CMS ENERGY CORP 10-K

Item 1. Business General CMS Energy CMS Energy was formed as a corporation in Michigan in 1987 and is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility; CMS Enterprises, primarily a domestic independent power producer and marketer; and EnerBank, an industrial bank located in Utah. Consumers serves individuals and businesses operating in the alternative energy, automotive, chemical, food, and metal products industries, as well as a diversified group of other industries. CMS Enterprises, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production. EnerBank provides primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements. CMS Energy manages its businesses by the nature of services each provides, and operates principally in four business segments: electric utility; gas utility; enterprises, its non‑utility operations and investments; and EnerBank. Consumers’ consolidated operations account for the substantial majority of CMS Energy’s total assets, income, and operating revenue. CMS Energy’s consolidated operating revenue was $6.7 billion in 2020, $6.8 billion in 2019, and $6.9 billion in 2018. For further information about operating revenue, income, and assets and liabilities attributable to all of CMS Energy’s business segments and operations, see Item 6. Selected Financial Data and Item 8. Financial Statements and Supplementary Data—CMS Energy Consolidated Financial Statements and Notes to the Consolidated Financial Statements. Consumers Consumers has served Michigan customers since 1886. Consumers was incorporated in Maine in 1910 and became a Michigan corporation in 1968. Consumers owns and operates electric generation and distribution facilities and gas transmission, storage, and distribution facilities. It provides electricity and/or natural gas to 6.8 million of Michigan’s 10 million residents. Consumers’ rates and certain other aspects of its business are subject to the jurisdiction of the MPSC and FERC, as well as to NERC reliability standards, as described in Item 1. Business—CMS Energy and Consumers Regulation. Consumers’ consolidated operating revenue was $6.2 billion in 2020, $6.4 billion in 2019, and $6.5 billion in 2018. For further information about operating revenue, income, and assets and liabilities attributable to Consumers’ electric and gas utility operations, see Item 6. Selected Financial Data and Item 8. Financial Statements and Supplementary Data—Consumers Consolidated Financial Statements and Notes to the Consolidated Financial Statements. Consumers owns its principal properties in fee, except that most electric lines and gas mains are located below or adjacent to public roads or on land owned by others and are accessed by Consumers through easements and other rights. Almost all of Consumers’ properties are subject to the lien of its First Mortgage Bond Indenture. For additional information on Consumers’ properties, see Item 1. Business—Business Segments—Consumers Electric Utility—Electric Utility Properties and Business Segments—Consumers Gas Utility—Gas Utility Properties. 14 Table of Contents In 2020, Consumers served 1.9 million electric customers and 1.8 million gas customers in Michigan’s Lower Peninsula. Presented in the following map are Consumers’ service territories: Electric Service Territory Gas Service Territory Combination Electric and Gas Service Territory • Electric Generation Facilities CMS Energy and Consumers – The Triple Bottom Line For information regarding CMS Energy’s and Consumers’ purpose and impact on the “triple bottom line” of people, planet, and profit, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview. Business Segments Consumers Electric Utility Electric Utility Operations: Consumers’ electric utility operations, which include the generation, purchase, distribution, and sale of electricity, generated operating revenue of $4.4 billion in 2020 and 2019, and $4.6 billion in 2018. Consumers’ electric utility customer base consists of a mix of primarily residential, commercial, and diversified industrial customers in Michigan’s Lower Peninsula. 15 Table of Contents Presented in the following illustration is Consumers’ 2020 electric utility operating revenue of $4.4 billion by customer class: Consumers’ electric utility operations are not dependent on a single customer, or even a few customers, and the loss of any one or even a few of Consumers’ largest customers is not reasonably likely to have a material adverse effect on Consumers’ financial condition. In 2020, Consumers’ electric deliveries were 35 billion kWh, which included ROA deliveries of three billion kWh, resulting in net bundled sales of 32 billion kWh. In 2019, Consumers’ electric deliveries were 37 billion kWh, which included ROA deliveries of four billion kWh, resulting in net bundled sales of 33 billion kWh. Consumers’ electric utility operations are seasonal. The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment. 16 Table of Contents Presented in the following illustration are Consumers’ monthly weather-normalized electric deliveries (deliveries adjusted to reflect normal weather conditions) to its customers, including ROA deliveries, during 2020 and 2019: Consumers’ 2020 summer peak demand was 8,215 MW, which included ROA demand of 540 MW. For the 2019-2020 winter season, Consumers’ peak demand was 5,602 MW, which included ROA demand of 464 MW. As required by MISO reserve margin requirements, Consumers owns or controls, through long-term PPAs and short-term capacity purchases, all of the capacity required to supply its projected firm peak load and necessary reserve margin for summer 2021. Electric Utility Properties: Consumers owns and operates electric generation and distribution facilities. For details about Consumers’ electric generation facilities, see the Electric Utility Generation and Supply Mix section that follows this Electric Utility Properties section. Consumers’ distribution system consists of: • 205 miles of high-voltage distribution overhead lines operating at 138 kV • 4 miles of high-voltage distribution underground lines operating at 138 kV • 4,428 miles of high-voltage distribution overhead lines operating at 46 kV and 69 kV • 19 miles of high-voltage distribution underground lines operating at 46 kV • 77,833 miles of electric distribution overhead lines • 9,264 miles of underground distribution lines • 1,096 substations with an aggregate transformer capacity of 26 million kVA • two battery facilities with storage capacity of 2 MW Consumers is interconnected to the interstate high-voltage electric transmission system owned by METC and operated by MISO. Consumers is also interconnected to neighboring utilities and to other transmission systems. 17 Table of Contents Electric Utility Generation and Supply Mix: During 2020, Consumers announced a goal of achieving net-zero carbon emissions from its electric business by 2040. This goal includes not only emissions from Consumers’ owned generation, but also emissions from the generation of power purchased through long-term PPAs and from the MISO energy market. Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040 through execution of its Clean Energy Plan, which calls for replacing its coal-fueled generation predominantly with investment in renewable energy. The remaining emissions will be offset through alternative measures including, but not limited to, carbon sequestration, landfill methane emission capture, and large-scale tree planting. Specifically, the Clean Energy Plan provides for the retirement of the D.E. Karn 1 & 2 coal-fueled generating units in 2023 and the potential retirement of the J.H. Campbell 1 & 2 coal-fueled generating units in 2031 or earlier. 18 Table of Contents Presented in the following table are details about Consumers’ 2020 electric generation and supply mix: Name and Location (Michigan) Number of Units and Year Entered Service 2020 Generation Capacity (MW) 1 2020 Electric Supply (GWh) Coal steam generation J.H. Campbell 1 & 2 – West Olive 2 Units, 1962-1967 540 1,538 J.H. Campbell 3 – West Olive 2 1 Unit, 1980 785 4,804 D.E. Karn 1 & 2 – Essexville 3 2 Units, 1959-1961 460 1,618 1,785 7,960 Oil/Gas steam generation D.E. Karn 3 & 4 – Essexville 2 Units, 1975-1977 1,058 37 Hydroelectric Ludington – Ludington 6 Units, 1973 975 4 (371) 5 Conventional hydro generation – various locations 35 Units, 1906-1949 76 482 1,051 111 Gas combined cycle Jackson – Jackson 1 Unit, 2002 547 1,786 Zeeland – Zeeland 3 Units, 2002 534 3,465 1,081 5,251 Gas combustion turbines Zeeland (simple cycle) – Zeeland 2 Units, 2001 318 601 Wind generation Cross Winds ® Energy Park – Tuscola County 114 Turbines, 2014, 2018, and 2019 39 722 Lake Winds ® Energy Park – Mason County 56 Turbines, 2012 16 273 Gratiot Farms Wind Project – Gratiot County 60 Turbines, 2020 — 22 55 1,017 Solar generation Solar Gardens – Allendale and Kalamazoo 15,100 Panels, 2016 2 6 Total owned generation 5,350 14,983 Purchased power 6 Coal generation – T.E.S. Filer City 60 513 Gas generation – MCV Facility 7 1,240 6,110 Other gas generation – various locations 152 1,236 Nuclear generation – Palisades 7 813 6,898 Wind generation – various locations 64 1,160 Solar generation – various locations 4 8 Other renewable generation – various locations 244 1,057 2,577 16,982 Net interchange power 8 — 2,655 Total purchased and interchange power 2,577 19,637 Total supply 7,927 34,620 Less distribution and transmission loss 2,810 Total net bundled sales 31,810 1 Represents generation capacity during the summer months (planning year 2020 capacity as reported to MISO and limited by interconnection service limits), except for the Gratiot Farms Wind Project, which 19 Table of Contents began operation in December 2020. For wind and solar generation, the amount represents the effective load-carrying capability. 2 Represents Consumers’ share of the capacity of the J.H. Campbell 3 unit, net of the 6.69-percent ownership interest of the Michigan Public Power Agency and Wolverine Power Supply Cooperative, Inc. 3 Consumers plans to retire these coal-fueled generating units in 2023. 4 Represents Consumers’ 51-percent share of the capacity of Ludington. DTE Electric holds the remaining 49-percent ownership interest. 5 Represents Consumers’ share of net pumped-storage generation. The pumped-storage facility consumes electricity to pump water during off-peak hours for storage in order to generate electricity later during peak‑demand hours. 6 Represents purchases under long-term PPAs. 7 For information about Consumers’ long-term PPAs related to the MCV Facility and Palisades, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Contingencies and Commitments—Contractual Commitments. 8 Represents purchases from the MISO energy market. 20 Table of Contents Presented in the following table are the sources of Consumers’ electric supply for the last three years: GWh Years Ended December 31 2020 2019 2018 Owned generation Coal 7,960 9,776 9,804 Gas 5,883 6,289 5,272 Renewable energy 1,505 1,258 1,187 Oil 6 5 5 Net pumped storage 1 (371) (308) (325) Total owned generation 14,983 17,020 15,943 Purchased power 2 Gas generation 7,346 6,812 6,712 Nuclear generation 6,898 6,946 6,749 Renewable energy generation 2,225 2,387 2,379 Coal generation 513 462 511 Net interchange power 3 2,655 2,059 4,953 Total purchased and interchange power 19,637 18,666 21,304 Total supply 34,620 35,686 37,247 1 Represents Consumers’ share of net pumped-storage generation. During 2020, the pumped-storage facility consumed 1,369 GWh of electricity to pump water during off-peak hours for storage in order to generate 998 GWh of electricity later during peak-demand hours. 