What changed in this filing

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Item 1A. Risk Factors

2024-02-08 compared with 2023-02-09 · 51 added, 51 removed, 186 unchanged (35% of the section changed)

20 unchanged sentences

CMS Energy and Consumers rely on the capital markets, as well as on bank syndications, to meet their financial commitments and short-term liquidity needs not otherwise funded internally.

Disruptions in the capital and credit markets, or the inability to obtain required FERC authorization for issuances of securities including debt, could adversely affect CMS Energy’s and Consumers’ access to liquidity needed for their businesses.

Disruptions in the capital and credit markets, or the inability to obtain required regulatory authorization for issuances of securities including debt, could adversely affect CMS Energy’s and Consumers’ access to liquidity needed for their businesses.

Any liquidity disruption could require CMS Energy and Consumers to take measures to conserve cash including, but not limited to, deferring capital expenditures, changing commodity purchasing strategies to avoid collateral-posting requirements, and reducing or eliminating future share repurchases, dividend payments, or other discretionary uses of cash.

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CMS Energy and Consumers cannot guarantee the capital markets’ acceptance of their securities.

CMS Energy may also, from time to time, repurchase (either in open market transactions or through privately negotiated transactions), redeem, or otherwise retire its outstanding debt.

CMS Energy and Consumers may also, from time to time, repurchase (either in open market transactions or through privately negotiated transactions), redeem, or otherwise retire outstanding debt.

Such activities, if any, will depend on prevailing market conditions, contractual restrictions, and other factors.

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Consumers’ rates are regulated by the MPSC, while alternative electric suppliers charge market-based rates, putting competitive pressure on Consumers’ electric supply.

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

Groups are advocating for an ROA-like community solar system that allows third parties to sell directly to customers and offer them a regulated bill credit.

If the ROA limit were increased, this new ROA-like community solar system were allowed, or electric generation service in Michigan were deregulated, it could have a material adverse effect on CMS Energy and Consumers.

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

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

The state distributed generation program is currently capped by the 2016 Energy Law at one percent of utilities’ peak loads, but in the settlement of its 2022 electric rate case, Consumers agreed to increase the cap to four percent on its system.

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

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

The 2023 Energy Law increases the cap on distributed generation to ten percent of utilities’ peak loads.

It also specifies an inflow and outflow rate method that must be implemented by the MPSC and provides federal funding for low-income distributed generation.

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

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

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These orders could also result in adverse regulatory treatment of other matters.

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

Regulators could face competitive or political pressures to avoid or limit rate increases for a number of reasons, including economic downturn in the state or decreased customer base, among others.

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

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

Transmission rates paid by Consumers and other CMS Energy subsidiaries are also set by FERC, as are the tariff terms

governing the participation of Consumers and other CMS Energy subsidiaries in FERC-regulated wholesale electricity markets operated by regional transmission organizations and independent system operators such as MISO and PJM.

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

Regulators could face competitive or political pressures to avoid or limit rate increases for a number of reasons, including economic downturn in the state, reliability and economic justice concerns, or decreased customer base, among others.

FERC authorizes certain subsidiaries of CMS Energy, including Consumers, to sell wholesale electricity at market-based rates and to provide certain other wholesale electric services at rates and terms subject to FERC approval.

Failure of these subsidiaries to maintain this FERC authority could have a material

adverse effect on CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations.

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

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

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

CMS Energy and Consumers are subject to, or affected by, extensive utility regulation and state and federal legislation.

If it were determined that CMS Energy or Consumers failed to comply with applicable laws and regulations, they could become subject to fines, penalties, or disallowed costs, or be required to implement additional compliance, cleanup, or remediation programs, the cost of which could be material.

CMS Energy and certain of its subsidiaries, including Consumers, are subject to, or affected by, extensive utility regulation and state and federal legislation.

If it were determined that CMS Energy or Consumers failed to comply with applicable laws and regulations or with applicable tariff provisions, they could become subject to fines, penalties, or disallowed costs, or be required to implement additional compliance, cleanup, or remediation programs, the cost of which could be material.

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

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Achieving these plans depends on numerous factors, many of which are outside of their control.

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

The MPSC, FERC, other regulatory authorities, or other third parties may prohibit, delay, or impair the 2021 IRP and some or all of the 2021 IRP-associated acquisitions of owned or purchased electric generation capacity.

