Enterprises $ 70 $ 71 $ 69

Total investments in equity method investees – CMS Energy $ 70 $ 71 $ 69

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Electric utility 2

$ 15,829 $ 14,911 $ 14,079

Gas utility 2

9,429 8,659 7,806

Enterprises 1,276 527 540

EnerBank 3,109 2,692 2,006

Other reconciling items 23 48 98

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Electric utility 2

$ 15,893 $ 14,973 $ 14,143

Gas utility 2

9,477 8,706 7,853

Other reconciling items 29 20 29

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Electric utility 5

$ 1,281 $ 1,162 $ 865

Gas utility 5

Enterprises 108 5 246

EnerBank 5 8 10

Other reconciling items 1 1 2

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Electric utility 5

$ 1,281 $ 1,162 $ 865

Gas utility 5

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For additional details, see Note 3, Regulatory Matters.

Amounts include finance lease additions.

4 Amounts include assets placed under finance lease.

5 Amounts include a portion of Consumers’ capital expenditures for plant and equipment attributable to both the electric and gas utility businesses.

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Consumers enters into a number of transactions with related parties in the normal course of business.

These transactions include:

These transactions include but are not limited to:

• purchases of electricity from affiliates of CMS Enterprises

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Presented in the following table is Consumers’ expense recorded from related-party transactions for the years ended December 31:

Related Party

Purchases of capacity and energy

Affiliates of CMS Enterprises

Description Related Party 2020 2019 2018

Purchases of capacity and energy Affiliates of CMS Enterprises $ 64 $ 75 $ 83

Amounts payable to related parties for purchased power and other services were $ 13 million at December 31, 2020 and $ 26 million at December 31, 2019.

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The portion of the demand note attributable to Consumers was recorded as a note receivable – related party on Consumers’ consolidated balance sheets at December 31, 2020 and December 31, 2019.

For additional details about the note receivable – related party, see Note 7, Financial Instruments and Note 8, Notes Receivable .

Beginning in December 2018 , Consumers and a subsidiary of CMS Energy executed a 20 ‑year natural gas transportation agreement, related to a pipeline owned by Consumers.

For additional details about the note receivable – related party, see Note 8, Notes Receivable.

In December 2018, Consumers and a subsidiary of CMS Energy executed a 20 ‑year natural gas transportation agreement, related to a pipeline owned by Consumers.

For additional details about the agreement, see Note 10, Leases and Palisades Financing.

Consumers owned shares of CMS Energy common stock with a fair value of $ 1 million at December 31, 2019 and December 31, 2018 .

In January 2020, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $ 300 million .

At December 31, 2019 , there were no outstanding loans under the agreement.

Consumers owned no shares of CMS Energy common stock at December 31, 2020 and CMS Energy common stock with a fair value of $ 1 million at December 31, 2019.

In December 2020, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $ 350 million.

As of December 31, 2020, $ 307 million was outstanding under the agreement with an interest rate of 0.042 percent.

Variable Interest Entities

In July 2020, CMS Enterprises purchased a 51 -percent ownership interest in Aviator Wind Equity Holdings.

At that time, Aviator Wind Equity Holdings owned 100 percent of Aviator Wind, a 525 -MW wind generation project being developed and constructed in Coke County, Texas.

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

Aviator Wind became operational in September 2020 and, at that time, Aviator Wind Equity Holdings sold a Class A membership interest in Aviator Wind to a tax equity investor, BHE Renewables, LLC, a subsidiary of Berkshire Hathaway Energy Company.

Aviator Wind Equity Holdings retained a Class B membership interest in Aviator Wind.

Earnings, tax attributes, and cash flows generated by Aviator Wind are allocated among and distributed to the membership classes in accordance with the ratios specified in the associated limited liability company operating agreement;

these ratios change over time and are not representative of the ownership interest percentages of each membership class.

Since Aviator Wind’s income and cash flows are not distributed among its investors based on ownership interest percentages, CMS Enterprises allocates Aviator Wind’s income (loss) among its investors by applying the hypothetical liquidation at book value method.

This method calculates each investor’s earnings based on a hypothetical liquidation of Aviator Wind at the net book value of its underlying net assets as of the balance sheet date.

The liquidation tax gain (loss) is allocated to each investor’s capital account, resulting in income (loss) equal to the period change in the investor’s capital account balance.

CMS Enterprises then receives 51 percent of the earnings, tax attributes, and cash flows that were allocated to Aviator Wind Equity Holdings.

Aviator Wind Equity Holdings and Aviator Wind represent VIEs.

In accordance with the associated limited liability company operating agreement, the tax equity investor is guaranteed preferred returns from Aviator Wind.

However, CMS Enterprises manages and controls the operating activities of Aviator Wind Equity Holdings and, ultimately, Aviator Wind.

As a result, CMS Enterprises is the primary beneficiary of Aviator Wind Equity Holdings and Aviator Wind, as it has the power to direct the activities that most significantly impact the economic performance of the companies, as well as the obligation to absorb losses or the right to receive benefits from the companies.

CMS Enterprises consolidates Aviator Wind Equity Holdings and Aviator Wind and presents the Class A membership interest and 49 percent of the Class B membership interest in Aviator Wind as noncontrolling interests.

No gain or loss was recognized upon initial consolidation of Aviator Wind Equity Holdings and Aviator Wind.

Presented in the following table are the carrying values of the VIEs’ assets and liabilities included in CMS Energy’s consolidated balance sheets:

December 31 2020

Cash and cash equivalents $ 7

Accounts receivable 5

Prepayments and other current assets 1

Plant, property, and equipment, net 692

Total assets 1

Accounts payable $ 3

Asset retirement obligations 19

Total liabilities $ 22

1 Assets may be used only to meet VIEs’ obligations and commitments.

CMS Energy has variable interests in T.E.S.

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Presented in the following table is information about these partnerships:

Nature of the Entity

Nature of CMS Energy’s Involvement

Coal-fueled power generator

Long-term PPA between partnership and Consumers

Name Nature of the Entity Nature of CMS Energy’s Involvement

Filer City Coal-fueled power generator Long-term PPA between partnership and Consumers

Employee assignment agreement

Wood waste-fueled power generator

Long-term PPA between partnership and Consumers

Grayling Wood waste-fueled power generator Long-term PPA between partnership and Consumers

Reduced dispatch agreement with Consumers 1

Operating and management contract

Wood waste-fueled power generator

Long-term PPA between partnership and Consumers

Genesee Wood waste-fueled power generator Long-term PPA between partnership and Consumers

Reduced dispatch agreement with Consumers 1

Operating and management contract

Guarantee of fixed rate debt²

Deferred collection of certain receivables³

Wood waste-fueled power generator

Operating and management contract

Craven Wood waste-fueled power generator Operating and management contract

1 Reduced dispatch agreements allow the facilities to be dispatched based on the market price of power compared with the cost of production of the plants.

This results in fuel cost savings that each partnership shares with Consumers’ customers.

CMS Energy’s guarantee is capped at $ 3 million annually through 2021.

For additional details on this guarantee, see Note 4, Contingencies and Commitments—Guarantees .

CMS Energy’s maximum exposure to loss from these receivables is $ 10 million .

The creditors of these partnerships do not have recourse to the general credit of CMS Energy or Consumers, except as noted in the table above.

The creditors of these partnerships do not have recourse to the general credit of CMS Energy or Consumers.

Consumers has not provided any financial or other support during the periods presented that was not previously contractually required.

CMS Energy’s investment in these partnerships is included in investments on its consolidated balance sheets in the amount of $ 70 million as of December 31, 2020 and $ 71 million as of December 31, 2019.

Asset Sales and Exit Activities

In April 2019, DIG completed a sale of transmission equipment to ITC and recognized a pre-tax gain of $ 16 million within maintenance and other operating expenses on CMS Energy’s consolidated statements of income.

In September 2019, Consumers completed a sale of a portion of its electric utility’s substation transmission equipment to METC.

In December 2019, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with customers.

Asset Sale and Exit Activities

In October 2020, Consumers completed a sale of the electric utility’s remaining transmission equipment to METC.

In December 2020, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with electric utility customers;

this application was approved by the MPSC in February 2021.

As a result, during 2020, Consumers recorded a regulatory liability of $ 14 million and recognized a pre-tax gain of $ 14 million within maintenance and other operating expenses on its consolidated statements of income.

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Karn 1 & 2 coal-fueled electric generating units in 2023.

For additional details on Consumers’ plans to request recovery of the remaining book value of the two units upon their retirement, see Note 3, Regulatory Matters .

For additional details on Consumers’ plans to recover the remaining book value of the two units upon their retirement, see Note 3, Regulatory Matters.

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 will seek recovery of these costs from customers.

In 2019, Consumers’ electric utility recognized $ 6 million related to retention and severance benefits within maintenance and other operating expenses on Consumers’ consolidated statements of income.

The amount was reported as other liabilities on its consolidated balance sheets at December 31, 2019 , which included $ 2 million of current liabilities.

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

Consumers will begin deferring these costs as a regulatory asset in 2021.

As of December 31, 2020, the cumulative cost incurred and charged to expense related to this program was $ 16 million;

an amount of $ 3 million has been capitalized as a cost of plant, property, and equipment.

Presented in the following table is a reconciliation of the retention benefit liability recorded in other liabilities on Consumers’ consolidated balance sheets:

Years Ended December 31 2020 2019

Retention benefit liability at beginning of period $ 4 $ —

Costs incurred and charged to maintenance and other operating expenses 13 3

Costs incurred and capitalized 2 1

Costs paid or settled ( 8 ) —

Retention benefit liability at the end of the period 1

1 Includes current portion of other liabilities of $ 3 million at December 31, 2020 and $ 2 million at December 31, 2019.

