What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-08 compared with 2023-02-09 · 355 added, 369 removed, 548 unchanged (57% of the section changed)

3 unchanged sentences

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 NorthStar Clean Energy (formerly known as CMS Enterprises Company), primarily a domestic independent power producer and marketer.

It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility, and NorthStar Clean Energy, 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.

1 unchanged sentence

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.

1 unchanged sentence

electric utility;

and NorthStar

Clean Energy, its non‑utility operations and investments.

Consumers operates principally in two business segments:

and NorthStar Clean Energy, its non‑utility operations and investments.

Consumers operates principally in two business

electric utility and gas utility.

12 unchanged sentences

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.

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

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

4 unchanged sentences

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.

Consumers’ customer-driven investment program is aimed at improving safety and increasing electric and gas reliability.

In September 2023, Consumers filed its Reliability Roadmap, an update to its previous Electric Distribution Infrastructure Investment Plan filed in 2021, with the MPSC.

The Reliability Roadmap outlines a five-year strategy to improve Consumers’ electric distribution system and the reliability of the grid.

The plan proposes the following spending for projects designed to reduce the number and duration of power outages to customers through investment in infrastructure upgrades, forestry management, and grid modernization:

• capital expenditures of $7 billion over the next five years;

this amount is $3 billion higher than proposed in the previous plan

• maintenance and operating spending of $1.7 billion over the next five years, reflecting an increase of $300 million over the previous plan

Consumers will request rate recovery of these proposed expenditures in future electric rate cases.

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

5 unchanged sentences

• employee and retiree health care cost sharing

• tax planning

• cost-effective financing

• workforce productivity enhancements

3 unchanged sentences

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

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

As a result of actions already taken 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 over 35 percent since 2012

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

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

CMS Energy, including Consumers, has decreased its combined percentage of electric supply (self-generated and purchased) from coal by 25 percentage points since 2015.

Additionally, as a result of actions already taken through 2023, initial measurement data indicates Consumers has:

• reduced carbon dioxide emissions by nearly 40 percent since 2005

• reduced methane emissions by more than 25 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.

• reduced the volume of water used to generate electricity by more than 50 percent since 2012

• reduced landfill waste disposal by more than 1.8 million tons since 1992

• enhanced, restored, or protected more than 8,800 acres of land since 2017

Since 2005, Consumers has reduced its sulfur dioxide and particulate matter emissions by more than 95 percent and its NOx emissions by nearly 88 percent.

Consumers began tracking mercury emissions in 2007;

1 unchanged sentence

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

The 2016 Energy Law:

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

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;

Consumers achieved 33 ‑ percent combined renewable energy and energy waste reduction through 2022

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

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

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

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

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

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.

The 2021 IRP outlines Consumers’ long-term strategy for delivering clean, reliable, resilient, and affordable energy to its customers, including plans to:

In November 2023, Michigan enacted the 2023 Energy Law, which among other things:

• raises the renewable energy standard from the present 15-percent requirement to 50 percent by 2030 and 60 percent by 2035;

renewable energy generated anywhere within MISO may be applied to meeting this standard, with certain limitations

• sets a clean energy standard of 80 percent by 2035 and 100 percent by 2040;

low- or zero-carbon emitting resources, such as nuclear generation and natural gas generation coupled with carbon capture, are considered clean energy sources under this standard

• enhances existing incentives for energy efficiency programs and returns earned on competitively bid PPAs

• expands the statutory cap on distributed generation resources to ten percent

Consumers is required to file updates to its amended renewable energy plan before or in 2025 and its Clean Energy Plan before or in 2027.

Together, these updated plans will outline a path to meeting the requirements of the 2023 Energy Law by focusing on increasing the generation of renewable energy, deploying energy storage, helping customers use less energy, and offering demand response programs to reduce demand during critical peak times.

Consumers’ Clean Energy Plan details its strategy to meet customers’ long-term energy needs and was most recently revised and approved by the MPSC in June 2022 under Michigan’s integrated resource planning process.

The Clean Energy Plan 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 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

• purchase the Covert Generating Station, a natural gas-fueled generating facility with 1,200 MW of nameplate capacity, allowing Consumers to continue to provide controllable sources of electricity to customers;

this purchase was completed in May 2023

• solicit up to 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

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:

Under the Clean Energy Plan, Consumers earns a return equal to its pre-tax weighted-average cost of capital on permanent capital structure on payments made under new competitively bid PPAs with non‑affiliated entities approved by the MPSC.

The Clean Energy Plan 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 Clean Energy Plan.

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

1 Does not include RECs.

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.

2 Includes energy waste reduction, demand response, and conservation voltage reduction programs.

3 These amounts and fuel sources will vary and are dependent on a one‑time competitive solicitation to acquire up to 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.

Under its Methane Reduction Plan, Consumers plans to reduce methane emissions from its system by about 80 percent, from 2012 baseline levels, 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.

To date, Consumers has reduced methane emissions by more than 25 percent.

Net-zero carbon emissions from electric business by 2040:

3 unchanged sentences

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.

This goal 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:

Additionally, to advance its environmental stewardship in Michigan and to minimize the impact of future regulations, Consumers set 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

through 2023, Consumers enhanced, restored, or protected more than 2,700 acres of land

• to reduce water usage by 1.5 billion gallons by 2026;

through 2023, Consumers reduced water usage by more than 1.4 billion gallons

• to increase the rate of waste diverted from landfills (through waste reduction, recycling, and reuse) to 90 percent through 2023 from a baseline of 88 percent in 2021;

during 2023, Consumers’ rate of waste diverted from landfills was 91 percent

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

1 unchanged sentence

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

CMS Energy’s and Consumers’ financial strength allows them to maintain solid investment-grade credit ratings and thereby reduce funding costs for the benefit of customers and investors, to preserve and create jobs, and to reinvest in the communities they serve.

CMS Energy’s and Consumers’ financial strength allows them to maintain solid investment-grade credit ratings and thereby reduce funding costs for the benefit of customers and investors, to attract and retain talent, and to reinvest in the communities they serve.

In 2023, CMS Energy’s net income available to common stockholders was $877 million, and diluted EPS were $3.01.

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.

This compares with net income available to common stockholders of $827 million and diluted EPS of $2.85 in 2022.

In 2023, gas and electric rate increases, operational cost performance, and gains on the extinguishment of debt were offset partially by lower gas and electric sales due primarily to unfavorable weather, higher service restoration costs attributable to storms, and higher interest charges.

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 relatively stable compared to 2023.

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

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

Impacting the Triple Bottom Line

CMS Energy and Consumers remain committed to achieving world class performance while delivering hometown service and positively impacting the triple bottom line of people, planet, and profit.

During 2022, CMS Energy and Consumers:

• 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.

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

During 2023, CMS Energy met all requirements for inclusion in the MSCI ESG Leaders Indexes;

these indexes are designed to represent the performance of companies that have high environmental, social, and governance ratings relative to their sector peers.

Additionally, Consumers:

• was selected to receive a $100 million grant from the U.S.

Department of Energy to fund investments in its electric distribution system, improving the reliability of Michigan’s electric grid

• participated in the state’s economic development efforts that have resulted in commitments by large third-party manufacturers to construct facilities for electric vehicle batteries and battery components in Michigan

• announced plans for an 85-MW solar array to be constructed at the former D.E.

Karn coal-generating facilities, which were retired earlier in 2023

• grew its voluntary large customer renewable energy program to approximately 365 MW

• opened a state-of-the-art natural gas training facility in Flint, Michigan that will facilitate employee training that is critical to keeping workers, customers, and the public safe

• announced plans to install more than 120 automatic transfer reclosers to improve electric reliability and help prevent power outages

• completed the first phase of its Mid-Michigan Pipeline Project, part of Consumers’ commitment to providing safe, reliable, and affordable natural gas to Michigan homes and businesses

• announced new efforts to install electric vehicle chargers at apartment buildings, condominiums, and overnight community locations across the state of Michigan

• was one of 15 recipients of the U.S.

Department of Defense’s 2023 Secretary of Defense Employer Support Freedom Award, an honor to employers for support of National Guard and Reserve employees

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

3 unchanged sentences

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 over seven percent.

Consumers’ investment program, which is subject to approval through general rate case proceedings, is expected to result in annual rate-base growth of more than seven percent.

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

Presented in the following illustration are planned capital expenditures of $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.

Presented in the following illustration are Consumers’ planned capital expenditures through 2028 of $17.0 billion:

Of this amount, Consumers plans to spend $13.6 billion over the next five years primarily to maintain and upgrade its electric distribution systems and gas infrastructure in order to enhance safety and reliability, improve customer satisfaction, reduce energy waste on those systems, and facilitate its clean energy transformation.

Electric distribution and other projects comprise $7.3 billion primarily to strengthen circuits and substations, replace poles, and interconnect clean energy resources.

The gas infrastructure projects comprise $6.3 billion to sustain deliverability, enhance pipeline integrity and safety, and reduce methane emissions.

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.

Consumers also expects to spend $3.4 billion on clean generation, which includes investments in wind, solar, and hydroelectric 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.

1 unchanged sentence

2023 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 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.

In December 2023, Consumers filed an application with the MPSC seeking an annual rate increase of $136 million based on a 10.25‑percent authorized return on equity for the projected 12‑month period ending September 30, 2025.

The filing requests authority to recover new infrastructure investment and related costs that are expected to allow Consumers to continue to provide safe, reliable, affordable, and increasingly cleaner natural gas service.

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.

In August 2023, the MPSC approved a settlement agreement authorizing an annual rate increase of $95 million, based on a 9.9‑percent authorized return on equity, effective October 1, 2023.

The MPSC also authorized the use of a cost deferral mechanism that will allow Consumers to defer for future recovery or refund pension and OPEB expense above or below the amounts used to set existing rates.

2023 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 May 2023, Consumers filed an application with the MPSC seeking a rate increase of $216 million, made up of two components.

First, Consumers requested a $207 million annual rate increase, based on an authorized return on equity of 10.25 percent for the projected 12 ‑ month period ending February 28, 2025.

The filing requested authority to recover costs related to new infrastructure investment primarily in distribution system reliability and cleaner energy resources.

Second, Consumers requested approval of a surcharge for the recovery of $9 million of distribution investments made in 2022 that exceeded the rates authorized in accordance with the December 2021 electric rate order.

In September 2023, Consumers revised its requested increase to $169 million.

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

2022 Electric Rate Case:

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.

The new rates became effective January 20, 2023.

Looking Forward

14 unchanged sentences

Corporate interest and other (55) (152) 97

Discontinued operations 4 602 (598)

Net Income Available to Common Stockholders $ 877 $ 827 $ 50

7 unchanged sentences

Electric sales $ (103)

Gas sales (130)

Electric rate increase 165

Gas rate increase 151

Lower non-operating retirement benefits expenses 40

Lower income tax expense 16

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

Lower other maintenance and operating expenses 108

Absence of 2022 voluntary revenue refunds, including one-time bill credit commitment 1

Higher other income, net of expenses 21

Higher interest charges (112)

Higher property taxes, reflecting higher capital spending (23)

Higher service restoration costs (75)

Higher depreciation and amortization (48)

Higher other maintenance and operating expenses (7)

Higher property taxes, reflecting higher capital spending, and other (37)

2023 voluntary separation program expenses (33)

Higher income tax expense (24)

NorthStar Clean Energy 33

Corporate interest and other 97

Discontinued operations (598)

Year Ended December 31, 2023 $ 877

6 unchanged sentences

Rate increase, including return on higher renewable capital spending $ 165

Higher energy waste reduction program revenues 27

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

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

Absence of 2022 voluntary revenue refunds, including one-time bill credit commitment 2

Lower revenue due primarily to unfavorable weather and sales mix (101)

Lower other revenues (3)

Maintenance and other operating expenses

Lower service restoration costs 55

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

Higher energy waste reduction program costs (27)

Lower corporate and general operating expenses 37

Lower distribution and generation expenses 35

Higher service restoration costs due primarily to increased storm activity (75)

2023 voluntary separation program expenses (20)

Lower mutual insurance distribution (9)

Higher vegetation management costs (7)

Higher distribution, transmission, and generation expenses (13)

Higher uncollectible accounts expense (6)

Higher demand response costs (7)

Voluntary separation plan expenses (7)

Voluntary assistance to vulnerable customers 2

Higher other maintenance and operating expenses (7)

Depreciation and amortization

Lower depreciation rates, offset partially by higher capital spending 15

Increased plant in service, reflecting higher capital spending (40)

General taxes

1 unchanged sentence

Other income, net of expenses

Lower non-operating retirement benefits expenses 26

Lower other income, net of expenses (7)

Higher interest income 18

Higher non-operating retirement benefits expenses (9)

Higher other income, net of expenses 15

Interest charges (67)

Income taxes 8

Lower electric utility pre-tax earnings 16

Deferred tax liability reversal 3

Lower income tax expense due to excess deferred income taxes 8

Lower other income taxes 8

Year Ended December 31, 2023 $ 550

1 unchanged sentence

2 See Note 2, Regulatory Matters.

3 See Note 12, Income Taxes.

Consumers Gas Utility Results of Operations

3 unchanged sentences

Gas deliveries 1 and rate increases

Favorable weather and sales mix $ 92

Rate increase $ 151

Higher energy waste reduction program revenues 17

Voluntary revenue refund 2

Lower other revenues (3)

Absence of 2022 voluntary revenue refund 2

Lower revenue due primarily to unfavorable weather (134)

Higher other revenues 9

Maintenance and other operating expenses

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

Higher energy waste reduction program costs (17)

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)

Lower distribution, transmission, and compression expenses 26

Lower corporate and general operating expenses 14

Absence of 2022 Ray Compressor Station impairment 10

2023 voluntary separation program expenses (13)

Lower other maintenance and operating expenses 5

Depreciation and amortization

1 unchanged sentence

General taxes

Higher property taxes, reflecting higher capital spending (14)

Higher property taxes, reflecting higher capital spending, and other (17)

Other income, net of expenses

Lower non-operating retirement benefits expenses 14

Lower other income, net of expenses (6)

Higher non-operating retirement benefits expenses (15)

Higher other income, net of expenses 12

Interest charges (45)

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 2022 accelerated tax amortizations 3

Deferred tax liability reversal 3

Lower other income taxes 1

Year Ended December 31, 2023 $ 315

1 unchanged sentence

2 See Note 2, Regulatory Matters.

3 See Note 3, Contingencies and Commitments.

3 See Note 12, Income Taxes.

3 unchanged sentences

Reason for the change

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)

Higher earnings from renewable projects due primarily to Newport Solar achieving commercial operations 1

Higher renewable energy tax credits 7

Other income tax expense (10)

Lower operating earnings, primarily at DIG (10)

Year Ended December 31, 2023 $ 67

1 See Note 18, Variable Interest Entities.

Corporate Interest and Other Results of Operations

2 unchanged sentences

Reasons for the change

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)

Results of Discontinued Operations

In October 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 the years ended December 31, 2021 and 2020.

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

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)

Gain on extinguishment of debt 1

Higher interest earnings and other 14

Higher income tax expense due to higher pre-tax earnings (26)

Higher interest charges (19)

Lower discontinued operations (3)

Year Ended December 31, 2023 $ (55)

1 See Note 4, Financings and Capitalization.

Cash Position, Investing, and Financing

10 unchanged sentences

Non‑cash transactions 1

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

Favorable impact of changes in core working capital, 2 due primarily to higher collections, higher prices on gas sold to customers, and lower prices on gas purchased in 2023

Favorable impact of changes in other assets and liabilities, due primarily to recovery in 2023 of 2022 power supply costs 3

Year Ended December 31, 2023 $ 2,309

1 unchanged sentence

Reasons for the change

Higher net income $ 77

Lower net income $ (78)

Non‑cash transactions 1

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

Favorable impact of changes in core working capital, 2 due primarily to higher collections, higher prices on gas sold to customers, and lower prices on gas purchased in 2023

Favorable impact of changes in other assets and liabilities, due primarily to recovery in 2023 of 2022 power supply costs 3

Year Ended December 31, 2023 $ 2,430

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

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

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

6 unchanged sentences

Higher capital expenditures $ (33)

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

Purchase of Covert Generating Station 1

Other investing activities, primarily higher costs to retire property and lower proceeds from the sale of assets (65)

Year Ended December 31, 2023 $ (3,386)

2 unchanged sentences

Higher capital expenditures $ (9)

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

Purchase of Covert Generating Station 1

Other investing activities, primarily higher costs to retire property and lower proceeds from the sale of assets (36)

Year Ended December 31, 2023 $ (3,201)

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

1 See Note 7, Plant, Property, and Equipment.

Financing Activities

Presented in the following table are specific components of net cash provided by (used in) financing activities for 2022 versus 2021:

Presented in the following table are specific components of net cash provided by financing activities for 2023 versus 2022:

CMS Energy, including Consumers

2 unchanged sentences

Higher debt issuances $ 1,652

Lower debt retirements 129

Higher debt retirements (2,026)

Higher borrowings of notes payable 53

Higher issuances of common stock 123

Issuance of preferred stock in 2021 (224)

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 payments of dividends on common stock (35)

Higher proceeds from sales of membership interests in VIEs to tax equity investors 1

Higher contributions from noncontrolling interest 4

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)

Other financing activities, primarily absence of a payment of a long-term contract liability, offset partially by higher debt issuance costs 8

Year Ended December 31, 2023 $ 1,143

4 unchanged sentences

Higher borrowings of notes payable 53

Higher repayments of borrowings from CMS Energy (402)

Higher stockholder contribution from CMS Energy 110

Higher payments of dividends on common stock (47)

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

Higher borrowings from CMS Energy 242

Lower stockholder contribution from CMS Energy (210)

Lower payments of dividends on common stock 74

Other financing activities 1

Year Ended December 31, 2023 $ 767

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 .

1 See Note 18, Variable Interest Entities.

Capital Resources and Liquidity

2 unchanged sentences

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.

7 unchanged sentences

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 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.

In January 2024, Consumers issued $600 million of first mortgage bonds that mature in May 2029 and bear interest at a rate of 4.600 percent.

The proceeds of the bonds will be used for general corporate purposes.

Also in January 2024, CMS Energy retired $250 million of its senior notes bearing an interest rate of 3.875 percent and an original maturity date of March 2024.

In 2023, 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 $1 billion in privately negotiated transactions, in “at the market” offerings, or through forward sales transactions.

There have been no sales of securities under this program.

CMS Energy entered into forward sales transactions, under its previous equity offering program, that it may either settle physically by issuing shares of its common stock at the then-applicable forward sale price specified by the agreement or settle net by delivering or receiving 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, 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.

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

As of December 31, 2023, these contracts had an aggregate sales price of $265 million, maturing through December 2024.

In January 2024, CMS Energy settled the remaining forward sale contracts issued under its previous equity offering program.

For more information on these forward sale contracts, see Notes to the Consolidated Financial Statements—Note 4, Financings and Capitalization.

At December 31, 2023, CMS Energy had $526 million of its revolving credit facility available and Consumers had $1.3 billion available under its revolving credit facilities.

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

At December 31, 2023, there were $93 million commercial paper notes outstanding under this program.

For additional details on CMS Energy’s and Consumers’ secured revolving credit facilities and commercial paper program, see Notes to the Consolidated Financial Statements—Note 4, Financings and Capitalization.

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.

6 unchanged sentences

< 0.65 to 1.0

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.

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

2 Applies to Consumers’ revolving credit agreements.

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 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.

Based on the present investment plan, during 2024, CMS Energy, including Consumers, projects capital expenditures of $3.5 billion and Consumers projects capital expenditures of $3.3 billion.

CMS Energy’s 2024 contractual commitments comprise $2.4 billion of purchase obligations and $1.7 billion of principal and interest payments on long-term debt.

Consumers’ 2024 contractual commitments comprise $2.3 billion of purchase obligations and $1.2 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.

1 unchanged sentence

Capital Expenditures:

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

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

Presented in the following table are Consumers’ estimated capital expenditures, including lease commitments, for 2023 through 2027:

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

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

Presented in the following table are CMS Energy’s and Consumers’ estimated capital expenditures, including lease commitments, for 2024 through 2028:

2024 2025 2026 2027 2028 Total

CMS Energy, including Consumers

Consumers $ 3.3 $ 3.9 $ 3.3 $ 3.4 $ 3.1 $ 17.0

NorthStar Clean Energy, including subsidiaries 0.2 0.6 0.3 0.4 0.2 1.7

Total CMS Energy $ 3.5 $ 4.5 $ 3.6 $ 3.8 $ 3.3 $ 18.7

Electric utility operations $ 2.1 $ 2.6 $ 2.0 $ 2.1 $ 1.9 $ 10.7

14 unchanged sentences

Total obligations $ 3.6 $ 32.5

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

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

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

6 unchanged sentences

For additional details on letters of credit and CMS Energy’s forward sales contracts, see Item 8.

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

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

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

8 unchanged sentences

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.

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 Clean Energy Plan was most recently revised and approved by the MPSC in June 2022.

Under this plan, 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 Clean Energy Plan provides for:

• the retirement of the D.E.

Karn coal-fueled generating units, totaling 515 MW of nameplate capacity, in 2023

Karn coal-fueled generating units, totaling 515 MW of nameplate capacity;

these units closed in June 2023

• the retirement of the J.H.

1 unchanged sentence

• 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 oil and gas-fueled generating units, totaling 1,219 MW of nameplate capacity, in 2031

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

Karn coal-fueled generating units;

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

Consumers issued these bonds in December 2023.

Additionally, the MPSC has authorized regulatory asset treatment for Consumers 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.

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.

Under the Clean Energy Plan, Consumers:

• purchased the Covert Generating Station, a natural gas-fueled generating facility with 1,200 MW of nameplate capacity in Van Buren County, Michigan in May 2023

• conducted a one ‑ time competitive solicitation for up to 700 MW of capacity through PPAs from sources able to deliver to Michigan’s Lower Peninsula beginning in 2025 (including up to 500 MW from dispatchable sources)

These actions are expected to help Consumers continue to provide controllable sources of electricity to customers while expanding its investment in renewable energy.

The Clean Energy Plan 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.

Additionally, Consumers plans to deploy battery storage beginning in 2024, with 75 MW of energy storage expected by 2027 and an additional 475 MW by 2040.

The 2023 Energy Law, enacted in November 2023, set more ambitious standards for renewable energy and energy storage.

Under Michigan’s integrated resource planning process, Consumers is required to file proposed updates to its Clean Energy Plan before or in 2027 to meet these accelerated timelines.

Under its Clean Energy Plan, Consumers bids new capacity competitively and expects to own and operate approximately 50 percent of new capacity, with the remainder being built and owned by third parties.

Additionally, Consumers earns a return equal to its pre-tax weighted-average cost of capital on permanent capital structure on payments made under new competitively bid PPAs with non‑affiliated entities 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.

Additionally, as a result of its one-time solicitation, Consumers entered into a 20-year PPA under which it will purchase 100 MW of capacity, energy and RECs from a battery storage facility to be constructed in Branch County, Michigan.

The facility is expected to be operational in 2025.

Consumers continues to evaluate the acquisition of additional capacity from intermittent resources and dispatchable, non ‑ intermittent clean capacity resources (including battery storage resources).

Any contracts entered into as a result of the one-time solicitation are subject to MPSC approval.

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 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.

The 2023 Energy Law raises the renewable energy standard from the present 15-percent requirement to 50 percent by 2030 and 60 percent by 2035.

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 has met and expects to continue to meet its renewable energy requirement each year with a combination of newly generated RECs and previously generated RECs carried over from prior years.

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 under Consumers’ amended renewable energy plan.

Specifically, the MPSC has approved the following:

2 unchanged sentences

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

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

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

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

the project became operational and Consumers took full ownership in 2021

• purchase of a 201-MW wind generation project in Gratiot County, Michigan;

the project became operational and Consumers took full ownership of the project in December 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;

1 unchanged sentence

Voluntary Large Customer Renewable Energy Program:

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

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

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

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

In September 2023, Consumers filed an application to amend its renewable energy plan.

Among other things, Consumers requested that the MPSC remove the 1,000-MW limit on new wind and solar generation, which will allow Consumers to meet growing customer demand for the program.

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

As part of this program, a 2022 request for proposals resulted in the execution of a build transfer agreement for a 309‑MW solar generating facility to be constructed in Calhoun County, Michigan;

the facility is targeted to be operational in 2025.

The build transfer agreement was approved by the MPSC in September 2023.

Additionally, the request for proposals resulted in the selection of a solar generation project that Consumers will develop and construct at its D.E.

Karn generating site, with a capacity of up to 85 MW.

The facility is expected to be operational in 2026.

Electric Customer Deliveries and Revenue:

5 unchanged sentences

Over the next five years, Consumers expects weather-normalized electric deliveries to remain relatively stable compared to 2023.

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

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

Actual delivery levels will depend on:

5 unchanged sentences

At December 31, 2023, electric deliveries under the ROA program were at the ten‑percent limit.

Of Consumers’ 1.9 million electric customers, fewer than 300, or 0.02 percent, purchased electric generation service under the ROA program.

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

Fewer than 300 of Consumers’ electric customers purchased electric generation service under the ROA program.

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

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

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

Under this mechanism, 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.

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 used to serve customers is located in the MISO footprint in Michigan’s Lower Peninsula.

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

2 unchanged sentences

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

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.

In February 2023, the U.S.

District Court for the Eastern District of Michigan dismissed the complaint.

In March 2023, ABATE and the other intervenor filed a claim of appeal of the Eastern District Court’s decision with the U.S.

Court of Appeals for the Sixth Circuit.

Oral arguments occurred in December 2023.

Electric Rate Matters:

2 unchanged sentences

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:

MPSC Distribution System 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.

Consumers responded to the MPSC’s order in November 2022.

Additionally, as directed by the MPSC, the MPSC Staff has engaged a third‑party auditor to review all equipment and operations of the two utilities’ distribution systems;

this audit began in August 2023.

The MPSC Staff released a report prepared by the third-party auditor to summarize the audit’s progress in December 2023, and a final report is expected in late summer 2024.

Consumers is committed to working with the third ‑ party auditor and the MPSC to continue improving electric reliability and safety in Michigan.

2023 Electric Rate Case:

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.

In May 2023, Consumers filed an application with the MPSC seeking a rate increase of $216 million, made up of two components.

First, Consumers requested a $207 million annual rate increase, based on an authorized return on equity of 10.25 percent for the projected 12 ‑ month period ending February 28, 2025.

The filing requested authority to recover costs related to new infrastructure investment primarily in distribution system reliability and cleaner energy resources.

In September 2023, Consumers revised its requested increase to $169 million, primarily to reflect the delay of certain capital expenditures beyond the test year.

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

Projected 12-Month Period Ending February 28 2025

Components of the requested rate increase

Investment in rate base $ 101

Operating and maintenance costs (14)

Cost of capital 77

Sales and other revenue (4)

Subtotal $ 160

Consumers submitted its 2024 PSCR plan to the MPSC in September 2023 and, in accordance with its proposed plan, self-implemented the 2024 PSCR charge beginning in January 2024.

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.

Karn generating complex through the anticipated retirement of the coal-fueled generating units.

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

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

Consumers expects to recognize $2 million of retention benefit costs in 2023;

this expense will be deferred as a regulatory asset.

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

Under its Clean Energy Plan, 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 implemented a retention incentive program to ensure necessary staffing at the facility through retirement.

The aggregate cost of the J.H.

Campbell program through 2025 is estimated to be $50 million;

Consumers expects to recognize $10 million of retention benefit costs in 2024.

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.

The MPSC has approved deferred accounting treatment for these costs;

these expenses are deferred as a regulatory asset.

For additional details on this program, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 19, Exit Activities and Discontinued Operations.

10 unchanged sentences

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 June 2023, the EPA published the “Good Neighbor Plan,” a revision to CSAPR.

This regulation tightens allowance budgets for electric generating units in Michigan between 2023 and 2029 and changes the mechanism for allocating such allowances on a year-over-year basis beginning in 2026.

Consumers’ initial evaluation of this regulation indicates that it will have minimal financial and operational impact in the near term.

Additionally, Consumers does not expect any major financial and operational impact in the long term.

However, due to the dynamic nature of this regulation, it is difficult to forecast the long-term impact.

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.

As of May 2023, three counties in western Michigan have been designated as not meeting the ozone standard.

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

1 unchanged sentence

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.

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:

1 unchanged sentence

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

• changes in how certain units are operated

• changes in how certain units are operated, including the installation of additional emission control equipment

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

4 unchanged sentences

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.

In May 2023, the EPA released its proposed rule to address greenhouse gas emissions from existing fossil-fuel-fired electric generating units.

Under its Clean Energy Plan, Consumers will eliminate the use of coal-fueled generation in 2025.

Therefore, this proposed rule will not materially impact Consumers over the remaining operating lives of these coal-fueled facilities.

The proposed rule has requirements for existing natural gas-fueled facilities that could have a material impact on Consumers’ natural gas-fueled facilities.

The EPA is scheduled to finalize the rule in April 2024.

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.

Under its Clean Energy Plan, 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 this event, as its plans exceed the nationally committed reduction.

The commitment made by the U.S.

is not binding without new Congressional legislation.

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.

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.

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.

The 2023 Energy Law codifies much of the Governor’s goals.

For additional details on the 2023 Energy Law, see the Planet section of the Executive Overview.

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.

4 unchanged sentences

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

Consumers is taking steps to mitigate these risks as appropriate.

8 unchanged sentences

• arrange for alternative sources of supply

• purchase facilities that generate fewer emissions

• mothball or retire facilities that generate certain emissions

• purchase or build facilities that generate fewer emissions

• mothball, sell, or retire facilities that generate certain emissions

• pursue energy efficiency or demand response measures more swiftly

2 unchanged sentences

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

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

This rule adopts minimum standards for the disposal of non‑hazardous CCRs in CCR landfills and surface impoundments and criteria for the beneficial use of CCRs.

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.

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

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.

The EPA was granted authority to review these permitting programs to determine if permits issued under the proposed program would be as protective as the federal rule.

Once approved, permits issued from an authorized state would replace the requirement to certify compliance with each aspect of the CCR rule.

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.

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

2 unchanged sentences

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

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.

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 March 2023, the EPA released a proposed rule seeking to replace its 2020 rule and corresponding effluent limitation guidelines.

Consumers is evaluating the proposed effluent limitation guidelines for its potential impacts on its generating facilities.

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

1 unchanged sentence

Michigan is one such state.

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.

A 2022 rule changed the definition of “Waters of the United States,” which defines the scope of waters protected under the Clean Water Act.

Additionally, in May 2023, the U.S.

Supreme Court issued a decision reducing the scope of “Waters of the United States.” Consumers does not expect adverse changes to its environmental strategy as a result of the current interpretations and court decision.

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

3 unchanged sentences

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

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.

Statutes like the federal Endangered Species Act, the Migratory Bird Treaty Act, and the Bald and Golden Eagle Protection Act of 1940 may impact operations at Consumers’ facilities.

In 2021, the U.S.

10 unchanged sentences

Consumers’ gas customer deliveries are seasonal.

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

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

Over the next five years, Consumers expects weather-normalized gas deliveries to remain stable relative to 2023.

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

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

Actual delivery levels will depend on:

11 unchanged sentences

2023 Gas Rate Case:

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

Projected Twelve-Month Period Ending September 30 2024

Projected 12-Month Period Ending September 30 2025

Components of the requested rate increase

3 unchanged sentences

Sales and other revenue 30

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:

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

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

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.

Subtotal $ 136

Home products credit 1

1 Consumers has proposed to share voluntarily half of the gain to be recognized on the sale of its unregulated appliance service plan program (discussed below).

Gain Sharing Application:

In February 2024, Consumers signed an agreement to sell its unregulated appliance service plan program to a non-affiliated company;

this sale is expected to close in the first half of 2024.

Also in February 2024, Consumers filed an application requesting the MPSC’s approval to share voluntarily with customers half of the gain, net of transaction costs, to be recognized on this sale.

In Consumers’ 2023 gas rate case, it has proposed sharing the gain with customers over five years in the form of a surcharge credit.

