What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-10 compared with 2021-02-11 · 484 added, 487 removed, 466 unchanged (68% of the section changed)

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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.

and CMS Enterprises, primarily a domestic independent power producer and marketer.

CMS Energy was also the parent holding company of EnerBank, an industrial bank located in Utah, until October 1, 2021 when EnerBank was acquired by Regions Bank as described below.

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

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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.

On October 1, 2021, EnerBank was acquired by Regions Bank.

CMS Energy received proceeds of over $1 billion from the transaction and recognized a pre-tax gain of $657 million.

CMS Energy intends to use the proceeds from the sale to fund key initiatives in its core energy business related to safety, reliability, and its clean energy transformation.

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

CMS Energy operates principally in four business segments:

CMS Energy operates principally in three business segments:

electric utility;

enterprises, its non‑utility operations and investments;

and EnerBank.

and enterprises, its non‑utility operations and investments.

As a result of the sale described above, EnerBank is no longer included in the composition of CMS Energy’s reportable segments.

EnerBank’s results of operations through the date of the sale are presented as income from discontinued operations.

Consumers operates principally in two business segments:

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• their securities’ credit ratings

COVID-19 Pandemic

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

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

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

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

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

The COVID‑19 pandemic is a continually evolving situation.

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

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

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

In April 2020, the MPSC issued an

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

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

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

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

Risk Factors and throughout this Item 7.

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

The Triple Bottom Line

CMS Energy’s and Consumers’ purpose is to achieve world class performance while delivering hometown service.

In support of this purpose, the companies employ the “Consumers Energy Way,” a lean operating model designed to improve safety, quality, cost, delivery, and employee morale.

In support of this purpose, CMS Energy and Consumers employ the “CE Way,” a lean operating model designed to improve safety, quality, cost, delivery, and employee morale.

CMS Energy and Consumers measure their progress toward the purpose by considering their impact on the “triple bottom line” of people, planet, and profit, which is underpinned by performance;

this consideration takes into account not only the economic value that the companies create for customers and investors, but also their responsibility to social and environmental goals.

The triple bottom line balances the interests of the companies’ employees, customers, suppliers, regulators, creditors, Michigan’s residents, the investment community, and other stakeholders, and it reflects the broader societal impacts of the companies’ activities.

Consumers’ Sustainability Report, which is available to the public, describes the company’s progress toward world class performance measured in the areas of people, planet, and profit.

The people element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to their employees, their customers, the residents of local communities in which the companies do business, and other stakeholders.

this consideration takes into account not only the economic value that CMS Energy and Consumers create for customers and investors, but also their responsibility to social and environmental goals.

The triple bottom

line balances the interests of employees, customers, suppliers, regulators, creditors, Michigan’s residents, the investment community, and other stakeholders, and it reflects the broader societal impacts of CMS Energy’s and Consumers’ activities.

CMS Energy’s Environmental, Social, Governance and Sustainability Report, which is available to the public, describes CMS Energy’s and Consumers’ progress toward world class performance measured in the areas of people, planet, and profit.

The safety of employees, customers, and the general public is a priority of CMS Energy and Consumers.

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These principles include complying with applicable safety, health, and security regulations and implementing programs and processes aimed at continually improving safety and security conditions.

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

Since 2010, Consumers’ OSHA recordable incident rate has decreased by 40 percent.

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

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

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

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

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

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

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

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

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

• required employees to work remotely when possible

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

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

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

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

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

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

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

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

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

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

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

CMS Energy and Consumers have aligned with safety and health guidelines from the CDC, OSHA, MIOSHA, 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.

In addition, while CMS Energy and Consumers have not yet experienced significant labor or supply chain disruption as a result of the COVID-19 pandemic, they continue to monitor minor disruptions and take steps to mitigate against future impacts in order to continue to provide safe and reliable service to customers.

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

Consumers’ customer-driven investment program is aimed at improving safety and increasing electric and gas reliability, which has resulted in measurable improvements in customer satisfaction.

In 2021, Consumers filed an updated Electric Distribution Infrastructure Investment Plan with the MPSC, which outlines a five-year strategy to improve its electric distribution system and the reliability of the grid.

The plan dedicates over $1 billion annually to projects that will reduce the number and duration of power outages to customers through investment in infrastructure upgrades, forestry management, and grid modernization.

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

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• supply chain optimization

• economic development to increase sales and reduce overall rates

• information and control system efficiencies

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• workforce productivity enhancements

In addition, Consumers’ gas commodity costs declined by 66 percent from 2010 through 2020, due not only to a decrease in market prices but also to Consumers’ improvements to its gas infrastructure and optimization of its gas purchasing and storage strategy.

In addition, Consumers’ gas commodity costs declined by 52 percent over the last ten years, due not only to a decrease in market prices but also to Consumers’ improvements to its gas infrastructure and optimization of its gas purchasing and storage strategy.

These gas commodity savings are passed on to customers.

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

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

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

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

As a result of actions already taken by CMS Energy and Consumers, the companies have:

As a result of actions already taken, CMS Energy and Consumers have:

• decreased their combined percentage of electric supply (self-generated and purchased) from coal by 13 percentage points since 2015

• reduced carbon dioxide emissions by over 30 percent since 2005

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

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

• reduced landfill waste disposal by over 1.6 million tons since 1992

• reduced methane emissions by 17 percent since 2012

Additionally, over the last 20 years, Consumers has reduced its sulfur dioxide, nitrogen oxide, particulate matter, and mercury emissions by over 90 percent.

Presented in the following illustration are Consumers’ reductions in these emissions (Consumers began tracking mercury emissions in 2007):

• reduced methane emissions by nearly 20 percent since 2012

Since 2005, Consumers has reduced its sulfur dioxide and particulate matter emissions by over 90 percent and its nitrogen oxide emissions by over 80 percent.

Consumers began tracking mercury emissions in 2007;

since that time, it has reduced such emissions by nearly 90 percent.

Presented in the following illustration are Consumers’ reductions in these emissions:

The 2016 Energy Law:

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

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

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

Consumers met the 15-percent requirement in 2021 and expects to meet the requirement in future years with a combination of newly generated RECs and previously generated RECs carried over from prior years

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

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

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

• established an integrated planning process for new generation resources

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

Consumers achieved 30 percent combined renewable energy and energy waste reduction through 2021

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

• established an integrated planning process for new capacity and energy resources

Consumers’ Clean Energy Plan details its strategy to meet customers’ long-term energy needs.

The Clean Energy Plan was originally outlined in Consumers’ 2018 IRP, which was approved by the MPSC in 2019.

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

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

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

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

In June 2021, Consumers filed its 2021 IRP with the MPSC, proposing updates to the Clean Energy Plan.

Within its 2021 IRP, which is subject to MPSC approval, Consumers outlines its long-term strategy for delivering clean, reliable, resilient, and affordable energy to its customers, including plans to:

• end the use of coal-fueled generation in 2025, 15 years sooner than initially planned

• purchase existing natural gas-fueled generating units, providing an additional 2,177 MW of nameplate capacity and allowing Consumers to continue providing controllable sources of electricity to customers

• expand its investment in renewable energy, adding nearly 8,000 MW of solar generation by 2040

These steps are expected to enable Consumers to meet and exceed the 2016 Energy Law renewable energy requirements and fulfill increasing customer demand for renewable energy.

The 2021 IRP is also expected to allow Consumers to exceed its breakthrough goal of at least 50 percent combined renewable energy and energy waste reduction by 2030.

Consumers has a goal of achieving net-zero carbon emissions from its electric business by 2040.

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

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

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

Consumers expects to meet 90 percent of its customers’ needs with clean energy sources by 2040 through execution of its 2021 IRP.

Carbon offset measures including, but not limited to, carbon sequestration, methane emission capture, and forest preservation and reforestation may be used to close the gap to achieving net-zero carbon emissions.

Presented in the following illustration is Consumers’ 2021 capacity portfolio and its future capacity portfolio as projected in the 2021 IRP.

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

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

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

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

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

1 Does not include RECs.

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

The executive order aims for a 28-percent reduction below 2005 levels of

greenhouse gas emissions by 2025.

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

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

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

In December 2021, Consumers announced plans to begin development of a renewable natural gas facility that will capture methane from manure generated at a neighboring farm and convert it into renewable natural gas.

The facility, expected to start production in 2023, will reduce methane emissions from the dairy farm and allow Consumers to deliver renewable natural gas as a cost-effective clean alternative fuel for customers.

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

• to reduce its water use by one billion gallons;

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

since 2017, Consumers reduced its water usage by over 1.3 billion gallons cumulatively

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

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

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

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

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

The project was completed and became operational in September 2020.

compared to 2017, Consumers reduced its landfill waste by 44 percent in 2021

Consumers exceeded each of these targets and is evaluating new targets for the coming years.

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

While CMS Energy and Consumers cannot predict the outcome of these matters, which could have a material effect on the companies, they intend to continue to move forward with their clean and lean strategy.

While CMS Energy and Consumers cannot predict the outcome of these matters, which could affect them materially, they intend to continue to move forward with their clean and lean strategy.

The profit element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to meeting their financial objectives and providing economic development opportunities and benefits in the communities in which they do business.

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This compares with net income available to common stockholders of $755 million and diluted EPS of $2.64 in 2020.

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

In 2021, the gain on the sale of EnerBank, along with benefits from gas and electric rate increases and higher electric sales were offset partially by higher service restoration costs, higher distribution, transmission, generation, and compression expenses, and increased depreciation and property taxes, reflecting higher capital spending.

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

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

Over the next five years, Consumers expects weather-normalized electric and gas deliveries to remain stable relative to 2021.

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During 2021, CMS Energy and Consumers:

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

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

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

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

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

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

• realized approximately $55 million in cost reductions by leveraging the CE Way and through other initiatives

• introduced a new economic development rate designed to attract new business to Michigan and encourage existing businesses to expand their operations

• achieved five-year planet goals, set in 2018, to save one billion gallons of water;

enhance, restore or protect 5000 acres of land in Michigan;

and reduce waste sent to landfills by 35 percent

• introduced a new three-year electric vehicle pilot program designed to help fleet owners transition to electric vehicles

• announced plans to begin development of a renewable natural gas facility that will convert agricultural waste into clean, renewable natural gas

• expanded their renewable energy programs that assist both business and residential customers in meeting their sustainability goals

• received recognition as #1 utility company in the U.S.

for America’s Best Employers for Women and America’s Best Employers for Diversity by Forbes ®

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

Consumers’ investment plan and the regulatory environment in which it operates also drive its ability to impact the triple bottom line.

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This rate-base growth, together with cost-control measures, should allow Consumers to maintain affordable customer prices.

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

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

The 2021 IRP, which is subject to MPSC approval, would add over $1 billion of capital expenditures to the $14.3 billion that Consumers already expects to make from 2022 through 2026, which are presented in the following illustration:

Of this amount, Consumers plans to spend $10.8 billion over the next five years to maintain and upgrade its gas infrastructure and electric distribution systems in order to enhance safety and reliability, improve customer satisfaction, reduce energy waste on those systems, and facilitate its clean energy transformation.

The gas infrastructure projects comprise $6.4 billion to sustain deliverability, enhance pipeline integrity and safety, and reduce methane emissions.

The electric distribution projects comprise $4.4 billion to strengthen circuits and substations, replace poles, and interconnect clean energy resources.

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

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

Consumers also expects to spend $2.8 billion on new clean generation, which includes investments in wind, solar, and hydro electric generation resources, and $0.7 billion on other electric supply projects.

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

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

2021 Electric Rate Case:

In December 2021, the MPSC approved an annual rate increase of $27 million, based on a 9.9 percent authorized return on equity that will be reflected in rates beginning January 1, 2022.

In its order, the MPSC disallowed cost recovery for certain categories of recently completed capital expenditures incurred by Consumers.

For additional details, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters.

2021 Gas Rate Case:

In December 2021, Consumers filed an application with the MPSC seeking an annual rate increase of $278 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending September 30, 2023.

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

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

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

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

• 2020 Electric Rate Case:

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

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

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

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

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

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

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

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

The filing requests authority to recover new

infrastructure investment and related costs that are expected to allow Consumers to improve system safety and reliability and reduce fugitive methane emissions.

Looking Forward

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Consumers will continue to seek fair and timely regulatory treatment that will support its customer-driven investment plan, while pursuing cost-control measures that will allow it to maintain sustainable customer base rates.

The Consumers Energy Way is an important means of realizing CMS Energy’s and Consumers’ purpose of achieving world class performance while delivering hometown service.

The CE Way is an important means of realizing CMS Energy’s and Consumers’ purpose of achieving world class performance while delivering hometown service.

Results of Operations

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In Millions, Except Per Share Amounts

Years Ended December 31 2020 2019 2018

Years Ended December 31 2021 2020 Change

Net Income Available to Common Stockholders $ 1,348 $ 755 $ 593

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Diluted Earnings Per Average Common Share $ 4.66 $ 2.64 $ 2.02

Years Ended December 31 2020 2019 Change 2019 2018 Change

Years Ended December 31 2021 2020 Change

Electric utility $ 565 $ 554 $ 11

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Enterprises 23 36 (13)

EnerBank 58 49 9 49 38 11

Corporate interest and other (144) (154) 10

Discontinued operations 602 58 544

Net Income Available to Common Stockholders $ 1,348 $ 755 $ 593

Presented in the following table are specific after-tax changes to net income available to common stockholders for 2020 versus 2019:

For a summary of net income available to common stockholders for 2020 versus 2019, as well as detailed changes by reportable segment, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations, in the Form 10‑K for the fiscal year ended December 31, 2020, filed February 11, 2021 .

Presented in the following table is a summary of after-tax changes to net income available to common stockholders for 2021 versus 2020:

Year Ended December 31, 2020 $ 755

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Gas sales (23)

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

Electric rate increase 105

Gas rate increase 74

Lower distribution, transmission, generation, and compression expenses 21

Lower corporate and IT expenses 20

Lower OPEB expenses 19

Lower service restoration costs 16

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

Lower income tax expense 34

Lower non-operating retirement benefits expenses 33

Absence of 2020 voluntary revenue refund 21

Lower donations 19

Higher service restoration costs (72)

Higher distribution, transmission, generation, and compression expenses (43)

Higher depreciation and amortization (39)

Higher donations (22)

Voluntary revenue refund 2

Higher property tax, reflecting higher capital spending (21)

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

Fleet and other asset impairments 1

Higher forestry costs (23)

Higher property taxes, reflecting higher capital spending (17)

Higher demand response expenses (11)

Absence of 2020 gain on sale of transmission assets, net of voluntary gain sharing (10)

Enterprises (13)

Corporate interest and other 10

Discontinued operations 544

Year Ended December 31, 2021 $ 1,348

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

1 See Note 2, Regulatory Matters.

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

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

Consumers Electric Utility Results of Operations

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Rate increase, including return on higher renewable capital spending $ 141

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

Higher revenue due primarily to favorable weather and sales mix 61

Higher energy waste reduction program revenues 21

Voluntary revenue refund 2

Lower other revenues (6)

Absence of 2020 voluntary revenue refund 2

Higher other revenues 12

Maintenance and other operating expenses

Lower service restoration costs 21

Lower corporate and IT expenses 17

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

Lower distribution, transmission, and generation expenses 13

Higher mutual insurance distribution 7

Higher service restoration costs (97)

Fleet and other asset impairments 2

Higher distribution, transmission, and generation expenses (31)

Higher forestry costs (31)

Higher energy waste reduction program costs (21)

Higher demand response costs (15)

Absence of 2020 gain on sale of transmission assets, net of voluntary gain sharing (14)

Absence of favorable 2019 litigation settlement (8)

Retention benefits related to D.E.

Voluntary separation plan expenses (6)

Lower maintenance and other operating expenses 13

Higher maintenance and other operating expenses (9)

Depreciation and amortization

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General taxes

Higher property tax, reflecting higher capital spending (12)

Higher property taxes, reflecting higher capital spending (10)

Other income, net of expenses

Lower OPEB expenses 13

Higher donations (19)

Lower non-operating retirement benefits expenses and other 24

Lower donations 18

Higher other income, net of expenses 5

Interest charges 10

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

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

Higher production tax credits attributable primarily to new wind generation projects

Absence of prior years’ research and development tax credits 3

Higher electric utility pre-tax earnings

Lower other income taxes 12

Higher other income taxes (7)

Year Ended December 31, 2021 $ 565

1 Deliveries to end-use customers were 36.2 billion kWh in 2021 and 35.4 billion kWh in 2020.

2 Includes $20 million for fleet disallowances, $10 million for other disallowances, and $4 million for fleet held-for-sale impairment.

See Note 2, Regulatory Matters.

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

4 See Note 22, Asset Sale and Exit Activities.

3 See Note 12, Income Taxes.

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

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

Consumers Gas Utility Results of Operations

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Rate increase $ 99

Lower sales due primarily to unfavorable weather (73)

Voluntary revenue refund 2

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

Lower energy waste reduction program revenues (3)

Higher other revenues 20

Absence of 2020 voluntary revenue refund 12

Higher energy waste reduction program revenues 9

Lower revenue due to unfavorable weather and sales mix (27)

Lower other revenues (5)

Maintenance and other operating expenses

Lower distribution, transmission, and compression expenses 15

Lower corporate and IT expenses 10

Lower energy waste reduction program costs 3

Voluntary separation plan expenses (4)

Lower maintenance and other operating expenses 3

Higher distribution, transmission, and compression expenses (27)

Fleet and other asset impairments 2

Higher energy waste reduction program costs (9)

Higher maintenance and other operating expenses (16)

Depreciation and amortization

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General taxes

Higher property tax, reflecting higher capital spending (16)

Lower other general taxes 2

Higher property taxes, reflecting higher capital spending (13)

Other income, net of expenses

Lower OPEB expenses 12

Higher donations (11)

Lower other income, net of expenses (4)

Lower non-operating retirement benefits expenses and other 20

Lower donations 9

Higher other income, net of expenses 4

Interest charges (2)

Lower income tax expense due primarily to acceleration of tax benefits associated with cost of removal 3

Lower income tax expense due primarily to accelerated amortization of excess deferred income taxes 3

Higher gas utility pre-tax earnings (6)

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

Absence of prior years’ research and development tax credits 3

Higher other income taxes (1)

1 unchanged sentence

1 Deliveries to end-use customers were 282 bcf in 2021 and 283 bcf in 2020.

2 Includes $9 million for fleet disallowances and $2 million for other disallowances.

See Note 2, Regulatory Matters.

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

3 See Note 12, Income Taxes.

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

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

Enterprises Results of Operations

2 unchanged sentences

Reason for the change

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

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

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

Lower earnings due primarily to outages at DIG

Absence of refund for alternative minimum tax credit sequestration 1

Year Ended December 31, 2021 $ 23

1 See Note 12, Income Taxes.

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

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

EnerBank Results of Operations

Presented in the following table are the detailed after-tax changes to EnerBank’s net income available to common stockholders for 2020 versus 2019:

Year Ended December 31, 2019 $ 49

Reason for the change

Higher earnings due primarily to growth in consumer lending $ 25

Implementation of new credit losses standard 1

Year Ended December 31, 2020 $ 58

1 See Note 2, New Accounting Standards.

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

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

Corporate Interest and Other Results of Operations

2 unchanged sentences

Reasons for the change

Absence of 2019 accrual for legacy legal obligation $ 22

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

Higher fixed charges due to higher debt (16)

Loss on early extinguishment of debt (12)

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

Absence of loss on early extinguishment of debt

Reduction in state tax liabilities 7

Absence of refund for alternative minimum tax credit sequestration 1

Preferred stock dividends (5)

Year Ended December 31, 2021 $ (144)

1 See Note 12, Income Taxes.

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

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

Results of Discontinued Operations

On October 1, 2021, EnerBank was acquired by Regions Bank.

As a result, EnerBank’s results of operations through the date of the sale are presented as income from discontinued operations on CMS Energy’s consolidated statements of income for 2021 and 2020.

For additional details, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 20, Exit Activities and Discontinued Operations.

Presented in the following table are the detailed after-tax changes to discontinued operations for 2021 versus 2020:

Year Ended December 31, 2020 $ 58

Reason for the change

Gain on sale of EnerBank $ 514

Higher earnings at discontinued operations 30

Year Ended December 31, 2021 $ 602

Cash Position, Investing, and Financing

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At December 31, 2021, Consumers had $44 million of consolidated cash and cash equivalents, which included $22 million of restricted cash and cash equivalents.

For specific components of net cash provided by operating activities, net cash used in investing activities, and net cash used in investing activities for 2020 versus 2019, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cash Position, Investing, and Financing, in the Form 10‑K for the fiscal year ended December 31, 2020, filed February 11, 2021 .

Operating Activities

5 unchanged sentences

Non‑cash transactions 1

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

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

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

Absence of pension contributions 700

Gain from sale of EnerBank in 2021 2

Lower cash provided by discontinued operations 2

Unfavorable impact of changes in core working capital, 3 due primarily to higher gas prices and the timing of collections on deliveries, offset partially by lower vendor payments

Favorable impact of changes in other assets and liabilities, due primarily to the absence of a payment to settle litigation and the timing of payments on higher property taxes 101

Year Ended December 31, 2021 $ 1,819

3 unchanged sentences

Non‑cash transactions 1

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

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

Lower postretirement benefits contributions, primarily absence of pension contributions 681

Unfavorable impact of changes in core working capital, 3 due primarily to higher gas prices and the timing of collections on deliveries, offset partially by lower vendor payments

Favorable impact of changes in other assets and liabilities, due primarily to lower income tax payments to CMS Energy and the timing of payments on higher property taxes 123

Year Ended December 31, 2021 $ 1,982

1 Non ‑ cash transactions comprise depreciation and amortization, changes in deferred income taxes and investment tax credits, bad debt expense, and other non‑cash operating activities and reconciling adjustments.

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

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

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

2 For information regarding the sale of EnerBank, see Note 20, Exit Activities and Discontinued Operations.

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

Investing Activities

3 unchanged sentences

Reasons for the change

Higher capital expenditures (213)

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

Lower purchases of notes receivable by EnerBank 326

Higher proceeds from sale of EnerBank notes receivable in 2020 130

Lower proceeds from sale of transmission equipment in 2020 1

Lower capital expenditures $ 235

Proceeds from sale of EnerBank in 2021 1 , net of cash and cash equivalents sold and transaction costs

Absence of proceeds from sale of transmission equipment in 2020

Higher cash provided by discontinued operations 1

Other investing activities (4)

2 unchanged sentences

Reasons for the change

Higher capital expenditures (85)

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

Lower proceeds from sale of transmission equipment in 2020 1

Lower capital expenditures $ 118

Absence of proceeds from sale of transmission equipment in 2020

Other investing activities 1

Year Ended December 31, 2021 $ (2,185)

1 See Note 22, Asset Sale and Exit Activities

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

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

1 For information regarding the sale of EnerBank, see Note 20, Exit Activities and Discontinued Operations.

Financing Activities

Presented in the following table are specific components of net cash provided by financing activities for 2020 versus 2019:

Presented in the following table are specific components of net cash provided by (used in) financing activities for 2021 versus 2020:

CMS Energy, including Consumers

1 unchanged sentence

Reasons for the change

Higher debt issuances 1,028

Higher debt retirements (725)

Lower borrowings of certificates of deposit at EnerBank (215)

Higher repayments under Consumers’ commercial paper program (83)

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

Lower debt issuances $ (2,844)

Lower debt retirements 1,775

Absence of repayments under Consumers’ commercial paper program in 2020 90

Lower issuances of common stock (227)

Issuance of preferred stock in 2021 224

Higher payments of dividends on common stock (42)

Higher debt prepayment costs (51)

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

Contribution from noncontrolling interest 31

Other financing activities (1)

Absence of debt prepayment costs in 2020 59

Absence of 2020 proceeds from the sale of membership interest in VIE to tax equity investor (417)

Lower contributions from noncontrolling interest (30)

Lower cash provided by discontinued operations 1

Other financing activities, primarily the use of customer advances for construction, offset largely by lower debt issuance costs (2)

Year Ended December 31, 2021 $ (295)

1 unchanged sentence

Reasons for the change

Higher debt issuances 961

Higher debt retirements (545)

Higher repayments under Consumers’ commercial paper program (83)

Borrowings from CMS Energy 307

Lower debt issuances $ (1,619)

Lower debt retirements 1,059

Absence of repayments under Consumers’ commercial paper program in 2020 90

Higher repayments of borrowings from CMS Energy (222)

Lower stockholder contribution from CMS Energy (75)

Higher payments of dividends on common stock (85)

Higher debt prepayment costs (35)

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

Absence of debt prepayment costs in 2020 43

Other financing activities, primarily the use of customer advances for construction, offset partially by lower debt issuance costs (14)

Year Ended December 31, 2021 $ 212

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

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

1 For information regarding the sale of EnerBank, see Note 20, Exit Activities and Discontinued Operations.

Capital Resources and Liquidity

CMS Energy and Consumers expect to have sufficient liquidity to fund their present and future commitments.

CMS Energy uses dividends and tax-sharing payments from its subsidiaries and external financing and capital transactions to invest in its utility and non ‑ utility businesses, retire debt, pay dividends, and fund its other obligations.

The ability of CMS Energy’s subsidiaries, including Consumers, to pay dividends to CMS Energy depends upon each subsidiary’s revenues, earnings, cash needs, and other factors.

In addition, Consumers’ ability to pay dividends is restricted by certain terms included in its debt covenants and articles of incorporation and potentially by FERC requirements and provisions under the Federal Power Act and the Natural Gas Act.

In addition, Consumers’ ability to pay dividends is restricted by certain terms included in its articles of incorporation and potentially by FERC requirements and provisions under the Federal Power Act and the Natural Gas Act.

For additional details on Consumers’ dividend restrictions, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Financings and Capitalization—Dividend Restrictions.

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

During the year ended December 31, 2021, Consumers paid $722 million in dividends on its common stock to CMS Energy.

On October 1, 2021, EnerBank was acquired by Regions Bank.

CMS Energy received proceeds of over $1 billion.

CMS Energy intends to use the proceeds from the sale to fund key initiatives in its core energy business related to safety, reliability, and its clean energy transformation.

For information regarding EnerBank, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 20, Exit Activities and Discontinued Operations.

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

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

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

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

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

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

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

Financing and Capital Resources:

CMS Energy and Consumers rely on the capital markets to fund their robust capital plan.

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

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

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

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

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

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

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

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

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

As of December 31, 2021, these contracts have an aggregate sales price of $56 million, maturing through 2022.

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

2 unchanged sentences

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

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

365 days at market interest rates.

These issuances are supported by Consumers’ revolving credit facilities.

1 unchanged sentence

At December 31, 2021, there were no commercial paper notes outstanding under this program.

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

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

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Financings and Capitalization.

2 unchanged sentences

CMS Energy and Consumers were each in compliance with these covenants as of December 31, 2021, as presented in the following table:

Credit Agreement Limit Actual

CMS Energy, parent only

3 unchanged sentences

< 0.65 to 1.0

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

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

1 Applies to CMS Energy’s revolving credit agreement and letter of credit reimbursement agreement.

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

Material Cash Requirements:

Based on the present investment plan, during 2022, Consumers projects capital expenditures of $2.6 billion.

Additionally, CMS Energy’s other material cash requirements for 2022 include $2.3 billion of purchase obligations and $843 million of principal and interest payments on long-term debt.

Consumers’ other material cash requirements for 2022 comprise $2.2 billion of purchase obligations and $653 million of principal and interest payments on long-term debt.

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

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

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

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

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

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

borrowing capability should the need arise.

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

Contractual Obligations:

Presented in the following table are CMS Energy’s and Consumers’ contractual obligations.

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

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

CMS Energy’s and Consumers’ present level of cash and expected cash flows from operating activities, together with access to sources of liquidity, are anticipated to be sufficient to fund contractual obligations and other material cash requirements for 2022 and beyond.

Capital Expenditures:

Over the next five years, Consumers expects to make substantial capital investments.

Consumers may revise its forecast of capital expenditures periodically due to a number of factors, including environmental regulations, MPSC approval or disapproval, business opportunities, market volatility, economic trends, and the ability to access capital.

Presented in the following table are Consumers’ estimated capital expenditures, including lease commitments, for 2022 through 2026:

2022 2023 2024 2025 2026 Total

Electric utility operations $ 1.5 $ 1.7 $ 1.7 $ 1.5 $ 1.5 $ 7.9

Gas utility operations 1.1 1.2 1.3 1.4 1.4 6.4

Total Consumers $ 2.6 $ 2.9 $ 3.0 $ 2.9 $ 2.9 $ 14.3

Other Material Cash Requirements :

Presented in the following table are CMS Energy’s and Consumers’ material cash obligations from known contractual and other legal obligations:

December 31, 2021

Less Than One Year Total

CMS Energy, including Consumers

1 unchanged sentence

Interest payments on long-term debt 0.5 12.3

Finance leases and other financing 183 36 40 30 77

Operating leases 52 10 6 2 34

AROs 1,971 43 62 50 1,816

Deferred investment tax credit 115 5 10 10 90

Environmental liabilities 118 7 40 19 52

Long-term payables 37 6 23 3 5

Purchase obligations 2.3 12.5

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

3,179 1,391 1,136 370 282

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

Total obligations $ 3.2 $ 39.6

Long-term debt $ 0.4 $ 8.5

Interest payments on long-term debt 0.3 6.6

Finance leases and other financing 183 36 40 30 77

Operating leases 43 8 6 2 27

AROs 1,908 43 62 50 1,753

Deferred investment tax credit 115 5 10 10 90

Environmental liabilities 61 3 32 11 15

Purchase obligations 2.2 12.0

MCV PPA 2,815 349 698 705 1,063

Palisades PPA 517 398 119 — —

Related-party PPAs 2

318 58 116 97 47

Other PPAs 5,248 252 589 714 3,693

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

2,605 1,333 984 284 4

Total contractual obligations

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

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

The commodities and related services include natural gas and coal and associated transportation.

2 Long-term PPAs from certain affiliates of CMS Enterprises.

CMS Energy and Consumers also have recognized non ‑ current liabilities for which the timing of payments cannot be reasonably estimated.

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

Retirement benefits are also excluded from the table above.

For details related to benefit payments, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12, Retirement Benefits.

Off-Balance-Sheet Arrangements:

Total obligations $ 2.9 $ 29.3

Purchase obligations arise from long-term contracts for the purchase of commodities and related services, plant purchase commitments, and construction and service agreements.

The commodities and related services include long-term PPAs, natural gas and associated transportation, and coal and associated transportation.

For more information on CMS Energy’s and Consumers’ purchase obligations, see Item 8.

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

CMS Energy, Consumers, and certain of their subsidiaries enter into various arrangements in the normal course of business to facilitate commercial transactions with third parties.

These arrangements include indemnities, surety bonds, letters of credit, and financial and performance guarantees.

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

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

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

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

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

1 unchanged sentence

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Financings and Capitalization.

Capital Expenditures:

Over the next five years, Consumers expect to make substantial capital investments.

Consumers may revise its forecasts of capital expenditures periodically due to a number of factors, including environmental regulations, business opportunities, market volatility, economic trends, and the ability to access capital.

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

2021 2022 2023 2024 2025 Total

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

Gas utility operations 1.1 1.2 1.1 1.0 0.9 5.3

Total Consumers $ 2.5 $ 3.0 $ 2.7 $ 2.5 $ 2.5 $ 13.2

Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and results of operations.

2 unchanged sentences

Risk Factors;

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

and Note 4, Contingencies and Commitments.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters and Note 3, Contingencies and Commitments.

Consumers Electric Utility Outlook and Uncertainties

Clean Energy Plan:

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

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

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

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

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

Specifically, the Clean Energy Plan provides for:

Consumers’ Clean Energy Plan details its strategy to meet customers’ long-term energy needs.

The Clean Energy Plan was originally outlined in Consumers’ 2018 IRP, which was approved by the MPSC in 2019.

In June 2021, Consumers filed its 2021 IRP with the MPSC, proposing

updates to the Clean Energy Plan.

Under its 2021 IRP, Consumers proposes to eliminate the use of coal-fueled generation in 2025 and expects to meet 90 percent of its customers’ needs with clean energy sources by 2040.

Specifically, the 2021 IRP provides for a full transition away from coal-fueled generation by the end of 2025 and includes:

• the retirement of the D.E.

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

• the potential retirement of the J.H.

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

Under the Clean Energy Plan, Consumers will replace the capacity to be retired with:

• increased demand response programs

• increased energy efficiency

• increased renewable energy generation

• conservation voltage reduction

• increased pumped storage

Consumers will competitively bid new capacity and at least 50 percent of the new capacity will be built and owned by third parties;

the remainder will be owned and operated by Consumers.

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

Karn oil/gas-fueled and coal-fueled generating units, totaling 1,734 MW of nameplate capacity, in 2023

• the retirement of the J.H.

Campbell coal-fueled generating units, totaling 1,407 MW of nameplate capacity, in 2025

The MPSC has authorized Consumers to issue securitization bonds to finance the recovery of and return on the D.E.

Karn coal-fueled generating units.

In the 2021 IRP, Consumers has requested regulatory asset treatment to recover the remaining book value of and return on the other D.E.

Karn units and the J.H.

Campbell coal-fueled generating units.

To bridge the transition away from coal generation, the 2021 IRP proposes:

• the purchase of the New Covert Generating Facility, a natural gas-fueled generating unit with 1,176 MW of nameplate capacity in Van Buren County, Michigan, in 2023

• the purchase, in 2025, of the enterprises segment’s three natural gas-fueled generating units, totaling 1,001 MW of nameplate capacity:

◦ the 770-MW DIG plant located in Dearborn, Michigan

◦ a 156-MW peaking generating unit located in Gaylord, Michigan

◦ a 75-MW peaking generating unit located in Comstock, Michigan

These investments are expected to allow Consumers to continue providing controllable sources of electricity to customers while expanding its investment in renewable energy.

The 2021 IRP forecasts renewable energy capacity levels of 35 percent in 2025, 47 percent in 2030, and 63 percent in 2040, including the addition of nearly 8,000 MW of solar generation.

Under its 2021 IRP, Consumers will continue to bid new capacity competitively.

The updated plan proposes that Consumers will own and operate at least 50 percent of new capacity, with the remainder being built and owned by third parties.

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

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

Through its Clean Energy Plan, Consumers continues to make progress on expanding its customer programs, namely its demand response, energy efficiency, and conservation voltage reduction programs, as well as increasing its renewable energy and pumped storage generation.

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

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

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

As a result of the requests for proposals, Consumers has entered into PPAs to purchase renewable capacity, energy, and RECs from solar generating facilities and build transfer agreements to purchase solar generating facilities, as presented in the following table:

Type of Agreement

Capacity (MW)

Location of Facility

Expected Commercial Operation 1

Date of Agreement Date of MPSC Approval

PPA (25 years) 140 Calhoun County, Michigan 2022 December 2020

Build transfer agreement 150 Southeastern Michigan 2023/2024 January 2021

PPA (20 years) 30 Manistee, Michigan 2022 May 2021

September 2021

PPA (25 years) 2

100 Calhoun County, Michigan 2023 October 2021 November 2021

PPA (20 years) 2

125 Jackson County, Michigan 2023 October 2021 November 2021

Build transfer agreement 150 Southeastern Michigan 2023/2024 October 2021 November 2021

1 For build transfer agreements, represents the date Consumers expects to take full ownership and begin commercial operation.

2 This agreement provides Consumers the option to purchase the associated solar generating facility after ten years.

In addition, Consumers issued a request for proposals in September 2021 to acquire up to 500 MW of new capacity from projects to be operational in Michigan’s Lower Peninsula by December 2024.

Specifically, Consumers solicited offers to enter into PPAs with or purchase solar generation projects up to 300 MW in size and to enter into PPAs with PURPA qualifying facilities up to five MW in size.

Consumers will acquire at least 250 MW through long-term PPAs.

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

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

The facility is expected to be operational in 2022.

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

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

Both of these agreements are subject to MPSC approval.

Renewable Energy Plan:

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

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

The 2016 Energy Law raised the renewable energy standard to 15 percent in 2021.

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

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

Under its renewable energy plan, Consumers met the 15-percent requirement in 2021 and expects to meet the requirement in future years with a combination of newly generated RECs and previously generated RECs carried over from prior years.

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

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the project became operational in December 2020

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

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

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

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

The agreement is subject to MPSC approval.

• purchase of a 166-MW wind generation project in Hillsdale, Michigan;

the project became operational and Consumers took full ownership in February 2021

• purchase of a wind generation project under development, with capacity of up to 201 MW, in Gratiot County, Michigan;

Consumers expects to take full ownership and begin commercial operation of the project before 2024

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

the facility is expected to be operational in 2022.

Voluntary Large Customer Renewable Energy Program:

Consumers provides service under a program that provides large full-service electric customers with the opportunity to advance the development of renewable energy beyond the requirements of the 2016 Energy Law.

In September 2021, the MPSC approved Consumers’ request to amend its renewable energy plan to remove the annual subscription limit associated with this program.

The MPSC also approved up to 1,000 MW of new wind and solar generation projects between 2024 and 2027 to meet customer demand for the program.

Consumers will competitively solicit for additional renewable energy assets based on customer applications and will construct the assets based on customer subscriptions to the program.

Electric Customer Deliveries and Revenue:

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In addition, Consumers’ electric rates, which follow a seasonal rate design, are higher in the summer months than in the remaining months of the year.

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

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

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

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

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

Subsequent executive orders gradually eased restrictions.

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

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

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

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

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

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

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

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

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

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

In June 2021, electric residential customers transitioned to a summer peak time-of-use rate that allows them to take advantage of lower-cost energy during off-peak times during the summer months.

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

In response to the COVID‑19 pandemic, Michigan’s Governor and the Michigan Department of Health and Human Services have issued numerous orders throughout 2020 and 2021 restricting business, educational, and personal activities at varying levels.

In June 2021, almost all restrictions were lifted and Consumers expects businesses and residents to continue resuming normal activities and for weather-normalized electric deliveries to stabilize.

Over the next five years, Consumers expects weather-normalized electric deliveries to remain stable relative to 2021.

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

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

Actual delivery levels will depend on:

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

The new law also authorized the MPSC to ensure that alternative electric suppliers have procured enough capacity to cover their anticipated capacity requirements for the four-year forward period.

The law also authorized the MPSC to ensure that alternative electric suppliers have procured enough capacity to cover their anticipated capacity requirements for the four-year forward period.

In 2017, the MPSC issued an order establishing a state reliability mechanism for Consumers.

Under this mechanism, beginning June 2018, if an alternative electric supplier does not demonstrate that it has procured its capacity requirements for the four-year forward period, its customers will pay a set charge to the utility for capacity that is not provided by the alternative electric supplier.

Under this mechanism, if an alternative

electric supplier does not demonstrate that it has procured its capacity requirements for the four-year forward period, its customers will pay a set charge to the utility for capacity that is not provided by the alternative electric supplier.

All alternative electric suppliers have demonstrated that they have procured their capacity requirements through the MISO planning year beginning June 1, 2024.

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

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

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

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

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

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

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

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

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

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

In April 2020, the Michigan Supreme Court affirmed the MPSC’s statutory authority to implement a local clearing requirement on individual electric providers.

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

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

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

this motion was granted in January 2021.

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

this motion was granted in January 2021 and this case remains pending.

Electric Rate Matters:

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Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters and Note 3, Contingencies and Commitments.

2021 Electric Rate Case:

In December 2021, the MPSC approved an annual rate increase of $27 million, based on a 9.9 percent authorized return on equity that will be reflected in rates beginning January 1, 2022.

In its order, the MPSC disallowed cost recovery for certain categories of recently completed capital expenditures incurred by Consumers.

For additional details, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters.

Depreciation Rate Case:

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

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

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

In March 2021, Consumers filed a depreciation case related to its electric and common utility property.

In this case, Consumers requested to increase depreciation expense, and its recovery of that expense by $43 million annually.

In December 2021, the MPSC approved a settlement agreement that decreases depreciation expense by $27 million annually based on December 31, 2019 balances.

The new depreciation rates will be reflected in rates beginning January 1, 2022, concurrent with rates to be implemented in accordance with Consumers’ recently approved electric rate case.

Consumers submitted its 2022 PSCR plan to the MPSC in September 2021 and, in accordance with its proposed plan, self-implemented the 2022 PSCR charge beginning in January 2022.

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

Retention Incentive Program:

In 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 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.

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

Consumers expects to recognize $5 million of retention benefit costs in 2022;

this expense will be deferred as a regulatory asset.

For additional details on this program, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 20, Exit Activities and Discontinued Operations.

Within its 2021 IRP, Consumers proposes to retire the J.H.

Campbell coal-fueled generating units.

No retention incentive costs related to this retirement will be recognized unless Consumers’ 2021 IRP is approved by the MPSC.

Electric Environmental Outlook:

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Multiple air quality regulations apply, or may apply, to Consumers.

CSAPR, which became effective in 2015, requires Michigan and many other states to improve air quality by reducing power plant emissions that, according to EPA computer models, contribute to ground-level ozone and fine particle pollution in other downwind states.

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

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

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

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

CSAPR, which initially became effective in 2015, requires Michigan and many other states to improve air quality by reducing power plant emissions that, according to EPA modeling, contribute to ground-level ozone and fine particle pollution in other downwind states.

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

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

The EPA finalized this revised rule in March 2021, with continued emission reductions through 2024.

Consumers has evaluated its emission compliance strategy for existing units based on the proposed number of allowances allocated to Michigan for 2021 through 2024 and believes the impact of this rule should be minimal.

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

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

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

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

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

In May 2020, the EPA finalized changes to the supporting analysis used to enact the MATS rule.

However, in January 2022, the EPA announced a proposed rule to revoke this 2020 finding and reaffirm that it is appropriate and necessary to regulate emissions of hazardous air pollutants from coal- and oil-fueled power plants.

The EPA is also considering whether more stringent protections for hazardous air pollution from power plants are feasible and warranted.

Consumers will continue to monitor the MATS rule status and any pending litigation.

Consumers does not expect any changes to the MATS rule will have a significant impact on its current MATS compliance strategy.

In 2015, the EPA lowered the NAAQS for ozone.

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

Specifically, seven counties in southeastern Michigan and three counties in western Michigan were not in attainment with the ozone standard by an August 2021 regulatory deadline, and thus may have their nonattainment designations increased from marginal to moderate.

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

Additionally,

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

The State of Michigan has convened industry workgroups to seek implementation and control strategy ideas for statewide compliance of the 2015 ozone standard, which will need to be in place by early 2023.

In January 2022, EGLE submitted a request to the EPA for redesignation of the seven counties in southeastern Michigan to be in attainment with the 2015 ozone standard based on the most recent data.

EGLE is awaiting the EPA’s response to that request.

Consumers will continue to stay engaged with EGLE and the workgroups to assess potential impacts to its generating assets.

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

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

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

In October 2021, the EPA provided notice that it was going to reconsider the December 2020 ozone NAAQS decision.

The EPA believes it will complete this reconsideration by December 2023.

Although this action may ultimately result in more ozone nonattainment areas in Michigan, Consumers does not expect that any litigation involving NAAQS for ozone or lowering of the ozone standard will have a material adverse impact on its generating assets.

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

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

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• changes in the types of generating units Consumers may purchase or build in the future

• changes in how certain units are used

• changes in how certain units are operated

• the retirement, mothballing, or repowering with an alternative fuel of some of Consumers’ generating units

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

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

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

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

Campbell plant beginning in the mid‑2020s.

However, the D.C.

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

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

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

The EPA has not formally indicated whether they intend to finalize this rulemaking or instead pursue a new set of regulations.

In 2019, the EPA finalized the Affordable Clean Energy rule, which required individual states to evaluate coal‑fueled power plants for heat‑rate improvements that could increase overall plant efficiency.

In January 2021, the D.C.

Circuit Court of Appeals vacated and remanded this rule to the EPA which, in turn, appealed the rule to the U.S.

Supreme Court.

In October 2021, the U.S.

Supreme Court agreed to hear an appeal of this case.

A decision is expected by June 2022.

Consumers cannot evaluate the potential impact of the rule until any appeals and EPA actions are resolved.

It is anticipated that the EPA will propose a new regulation in 2022 addressing greenhouse gas emissions from existing fossil-fueled electric generating units, potentially under the Clean Air Act;

however, Consumers cannot predict the form and extent of such potential regulation as it is likely to be impacted by the U.S.

Supreme Court’s decision on the Affordable Clean Energy rule.

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

While the U.S.

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

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

had withdrawn from the Paris Agreement, it rejoined the Paris Agreement in 2021.

In April 2021, the U.S.

announced it is committing to a nationally determined contribution under the Paris Agreement.

Nationally determined contributions are the efforts by each country to reduce national greenhouse gas emissions.

The commitment made by the U.S.

is to reduce greenhouse gas emissions by 50 to 52 percent from 2005 levels by 2030.

In its 2021 IRP, pending MPSC approval, Consumers proposed a 60-percent reduction in its carbon emissions from 2005 levels by 2025.

At this time, Consumers does not expect any adverse changes to its environmental strategy as a result of these events, as the nationally determined contribution is not binding without new Congressional legislation.

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

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

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

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

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

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

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

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

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

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

Consumers is taking steps to mitigate these risks as appropriate.

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

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

In 2015, the EPA published a final rule regulating CCRs under RCRA.

The final rule adopts minimum standards for beneficially reusing and disposing of non‑hazardous CCRs.

The rule establishes new minimum requirements for site location, groundwater monitoring, flood protection, storm water design, fugitive dust control, and public disclosure of information, including any groundwater protection standard exceedances.

The rule also sets out conditions under which CCR units would be forced to cease receiving CCR and non‑CCR wastewater and initiate closure based on the inability to achieve minimum safety standards, meet a location standard, or meet minimum groundwater standards.

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

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

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

Due to litigation, many aspects of the 2015 CCR rule have been remanded to the EPA, which has resulted in various new rulemakings.

These new rulemakings are now in litigation.

Continued litigation will add uncertainty around requirements for compliance and state permit programs.

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

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

Consumers may be required to replace equipment;

install additional emission control equipment;

purchase emission allowances or credits;

curtail operations;

arrange for alternative sources of supply;

purchase facilities that generate fewer emissions;

mothball or retire facilities that generate certain emissions;

pursue energy efficiency or demand response measures more swiftly;

or take other steps to manage or lower the emission of greenhouse gases.

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

In 2015, the EPA published a rule regulating CCRs under RCRA.

This 2015 rule adopts minimum standards for beneficially reusing and disposing of non‑hazardous CCRs.

The rule establishes new minimum requirements for CCR unit location, design, structural stability, groundwater monitoring and correction action, flood protection, fugitive dust control, recordkeeping, and public disclosure of certain records, including any groundwater protection standard exceedances.

The 2015 rule also sets out conditions under which some CCR units would be forced to cease receiving CCR and non‑CCR wastewater and initiate closure based on the inability to achieve minimum safety standards, meet a location standard, or meet minimum groundwater standards.

Due to litigation, many aspects of the 2015 CCR rule have been remanded to the EPA, which has resulted in numerous proposed rules and three final rules.

One of the final rules is in litigation.

Anticipated litigation related to remanded aspects that have not been addressed will add uncertainty around requirements for compliance and state permit programs.

The EPA amended the conditions of forced closure in a rule published in August 2020.

The August 2020 rule required all unlined CCR units to initiate closure by mid-April 2021, unless conditions that satisfied an alternate closure schedule were approved by the EPA.

Consumers, with agreement from EGLE,

completed the work necessary to initiate closure by excavating CCRs or placing a final cover over each of its relevant CCR units prior to the April 2021 closure initiation deadline.

Separate from the 2015 or 2020 rules, Congress passed legislation in 2016 allowing participating states to develop permitting programs for CCRs under RCRA Subtitle D.

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

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

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

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

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

Consumers has aligned with EGLE on closure plans for all of its coal ash disposal sites, including those subject to the EPA’s 2015 CCR rule, and adjusted its recorded ARO accordingly.

Consumers has historically been authorized to recover in electric rates costs related to coal ash disposal sites.

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

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

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

Army Corps of Engineers have proposed rules redefining “Waters of the United States,” which defines the scope of federal jurisdiction under the Clean Water Act, and other changes to the Clean Water Act regulations.

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

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

Consumers received such an extension to 2025 for its Campbell generating facility in 2021.

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

In January 2020, the EPA and the U.S.

Army Corps of Engineers finalized a rule under the Clean Water Act that repealed a 2015 definition of “Waters of the United States,” narrowed the scope of federal jurisdiction, and reduced the frequency of dual jurisdiction in states with authority to regulate the same waters;

Michigan is one such state.

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

In November 2021, the EPA and the U.S.

Army Corps of Engineers proposed to revise the 2020 “Waters of the United States” definition to revert to the 2015 “Waters of the United States” definition, with changes reflecting the EPA’s interpretation of intervening U.S.

Supreme Court decisions.

The proposed November 2021 rulemaking may change how Consumers interacts with federal jurisdictional waters within Michigan, which may add additional requirements to existing compliance programs, or may require additional permitting for infrastructure projects.

However, Consumers does not expect adverse changes to its environmental strategy as a result of the current interpretations.

The “Waters of the United States” definition continues to be litigated in multiple jurisdictions.

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

Failure of EGLE to renew any NPDES permit, a successful appeal against a permit, a change in the interpretation or scope of NPDES permitting, or onerous terms contained in a permit could have a significant detrimental effect on the operations of a facility.

Protected Wildlife:

Multiple regulations apply, or may apply, to Consumers relating to protected species and habitats.

Statutes like the Endangered Species Act, the Migratory Bird Treaty Act, and the Bald and Golden Eagle Protection Act may impact operations at Consumers’ facilities.

In May 2021, the U.S.

Fish and Wildlife Service proposed to repeal a January 2021 rule related to incidental take of migratory birds.

In November 2021, the U.S.

Fish and Wildlife Service published an advanced notice of proposed rulemaking outlining its intent to regulate incidental take under the Migratory Bird Treaty Act.

Permitting and monitoring fees and restrictions on operations associated with the rules could impact Consumers’ existing and future operations, including wind and solar generation facilities.

Additionally, Consumers is monitoring proposed changes to the listing status of several species within its operational area due to an increase in wildlife-related regulatory activity.

A change in species listed under the Endangered Species Act may impact Consumers’ costs to mitigate its impact on protected species and habitats at certain existing facilities as well as siting choices for new facilities.

Other Matters:

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Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Contingencies and Commitments—Consumers Electric Utility Contingencies—Electric Environmental Matters.

Retention Incentive Program:

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 generating units.

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

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

this expense will be deferred as a regulatory asset.

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

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

Consumers Gas Utility Outlook and Uncertainties

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

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

Over the next five years, Consumers expects weather-normalized gas deliveries to remain stable relative to 2021.

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

Actual delivery levels from year to year may vary from this expectation as a result of:

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

Actual delivery levels will depend on:

• weather fluctuations

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• gas price changes

• Michigan economic conditions, including population trends and housing activity

• the price of competing energy sources or fuels

• Michigan’s economic conditions, including population trends and housing activity

• the price or demand of competing energy sources or fuels

• energy efficiency and conservation impacts

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Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters and Note 3, Contingencies and Commitments.

Gas Rate Case:

The filing requests authority to recover new infrastructure investment and related costs that are expected to allow Consumers to improve system safety and

reliability and reduce fugitive methane emissions.

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

Projected Twelve-Month Period Ending September 30 2022

Components of the requested rate increase

Investment in rate base $ 247

Operating and maintenance costs (4)

Cost of capital 22

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

Depreciation Rate Case:

In December 2021, Consumers filed a depreciation case related to its gas utility plant property.

In this case, Consumers requested a decrease in depreciation expense of $1 million annually based on December 31, 2020 balances.

Consumers submitted its 2022-2023 GCR plan to the MPSC in December 2021 and, in accordance with its proposed plan, expects to self-implement the 2022-2023 GCR charge beginning in April 2022.

Gas Pipeline and Storage Integrity and Safety:

In October 2019, PHMSA published a final rule that expands federal safety standards for gas transmission pipelines.

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

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

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

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

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

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

The PHMSA has published various rules that expand federal safety standards for gas transmission pipelines and underground storage facilities.

To comply with these rules, Consumers will incur increased capital and operating and maintenance costs to install and remediate pipelines and to expand inspections, maintenance, and monitoring of its existing pipelines and storage facilities.

The initial requirements in the regulation took effect in July 2020, with future regulation phases to be released over numerous years.

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

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

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Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Contingencies and Commitments—Consumers Gas Utility Contingencies—Gas Environmental Matters.

In 2015, the EPA lowered the NAAQS for ozone.

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

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

Some of Consumers’ compressor stations are located in these areas.

The State of Michigan has convened industry workgroups

to seek implementation and control strategy ideas for statewide compliance of the 2015 ozone standard, which will need to be in place by early 2023.

In January 2022, EGLE submitted a request to the EPA for redesignation of the seven counties in southeastern Michigan to be in attainment with the 2015 ozone standard based on the most recent data.

EGLE is awaiting the EPA’s response to that request.

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

In October 2021, the EPA provided notice that it was going to reconsider the December 2020 ozone NAAQS decision.

The EPA believes it will complete this reconsideration by December 2023.

Consumers will continue to stay engaged with EGLE and the workgroups to assess potential impacts to its compressor stations.

Greenhouse Gases:

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

In November 2021, the EPA released a proposed rule to regulate methane for the oil and gas sector.

This proposed rule is not expected to have a material adverse impact on Consumers’ natural gas storage, compressor stations, and distribution systems, as it applies upstream of Consumers’ facilities.

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

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

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

Consumers is evaluating decarbonization options for its gas business including energy efficiency, renewable natural gas, carbon offsets, and other decarbonization methods.

As one strategy, Consumers recently requested the MPSC’s approval of a proposed program that would allow gas customers to purchase carbon offset credits on a voluntary basis.

Similarly, in December 2021, Consumers announced plans to begin development of a renewable natural gas facility that will capture methane from manure generated at a neighboring farm and convert it into renewable natural gas.

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

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

While the U.S.

had withdrawn from the Paris Agreement, it rejoined the Paris Agreement in 2021.

In April 2021, the U.S.

announced it is committing to a nationally determined contribution under the Paris Agreement.

Nationally determined contributions are the efforts by each country to reduce national greenhouse gas emissions.

The commitment made by the U.S.

is to reduce greenhouse gas emissions by 50 to 52 percent from 2005 levels by 2030.

In its 2021 IRP, pending MPSC approval, Consumers proposed a 60-percent reduction in its carbon emissions from 2005 levels by 2025.

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

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Energy Waste Reduction Plan:

The 2016 Energy Law authorized incentives for demand response programs and expanded existing incentives for energy efficiency programs, referring to the combined initiatives as energy waste reduction programs.

The 2016 Energy Law:

• extended the requirement to achieve annual reductions of 1.0 percent in customers’ electricity use through 2021 and 0.75 percent in customers’ natural gas use indefinitely

• removed limits on investments under the program and provided for a higher return on those investments;

together, these provisions effectively doubled the financial incentives Consumers may earn for exceeding the statutory targets

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

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

The 2016 Energy Law authorized incentives for demand response programs and energy efficiency programs, referring to the combined initiatives as energy waste reduction programs.

The law also set a requirement to achieve annual reductions of 1.0 percent in customers’ electricity use through 2021 and 0.75 percent in customers’ natural gas use indefinitely and established a goal of 35 percent combined renewable energy and energy waste reduction by 2025.

Consumers achieved 30 percent combined renewable energy and energy waste reduction through 2021.

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

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

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

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

Under its energy waste reduction plan, Consumers provides its customers with incentives to reduce usage by offering energy audits;

rebates and discounts on purchases of highly efficient appliances;

and other incentives and programs.

Enterprises Outlook and Uncertainties

CMS Energy’s primary focus with respect to its enterprises businesses is to maximize the value of generating assets, its share of which represents 1,483 MW of capacity, and to pursue opportunities for the development of renewable generation projects.

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

The project was completed and became operational in September 2020.

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

For additional details, see Item 8.

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

In June 2021, DIG, CMS Generation Michigan Power, and CMS ERM entered into an agreement with Consumers to sell, for $515 million, subject to certain adjustments, the enterprises segment’s three natural gas-fueled generating units, totaling 1,001 MW of nameplate capacity:

• the 770-MW DIG plant located in Dearborn, Michigan

• a 156-MW peaking generating unit located in Gaylord, Michigan

• a 75-MW peaking generating unit located in Comstock, Michigan

The parties plan to close the sale, which is dependent upon regulatory approvals, in 2025.

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

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

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

The DIG plant is in one such area and, as a result, would be subject to additional permitting restrictions in the event of any future modifications.

For additional details regarding the new ozone NAAQS, see Consumers Electric Utility Outlook and Uncertainties—Electric Environmental Outlook.

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

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

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

• indemnity and environmental remediation obligations at Bay Harbor

• indemnity obligations assumed in connection with the purchase or ownership of an interest in one or more facilities that involve tax equity financing

• representations, warranties, and indemnities provided by CMS Energy in connection with previous sales of assets

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

EnerBank Outlook and Uncertainties

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

to finance home improvements.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other Outlook and Uncertainties

Employee Separation Program:

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

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

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

Union Contracts:

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

The USW represents Zeeland plant employees.

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

The new agreements ratified in 2020 provide the following:

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

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

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

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

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For additional details, see Item 8.

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

Financial Statements and

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

Derivative Instruments:

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

Changes in business strategies or market conditions, as well as a requirement to apply different interpretations of the derivative accounting literature, could result in changes in accounting for a single contract or groups of contracts,

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

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

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

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

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

Plans and OPEB Plan.

Presented in the following table are estimates of credits and cash contributions through 2024 for the DB Pension Plans and OPEB Plan.

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

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

DB Pension Plans OPEB Plan

Cost (Credit) Contribution Cost (Credit) Contribution

Credit Contribution Credit Contribution

CMS Energy, including Consumers

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Consumers estimates its unbilled revenues by applying an average billed rate to total unbilled deliveries for each customer class.

Consumers records unbilled revenues as accounts receivable and accrued revenue on its consolidated balance sheet.

For additional information on unbilled revenues, see Item 8.

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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 7. Management’s Discussion and Analysis