Quarterly Financial and Common Stock Information (Unaudited)

In Millions, Except Per Share Amounts

Quarters Ended

Three Months Ended March 31 June 30 September 30 December 31

CMS Energy, including Consumers

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Operating income 368 273 369 352

Income attributable to noncontrolling interests

Net income 243 137 210 162

Income (loss) attributable to noncontrolling interests — 1 ( 8 ) 4

Net income available to common stockholders 243 136 218 158

Basic earnings per average common share 1

0.86 0.48 0.76 0.55

Diluted earnings per average common share 1

0.85 0.48 0.76 0.55

Operating revenue $ 1,744 $ 1,330 $ 1,450 $ 1,665

Operating income 329 246 338 308

Net income 235 160 230 191

Preferred stock dividends — 1 — 1

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In Millions, Except Per Share Amounts

Quarters Ended

Three Months Ended March 31 June 30 September 30 December 31

CMS Energy, including Consumers

1 unchanged sentence

Operating income 359 218 351 311

Net income 213 94 207 168

Income attributable to noncontrolling interests — 1 — 1

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Basic earnings per average common share 1

0.75 0.33 0.73 0.59

Diluted earnings per average common share 1

0.75 0.33 0.73 0.58

Operating revenue $ 1,943 $ 1,334 $ 1,429 $ 1,670

Operating income 328 175 319 308

Net income 226 98 213 206

Preferred stock dividends — 1 — 1

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1 The sum of the quarters may not equal annual EPS due to changes in the number of shares outstanding.

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Report of Independent Registered Public Accounting Firm

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of CMS Energy Corporation and its subsidiaries (the “Company”) as of December 31, 2019 and 2018 , and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019 , including the related notes and financial statement schedules of CMS Energy Corporation listed in the index appearing under Item 15 (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of CMS Energy Corporation and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedules listed in the index appearing under Item 15 (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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The recovery of regulatory assets and the settlement of regulatory liabilities are contingent upon the outcomes of rate cases and regulatory proceedings.

The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of new regulatory matters is a critical audit matter are (i) there was a high degree of auditor judgment and subjectivity applied to evaluate management’s assessment of the potential outcomes and related accounting impacts associated with pending rate case proceedings, (ii) in some cases, there was significant audit effort necessary to assess contrary evidence from various parties involved in rate case proceedings, and (iii) there was significant audit effort necessary to evaluate audit evidence related to the recovery of regulatory assets and the settlement of regulatory liabilities.

The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of new regulatory matters is a critical audit matter are (i) the high degree of auditor judgment and subjectivity applied to evaluate management’s assessment of the potential outcomes and related accounting impacts associated with pending rate case proceedings, (ii) in some cases, the significant audit effort necessary to assess contrary evidence from various parties involved in rate case proceedings, and (iii) the significant audit effort necessary to evaluate audit evidence related to the recovery of regulatory assets and the settlement of regulatory liabilities.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Consumers Energy Company and its subsidiaries (the “Company”) as of December 31, 2019 and 2018 , and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019 , including the related notes and financial statement schedule of Consumers Energy Company listed in the index appearing under Item 15 (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Consumers Energy Company and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedule listed in the index appearing under Item 15 (collectively referred to as the “consolidated financial statements”).

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for the Effects of New Regulatory Matters

As described in Note 3 to the consolidated financial statements, the Company is a utility and must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated services.

Under regulatory accounting, the Company records regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue by a non - regulated business.

As of December 31, 2020, the Company has recognized a total of $2,695 million of regulatory assets and $3,895 million of regulatory liabilities.

As described by management, there are multiple participants to rate case proceedings who often challenge various aspects of those proceedings, including the prudence of the Company’s policies and practices.

These participants often seek cost disallowances and other relief and have appealed significant decisions reached by the regulators.

The recovery of regulatory assets and the settlement of regulatory liabilities are contingent upon the outcomes of rate cases and regulatory proceedings.

The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of new regulatory matters is a critical audit matter are (i) the high degree of auditor judgment and subjectivity applied to evaluate management’s assessment of the potential outcomes and related accounting impacts associated with pending rate case proceedings, (ii) in some cases, the significant audit effort necessary to assess contrary evidence from various parties involved in rate case proceedings, and (iii) the significant audit effort necessary to evaluate audit evidence related to the recovery of regulatory assets and the settlement of regulatory liabilities.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s assessment of regulatory proceedings, including the probability of recovering incurred costs and the related accounting and disclosure impacts.

These procedures also included, among others, obtaining and evaluating the Company’s correspondence with regulators, evaluating the reasonableness of management’s assessment regarding whether recovery of regulatory assets and settlement of regulatory liabilities is probable and evaluating the sufficiency of the disclosures in the consolidated financial statements.

Procedures were performed to evaluate the regulatory assets and liabilities, including those subject to pending rate cases, based on provisions and formulas outlined in rate orders, other regulatory correspondence, or application of relevant regulatory precedents.

/s/ PricewaterhouseCoopers LLP

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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 8. Financial Statements and Supplementary Data