Consumers submitted its 2024 ‑ 2025 GCR plan to the MPSC in December 2023 and, in accordance with its proposed plan, expects to self-implement the 2024 ‑ 2025 GCR charge beginning in April 2024.

1 unchanged sentence

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.

Initial expanded requirements for transmission pipelines took effect in 2020, with additional requirements released in 2023.

There are also proposed rules expanding requirements for gas distribution systems pending.

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.

8 unchanged sentences

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

In June 2023, the EPA published the “Good Neighbor Plan,” a revision to CSAPR that impacts Michigan.

This regulation will 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 focused only on electric generating units, this latest rule includes other emission sources, including some engines used at compressor stations.

Consumers has determined that the revised CSAPR regulation does not apply to Consumers’ natural gas compressor station engines.

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.

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.

As of May 2023, three counties in western Michigan have been designated as not meeting the ozone standard.

One of Consumers’ compressor stations is located in an ozone nonattainment area.

Consequently, Consumers has initiated plans to retrofit equipment at this compressor station to lower NOx emissions and comply with a rule proposed by the State of Michigan, as required for a source located in a moderate ozone nonattainment area.

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 compressor stations and other applicable natural gas storage and delivery assets.

Greenhouse Gases:

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.

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.

9 unchanged sentences

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.

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.

Under its Methane Reduction Plan, Consumers has 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, from 2012 baseline levels, 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.

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

To date, Consumers has reduced methane emissions by more than 25 percent.

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’ Natural Gas Delivery Plan, a rolling ten ‑ year 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, 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 renewable natural gas facilities that will capture methane from manure generated at Michigan-based farms 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;

1 unchanged sentence

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 1,658 MW of capacity, and to pursue opportunities for the development of renewable generation projects.

During 2023, NorthStar Clean Energy sold a Class A membership interest in Newport Solar Holdings to tax equity investors for $86 million.

Newport Solar Holdings wholly owns Newport Solar, a 180‑MW solar generation project located in Jackson County, Arkansas;

the project began commercial operation in October 2023.

All of the project’s nameplate capacity has been committed under a 15 ‑ year PPA.

NorthStar Clean Energy retained a Class B membership interest in Newport Solar Holdings.

Earnings, tax attributes, and cash flows generated by Newport Solar Holdings will be allocated among and distributed to the membership classes in accordance with the ratios specified in the associated limited liability company operating agreement;

these ratios change over time and are not representative of the ownership interest percentages of each membership class.

For additional details, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 18, Variable Interest Entities.

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

1 unchanged sentence

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 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.

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.

In June 2023, the EPA published the “Good Neighbor Plan,” a revision to CSAPR.

NorthStar Clean Energy may incur increased costs to purchase allowances or retrofit equipment.

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

In May 2023, the EPA released its proposed rule to address greenhouse gas emissions from existing fossil-fuel-fired and natural gas-fueled electric generating units.

This proposed regulation could have a material financial and operational impact on NorthStar Clean Energy, if the regulation ultimately applies to its facilities.

The EPA is scheduled to finalize the rule in April 2024.

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

1 unchanged sentence

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.

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:

7 unchanged sentences

• 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.

5 unchanged sentences

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.

In April 2023, CMS Energy and Consumers announced a voluntary separation program for non ‑ union employees.

For the year ended December 31, 2023, CMS Energy and Consumers recorded a pre-tax charge of $33 million related to the program, under which more than 400 employees were approved for and accepted early separation.

Critical Accounting Policies and Estimates

10 unchanged sentences

If Consumers determined that recovery of a regulatory asset were not probable, Consumers would be required to write off the asset and immediately recognize the expense in earnings.

For additional information, see Item 8.

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

Contingencies:

10 unchanged sentences

If a contract is a derivative and does not qualify for the normal purchases and sales exception, it is recorded on the consolidated balance sheets at its fair value.

At CMS Energy, if the derivative is accounted for as a cash flow hedge, unrealized gains and losses from changes in the fair value of the derivative are recognized in AOCI and subsequently recognized in earnings when the hedged transactions impact earnings.

If the derivative is accounted for as a fair value hedge, changes in the fair value of the derivative and changes in the fair value of the hedged item due to the hedged risk are recognized in earnings.

For the FTRs at Consumers, changes in fair value are deferred as regulatory assets or liabilities.

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

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

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

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

For additional details on CMS Energy’s and Consumers’ derivatives and how the fair values of derivatives are

determined, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5, Fair Value Measurements.

34 unchanged sentences

Lowering the PBO discount rates by 25 basis points would decrease estimated pension cost for 2024 by $1 million for both CMS Energy and Consumers.

Pension and OPEB costs above or below the amounts used to set existing rates will be deferred as a regulatory asset or liability in accordance with Consumers’ postretirement benefits expense deferral mechanism;

for more information, see Item 8.

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

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

13 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis