CMS ENERGY CORP 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations is a combined report of CMS Energy and Consumers. Executive Overview CMS Energy is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility, and NorthStar Clean Energy, primarily a domestic independent power producer and marketer. Consumers’ electric utility operations include the generation, purchase, distribution, and sale of electricity, and Consumers’ gas utility operations include the purchase, transmission, storage, distribution, and sale of natural gas. Consumers’ customer base consists of a mix of primarily residential, commercial, and diversified industrial customers. NorthStar Clean Energy, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production. 53 Table of Contents CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in three business segments: electric utility; gas utility; and NorthStar Clean Energy, its non‑utility operations and investments. Consumers operates principally in two business segments: electric utility and gas utility. CMS Energy’s and Consumers’ businesses are affected primarily by: • regulation and regulatory matters • state and federal legislation • economic conditions • weather • energy commodity prices • interest rates • their securities’ credit ratings The Triple Bottom Line 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. 54 Table of Contents 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 prosperity. People: 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 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. CMS Energy and Consumers also place a high priority on customer value and on providing a hometown customer experience. Consumers’ customer-driven investment program is aimed at improving safety and increasing electric and gas reliability. In September 2023, Consumers filed its Reliability Roadmap, an update to its previous Electric Distribution Infrastructure Investment Plan filed in 2021, with the MPSC. The Reliability Roadmap outlines a five-year strategy to improve Consumers’ electric distribution system and the reliability of the grid. The plan proposes the following spending for projects designed to reduce the number and duration of power outages to customers through investment in infrastructure upgrades, 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 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: • replacement of coal-fueled generation and PPAs with a cost-efficient mix of renewable energy, less-costly dispatchable generation sources, and energy waste reduction and demand response programs • targeted infrastructure investment to reduce maintenance costs and improve reliability and safety • supply chain optimization • economic development to increase sales and reduce overall rates • information and control system efficiencies • employee and retiree health care cost sharing • tax planning • cost-effective financing • workforce productivity enhancements While CMS Energy and Consumers have experienced some supply chain disruptions and inflationary pressures, they have taken steps to mitigate the impact on their ability to provide safe and reliable service to customers. 55 Table of Contents Planet: The planet element of the triple bottom line represents CMS Energy’s and Consumers’ commitment to protect the environment. This commitment extends beyond compliance with various state and federal environmental, health, and safety laws and regulations. Management considers climate change and other environmental risks in strategy development, business planning, and enterprise risk management processes. CMS Energy and Consumers continue to focus on opportunities to protect the environment and reduce their carbon footprint from owned generation. CMS Energy, including Consumers, has decreased its combined percentage of electric supply (self-generated and purchased) from coal by 23 percentage points since 2015. Additionally, as a result of actions already taken through 2024, initial measurement data indicates Consumers has: • 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 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 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 more than 92 percent. Presented in the following illustration are Consumers’ reductions in these emissions: 56 Table of Contents In November 2023, Michigan enacted the 2023 Energy Law, which among other things: • 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 • 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 • 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: Under its Methane Reduction Plan, Consumers plans to reduce methane emissions from its system by about 80 percent, from 2012 baseline levels, by accelerating the replacement of aging pipe, rehabilitating or retiring outdated infrastructure, and adopting new technologies and practices. The remaining emissions will likely be offset by purchasing and/or producing renewable natural gas. To date, Consumers has reduced methane emissions by 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 57 Table of Contents 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 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 CMS Energy and Consumers are monitoring numerous legislative, policy, and regulatory initiatives, including those to regulate and report greenhouse gases, and related litigation. While CMS Energy and Consumers cannot predict the outcome of these matters, which could affect them materially, they intend to continue to move forward with their clean and lean strategy. Prosperity: 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. In 2024, CMS Energy’s net income available to common stockholders was $993 million, and diluted EPS were $3.33. This compares with net income available to common stockholders of $877 million and diluted EPS of $3.01 in 2023. 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 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. 58 Table of Contents Performance: Impacting the Triple Bottom Line 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. Consumers’ investment plan and the regulatory environment in which it operates also drive its ability to impact the triple bottom line. Investment Plan: Over the next five years, Consumers expects to make significant expenditures on infrastructure upgrades, replacements, and clean generation. While it has a large number of potential investment opportunities that would add customer value, Consumers has prioritized its spending based on the criteria of enhancing public safety, increasing reliability, maintaining affordability for its customers, and advancing its environmental stewardship. Consumers’ investment program, 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. 59 Table of Contents Presented in the following illustration are Consumers’ planned capital expenditures through 2029 of $20.0 billion: Of this amount, Consumers plans to spend $14.8 billion over the next five years primarily to maintain and upgrade its electric distribution systems and gas infrastructure in order to enhance safety and reliability, improve customer satisfaction, reduce energy waste on those systems, and facilitate its clean energy transformation. Electric distribution and other projects comprise $8.5 billion primarily to strengthen circuits and substations, replace poles, and interconnect clean energy resources. The gas infrastructure projects comprise $6.3 billion to sustain deliverability, enhance pipeline integrity and safety, and reduce methane emissions. Consumers also expects to spend $5.2 billion on clean generation, which includes investments in wind, solar, and hydroelectric generation resources. Regulation: Regulatory matters are a key aspect of Consumers’ business, particularly rate cases and regulatory proceedings before the MPSC, which permit recovery of new investments while helping to ensure that customer rates are fair and affordable. Important regulatory events and developments not already discussed are summarized below. 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 $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 $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 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 60 Table of Contents 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 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 test year comprising the 12‑month period ending September 30, 2025. 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 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 providing safe, reliable, affordable, clean, and equitable energy in service of their customers. 61 Table of Contents Results of Operations CMS Energy Consolidated Results of Operations In Millions, Except Per Share Amounts Years Ended December 31 2024 2023 Change Net Income Available to Common Stockholders $ 993 $ 877 $ 116 Basic Earnings Per Average Common Share $ 3.34 $ 3.01 $ 0.33 Diluted Earnings Per Average Common Share $ 3.33 $ 3.01 $ 0.32 In Millions Years Ended December 31 2024 2023 Change Electric utility $ 681 $ 550 $ 131 Gas utility 328 315 13 NorthStar Clean Energy 63 67 (4) Corporate interest and other (79) (55) (24) Net Income Available to Common Stockholders $ 993 $ 877 $ 116 For a summary of net income available to common stockholders for 2023 versus 2022, as well as detailed changes by reportable segment, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations, in the Form 10‑K for the fiscal year ended December 31, 2023, filed February 8, 2024 . 62 Table of Contents Amounts in the following tables are presented pre-tax, with the exception of income tax changes. Presented in the following table is a summary of changes to net income available to common stockholders for 2024 versus 2023: In Millions Year Ended December 31, 2023 $ 877 Reasons for the change Consumers electric utility and gas utility Electric sales $ 45 Gas sales (35) Electric rate increase 235 Gas rate increase, including gain amortization in lieu of rate relief 1 84 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 depreciation and amortization (55) 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) $ 144 NorthStar Clean Energy (4) Corporate interest and other (24) Year Ended December 31, 2024 $ 993 1 See Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters. 63 Table of Contents Consumers Electric Utility Results of Operations Presented in the following table are the detailed changes to the electric utility’s net income available to common stockholders for 2024 versus 2023: In Millions Year Ended December 31, 2023 $ 550 Reasons for the change Electric deliveries 1 and rate increases 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 $ 290 Maintenance and other operating expenses 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) 9 Depreciation and amortization Increased plant in service, reflecting higher capital spending (68) General taxes Higher property taxes, reflecting higher capital spending (21) Other income, net of expenses (5) Interest charges (39) Income taxes Higher electric utility pre-tax earnings (41) Higher renewable energy tax credits 2 11 Higher other income taxes (5) (35) 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 Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12, Income Taxes. 64 Table of Contents Consumers Gas Utility Results of Operations Presented in the following table are the detailed changes to the gas utility’s net income available to common stockholders for 2024 versus 2023: In Millions Year Ended December 31, 2023 $ 315 Reasons for the change Gas deliveries 1 and rate increases Rate increase $ 75 Lower revenue due primarily to unfavorable weather (35) Lower ASP business revenue 2 (46) ASP gain customer bill credit 3 (8) Lower energy waste reduction program revenues (8) $ (22) Maintenance and other operating expenses Lower ASP business expense 2 39 Amortization of ASP gain 3 17 Absence of 2023 voluntary separation program expenses 13 Lower energy waste reduction program costs 8 Higher maintenance and other operating expenses (20) 57 Depreciation and amortization Lower depreciation rates, offset partially by higher capital spending 13 General taxes Higher property taxes, reflecting higher capital spending and other (12) Other income, net of expenses 9 Interest charges (31) Income taxes Higher gas utility pre-tax earnings (4) Lower other income taxes 3 (1) Year Ended December 31, 2024 $ 328 1 Deliveries to end-use customers were 268 Bcf in 2024 and 282 Bcf in 2023. 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. 65 Table of Contents NorthStar Clean Energy Results of Operations Presented in the following table are the detailed changes to NorthStar Clean Energy’s net income available to common stockholders for 2024 versus 2023: In Millions Year Ended December 31, 2023 $ 67 Reason for the change Higher operating earnings, primarily at DIG $ 22 Higher renewable energy tax credits 9 Higher interest charges and other expenses (11) Lower earnings from renewable projects (24) Year Ended December 31, 2024 $ 63 Corporate Interest and Other Results of Operations Presented in the following table are the detailed changes to corporate interest and other results for 2024 versus 2023: In Millions Year Ended December 31, 2023 $ (55) Reasons for the change Lower gain on extinguishment of debt 1 $ (21) Other (3) Year Ended December 31, 2024 $ (79) 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 At December 31, 2024, CMS Energy had $178 million of consolidated cash and cash equivalents, which included $75 million of restricted cash and cash equivalents. 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 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 . 66 Table of Contents Operating Activities Presented in the following table are specific components of net cash provided by operating activities for 2024 versus 2023: In Millions CMS Energy, including Consumers Year Ended December 31, 2023 $ 2,309 Reasons for the change Higher net income $ 139 Non‑cash transactions 1 76 Unfavorable impact of changes in core working capital, 2 due primarily to lower collections and lower prices on gas sold to customers (266) Favorable impact of changes in other assets and liabilities, due primarily to proceeds from the sale of renewable energy tax credits 3 112 Year Ended December 31, 2024 $ 2,370 Consumers Year Ended December 31, 2023 $ 2,430 Reasons for the change Higher net income $ 142 Non‑cash transactions 1 (2) Unfavorable impact of changes in core working capital, 2 due primarily to lower collections and lower prices on gas sold to customers (248) Favorable impact of changes in other assets and liabilities, due primarily to proceeds from the sale of renewable energy tax credits 3 124 Year Ended December 31, 2024 $ 2,446 1 Non ‑ cash transactions comprise depreciation and amortization, changes in deferred income taxes and investment tax credits, bad debt expense, and other non‑cash operating activities and reconciling adjustments. 2 Core working capital comprises accounts receivable, accrued revenue, inventories, accounts payable, and accrued rate refunds. 3 See Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12, Income Taxes—Renewable Energy Tax Credits. 67 Table of Contents Investing Activities Presented in the following table are specific components of net cash used in investing activities for 2024 versus 2023: In Millions CMS Energy, including Consumers Year Ended December 31, 2023 $ (3,386) Reasons for the change Higher capital expenditures $ (611) Absence of 2023 purchase of Covert Generating Station 812 Proceeds from sale of ASP business 1 124 Other investing activities 7 Year Ended December 31, 2024 $ (3,054) Consumers Year Ended December 31, 2023 $ (3,201) Reasons for the change Higher capital expenditures $ (594) Absence of 2023 purchase of Covert Generating Station 812 Proceeds from sale of ASP business 1 124 Other investing activities (13) Year Ended December 31, 2024 $ (2,872) 1 See Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 19, Exit Activities and Asset Sales. 68 Table of Contents Financing Activities Presented in the following table are specific components of net cash provided by financing activities for 2024 versus 2023: In Millions CMS Energy, including Consumers Year Ended December 31, 2023 $ 1,143 Reasons for the change 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 94 Higher payments of dividends on common stock (47) 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 21 Year Ended December 31, 2024 $ 614 Consumers Year Ended December 31, 2023 $ 767 Reasons for the change 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 Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Financings and Capitalization—Issuance of Common Stock. 69 Table of Contents Capital Resources and Liquidity CMS Energy and Consumers expect to have sufficient liquidity to fund their present and future commitments. CMS Energy uses dividends and tax-sharing payments from its subsidiaries and external financing and capital transactions to invest in its utility and non ‑ utility businesses, retire debt, pay dividends, and fund its other obligations. The ability of CMS Energy’s subsidiaries, including Consumers, to pay dividends to CMS Energy depends upon each subsidiary’s revenues, earnings, cash needs, and other factors. In addition, Consumers’ ability to pay dividends is restricted by certain terms included in its articles of incorporation and potentially by FERC requirements and provisions under the Federal Power Act and the Natural Gas Act. For additional details on Consumers’ dividend restrictions, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Financings and Capitalization—Dividend Restrictions. 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, 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: CMS Energy and Consumers rely on the capital markets to fund their robust capital plan. Barring any sustained market dislocations or disruptions, CMS Energy and Consumers expect to continue to have ready access to the financial and capital markets and will continue to explore possibilities to take advantage of market opportunities as they arise with respect to future funding needs. If access to these markets were to diminish or otherwise become restricted, CMS Energy and Consumers would implement contingency plans to address debt maturities, which could include reduced capital spending. 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. 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. An additional source of liquidity is Consumers’ commercial paper program, which allows Consumers to issue, in one or more placements, up to $500 million in aggregate principal amount of commercial paper notes with maturities of up to 365 days at market interest rates. These issuances are supported by Consumers’ revolving credit facilities. While the amount of outstanding commercial paper does not reduce the available capacity of the revolving credit facilities, Consumers does not intend to issue commercial paper in an amount exceeding the available capacity of the facilities. At December 31, 2024, there were $65 million of commercial paper notes outstanding under this program. 70 Table of Contents 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: Limit Actual CMS Energy, parent only Debt to capital 1 < 0.70 to 1.0 0.58 to 1.0 NorthStar Clean Energy, including subsidiaries Debt to capital 2 < 0.50 to 1.0 0.15 to 1.0 Debt service coverage 2 > 2.00 to 1.0 5.55 to 1.0 Pledged equity interests to aggregate commitment 2,3 > 2.00 to 1.0 2.64 to 1.0 Consumers Debt to capital 4 < 0.65 to 1.0 0.50 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. Material Cash Requirements: Based on the present investment plan, during 2025, CMS Energy, including Consumers, projects capital expenditures of $4.3 billion and Consumers projects capital expenditures of $3.7 billion. CMS Energy’s 2025 contractual commitments comprise $2.4 billion of purchase obligations and $1.9 billion of principal and interest payments on long-term debt. Consumers’ 2025 contractual commitments comprise $2.1 billion of purchase obligations and $1.0 billion of principal and interest payments on long-term debt. Components of CMS Energy’s and Consumers’ cash management plan include controlling operating expenses and capital expenditures and evaluating market conditions for financing and refinancing opportunities. CMS Energy’s and Consumers’ present level of cash and expected cash flows from operating activities, together with access to sources of liquidity, are anticipated to be sufficient to fund contractual obligations and other material cash requirements for 2025 and beyond. Capital Expenditures: Over the next five years, CMS Energy and Consumers expect to make substantial capital investments. The companies may revise their forecast of capital expenditures periodically due to a number of factors, including environmental regulations, MPSC approval or disapproval, business opportunities, market volatility, economic trends, and the ability to access capital. Presented in the 71 Table of Contents following table are CMS Energy’s and Consumers’ estimated capital expenditures, including lease commitments, for 2025 through 2029: In Billions 2025 2026 2027 2028 2029 Total CMS Energy, including Consumers Consumers $ 3.7 $ 4.1 $ 4.4 $ 3.9 $ 3.9 $ 20.0 NorthStar Clean Energy, including subsidiaries 0.6 0.3 0.7 0.6 0.6 2.8 Total CMS Energy $ 4.3 $ 4.4 $ 5.1 $ 4.5 $ 4.5 $ 22.8 Consumers Electric utility operations $ 2.5 $ 2.8 $ 3.1 $ 2.7 $ 2.6 $ 13.7 Gas utility operations 1.2 1.3 1.3 1.2 1.3 6.3 Total Consumers $ 3.7 $ 4.1 $ 4.4 $ 3.9 $ 3.9 $ 20.0 Other Material Cash Requirements: Presented in the following table are CMS Energy’s and Consumers’ material cash obligations from known contractual and other legal obligations: In Billions Payments Due December 31, 2024 Less Than One Year Total CMS Energy, including Consumers Long-term debt $ 1.2 $ 16.5 Interest payments on long-term debt 0.7 13.2 Purchase obligations 2.4 11.4 AROs — 2.6 Total obligations $ 4.3 $ 43.7 Consumers Long-term debt $ 0.5 $ 12.2 Interest payments on long-term debt 0.5 8.2 Purchase obligations 2.1 10.4 AROs — 2.5 Total obligations $ 3.1 $ 33.3 Purchase obligations arise from long-term contracts for the purchase of commodities and related services, and construction and service agreements. The commodities and related services include long-term PPAs, natural gas and associated transportation, and coal and associated transportation. For more information on CMS Energy’s and Consumers’ purchase obligations, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Contingencies and Commitments—Contractual Commitments. CMS Energy, Consumers, and certain of their subsidiaries enter into various arrangements in the normal course of business to facilitate commercial transactions with third parties. These arrangements include indemnities, surety bonds, letters of credit, and financial and performance guarantees. For additional details on indemnity and guarantee arrangements, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Contingencies and Commitments—Guarantees. For additional details on letters of credit and CMS Energy’s forward sales contracts, see 72 Table of Contents Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 4, Financings and Capitalization. Outlook Several business trends and uncertainties may affect CMS Energy’s and Consumers’ financial condition and results of operations. These trends and uncertainties could have a material impact on CMS Energy’s and Consumers’ consolidated income, cash flows, or financial position. For additional details regarding these and other uncertainties, see Forward-looking Statements and Information; Item 1A. Risk Factors; and Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters and Note 3, Contingencies and Commitments. Consumers Electric Utility Outlook and Uncertainties 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 • 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 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. 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 MPSC authorized Consumers to issue securitization bonds to finance the recovery of and return on the D.E. Karn coal-fueled generating units; Consumers issued these bonds in December 2023. Additionally, the MPSC has authorized regulatory asset treatment for Consumers to recover the remaining book value of the J.H. Campbell coal-fueled generating units, as well as a 9.0‑percent return on equity, commencing in 2025. 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 73 Table of Contents 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. 74 Table of Contents 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 resulting contracts are subject to MPSC approval. Electric Customer Deliveries and Revenue: Consumers’ electric customer deliveries are seasonal and largely dependent on Michigan’s economy. The consumption of electric energy typically increases in the summer months, due primarily to the use of air conditioners and other cooling equipment. In addition, Consumers’ electric rates, which follow a seasonal rate design, are higher in the summer months than in the remaining months of the year. Each year in June, electric residential customers transition to a summer peak time-of-use rate that allows them to take advantage of lower-cost energy during off-peak times during the summer months. Thus, customers can reduce their electric bills by shifting their consumption from on‑peak to off‑peak times. 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: • energy conservation measures and results of energy waste reduction programs • weather fluctuations • 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 75 Table of Contents Consumers’ sales, with certain exceptions. At December 31, 2024, electric deliveries under the ROA program were at the ten‑percent limit. Fewer than 300 of Consumers’ electric customers purchased electric generation service under the ROA program. In 2016, Michigan law established a path to ensure that forward capacity is secured for all electric customers in Michigan, including customers served by alternative electric suppliers under ROA. The law also authorized the MPSC to ensure that alternative electric suppliers have procured enough capacity to cover their anticipated capacity requirements for the four ‑ year forward period. In 2017, the MPSC issued an order establishing a state reliability mechanism for Consumers. Under this mechanism, if an alternative electric supplier does not demonstrate that it has procured its capacity requirements for the four ‑ year forward period, its customers will pay a set charge to the utility for capacity that is not provided by the alternative electric supplier. During 2017, the MPSC issued orders finding that it has statutory authority to determine and implement a local clearing requirement, which requires all electric suppliers to demonstrate that a portion of the capacity used to serve customers is located in the MISO footprint in Michigan’s Lower Peninsula. In 2020, the Michigan Supreme Court affirmed the MPSC’s statutory authority to implement a local clearing requirement on individual electric providers. In 2020, ABATE and another intervenor filed a complaint against the MPSC in the U.S. District Court for the Eastern District of Michigan challenging the constitutionality of a local clearing requirement. The complaint requests the federal court to issue a permanent injunction prohibiting the MPSC from implementing a local clearing requirement on individual electric providers. In February 2023, the U.S. District Court for the Eastern District of Michigan dismissed the complaint. In March 2023, ABATE and the other intervenor filed a claim of appeal of the Eastern District Court’s decision with the U.S. Court of Appeals for the Sixth Circuit. 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: Rate matters are critical to Consumers’ electric utility business. For additional details on rate 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. MPSC Distribution System Audit: 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. 76 Table of Contents 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 $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 $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. Presented in the following table are the components of the revised requested increase in revenue: In Millions Projected 12-Month Period Ending February 28 2026 Components of the requested rate increase Investment in rate base $ 144 Operating and maintenance costs 10 Sales and other revenue 41 Cost of capital 60 Subtotal $ 255 Surcharge 22 Total $ 277 The MPSC must issue a final order in this case before or in March 2025. PSCR Plan: 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. Retention Incentive Program: Under its Clean Energy Plan, Consumers will retire the J.H. Campbell coal-fueled generating units in 2025. 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 less than $50 million; Consumers expects to recognize $5 million of retention benefit costs in 2025. The MPSC has approved deferred accounting treatment for these costs; these expenses are deferred as a regulatory asset. For additional details on this program, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 19, Exit Activities and Asset Sales. Electric Environmental Outlook: Consumers’ electric operations are subject to various federal, state, and local environmental laws and regulations. Consumers estimates that it will incur capital expenditures of $240 million from 2025 through 2029 to continue to comply with RCRA, the Clean Air Act, and numerous other environmental regulations. Consumers expects to recover these costs in customer rates, but cannot guarantee this result. Multiple environmental laws and regulations are subject to litigation. 77 Table of Contents Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters. Air Quality: Multiple air quality regulations apply, or may apply, to Consumers’ electric utility. 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. Since its 2015 effective date, CSAPR has been revised several times. In June 2023, the EPA published the Good Neighbor Plan, a revision to CSAPR. 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. 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. 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. This evaluation could result in: • a change in Consumers’ fuel mix • changes in the types of generating units Consumers may purchase or build in the future • changes in how certain units are operated, including the installation of additional emission control equipment • the retirement, mothballing, or repowering with an alternative fuel of some of Consumers’ generating units • changes in Consumers’ environmental compliance costs • the purchase or sale of allowances Greenhouse Gases: There have been numerous legislative and regulatory initiatives at the state, regional, national, and international levels that involve the potential regulation and reporting of greenhouse gases. Consumers continues to monitor and comment on these initiatives, as appropriate. 78 Table of Contents 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. The 2023 Energy Law codifies much of the Governor’s goals. For additional details on the 2023 Energy Law, see the Planet section of the Executive Overview. Increased frequency or intensity of severe or extreme weather events, including those due to climate change, could materially impact Consumers’ facilities, energy sales, and results of operations. 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; increased precipitation; increased temperature; and changes in lake and river levels. Consumers released a report addressing the physical risks of climate change on its infrastructure in 2022. Consumers is taking steps to mitigate these risks as appropriate. While Consumers cannot predict the outcome of changes in U.S. policy or of other legislative, executive, or regulatory initiatives involving the potential regulation or reporting of greenhouse gases, it intends to move forward with its Clean Energy Plan, its present net-zero goals, and its emphasis on reliable and resilient electric supply. Litigation, international treaties, executive orders, federal laws and regulations (including regulations by the EPA), and state laws and regulations, if enacted or ratified, could ultimately impact Consumers. Consumers may be required to: • replace equipment • install additional emission control equipment • purchase emission allowances or credits (including potential greenhouse gas offset credits) • curtail operations • arrange for alternative sources of supply • purchase or build facilities that generate fewer emissions • mothball, sell, or retire facilities that generate certain emissions • pursue energy efficiency or demand response measures more swiftly • 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. CCRs: In 2015, the EPA published a rule regulating CCRs under RCRA. 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 79 Table of Contents 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 serve as the basis for compliance, replacing the requirement to self-certify each aspect of the 2015 CCR rule. 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 set forth in 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. Water: Multiple water-related regulations apply, or may apply, to Consumers. The EPA regulates cooling water intake systems of existing electric generating plants under Section 316(b) of the Clean Water Act. The rules seek to reduce alleged harmful impacts on aquatic organisms, such as fish. 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 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. 80 Table of Contents Many of Consumers’ facilities maintain NPDES permits, which are vital to the facilities’ operations. Consumers applies for renewal of these permits every five years. Failure of EGLE to renew any NPDES permit, a successful appeal against a permit, a change in the interpretation or scope of NPDES permitting, or onerous terms contained in a permit could have a significant detrimental effect on the operations of a facility. Protected Wildlife: Multiple regulations apply, or may apply, to Consumers relating to protected species and habitats. Statutes like the federal Endangered Species Act, the Migratory Bird Treaty Act, and the Bald and Golden Eagle Protection Act of 1940 may impact operations at Consumers’ facilities. In 2021, the U.S. Fish and Wildlife Service announced its intent to regulate incidental take under the Migratory Bird Treaty Act 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: Other electric environmental matters could have a material impact on Consumers’ outlook. For additional details on other electric environmental matters, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Contingencies and Commitments—Consumers Electric Utility Contingencies—Electric Environmental Matters. Consumers Gas Utility Outlook and Uncertainties Gas Deliveries: Consumers’ gas customer deliveries are seasonal. The peak demand for natural gas occurs in the winter due to colder temperatures and the resulting use of natural gas as heating fuel. Over the next five years, Consumers expects weather-normalized gas deliveries to remain stable relative to 2024. This outlook reflects modest growth in gas demand, offset by the effects of energy waste reduction programs. Actual delivery levels will depend on: • weather fluctuations • use by power producers • availability and development of renewable energy sources • gas price changes • Michigan’s economic conditions, including population trends and housing activity • the price or demand of competing energy sources or fuels • energy efficiency and conservation impacts Gas Rate Matters: Rate matters are critical to Consumers’ gas utility business. For additional details on rate 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. 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. 81 Table of Contents Presented in the following table are the components of the requested increase in revenue: In Millions Projected 12-Month Period Ending October 31 2026 Components of the requested rate increase Investment in rate base $ 135 Operating and maintenance costs 42 Cost of capital 44 ASP gain previously used to offset revenue requirement 27 Total $ 248 The MPSC must issue a final order in this case before or in October 2025. GCR Plan: 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. Gas Pipeline and Storage Integrity and Safety: The U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration has published various rules that expand federal safety standards for gas transmission pipelines and underground storage facilities. Initial 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 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. Although associated capital or operating and maintenance costs relating to these regulations could be material and cost recovery cannot be assured, Consumers expects to recover such costs in rates consistent with the recovery of other reasonable costs of complying with laws and regulations. Gas Environmental Outlook: Consumers expects to incur response activity costs at a number of sites, including 23 former MGP sites. 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. Consumers’ gas operations are subject to various federal, state, and local environmental laws and regulations. Multiple environmental laws and regulations are subject to litigation. Consumers’ primary environmental compliance focus includes, but is not limited to, the following matters. Air Quality: Multiple air quality regulations apply, or may apply, to Consumers’ gas utility. In 2015, the EPA lowered the NAAQS for ozone and made it more difficult to construct or modify natural gas compressor stations and other emission sources in areas of the country that do not meet the ozone standard. 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, 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. 82 Table of Contents Greenhouse Gases: There is increasing interest at the federal, state, and local levels in potential regulation of greenhouse gases or their sources. 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. 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. 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. 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 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 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. 83 Table of Contents 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. 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. Multiple environmental laws and regulations are subject to litigation. NorthStar Clean Energy’s primary environmental compliance focus includes, but is not limited to, the following matters. CSAPR requires Michigan and many other states to improve air quality by reducing power plant emissions that, according to EPA modeling, contribute to ground-level ozone in other downwind states. Since its 2015 effective date, CSAPR has been revised several times. In June 2023, the EPA published the Good Neighbor Plan, a revision to CSAPR. 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. 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. 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. 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 84 Table of Contents 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, including changes to renewable energy tax credits • changes in energy and capacity prices • severe weather events and climate change associated with increasing levels of greenhouse gases • changes in commodity prices on certain derivative contracts that do not qualify for hedge accounting and must be marked to market through earnings • changes in various environmental laws, regulations, principles, or practices, or in their interpretation • indemnity obligations assumed in connection with ownership interests in facilities that involve tax equity financing • representations, warranties, and indemnities provided by CMS Energy in connection with sales of assets • delays or difficulties in obtaining environmental permits for facilities located in areas associated with environmental justice concerns For additional details regarding NorthStar Clean Energy’s uncertainties, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Contingencies and Commitments—Guarantees. Other Outlook and Uncertainties Litigation: 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 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. Critical Accounting Estimates The following information is important to understand CMS Energy’s and Consumers’ results of operations and financial condition. For additional accounting policies, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 1, Significant Accounting Policies. In the preparation of CMS Energy’s and Consumers’ consolidated financial statements, estimates and assumptions are used that may affect reported amounts and disclosures. CMS Energy and Consumers use accounting estimates for asset valuations, unbilled revenue, depreciation, amortization, financial and derivative instruments, employee benefits, stock-based compensation, the effects of regulation, indemnities, contingencies, and AROs. Actual results may differ from estimated results due to changes in the regulatory environment, regulatory decisions, lawsuits, competition, and other factors. CMS Energy and Consumers consider all relevant factors in making these assessments. Accounting for the Effects of Industry Regulation: 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 85 Table of Contents 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. For additional information, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters. Contingencies: CMS Energy and Consumers make judgments regarding the future outcome of various matters that give rise to contingent liabilities. For such matters, they record liabilities when they are considered probable and reasonably estimable, based on all available information. In particular, CMS Energy and Consumers are participating in various environmental remediation projects for which they have recorded liabilities. The recorded amounts represent estimates that may take into account such considerations as the number of sites, the anticipated scope, cost, and timing of remediation work, the available technology, applicable regulations, and the requirements of governmental authorities. For remediation projects in which the timing of estimated expenditures is considered reliably determinable, CMS Energy and Consumers record the liability at its net present value, using a discount rate equal to the interest rate on monetary assets that are essentially risk-free and have maturities comparable to that of the environmental liability. The amount recorded for any contingency may differ from actual costs incurred when the contingency is resolved. For additional details, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 3, Contingencies and Commitments. Derivative Instruments: CMS Energy and Consumers account for certain contracts as derivative instruments. If a contract is a derivative and does not qualify for the normal purchases and sales exception, it is recorded on the consolidated balance sheets at its fair value. For the FTRs at Consumers, changes in fair value are deferred as regulatory assets or liabilities. The criteria used to determine if an instrument qualifies for derivative accounting or for an exception from derivative accounting are complex and often require judgment in application. Changes in business strategies or market conditions, as well as a requirement to apply different interpretations of the derivative accounting literature, could result in changes in accounting for a single contract or groups of contracts, which could have a material impact on CMS Energy’s and Consumers’ financial statements. For additional details on CMS Energy’s and Consumers’ derivatives and how the fair values of derivatives are determined, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 5, Fair Value Measurements. Income Taxes: The amount of income taxes paid by CMS Energy is subject to ongoing audits by federal, state, and foreign tax authorities, which can result in proposed assessments. An estimate of the potential outcome of any uncertain tax issue is highly judgmental. CMS Energy believes adequate reserves have been provided for these exposures; however, future results may include favorable or unfavorable adjustments to the estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, CMS Energy’s judgment as to the ability to recover its deferred tax assets may change. CMS Energy believes the valuation allowances related to its deferred tax assets are adequate, but future results may include favorable or unfavorable adjustments. As a result, CMS Energy’s effective tax rate may fluctuate significantly over time. For additional details, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 12, Income Taxes. Pension and OPEB: CMS Energy and Consumers provide retirement pension benefits to certain employees under non‑contributory DB Pension Plans, and they provide postretirement health and life benefits to qualifying retired employees under an OPEB Plan. 86 Table of Contents CMS Energy and Consumers record liabilities for pension and OPEB on their consolidated balance sheets at the present value of the future obligations, net of any plan assets. The calculation of the liabilities and associated expenses requires the expertise of actuaries, and requires many assumptions, including: • life expectancies • discount rates • expected long-term rate of return on plan assets • rate of compensation increases • expected health care costs A change in these assumptions could change significantly CMS Energy’s and Consumers’ recorded liabilities and associated expenses. Presented in the following table are estimates of credits and cash contributions through 2027 for the DB Pension Plans and OPEB Pl an. Actual future costs, credits, and contributions will depend on future investment performance, discount rates, and various factors related to the participants of the DB Pension Plans and OPEB Plan. CMS Energy and Consumers will, at a minimum, contribute to the plans as needed to comply with federal funding requirements. In Millions DB Pension Plans OPEB Plan Credit Contribution Credit Contribution CMS Energy, including Consumers 2025 $ (70) $ — $ (91) $ — 2026 (68) — (94) — 2027 (62) — (84) — Consumers 1 2025 $ (65) $ — $ (84) $ — 2026 (64) — (87) — 2027 (57) — (77) — 1 Consumers’ pension and OPEB costs are recoverable through its general ratemaking process. Lowering the expected long-term rate of return on the assets of the DB Pension Plans by 25 basis points would increase estimated pension cost for 2025 by $8 million for both CMS Energy and Consumers. Lowering the PBO discount rates by 25 basis points would decrease estimated pension cost for 2025 by $1 million for both CMS Energy and Consumers. Pension and OPEB costs above or below the amounts used to set existing rates will be deferred as a regulatory asset or liability in accordance with Consumers’ postretirement benefits expense deferral mechanism; for more information, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters. Pension and OPEB plan assets are accounted for and disclosed at fair value. Fair value measurements incorporate assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Development of these assumptions may require judgment. For additional details on postretirement benefits, including the fair value measurements for the assets of the DB Pension Plans and OPEB Plan, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 10, Retirement Benefits. 87 Table of Contents Unbilled Revenues: Consumers’ customers are billed monthly in cycles having billing dates that do not generally coincide with the end of a calendar month. This results in customers having received electricity or natural gas that they have not been billed for as of the month-end. Consumers estimates its unbilled revenues by applying an average billed rate to total unbilled deliveries for each customer class. Consumers records unbilled revenues as accounts receivable and accrued revenue on its consolidated balance sheet. For additional information on unbilled revenues, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 14, Revenue. New Accounting Standards There are no new accounting standards issued but not yet effective that are expected to have a material impact on CMS Energy’s or Consumers’ consolidated financial statements.