What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-09 compared with 2022-02-10 · 417 added, 450 removed, 500 unchanged (63% of the section changed)

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CMS Energy is an energy company operating primarily in Michigan.

It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility;

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.

It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility, and NorthStar Clean Energy (formerly known as CMS Enterprises Company), primarily a domestic independent power producer and marketer.

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

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

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

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.

NorthStar Clean Energy, 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.

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.

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

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electric utility;

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.

and NorthStar

Clean Energy, its non‑utility operations and investments.

Consumers operates principally in two business segments:

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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.

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.

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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.

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, 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.

Over the last ten years, Consumers’ OSHA recordable incident rate has decreased by 34 percent.

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:

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

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

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

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• workforce productivity enhancements

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.

While CMS Energy and Consumers have experienced some supply chain disruptions and inflationary pressures, they have taken steps to mitigate the impact on their ability to provide safe and reliable service to customers.

The planet element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to protect the environment.

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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, CMS Energy and Consumers have:

As a result of actions already taken through 2022, CMS Energy and Consumers have:

• decreased their combined percentage of electric supply (self-generated and purchased) from coal by 17 percentage points since 2015

• reduced carbon dioxide emissions by over 30 percent since 2005

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

• reduced the amount of water used to generate electricity by over 35 percent since 2012

• reduced landfill waste disposal by over 1.7 million tons since 1992

• 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.

• reduced methane emissions by more than 20 percent since 2012

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

Consumers began tracking mercury emissions in 2007;

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• 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

Consumers has met the 15 ‑ percent requirement and expects to continue meeting the requirement going forward 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;

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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:

In April 2022, Consumers and a broad coalition of key stakeholders, including customer groups, environmental organizations, the MPSC Staff, energy industry representatives, and the Michigan Attorney

General, filed a settlement agreement with the MPSC resolving Consumers’ 2021 IRP.

The MPSC approved that settlement agreement in June 2022.

The 2021 IRP outlines Consumers’ 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

• purchase an existing natural gas-fueled generating unit, providing an additional 1,176 MW of nameplate capacity and allowing Consumers to continue providing controllable sources of electricity to customers

• solicit approximately 700 MW of capacity through PPAs from sources able to deliver to Michigan’s Lower Peninsula beginning in 2025

• 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 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.

Under the 2021 IRP, Consumers will continue to earn a return equal to its weighted-average cost of capital on payments made under new competitively bid PPAs approved by the MPSC.

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

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

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.

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

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

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

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 1.3 billion gallons cumulatively

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

since 2017, Consumers enhanced, restored, or protected over 6,000 acres of land cumulatively

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

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.

2 These amounts and fuel sources will vary and are dependent on a one-time competitive solicitation to acquire approximately 700 MW of capacity through PPAs from sources able to deliver to Michigan’s Lower Peninsula beginning in 2025.

In addition to Consumers’ plan to eliminate its use of coal-fueled generation in 2025, CMS Energy and Consumers have set the net‑zero emissions goals discussed below.

Net-zero methane emissions from natural gas delivery system by 2030:

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

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

Net-zero carbon emissions from electric business by 2040:

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

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

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

Net-zero greenhouse gas emissions target for the entire business by 2050:

This goal, announced in March 2022, incorporates greenhouse gas emissions from Consumers’ natural gas delivery system, including suppliers and customers, and has an interim goal of reducing customer emissions by 20 percent by 2030.

Consumers expects to meet this goal through carbon offset measures, renewable natural gas, energy efficiency and demand response programs, and the adoption of cost-effective emerging technologies once proven and commercially available.

Additionally, to advance its environmental stewardship in Michigan and to minimize the impact of future regulations, Consumers announced the following targets in 2022:

• to enhance, restore, or protect 6,500 acres of land by 2026;

in 2022, Consumers enhanced, restored, or protected over 700 acres of land

• to increase the rate of waste diverted from landfills (through waste reduction, recycling, and reuse) to 90 percent from a baseline of 88 percent;

in 2022, Consumers’ rate of waste diverted from landfills was 92 percent

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

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.

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In 2022, CMS Energy’s net income available to common stockholders was $827 million, and diluted EPS were $2.85.

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

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.

This compares with net income available to common stockholders of $1.3 billion and diluted EPS of $4.66 in 2021.

In 2022, higher gas sales due primarily to favorable weather, along with benefits from gas and electric rate increases, were more than offset by the absence of the 2021 gain on the sale of EnerBank.

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.

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

Over the next five years, Consumers expects weather-normalized electric and gas deliveries to remain relatively stable compared to 2022.

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

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During 2022, CMS Energy and Consumers:

• 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

• settled and received approval of Consumers’ 2021 IRP, gas rate case, and electric rate case, demonstrating the constructive nature of Michigan’s regulatory environment

• partnered with state and federal agencies to secure over $100 million of customer assistance to help keep customer bills affordable

• committed to power over 1,200 Michigan public buildings with 100 ‑ percent clean energy

• reached an agreement with General Motors Company, a non-affiliated company, to power all of its auto plants within Consumers’ electric service territory with 100 ‑ percent clean energy

• announced the “Clean Air” program for residential and business customers who want to offset carbon emissions from their natural gas use and help protect the planet’s atmosphere

• installed five new units at the Freedom Compressor Station, continuing progress toward achieving Consumers’ Natural Gas Delivery Plan, making its gas system even more safe, reliable, affordable, and clean

• participated in the state’s economic development efforts that resulted in Gotion, Inc., a non ‑ affiliated global battery components producer, committing to construct a manufacturing facility in Big Rapids, Michigan

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

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Investment Plan:

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

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

Over the next five years, Consumers expects to make significant expenditures on infrastructure upgrades, replacements, and clean generation.

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

Consumers’ investment program is expected to result in annual rate-base growth of six to eight percent.

Consumers’ investment program is expected to result in annual rate-base growth of over seven percent.

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

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.

Presented in the following illustration are planned capital expenditures of $15.5 billion that Consumers expects to make from 2023 through 2027:

Of this amount, Consumers plans to spend $12.4 billion over the next five years to primarily 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 $6.3 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 $2.8 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.

Electric distribution and other projects comprise $6.1 billion to strengthen circuits and substations, replace poles, and interconnect clean energy resources.

Consumers also expects to spend $3.1 billion on clean generation, which includes investments in wind, solar, and hydro electric generation resources.

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.

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.

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 for the projected twelve-month period ending September 30, 2023.

In July 2022, the MPSC approved a settlement agreement authorizing an annual rate increase of $170 million, based on a 9.9-percent authorized return on equity, effective October 1, 2022.

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.

2022 Gas Rate Case:

In December 2022, Consumers filed an application with the MPSC seeking an annual rate increase of $212 million, based on a 10.25-percent authorized return on equity for the projected twelve-month period ending September 30, 2024.

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.

2022 Electric Rate Case:

In April 2022, Consumers filed an application with the MPSC seeking a rate increase of $272 million, based on a 10.25-percent authorized return on equity for the projected twelve-month period ending December 31, 2023.

In September 2022, Consumers revised its requested increase to $292 million.

The filing requested authority to recover future investments associated with distribution system reliability, solar generation, environmental compliance, and enhanced technology.

In January 2023, the MPSC approved a settlement agreement authorizing an annual rate increase of $155 million, based on a 9.9-percent authorized return on equity.

The MPSC also approved a surcharge for the recovery of $6 million of depreciation, property tax, and interest expense related to distribution investments made in 2021 that exceeded what was authorized in rates in accordance with the December 2020 electric rate order.

Looking Forward

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Gas utility 378 302 76

Enterprises 23 36 (13)

NorthStar Clean Energy 34 23 11

Corporate interest and other (156) (144) (12)

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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, 2021, filed February 10, 2022 .

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

Amounts in the following tables are presented pre-tax, with the exception of income tax changes.

Presented in the following table is a summary of changes to net income available to common stockholders for 2022 versus 2021:

Year Ended December 31, 2021 $ 1,348

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Electric sales $ (38)

Gas sales (23)

Electric rate increase 35

Gas rate increase 54

Lower income tax expense 34

Lower non-operating retirement benefits expenses 40

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)

Fleet and other asset impairments 1

Higher forestry costs (23)

Lower income tax expense 16

Voluntary revenue refunds, including one-time bill credit commitment 1

Higher interest charges (24)

Higher property taxes, reflecting higher capital spending (23)

Higher demand response expenses (11)

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

Enterprises (13)

Higher depreciation and amortization (11)

Higher other maintenance and operating expenses (7)

NorthStar Clean Energy 11

Corporate interest and other (12)

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Consumers Electric Utility Results of Operations

Presented in the following table are the detailed changes to the electric utility’s net income available to common stockholders for 2021 versus 2020 (amounts are presented pre-tax, with the exception of income tax changes):

Presented in the following table are the detailed changes to the electric utility’s net income available to common stockholders for 2022 versus 2021:

Year Ended December 31, 2021 $ 565

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Rate increase, including return on higher renewable capital spending $ 35

Higher revenue due primarily to favorable weather and sales mix 61

Higher energy waste reduction program revenues 27

Absence of 2020 voluntary revenue refund 2

Higher other revenues 12

Voluntary revenue refunds, including one-time bill credit commitment 2

Lower revenue due primarily to weather and sales mix (15)

Lower other revenues (23)

Maintenance and other operating expenses

Higher service restoration costs (97)

Fleet and other asset impairments 2

Higher distribution, transmission, and generation expenses (31)

Higher forestry costs (31)

Lower service restoration costs 55

Absence of 2021 fleet write-down and other asset impairments 2

Higher energy waste reduction program costs (27)

Higher vegetation management costs (15)

Higher distribution, transmission, and generation expenses (13)

Higher uncollectible accounts expense (6)

Higher demand response costs (7)

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

Higher maintenance and other operating expenses (9)

Voluntary separation plan expenses (7)

Voluntary assistance to vulnerable customers 2

Higher other maintenance and operating expenses (19)

Depreciation and amortization

Increased plant in service, reflecting higher capital spending (33)

Lower depreciation rates, offset partially by higher capital spending 15

General taxes

Higher property taxes, reflecting higher capital spending (10)

Higher property taxes, reflecting higher capital spending, and other (13)

Other income, net of expenses

Lower non-operating retirement benefits expenses and other 24

Lower donations 18

Higher other income, net of expenses 5

Lower non-operating retirement benefits expenses 26

Lower other income, net of expenses (7)

Interest charges (12)

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

Higher other income taxes (7)

Income taxes 8

Year Ended December 31, 2022 $ 567

1 Deliveries to end-use customers were 37.3 billion kWh in 2022 and 36.2 billion kWh in 2021.

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

2 See Note 2, Regulatory Matters.

3 See Note 12, Income Taxes.

Consumers Gas Utility Results of Operations

Presented in the following table are the detailed changes to the gas utility’s net income available to common stockholders for 2021 versus 2020 (amounts are presented pre-tax, with the exception of income tax changes):

Presented in the following table are the detailed changes to the gas utility’s net income available to common stockholders for 2022 versus 2021:

Year Ended December 31, 2021 $ 302

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Gas deliveries 1 and rate increases

Favorable weather and sales mix $ 92

Rate increase 54

Absence of 2020 voluntary revenue refund 12

Higher energy waste reduction program revenues 17

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

Voluntary revenue refund 2

Lower other revenues (3)

Maintenance and other operating expenses

Higher distribution, transmission, and compression expenses (27)

Fleet and other asset impairments 2

Absence of 2021 fleet write-down and other asset impairments 2

Higher energy waste reduction program costs (17)

Higher maintenance and other operating expenses (16)

Higher uncollectible accounts expense (12)

Ray Compressor Station impairment 3

Voluntary assistance to vulnerable customers 2

Voluntary separation plan expenses (4)

Higher distribution, transmission, and compression expenses, and other (3)

Depreciation and amortization

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Other income, net of expenses

Lower non-operating retirement benefits expenses and other 20

Lower donations 9

Higher other income, net of expenses 4

Lower non-operating retirement benefits expenses 14

Lower other income, net of expenses (6)

Interest charges (12)

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

Lower income tax expense due primarily to accelerated amortization of excess deferred income taxes and tax benefits associated with cost of removal 4

Higher gas utility pre-tax earnings (17)

Absence of prior years’ research and development tax credits 3

Higher other income taxes (1)

Year Ended December 31, 2022 $ 378

1 Deliveries to end-use customers were 315 bcf in 2022 and 282 bcf in 2021.

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

2 See Note 2, Regulatory Matters.

3 See Note 3, Contingencies and Commitments.

4 See Note 12, Income Taxes.

Enterprises Results of Operations

Presented in the following table are the detailed after-tax changes to the enterprises segment’s net income available to common stockholders for 2021 versus 2020:

NorthStar Clean Energy Results of Operations

Presented in the following table are the detailed changes to NorthStar Clean Energy’s net income available to common stockholders for 2022 versus 2021:

Year Ended December 31, 2021 $ 23

Reason for the change

Lower earnings due primarily to outages at DIG

Absence of refund for alternative minimum tax credit sequestration 1

Higher earnings from renewable wind projects $ 10

Higher earnings at DIG, offset partially by lower earnings from equity method investees 6

Higher income taxes, due primarily to higher earnings (5)

Year Ended December 31, 2022 $ 34

1 See Note 12, Income Taxes.

Corporate Interest and Other Results of Operations

Presented in the following table are the detailed after-tax changes to corporate interest and other results for 2021 versus 2020:

Presented in the following table are the detailed changes to corporate interest and other results for 2022 versus 2021:

Year Ended December 31, 2021 $ (144)

Reasons for the change

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)

Absence of 2021 reduction in state tax liabilities $ (7)

Higher preferred stock dividends (5)

Lower income tax benefit (2)

Year Ended December 31, 2022 $ (156)

1 See Note 12, Income Taxes.

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:

In October 2021, EnerBank was acquired by Regions Bank.

For additional details see, Note 19, Exit Activities and Discontinued Operations.

Presented in the following table are the detailed changes to discontinued operations for 2022 versus 2021:

Year Ended December 31, 2021 $ 602

Reason for the change

Gain on sale of EnerBank $ 514

Higher earnings at discontinued operations 30

Additional EnerBank sale proceeds, net of tax and transaction costs $ 4

Absence of 2021 EnerBank sale proceeds, net of tax and transaction costs (514)

Absence of 2021 earnings from discontinued operations, net of tax (88)

Year Ended December 31, 2022 $ 4

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At December 31, 2022, Consumers had $60 million of consolidated cash and cash equivalents, which included $17 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.

For specific components of net cash provided by operating activities, net cash used in investing activities, and net cash provided by (used in) financing activities for 2021 versus 2020, 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, 2021, filed February 10, 2022 .

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Reasons for the change

Higher net income $ 578

Lower net income $ (517)

Non‑cash transactions 1

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

Absence of gain from 2021 sale of EnerBank 2

Absence of cash used in discontinued operations in 2021 2

Unfavorable impact of changes in core working capital, 3 due primarily to gas purchased at higher prices and underrecovery of power supply costs 4

Favorable impact of changes in other assets and liabilities 13

Year Ended December 31, 2022 $ 855

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Non‑cash transactions 1

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

Unfavorable impact of changes in core working capital, 3 due primarily to gas purchased at higher prices and underrecovery of power supply costs 4

Favorable impact of changes in other assets and liabilities 2

Year Ended December 31, 2022 $ 994

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

4 For information regarding the underrecovery of power supply costs, see Note 2, Regulatory Matters.

Investing Activities

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Reasons for the change

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)

Higher capital expenditures $ (298)

Absence of net proceeds from sale of EnerBank in 2021 1

Absence of cash provided by discontinued operations in 2021 1

Other investing activities, primarily higher proceeds from the sale of assets, offset partially by higher costs to retire property 26

Year Ended December 31, 2022 $ (2,476)

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Reasons for the change

Lower capital expenditures $ 118

Absence of proceeds from sale of transmission equipment in 2020

Other investing activities 1

Higher capital expenditures $ (187)

Other investing activities, primarily higher proceeds from the sale of assets, offset partially by higher costs to retire property 28

Year Ended December 31, 2022 $ (2,344)

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Reasons for the change

Lower debt issuances $ (2,844)

Higher debt issuances $ 1,564

Lower debt retirements 129

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

Lower issuances of common stock (227)

Higher borrowings of notes payable 20

Higher issuances of common stock 43

Issuance of preferred stock in 2021 (224)

Higher payments of dividends on common stock (42)

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)

Higher payments of dividends on common and preferred stock (37)

Proceeds from the sale of membership interest in VIE to tax equity investor 1

Higher contributions from noncontrolling interest 1

Absence of cash used in discontinued operations in 2021 2

Other financing activities, primarily the payment of a long-term contract liability, offset partially by the collection of customer advances for construction (7)

Year Ended December 31, 2022 $ 1,327

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Reasons for the change

Lower debt issuances $ (1,619)

Lower debt retirements 1,059

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

Higher debt issuances $ 1,464

Higher debt retirements (1)

Higher borrowings of notes payable 20

Higher repayments of borrowings from CMS Energy (402)

Lower stockholder contribution from CMS Energy (75)

Higher stockholder contribution from CMS Energy 110

Higher payments of dividends on common stock (47)

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)

Other financing activities, primarily the collection of customer advances for construction 10

Year Ended December 31, 2022 $ 1,366

1 For information regarding the sale of a membership interest to a tax equity investor, see Note 18, Variable Interest Entities.

2 For information regarding the sale of EnerBank, see Note 19, Exit Activities and Discontinued Operations .

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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 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.

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During the year ended December 31, 2022, Consumers paid $769 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.

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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.

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.

In January 2023, Consumers entered into a bond purchase agreement to issue an aggregate principal amount of $400 million of first mortgage bonds through a private placement offering.

The bonds, which were priced in November 2022, carry a weighted average interest rate of 5.251 percent and mature at varying dates between 2026 and 2037.

The bonds are expected to be issued in May 2023.

The proceeds of the bonds will be used to finance a portion of the purchase price of the New Covert Generating Facility and for general corporate purposes.

For more information on the purchase of the New Covert Generating Facility, see Consumers Electric Utility Outlook and Uncertainties — Clean Energy Plan.

Also in January 2023, Consumers issued $425 million of first mortgage bonds that mature in March 2028 and bear interest at a rate of 4.650 percent.

The proceeds of the bonds have been used to repay a portion of the $1.0 billion aggregate principal amount outstanding under Consumers’ term loan credit agreement and for general corporate purposes.

For more information on Consumers’ recent financing activities, see Item 8.

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

Under an existing equity offering program, CMS Energy 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 shares.

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.

As of December 31, 2022, these contracts have an aggregate sales price of $439 million, maturing through February 2024.

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

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

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

365 days at market interest rates.

An additional source of liquidity is Consumers’ commercial paper program, which allows Consumers to issue, in one or more placements, up to $500 million in aggregate principal amount of commercial paper notes with

maturities of up to 365 days at market interest rates.

These issuances are supported by Consumers’ revolving credit facilities.

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

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

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.

At December 31, 2022, there were $20 million of commercial paper notes outstanding under this program.

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

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< 0.65 to 1.0

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.

1 Applies to CMS Energy’s revolving credit agreement and letter of credit reimbursement agreement, and a term loan agreement of a subsidiary of NorthStar Clean Energy.

2 Applies to Consumers’ revolving credit agreements and term loan agreement.

Material Cash Requirements:

Based on the present investment plan, during 2023, Consumers projects capital expenditures of $3.7 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.

Additionally, CMS Energy’s other material cash requirements for 2023 include $3.2 billion of purchase obligations and $1.7 billion of principal and interest payments on long-term debt.

Consumers’ other material cash requirements for 2023 comprise $3.0 billion of purchase obligations and $1.4 billion 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.

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Clean Energy Plan:

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

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

Additionally, 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.

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:

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

In April 2022, Consumers and a broad coalition of key stakeholders, including customer groups, environmental organizations, the MPSC Staff, energy industry representatives, and the Michigan Attorney General, filed a settlement agreement with the MPSC resolving Consumers’ 2021 IRP.

The MPSC approved that settlement agreement in June 2022.

Under its 2021 IRP, Consumers will 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:

• the retirement of the D.E.

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

Karn coal-fueled generating units, totaling 515 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 retirement of the D.E.

Karn oil and gas-fueled generating units, totaling 1,219 MW of nameplate capacity, in 2031, the units’ original retirement date

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.

Under the 2021 IRP, Consumers will receive regulatory asset treatment to recover the remaining book value of the J.H.

Campbell coal-fueled generating units, as well as a 9.0‑percent return on equity, commencing in 2025.

Under the 2021 IRP, Consumers will bridge the transition away from coal generation with:

• 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, for $815 million, subject to certain adjustments, in 2023;

the purchase was approved by FERC in November 2022

• a one-time competitive solicitation to acquire approximately 700 MW of capacity through PPAs from sources able to deliver to Michigan’s Lower Peninsula beginning in 2025;

of this amount, 500 MW would be from dispatchable sources

These actions 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 30 percent in 2025, 43 percent in 2030, and 61 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.

Additionally, the 2021 IRP will accelerate Consumers’ deployment of battery storage from 2030 to 2024, with 75 MW of energy storage by 2027 and an additional 475 MW by 2040.

Under its 2021 IRP, Consumers will continue to bid new capacity competitively and will own and operate approximately 50 percent of new capacity, with the remainder being built and owned by third parties.

Additionally, Consumers will continue to earn a return equal to its weighted-average cost of capital on payments made under new competitively bid PPAs approved by the MPSC.

As a result of 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.

Presented in the following illustration is the aggregate renewable capacity that Consumers expects to add to its portfolio as a result of these agreements:

In support of its 2021 IRP, Consumers issued a request for proposals in September 2022 to acquire approximately 700 MW of capacity through PPAs from sources able to deliver to Michigan’s Lower Peninsula beginning in 2025.

Specifically, Consumers solicited offers to acquire 500 MW of capacity from dispatchable sources and 200 MW of capacity from intermittent resources and dispatchable, non-intermittent clean capacity resources (including battery storage resources).

In March 2022, the U.S.

Department of Commerce announced it is opening inquiries into whether manufacturers of solar modules that are produced in certain countries using supplies obtained from China are circumventing antidumping and countervailing duties which apply to Chinese modules.

Department of Commerce has made an initial determination that four manufacturers have circumvented tariffs.

The remainder of this inquiry process is expected to continue through at least the first half of 2023.

In June 2022, the Biden Administration paused for two years the imposition of duties that might result from the U.S.

Department of Commerce’s pending inquiries.

In addition, the Uyghur Forced Labor Prevention Act, which was enacted in December 2021 and became effective in June 2022, along with an earlier withhold release order that U.S.

Customs and Border Protection issued in mid-2021, restrict the importation of goods sourced from the Xinjiang region of China.

Solar modules whose raw materials come from the Xinjiang region are a key focus of these import laws.

Consumers continues to closely monitor these matters and their potential impacts on availability of solar modules and timing associated with pending and planned solar projects.

Renewable Energy Plan:

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 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.

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 15 percent of Consumers’ electric sales volume each year.

Under its renewable energy plan, Consumers has met the 15 ‑ percent

requirement and expects to continue meeting the requirement going forward 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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• purchase and construction of a 150 ‑ MW wind generation project in Gratiot County, Michigan;

the project became operational in December 2020

the project became operational and Consumers took full ownership in 2020

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

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• 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

Consumers expects to take full ownership and begin commercial operation of the project in 2023

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.

the facility is targeted to be operational in 2024.

Voluntary Large Customer Renewable Energy Program:

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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.

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.

Each year in June, electric residential customers transition 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.

Over the next five years, Consumers expects weather-normalized electric deliveries to remain relatively stable compared to 2022.

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

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• weather fluctuations

• Michigan’s economic conditions, including utilization, expansion, or contraction of manufacturing facilities, population trends, and housing activity

• Michigan’s economic conditions, including utilization, expansion, or contraction of manufacturing facilities, population trends, electric vehicle adoption, and housing activity

Electric ROA:

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

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.

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.

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 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.

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

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

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

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

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.

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

this motion was granted in January 2021 and the complaint is pending decision by the court after a non-jury trial.

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.

MPSC Reliability Report and Audit:

In October 2022, the MPSC ordered the state’s two largest electric utilities, including Consumers, to report on their compliance with regulations and past MPSC orders governing the utilities’ response to outages and downed lines.

Also, the MPSC Staff was directed to engage a third-party auditor to review all equipment and operations of the two utilities’ distribution systems.

Consumers has responded to the MPSC’s order and awaits further action by the MPSC.

Consumers is committed to working with other state utilities, the third-party auditor, and the MPSC to continue improving electric reliability and safety in Michigan.

2022 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.

In September 2022, Consumers revised its requested increase to $292 million.

The filing requested authority to recover future investments associated with distribution system reliability, solar generation, environmental compliance, and enhanced technology.

In January 2023, the MPSC approved a settlement agreement authorizing an annual rate increase of $155 million, based on a 9.9-percent authorized return on equity.

Additionally, the approved settlement provides for a pension and OPEB tracker that will allow Consumers to defer the future recovery or refund of pension and OPEB expenses above or below the amounts used to set existing rates, respectively.

For additional details on the

settlement agreement, see Item 8.

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

Consumers submitted its 2023 PSCR plan to the MPSC in September 2022.

As a result of higher-than-normal power supply costs during 2022, Consumers included a projection of its full-year 2022 underrecovery in its 2023 PSCR plan.

In accordance with its proposed plan, Consumers self-implemented the 2023 PSCR charge beginning in January 2023.

In January 2023, Consumers filed a motion for a temporary order in its 2023 PSCR plan, requesting that the MPSC approve only a third of the 2022 underrecovery amount for recovery in 2023, with the remaining amount to be recovered equally during 2024 and 2025.

Recovering the 2022 underrecovery over three years will provide immediate relief to electric customers, and the financial impact will be neutral to Consumers’ earnings.

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 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.

Retention Incentive Program:

Under its Clean Energy Plan, Consumers will retire the D.E.

Karn coal-fueled electric generating units in 2023.

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

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this expense will be deferred as a regulatory asset.

For additional details on this program, see Item 8.

Under the 2021 IRP, Consumers will retire the J.H.

Campbell coal-fueled generating units in 2025.

Similar to the D.E.

Karn program, Consumers is providing a retention incentive program to ensure necessary staffing at the J.H.

Campbell generating complex through retirement.

Based on the number of employees that have chosen to participate, the aggregate cost of the program through 2025 is estimated to be $50 million.

Consumers expects to recognize $16 million of retention benefit costs in 2023.

The 2021 IRP provides deferred accounting treatment for retention costs recognized during 2022;

deferral of costs beyond 2022 was approved as part of the 2022 electric rate case settlement.

For additional details on these programs, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 19, 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:

Consumers’ operations are subject to various state and federal environmental laws and regulations.

Consumers estimates that it will incur capital expenditures of $255 million from 2022 through 2026 to continue to comply with RCRA, the Clean Water Act, the Clean Air Act, and numerous state and federal environmental regulations.

Consumers’ electric operations are subject to various federal, state, and local environmental laws and regulations.

Consumers estimates that it will incur capital expenditures of $210 million from 2023 through 2027 to continue to comply with RCRA, the Clean Air Act, and numerous other environmental regulations.

Consumers expects to recover these costs in customer rates, but cannot guarantee this result.

Multiple environmental laws and regulations are subject to litigation.

Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters.

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

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.

Multiple air quality regulations apply, or may apply, to Consumers’ electric utility.

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

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

Consumers met the 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 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.

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.

Consumers has complied, and continues to comply, with the MATS regulation, and does not expect MATS to materially impact its environmental strategy.

CSAPR 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 in other downwind states.

Since its 2015 effective date, CSAPR has been revised several times.

One such revision made in 2021

provided updated emission reductions through 2024 from electric generating units in 12 states, including Michigan.

Consumers believes the impact of this rule on its generation operations should be minimal.

In March 2022, the EPA proposed another revision to CSAPR that affects Michigan.

If finalized as proposed, this revision would reduce nitrogen oxides allowance budgets beginning in 2023 and would change the mechanism for allocating such allowances on a year-over-year basis.

While prior CSAPR regulations have primarily focused on electric generating units, this latest proposal also includes other sources of nitrogen oxides emissions.

If the EPA finalizes the proposed CSAPR revision in its current form, Consumers may incur significant costs in allowance purchases and/or equipment retrofits.

Consumers will continue to monitor this rulemaking and its impact on Consumers’ electric operations.

In 2015, the EPA lowered the NAAQS for ozone and made it more difficult to construct or modify power plants and other emission sources in areas of the country that do not meet the ozone standard.

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.

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.

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.

Additionally, in January 2023, the EPA proposed lowering the NAAQS for particulate matter.

Consumers will continue to monitor NAAQS rulemakings and evaluate potential impacts to its generating assets.

Consumers’ strategy to comply with air quality statutes and regulations 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 actions.

This evaluation could result in:

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• changes in Consumers’ environmental compliance costs

• the purchase or sale of allowances

Greenhouse Gases:

There have been numerous legislative and regulatory initiatives at the state, regional, national, and international levels that involve the potential regulation of greenhouse gases.

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

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

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

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

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

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

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.

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.

There have been numerous legislative and regulatory initiatives at the state, regional, national, and international levels that involve the potential regulation and reporting of greenhouse gases.

Consumers continues to monitor and comment on these initiatives, as appropriate.

In June 2022, the EPA announced its plan to propose a new rule to address greenhouse gas emissions from existing fossil-fuel-fired electric generating units.

Under its 2021 IRP, Consumers will eliminate the use of coal-fueled generation in 2025.

Therefore, it is unlikely that the proposed rule will materially impact Consumers over the remaining operating lives of these coal-fueled facilities.

However, Consumers cannot predict the form and extent of such potential regulation on its natural gas-fueled generation until this rule is released.

Under the Paris Agreement, an international agreement addressing greenhouse gas emissions, the U.S.

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

Under its 2021 IRP, Consumers plans to reduce carbon emissions from its electric business by 60 percent from 2005 levels in 2025.

At this time, Consumers does not expect any adverse changes to its environmental strategy as a result of these events, as its plans exceed the nationally committed reduction.

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.

is not binding without new Congressional legislation.

carbon neutral by 2050.

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

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

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

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

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

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

Additionally, 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.

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

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

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

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

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

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

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

however, Consumers 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.

however, Consumers evaluates the potential physical impacts of climate change on its operations, including increased frequency or intensity of storm activity;

increased precipitation;

increased temperature;

and changes in lake and river levels.

Consumers released a report addressing the physical risks of climate change on its infrastructure in February 2022.

Consumers is taking steps to mitigate these risks as appropriate.

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

policy or of other legislative, executive, or regulatory initiatives involving the potential regulation or reporting of greenhouse gases, it intends to move forward with its Clean Energy Plan, its present net-zero goals, and its emphasis on reliable and resilient supply.

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 impact Consumers.

Consumers may be required to replace equipment;

Consumers may be required to:

• replace equipment

• install additional emission control equipment

purchase emission allowances or credits;

• purchase emission allowances or credits (including potential greenhouse gas offset credits)

• curtail operations

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• pursue energy efficiency or demand response measures more swiftly

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

• 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.

This rule adopts minimum standards for beneficially using and disposing of non‑hazardous CCRs and establishes technical requirements for CCR landfills and surface impoundments.

The rule also sets out conditions under which some CCR units would be forced to cease receiving CCR wastewater and initiate closure.

Due to litigation, many aspects of the rule have been remanded to the EPA, resulting in more proposed and final rules.

Anticipated litigation related to remanded aspects will add uncertainty around requirements for compliance and state permit programs.

In 2020, the EPA amended the conditions of forced closure and required all unlined surface impoundments to initiate closure by mid-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 closure initiation deadline.

Separately, 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, which is still pending.

In 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.

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Multiple water-related regulations apply, or may apply, to Consumers.

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

The EPA regulates cooling water intake systems of existing electric generating plants under Section 316(b) of the Clean Water Act.

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

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

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

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

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

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

Consumers 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;

The EPA also regulates the discharge of wastewater through its effluent limitation guidelines for steam electric generating plants.

In 2020, the EPA revised previous guidelines related to the discharge of certain wastewater, but allowed 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 received such an extension to 2025 for its J.H.

Campbell generating facility, which it plans to retire in 2025.

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

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

Army Corps of Engineers have proposed changes to the scope of federal jurisdiction over bodies of water and to the frequency of dual jurisdiction in states with authority to regulate the same waters;

Michigan is one such state.

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.

Additionally, a final 2022 rulemaking changed the definition of “Waters of the United States.” Consumers does not expect adverse changes to its environmental strategy as a result of the current interpretations.

Many of Consumers’ facilities maintain NPDES permits, which are vital to the facilities’ operations.

Consumers applies for renewal of these permits every five years.

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.

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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.

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

In 2021, the U.S.

Fish and Wildlife Service announced its intent to regulate incidental take under the Migratory Bird Treaty Act.

Any resulting permitting and monitoring fees and/or restrictions on operations 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 at federal and state levels.

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.

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2022 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:

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Cost of capital 63

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.

Sales and other revenue 22

The filing also seeks approval of a pension and OPEB tracker that will allow Consumers to defer for future recovery or refund pension and OPEB expense above the amounts used to set existing rates and an uncollectible deferral/refund mechanism.

Postretirement Benefits Expense Accounting Application:

In January 2023, Consumers filed an application with the MPSC, requesting authority to defer the future recovery or refund of pension and OPEB expenses above or below the amounts used to set existing rates, respectively.

Consumers requested this accounting treatment to begin in 2023 and to continue until rates are reset in the 2022 gas rate case.

Depreciation Rate Case:

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

In September 2022, the MPSC approved a settlement agreement authorizing a decrease in depreciation expense of $29 million annually.

The decrease in depreciation expense will become effective concurrent with Consumers’ 2022 gas rate case.

Consumers submitted its 2023-2024 GCR plan to the MPSC in December 2022 and, in accordance with its proposed plan, expects to self-implement the 2023-2024 GCR charge beginning in April 2023.

Gas Pipeline and Storage Integrity and Safety:

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

Department of Transportation’s Pipeline and Hazardous Materials Safety Administration has published various rules that expand federal safety standards for gas transmission pipelines and underground storage facilities.

Initial requirements took effect in 2020, with future regulation phases to be released over numerous years.

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.

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

Gas Environmental Outlook:

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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.

Consumers’ gas operations are subject to various federal, state, and local environmental laws and regulations.

Multiple environmental laws and regulations are subject to litigation.

Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters.

Multiple air quality regulations apply, or may apply, to Consumers’ gas utility.

In 2015, the EPA lowered the NAAQS for ozone and made it more difficult to construct or modify natural gas compressor stations and other emission sources in areas of the country that do not meet the ozone standard.

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

Seven counties in southeastern Michigan were not in attainment with the ozone standard by a 2021 regulatory deadline, and thus may have their ozone nonattainment designations increased from marginal to moderate.

The EPA also recently elevated the nonattainment status of three counties in western Michigan from marginal to moderate.

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.

Consumers expects to incur costs to retrofit equipment to lower emissions at some of its compressor stations located in the nonattainment areas.

In March 2022, the EPA proposed a revision to CSAPR that affects Michigan.

This proposed rule seeks to reduce interstate air pollution transport issues that EPA modeling suggests contribute to downwind states attaining or maintaining compliance with the NAAQS for ozone.

While prior CSAPR regulations have primarily focused on electric generating units, the proposed rule includes other emission sources, including engines at natural gas compressor stations.

If the EPA finalizes the proposed CSAPR revision in its current form, Consumers may incur costs to retrofit or replace equipment at some compressor stations.

Greenhouse Gases:

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

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

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.

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

Such regulation, if adopted, may involve requirements to reduce

methane emissions from Consumers’ gas utility operations and carbon dioxide emissions from customer use of natural gas.

No such measures apply to Consumers at this time.

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

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.

Under the Paris Agreement, an international agreement addressing greenhouse gas emissions, the U.S.

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

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.

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

No such measures apply to Consumers at this time.

is not binding without new Congressional legislation.

Consumers continues to monitor these initiatives and comment as appropriate.

Consumers cannot predict the impact of any potential future legislation or regulation on its gas utility.

Consumers Electric Utility and Gas Utility Outlook and Uncertainties

Energy Waste Reduction Plan:

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.

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 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.

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.

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

Under its Methane Reduction Plan, Consumers has set a goal of net-zero methane emissions from its natural gas delivery system by 2030.

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

To date, Consumers has reduced methane emissions by more than 20 percent from a 2012 baseline.

In March 2022, Consumers also announced a net-zero greenhouse gas emissions target for its entire natural gas system by 2050.

This includes suppliers and customers, and has an interim goal of reducing customer emissions by 20 percent by 2030.

Consumers’ Natural Gas Delivery Plan, a 10-year strategic investment plan to deliver safe, reliable, clean, and affordable natural gas to customers, outlines ways in which Consumers can make early progress toward these goals in a cost-effective manner, including energy waste reduction or energy efficiency, carbon offsets, and renewable natural gas supply.

Consumers has already initiated work in these key areas, continuing to expand its energy waste reduction targets, launching a program allowing gas customers to purchase carbon offset credits on a voluntary basis, and announcing plans to begin development of a renewable natural gas facility that will capture methane from manure generated at a Michigan-based farm and convert it into renewable natural gas.

Consumers is evaluating and monitoring newer technologies to determine their role in achieving Consumers’ interim and long-term net-zero goals, including hydrogen, biofuels, and synthetic methane;

carbon capture sequestration systems;

and other innovative technologies.

Over the long term, Consumers will incorporate technological advances, policy-driven incentives, and other influencing factors into its compliance, investment planning, and decarbonization strategy in order to achieve these net-zero methane and greenhouse gas emissions goals.

NorthStar Clean Energy Outlook and Uncertainties

CMS Energy’s primary focus with respect to its NorthStar Clean Energy businesses is to maximize the value of generating assets, its share of which represents 1,478 MW of capacity, and to pursue opportunities for the development of renewable generation projects.

NorthStar Clean Energy’s operations may be subject to various federal, state, and local environmental laws and regulations.

Multiple environmental laws and regulations are subject to litigation.

NorthStar Clean Energy’s primary environmental compliance focus includes, but is not limited to, the following matters.

In 2015, the EPA lowered the NAAQS for ozone and made it more difficult to construct or modify power plants and other emission sources in areas of the country that do not meet the ozone standard.

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

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.

Trends, uncertainties, and other matters related to the enterprises segment that could have a material impact on CMS Energy’s consolidated income, cash flows, or financial position include:

The DIG plant is within one of these counties and, as a result, may be subject to additional permitting restrictions in the event of any future increase in the nonattainment designation.

In March 2022, the EPA proposed a revision to CSAPR that affects Michigan.

This proposed rule seeks to reduce interstate air pollution transport issues that EPA modeling suggests contribute to downwind states attaining or maintaining compliance with the NAAQS for ozone.

If the EPA finalizes the proposed CSAPR revision in its current form, NorthStar Clean Energy may incur significant costs in allowance purchases and equipment retrofits.

NorthStar Clean Energy will continue to monitor this rulemaking and its impact on its emission sources.

Many of NorthStar Clean Energy’s facilities maintain NPDES permits, which are vital to the facilities’ operations.

NorthStar Clean Energy applies for renewal of these permits every five years.

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

Trends, uncertainties, and other matters related to NorthStar Clean Energy that could have a material impact on CMS Energy’s consolidated income, cash flows, or financial position include:

• investment in and financial benefits received from renewable energy and energy storage projects

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• severe weather events and climate change associated with increasing levels of greenhouse gases

• changes in commodity prices and interest rates on certain derivative contracts that do not qualify for hedge accounting and must be marked to market through earnings

• changes in commodity prices on certain derivative contracts that do not qualify for hedge accounting and must be marked to market through earnings

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

• 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

For additional details regarding the enterprises segment’s uncertainties, see Item 8.

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

• indemnity obligations assumed in connection with ownership interests in facilities that involve tax equity financing

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

• delays or difficulties in obtaining environmental permits for facilities located in areas associated with environmental justice concerns

In March 2022, the U.S.

Department of Commerce has made an initial determination that four manufacturers have circumvented tariffs.

The remainder of this inquiry process is expected to continue through at least the first half of 2023.

In June 2022, the Biden Administration paused for two years the imposition of duties that might result from the U.S.

Department of Commerce’s pending inquiries.

In addition, the Uyghur Forced Labor Prevention Act, which was enacted in December 2021 and became effective in June 2022, along with an earlier withhold release order that U.S.

Customs and Border Protection issued in mid-2021, restrict the importation of goods sourced from the Xinjiang region of China.

Solar modules whose raw materials come from the Xinjiang region are a key focus of these import laws.

CMS Energy continues to closely monitor these matters and their potential impacts on availability of solar modules and timing associated with pending and planned solar projects.

For additional details regarding NorthStar Clean Energy’s uncertainties, see Item 8.

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

Other Outlook and Uncertainties

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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.

Employee Separation Program:

In April 2022, CMS Energy and Consumers announced a voluntary separation program for salaried non-union employees.

For the year ended December 31, 2022, CMS Energy and Consumers recorded an after-tax charge of $8 million related to the program, under which more than 170 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.

Tax Legislation:

CMS Energy and Consumers are subject to changing tax laws.

In August 2022, President Biden signed the Inflation Reduction Act.

Among other things, this Act expands production tax credits and investment tax credits, allows for the transferability of such credits, and implements a 15 ‑ percent corporate alternative minimum tax on companies with an average adjusted financial statement income of more than $1.0 billion.

While CMS Energy and Consumers are still assessing the overall impacts of the bill, they have determined they will not be subject to the corporate alternative minimum tax in 2023, and do not believe the corporate alternative minimum tax will have a material impact on their business.

Critical Accounting Policies and Estimates

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For additional details, see Item 8.

Financial Statements and

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

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 credits and cash contributions through 2024 for the DB Pension Plans and OPEB Plan.

Presented in the following table are estimates of credits and cash contributions through 2025 for the DB Pension Plans and OPEB Pl an.

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.

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Lowering the expected long-term rate of return on the assets of the DB Pension Plans by 25 basis points would increase estimated pension cost for 2023 by $8 million for both CMS Energy and Consumers.

Lowering the PBO discount rates by 25 basis points would increase estimated pension cost for 2022 by $5 million for both CMS Energy and Consumers.

Lowering the PBO discount rates by 25 basis points would decrease estimated pension cost for 2023 by $1 million for both CMS Energy and Consumers.

Pension and OPEB plan assets are accounted for and disclosed at fair value.

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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