What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-11 compared with 2024-02-08 · 335 added, 361 removed, 542 unchanged (56% of the section changed)

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

Consumers operates principally in two business

Consumers operates principally in two business segments:

electric utility and gas utility.

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The Triple Bottom Line

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

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

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

CMS Energy’s and Consumers’ purpose is to provide safe, reliable, affordable, clean, and equitable energy in service of their customers.

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

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

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

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

CMS Energy’s 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.

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

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

Accordingly, CMS Energy and Consumers have worked to integrate a set of safety principles into their business operations and culture.

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

Over the last ten years, Consumers’ OSHA recordable incident rate has decreased by 20 percent.

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

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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;

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, vegetation management, and grid modernization:

• capital expenditures of $7 billion through 2028;

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.

• maintenance and operating spending of $1.7 billion through 2028, reflecting an increase of $300 million over the previous plan

In the electric rate case it filed in May 2024, Consumers outlined its proposal to begin implementing the Reliability Roadmap and requested rate recovery of the investments needed to support the plan’s key objectives.

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

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Additionally, as a result of actions already taken through 2024, 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

• reduced carbon dioxide emissions from owned generation by more than 30 percent since 2005

• reduced methane emissions by nearly 30 percent since 2012

• 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

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

• enhanced, restored, or protected more than 11,700 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.

Since 2005, Consumers has reduced its sulfur dioxide and particulate matter emissions by nearly 95 percent and its NOx emissions by more than 86 percent.

Consumers began tracking mercury emissions in 2007;

since that time, it has reduced such emissions by nearly 93 percent.

since that time, it has reduced such emissions by more than 92 percent.

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

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;

• raised 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 can be applied to meeting this standard, with certain limitations

• set 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 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;

• enhanced existing incentives for energy efficiency programs and returns earned on new clean or renewable PPAs

• created a new energy storage standard that requires electric utilities to file plans by 2029 to obtain new energy storage that will contribute to a Michigan target of 2,500 MW based on their pro rata share

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

Consumers filed updates to its renewable energy plan in November 2024 and plans to file updates to its Clean Energy Plan in 2026.

Together, these updated plans will serve as Consumers’ blueprint 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 2022 under Michigan’s integrated resource planning process.

The Clean Energy Plan outlines Consumers’ long-term strategy for delivering safe, reliable, affordable, clean, and equitable energy to its customers.

This strategy includes:

• ending the use of coal in owned generation in 2025, 15 years sooner than initially planned

• purchasing 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 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 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.

• soliciting capacity from sources able to deliver to Michigan’s Lower Peninsula, including battery storage facilities

Consumers’ proposed updates to its renewable energy plan include:

• the addition of up to 9,000 MW of both purchased and owned solar energy resources

• the addition of up to 2,800 MW of new, competitively bid wind capacity

• the co-location of battery energy storage with its renewable energy assets to optimize those assets

Coupled with updates to the Clean Energy Plan, these actions will enable Consumers to achieve 60 percent renewable energy by 2035 and 100 percent clean energy by 2040, and will also contribute to Consumers’ achievement of the net-zero emissions goals discussed below.

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

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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:

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

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

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

To date, Consumers has reduced methane emissions by nearly 30 percent.

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

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.

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 25 percent by 2035.

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 set the following targets in 2022:

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

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;

Additionally, to advance its environmental stewardship in Michigan and to minimize the impact of future regulations, Consumers set the following goals for the five-year period 2023 through 2027:

• to enhance, restore, or protect 6,500 acres of land through 2027;

Consumers has enhanced, restored, or protected more than 5,000 acres of land towards this goal

• to reduce water usage by 1.7 billion gallons through 2027;

Consumers has reduced water usage by more than 1.3 billion gallons towards this goal

• to annually divert a minimum of 90 percent of waste from landfills (through waste reduction, recycling, and reuse);

during 2024, Consumers’ rate of waste diverted from landfills was 92 percent

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

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

The prosperity 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 attract and retain talent, and to reinvest in the communities they serve.

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This compares with net income available to common stockholders of $877 million and diluted EPS of $3.01 in 2023.

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.

In 2024, electric and gas rate increases were offset partially by higher interest charges and increased depreciation and property taxes, reflecting higher capital spending.

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

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 by modest growth in electric and gas demand.

Over the next five years, Consumers expects weather-normalized electric deliveries to increase compared to 2024.

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

Weather-normalized gas deliveries are expected to remain stable relative to 2024, reflecting modest growth in gas demand, offset by the effects of energy waste reduction programs.

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 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 remain committed to delivering safe, reliable, affordable, clean, and equitable energy in service of their customers and positively impacting the triple bottom line of people, planet, and prosperity.

During 2024, CMS Energy and Consumers:

• created a Clean Energy Workforce Development Program for people employed in the building trades to receive training and certifications in the areas of advanced energy efficiency, lead abatement, and other work

• buried power lines in multiple Michigan communities under a targeted undergrounding pilot program in efforts to improve electric service for Consumers’ electric customers

• began installation of nearly 3,000 line sensors, 100 automatic transfer reclosers, and 1,200 iron utility poles to improve electric reliability and help prevent power outages

• expanded Consumers’ MI Clean Air program to include several renewable natural gas projects being developed and constructed across Michigan, increasing options for customers to offset emissions associated with their natural gas use

• collaborated with the Muskegon County Resource Recovery Center to develop a 250-MW solar energy center, Consumers’ first large-scale, self-developed solar project, that is expected to power 40,000 homes by 2026

• updated Consumers’ Transportation Electrification Plan, aiming to power over 1,500 new fast charging locations and serve one million electric vehicles in Michigan by 2030

• launched a new workplace electric vehicle charging program, offering rebates to businesses that install chargers, with a goal of equipping over 500 workplaces by 2030

• completed the final phase of the Mid-Michigan Pipeline project, replacing and upgrading 55 miles of natural gas transmission pipeline in five Michigan counties, ensuring safe and reliable gas flow to homes and businesses prior to the winter season

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.

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

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

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

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

2023 Gas Rate Case:

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 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.

2024 Electric Rate Case:

In May 2024, Consumers filed an application with the MPSC seeking a rate increase of $325 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.

First, Consumers requested a $303 million annual rate increase, based on a 10.25‑percent authorized return on equity for the projected 12 ‑ month period ending February 28, 2026.

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.

Second, Consumers requested approval of a $22 million surcharge for the recovery of distribution investments made in 2023 that exceeded the rates authorized in accordance with previous electric rate orders.

In October 2024, Consumers revised its requested increase to $277 million, primarily to reflect the removal of projected capital investments associated with certain solar facilities that Consumers incorporated into its amended renewable energy plan.

The MPSC must issue a final order in this case before or in March 2025.

2023 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.

In March 2024, the MPSC issued an order authorizing an annual rate increase of $92 million, which is inclusive of a $9 million surcharge for the recovery of select distribution

investments made in 2022 that exceeded the rates authorized in accordance with the December 2021 electric rate order.

The approved rate increase is based on a 9.9‑percent authorized return on equity.

The new rates became effective March 15, 2024.

2024 Gas Rate Case:

In December 2024, Consumers filed an application with the MPSC seeking an annual rate increase of $248 million based on a 10.25‑percent authorized return on equity for the projected 12‑month period ending October 31, 2026.

The MPSC must issue a final order in this case before or in October 2025.

2023 Gas Rate Case:

In May 2024, Consumers revised its requested increase to $113 million.

In July 2024, the MPSC approved a settlement agreement authorizing an annual rate increase of $35 million, based on a 9.9‑percent authorized return on equity.

Additionally, the settlement approves the use of $27.5 million, or one-fourth, of the gain on the sale of Consumers’ unregulated ASP business as an offset to the revenue deficiency in lieu of additional rate relief during the test year.

This results in effective rate relief of $62.5 million for the test year.

The settlement agreement also provides for the remaining three-fourths of the $110 million gain on the sale of the ASP business, or $82.5 million, to be provided to customers as a bill credit over a three-year period.

The new rates, including the bill credit, became effective October 1, 2024.

Looking Forward

CMS Energy and Consumers will continue to consider the impact on the triple bottom line of people, planet, and profit in their daily operations as well as in their long-term strategic decisions.

CMS Energy and Consumers will continue to consider the impact on the triple bottom line of people, planet, and prosperity in their daily operations as well as in their long-term strategic decisions.

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

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

The CE Way is an important means of realizing CMS Energy’s and Consumers’ purpose of providing safe, reliable, affordable, clean, and equitable energy in service of their customers.

Results of Operations

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Electric rate increase 235

Gas rate increase 151

Lower other maintenance and operating expenses 108

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

Gas rate increase, including gain amortization in lieu of rate relief 1

Absence of 2023 voluntary separation program expenses 33

Lower service restoration costs 32

Higher other income, net of expenses 4

Higher interest charges (70)

Higher service restoration costs (75)

Higher depreciation and amortization (55)

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

2023 voluntary separation program expenses (33)

Higher other maintenance and operating expenses (53)

Higher income tax expense (36)

Higher property taxes, reflecting higher capital spending, and other (33)

Lower ASP revenue net of expense due to sale (7)

NorthStar Clean Energy (4)

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Year Ended December 31, 2024 $ 993

1 See Note 2, Regulatory Matters.

1 See Item 8.

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

Consumers Electric Utility Results of Operations

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Electric deliveries 1 and rate increases

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

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)

Rate increase, including securitization surcharge and return on higher renewable capital spending $ 235

Higher revenue due primarily to favorable weather 45

Higher energy waste reduction program revenues 10

Maintenance and other operating expenses

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)

Lower service restoration costs 32

Absence of 2023 voluntary separation program expenses 20

Higher distribution, transmission, and generation expenses (15)

Higher energy waste reduction program costs (10)

Higher other maintenance and operating expenses (18)

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General taxes

Higher property taxes, reflecting higher capital spending, and other (20)

Higher property taxes, reflecting higher capital spending (21)

Other income, net of expenses (5)

Higher interest income 18

Higher non-operating retirement benefits expenses (9)

Higher other income, net of expenses 15

Interest charges (39)

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

Higher electric utility pre-tax earnings (41)

Higher renewable energy tax credits 2

Higher other income taxes (5)

Year Ended December 31, 2024 $ 681

1 Deliveries to end-use customers were 36.8 billion kWh in 2024 and 36.3 billion kWh in 2023.

2 See Note 2, Regulatory Matters.

3 See Note 12, Income Taxes.

2 See Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12, Income Taxes.

Consumers Gas Utility Results of Operations

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Rate increase $ 75

Absence of 2022 voluntary revenue refund 2

Lower revenue due primarily to unfavorable weather (35)

Higher other revenues 9

Lower ASP business revenue 2

ASP gain customer bill credit 3

Lower energy waste reduction program revenues (8)

Maintenance and other operating expenses

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

Lower ASP business expense 2

Amortization of ASP gain 3

Absence of 2023 voluntary separation program expenses 13

Lower energy waste reduction program costs 8

Higher maintenance and other operating expenses (20)

Depreciation and amortization

Increased plant in service, reflecting higher capital spending (8)

Lower depreciation rates, offset partially by higher capital spending 13

General taxes

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Other income, net of expenses 9

Higher non-operating retirement benefits expenses (15)

Higher other income, net of expenses 12

Interest charges (31)

Absence of 2022 accelerated tax amortizations 3

Deferred tax liability reversal 3

Higher gas utility pre-tax earnings (4)

Lower other income taxes 3

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1 Deliveries to end-use customers were 268 Bcf in 2024 and 282 Bcf in 2023.

2 See Note 2, Regulatory Matters.

3 See Note 12, Income Taxes.

2 See Item 8.

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

3 See Item 8.

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

NorthStar Clean Energy Results of Operations

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Reason for the change

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

Higher operating earnings, primarily at DIG $ 22

Higher renewable energy tax credits 9

Other income tax expense (10)

Lower operating earnings, primarily at DIG (10)

Higher interest charges and other expenses (11)

Lower earnings from renewable projects (24)

Year Ended December 31, 2024 $ 63

1 See Note 18, Variable Interest Entities.

Corporate Interest and Other Results of Operations

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Reasons for the change

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)

Lower gain on extinguishment of debt 1

Year Ended December 31, 2024 $ (79)

1 See Note 4, Financings and Capitalization.

1 See Item 8.

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

Cash Position, Investing, and Financing

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At December 31, 2024, Consumers had $119 million of consolidated cash and cash equivalents, which included $75 million of restricted cash and cash equivalents.

For specific components of net cash provided by operating activities, net cash used in investing activities, and net cash provided by (used in) financing activities for 2022 versus 2021, see Item 7.

For specific components of net cash provided by operating activities, net cash used in investing activities, and net cash provided by financing activities for 2023 versus 2022, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cash Position, Investing, and Financing, in the Form 10‑K for the fiscal year ended December 31, 2023, filed February 8, 2024 .

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Reasons for the change

Lower net income $ (5)

Higher net income $ 139

Non‑cash transactions 1

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

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

Favorable impact of changes in other assets and liabilities, due primarily to proceeds from the sale of renewable energy tax credits 3

Year Ended December 31, 2024 $ 2,370

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Reasons for the change

Lower net income $ (78)

Higher net income $ 142

Non‑cash transactions 1

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

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

Favorable impact of changes in other assets and liabilities, due primarily to proceeds from the sale of renewable energy tax credits 3

Year Ended December 31, 2024 $ 2,446

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

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

3 See Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12, Income Taxes—Renewable Energy Tax Credits.

Investing Activities

4 unchanged sentences

Higher capital expenditures $ (611)

Purchase of Covert Generating Station 1

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

Absence of 2023 purchase of Covert Generating Station

Proceeds from sale of ASP business 1

Other investing activities 7

Year Ended December 31, 2024 $ (3,054)

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Higher capital expenditures $ (594)

Purchase of Covert Generating Station 1

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

Absence of 2023 purchase of Covert Generating Station

Proceeds from sale of ASP business 1

Other investing activities (13)

Year Ended December 31, 2024 $ (2,872)

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

1 See Item 8.

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

Financing Activities

3 unchanged sentences

Reasons for the change

Higher debt issuances $ 1,652

Higher debt retirements (2,026)

Higher borrowings of notes payable 53

Higher issuances of common stock 123

Lower debt issuances $ (1,589)

Lower debt retirements 1,180

Higher repayments of notes payable (101)

Higher issuances of common stock, primarily a higher settlement of forward sale contracts under the equity offering program 1 in 202 4

Higher payments of dividends on common stock (47)

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

Higher contributions from noncontrolling interest 4

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

Absence of 2023 proceeds from sales of membership interests in VIEs to tax equity investors (86)

Lower contributions from noncontrolling interest (1)

Other financing activities, primarily lower debt issuance costs

Year Ended December 31, 2024 $ 614

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Reasons for the change

Higher debt issuances $ 867

Higher debt retirements (1,626)

Higher borrowings of notes payable 53

Higher borrowings from CMS Energy 242

Lower stockholder contribution from CMS Energy (210)

Lower payments of dividends on common stock 74

Lower debt issuances $ (1,369)

Lower debt retirements 1,265

Higher repayments of notes payable (101)

Absence of a repayment of borrowings from CMS Energy in 2023 75

Higher stockholder contribution from CMS Energy 260

Return of stockholder contribution to CMS Energy (320)

Higher payments of dividends on common stock (100)

Other financing activities 12

Year Ended December 31, 2024 $ 489

1 See Note 18, Variable Interest Entities.

1 See Item 8.

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

Capital Resources and Liquidity

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During the year ended December 31, 2024, Consumers paid $795 million in dividends on its common stock to CMS Energy.

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

Consumers uses cash flows generated from operations, external financing transactions, and the monetization of tax credits, along with stockholder contributions from CMS Energy, to fund capital expenditures, retire debt, pay dividends, and fund its other obligations.

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

Under the Inflation Reduction Act of 2022, renewable energy tax credits produced after 2022 are eligible to be transferred to third parties.

For additional details, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12, Income Taxes—Renewable Energy Tax Credits.

Financing and Capital Resources:

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

In 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, 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.

As of December 31, 2024, these contracts had an aggregate sales price of $28 million, maturing in November 2025.

CMS Energy, NorthStar Clean Energy, and Consumers use revolving credit facilities for general working capital purposes and to issue letters of credit.

In May 2024, NorthStar Clean Energy entered into a secured revolving credit agreement which provides for up to $150 million in borrowings.

At December 31, 2024, the full capacity under this secured revolving credit agreement was borrowed.

At December 31, 2024, CMS Energy had $519 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.

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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, 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.

At December 31, 2023, no default had occurred with respect to any financial covenants contained in CMS Energy’s and Consumers’ credit agreements.

CMS Energy and Consumers were each in compliance with these covenants as of December 31, 2023, as presented in the following table:

At December 31, 2024, there were $65 million of commercial paper notes outstanding under this program.

For additional details about these programs and facilities, see Item 8.

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

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

At December 31, 2024, no default had occurred with respect to any of the financial covenants contained in these credit agreements.

Each of the entities was in compliance with the covenants contained in their respective credit agreements as of December 31, 2024, as presented in the following table:

CMS Energy, parent only

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< 0.70 to 1.0

NorthStar Clean Energy, including subsidiaries

Debt to capital 2

< 0.50 to 1.0

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

Debt service coverage 2

> 2.00 to 1.0

Pledged equity interests to aggregate commitment 2,3

> 2.00 to 1.0

Debt to capital 4

< 0.65 to 1.0

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

2 Applies to NorthStar Clean Energy’s revolving credit agreement.

3 The aggregate book value of the pledged equity interests under the revolving credit agreement was at least two-times the aggregate commitment under the revolving credit agreement at December 31, 2024.

4 Applies to Consumers’ revolving credit agreements.

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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:

Presented in the

following table are CMS Energy’s and Consumers’ estimated capital expenditures, including lease commitments, for 2025 through 2029:

2025 2026 2027 2028 2029 Total

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

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—Issuance of Common Stock.

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

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

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

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Consumers Electric Utility Outlook and Uncertainties

Clean Energy Plan:

Consumers’ Clean Energy Plan details its strategy to meet customers’ long-term energy needs and provides the foundation for its goal to achieve net-zero carbon emissions from its electric business by 2040.

Under this net-zero goal, Consumers plans to eliminate the impact of carbon

emissions created by the electricity it generates or purchases for customers.

Energy Transformation:

Consumers’ Clean Energy Plan details its long-term strategy for delivering safe, reliable, affordable, clean, and equitable energy to its customers.

Coupled with Consumers’ renewable energy plan, the Clean Energy Plan will be Consumers’ blueprint to meeting the requirements of the 2023 Energy Law.

Among other things, this law:

• raised the renewable energy standard from the present 15 ‑ percent requirement to 50 percent by 2030 and 60 percent by 2035

• set 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

While Consumers’ existing Clean Energy Plan, established under Michigan’s integrated resource planning process, provides a path towards meeting these requirements, Consumers will file updates to the plan in 2026 to expand and solidify that path.

Additionally, Consumers filed updates to its renewable energy plan in November 2024 to propose plans to meet the increased renewable energy standard.

Together, these plans will enable Consumers to achieve 60 percent renewable energy by 2035 and 100 percent clean energy by 2040.

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 generation.

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;

these units closed in June 2023

• the retirement of the J.H.

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

Specifically, Consumers retired the D.E.

Karn coal-fueled generating units, totaling 515 MW of nameplate capacity, in June 2023 and plans to retire the J.H.

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

• the retirement of the D.E.

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

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

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

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:

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.

In order to continue providing controllable sources of electricity to customers while expanding its investment in renewable energy, Consumers purchased the Covert Generating Station, a natural gas-fueled generating facility with 1,200 MW of nameplate capacity, in May 2023.

Consumers has also contracted to purchase 400 MW of capacity from battery storage facilities, which will be located in

Michigan’s Lower Peninsula and are expected to be operational by 2027.

In its current form, the Clean Energy Plan forecasts additional capacity of 75 MW of battery storage by 2027 and 475 MW by 2040.

Under its Clean Energy Plan, Consumers bids new capacity and energy competitively and expects to own and operate all new wind capacity and approximately 50 percent of new solar 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 clean, renewable, or energy storage PPAs with non-affiliated entities.

Under Consumers’ existing renewable energy plan, most recently amended and approved by the MPSC in August 2024, 15 percent of the electricity supplied to customers comes from renewable energy sources.

In accordance with this plan, Consumers has acquired three wind generation projects, totaling 517 MW of nameplate capacity, since 2020;

the last of these projects became operational in December 2023.

The MPSC authorized Consumers to earn a 10.7 ‑ percent return on equity on these projects.

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 solar generating facility that began operations in October 2024.

In November 2024, Consumers filed updates to its renewable energy plan, proposing an addition of up to 9,000 MW of both purchased and owned solar energy resources.

Of this amount, 1,060 MW of projects would support Consumers’ voluntary green program that provides full-service electric customers with the opportunity to advance the development of renewable energy beyond the present 15 ‑ percent requirement.

Under this program, Consumers competitively solicits additional renewable energy assets based on customer applications.

In the updates to its renewable energy plan, Consumers also proposed the addition of up to 2,800 MW of new, competitively bid wind capacity in Michigan and the co-location of battery energy storage with its renewable energy assets to optimize those assets.

Presented in the following illustration is the aggregate renewable capacity that Consumers expects to add to its portfolio through PPAs and owned generation proposed in its existing Clean Energy Plan and the updates to its renewable energy plan:

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 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:

• purchase and construction of a 150 ‑ MW wind generation project in Gratiot County, Michigan;

the project became operational and Consumers took full ownership in 2020

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

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;

the facility is targeted to be operational in 2024.

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 present 15-percent requirement.

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.

Any resulting contracts are subject to MPSC approval.

Electric Customer Deliveries and Revenue:

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

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 by modest growth in electric demand.

Over the next five years, Consumers expects weather-normalized electric deliveries to increase compared to 2024.

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

Actual delivery levels will depend on:

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• weather fluctuations

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

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

Electric ROA:

Michigan law allows electric customers in Consumers’ service territory to buy electric generation service from alternative electric suppliers in an aggregate amount capped at ten percent of Consumers’ sales, with certain exceptions.

Michigan law allows electric customers in Consumers’ service territory to buy electric generation service from alternative electric suppliers in an aggregate amount capped at ten percent of

Consumers’ sales, with certain exceptions.

At December 31, 2024, electric deliveries under the ROA program were at the ten‑percent limit.

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

Under this mechanism, if an alternative

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

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.

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Court of Appeals for the Sixth Circuit.

Oral arguments occurred in December 2023.

In January 2025, the Sixth Circuit Court of Appeals issued an opinion finding that the MPSC’s imposition of a local clearing requirement on individual electric suppliers would discriminate against interstate commerce.

The Court of Appeals remanded to the District Court for a determination of whether the local clearing requirement discriminated against interstate commerce and whether the MPSC’s regulation survives a strict scrutiny standard, which depends on a determination of whether the local clearing requirement is the only means of achieving the state’s goal of securing reliable energy supply.

In January 2025, Consumers filed a petition for rehearing and en banc review with the Sixth Circuit Court of Appeals, requesting the Court to reconsider and reverse the panel's opinion.

Hydroelectric Facilities:

In February 2024, Consumers issued a request for proposals to explore the possibility of selling its 13 river hydroelectric dams located throughout Michigan.

Consumers has solicited community feedback on the dams’ futures, as federal operating licenses for the dams begin to expire in 2034.

Consumers continues to evaluate each dam’s future, options for which include, but are not limited to, renewing operating licenses, transferring ownership, or removing the facilities.

Electric Rate Matters:

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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.

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.

In 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.

Consumers responded to the MPSC’s order as directed.

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

In September 2024, the MPSC Staff released the third-party auditor’s final report on its audit of Consumers’ distribution system.

The report included several recommendations to improve Consumers’ distribution system and associated processes and procedures.

Consumers filed a response to the audit report in November 2024.

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

2024 Electric Rate Case:

In May 2024, Consumers filed an application with the MPSC seeking a rate increase of $325 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.

First, Consumers requested a $303 million annual rate increase, based on a 10.25‑percent authorized return on equity for the projected 12 ‑ month period ending February 28, 2026.

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:

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Operating and maintenance costs 10

Cost of capital 77

Sales and other revenue 41

Cost of capital 60

Subtotal $ 255

The MPSC must issue a final order in this case before or in March 2025.

Consumers submitted its 2025 PSCR plan to the MPSC in September 2024 and, in accordance with its proposed plan, self-implemented the 2025 PSCR charge beginning in January 2025.

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Campbell coal-fueled generating units in 2025.

Consumers implemented a retention incentive program to ensure necessary staffing at the facility through retirement.

In order to ensure necessary staffing at J.H.

Campbell through retirement, Consumers has implemented a retention incentive program.

The aggregate cost of the J.H.

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

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

Consumers expects to recognize $5 million of retention benefit costs in 2025.

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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.

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

Electric Environmental Outlook:

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

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

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

MATS, emission standards for electric generating units published by the EPA based on Section 112 of the Clean Air Act, continue to apply to Consumers.

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

CSAPR requires Michigan and many other states to improve air quality by reducing power plant emissions that, according to EPA modeling, contribute to ground-level ozone in other downwind states.

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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 June 2024, the U.S.

Supreme Court stayed the Good Neighbor Plan pending judicial review and, as a result, the allowance requirements for Michigan revert back to the prior effective CSAPR ozone season rule.

Regardless of the outcome of this litigation and which version of the rule applies, Consumers expects this regulation will have minimal financial and operational impact in the near and/or long term.

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.

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

Based on recent data, the EPA reclassified these counties from “moderate” to “serious” nonattainment.

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

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

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

In March 2024, the EPA published a lower fine particulate matter NAAQS, which will likely result in newly designated nonattainment areas in Michigan starting in 2026.

Consumers does not expect this rule to have significant impacts on its fossil-fuel-fired generating assets or its clean energy strategy.

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

In December 2024, the EPA published a proposal to amend new source performance standards for new, modified, and reconstructed stationary combustion turbines to lower emission limits for NOx.

This may impact future gas-fueled, simple-cycle turbine projects.

Consumers will work with industry stakeholder groups to comment on the proposed rule and will monitor the rulemaking.

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

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

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 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 April 2024, the EPA finalized its rule under Section 111 of the Clean Air Act to address greenhouse gas emissions from new combustion turbine electric generating units and existing coal-, gas-, and oil-fueled steam electric generating units.

Notably, these rules do not address existing combustion turbine electric generating units, though the EPA has announced that it will release a draft rule for these types of units at a later time.

Under its Clean Energy Plan, Consumers will eliminate the use of coal in owned generation in 2025 and does not expect this rule will have a significant impact on its gas- and oil-fueled steam electric generating assets or its Clean Energy Plan.

Future EPA regulations addressing greenhouse gas emissions from existing combustion turbine electric generating units may apply to Consumers’ gas-fueled combustion turbine facilities and may have a material financial and operational impact.

Consumers will continue to follow the EPA rules that address greenhouse gas emissions and will continue to evaluate potential impacts to its operations.

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

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

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

Consumers has already surpassed the 28 ‑ percent reduction milestone for its owned electric generation.

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

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

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

Consumers is unable to predict these events;

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

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

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

Litigation, international treaties, executive orders, federal laws and regulations (including regulations by the EPA), and state laws and regulations, if enacted or ratified, could ultimately impact Consumers.

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• pursue energy efficiency or demand response measures more swiftly

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

• take other steps to manage, sequester, or lower the emission of greenhouse gases

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

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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.

The rule also sets out conditions under which some CCR units

would be forced to cease receiving CCRs and related process water and to initiate closure.

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

In May 2024, the EPA finalized a rule regulating legacy CCR surface impoundments and CCR management units in response to litigation that exempted inactive impoundments at inactive facilities from the 2015 CCR rule.

The new rule adopts minimum standards for impoundments at electric generating facilities that became inactive before the 2015 CCR rule’s effective date.

During 2024, owners and operators were required to assess if an inactive facility contains a legacy surface impoundment and then, for identified locations, proceed with the compliance schedule.

Additionally, the EPA established groundwater monitoring, corrective action, closure, and post-closure care requirements for CCR surface impoundments and landfills closed prior to the effective date of the 2015 CCR rule, but that do not meet the closure technical and performance standards of the May 2024 rule.

These include inactive CCR landfills that were previously exempted from regulation but that are now considered CCR management units.

Owners are required to conduct an evaluation at active facilities and any inactive facilities with at least one legacy impoundment to identify CCR management units and determine an appropriate course of action (closure, groundwater treatment, etc.) for each identified unit according to established compliance milestone schedules.

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

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.

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.

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

Once approved, permits issued from an authorized state would serve as the basis for compliance, replacing the requirement to self-certify each aspect of the 2015 CCR rule.

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

Consumers has completed an assessment of inactive facilities as required by the 2024 CCR rule, and did not identify any legacy impoundments.

Consumers is continuing with evaluations related to CCR management units and 2024 CCR rule impacts on the state permit program.

For additional details, see Item 8.

Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 9, Asset Retirement Obligations.

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

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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) for its coal-fueled units, but has not yet received final approval.

In 2018, Consumers submitted to EGLE 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.

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

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.

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

Michigan is one such state.

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.

Consumers received such an extension for its J.H.

Campbell coal-fueled generating units, which it plans to retire in 2025.

In April 2024, the EPA released a final rule updating its effluent limitation guidelines for existing coal-fueled units.

This rule regulates additional wastewater streams previously not regulated, including combustion residual leachate and legacy wastewater.

Consumers has submitted timely NPDES permit applications and will be working with EGLE to incorporate applicable provisions during the permit renewal process.

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

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In 2021, the U.S.

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

Any resulting permitting and monitoring fees and/or restrictions on operations could impact Consumers’ existing and future operations, including wind and solar generation facilities.

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

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

Fish and Wildlife Service announced its intent to regulate incidental take under the Migratory Bird Treaty Act but has not yet published a proposed rule.

In February 2024, the U.S.

Fish and Wildlife Service published a final rule, effective April 2024, providing for bald eagle general permits for qualifying wind farms and electric distribution systems.

While any resulting permitting and monitoring fees and/or restrictions on operations could impact Consumers’ existing and future operations, Consumers does not expect any material changes to its environmental strategy or Clean Energy Plan as a result of this rule.

Additionally, Consumers regularly monitors proposed changes to the listing status of several species within its operational area.

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

Other Matters:

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Over the next five years, Consumers expects weather-normalized gas deliveries to remain stable relative to 2024.

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

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

Actual delivery levels will depend on:

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2024 Gas Rate Case:

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

Projected 12-Month Period Ending September 30 2025

Projected 12-Month Period Ending October 31 2026

Components of the requested rate increase

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Cost of capital 44

Sales and other revenue 30

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.

ASP gain previously used to offset revenue requirement 27

The MPSC must issue a final order in this case before or in October 2025.

Consumers submitted its 2025 ‑ 2026 GCR plan to the MPSC in December 2024 and, in accordance with its proposed plan, expects to self-implement the 2025 ‑ 2026 GCR charge beginning in April 2025.

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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.

There are also proposed rules expanding requirements for gas distribution systems and leak detection and repair.

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.

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For additional details, see Item 8.

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

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

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

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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.

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.

Based on recent data, the EPA reclassified these counties from “moderate” to “serious” nonattainment, which has more stringent requirements.

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

Consequently, Consumers has initiated plans to retrofit equipment at this compressor station to lower NOx emissions.

Consumers will continue to monitor NAAQS rulemakings and evaluate potential impacts to its compressor stations and other applicable natural gas storage and delivery assets.

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

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

No such measures apply to Consumers at this time.

In January 2024, the EPA proposed a new fee for emitting certain waste from petroleum and natural gas systems, as directed under the Inflation Reduction Act of 2022.

The proposed fees could apply to methane emissions from transmission pipeline, compression, or underground storage that exceed annual thresholds;

however, initial analysis indicates Consumers would not be subject to fees under its routine operations.

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

Consumers will continue to monitor this proposed rule for potential impacts.

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

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

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

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

The commitment made by the U.S.

is not binding without new Congressional legislation.

Consumers continues to monitor these initiatives and comment as appropriate.

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

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

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.

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 25 percent.

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

To date, Consumers has reduced methane emissions by nearly 30 percent.

In 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 25 percent by 2035.

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;

carbon capture sequestration systems;

and other innovative technologies.

Consumers has already initiated work in these key areas by continuing to expand its energy waste reduction targets and by offering gas customers the ability to offset their carbon footprint associated with natural gas use by purchasing renewable natural gas and/or carbon credits associated with Michigan forest preservation.

Consumers has two renewable natural gas facilities under construction scheduled for commercial operation in late 2025, and is planning to develop two additional facilities to achieve commercial operation in 2026.

Consumers is evaluating and monitoring newer technologies to determine their role in achieving Consumers’ interim and long-term net-zero goals, including biofuels, synthetic methane, carbon capture sequestration systems, and other innovative technologies.

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.

In December 2024, NorthStar Clean Energy entered into an agreement to sell, for approximately $40 million, a noncontrolling interest in the holding company of a 100‑MW wind project located in Paulding County, Ohio.

Additionally, in January 2025, NorthStar Clean Energy signed an agreement to sell, for approximately $10 million, a noncontrolling interest in the holding company of a 24‑MW solar project located in Delta Township, Michigan and all interest in the holding company of a 3‑MW solar project located in Phillips, Wisconsin.

These sales are expected to close in the first half of 2025.

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

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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.

In June 2024, the U.S.

Supreme Court stayed the Good Neighbor Plan pending judicial review and, as a result, the allowance requirements for Michigan revert back to the prior effective CSAPR ozone season rule.

Under the June 2023 revision, NorthStar Clean Energy could incur increased costs to purchase allowances or retrofit equipment.

In December 2024, the EPA published a proposal to amend new source performance standards for new, modified, and reconstructed stationary combustion turbines to lower emission limits for NOx.

This may impact future gas-fueled, simple-cycle turbine projects.

NorthStar will monitor this rulemaking.

For additional details regarding the ozone or fine particulate matter NAAQS or CSAPR, including the Good Neighbor Plan, see Consumers Electric Utility Outlook and Uncertainties—Electric Environmental Outlook.

Notably, these rules do not address existing combustion turbine electric generating units, though the EPA has announced that it will release a draft rule for these types of units at a later time.

Due to the anticipated replacement of coal as a fuel at its one remaining coal-fueled steam electric generating facility, these regulations will not apply to NorthStar Clean Energy’s facilities.

Future EPA regulations addressing greenhouse gas emissions from existing combustion turbine electric generating units may apply to NorthStar Clean Energy’s gas-fueled combustion turbine facilities and may have a material financial and operational impact.

NorthStar Clean Energy will continue to follow the EPA rules that address greenhouse gas emissions and will continue to evaluate potential impacts to its operations.

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

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

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.

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.

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

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

• investment in and financial benefits received from renewable energy and energy storage projects, including changes to renewable energy tax credits

• changes in energy and capacity prices

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

For additional details regarding these and other legal matters, see Item 8.

For additional details regarding certain legal matters, see Item 8.

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

Employee Separation Program:

In April 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

Critical Accounting Estimates

The following information is important to understand CMS Energy’s and Consumers’ results of operations and financial condition.

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Because Consumers has regulated operations, it uses regulatory accounting to recognize the effects of the regulators’ decisions on its financial statements.

Consumers continually assesses whether future recovery of its regulatory assets is probable by considering communications and experience with its regulators and changes in the regulatory environment.

Consumers continually assesses whether future recovery of its regulatory assets is probable by

considering communications and experience with its regulators and changes in the regulatory environment.

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.

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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.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis