What changed in this filing

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Item 1A. Risk Factors

2022-02-10 compared with 2021-02-11 · 57 added, 48 removed, 180 unchanged (37% of the section changed)

17 unchanged sentences

CMS Energy’s ability to meet its debt service obligations and to reduce its total indebtedness will depend on its future performance, which will be subject to general economic conditions, industry cycles, changes in laws or regulatory decisions, and financial, business, and other factors affecting its operations, many of which are beyond its control.

CMS Energy cannot make assurances that its businesses will continue to generate sufficient cash flow from operations to service its indebtedness, which could require CMS Energy to sell assets or obtain additional financing.

CMS Energy cannot make assurances that its businesses will continue to

generate sufficient cash flow from operations to service its indebtedness, which could require CMS Energy to sell assets or obtain additional financing.

CMS Energy and Consumers have financing needs and could be unable to obtain bank financing or access the capital markets.

25 unchanged sentences

If the ROA limit were increased or if electric generation service in Michigan were deregulated, it could have a material adverse effect on CMS Energy and Consumers.

CMS Energy and Consumers are subject to rate regulation, which could have an adverse effect on financial results.

Distributed energy resources could have a material adverse effect on CMS Energy’s and Consumers’ businesses.

Michigan law allows customers to use distributed energy resources for their electric energy needs.

These distributed energy resources are connected to Consumers’ electric grid.

The state distributed generation program is currently capped by the 2016 Energy Law at one percent of utilities’ peak loads, but Consumers has voluntarily agreed to increase the cap to two percent on its system.

Consumers is required to purchase distributed generation customers’ excess generation at rates determined by the MPSC.

Recent FERC policy will also soon allow many customer-owned behind-the-meter and grid-connected distributed energy resources to participate in and receive revenue from wholesale electricity markets.

Increased customer use of distributed energy resources could result in a reduction of Consumers’ electric sales.

Third parties’ operations of distributed energy resources could also potentially have a negative impact on the stability of the grid.

An increase in customers’ use of distributed energy resources, and the rate structure for distributed energy resources customers’ use of Consumers’ system and Consumers’ purchases of their excess generation, could have a material adverse effect on CMS Energy and Consumers.

CMS Energy and Consumers are subject to rate regulation, which could have a material adverse effect on financial results.

CMS Energy and Consumers are subject to rate regulation.

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For example, MPSC orders could prevent or curtail Consumers from shutting off non‑paying customers or could prevent or limit the implementation of a gas revenue mechanism.

FERC authorizes certain subsidiaries of CMS Energy to sell electricity at market-based rates.

FERC authorizes certain subsidiaries of CMS Energy to sell wholesale electricity at market-based rates.

Failure of these subsidiaries to maintain this FERC authority could have a material adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.

Transmission rates are also set by FERC.

Transmission rates paid by Consumers and other CMS Energy subsidiaries are also set by FERC, as are the tariff terms governing the participation of Consumers and other CMS Energy subsidiaries in FERC-regulated wholesale electricity markets operated by regional transmission organizations and independent system operators such as MISO and PJM.

At least one CMS Energy subsidiary participates in the wholesale electricity markets operated by ERCOT, over which FERC has limited control.

The various risks associated with the MPSC and FERC regulation of CMS Energy’s and Consumers’ businesses, which include the risk of adverse decisions in any number of rate or regulatory proceedings before either agency, as well as judicial proceedings challenging any agency decisions, could have a material adverse effect on CMS Energy and Consumers.

Changes to the tariffs or business practice manuals of certain wholesale market operators such as MISO, PJM, or ERCOT could also have a material adverse effect on CMS Energy and Consumers.

Utility regulation, state or federal legislation, and compliance could have a material adverse effect on CMS Energy’s and Consumers’ businesses.

1 unchanged sentence

If it were determined that 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.

CMS Energy and Consumers cannot predict the impact of new laws, rules, regulations, principles, or practices by federal or state agencies, or challenges or changes to present laws, rules, regulations, principles, or practices and the interpretation of any adoption or change.

CMS Energy and Consumers cannot predict the impact of new laws, rules, regulations, principles, or practices by federal or state agencies or wholesale electricity market operators, or challenges or changes to present laws, rules, regulations, principles, or practices and the interpretation of any adoption or change.

Furthermore, any state or federal legislation concerning CMS Energy’s or Consumers’ operations could also have a material adverse effect.

FERC, through NERC, oversees reliability of certain portions of the electric grid.

CMS Energy and Consumers cannot predict the impact of FERC orders regarding electric system reliability.

FERC, through NERC and its delegated regional entities, oversees reliability of certain portions of the electric grid.

CMS Energy and Consumers cannot predict the impact of FERC orders or actions of NERC and its regional entities on electric system reliability.

Additionally, national gas pipeline infrastructure has recently been under scrutiny following disruptions related to extreme weather and cyber incidents.

In 2021, the Transportation Security Administration issued two mandatory security directives related to natural gas pipelines that apply to Consumers.

Additional regulation in this area could adversely affect Consumers’ gas operations.

CMS Energy and Consumers have announced an ambitious plan to reduce their impact on climate change.

Achieving this plan depends on numerous factors, many of which are outside of their control.

Consumers has announced a long-term strategy for delivering clean, reliable, resilient, and affordable energy, including a plan to end coal use in 2025 as set forth in the 2021 IRP.

The MPSC, FERC, other regulatory authorities, or other third parties may prohibit, delay, impair, or deny approval or consent of the 2021 IRP and some or all of the 2021 IRP-associated natural gas-fueled plant acquisitions, or deny reasonable rate recovery of the undepreciated plant balances associated with the retirement of coal-fueled plants necessary to proceed with the 2021 IRP.

Consumers may be unable to acquire, site, and/or permit some or all of the generation capacity proposed in the 2021 IRP.

Consumers’ ability to implement the 2021 IRP may be affected by global supply chain disruptions and changes in the cost, availability, and supply of generation capacity.

Advancements in technology related to items such as battery storage and electric vehicles may not become commercially available or economically feasible as projected in the 2021 IRP.

Customer programs such as energy efficiency and demand response may not realize the projected levels of customer participation.

CMS Energy and Consumers could suffer financial loss, reputational damage, litigation, or other negative repercussions if they are unable to achieve their ambitious plan.

Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact CMS Energy and Consumers.

CMS Energy and Consumers are required to make judgments regarding the potential tax effects of various financial transactions and results of operations in order to estimate their obligations to taxing authorities.

The tax obligations include income taxes, real estate taxes, sales and use taxes, employment-related taxes, and ongoing issues related to these tax matters.

2 unchanged sentences

Additionally, changes in federal, state, or local tax rates or other changes in tax laws could have adverse impacts.

CMS Energy and its subsidiaries, including Consumers and EnerBank, must comply with the Dodd-Frank Act and its related regulations, which are subject to change and could involve material costs or affect operations.

Regulations that are intended to implement the Dodd-Frank Act have been and are still being adopted and modified by the appropriate agencies.

The Dodd-Frank Act added a new Section 13 to the Bank Holding Company Act.

Known, together with its implementing regulations, as the Volcker Rule, it generally restricts certain banking entities (such as EnerBank) and their subsidiaries or affiliates from engaging in proprietary trading activities and from owning equity in or sponsoring any private equity funds or hedge funds (or certain other private issuing entities).

The activities of CMS Energy and its subsidiaries (including EnerBank) have not been and are not expected to be materially affected by the Volcker Rule;

however, they are restricted from engaging in proprietary trading, investing in third‑party hedge or private equity funds (and certain other private issuing entities), and sponsoring these funds (and entities) in the future unless CMS Energy qualifies for an exemption from the rule.

CMS Energy and its subsidiaries are also subject to certain ongoing compliance requirements pursuant to the regulations.

CMS Energy cannot predict the full impact of the Volcker Rule, including any impact resulting from changes to implementing regulations, on CMS Energy’s or EnerBank’s operations or financial condition.

All companies that directly or indirectly control an FDIC-insured bank are required to serve as a source of financial strength for that institution.

As a result, CMS Energy could be called upon by the FDIC to infuse additional capital into EnerBank to the extent that EnerBank fails to satisfy its capital requirements.

In addition, CMS Energy is contractually required (i) to make cash capital contributions to EnerBank in the event that EnerBank does not maintain required minimum capital ratios and (ii) to provide EnerBank

financial support, in an amount and duration as may be necessary for EnerBank to meet the cash needs of its depositors and other operations.

In addition, the Dodd-Frank Act provides for regulation by the Commodity Futures Trading Commission of certain commodity-related contracts.

Although CMS Energy, Consumers, EnerBank, and certain subsidiaries of CMS Enterprises qualify for an end-user exception from mandatory clearing of commodity-related swaps, these regulations could affect the ability of these entities to participate in these markets and could add additional regulatory oversight over their contracting activities.

CMS Energy and its subsidiaries, including Consumers, must comply with the Dodd-Frank Act and its related regulations.

The Dodd-Frank Act provides for regulation by the Commodity Futures Trading Commission of certain commodity-related contracts.

Although CMS Energy, Consumers, and certain subsidiaries of CMS Enterprises qualify for an end-user exception from mandatory clearing of commodity-related swaps, these regulations could affect the ability of these entities to participate in these markets and could add additional regulatory oversight over their contracting activities.

CMS Energy and Consumers could incur substantial costs to comply with environmental requirements.

2 unchanged sentences

Present and reasonably anticipated state and federal environmental statutes and regulations will continue to have a material effect on CMS Energy and Consumers.

CMS Energy and Consumers have interests in fossil-fuel-fired power plants and other types of power plants that produce greenhouse gases.

CMS Energy and Consumers have interests in fossil-fuel-fired power plants, other types of power plants, and natural gas systems that emit greenhouse gases.

Federal and state environmental laws and rules, as well as international accords and treaties, could require CMS Energy and Consumers to install additional equipment for emission controls, undertake heat-rate improvement projects, purchase carbon emissions allowances, curtail operations, invest in generating capacity with fewer carbon dioxide emissions, or take other significant steps to manage or lower the emission of greenhouse gases.

3 unchanged sentences

• extreme weather conditions, such as severe storms or flooding, that may affect customer demand, company operations, or assets

Consumers retired seven smaller coal-fueled electric generating units in 2016.

Consumers may encounter environmental conditions that will need to be addressed in a timely fashion with state and federal environmental regulators as facilities and equipment on these sites are taken out of service.

Consumers expects to collect fully from its customers, through the ratemaking process, expenditures incurred to comply with environmental regulations, but cannot guarantee this outcome.

2 unchanged sentences

Business—CMS Energy and Consumers Environmental Strategy and Compliance and Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook—Consumers Electric Utility Outlook and Uncertainties and Consumers Gas Utility Outlook and Uncertainties.

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

CMS Energy’s and Consumers’ businesses could be affected adversely by any delay in meeting environmental requirements.

6 unchanged sentences

CMS Energy and Consumers expect to incur additional substantial costs related to remediation of legacy environmental sites.

Consumers expects to incur additional substantial costs related to the remediation of its former MGP sites and other response activity costs at a number of other sites under NREPA and CERCLA.

Consumers expects to incur additional substantial costs related to the remediation of its former MGP sites and other response activity costs at a number of other sites, including, but not limited to, sites of retired coal-fueled electric generating units, under NREPA and CERCLA.

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

5 unchanged sentences

• effective cost and schedule management of new capital projects

• availability of qualified construction personnel

• changes in commodity and other prices

• availability of qualified construction personnel, both internal and contracted

• changes in commodity and other prices, applicable tariffs, and/or material and equipment availability

• governmental approvals and permitting

2 unchanged sentences

• regulatory cost recovery

• inflation of labor rates

• increases in lead times and disruptions in supply chain distribution

• barriers to accessing key materials for renewable projects (solar, battery, and other key equipment) created by geopolitical relations and U.S.

relations with China

It is possible that adverse events associated with these factors could have a material adverse effect on Consumers.

9 unchanged sentences

In 2015, the matter was proceeding to formal arbitration;

however, since then, the government of Equatorial Guinea has stopped communicating.

CMS Energy has concluded that the government’s tax claim is without merit and will continue to contest the claim, but cannot predict the financial impact or outcome of the matter.

however, since then, the government of Equatorial Guinea has stopped communicating with CMS Energy.

CMS Energy has concluded that the government’s tax claim is without merit and believes the likelihood of material loss to be remote, but cannot predict the financial impact or outcome of the matter.

Consumers is exposed to risks related to general economic conditions in its service territories.

16 unchanged sentences

Cyber crime, which includes the use of malware, computer viruses, and other means for disruption or unauthorized access against companies, including CMS Energy and Consumers, is increasing in frequency, scope, and potential impact.

While CMS Energy and Consumers have not been subject to cyber crime incidents that have had a material impact on their operations to date, their security measures in place may be insufficient to prevent a major cyber incident in the future.

While CMS Energy and Consumers have not been subject to cyber incidents that have had a material impact on their operations to date, their security measures in place may be insufficient to prevent a major cyber incident in the future.

If technology systems, including disaster recovery and backup systems, were to fail or be breached, CMS Energy and Consumers might not be able to fulfill critical business functions, and sensitive confidential and proprietary data could be compromised.

In addition, because CMS Energy’s and Consumers’ generation, transmission, and distribution systems are part of an interconnected system, a disruption caused by a cyber incident at another utility, electric generator, system operator, or commodity supplier could also adversely affect CMS Energy or Consumers.

A variety of technological tools and systems, including both company-owned IT and technological services provided by outside parties, support critical functions.

A variety of technological tools and systems, including both company-owned information technology and technological services provided by outside parties, support critical functions.

The failure of these technologies, including backup systems, or the inability of CMS Energy and Consumers to have these technologies supported, updated, expanded, or integrated into other technologies, could hinder their business operations.

A breach or failure of technology, including disaster recovery or backup systems, could also have a negative impact on CMS Energy’s banking subsidiary, EnerBank.

CMS Energy’s and Consumers’ businesses have liability risks.

2 unchanged sentences

CMS Energy and Consumers are subject to risks that are beyond their control, including but not limited to natural disasters, civil unrest, terrorist attacks and related acts of war, cyber incidents, vandalism, and other catastrophic events.

Natural disasters, severe weather, wars, terrorist acts, civil unrest, vandalism, theft, cyber incidents, pandemics, and other catastrophic events could result in severe damage to CMS Energy’s and Consumers’ assets beyond what could be recovered through insurance policies (which are subject to deductibles and limits), could require CMS Energy and Consumers to incur significant upfront costs, and could severely disrupt operations, resulting in loss of service to customers.

Natural disasters, severe weather, wars, terrorist acts, civil unrest, vandalism, theft, cyber incidents, pandemics, and other catastrophic events could result in severe damage to CMS Energy’s and Consumers’ assets beyond what could be recovered through insurance policies (which are subject to deductibles, limitations, and self-insurance amounts that could be material), could require CMS Energy and Consumers to incur significant upfront costs, and could severely disrupt operations, resulting in loss of service to customers.

There is also a risk that regulators could, after the fact, conclude that Consumers’ preparedness or response to such an event was inadequate and take adverse actions as a result.

Energy risk management strategies might not be effective in managing fuel and electricity pricing risks, which could result in unanticipated liabilities to CMS Energy and Consumers or increased volatility in their earnings.

CMS Energy and Consumers are exposed to changes in market prices for natural gas, coal, electric capacity, electric energy, emission allowances, gasoline, diesel fuel, and RECs.

CMS Energy and Consumers are exposed to changes in market prices for commodities including, but not limited to, natural gas, coal, electric capacity, electric energy, emission allowances, gasoline, diesel fuel, and RECs.

CMS Energy and Consumers manage commodity price risk using established policies and procedures, and they may use various contracts to manage this risk, including swaps, options, futures, and forward contracts.

14 unchanged sentences

Consumers has natural gas and coal supply and transportation contracts in place for the natural gas and coal it requires for its electric generating capacity.

Consumers also has interstate transportation and supply agreements in place to facilitate delivery of natural gas to its customers.

Consumers also has interstate transportation and

supply agreements in place to facilitate delivery of natural gas to its customers.

Apart from the contractual and monetary remedies available to Consumers in the event of a counterparty’s failure to perform under any of these contracts, there can be no assurances that the counterparties to these contracts will fulfill their obligations to provide natural gas or coal to Consumers.

8 unchanged sentences

The COVID‑19 pandemic has had widespread impacts on people, businesses, economies, and financial markets globally, in the U.S., and in markets where CMS Energy and Consumers conduct business.

Future impacts of the pandemic could include a prolonged reduction in economic activity, extended disruption to supply chains and operations, and reduced availability of labor and productivity.

Future impacts of the pandemic could include a prolonged reduction in economic activity, extended disruption to supply chains and operations, increased labor costs, and reduced availability of labor and productivity.

CMS Energy and Consumers provide essential services, which means that CMS Energy and Consumers must keep employees, who operate facilities or interact with customers, safe and minimize unnecessary risk of exposure to COVID‑19.

CMS Energy and Consumers have taken extra precautions in an effort to protect the health of employees working in the field and in CMS Energy’s and Consumers’ facilities.

CMS Energy and Consumers have also implemented work-from-home policies where possible.

This is an evolving situation;

CMS Energy and Consumers have also implemented masking and quarantine procedures, in accordance with CDC guidance.

This remains an evolving situation;

CMS Energy and Consumers will continue to monitor developments and will take additional necessary precautions in order to keep employees, customers, contractors, and communities safe.

The ultimate impact of the COVID‑19 pandemic depends on factors beyond CMS Energy’s and Consumers’ knowledge or control.

Consumers has experienced a decline in electric deliveries to commercial and industrial customers and increased uncollectible accounts .

Over the long term, the pandemic could have numer ous and significant adverse effects on CMS Energy and Consumers.

Additionally, EnerBank could experience slower lending growth, higher loan write-offs, and increased loan modifications.

CMS Energy and Consumers cannot predict how the COVID‑19 pandemic will impact CMS Energy and Consumers.

The degree to which COVID‑19 will impact CMS Energy and Consumers will depend in part on future developments, including the severity and duration of the outbreak, actions or inactions that may be taken by governmental authorities, and to what extent and when normal economic and operational conditions can resume.

The degree to which COVID‑19 will ultimately impact CMS Energy and Consumers will depend in part on future developments, including the severity and duration of COVID-19 and its variants, actions or inactions that may be taken by governmental authorities, including, but not limited to, COVID-19 vaccination and testing requirements, and to what extent and when normal economic and operational conditions can resume.

General Risk Factors

2 unchanged sentences

CMS Energy and Consumers depend on these counterparties to remit payments and perform contracted services in a timely fashion.

Any delay or default in payment or

performance of contractual obligations could have a material adverse effect on CMS Energy and Consumers.

Any delay or default in payment or performance of contractual obligations could have a material adverse effect on CMS Energy and Consumers.

Volatility and disruptions in capital and credit markets could have a negative impact on CMS Energy’s and Consumers’ lenders, vendors, contractors, suppliers, customers, and other counterparties, causing them to fail to meet their obligations.

Adverse economic conditions could also have a negative impact on the loan portfolio of CMS Energy’s banking subsidiary, EnerBank.

CMS Energy and Consumers are exposed to significant reputational risks.

12 unchanged sentences

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 1A. Risk Factors