2 Represents purchases under long-term PPAs. 3 Represents purchases from the MISO energy market. During 2020, Consumers acquired 57 percent of the electricity it provided to customers through long-term PPAs and the MISO energy market. Consumers offers its generation into the MISO energy market on a day-ahead and real-time basis and bids for power in the market to serve the demand of its customers. Consumers is a net purchaser of power and supplements its generation capability with purchases from the MISO energy market to meet its customers’ needs during peak-demand periods. At December 31, 2020, Consumers had future commitments to purchase capacity and energy under long-term PPAs with various generating plants. These contracts require monthly capacity payments based on the plants’ availability or deliverability. The payments for 2021 through 2040 are estimated to total $9.0 billion and, for each of the next five years, range from $0.7 billion to $1.1 billion annually. These amounts may vary depending on plant availability and fuel costs. For further information about Consumers’ future capacity and energy purchase obligations, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Contractual Obligations and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Contingencies and Commitments—Contractual Commitments. During 2020, 23 percent of the energy Consumers provided to customers was generated by its coal-fueled generating units, which burned five million tons of coal and produced a combined total of 7,960 GWh of electricity. In order to obtain the coal it needs, Consumers enters into physical coal supply contracts. 21 Table of Contents At December 31, 2020, Consumers had future commitments to purchase coal through 2022; payment obligations under these contracts totaled $88 million. Most of Consumers’ rail-supplied coal contracts have fixed prices, although some contain market-based pricing. Consumers’ vessel-supplied coal contracts have fixed base prices that are adjusted monthly to reflect changes to the fuel cost of vessel transportation. At December 31, 2020, Consumers had 76 percent of its 2021 expected coal requirements under contract, as well as a 54-day supply of coal on hand. In conjunction with its coal supply contracts, Consumers leases a fleet of railcars and has transportation contracts with various companies to provide rail and vessel services for delivery of purchased coal to Consumers’ generating facilities. Consumers’ coal transportation contracts are future commitments and expire on various dates through 2025; payment obligations under these contracts totaled $718 million at December 31, 2020. During 2020, 17 percent of the energy Consumers provided to customers was generated by its natural gas‑fueled generating units, which burned 43 bcf of natural gas and produced a combined total of 5,883 GWh of electricity. In order to obtain the gas it needs for electric generation fuel, Consumers’ electric utility purchases gas from the market near the time of consumption, at prices that allow it to compete in the electric wholesale market. For units 3 & 4 of D.E. Karn and for the Jackson and Zeeland plants, Consumers utilizes an agent that owns firm transportation rights to each plant to purchase gas from the market and transport the gas to the facilities. Electric Utility Competition: Consumers’ electric utility business is subject to actual and potential competition from many sources, in both the wholesale and retail markets, as well as in electric generation, electric delivery, and retail services. Michigan law allows electric customers in Consumers’ service territory to buy electric generation service from alternative electric suppliers in an aggregate amount capped at ten percent of Consumers’ sales, with certain exceptions. At December 31, 2020, electric deliveries under the ROA program were at the ten‑percent limit. Of Consumers’ 1.9 million electric customers, fewer than 300, or 0.02 percent, purchased electric generation service under the ROA program. For additional information, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook—Consumers Electric Utility Outlook and Uncertainties. Consumers also faces competition or potential competition associated with industrial customers relocating all or a portion of their production capacity outside of Consumers’ service territory for economic reasons; municipalities owning or operating competing electric delivery systems; and customer self-generation. Consumers addresses this competition in various ways, including: • aggressively controlling operating, maintenance, and fuel costs and passing savings on to customers • providing renewable energy options and energy waste reduction programs • providing competitive rate-design options, particularly for large energy-intensive customers • offering tariff-based incentives that support economic development • monitoring activity in adjacent geographical areas 22 Table of Contents Consumers Gas Utility Gas Utility Operations: Consumers’ gas utility operations, which include the purchase, transmission, storage, distribution, and sale of natural gas, generated operating revenue of $1.8 billion in 2020, and $1.9 billion in 2019 and 2018. Consumers’ gas utility customer base consists of a mix of primarily residential, commercial, and diversified industrial customers in Michigan’s Lower Peninsula. Presented in the following illustration is Consumers’ 2020 gas utility operating revenue of $1.8 billion by customer class: Consumers’ gas utility operations are not dependent on a single customer, or even a few customers, and the loss of any one or even a few of Consumers’ largest customers is not reasonably likely to have a material adverse effect on Consumers’ financial condition. In 2020, deliveries of natural gas through Consumers’ pipeline and distribution network, including off-system transportation deliveries, totaled 360 bcf, which included GCC deliveries of 36 bcf. In 2019, deliveries of natural gas through Consumers’ pipeline and distribution network, including off-system transportation deliveries, totaled 391 bcf, which included GCC deliveries of 41 bcf. Consumers’ gas utility operations are seasonal. The consumption of natural gas typically increases in the winter, due primarily to colder temperatures and the resulting use of natural gas as heating fuel. Consumers injects natural gas into storage during the summer months for use during the winter months. During 2020, 43 percent of the natural gas supplied to all customers during the winter months was supplied from storage. 23 Table of Contents Presented in the following illustration are Consumers’ monthly weather-normalized natural gas deliveries (deliveries adjusted to reflect normal weather conditions) to its customers, including GCC deliveries, during 2020 and 2019: Gas Utility Properties: Consumers’ gas transmission, storage, and distribution system consists of: • 2,410 miles of transmission lines • 15 gas storage fields with a total storage capacity of 309 bcf and a working gas volume of 151 bcf • 27,958 miles of distribution mains • eight compressor stations with a total of 167,017 installed and available horsepower In 2019, Consumers released its Methane Reduction Plan, which set a goal of net-zero methane emissions from its natural gas delivery system by 2030. Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices. The remaining emissions will be offset by purchasing and/or producing renewable natural gas. 24 Table of Contents Gas Utility Supply: In 2020, Consumers purchased 84 percent of the gas it delivered from U.S. suppliers. The remaining 16 percent was purchased from authorized GCC suppliers and delivered by Consumers to customers in the GCC program. Presented in the following illustration are the supply arrangements for the gas Consumers delivered to GCC and GCR customers during 2020: Firm gas transportation or firm city-gate contracts are those that define a fixed amount, price, and delivery time frame. Consumers’ firm gas transportation contracts are with Panhandle Eastern Pipe Line Company and Trunkline Gas Company, LLC, each a non‑affiliated company. Under these contracts, Consumers purchases and transports gas to Michigan for ultimate delivery to its customers. Consumers’ firm gas transportation contracts expire on various dates through 2023 and provide for the delivery of 31 percent of Consumers’ total gas supply requirements in 2021. Consumers purchases the balance of its required gas supply under firm city-gate contracts and through authorized suppliers under the GCC program. Gas Utility Competition: Competition exists in various aspects of Consumers’ gas utility business. Competition comes from GCC and from alternative fuels and energy sources, such as propane, oil, and electricity. Enterprises Segment—Non-Utility Operations and Investments CMS Energy’s enterprises segment, through various subsidiaries and certain equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production. The enterprises segment’s operating revenue was $229 million in 2020, $248 million in 2019, and $252 million in 2018. 25 Table of Contents Independent Power Production: Presented in the following table is information about the independent power plants in which CMS Energy had an ownership interest at December 31, 2020: Location Ownership Interest (%) Primary Fuel Type Gross Capacity (MW) 1 2020 Net Generation (GWh) Dearborn, Michigan 100 Natural gas 770 5,029 Gaylord, Michigan 100 Natural gas 134 4 Paulding County, Ohio 100 Wind 105 286 Comstock, Michigan 100 Natural gas 76 78 Delta Township, Michigan 100 Solar 24 42 Phillips, Wisconsin 100 Solar 3 5 Coke County, Texas 2 51 Wind 525 537 Filer City, Michigan 50 Coal 73 510 New Bern, North Carolina 50 Wood waste 50 229 Flint, Michigan 50 Wood waste 40 91 Grayling, Michigan 50 Wood waste 38 66 Total 1,838 6,877 1 Represents the intended full-load sustained output of each plant. The amount of capacity relating to CMS Energy’s ownership interest was 1,480 MW at December 31, 2020. 2 Began operation in September 2020. The operating revenue from independent power production was $32 million in 2020 and 2019, and $19 million in 2018. Energy Resource Management: CMS ERM purchases and sells energy commodities in support of CMS Energy’s generating facilities with a focus on optimizing CMS Energy’s independent power production portfolio. In 2020, CMS ERM marketed five bcf of natural gas and 7,080 GWh of electricity. Electricity marketed by CMS ERM was generated by independent power production of the enterprises segment and by unrelated third parties. CMS ERM’s operating revenue was $197 million in 2020, $216 million in 2019, and $233 million in 2018. Enterprises Segment Competition: The enterprises segment competes with other independent power producers. The needs of this market are driven by electric demand and the generation available. EnerBank EnerBank Operations: EnerBank is a Utah state-chartered, FDIC-insured industrial bank providing primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements. EnerBank works with strategic business partners and contractors throughout the U.S. to provide homeowners with payment options for home improvements. Strategic business partners include manufacturers, distributors, franchisors, member or trade associations, and major retailers of home improvement, remodeling, and energy-saving products and services. EnerBank’s operating revenue was $262 million in 2020, $221 million in 2019, and $157 million in 2018. EnerBank’s average loan size is $10,000 and all of the loans originated by EnerBank in 2020 were fixed-rate installment loans. The distribution of borrowers throughout the U.S. is generally consistent with the population distribution by state. 26 Table of Contents EnerBank Competition: EnerBank competes with FDIC-insured banks, credit unions, consumer finance companies, and financial technology companies. EnerBank addresses this competition by: • offering competitive loan features and pricing • maintaining a stable funding model • providing convenient loan processes for contractors and homeowners • providing strong marketing support for strategic business partners and authorized contractors • focusing on customer service CMS Energy and Consumers Regulation CMS Energy, Consumers, and their subsidiaries are subject to regulation by various federal, state, and local governmental agencies, including those described in the following sections. If CMS Energy or Consumers failed to comply with applicable laws and regulations, they could become subject to fines, penalties, or disallowed costs, or be required to implement additional compliance, cleanup, or remediation programs, the cost of which could be material. For more information on the potential impacts of government regulation affecting CMS Energy and Consumers, see Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook, and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Regulatory Matters. FERC and NERC FERC has exercised limited jurisdiction over several independent power plants and exempt wholesale generators in which CMS Enterprises has ownership interests, as well as over CMS ERM, CMS Gas Transmission, and DIG. FERC’s jurisdiction includes, among other things, acquisitions, operations, disposals of certain assets and facilities, services provided and rates charged, and conduct among affiliates. FERC also has limited jurisdiction over holding company matters with respect to CMS Energy. FERC, in connection with NERC and with regional reliability organizations, also regulates generation and transmission owners and operators, load serving entities, purchase and sale entities, and others with regard to reliability of the bulk power system. FERC regulates limited aspects of Consumers’ gas business, principally compliance with FERC capacity release rules, shipping rules, the prohibition against certain buy/sell transactions, and the price-reporting rule. FERC also regulates certain aspects of Consumers’ electric operations, including compliance with FERC accounting rules, wholesale and transmission rates, operation of licensed hydroelectric generating plants, transfers of certain facilities, corporate mergers, and issuances of securities. MPSC Consumers is subject to the jurisdiction of the MPSC, which regulates public utilities in Michigan with respect to retail utility rates, accounting, utility services, certain facilities, certain asset transfers, corporate mergers, and other matters. The Michigan Attorney General, ABATE, the MPSC Staff, and certain other parties typically participate in MPSC proceedings concerning Consumers. These parties often challenge various aspects of those proceedings, including the prudence of Consumers’ policies and practices, and seek cost disallowances and other relief. The parties also have appealed significant MPSC orders. 27 Table of Contents Rate Proceedings: For information regarding open rate proceedings, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Regulatory Matters. Other Regulation The U.S. Secretary of Energy regulates imports and exports of natural gas and has delegated various aspects of this jurisdiction to FERC and the U.S. Department of Energy’s Office of Fossil Fuels. The U.S. Department of Transportation’s Office of Pipeline Safety regulates the safety and security of gas pipelines through the Natural Gas Pipeline Safety Act of 1968 and subsequent laws. EnerBank is regulated by the Utah Department of Financial Institutions and the FDIC. CMS Energy and Consumers Environmental Strategy and Compliance CMS Energy and Consumers are committed to protecting the environment; this commitment extends beyond compliance with applicable laws and regulations. In February 2020, Consumers announced a goal of achieving net-zero carbon emissions from its electric business by 2040. This goal includes not only emissions from Consumers’ owned generation, but also emissions from the generation of power purchased through long-term PPAs and from the MISO energy market. Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040 through execution of its Clean Energy Plan, which calls for replacing its coal-fueled generation predominantly with investment in renewable energy. The remaining emissions will be offset through alternative measures including, but not limited to, carbon sequestration, landfill methane emission capture, and large-scale tree planting. During 2020, Consumers provided 11 percent of its electricity (self-generated and purchased) from renewable sources. Additionally, Consumers began operation of Gratiot Farms Wind Project, a 150-MW wind generation project, in December 2020 and expects to take full ownership and begin commercial operation of another with capacity of up to 166 MW in early 2021. Furthermore, Consumers has executed agreements to purchase another wind generation project under development, with capacity of up to 201 MW, and a solar generating facility under development, with capacity of up to 150 MW. For each of these projects, Consumers expects to take full ownership and begin commercial operation of the project in 2022. In addition to Consumers’ efforts to reduce the electric utility’s carbon footprint, it is also making efforts to reduce the gas utility’s methane footprint. In 2019, Consumers released its Methane Reduction Plan, which set a goal of net-zero methane emissions from its natural gas delivery system by 2030. Consumers plans to reduce methane emissions from its system by about 80 percent by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices. The remaining emissions will be offset by purchasing and/or producing renewable natural gas. CMS Energy, Consumers, and their subsidiaries are subject to various federal, state, and local environmental regulations for air and water quality, solid waste management, and other matters. Consumers expects to recover costs to comply with environmental regulations in customer rates, but cannot guarantee this result. For additional information concerning environmental matters, see Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook, and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Contingencies and Commitments. 28 Table of Contents CMS Energy has recorded a $45 million liability for its subsidiaries’ obligations associated with Bay Harbor and Consumers has recorded a $56 million liability for its obligations at a number of former MGP sites. For additional information, see Item 1A. Risk Factors and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Contingencies and Commitments. Solid Waste Disposal: Costs related to the construction, operation, corrective action, and closure of solid waste disposal facilities for coal ash are significant. Consumers’ coal ash disposal areas are regulated under Michigan’s solid waste rules and by the EPA’s rules regulating CCRs. To address some of the requirements of these rules, Consumers has converted all of its fly ash handling systems to dry systems. In addition, Consumers’ ash facilities have programs designed to protect the environment and are subject to quarterly EGLE inspections. Consumers’ estimate of capital and cost of removal expenditures to comply with regulations relating to ash disposal is $156 million from 2021 through 2025. Water: Consumers uses substantial amounts of water to operate and cool its electric generating plants and gas compression stations. Water discharge quality is regulated and administered by EGLE under the federal NPDES program. To comply with such regulation, Consumers’ facilities have discharge monitoring programs. The EPA issued final regulations for wastewater discharges from electric generating plants in 2015 and amended them in 2017 and 2020. Consumers’ estimate of capital expenditures to comply with these regulations as presently promulgated is $23 million from 2021 through 2025. In 2014, the EPA finalized its cooling water intake rule for electric generating units, which requires Consumers to evaluate the biological impact of its cooling water intake systems and ensure that it is using the best technology available to minimize adverse environmental impacts. Consumers’ estimate of capital expenditures to comply with these regulations is $38 million from 2021 through 2025. Air: Consumers is subject to federal and state environmental regulations that require extensive reductions in nitrogen oxides, sulfur dioxides, particulate matter, and mercury emissions. To comply with these regulations, Consumers has invested in emissions control equipment at its electric generating plants. Consumers’ estimate of ongoing capital expenditures to comply with these regulations is $43 million from 2021 through 2025. Consumers’ future costs to comply with solid waste disposal, water, and air environmental regulations may vary depending on future legislation, litigation, executive orders, treaties, or rulemaking. For further information concerning estimated capital expenditures related to solid waste disposal, water, and air, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook—Consumers Electric Utility Outlook and Uncertainties—Electric Environmental Outlook. Insurance CMS Energy and its subsidiaries, including Consumers, maintain insurance coverage generally similar to comparable companies in the same lines of business. The insurance policies are subject to terms, conditions, limitations, and exclusions that might not fully compensate CMS Energy or Consumers for all losses. A portion of each loss is generally assumed by CMS Energy or Consumers in the form of deductibles and self-insured retentions that, in some cases, are substantial. As CMS Energy or Consumers renews its policies, it is possible that some of the present insurance coverage may not be renewed or obtainable on commercially reasonable terms due to restrictive insurance markets. 29 Table of Contents Human Capital CMS Energy and Consumers employ a highly trained and skilled workforce comprised of union, non ‑ union, and seasonal employees, and also uses contractors. Presented in the following table are the number of employees and contractors of CMS Energy and Consumers: December 31 2020 2019 2018 CMS Energy, including Consumers Full-time employees 8,148 8,128 7,957 Seasonal employees 1 603 594 603 Part-time employees 86 67 65 Contractors 508 509 656 Total workforce 9,345 9,298 9,281 Consumers Full-time employees 7,617 7,642 7,504 Seasonal employees 1 603 594 603 Part-time employees 10 17 14 Contractors 508 509 656 Total workforce 8,738 8,762 8,777 1 Consumers’ seasonal workforce peaked at 603 employees during 2020, and 614 employees during 2019 and 2018. Seasonal employees work primarily during the construction season. 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 customer contact center employees. The USW represents Zeeland plant employees. For information about CMS Energy’s and Consumers’ collective bargaining agreements, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook—Other Outlook and Uncertainties and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12, Retirement Benefits. The safety of employees, customers, and the general public is a priority of CMS Energy and Consumers. Accordingly, CMS Energy and Consumers have worked to integrate a set of safety principles into their business operations and culture. These principles include complying with applicable safety, health, and security regulations and implementing programs and processes aimed at continually improving safety and security conditions. On an annual basis, CMS Energy and Consumers set various safety goals, with their primary measure being the number of recordable incidents. There were 101 recordable incidents in 2020 and 105 recordable incidents in 2019. The target for 2021 is no more than 81 recordable incidents. Over the last ten years, Consumers’ OSHA recordable incident rate has decreased by over 53 percent and ranks in the first quartile of its EEI peer group. In response to the COVID-19 pandemic, CMS Energy and Consumers have issued a response plan that is focused on the health, safety, and well-being of their co-workers, customers, and communities. CMS Energy and Consumers have aligned with safety and health guidelines from the CDC, OSHA, and the Michigan Department of Health and Human Services in order to protect their employees, customers, and contractors to ensure the continued delivery of critical energy services. For more information about CMS Energy’s and Consumers’ response to the COVID-19 pandemic, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Overview. 30 Table of Contents Within the utility industry, there is strong competition for rare, high-demand talent, including those related to renewable energy generation, technology, and data analytics. In order to address this competition and to be able to meet its human capital needs, CMS Energy and Consumers provide compensation and benefits that are competitive with industry peers. Furthermore, the companies have developed a comprehensive talent strategy, the Talent Roadmap, to attract, develop, and retain highly skilled employees. The strategy focuses on three areas, which are summarized below. • Cultivating a Purpose-Driven Culture: This goal is aimed at ensuring all co-workers understand how their work drives the companies’ key strategic goals. The companies’ progress toward a purpose-driven culture is measured through an engagement index and an empowerment index developed from data obtained through an annual employee engagement survey of union and non-union co-workers administered by a third party. For the year ended December 31, 2020, the employee engagement index score was 83 percent, which ranked in the first quartile of U.S. utilities. The employee empowerment index score, which measures the percentage of employees that feel the workplace promotes empowerment, was 63 percent. Each employee empowerment question was individually benchmarked and ranked in the second quartile of high-performing companies. The high-performing benchmark was created by the third party who administered the survey through a targeted sampling of working adults within the U.S. who work for firms with widely respected reputations. CMS Energy and Consumers have a goal to achieve a first-quartile score by 2024. • Creating a Breakthrough Employee Experience: A breakthrough employee experience is one that instills pride and ownership in one’s work. To measure progress toward a breakthrough employee experience, the companies measure employees’ satisfaction with people processes, such as performance management and hiring and onboarding new employees. For the year ended December 31, 2020, the employee experience index was 52 percent; the companies have a goal to achieve a score of 80 percent within the next ten years. • Building Skill Sets at Scale: With an overarching goal of ensuring employees have the right skills to succeed, the companies measure progress in this area through achievement of workforce planning and hiring milestones and through a first-time skill attainment index to evaluate the effectiveness of training. The companies develop skill sets in co-workers through a variety of means, including union apprenticeship programs and yearly trainings for newly required skills. In 2021, the companies will launch a full-scale development program for leaders to enable robust succession planning and improve employee engagement and empowerment. This talent strategy allows CMS Energy and Consumers to shape employees’ experience and enable leaders to coach and develop co-workers, source talent, and anticipate and adjust to changing skill sets in the business environment. Diversity, Equity, and Inclusion As a part of the companies’ Talent Roadmap, CMS Energy and Consumers also employ a comprehensive diversity, equity, and inclusion strategy designed to embed diversity, equity, and inclusion into all aspects of their business. This is done through embedding standards for diversity, equity, and inclusion into all company processes and ensuring these standards are incorporated into all employee experiences. To measure their success, the companies utilize select questions in the annual engagement survey to create a diversity, equity, and inclusion index. For the year ended December 31, 2020, the diversity, equity, and inclusion index score was 76 percent; the companies have a goal to achieve a score of 78 percent in 2021. Co-workers are also empowered to engage in employee resource groups and events that encourage candid conversations around diversity, equity, and inclusion. There are seven employee resource groups available to all co-workers; these groups are, by date of origin: 31 Table of Contents • the Women’s Advisory Panel, contributing to the achievement of the corporate strategy by supporting the retention, development, and success of women • the Minority Advisory Panel, promoting a culture of diversity and inclusion among all racial and ethnic minorities through education, leadership, development, and networking • the Women’s Engineering Network, connecting and empowering women in the science, technology, engineering, and mathematics fields, while building capabilities to support company objectives • the Veteran’s Advisory Panel, supporting former and active military personnel and assisting in recruiting and retaining veterans through career development • GEN-ERGY, a multigenerational group designed to bridge the gap of learning, networking, and mentoring across the generations of the companies’ workforce • the Pride Alliance of Consumers Energy, promoting an inclusive environment that is safe, supportive, and respectful for lesbian, gay, bi-sexual, and transgender persons and allies • capABLE, aimed at removing barriers and creating pathways to meaningful work for employees of all abilities 32 Table of Contents Information About CMS Energy’s and Consumers’ Executive Officers Presented in the following table are the company positions held during the last five years for each of CMS Energy’s and Consumers’ executive officers as of February 1, 2021: Name, Age, Position(s) Period Garrick J. Rochow (age 46) CMS Energy President, CEO, and Director 12/2020 – Present Executive Vice President 1/2020 – 12/2020 Senior Vice President 7/2016 – 1/2020 Vice President 3/2015 – 7/2016 Consumers President, CEO, and Director 12/2020 – Present Executive Vice President 1/2020 – 12/2020 Senior Vice President 7/2016 – 1/2020 Vice President 10/2010 – 7/2016 CMS Enterprises Chairman of the Board, CEO, and Director 12/2020 – Present Rejji P. Hayes (age 46) 1 CMS Energy Executive Vice President and CFO 5/2017 – Present Consumers Executive Vice President and CFO 5/2017 – Present CMS Enterprises Executive Vice President, CFO, and Director 5/2017 – Present EnerBank Chairman of the Board and Director 10/2018 – Present Jean-Francois Brossoit (age 53) 2 CMS Energy Senior Vice President 4/2017 – Present Vice President 11/2016 – 4/2017 Consumers Senior Vice President 4/2017 – Present Vice President 11/2016 – 4/2017 33 Table of Contents Name, Age, Position(s) Period Catherine A. Hendrian (age 52) CMS Energy Senior Vice President 4/2017 – Present Vice President 3/2015 – 4/2017 Director of Human Resources 10/2012 – 3/2015 Consumers Senior Vice President 4/2017 – Present Vice President 3/2015 – 4/2017 Director of Human Resources 10/2012 – 3/2015 Brandon J. Hofmeister (age 44) CMS Energy Senior Vice President 7/2017 – Present Consumers Senior Vice President 7/2017 – Present Vice President 7/2016 – 7/2017 Executive Director, Policy Research, Analysis, and Public Affairs 6/2015 – 7/2016 Executive Director, Policy Research and Analysis 9/2013 – 6/2015 CMS Enterprises Senior Vice President 9/2017 – Present Shaun M. Johnson (age 42) 3 CMS Energy Senior Vice President and General Counsel 5/2019 – Present Vice President and Deputy General Counsel 4/2016 – 5/2019 Consumers Senior Vice President and General Counsel 5/2019 – Present Vice President and Deputy General Counsel 4/2016 – 5/2019 CMS Enterprises Senior Vice President, General Counsel, and Director 4/2019 – Present Vice President and General Counsel 10/2018 – 4/2019 EnerBank Senior Vice President and General Counsel 8/2018 – 6/2020 Venkat Dhenuvakonda Rao (age 50) CMS Energy Senior Vice President 9/2016 – Present Vice President and Treasurer 7/2012 – 9/2016 Consumers Senior Vice President 9/2016 – Present Vice President and Treasurer 7/2012 – 9/2016 CMS Enterprises Director 11/2017 – Present Senior Vice President 9/2016 – Present Vice President and Treasurer 7/2012 – 9/2016 EnerBank Chairman of the Board 9/2016 – 5/2017 34 Table of Contents Name, Age, Position(s) Period Brian F. Rich (age 46) CMS Energy Senior Vice President and Chief Customer Officer 8/2019 – Present Senior Vice President and Chief Information Officer 7/2016 – 8/2019 Vice President and Chief Information Officer 7/2014 – 7/2016 Consumers Senior Vice President and Chief Customer Officer 8/2019 – Present Senior Vice President and Chief Information Officer 7/2016 – 8/2019 Vice President and Chief Information Officer 7/2014 – 7/2016 LeeRoy Wells, Jr. (age 42) CMS Energy Senior Vice President 12/2020 – Present Consumers Senior Vice President 12/2020 – Present Vice President 8/2017 – 12/2020 Executive Director, Electric Systems Operations and Maintenance 12/2015 – 8/2017 Glenn P. Barba (age 55) CMS Energy Vice President, Controller, and CAO 2/2003 – Present Consumers Vice President, Controller, and CAO 1/2003 – Present CMS Enterprises Vice President, Controller, and CAO 11/2007 – Present 1 Prior to joining CMS Energy and Consumers, Mr. Hayes was executive vice president and CFO for ITC Holdings Corp., a non‑affiliated company, from May 2014 through November 2016. Mr. Hayes started with ITC Holdings Corp. in 2012 as vice president of finance and treasurer. 2 Prior to joining CMS Energy and Consumers, Mr. Brossoit was vice president of manufacturing operations for United Technologies Corp., a non‑affiliated company. Mr. Brossoit started with United Technologies Corp. in 2006. 3 Prior to joining CMS Energy and Consumers, Mr. Johnson was a partner with Dykema Gossett PLLC, a non ‑ affiliated company, from 2012 to 2016. Mr. Johnson started with Dykema Gossett PLLC in 2005. There are no family relationships among executive officers and directors of CMS Energy or Consumers. The list of directors and their biographies will be included in CMS Energy’s and Consumers’ definitive proxy statement for their 2021 Annual Meetings of Shareholders to be held May 7, 2021. The term of office of each of the executive officers extends to the first meeting of each of the Boards of Directors of CMS Energy and Consumers after the next annual election of Directors of CMS Energy and Consumers (to be held on May 7, 2021). Available Information CMS Energy’s internet address is www.cmsenergy.com. CMS Energy routinely posts important information on its website and considers the Investor Relations section, www.cmsenergy.com/investor-relations, a channel of distribution. Information contained on CMS Energy’s website is not incorporated 35 Table of Contents herein. CMS Energy’s and Consumers’ annual reports on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act are accessible free of charge on CMS Energy’s website. These reports are available soon after they are electronically filed with the SEC. Also on CMS Energy’s website are CMS Energy’s and Consumers’: • Corporate Governance Principles • Articles of Incorporation • Bylaws • Charters and Codes of Conduct (including the Charters of the Audit Committee, Compensation and Human Resources Committee, Finance Committee, and Governance, Sustainability and Public Responsibility Committee, as well as the Employee, Board of Directors, EnerBank, and Third Party Codes of Conduct) CMS Energy will provide this information in print to any stockholder who requests it. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address is www.sec.gov.