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

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

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

The MPSC, FERC, other regulatory authorities, or other third parties may prohibit, delay, or impair some or all of Consumers’ planned acquisitions of owned or purchased electric generation capacity.

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

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

While CMS Energy and Consumers continue to advocate for advances in technologies required to reduce or eliminate greenhouse gases on a cost-effective basis, such advances are largely outside of CMS Energy’s and Consumers’ control.

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

Advancements in technology related to items such as battery storage and electric vehicles may not become commercially

available or economically feasible as projected.

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

Consumers has also announced its Natural Gas Delivery Plan, a 10-year strategic investment plan to deliver safe, reliable, clean, and affordable natural gas to customers.

Consumers has also announced its Natural Gas Delivery Plan, a rolling ten ‑ year investment plan to deliver safe, reliable, clean, and affordable natural gas to customers.

This plan includes accelerated infrastructure replacements, innovative leak detection technology, and process changes to reduce or eliminate methane emissions.

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

CMS Energy and Consumers are subject to costly and stringent environmental regulations that will likely require additional significant capital expenditures for CCR disposal and storage, cooling water intake equipment, effluent treatment, and PCB remediation.

CMS Energy and Consumers are subject to costly and stringent environmental regulations that may require additional significant capital expenditures for CCR disposal and storage, emission reductions, and PCB remediation.

In addition, regulatory action on PFAS at the state and/or federal level could cause CMS Energy and Consumers to further test and remediate some sites if PFAS is present at certain levels.

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

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

Consumers could be restricted from constructing natural gas infrastructure due to potential environmental regulations, which could require more costly alternatives.

Federal, state, and local environmental laws and rules, as well as international accords and treaties, could require CMS Energy and Consumers to install

additional equipment for emission controls, undertake heat-rate improvement projects, purchase carbon emissions allowances, curtail operations, invest in generating capacity with fewer carbon dioxide emissions, or take other significant steps to manage or lower the emission of greenhouse gases.

Similarly, Consumers could be restricted from constructing natural gas infrastructure due to potential environmental regulations, which could require more costly alternatives.

The following risks related to climate change, emissions, and environmental regulations could also have a material adverse impact on CMS Energy and Consumers:

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• impairment of CMS Energy’s or Consumers’ reputation due to their greenhouse gas or other emissions and public perception of their response to potential environmental regulations, rules, and legislation

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

• weather that may affect customer demand, company operations, or company infrastructure, including catastrophic weather-related damage and extreme temperatures;

natural disasters such as severe storms, floods, and droughts;

• implementation of state or federal environmental justice requirements

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

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• prevent the continued operation of and sale of energy from existing facilities

• modify the way in which a facility is operated

• prevent the suspension of operations at existing facilities

• prevent the modification of existing facilities

• result in significant additional costs

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

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

• result in significant additional costs, including fines or penalties

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

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

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

Business/Operations Risks

There are risks associated with Consumers’ substantial capital investment program planned for the next ten years.

technology, and other electric and gas investments to upgrade delivery systems, as well as decommissioning of older facilities.

There are risks associated with Consumers’ substantial capital investment program planned for the next five years.

Consumers’ planned investments include the construction or acquisition of electric generation, electric and gas infrastructure, conversions and expansions, environmental controls, electric grid modernization technology, and other electric and gas investments to upgrade delivery systems, as well as decommissioning of older facilities.

The success of these capital investments depends on or could be affected by a variety of factors that include, but are not limited to:

3 unchanged sentences

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

• governmental approvals and permitting

• governmental actions

• operational performance

1 unchanged sentence

• regulatory cost recovery

• inflation of labor rates

• increases in lead times and disruptions in supply chain distribution

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

relations with China

• inflation of labor rates and material and equipment prices

• supply chain disruptions and increased lead times

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

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

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Consumers’ electric and gas utility businesses are affected by the economic conditions impacting the customers they serve.

If the Michigan economy becomes sluggish or declines, Consumers could experience reduced demand for electricity or natural gas that could result in decreased earnings and cash flow.

If the Michigan economy becomes sluggish or declines, Consumers could experience reduced demand for electricity or natural gas that could result in decreased earnings and cash

In addition, economic conditions in Consumers’ service territory affect its collections of accounts receivable and levels of lost or stolen gas.

Consumers is exposed to changes in customer usage that could impact financial results.

Technology advances, government incentives and subsidies, and recent regulatory decisions could increase the cost effectiveness of customer-owned methods of producing electricity and managing energy use resulting in reduced load, cross subsidization, and increased costs.

Customers could also reduce their consumption through demand-side energy conservation and energy waste reduction programs.

Similarly, customers could also reduce their consumption of natural gas through alternative technologies or fuels.

Technology advances, government incentives and subsidies, and regulatory decisions could increase the cost effectiveness of customer-owned methods of producing electricity and managing energy use resulting in reduced load, cross subsidization, and increased costs.

Customers could also reduce their consumption through energy waste reduction programs.

Similarly, customers could also reduce their consumption of natural gas through alternative technologies or fuels or through electrification.

CMS Energy’s and Consumers’ energy sales and operations are affected by seasonal factors and varying weather conditions from year to year.

CMS Energy’s and Consumers’ utility operations are seasonal.

The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment, while peak demand for natural gas typically occurs in the winter due to colder temperatures and the resulting use of natural gas as heating fuel.

The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment, while peak demand for natural gas occurs in the winter due to colder temperatures and the resulting use of natural gas as heating fuel.

Accordingly, CMS Energy’s and Consumers’ overall results may fluctuate substantially on a seasonal basis.

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These events could impact the reliability of electric generation and electric and gas delivery and also subject CMS Energy and Consumers to financial harm.

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

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

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

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

Consumers’ electric and gas delivery systems, power plants, gas infrastructure including storage facilities, wind energy or solar equipment, and energy products, and the independent power plants owned in whole or in part by CMS Energy could be involved in incidents, failures, or accidents that result in injury, loss of life, or property loss to customers, employees, or the public.

Consumers’ electric and gas delivery systems, power plants, gas infrastructure including storage facilities, wind energy or solar equipment, energy products, vehicle fleets and equipment, or other assets;

the independent power plants or other assets and equipment owned in whole or in part by CMS Energy;

or CMS Energy or Consumers employees could be involved in incidents, failures, or accidents that result in injury, loss of life, or property loss to customers, employees, or the public.

Although CMS Energy and Consumers have insurance coverage for many potential incidents (subject to deductibles, limitations, and self-insurance amounts that could be material), depending upon the nature or severity of any incident, failure, or accident, CMS Energy or Consumers could suffer financial loss, reputational damage, and negative repercussions from regulatory agencies or other public authorities.

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

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

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

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

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Furthermore, the ability to hedge exposure to commodity price volatility depends on liquid commodity markets.

As a result, to the extent the commodity markets are illiquid,

CMS Energy and Consumers might not be able to execute their risk management strategies, which could result in larger unhedged positions than preferred at a given time.

As a result, to the extent the commodity markets are illiquid, CMS Energy and Consumers might not be able to execute their risk management strategies, which could result in larger unhedged positions than preferred at a given time.

To the extent that unhedged positions exist, fluctuating commodity prices could have a negative effect on CMS Energy and Consumers.

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General Risk Factors

The COVID-19 pandemic could materially and adversely affect each of CMS Energy’s and Consumers’ business, results of operations, financial condition, capital investment program, liquidity, and cash flows.

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

These impacts include a reduction in economic activity, disruption to supply chains and operations, increased labor costs, reduced availability of labor, and reduced productivity.

CMS Energy and Consumers are exposed to counterparty risk.

Adverse economic conditions or financial difficulties experienced by counterparties with whom CMS Energy and Consumers do business could impair the ability of these counterparties to pay for

CMS Energy’s and Consumers’ services and/or fulfill their contractual obligations, including performance and payment of damages.

Adverse economic conditions or financial difficulties experienced by counterparties with whom CMS Energy and Consumers do business could impair the ability of these counterparties to pay for CMS Energy’s and Consumers’ services and/or fulfill their contractual obligations, including performance and payment of damages.

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

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Failing to train replacement employees adequately and to transfer internal knowledge and expertise could adversely affect CMS Energy’s and Consumers’ ability to manage and operate their businesses.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors