Attached files
file | filename |
---|---|
8-K - FORM 8-K - CONSUMERS ENERGY CO | k48628e8vk.htm |
EX-99.1 - EX-99.1 - CONSUMERS ENERGY CO | k48628exv99w1.htm |
EX-99.3 - EX-99.3 - CONSUMERS ENERGY CO | k48628exv99w3.htm |
EX-12.(B)2 - EX-12.(B)2 - CONSUMERS ENERGY CO | k48628exv12wxby2.htm |
EX-12.(B)1 - EX-12.(B)1 - CONSUMERS ENERGY CO | k48628exv12wxby1.htm |
EX-12.(A)1 - EX-12.(A)1 - CONSUMERS ENERGY CO | k48628exv12wxay1.htm |
EX-12.(B)3 - EX-12.(B)3 - CONSUMERS ENERGY CO | k48628exv12wxby3.htm |
EX-12.(A)3 - EX-12.(A)3 - CONSUMERS ENERGY CO | k48628exv12wxay3.htm |
EX-12.(A)2 - EX-12.(A)2 - CONSUMERS ENERGY CO | k48628exv12wxay2.htm |
Exhibit
99.2
CMS Energy Corporation
Consolidated Statements of Income
(Unaudited)
(As Revised, See Note 1)
Consolidated Statements of Income
(Unaudited)
(As Revised, See Note 1)
In Millions | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Operating Revenue |
$ | 1,226 | $ | 1,365 | $ | 3,332 | $ | 3,549 | ||||||||
Loss from Equity Method Investees |
| (1 | ) | (1 | ) | (2 | ) | |||||||||
Operating Expenses |
||||||||||||||||
Fuel for electric generation |
118 | 135 | 253 | 297 | ||||||||||||
Purchased and interchange power |
282 | 297 | 571 | 620 | ||||||||||||
Cost of gas sold |
208 | 351 | 1,171 | 1,335 | ||||||||||||
Other operating expenses |
250 | 209 | 475 | 397 | ||||||||||||
Maintenance |
63 | 49 | 111 | 89 | ||||||||||||
Depreciation and amortization |
121 | 128 | 294 | 301 | ||||||||||||
General taxes |
48 | 48 | 113 | 108 | ||||||||||||
Gain on asset sales, net |
(8 | ) | (8 | ) | (8 | ) | (8 | ) | ||||||||
1,082 | 1,209 | 2,980 | 3,139 | |||||||||||||
Operating Income |
144 | 155 | 351 | 408 | ||||||||||||
Other Income (Deductions) |
||||||||||||||||
Interest and dividends |
6 | 9 | 11 | 18 | ||||||||||||
Regulatory return on capital expenditures |
6 | 8 | 13 | 16 | ||||||||||||
Other income |
33 | 3 | 38 | 6 | ||||||||||||
Other expense |
(3 | ) | (5 | ) | (5 | ) | (6 | ) | ||||||||
42 | 15 | 57 | 34 | |||||||||||||
Interest Charges |
||||||||||||||||
Interest on long-term debt |
95 | 87 | 184 | 176 | ||||||||||||
Interest on long-term debt related parties |
3 | 4 | 6 | 7 | ||||||||||||
Other interest |
8 | 7 | 16 | 18 | ||||||||||||
Capitalized interest |
(1 | ) | (1 | ) | (2 | ) | (3 | ) | ||||||||
105 | 97 | 204 | 198 | |||||||||||||
Income Before Income Taxes |
81 | 73 | 204 | 244 | ||||||||||||
Income Tax Expense |
30 | 24 | 79 | 87 | ||||||||||||
Income from Continuing Operations |
51 | 49 | 125 | 157 | ||||||||||||
Income (Loss) From Discontinued Operations, Net
of Tax (Tax Benefit) of $19, $(1), $19 and $(1) |
29 | (1 | ) | 29 | (1 | ) | ||||||||||
Net Income |
80 | 48 | 154 | 156 | ||||||||||||
Income Attributable to Noncontrolling Interests |
2 | 1 | 3 | 4 | ||||||||||||
Net Income Attributable to CMS Energy |
78 | 47 | 151 | 152 | ||||||||||||
Preferred Stock Dividends |
3 | 3 | 6 | 6 | ||||||||||||
Net Income Available to Common Stockholders |
$ | 75 | $ | 44 | $ | 145 | $ | 146 | ||||||||
The accompanying notes are an integral part of these statements. |
1
In Millions, Except Per Share Amounts | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
CMS Energy |
||||||||||||||||
Net
Income Available to Common Stockholders |
$ | 75 | $ | 44 | $ | 145 | $ | 146 | ||||||||
Basic
Earnings Per Average Common Share |
||||||||||||||||
Income from Continuing Operations |
$ | 0.20 | $ | 0.21 | $ | 0.51 | $ | 0.65 | ||||||||
Income (Loss) from Discontinued
Operations |
0.13 | (0.01 | ) | 0.13 | (0.01 | ) | ||||||||||
Net Income Attributable to
Common Stock |
$ | 0.33 | $ | 0.20 | $ | 0.64 | $ | 0.64 | ||||||||
Diluted
Earnings Per Average Common Share |
||||||||||||||||
Income from Continuing Operations |
$ | 0.19 | $ | 0.19 | $ | 0.49 | $ | 0.61 | ||||||||
Income (Loss) from Discontinued
Operations |
0.13 | (0.01 | ) | 0.13 | (0.01 | ) | ||||||||||
Net Income Attributable to
Common Stock |
$ | 0.32 | $ | 0.18 | $ | 0.62 | $ | 0.60 | ||||||||
Dividends
Declared Per Common Share |
$ | 0.125 | $ | 0.09 | $ | 0.25 | $ | 0.18 | ||||||||
2
(This page intentionally left blank)
3
CMS Energy Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(As Revised, See Note 1)
Consolidated Statements of Cash Flows
(Unaudited)
(As Revised, See Note 1)
In Millions | ||||||||
Six Months Ended June 30 | 2009 | 2008 | ||||||
| | | ||||||||
Cash Flows from Operating Activities |
||||||||
Net income |
$ | 154 | $ | 156 | ||||
Adjustments to reconcile net income attributable to CMS Energy to
net cash provided by operating activities |
||||||||
Depreciation and amortization |
294 | 301 | ||||||
Deferred income taxes and investment tax credit |
94 | 81 | ||||||
Regulatory return on capital expenditures |
(13 | ) | (16 | ) | ||||
Postretirement benefits expense |
91 | 76 | ||||||
Capital lease and other amortization |
19 | 23 | ||||||
Gain on indemnification |
(50 | ) | | |||||
Gain on sale of assets |
(3 | ) | (8 | ) | ||||
Gain on extinguishment of long-term debt, related parties |
(28 | ) | | |||||
Increase in environmental remediation accrual |
35 | | ||||||
Bad debt expense |
34 | 17 | ||||||
Loss from equity method investees |
1 | 2 | ||||||
Postretirement benefits contributions |
(232 | ) | (25 | ) | ||||
Electric sales contract termination payment |
| (275 | ) | |||||
Changes in other assets and liabilities: |
||||||||
Decrease in accounts receivable and accrued revenue |
115 | 187 | ||||||
Decrease in accrued power supply and gas revenue |
5 | 40 | ||||||
Decrease in inventories |
267 | 139 | ||||||
Increase (decrease) in accounts payable |
(26 | ) | 3 | |||||
Decrease in accrued expenses |
(5 | ) | (49 | ) | ||||
Decrease in other current and non-current assets |
104 | 111 | ||||||
Decrease in other current and non-current liabilities |
(53 | ) | (112 | ) | ||||
Net cash provided by operating activities |
803 | 651 | ||||||
Cash Flows from Investing Activities |
||||||||
Capital expenditures (excludes assets placed under capital lease) |
(412 | ) | (340 | ) | ||||
Cost to retire property |
(25 | ) | (12 | ) | ||||
Proceeds for sale of assets |
7 | | ||||||
Restricted cash and cash equivalents |
6 | 7 | ||||||
Other investing |
(12 | ) | 1 | |||||
Net cash used in investing activities |
(436 | ) | (344 | ) | ||||
Cash Flows from Financing Activities |
||||||||
Proceeds from issuance of long-term debt |
973 | 475 | ||||||
Proceeds from EnerBank notes, net |
4 | 7 | ||||||
Issuance of common stock |
5 | 4 | ||||||
Retirement of bonds and other long-term debt, including related parties |
(443 | ) | (550 | ) | ||||
Payment of common stock dividends |
(57 | ) | (41 | ) | ||||
Payment of preferred stock dividends |
(6 | ) | (6 | ) | ||||
Payment of capital and finance lease obligations |
(12 | ) | (12 | ) | ||||
Debt issuance costs, financing fees, and other |
(19 | ) | (5 | ) | ||||
Net cash provided (used in) by financing activities |
445 | (128 | ) | |||||
Net Increase in Cash and Cash Equivalents |
812 | 179 | ||||||
Cash and Cash Equivalents, Beginning of Period |
213 | 348 | ||||||
Cash and Cash Equivalents, End of Period |
$ | 1,025 | $ | 527 | ||||
The accompanying notes are an integral part of these statements.
4
CMS Energy Corporation
Consolidated Balance Sheets
(Unaudited)
(As Revised, See Note 1)
Consolidated Balance Sheets
(Unaudited)
(As Revised, See Note 1)
In Millions | ||||||||
June 30 | December 31 | |||||||
ASSETS | 2009 | 2008 | ||||||
Plant and Property (at cost) |
||||||||
Electric utility |
$ | 9,235 | $ | 8,965 | ||||
Gas utility |
3,667 | 3,622 | ||||||
Enterprises |
395 | 390 | ||||||
Other |
33 | 33 | ||||||
13,330 | 13,010 | |||||||
Less accumulated depreciation, depletion and amortization |
4,462 | 4,428 | ||||||
8,868 | 8,582 | |||||||
Construction work in progress |
553 | 608 | ||||||
9,421 | 9,190 | |||||||
Investments |
||||||||
Enterprises |
4 | 5 | ||||||
Other |
6 | 6 | ||||||
10 | 11 | |||||||
Current Assets |
||||||||
Cash and cash equivalents |
1,025 | 213 | ||||||
Restricted cash and cash equivalents |
31 | 35 | ||||||
Accounts receivable and accrued revenue,
less allowances of $31 in 2009 and $26 in 2008 |
701 | 851 | ||||||
Notes receivable |
87 | 95 | ||||||
Accrued power supply and gas revenue |
2 | 7 | ||||||
Inventories at average cost |
||||||||
Gas in underground storage |
887 | 1,168 | ||||||
Materials and supplies |
115 | 110 | ||||||
Generating plant fuel stock |
136 | 127 | ||||||
Deferred property taxes |
128 | 165 | ||||||
Regulatory assets postretirement benefits |
19 | 19 | ||||||
Prepayments and other |
25 | 37 | ||||||
3,156 | 2,827 | |||||||
Non-current Assets |
||||||||
Regulatory assets
|
||||||||
Securitized costs |
392 | 416 | ||||||
Postretirement benefits |
1,386 | 1,431 | ||||||
Customer Choice Act |
68 | 90 | ||||||
Other |
475 | 482 | ||||||
Notes receivable, less allowances of $5 in 2009 and $34 in 2008 |
196 | 186 | ||||||
Other |
179 | 268 | ||||||
2,696 | 2,873 | |||||||
Total Assets |
$ | 15,283 | $ | 14,901 | ||||
The accompanying notes are an integral part of these statements.
5
In Millions | ||||||||
June 30 | December 31 | |||||||
STOCKHOLDERS INVESTMENT AND LIABILITIES | 2009 | 2008 | ||||||
Capitalization |
||||||||
Common stockholders equity
|
||||||||
Common stock, authorized 350.0 shares; outstanding 227.0 shares in 2009
and 226.4 shares in 2008 |
$ | 2 | $ | 2 | ||||
Other paid-in capital |
4,552 | 4,533 | ||||||
Accumulated other comprehensive loss |
(27 | ) | (28 | ) | ||||
Accumulated deficit |
(1,943 | ) | (2,031 | ) | ||||
2,584 | 2,476 | |||||||
Noncontrolling interests |
51 | 52 | ||||||
Preferred stock of subsidiary |
44 | 44 | ||||||
Preferred stock |
243 | 243 | ||||||
Total equity |
2,922 | 2,815 | ||||||
Long-term debt |
6,356 | 5,837 | ||||||
Long-term debt related parties |
34 | 178 | ||||||
Non-current portion of capital and finance lease obligations |
197 | 206 | ||||||
9,509 | 9,036 | |||||||
Current Liabilities |
||||||||
Current portion of long-term debt, capital and finance lease obligations |
604 | 514 | ||||||
Notes payable |
19 | | ||||||
Accounts payable |
406 | 466 | ||||||
Accrued rate refunds |
58 | 7 | ||||||
Accrued interest |
113 | 107 | ||||||
Accrued taxes |
227 | 289 | ||||||
Deferred income taxes |
129 | 100 | ||||||
Regulatory liabilities |
116 | 120 | ||||||
Other |
155 | 260 | ||||||
1,827 | 1,863 | |||||||
Non-current Liabilities |
||||||||
Regulatory liabilities
|
||||||||
Cost of removal |
1,227 | 1,203 | ||||||
Income taxes, net |
532 | 519 | ||||||
Other |
146 | 146 | ||||||
Postretirement benefits |
1,324 | 1,502 | ||||||
Asset retirement obligation |
211 | 206 | ||||||
Deferred investment tax credit |
53 | 54 | ||||||
Deferred income taxes |
114 | 55 | ||||||
Other |
340 | 317 | ||||||
3,947 | 4,002 | |||||||
Commitments and Contingencies (Notes 4, 6 and 8) |
||||||||
Total Stockholders Investment and Liabilities |
$ | 15,283 | $ | 14,901 | ||||
6
CMS Energy Corporation
Consolidated Statements of Common Stockholders Equity
(Unaudited)
(As Revised, See Note 1)
Consolidated Statements of Common Stockholders Equity
(Unaudited)
(As Revised, See Note 1)
In Millions | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Common Stock |
||||||||||||||||
At beginning and end of period |
$ | 2 | $ | 2 | $ | 2 | $ | 2 | ||||||||
Other Paid-in Capital |
||||||||||||||||
At beginning of period |
4,538 | 4,520 | 4,533 | 4,517 | ||||||||||||
Common stock issued |
3 | 5 | 8 | 8 | ||||||||||||
Conversion option on convertible debt |
11 | | 11 | | ||||||||||||
At end of period |
4,552 | 4,525 | 4,552 | 4,525 | ||||||||||||
Accumulated Other Comprehensive Loss |
||||||||||||||||
Retirement benefits liability |
||||||||||||||||
At beginning of period |
(27 | ) | (16 | ) | (27 | ) | (15 | ) | ||||||||
Retirement benefits liability adjustments (a) |
| | | (1 | ) | |||||||||||
At end of period |
(27 | ) | (16 | ) | (27 | ) | (16 | ) | ||||||||
Investments |
||||||||||||||||
At beginning of period |
(4 | ) | (4 | ) | | | ||||||||||
Unrealized gain (loss) on investments (a) |
5 | (1 | ) | 1 | (5 | ) | ||||||||||
At end of period |
1 | (5 | ) | 1 | (5 | ) | ||||||||||
Derivative instruments |
||||||||||||||||
At beginning and end of period |
(1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||
Foreign currency translation |
||||||||||||||||
At beginning of period |
| (128 | ) | | (128 | ) | ||||||||||
Sale of interests in TGN (a) |
| 128 | | 128 | ||||||||||||
At end of period |
| | | | ||||||||||||
Total Accumulated Other Comprehensive Loss |
(27 | ) | (22 | ) | (27 | ) | (22 | ) | ||||||||
Accumulated Deficit |
||||||||||||||||
At beginning of period |
(1,990 | ) | (2,151 | ) | (2,031 | ) | (2,227 | ) | ||||||||
Effects of changing the retirement plans measurement
date pursuant to SFAS No. 158 |
||||||||||||||||
Service cost, interest cost, and expected return on plan
assets for December 1 through December 31, 2007, net of tax |
| | | (4 | ) | |||||||||||
Additional loss from December 1 through December 31, 2007,
net of tax |
| | | (2 | ) | |||||||||||
Net income attributable to CMS Energy (a) |
78 | 47 | 151 | 152 | ||||||||||||
Preferred stock dividends declared |
(3 | ) | (3 | ) | (6 | ) | (6 | ) | ||||||||
Common stock dividends declared |
(28 | ) | (21 | ) | (57 | ) | (41 | ) | ||||||||
At end of period |
(1,943 | ) | (2,128 | ) | (1,943 | ) | (2,128 | ) | ||||||||
Total Common Stockholders Equity |
$ | 2,584 | $ | 2,377 | $ | 2,584 | $ | 2,377 | ||||||||
The accompanying notes are an integral part of these statements.
7
In Millions | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
(a) Disclosure of Comprehensive Income: |
||||||||||||||||
Net income attributable to CMS Energy |
$ | 78 | $ | 47 | $ | 151 | $ | 152 | ||||||||
Retirement benefits liability adjustments, net of tax
of $-, $-, $-, and $2, respectively |
| | | (1 | ) | |||||||||||
Unrealized gain (loss) on investments, net of tax (tax benefit)
of $-, $(1), $-, and $(3), respectively |
5 | (1 | ) | 1 | (5 | ) | ||||||||||
Sale of interests in TGN, net of tax of $69 |
| 128 | | 128 | ||||||||||||
Total Comprehensive Income |
$ | 83 | $ | 174 | $ | 152 | $ | 274 | ||||||||
8
Consumers Energy Company
Consolidated Statements of Income
(Unaudited)
(As Revised, See Note 1)
Consolidated Statements of Income
(Unaudited)
(As Revised, See Note 1)
In Millions | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Operating Revenue |
$ | 1,182 | $ | 1,263 | $ | 3,216 | $ | 3,354 | ||||||||
Operating Expenses |
||||||||||||||||
Fuel for electric generation |
105 | 118 | 216 | 245 | ||||||||||||
Purchased and interchange power |
280 | 293 | 564 | 610 | ||||||||||||
Purchased power related parties |
17 | 17 | 35 | 37 | ||||||||||||
Cost of gas sold |
195 | 289 | 1,131 | 1,233 | ||||||||||||
Other operating expenses |
196 | 194 | 403 | 364 | ||||||||||||
Maintenance |
54 | 44 | 98 | 80 | ||||||||||||
Depreciation and amortization |
118 | 124 | 288 | 294 | ||||||||||||
General taxes |
46 | 45 | 107 | 102 | ||||||||||||
Gain on asset sales, net |
(3 | ) | | (3 | ) | | ||||||||||
1,008 | 1,124 | 2,839 | 2,965 | |||||||||||||
Operating Income |
174 | 139 | 377 | 389 | ||||||||||||
Other Income (Deductions) |
||||||||||||||||
Interest |
5 | 9 | 10 | 16 | ||||||||||||
Regulatory return on capital expenditures |
6 | 8 | 13 | 16 | ||||||||||||
Other income |
3 | 2 | 8 | 5 | ||||||||||||
Other expense |
(2 | ) | (5 | ) | (4 | ) | (6 | ) | ||||||||
12 | 14 | 27 | 31 | |||||||||||||
Interest Charges |
||||||||||||||||
Interest on long-term debt |
65 | 55 | 124 | 113 | ||||||||||||
Other interest |
5 | 4 | 10 | 11 | ||||||||||||
Capitalized interest |
(1 | ) | (1 | ) | (2 | ) | (3 | ) | ||||||||
69 | 58 | 132 | 121 | |||||||||||||
Income Before Income Taxes |
117 | 95 | 272 | 299 | ||||||||||||
Income Tax Expense |
45 | 35 | 101 | 109 | ||||||||||||
Net Income |
72 | 60 | 171 | 190 | ||||||||||||
Preferred Stock Dividends |
| | 1 | 1 | ||||||||||||
Net Income Available to Common Stockholder |
$ | 72 | $ | 60 | $ | 170 | $ | 189 | ||||||||
The accompanying notes are an integral part of these statements.
9
Consumers Energy Company
Consolidated Statements of Cash Flows
(Unaudited)
(As Revised, See Note 1)
Consolidated Statements of Cash Flows
(Unaudited)
(As Revised, See Note 1)
In Millions | ||||||||
Six Months Ended June 30 | 2009 | 2008 | ||||||
Cash Flows from Operating Activities |
||||||||
Net income |
$ | 171 | $ | 190 | ||||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||
Depreciation and amortization |
288 | 294 | ||||||
Deferred income taxes and investment tax credit |
46 | 44 | ||||||
Regulatory return on capital expenditures |
(13 | ) | (16 | ) | ||||
Postretirement benefits expense |
89 | 74 | ||||||
Capital lease and other amortization |
13 | 16 | ||||||
Bad debt expense |
30 | 16 | ||||||
Gain on sale of assets |
(3 | ) | | |||||
Postretirement benefits contributions |
(225 | ) | (24 | ) | ||||
Changes in assets and liabilities: |
||||||||
Decrease in accounts receivable, notes receivable and accrued revenue |
114 | 199 | ||||||
Decrease in accrued power supply and gas revenue |
5 | 40 | ||||||
Decrease in inventories |
266 | 122 | ||||||
Decrease in accounts payable |
(20 | ) | (3 | ) | ||||
Increase in accrued expenses |
4 | 7 | ||||||
Decrease in other current and non-current assets |
106 | 101 | ||||||
Decrease in other current and non-current liabilities |
(15 | ) | (106 | ) | ||||
Net cash provided by operating activities |
856 | 954 | ||||||
Cash Flows from Investing Activities |
||||||||
Capital expenditures (excludes assets placed under capital lease) |
(407 | ) | (338 | ) | ||||
Cost to retire property |
(25 | ) | (12 | ) | ||||
Proceeds from sale of assets |
7 | | ||||||
Restricted cash and cash equivalents |
2 | 5 | ||||||
Net cash used in investing activities |
(423 | ) | (345 | ) | ||||
Cash Flows from Financing Activities |
||||||||
Proceeds from issuance of long-term debt |
500 | 250 | ||||||
Retirement of long-term debt |
(218 | ) | (426 | ) | ||||
Payment of common stock dividends |
(130 | ) | (168 | ) | ||||
Payment of capital and finance lease obligations |
(12 | ) | (12 | ) | ||||
Stockholders contribution |
100 | | ||||||
Payment of preferred stock dividends |
(1 | ) | (1 | ) | ||||
Debt issuance and financing costs |
(4 | ) | (4 | ) | ||||
Net cash provided by (used in) financing activities |
235 | (361 | ) | |||||
Net Increase in Cash and Cash Equivalents |
668 | 248 | ||||||
Cash and Cash Equivalents, Beginning of Period |
69 | 195 | ||||||
Cash and Cash Equivalents, End of Period |
$ | 737 | $ | 443 | ||||
The accompanying notes are an integral part of these statements.
10
Consumers Energy Company
Consolidated Balance Sheets
(Unaudited)
(As Revised, See Note 1)
Consolidated Balance Sheets
(Unaudited)
(As Revised, See Note 1)
In Millions | ||||||||
June 30 | December 31 | |||||||
ASSETS | 2009 | 2008 | ||||||
Plant and Property (at cost) |
||||||||
Electric utility |
$ | 9,235 | $ | 8,965 | ||||
Gas utility |
3,667 | 3,622 | ||||||
Other |
15 | 15 | ||||||
12,917 | 12,602 | |||||||
Less accumulated depreciation, depletion, and amortization |
4,271 | 4,242 | ||||||
8,646 | 8,360 | |||||||
Construction work in progress |
553 | 607 | ||||||
9,199 | 8,967 | |||||||
Investments |
||||||||
Stock of affiliates |
22 | 19 | ||||||
Current Assets |
||||||||
Cash and cash equivalents |
737 | 69 | ||||||
Restricted cash and cash equivalents |
23 | 25 | ||||||
Accounts receivable and accrued revenue,
less allowances of $28 in 2009 and $24 in 2008 |
683 | 829 | ||||||
Notes receivable |
80 | 93 | ||||||
Accrued power supply and gas revenue |
2 | 7 | ||||||
Accounts receivable related parties |
1 | 2 | ||||||
Inventories at average cost |
||||||||
Gas in underground storage |
885 | 1,168 | ||||||
Materials and supplies |
108 | 103 | ||||||
Generating plant fuel stock |
130 | 118 | ||||||
Deferred property taxes |
128 | 165 | ||||||
Regulatory assets postretirement benefits |
19 | 19 | ||||||
Prepayments and other |
21 | 30 | ||||||
2,817 | 2,628 | |||||||
Non-current Assets |
||||||||
Regulatory assets |
||||||||
Securitized costs |
392 | 416 | ||||||
Postretirement benefits |
1,386 | 1,431 | ||||||
Customer Choice Act |
68 | 90 | ||||||
Other |
475 | 482 | ||||||
Other |
124 | 213 | ||||||
2,445 | 2,632 | |||||||
Total Assets |
$ | 14,483 | $ | 14,246 | ||||
The accompanying notes are an integral part of these statements. |
11
In Millions | ||||||||
June 30 | December 31 | |||||||
STOCKHOLDERS INVESTMENT AND LIABILITIES | 2009 | 2008 | ||||||
Capitalization |
||||||||
Common stockholders equity |
||||||||
Common stock, authorized 125.0 shares; outstanding
84.1 shares for both periods |
$ | 841 | $ | 841 | ||||
Other paid-in capital |
2,582 | 2,482 | ||||||
Accumulated other comprehensive income (loss) |
3 | (1 | ) | |||||
Retained earnings |
423 | 383 | ||||||
3,849 | 3,705 | |||||||
Preferred stock |
44 | 44 | ||||||
Total equity |
3,893 | 3,749 | ||||||
Long-term debt |
4,081 | 3,908 | ||||||
Non-current portion of capital and finance lease obligations |
197 | 206 | ||||||
8,171 | 7,863 | |||||||
Current Liabilities |
||||||||
Current portion of long-term debt, capital and finance
lease obligations |
515 | 408 | ||||||
Accounts payable |
394 | 444 | ||||||
Accrued rate refunds |
58 | 7 | ||||||
Accounts payable related parties |
10 | 14 | ||||||
Accrued interest |
78 | 69 | ||||||
Accrued taxes |
234 | 289 | ||||||
Deferred income taxes |
232 | 277 | ||||||
Regulatory liabilities |
116 | 120 | ||||||
Other |
118 | 151 | ||||||
1,755 | 1,779 | |||||||
Non-current Liabilities |
||||||||
Deferred income taxes |
872 | 792 | ||||||
Regulatory liabilities |
||||||||
Cost of removal |
1,227 | 1,203 | ||||||
Income taxes, net |
532 | 519 | ||||||
Other |
146 | 146 | ||||||
Postretirement benefits |
1,266 | 1,436 | ||||||
Asset retirement obligations |
210 | 205 | ||||||
Deferred investment tax credit |
53 | 54 | ||||||
Other |
251 | 249 | ||||||
4,557 | 4,604 | |||||||
Commitments and Contingencies (Notes 4, 6 and 8) |
||||||||
Total Stockholders Investment and Liabilities |
$ | 14,483 | $ | 14,246 | ||||
12
Consumers Energy Company
Consolidated Statements of Common Stockholders Equity
(Unaudited)
(As Revised, See Note 1)
Consolidated Statements of Common Stockholders Equity
(Unaudited)
(As Revised, See Note 1)
In Millions | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Common Stock |
||||||||||||||||
At beginning and end of period (a) |
$ | 841 | $ | 841 | $ | 841 | $ | 841 | ||||||||
Other Paid-in Capital |
||||||||||||||||
At beginning of period |
2,482 | 2,482 | 2,482 | 2,482 | ||||||||||||
Stockholders contribution |
100 | | 100 | | ||||||||||||
At end of period |
2,582 | 2,482 | 2,582 | 2,482 | ||||||||||||
Accumulated Other Comprehensive Loss |
||||||||||||||||
Retirement benefits liability |
||||||||||||||||
At beginning of period |
(7 | ) | (9 | ) | (7 | ) | (15 | ) | ||||||||
Retirement benefits liability adjustments (b) |
| | | 6 | ||||||||||||
At end of period |
(7 | ) | (9 | ) | (7 | ) | (9 | ) | ||||||||
Investments |
||||||||||||||||
At beginning of period |
7 | 7 | 6 | 15 | ||||||||||||
Unrealized gain (loss) on investments (b) |
3 | 1 | 4 | (7 | ) | |||||||||||
At end of period |
10 | 8 | 10 | 8 | ||||||||||||
Total Accumulated Other Comprehensive Income (Loss) |
3 | (1 | ) | 3 | (1 | ) | ||||||||||
Retained Earnings |
||||||||||||||||
At beginning of period |
409 | 334 | 383 | 324 | ||||||||||||
Effects of changing the retirement plans measurement date pursuant to
SFAS No. 158 |
||||||||||||||||
Service cost, interest cost, and expected return on plan assets for
December 1 through December 31, 2007, net of tax |
| | | (4 | ) | |||||||||||
Additional loss from December 1 through December 31, 2007, net of
tax |
| | | (2 | ) | |||||||||||
Net income (b) |
72 | 60 | 171 | 190 | ||||||||||||
Common stock dividends declared |
(58 | ) | (55 | ) | (130 | ) | (168 | ) | ||||||||
Preferred stock dividends declared |
| | (1 | ) | (1 | ) | ||||||||||
At end of period |
423 | 339 | 423 | 339 | ||||||||||||
Total Common Stockholders Equity |
$ | 3,849 | $ | 3,661 | $ | 3,849 | $ | 3,661 | ||||||||
The accompanying notes are an integral part of these statements.
13
In Millions | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
(a) Number of shares of common stock outstanding was 84,108,789 for all periods presented. |
||||||||||||||||
(b) Disclosure of Comprehensive Income: |
||||||||||||||||
Net income |
$ | 72 | $ | 60 | $ | 171 | $ | 190 | ||||||||
Retirement benefits liability |
||||||||||||||||
Retirement benefits liability adjustments, net of tax of
$-, $-, $-, and $2, respectively |
| | | 6 | ||||||||||||
Investments |
||||||||||||||||
Unrealized gain (loss) on investments, net of tax (tax benefit) of
$-, $1, $-, and $(3), respectively |
3 | 1 | 4 | (7 | ) | |||||||||||
Total Comprehensive Income |
$ | 75 | $ | 61 | $ | 175 | $ | 189 | ||||||||
14
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15
CMS Energy Corporation
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consumers Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
These interim Consolidated Financial Statements have been prepared by CMS Energy and Consumers in
accordance with accounting principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As a result,
CMS Energy and Consumers have condensed or omitted certain information and Note disclosures
normally included in consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States. CMS Energy and Consumers have reclassified
certain prior year amounts to conform to the presentation in the current year. The Consolidated
Financial Statements for the six months ended June 30, 2008 have been updated for amounts
previously reported. In managements opinion, the unaudited information contained in this report
reflects all adjustments of a normal recurring nature necessary to ensure the fair presentation of
financial position, results of operations and cash flows for the periods presented. The Notes to
Consolidated Financial Statements and the related Consolidated Financial Statements should be read
in conjunction with the Consolidated Financial Statements and related Notes contained in CMS
Energys and Consumers 2008 Form 10-K. Due to the seasonal nature of CMS Energys and Consumers
operations, the results presented for this interim period are not necessarily indicative of results
to be achieved for the fiscal year.
These interim Consolidated Financial Statements and accompanying Note disclosures include the
evaluation of subsequent events through July 30, 2009, the date of issuance, except for updates to
reflect the impacts of the rate order that Consumers received on November 2, 2009, as described in
Note 1, Subsequent Event.
1: SUBSEQUENT EVENT
On November 2, 2009, the MPSC issued a final order in Consumers electric rate case, authorizing
Consumers to increase its electric rates by $139 million annually, which was $40 million less than
the rate increase that Consumers self-implemented in May 2009. The MPSC directed Consumers to
refund to customers the difference between the rates it self-implemented in May and the rates
authorized in this order, plus interest, subject to a reconciliation proceeding. The order also
authorized Consumers to implement an uncollectible accounts expense tracking mechanism, effective
January 1, 2009. This tracker will allow Consumers to adjust its rates to collect or refund 80
percent of the difference between actual uncollectible accounts expense for the calendar year and
the base level of uncollectible expense in Consumers rates. The order contained a number of other
provisions, including a decoupling mechanism, that apply prospectively to Consumers electric
rates.
In accordance with the accounting rules that apply to certain adjustments of utility revenue under
ratemaking processes, CMS Energy and Consumers have recorded the impacts of the MSPC rate order
that are specifically identifiable with prior interim periods of 2009 as adjustments to those
periods, and have revised their financial statements to reflect these effects. All other
information in CMS Energys and Consumers financial statements for the interim periods of 2009
remains unchanged.
The effect of the uncollectible accounts expense tracking mechanism on the six months ended June
30, 2009 was a decrease in Other operating expenses of $6 million, with a corresponding increase to
Other Non-current Assets. The effect of the adjustment to Consumers self-implemented rates was a
decrease in Operating Revenue of $2 million, with a corresponding increase to Other Regulatory
liabilities. For the three months ended June 30, 2009, the effect of the uncollectible accounts
expense tracking mechanism was a decrease in Other operating expenses of $4 million, with an
corresponding increase to Other Non-
16
current Assets. The effect of the adjustment to Consumersself-implemented rates was a decrease in Operating Revenue of $2 million, with a corresponding
increase to Current Regulatory liabilities.
Revised amounts as of June 30, 2009 are as follows:
CMS Energy, including Consumers | In Millions (except for per share amounts) | |||||||||||
Six months ended June 30, 2009 | As Reported | Adjustment | As Revised | |||||||||
Income from Continuing Operations |
$ | 123 | $ | 2 | $ | 125 | ||||||
Net Income Available to Common
Stockholders |
$ | 143 | $ | 2 | $ | 145 | ||||||
Basic Earnings Per Share |
$ | 0.63 | $ | 0.01 | $ | 0.64 | ||||||
Diluted Earnings Per Share |
$ | 0.61 | $ | 0.01 | $ | 0.62 | ||||||
Three months ended June 30, 2009 | As Reported | Adjustment | As Revised | |||||||||
Income from Continuing Operations |
$ | 50 | $ | 1 | $ | 51 | ||||||
Net Income Available to Common
Stockholders |
$ | 74 | $ | 1 | $ | 75 | ||||||
Basic Earnings Per Share |
$ | 0.33 | $ | | $ | 0.33 | ||||||
Diluted Earnings Per Share |
$ | 0.32 | $ | | $ | 0.32 | ||||||
Consumers | In Millions | |||||||||||
Six months ended June 30, 2009 | As Reported | Adjustment | As Revised | |||||||||
Net Income |
$ | 169 | $ | 2 | $ | 171 | ||||||
Net Income Available to
Common Stockholder |
$ | 168 | $ | 2 | $ | 170 | ||||||
Three months ended June 30, 2009 | As Reported | Adjustment | As Revised | |||||||||
Net Income |
$ | 71 | $ | 1 | $ | 72 | ||||||
Net Income Available to Common
Stockholder |
$ | 71 | $ | 1 | $ | 72 | ||||||
For further details on Consumers electric rate case, see the Consumers Electric Utility Rate
Matters Electric Rate Case and Self-Implemented Rates section of Note 5, Utility Rate Matters.
2: ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
Self-implemented Rates: Consumers is allowed to self-implement new energy rates six months after a
new rate case filing if the MPSC has not issued an order in the case. The MPSC then has another
six months to issue a final order. If the MPSC does not issue an order, the filed rates are
considered approved. If the MPSC issues an order, the rates that Consumers self-implemented may be
subject to refund, with interest. Consumers recognizes revenue associated with self-implemented
rates. If Consumers considers it probable that it will be required to refund a portion of its
self-implemented rates, then Consumers records a provision for revenue subject to refund. For
details on Consumers self-implemented rates, see Note 5, Utility Rate Matters.
IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment to ARB
No. 51: Under this standard, which was effective for CMS Energy and Consumers January 1, 2009,
ownership interests in subsidiaries held by third parties, previously referred to as minority
interests, are presented as noncontrolling interests and shown separately on the parents balance
sheet within equity. In addition, net income attributable to noncontrolling interests is included
in net income on the income
17
statement. CMS Energy has applied these provisions to current and prior periods presented in its consolidated financial statements. The standard had no impact on
Consumers consolidated financial statements for the periods presented. The standard also affects
the accounting for changes in a parents ownership interest, including deconsolidation of a subsidiary. CMS Energy and Consumers will apply
these provisions of the standard to any such future transactions.
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133: This standard, which was effective for CMS Energy and Consumers January 1,
2009, requires enhanced disclosures about how and why derivatives are used, how derivatives and
related hedged items are accounted for, and how derivatives and any related hedged items affect
financial position, financial performance, and cash flows. The standard did not impact CMS
Energys or Consumers consolidated income, cash flows, or financial position. For additional
details on CMS Energys and Consumers derivatives, see Note 8, Financial and Derivative
Instruments.
18
FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled In Cash Upon
Conversion (Including Partial Cash Settlement): This standard, which was effective for CMS Energy
and Consumers January 1, 2009, requires CMS Energy to account for the liability and equity
components of its convertible debt securities separately and in a manner that reflects CMS Energys
borrowing rate for nonconvertible debt. The following table summarizes the effects of adopting
this standard on CMS Energys consolidated financial statements:
Increases (decreases) | In Millions, Except Per Share Amounts | ||||||||
Three months ended June 30 | 2009 | 2008 | |||||||
Interest on long-term debt |
$ | 2 | $ | 3 | |||||
Income tax expense |
(1 | ) | (1 | ) | |||||
Net income |
$ | (1 | ) | $ | (2 | ) | |||
Earnings Per Average Common Share |
|||||||||
Basic |
$ | (0.01 | ) | $ | | ||||
Diluted |
$ | (0.01 | ) | $ | | ||||
Six months ended June 30 | 2009 | 2008 | |||||||
Interest on long-term debt |
$ | 4 | $ | 5 | |||||
Income tax expense |
(2 | ) | (2 | ) | |||||
Net income |
$ | (2 | ) | $ | (3 | ) | |||
Earnings Per Average Common Share |
|||||||||
Basic |
$ | (0.01 | ) | $ | (0.01 | ) | |||
Diluted |
$ | (0.01 | ) | $ | (0.01 | ) | |||
Increases (decreases) | December 31, 2008 | January 1, 2008 | |||||||
Assets |
|||||||||
Non-current deferred income tax assets |
$ | | $ | (12 | ) | ||||
Liabilities |
|||||||||
Long-term debt |
$ | (22 | ) | $ | (30 | ) | |||
Non-current deferred income tax liabilities |
9 | | |||||||
Total |
$ | (13 | ) | $ | (30 | ) | |||
Common Stockholders Equity |
|||||||||
Other paid-in capital |
$ | 37 | $ | 37 | |||||
Accumulated deficit |
24 | 19 | |||||||
Total |
$ | 13 | $ | 18 | |||||
The standard had no impact on Consumers consolidated financial statements. For additional details
on CMS Energys convertible debt instruments, see Note 6, Financings and Capitalization.
FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities: Under this standard, which was effective for CMS Energy and Consumers
January 1, 2009, share-based payment awards that accrue cash dividends when common shareholders
receive dividends are considered participating securities if the dividends are not required to be
returned to the company when the employee forfeits the award. The standard applies to CMS Energys
outstanding unvested restricted stock awards, which are considered participating securities and
thus are included in the computation of basic EPS. Implementation of the standard for CMS Energy
did not have a material
19
impact for the six months ended June 30, 2009 or 2008. Retrospective implementation of the
standard at CMS Energy will reduce basic and diluted EPS by $0.01 for the year ended December 31,
2008. The standard had no impact on Consumers consolidated financial statements.
FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly: The
standard, which was effective for the quarter ended June 30, 2009 for CMS Energy and Consumers,
provides guidance on determining whether there has been a significant decrease in market activity
for an asset or liability and whether quoted prices may reflect distressed transactions. The
guidance indicates that entities should not rely on distressed prices in determining fair value,
but may instead use alternative valuation techniques, such as discounting future cash flows
assuming an orderly transaction. The standard requires quarterly disclosures about the inputs and
valuation techniques used in fair value measurements. Previously, these disclosures were required
only annually. See Note 3, Fair Value Measurements, for the required disclosures. The standard
had no impact on CMS Energys or Consumers consolidated income, cash flows, or financial position.
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments: The
standard, which was effective for the quarter ended June 30, 2009 for CMS Energy and Consumers,
amends the other-than-temporary impairment guidance for debt securities. Entities no longer need
to assert both the intent and ability to hold an impaired debt security until recovery to avoid
recording an other-than-temporary impairment. Instead, an entity must consider whether it intends
to sell the security or whether it is more likely than not that it will be required to sell the
security prior to recovery. If either of these criteria are met, the full impairment should be
recognized in earnings. If neither criterion is met, only impairments due to credit losses should
be recorded to earnings, while impairments related to other factors should be recorded to other
comprehensive income. The standard also includes additional disclosure requirements. The standard
had no impact on CMS Energys or Consumers consolidated financial statements; however, the new
guidance will be incorporated in future assessments of other-than-temporary impairments of debt
securities.
FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments: This
standard, which was effective for the quarter ended June 30, 2009 for CMS Energy and Consumers,
requires quarterly disclosures of the fair values of financial instruments. Previously, these
disclosures were required only annually. The standard also requires quarterly disclosure of the
methods and significant assumptions used in the fair value measurements. The standard did not
impact CMS Energys or Consumers consolidated income, cash flows, or financial position.
EITF Issue 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys
Own Stock: This standard, which was effective for CMS Energy and Consumers January 1, 2009,
establishes new criteria for determining whether freestanding instruments or embedded features are
considered indexed to an entitys own stock for the purpose of assessing potential derivative
accounting or balance sheet classification. This guidance applies to the equity conversion
features in CMS Energys contingently convertible senior notes and preferred stock. Under the new
criteria, these features remain exempt from derivative accounting, and thus, this standard had no
impact on CMS Energys or Consumers consolidated financial statements.
EITF Issue 08-5, Issuers Accounting for Liabilities Measured at Fair Value with a Third-Party
Credit Enhancement: This standard, which was effective for CMS Energy and Consumers January 1,
2009, concludes that the fair value measurement of a liability should not consider the effect of a
third-party credit enhancement or guarantee supporting the liability. To comply with the standard,
CMS Energy and Consumers adjusted the methods they use to determine the fair values of certain
long-term debt instruments for their fair value disclosures, resulting in a minor reduction in the
fair values disclosed. For the fair value disclosures, see Note 8, Financial and Derivative
Instruments. The standard had no impact on CMS Energys or Consumers consolidated income, cash
flows, or financial position.
20
NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE
SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140:
This standard, which will be effective for CMS Energy and Consumers January 1, 2010, removes the
concept of a qualifying special purpose entity (QSPE) from guidance relating to transfers of
financial assets and extinguishments of liabilities. It also removes the exceptions from applying
guidance relating to VIEs to QSPEs. The standard revises and clarifies when an entity is required
to derecognize a financial asset that it has transferred to another entity. It further clarifies
how to measure beneficial interests received as proceeds in connection with a transfer of a
financial asset, and introduces the concept of a participating interest, the conditions of which
must be met for a partial asset transfer to qualify for sale accounting treatment. The standard
also requires enhanced disclosures related to continuing involvement with transferred financial
assets. CMS Energy and Consumers are evaluating the impact of this standard on their consolidated
financial statements.
SFAS No. 167, Amendments to FASB Interpretation No. 46(R): This standard, which will be effective
for CMS Energy and Consumers January 1, 2010, amends FIN 46(R) to replace the quantitative
calculation of risks and rewards used to determine which enterprise, if any, has a controlling
financial interest in a VIE. The standard establishes a qualitative approach focused on
identifying which enterprise (1) has the power to direct the activities of a VIE that most
significantly impact the entitys economic performance and (2) has the obligation to absorb losses
of the entity or the right to receive benefits from the entity. The standard also requires ongoing
assessments of whether an enterprise is the primary beneficiary of a VIE. CMS Energy and Consumers
are evaluating the impact of this standard on their consolidated financial statements.
FSP FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets: This standard,
which will be effective for the year ending December 31, 2009 for CMS Energy and Consumers,
requires expanded annual disclosures about postretirement benefit plan assets. The required
disclosures include information about investment allocation decisions, major categories of plan
assets, the inputs and valuation techniques used in the fair value measurements, the effects of
significant unobservable inputs on changes in plan assets, and significant concentrations of risk
within plan assets. The standard will not impact CMS Energys or Consumers consolidated income,
cash flows, or financial position.
3: FAIR VALUE MEASUREMENTS
Accounting standards define fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants. When measuring fair
value, CMS Energy and Consumers are required to incorporate all assumptions that market
participants would use in pricing an asset or liability, including assumptions about risk. A fair
value hierarchy prioritizes inputs used to measure fair value according to their observability in
the market. The three levels of the fair value hierarchy are as follows:
| Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. These markets must be accessible to CMS Energy and Consumers at the measurement date. | ||
| Level 2 inputs are observable, market-based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, interest rates and yield curves observable at commonly quoted intervals, credit risks, default rates, and inputs derived from or corroborated by observable market data. | ||
| Level 3 inputs are unobservable inputs that reflect CMS Energys or Consumers own assumptions about how market participants would value their assets and liabilities. |
21
To the extent possible, CMS Energy and Consumers use quoted market prices or other observable
market pricing data in valuing assets and liabilities measured at fair value. If this information
is unavailable, they use market-corroborated data or reasonable estimates about market participant
assumptions. CMS Energy and Consumers classify fair value measurements within the fair value
hierarchy based on the lowest level of input that is significant to the fair value measurement in
its entirety.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes, by level within the fair value hierarchy, CMS Energys and
Consumers assets and liabilities reported at fair value on a recurring basis at June 30, 2009:
In Millions | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 985 | $ | 985 | $ | | $ | | ||||||||
Restricted cash equivalents |
5 | 5 | | | ||||||||||||
Nonqualified deferred compensation plan assets |
4 | 4 | | | ||||||||||||
SERP |
||||||||||||||||
Equity securities |
41 | 41 | | | ||||||||||||
Debt securities |
27 | | 27 | | ||||||||||||
Derivative instruments (a) |
1 | | 1 | | ||||||||||||
Total |
$ | 1,063 | $ | 1,035 | $ | 28 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Nonqualified deferred compensation plan liabilities |
$ | 5 | $ | 5 | $ | | $ | | ||||||||
Derivative instruments (b) |
17 | 3 | 3 | 11 | ||||||||||||
Total (c) |
$ | 22 | $ | 8 | $ | 3 | $ | 11 | ||||||||
Consumers |
||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 713 | $ | 713 | $ | | $ | | ||||||||
Restricted cash equivalents |
5 | 5 | | | ||||||||||||
CMS Energy Common Stock |
22 | 22 | | | ||||||||||||
Nonqualified deferred compensation plan assets |
3 | 3 | | | ||||||||||||
SERP |
||||||||||||||||
Equity securities |
27 | 27 | | | ||||||||||||
Debt securities |
18 | | 18 | | ||||||||||||
Total |
$ | 788 | $ | 770 | $ | 18 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Nonqualified deferred compensation plan liabilities |
$ | 3 | $ | 3 | $ | | $ | | ||||||||
Total (c) |
$ | 3 | $ | 3 | $ | | $ | |
(a) | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. |
22
(b) | This amount is gross and excludes the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements and the $3 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. | |
(c) | At June 30, 2009, CMS Energys liabilities classified as Level 3 represent 50 percent of CMS Energys total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3. |
The following table summarizes, by level within the fair value hierarchy, CMS Energys and
Consumers assets and liabilities reported at fair value on a recurring basis at December 31, 2008:
In Millions | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 176 | $ | 176 | $ | | $ | | ||||||||
Restricted cash equivalents |
5 | 5 | | | ||||||||||||
Nonqualified deferred compensation plan assets |
5 | 5 | | | ||||||||||||
SERP |
||||||||||||||||
Equity securities |
39 | 39 | | | ||||||||||||
Debt securities |
29 | | 29 | | ||||||||||||
Derivative instruments (a) |
1 | | 1 | | ||||||||||||
Total |
$ | 255 | $ | 225 | $ | 30 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Nonqualified deferred compensation plan liabilities |
$ | 5 | $ | 5 | $ | | $ | | ||||||||
Derivative instruments (b) |
20 | 2 | 2 | 16 | ||||||||||||
Total (c) |
$ | 25 | $ | 7 | $ | 2 | $ | 16 | ||||||||
Consumers |
||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 56 | $ | 56 | $ | | $ | | ||||||||
Restricted cash equivalents |
5 | 5 | | | ||||||||||||
CMS Energy Common Stock |
19 | 19 | | | ||||||||||||
Nonqualified deferred compensation plan assets |
3 | 3 | | | ||||||||||||
SERP |
||||||||||||||||
Equity securities |
25 | 25 | | | ||||||||||||
Debt securities |
19 | | 19 | | ||||||||||||
Total |
$ | 127 | $ | 108 | $ | 19 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Nonqualified deferred compensation plan liabilities |
$ | 3 | $ | 3 | $ | | $ | | ||||||||
Derivative instruments |
1 | | 1 | | ||||||||||||
Total (c) |
$ | 4 | $ | 3 | $ | 1 | $ | |
(a) | This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements. | |
(b) | This amount is gross and excludes the immaterial impact of offsetting derivative assets and liabilities under master netting arrangements and the $2 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. |
23
(c) | At December 31, 2008, CMS Energys liabilities classified as Level 3 represent 64 percent of CMS Energys total liabilities measured at fair value. Consumers did not have any assets or liabilities classified as Level 3. |
Cash Equivalents: Cash equivalents and restricted cash equivalents consist of money market funds
with daily liquidity. The funds invest in U.S. Treasury notes, other government-backed securities,
and repurchase agreements collateralized by U.S. Treasury notes.
Nonqualified Deferred Compensation Plan Assets: CMS Energys and Consumers nonqualified deferred
compensation plan assets are invested in various mutual funds. CMS Energy and Consumers value
these assets using a market approach, using the daily quoted NAV provided by the fund managers that
are the basis for transactions to buy or sell shares in each fund. CMS Energy and Consumers report
these assets in Other non-current assets on their Consolidated Balance Sheets.
SERP Assets: CMS Energy and Consumers value their SERP assets using a market approach,
incorporating prices and other relevant information from market transactions. The SERP equity
securities consist of an investment in a Standard & Poors 500 Index mutual fund. The funds
equity securities are listed on an active exchange. The fair value of the SERP equity securities
is based on the NAV of the mutual fund, derived from the daily closing prices of the equity
securities held by the fund. The NAV is the basis for transactions to buy or sell shares in the
fund.
CMS Energy and Consumers value their SERP debt securities, which are investment grade municipal
bonds, using a matrix pricing model that incorporates market-based information. The fair value of
the SERP debt securities is derived from various observable inputs, including benchmark yields,
reported securities trades, broker/dealer quotes, bond ratings, and general information on market
movements for investment grade municipal securities normally considered by market participants when
pricing such debt securities. CMS Energy and Consumers report their SERP assets in Other
non-current assets on their Consolidated Balance Sheets. For additional details about SERP
securities, see Note 8, Financial and Derivative Instruments.
Nonqualified Deferred Compensation Plan Liabilities: CMS Energy and Consumers value their
non-qualified deferred compensation plan liabilities based on the fair values of the plan assets,
as they reflect what CMS Energy and Consumers owe the plan participants in accordance with their
investment elections. CMS Energy reports these liabilities, except for liabilities related to its
DSSP, in Other non-current liabilities on its Consolidated Balance Sheets; its DSSP liability is
included in Non-current postretirement benefits. Consumers reports all of its nonqualified
deferred compensation plan liabilities in Other non-current liabilities on its Consolidated Balance
Sheets.
Derivative Instruments: CMS Energy and Consumers value their derivative instruments using either a
market approach that incorporates information from market transactions, or an income approach that
discounts future expected cash flows to a present value amount. They use various inputs to value
the derivatives depending on the type of contract and the availability of market data. CMS Energy
has exchange-traded derivative contracts that are valued based on Level 1 quoted prices in actively
traded markets, as well as derivatives that are valued using Level 2 inputs, including commodity
market prices, interest rates, credit ratings, default rates, and market-based seasonality factors.
CMS Energy also has derivative instruments that extend beyond time periods in which quoted prices
are available. For these instruments, CMS Energy uses modeling methods to project future prices.
Such fair value measurements are classified in Level 3 unless modeling was required only for an
insignificant portion of the total derivative value.
CMS Energys derivatives include an electricity sales agreement held by CMS ERM. This agreement,
classified as Level 3, extends beyond the term for which quoted electricity prices are available.
To value this agreement, CMS Energy uses a proprietary forward power pricing curve that is based on
forward gas
24
prices and an implied heat rate. CMS Energy also increases the fair value of the liability for
this agreement by an amount that reflects the uncertainty of its model.
For all fair values other than Level 1 prices, CMS Energy and Consumers incorporate adjustments for
the risk of nonperformance. For derivative assets, a credit adjustment is applied against the
asset based on the published default rate for the credit rating that CMS Energy and Consumers
assign to the counterparty based on an internal credit-scoring model. This model considers various
inputs, including the counterpartys financial statements, credit reports, trade press, and other
information that would be available to market participants. To the extent that the internal
ratings are comparable to credit ratings published by independent rating agencies, the resulting
credit adjustment is classified within Level 2. If the internal model results in a rating that is
outside of the range of ratings given by the independent agencies and the credit adjustment is
significant to the overall valuation, the derivative fair value is classified as Level 3. CMS
Energy and Consumers adjust their derivative liabilities downward to reflect the risk of their own
nonperformance, based on their published credit ratings. Adjustments for credit risk using the
approach outlined above are not materially different from the adjustments that would result from
using credit default swap rates for the contracts presently held. For details about derivative
contracts, see Note 8, Financial and Derivative Instruments.
Assets and Liabilities Measured at Fair Value on a Recurring Basis using Level 3 Inputs
The following table is a reconciliation of changes in the fair values of Level 3 assets and
liabilities at CMS Energy:
In Millions | ||||||||||
Three months ended June 30 | 2009 | 2008 | ||||||||
Balance at April 1
|
$ | (10 | ) | $ | (21 | ) | ||||
Total gains (realized and unrealized)
|
||||||||||
Included in earnings (a)
|
| (3 | ) | |||||||
Purchases, sales, issuances, and settlements (net)
|
(1 | ) | | |||||||
Balance at June 30
|
(11 | ) | (24 | ) | ||||||
Unrealized gains (losses) included in earnings for
the quarter ended June 30 relating to assets and
liabilities still held at June 30 (a)
|
$ | (1 | ) | $ | (4 | ) | ||||
In Millions | ||||||||||
Six months ended June 30 | 2009 | 2008 | ||||||||
Balance at January 1
|
$ | (16 | ) | $ | (19 | ) | ||||
Total gains (realized and unrealized)
|
||||||||||
Included in earnings (a)
|
6 | (6 | ) | |||||||
Purchases, sales, issuances, and settlements (net)
|
(1 | ) | 1 | |||||||
Balance at June 30
|
(11 | ) | (24 | ) | ||||||
Unrealized gains (losses) included in earnings for
the six months ended June 30 relating to assets and
liabilities still held at June 30 (a)
|
$ | 4 | $ | (8 | ) | |||||
(a) | CMS Energy records realized and unrealized gains and losses for Level 3 recurring fair values in earnings as a component of Operating Revenue or Operating Expenses in its Consolidated Statements of Income. |
4: CONTINGENCIES
CMS ENERGY CONTINGENCIES
Gas Index Price Reporting Investigation: In 2002, CMS Energy notified appropriate regulatory and
governmental agencies that some employees at CMS MST and CMS Field Services appeared to have
25
provided inaccurate information regarding natural gas trades to various energy industry
publications, which compile and report index prices. CMS Energy cooperated with an investigation
by the DOJ regarding this matter. Although CMS Energy has not received any formal notification
that the DOJ has completed its investigation, the DOJs last request for information occurred in
2003, and CMS Energy completed its response to this request in 2004. CMS Energy is unable to
predict the outcome of the DOJ investigation and what effect, if any, the investigation will have
on its business.
Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera
Natural Gas, Inc. (the company that purchased CMS Field Services) and Cantera Gas Company are named
as defendants in various class action and individual lawsuits arising as a result of allegedly
inaccurate natural gas price reporting. Allegations include manipulation of NYMEX natural gas
futures and options prices, price-fixing conspiracies, and artificial inflation of natural gas
retail prices in California, Colorado, Kansas, Missouri, Tennessee, and Wisconsin.
In 2007, CMS MST settled a master class action suit in California state court for $7 million and
the CMS Energy defendants settled four class action suits originally filed in California federal
court. CMS MST is the only remaining defendant in the California state court cases. In July 2009,
CMS MST entered into a settlement of the remaining California state court cases. The settlement
amount is immaterial to CMS Energy.
All CMS Energy defendants were dismissed from the Missouri Public Service Commission case, a state
action, and the Breckenridge case, a federal action. Appeals are pending in both cases. CMS
Energy was also dismissed from three federal cases, while the other CMS Energy defendants remain.
CMS Energy defendants were also dismissed from a federal case in Wisconsin, but the plaintiffs have
filed a motion for reconsideration and refiled the complaint in Michigan federal court. The
Michigan case was transferred to the multi-district litigation proceeding in Nevada. In addition,
the Tennessee Supreme Court has granted the CMS Energy defendants application for leave to appeal
the Tennessee class action lawsuit. Other cases in several jurisdictions remain pending.
Another class action complaint was filed in March 2009 in circuit court in Wood County, Wisconsin,
against CMS Energy defendants, along with 19 other non-CMS Energy companies, alleging conspiracy to
restrain trade through inaccurate natural gas price reporting. Defendants removed the case to
federal court in Wisconsin, and it was transferred through the multi-district litigation process to
the consolidated actions in Nevada. CMS Energy cannot predict the financial impact or outcome of
these matters.
Bay Harbor: As part of the development of Bay Harbor by certain subsidiaries of CMS Energy, and
under an agreement with the MDEQ, third parties constructed a golf course and park over several
abandoned CKD piles left over from the former cement plant operations on the Bay Harbor site. The
third parties also undertook a series of remedial actions, including constructing a leachate
collection system at an identified seep. Leachate is produced when water enters into the CKD
piles. In 2002, CMS Energy sold its interest in Bay Harbor, but retained its obligations under
environmental indemnities entered into at the start of the project.
In 2005, the EPA, along with CMS Land and CMS Capital, voluntarily executed an AOC under Superfund
and approved a Removal Action Work Plan to address contamination issues at Bay Harbor. Collection
systems required under the plan have been installed and effectiveness monitoring of the systems at
the shoreline is ongoing. CMS Land, CMS Capital, and the EPA have agreed upon augmentation
measures to address areas where pH measurements are not satisfactory. The augmentation measures
are being implemented and are expected to be completed this year.
In 2008, the MDEQ and the EPA granted permits for CMS Land or its affiliate, Beeland, to construct
and operate a deep injection well in Antrim County, Michigan, to dispose of leachate from Bay
Harbor. Certain environmental groups, a local township, and a local county filed lawsuits
appealing the permits. One appeal relating to the permit remains pending in the state court.
Groups opposed to the injection well
26
filed a lawsuit in Antrim County against development of the well and in January 2009, the trial
judge issued an injunction. Beeland filed an application for leave to appeal the courts order
with the Michigan Court of Appeals and the Michigan Supreme Court. Both appeals were denied.
CMS Land and CMS Capital, the MDEQ, the EPA, and other parties are discussing the long-term remedy
for the Bay Harbor sites, including:
| the disposal of leachate; | ||
| the capping and excavation of CKD; | ||
| the location and design of collection lines and upstream diversion of water; | ||
| potential flow of leachate below the collection system; | ||
| applicable criteria for various substances such as mercury; and | ||
| other matters that are likely to affect the scope of remedial work that CMS Land and CMS Capital may be obligated to undertake. |
CMS Energy has recorded a cumulative charge related to Bay Harbor, including accretion expense, of
$177 million, of which $36 million was recorded in the second quarter of 2009. Several factors
contributed to the revised remediation cost estimates in the second quarter of 2009. These factors
include increased costs related to the disposal of collected leachate and delays in identifying and
securing a long-term water management solution. In addition, CMS Land and CMS Capital are
projecting higher costs for operating and maintaining the existing collection system.
At June 30, 2009, CMS Energy had a recorded liability of $90 million for its remaining obligations.
CMS Energy calculated this liability based on discounted projected costs, using a discount rate of
4.32 percent and an inflation rate of 1 percent on annual operating and maintenance costs. CMS
Energy based the discount rate on the interest rate for 30-year U.S. Treasury securities on June
30, 2009. The undiscounted amount of the remaining obligation is $116 million. CMS Energy expects
to pay $22 million in 2009, $13 million in 2010, $6 million in 2011, and the remainder on long-term
liquid disposal and operating and maintenance costs.
CMS Energys estimate of remedial action costs and the timing of expenditures could change if there
are additional major changes in circumstances or assumptions, including but not limited to:
| an increase in the number of contamination areas; | ||
| different remediation techniques; | ||
| the nature and extent of contamination; | ||
| continued inability to reach agreement with the MDEQ or the EPA over required remedial actions; | ||
| delays in the receipt of requested permits; | ||
| delays following the receipt of any requested permits due to legal appeals of third parties; | ||
| further increases in water disposal costs; | ||
| delays in developing a long-term water disposal option; | ||
| additional or new legal or regulatory requirements; or | ||
| new or different landowner claims. |
Depending on the size of any indemnity obligation or liability under environmental laws, an adverse
outcome of this matter could have a material adverse effect on CMS Energys liquidity and financial
condition and could negatively impact CMS Energys financial results. CMS Energy cannot predict
the financial impact or outcome of this matter.
Quicksilver Resources, Inc.: In 2001, Quicksilver sued CMS MST in Texas state court in Fort Worth,
Texas for breach of contract in connection with a base contract for the sale and purchase of
natural gas. The jury verdict awarded Quicksilver no compensatory damages but $10 million in
punitive damages. In
27
2007, the trial court nullified the jury award of punitive damages but held that the contract
should be rescinded prospectively. The judicial rescission of the contract caused CMS Energy to
record a charge in the second quarter of 2007 of $24 million, net of tax. In June 2009, the Texas
Court of Appeals ruled in favor of CMS MST and, pursuant to a settlement agreement to end the
litigation, Quicksilver paid $5 million to CMS MST, which caused CMS Energy to recognize a $5
million credit to Cost of gas sold. The parties have agreed not to appeal. The Quicksilver matter
has now been resolved.
State Street Bank and TSU Litigation: In 1998, CMS Viron installed a number of energy savings
measures at TSU. CMS Viron sold the master lease for the project to a third-party, which
transferred its interest to State Street Bank. Although TSU accepted the improvements, it refused
to pay on the grounds that the Texas Board of Higher Education had not approved the expenditure.
In 2002, State Street Bank sued CMS Viron in the District Court of Harris County, Texas, claiming
primarily a breach of warranty. The plaintiffs are seeking $6 million plus interest from CMS
Viron. CMS Viron has filed a motion for summary disposition. The trial is scheduled to begin in
August 2009. CMS Viron believes it has a valid defense to the claim, but cannot predict the
outcome of this litigation.
Equatorial Guinea Tax Claim: In 2004, CMS Energy received a request for indemnification from the
purchaser of CMS Oil and Gas. The indemnity claim relates to the sale of CMS Energys oil, gas and
methanol projects in Equatorial Guinea and the claim of the government of Equatorial Guinea that
CMS Energy owes $142 million in taxes in connection with that sale. CMS Energy concluded that the
governments tax claim is without merit and the purchaser of CMS Oil and Gas submitted a response
to the government rejecting the claim. The government of Equatorial Guinea has indicated that it
still intends to pursue its claim. CMS Energy cannot predict the financial impact or outcome of
this matter.
Moroccan Tax Claim: In 2007, CMS Energy sold its 50 percent interest in Jorf Lasfar. As part of
the sale agreement, CMS Energy agreed to indemnify the purchaser for 50 percent of any tax
assessments on Jorf Lasfar attributable to tax years prior to the sale. In 2007, the Moroccan tax
authority concluded its audit of Jorf Lasfar for tax years 2003 through 2005. The audit asserted
deficiencies in certain corporate and withholding taxes. In January 2009, CMS Energy paid $18
million, which it charged against a tax indemnification liability established when it recorded the
sale of Jorf Lasfar, and accordingly, the payment did not affect earnings. The Moroccan tax
authority may also assess taxes for 2006. At June 30, 2009, CMS Energy had a recorded liability of
$4 million for its potential indemnity obligation for corporate and withholding taxes for 2006.
CMS Energy cannot predict the financial impact or outcome of this matter.
Marathon Indemnity Claim regarding F.T. Barr Claim: In 2001, F. T. Barr, an individual with an
overriding royalty interest in production from the Alba field, filed a lawsuit in Harris County
District Court in Texas against CMS Energy, CMS Oil and Gas and other defendants alleging that his
overriding royalty payments related to Alba field production were improperly calculated. CMS Oil
and Gas believes that Barr was properly paid on gas sales and that he was not entitled to the
additional overriding royalty payment sought. All parties signed a confidential settlement
agreement in 2004. The settlement resolved claims between Barr and the defendants, and the
involved CMS Energy entities reserved all defenses to any indemnity claim relating to the
settlement. Issues exist between Marathon and certain present or former CMS Energy entities as to
the existence and scope of any indemnity obligation to Marathon in connection with the matter. In
April 2008, Marathon indicated its intent to pursue the indemnity claim, and certain present and
former CMS Energy entities and Marathon entered into a one-year agreement tolling the statute of
limitations on any claim by Marathon under the indemnity. In April 2009, certain Marathon entities
filed a case in the United States District Court for the Southern District of Texas against
Enterprises for indemnification. CMS Energy entities dispute Marathons claim, and will vigorously
oppose it. CMS Energy entities also will assert that Marathon has suffered minimal, if any,
damages. CMS Energy cannot predict the outcome of this matter. If Marathons claim were
sustained, it would have a material effect on CMS Energys future earnings and cash flow.
28
CONSUMERS ELECTRIC UTILITY CONTINGENCIES
Electric Environmental Matters: Consumers operations are subject to environmental laws and
regulations. Generally, Consumers has been able to recover, in customer rates, the costs to
operate its facilities in compliance with these laws and regulations.
Cleanup and Solid Waste: Under the NREPA, Consumers will ultimately incur investigation and
response activity costs at a number of sites. Consumers believes that these costs will be
recoverable in rates under current ratemaking policies. At June 30, 2009, Consumers had a recorded
liability of $1 million, the minimum amount in the range of its estimated probable NREPA liability,
in accordance with applicable accounting standards.
Consumers is a potentially responsible party at a number of contaminated sites administered under
the Superfund. Superfund liability is joint and several. However, many other creditworthy parties
with substantial assets are potentially responsible with respect to the individual sites. Based on
its experience, Consumers estimates that its share of the total liability for known Superfund sites
will be between $2 million and $11 million. Various factors, including the number of potentially
responsible parties involved with each site, affect Consumers share of the total liability. At
June 30, 2009, Consumers had a recorded liability of $2 million, the minimum amount in the range of
its estimated probable Superfund liability, in accordance with applicable accounting standards.
The timing of payments related to Consumers investigation and response activities at its Superfund
and NREPA sites is uncertain. Periodically, Consumers receives information about new sites, which
leads it to review its response activity estimates. Any significant change in the underlying
assumptions, such as an increase in the number of sites, different remediation techniques, nature
and extent of contamination, and legal and regulatory requirements, could affect its estimates of
NREPA and Superfund liability.
Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a
component in certain paint, grout, and sealant materials at Ludington. Consumers removed and
replaced part of the PCB material with non-PCB material. Since proposing a plan to take action
with respect to the remaining materials, Consumers has had several communications with the EPA.
Consumers is not able to predict when the EPA will issue a final ruling and cannot predict the
financial impact or outcome of this matter.
Electric Utility Plant Air Permit Issues and Notices of Violation: In 2007, Consumers received a
NOV/FOV from the EPA alleging that fourteen utility boilers exceeded the visible emission limits in
their associated air permits. The utility boilers are located at the Karn/Weadock Generating
Complex, Campbell Plant, Cobb Electric Generating Station and Whiting Plant, which are all in
Michigan. Consumers has responded formally to the NOV/FOV denying the allegations and is awaiting
the EPAs response to its submission.
In addition, the EPA has alleged that some utilities have incorrectly classified major plant
modifications as RMRR rather than seeking permits from the EPA to modify their plants. Consumers
responded to information requests from the EPA on this subject in 2000, 2002, 2006, and 2008.
Consumers believes that it has properly interpreted the requirements of RMRR. In addition, in
2008, Consumers received a NOV for three of its coal-fueled facilities alleging, among other
things, violations of NSR and PSD regulations relating to ten projects from 1986 to 1998 allegedly
subject to NSR review.
Consumers is engaged in discussions with the EPA on both of these matters. Depending upon the
outcome of these discussions, the EPA could bring legal action against Consumers and/or Consumers
could be required to install additional pollution control equipment at some or all of its
coal-fueled electric generating plants, surrender emission allowances, engage in Supplemental
Environmental Programs, and/or pay fines. Additionally, Consumers would need to assess the
viability of continuing operations at certain plants. Consumers cannot predict the financial impact or outcome of these matters.
29
RFC Initial Notice of Alleged Violation: In July 2008, Consumers notified RFC, the NERC-affiliated
regional reliability organization in the region that includes Consumers generating plants, that
certain generation equipment covered by the NERC standards for maintenance and testing of certain
electrical protection equipment was not covered by Consumers Generation Reliability Compliance
Program. Since notifying RFC, Consumers has submitted and implemented a mitigation plan. It has
also responded to the February 2009 initial notice of violation. Consumers cannot predict the
financial impact or outcome of this matter.
Litigation: The transmission charges Consumers pays to MISO have been subject to regulatory review
and recovery through the annual PSCR process. Michigans attorney general has argued that the
statute governing the PSCR process does not permit recovery of transmission charges in that manner
and that those expenses should be considered in general rate cases. Several decisions of the
Michigan Court of Appeals have ruled against the Michigan attorney generals arguments, but in
September 2008, the Michigan Supreme Court granted the Michigan attorney generals applications for
leave to appeal two of those decisions. In May 2009, the Michigan Supreme Court issued an order
affirming Consumers ability to recover transmission costs through the PSCR process. The Michigan
attorney general filed a petition for reconsideration/rehearing on this decision, which the
Michigan Supreme Court denied.
Nuclear Matters:
DOE Litigation: In 1997, a United States Court of Appeals decision confirmed that the DOE was to
begin accepting deliveries of spent nuclear fuel for disposal by January 1998. Subsequent United
States Court of Appeals litigation, in which Consumers and other utilities participated, has not
been successful in producing more specific relief for the DOEs failure to accept the spent nuclear
fuel.
A number of court decisions support the right of utilities to pursue damage claims in the United
States Court of Claims against the DOE for failure to take delivery of spent nuclear fuel.
Consumers filed a complaint in 2002. If Consumers litigation against the DOE is successful,
Consumers plans to use any recoveries as reimbursement for the incurred costs of spent nuclear fuel
storage during Consumers ownership of Palisades and Big Rock. Consumers cannot predict the
financial impact or outcome of this matter. The sale of Palisades and the Big Rock ISFSI did not
transfer the right to any recoveries from the DOE related to costs of spent nuclear fuel storage
incurred during Consumers ownership of Palisades and Big Rock.
Nuclear Fuel Disposal Cost: Consumers deferred payment for disposal of spent nuclear fuel used
before April 7, 1983. Its DOE liability is $163 million at June 30, 2009. This amount includes
interest, and is payable upon the first delivery of spent nuclear fuel to the DOE. Consumers
recovered the amount of this liability, excluding a portion of interest, through electric rates.
In conjunction with the sale of Palisades and the Big Rock ISFSI in 2007, Consumers retained this
obligation and provided a $162 million letter of credit to Entergy as security for this obligation.
CONSUMERS GAS UTILITY CONTINGENCIES
Gas Environmental Matters: Consumers expects to incur investigation and remediation costs at a
number of sites under the NREPA. These sites include 23 former manufactured gas plant facilities.
Consumers operated the facilities on these sites for some part of their operating lives. For some
of these sites, it has no current ownership or may own only a portion of the original site. In
December 2008, Consumers estimated its undiscounted remaining costs to be between $38 million and
$52 million. Consumers expects to fund most of these costs through proceeds from insurance
settlements and MPSC-approved rates.
30
At June 30, 2009, Consumers had a recorded liability of $37 million and a regulatory asset of $66
million that included $30 million of deferred MGP expenditures. The timing of payments related to
the remediation of Consumers manufactured gas plant sites is uncertain. Consumers expects annual
response activity costs to range between $5 million and $6 million over the next five years.
Consumers periodically reviews these response activity cost estimates. Any significant change in
the underlying assumptions, such as an increase in the number of sites, changes in remediation
techniques, or legal and regulatory requirements, could affect Consumers estimates of annual
response activity costs and MGP liability.
FERC Investigation: In February 2008, Consumers received a data request relating to an
investigation the FERC is conducting into possible violations of the FERCs posting and competitive
bidding regulations related to releases of firm capacity on natural gas pipelines. Consumers
responded to the FERCs first data request in the first quarter of 2008. The FERC has also taken
depositions and Consumers has responded to additional data requests. Consumers cannot predict the
financial impact or outcome of this matter.
GUARANTEES
The following table describes CMS Energys guarantees at June 30, 2009:
In Millions | ||||||||||||||||
Issue | Expiration | Maximum | Carrying | |||||||||||||
Guarantee Description | Date | Date | Obligation | Amount | ||||||||||||
Indemnity obligations from asset sales and
other agreements (a) |
Various | Indefinite | $ | 1,369 | (b) | $ | 15 | |||||||||
Surety bonds and other indemnity obligations (c) |
Various | Indefinite | 35 | | ||||||||||||
Guarantees and put options (d) |
Various | Various through | 4 | 1 | ||||||||||||
September 2023 | ||||||||||||||||
(a) | In May 2007, CMS Energy provided an indemnity to TAQA in connection with the sale of its ownership interests in businesses in the Middle East, Africa, and India, and recorded a $50 million provision for the contingent liability. This indemnity expired on May 2, 2009. CMS Energy eliminated the liability from its balance sheet, recognizing a $45 million benefit to Income (Loss) from Discontinued Operations, Net of Tax (Tax Benefit) and a $5 million benefit to Gain on asset sales, net. | |
(b) | The majority of this amount arises from stock and asset sales agreements under which CMS Energy indemnified the purchaser for losses resulting from various matters, including claims related to tax disputes, claims related to power purchase agreements, and defects in title to the assets or stock sold to the purchaser by CMS Energy subsidiaries. Except for items described elsewhere in this Note, CMS Energy believes the likelihood of loss to be remote for the indemnity obligations not recorded as liabilities. | |
(c) | In the normal course of business, CMS Energy issues surety bonds and indemnifications to counterparties to facilitate commercial transactions. CMS Energy would be required to pay a counterparty if it incurred losses due to a breach of contract terms or nonperformance under the contract. |
31
(d) | In 1987, Consumers issued an $85 million guarantee of the MCV Partnerships performance under a steam and electric power agreement with Dow. In May 2009, the parties mutually terminated the steam and electric power agreement. The termination of the agreement released Consumers from its $85 million guarantee to Dow. At June 30, 2009, the maximum obligation and the carrying amount of CMS Energys put option agreements with certain Bay Harbor property owners were $1 million. Additionally, if CMS Energy is required to purchase a Bay Harbor property under a put option agreement, it may sell the property to recover the amount paid under the option. |
At June 30, 2009, the maximum obligation and carrying amount for Consumers guarantees were
immaterial.
The following table provides additional information regarding CMS Energys guarantees:
Events That Would | ||||
Guarantee Description | How Guarantee Arose | Require Performance | ||
Indemnity obligations from asset sales
and other agreements
|
Stock and asset sales agreements | Findings of misrepresentation, breach of warranties, tax claims, and other specific events or circumstances | ||
Surety bonds and other
indemnity obligations
|
Normal operating activity, permits and licenses | Nonperformance | ||
Guarantees and put options
|
Normal operating activity | Nonperformance or non-payment by a subsidiary under a related contract |
||
Bay Harbor remediation efforts |
Owners exercising put options requiring CMS Land and CMS Capital to purchase property |
CMS Energy and Consumers also enter into various agreements containing tax and other indemnity
provisions for which they are unable to estimate the maximum potential obligation. These factors
include unspecified exposure under certain agreements. CMS Energy and Consumers consider the
likelihood that they would be required to perform or incur substantial losses related to these
indemnities to be remote.
OTHER CONTINGENCIES
In addition to the matters disclosed in this Note, CMS Energy, Consumers, and certain other
subsidiaries of CMS Energy are parties to certain lawsuits and administrative proceedings before
various courts and governmental agencies arising from the ordinary course of business. These
lawsuits and proceedings may involve personal injury, property damage, contracts, environmental
issues, federal and state taxes, rates, licensing, and other matters. CMS Energy and Consumers
believe that the outcome of any one of these proceedings will not have a material adverse effect on
their consolidated results of operations, financial position, or cash flows.
32
5: UTILITY RATE MATTERS
CONSUMERS ELECTRIC UTILITY RATE MATTERS
Stranded Cost Recovery: In 2004, the MPSC approved recovery of Consumers Stranded Costs incurred
in 2002 and 2003 plus interest through the period of collection through a surcharge on ROA
customers. Consumers presently has fewer ROA customers than at the time of the 2004 MPSC order,
but has experienced a recent upward trend in ROA customers. The 2008 Energy Legislation amended
the Customer Choice Act and directed the MPSC to approve rates that will allow recovery of Stranded
Costs within five years. In January 2009, Consumers filed an application with the MPSC requesting
recovery of these Stranded Costs through a surcharge on both full service and ROA customers. In
June 2009, the ALJs proposal for decision supported Consumers request for recovery. At June 30,
2009, Consumers had a regulatory asset for Stranded Costs of $72 million.
Power Supply Cost Recovery: The PSCR process is designed to allow Consumers to recover all of its
power supply costs if incurred under reasonable and prudent policies and practices. The MPSC
reviews these costs, policies, and practices in annual plan and reconciliation proceedings.
Consumers adjusts its PSCR billing factor monthly in order to minimize the over- or underrecovery
amount in the annual PSCR reconciliation.
The following table summarizes the PSCR reconciliation filings pending with the MPSC:
Power Supply Cost Recovery Reconciliation | ||||||||
Net Over-(Under) | PSCR Cost of Power | |||||||
PSCR Year | Date Filed | recovery (a) | Sold | Description | ||||
2007
|
March 2008 | $(42) million (b) | $1.628 billion | In the 2007 PSCR Plan, Consumers expected to offset power supply costs by including a $44 million credit for Palisades sale proceeds due customers. However, the MPSC directed that the Palisades sale proceeds be refunded through bill credits outside of the PSCR process. | ||||
2008
|
March 2009 | $2 million | $1.670 billion | The overrecovery amount includes accrued interest and reflects an overrecovery for 2008 less underrecoveries from 2007. | ||||
(a) Amount includes prior year over- or underrecoveries as allowed by the MPSC order in Consumers
2007 PSCR plan case.
(b) In May 2009, the ALJs proposal for decision recommended no PSCR recovery for economic
development discounts of $3 million and disallowance of $4 million of net replacement power costs
associated with a crane incident at Consumers Campbell Plant.
2009 PSCR Plan: In September 2008, Consumers submitted its 2009 PSCR plan to the MPSC. The plan
seeks approval to apply a uniform maximum PSCR factor of up to $0.02680 per kWh to all classes of
customers, which includes recovery of an expected $22 million discount in power supply charges
provided to a large industrial customer. The MPSC approved this discount in 2005 to promote
long-term investments in the industrial infrastructure of Michigan. In June 2009, the ALJs
proposal for decision recommended that recovery of this discount should not be included in the
PSCR, but should be determined through a general rate case.
33
Consumers self-implemented the 2009 PSCR charge in January 2009. The August 2009 PSCR billing
factor is $0.01529 per kWh. While Consumers expects to recover all of its PSCR costs, it cannot
predict the financial impact or outcome of these proceedings.
Electric Rate Case and Self-Implemented Rates: In November 2008, Consumers filed an application
with the MPSC seeking an annual increase in revenue of $214 million based on an 11 percent
authorized return on equity. The filing sought recovery of costs associated with new plant
investments including Clean Air Act investments, higher operating and maintenance costs, and the
approval to recover costs associated with Consumers advanced metering infrastructure program. The
following table details the components of the requested increase in revenue:
In Millions | ||||
Components of the increase in revenue | ||||
Operating and maintenance |
$ | 50 | ||
Rate of return |
17 | |||
Rate base |
104 | |||
Sales |
43 | |||
Total |
$ | 214 | ||
In April 2009, the MPSC staff and intervenors filed testimony concerning the rate case. The MPSC
staff recommended a revenue increase of $75 million, based on an 11 percent return on equity. The
MPSC staff subsequently filed revised testimony recommending a $111 million revenue increase.
This was the first electric rate case under the new streamlined regulatory process enacted by the
2008 Energy Legislation. The new provisions generally allow utilities to self-implement rates six
months after filing, subject to refund with interest, unless the MPSC finds good cause to prohibit
self-implementation. The new provisions require the MPSC to issue an order 12 months after filing
or the rates, as filed, become permanent. In April 2009, Consumers filed tariff sheets indicating
that it planned to self-implement an electric rate increase in the annual amount of $179 million
beginning in May 2009. The MPSC issued an order in May 2009 requiring that, if Consumers
self-implemented the $179 million electric rate increase, it must simultaneously refund to
customers $36 million of excess proceeds from the April 2007 sale of Palisades. Accordingly, in
May 2009 Consumers self-implemented an annual electric rate increase of $179 million, subject to
refund with interest, and also implemented a one-time refund of $36 million to customers.
In November 2009, the MPSC issued its final order in this case, authorizing Consumers to increase
its rates by $139 million annually, $40 million less than the rate increase self-implemented by
Consumers. The order reflects an authorized rate of return of 10.7 percent and the exclusion from
rate base of amounts associated with an obligation to the DOE for nuclear fuel disposal. The order
also requires Consumers to refund the remaining $73 million of proceeds from the April 2007 sale of
Palisades. The order adopts a pilot decoupling mechanism that goes into effect December 1, 2009,
and which, subject to certain conditions, will allow rates to be adjusted to collect or refund the
difference between the level of average sales per customer adopted in the order and actual average
sales per customer. The order also adopts an uncollectible expense tracking mechanism, effective
January 1, 2009, that will allow rates to be adjusted to collect or refund 80 percent of the
difference between the level of uncollectible expense included in rates and actual uncollectible
expense.
For details on the impacts of the rate order on the interim periods of 2009, see Note 1, Subsequent
Event.
Palisades Regulatory Proceedings: The MPSC order approving the Palisades sale transaction required
that Consumers credit $255 million of excess sales proceeds and decommissioning amounts to its
retail customers by December 2008. There are additional excess sales proceeds and decommissioning
fund balances of $135 million above the amount in the MPSC order. The MPSC order in Consumers
2007 electric rate case
34
instructed Consumers to offset the excess sales proceeds and decommissioning fund balances with $26 million of
transaction costs from the Palisades sale. In addition, the MPSC required Consumers to offset the
electric rate increase it self-implemented in May 2009 with $36 million of these funds.
Furthermore, the November 2009 electric rate order ordered Consumers to refund the remaining
balance of $73 million, as described in the Electric Rate Case and Self-Implemented Rates section
of this Note.
Big Rock Decommissioning: The MPSC and the FERC regulate the recovery of costs to decommission Big
Rock. In 2000, Consumers stopped funding a Big Rock trust fund because the MPSC-authorized
decommissioning surcharge collection period expired. The level of funds provided by the trust fell
short of the amount needed to complete decommissioning. As a result, Consumers provided $44
million of corporate contributions for decommissioning costs. Consumers also paid $30 million to
Entergy to assume ownership and responsibility for the Big Rock ISFSI and paid $55 million for
nuclear fuel storage costs incurred as a result of the DOEs failure to accept spent nuclear fuel
on schedule. At June 30, 2009, Consumers has a $129 million regulatory asset recorded on its
Consolidated Balance Sheets for these costs.
In 2008, Consumers filed an application with the MPSC seeking the deferral of ratemaking treatment
for the recovery of its nuclear fuel storage costs and the payment to Entergy, until the litigation
regarding these costs is resolved in the federal courts. In the application, Consumers is seeking
to recover the $44 million Big Rock decommissioning shortfall from customers. The MPSC staff and
other interveners have filed testimony in this case recommending that the MPSC deny Consumers
request and requesting rate refunds of various amounts. Consumers continues to believe that
recovery of its regulatory asset is probable, but it cannot predict the financial impact or outcome
of this proceeding.
CONSUMERS GAS UTILITY RATE MATTERS
Gas Cost Recovery: The GCR process is designed to allow Consumers to recover all of its purchased
natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC
reviews these costs, policies, and practices in annual plan and reconciliation proceedings.
Consumers adjusts its GCR billing factor monthly in order to minimize the over- or underrecovery
amount in the annual GCR reconciliation.
The following table summarizes the GCR reconciliation filings pending with the MPSC:
Gas Cost Recovery Reconciliation
Net Over-(Under) | ||||||||
GCR Year | Date Filed | recovery | GCR Cost of Gas Sold | Description | ||||
2007-2008 |
June 2008 | $17 million | $1.7 billion | The overrecovery amount reflects an overrecovery of $15 million plus $2 million in accrued interest owed to customers. | ||||
2008-2009 |
June 2009 | $(15) million | $1.8 billion | The underrecovery amount reflects an underrecovery of $16 million less $1 million in accrued interest owed to customers. | ||||
GCR plan for year 2009-2010: In December 2008, Consumers filed an application with the MPSC
seeking approval of a GCR plan for its 2009-2010 GCR plan year. The request proposed the use of a
base GCR ceiling factor of $8.10 per mcf, plus a quarterly GCR ceiling price adjustment contingent
upon future events. Using the proposed base GCR ceiling factor, Consumers self-implemented the
2009-2010 GCR charge in April 2009. The August 2009 GCR billing factor is $7.36 per mcf. While
Consumers expects to recover all of its GCR costs, it cannot predict the financial impact or
outcome of these proceedings.
35
Gas Depreciation: In August 2008, Consumers filed a gas depreciation case using 2007 data with the
MPSC-ordered variations on traditional cost-of-removal methodologies. In December 2008, the MPSC
approved a partial settlement agreement allowing Consumers to implement the filed depreciation
rates, on an interim basis, concurrent with the implementation of settled rates in its 2008 gas
rate case. The interim depreciation rates, which reduced Consumers recovery of depreciation
expense by $20 million per year, will remain in effect until the MPSC issues a final order in the
gas depreciation case. In July 2009, the ALJs proposal for decision recommended an additional
reduction to Consumers recovery of depreciation expense of $28 million per year. The final order
in Consumers gas depreciation case may increase or decrease its annual recovery of depreciation
expense.
Gas Rate Case: In May 2009, Consumers filed an application with the MPSC seeking an annual
increase in revenue of $114 million based on an 11 percent authorized return on equity. The filing
seeks recovery of costs associated with ongoing investments in gas utility assets, increases in
operating and maintenance costs, and recognition of a decrease in expected sales related to the
continued decline in the Michigan economy. The following table details the components of the
requested increase in revenue:
In Millions | ||||
Components of the increase in revenue |
||||
Operating and maintenance |
$ | 25 | ||
Rate of return |
8 | |||
Rate base |
40 | |||
Sales |
41 | |||
Total |
$ | 114 | ||
Under the new streamlined regulatory process described in the Consumers Electric Utility Rate
Matters Electric Rate Case and Self-Implemented Rates section of this Note, utilities may be
allowed to self-implement rates six months after filing. If the MPSC were to take action to
prevent or delay Consumers self-implementation, it could have a materially negative impact on
Consumers earnings and cash flows. Consumers cannot predict the financial impact or outcome of
this gas rate case.
Lost and Unaccounted for Gas: Gas utilities typically lose some gas as it is injected into and
withdrawn from storage and sent through transmission and distribution systems. Consumers recovers
the cost of lost and unaccounted for gas through general rate cases, which have provided for
recovery based on an average of the previous five years of actual losses. To the extent that
Consumers annual lost and unaccounted for gas cost exceeds the previous five-year average,
Consumers may be unable to recover these amounts in rates.
36
6: FINANCINGS AND CAPITALIZATION
Long-term debt is summarized as follows:
In Millions | ||||||||
June 30, 2009 | December 31, 2008 | |||||||
CMS Energy |
||||||||
Senior notes |
$ | 2,175 | $ | 1,703 | ||||
Revolving credit facility |
| 105 | ||||||
Total CMS Energy |
2,175 | 1,808 | ||||||
Consumers |
4,579 | 4,297 | ||||||
Other CMS Energy Subsidiaries |
232 | 252 | ||||||
Total CMS Energy principal amounts outstanding |
6,986 | 6,357 | ||||||
Current amounts |
(581 | ) | (489 | ) | ||||
Net unamortized discount |
(49 | ) | (31 | ) | ||||
Total CMS Energy Long-term debt |
$ | 6,356 | $ | 5,837 | ||||
Consumers |
||||||||
First mortgage bonds |
$ | 3,815 | $ | 3,517 | ||||
Senior notes and other |
503 | 503 | ||||||
Securitization bonds |
261 | 277 | ||||||
Total Consumers principal amounts outstanding |
4,579 | 4,297 | ||||||
Current amounts |
(492 | ) | (383 | ) | ||||
Net unamortized discount |
(6 | ) | (6 | ) | ||||
Total Consumers Long-term debt |
$ | 4,081 | $ | 3,908 | ||||
Financings: The following is a summary of major long-term debt transactions during the six months
ended June 30, 2009:
Principal | Issue/Retirement | |||||||||||||||
(in millions) | Interest Rate (%) | Date | Maturity Date | |||||||||||||
Debt Issuances: |
||||||||||||||||
CMS Energy |
||||||||||||||||
Convertible senior notes |
$ | 173 | 5.50 | % | June 2009 | June 2029 | ||||||||||
Senior notes |
300 | 8.75 | % | June 2009 | June 2019 | |||||||||||
Consumers |
||||||||||||||||
First mortgage bonds |
500 | 6.70 | % | March 2009 | September 2019 | |||||||||||
Debt Retirements: |
||||||||||||||||
CMS Energy |
||||||||||||||||
Long-term debt related parties (a) |
$ | 144 | 7.75 | % | June 2009 | July 2027 | ||||||||||
Consumers |
||||||||||||||||
First mortgage bonds |
200 | 4.80 | % | February 2009 | February 2009 | |||||||||||
(a) CMS Energy retired this debt at a discount, and recorded a gain on extinguishment of debt of
$28 million in Other income in its Consolidated Statements of Income.
In June 2009, CMS Energy commenced cash tender offers to repurchase up to $330 million of CMS
Energys 7.75 percent senior notes due 2010 and 8.50 percent senior notes due 2011. In July 2009,
under the terms of the tender offers, CMS Energy repurchased and retired $233 million principal
amount of the 7.75 percent senior notes and $87 million principal amount of the 8.50 percent senior
notes.
37
Revolving Credit Facilities: The following secured revolving credit facilities with banks were
available at June 30, 2009:
In Millions | ||||||||||||||||
Letters of Credit | ||||||||||||||||
Company | Expiration Date | Amount of Facility | Amount Borrowed | Outstanding | Amount Available | |||||||||||
CMS Energy (a)
|
April 2, 2012 | $ | 550 | $ | (b) | $ | 3 | $ | 547 | |||||||
Consumers
|
March 30, 2012 | 500 | | 172 | 328 | |||||||||||
Consumers (c)
|
November 30, 2009 | 192 | | 192 | | |||||||||||
Consumers
|
September 9, 2009 | 150 | | | 150 | |||||||||||
(a) | CMS Energys average borrowings during the six months ended June 30, 2009, totaled $69 million, with a weighted average annual interest rate of 1.32 percent, at LIBOR plus 0.75 percent. | |
(b) | In July 2009, CMS Energy borrowed $130 million on its revolving credit facility to fund the repurchase and retirement of senior notes. | |
(c) | Consumers secured revolving letter of credit facility. |
Sale of Accounts Receivable: Under Consumers revolving accounts receivable sales program,
Consumers may sell up to $250 million of accounts receivable, subject to certain eligibility
requirements. At June 30, 2009, $134 million of accounts receivable were eligible for sale, and no
accounts receivable were sold under the program.
Contingently Convertible Securities: At June 30, 2009, the significant terms of CMS Energys
contingently convertible securities were as follows:
Outstanding | Adjusted Conversion | Adjusted Trigger | ||||||||||||||
Security | Maturity | (In Millions) | Price | Price | ||||||||||||
4.50% preferred stock (a) |
| $ | 243 | $ | 9.32 | $ | 11.18 | |||||||||
3.375% senior notes (b) |
2023 | 140 | 10.05 | 12.06 | ||||||||||||
2.875% senior notes |
2024 | 288 | 13.89 | 16.67 | ||||||||||||
5.50% senior notes (c) |
2029 | 173 | 14.46 | 18.80 | ||||||||||||
(a) During 20 of the last 30 trading days ended June 30, 2009, the $11.18 per share adjusted
trigger price was met for these securities and, as a result, the securities are convertible at the
option of the security holders for the three months ending September 30, 2009.
(b) CMS Energy has the option to redeem these securities at par.
(c) The $173 million of 5.50 percent convertible senior notes issued in June 2009 become
convertible for the calendar quarter beginning October 1, 2009, if the price of CMS Energys common
stock remains at or above the trigger price for 20 of 30 consecutive trading days ending on the
last trading day of the third quarter of 2009. The trigger price at which these securities become
convertible is 130 percent of the conversion price. The conversion and trigger prices are subject
to adjustment under certain circumstances, including payments or distributions to CMS Energys
common stockholders.
During the quarter ended June 30, 2009, no other trigger price contingencies were met that would
have allowed CMS Energy or the holders of the convertible securities to convert the securities to
cash and equity.
38
Dividend Restrictions: Under provisions of CMS Energys senior notes indenture, at June 30, 2009,
payment of common stock dividends by CMS Energy was limited to $677 million.
Under the provisions of its articles of incorporation, at June 30, 2009, Consumers had $364 million
of unrestricted retained earnings available to pay common stock dividends to CMS Energy.
Provisions of the Federal Power Act and the Natural Gas Act appear to restrict dividends payable by
Consumers to the amount of Consumers retained earnings. Several decisions from the FERC suggest
that under a variety of circumstances common stock dividends from Consumers would not be limited to
amounts in Consumers retained earnings. Any decision by Consumers to pay common stock dividends
in excess of retained earnings would be based on specific facts and circumstances and would result
only after a formal regulatory filing process.
For the six months ended June 30, 2009, CMS Energy received $130 million of common stock dividends
from Consumers.
39
7: EARNINGS PER SHARE CMS ENERGY
The following table presents CMS Energys basic and diluted EPS computations based on Earnings from
Continuing Operations:
In Millions, Except Per Share Amounts | ||||||||
Three months ended June 30 | 2009 | 2008 | ||||||
Earnings Available to Common Stockholders |
||||||||
Earnings from Continuing Operations |
$ | 51 | $ | 49 | ||||
Less Earnings Attributable to Noncontrolling Interests |
(2 | ) | (1 | ) | ||||
Less Preferred Dividends |
(3 | ) | (3 | ) | ||||
Earnings from Continuing Operations Available to
Common Stockholders Basic and Diluted |
$ | 46 | $ | 45 | ||||
Average Common Shares Outstanding |
||||||||
Weighted Average Shares Basic |
226.9 | 225.4 | ||||||
Add dilutive impact of Contingently
Convertible Securities |
7.6 | 15.0 | ||||||
Add dilutive Stock Options and Warrants |
0.1 | 0.2 | ||||||
Weighted Average Shares Diluted |
234.6 | 240.6 | ||||||
Earnings Per Average Common Share
Available to Common Stockholders |
||||||||
Basic |
$ | 0.20 | $ | 0.21 | ||||
Diluted |
$ | 0.19 | $ | 0.19 | ||||
In Millions, Except Per Share Amounts | ||||||||
Six months ended June 30 | 2009 | 2008 | ||||||
| | | ||||||||
Earnings Available to Common Stockholders |
||||||||
Earnings from Continuing Operations |
$ | 125 | $ | 157 | ||||
Less Earnings Attributable to Noncontrolling Interests |
(3 | ) | (4 | ) | ||||
Less Preferred Dividends |
(6 | ) | (6 | ) | ||||
Earnings from Continuing Operations Available to
Common Stockholders Basic and Diluted |
$ | 116 | $ | 147 | ||||
Average Common Shares Outstanding |
||||||||
Weighted Average Shares Basic |
226.8 | 225.3 | ||||||
Add dilutive impact of Contingently
Convertible Securities |
7.2 | 14.3 | ||||||
Add dilutive Stock Options and Warrants |
0.1 | 0.2 | ||||||
Weighted Average Shares Diluted |
234.1 | 239.8 | ||||||
Earnings Per Average Common Share
Available to Common Stockholders |
||||||||
Basic |
$ | 0.51 | $ | 0.65 | ||||
Diluted |
$ | 0.49 | $ | 0.61 | ||||
Contingently Convertible Securities: When CMS Energy has earnings from continuing operations, its
contingently convertible securities dilute EPS to the extent that the conversion value of a
security, which is based on the average market price of CMS Energys common stock, exceeds the
principal value of that security. For additional details on contingently convertible securities,
see Note 6, Financings and Capitalization.
40
Stock Options and Warrants: For the three and six months ended June 30, 2009, outstanding options
and warrants to purchase 0.6 million shares of CMS Energy common stock had no impact on diluted
EPS, since the exercise price was greater than the average market price of common stock. These
stock options have the potential to dilute EPS in the future.
Convertible Debentures: For the three and six months ended June 30, 2009 and 2008, there was no
impact on diluted EPS from CMS Energys 7.75 percent convertible subordinated debentures. Using
the if-converted method, the debentures would have:
| increased the numerator of diluted EPS by $2 million for the three months ended June 30, 2009 and 2008 and by $4 million for the six months ended June 30, 2009 and 2008, from an assumed reduction of interest expense, net of tax; and | ||
| increased the denominator of diluted EPS by 3.6 million shares for the three months ended June 30, 2009 and by 3.9 million shares for the six months ended June 30, 2009. The denominator of diluted EPS would have increased by 4.2 million shares for the three months and six months ended June 30, 2008. |
CMS Energy can revoke the conversion rights if certain conditions are met.
8: FINANCIAL AND DERIVATIVE INSTRUMENTS
Financial Instruments: The carrying amounts of CMS Energys and Consumers cash, current accounts
and notes receivable, short-term investments, and current liabilities approximate their fair values
because of their short-term nature. The cost or carrying amount and fair value of CMS Energys and
Consumers long-term financial instruments were as follows:
In Millions | ||||||||||||||||
June 30, 2009 | December 31, 2008 | |||||||||||||||
Cost or Carrying | Cost or Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Securities held to maturity |
$ | 3 | $ | 3 | $ | 3 | $ | 3 | ||||||||
Securities available for sale |
67 | 68 | 68 | 68 | ||||||||||||
Notes receivable, net |
196 | 207 | 186 | 201 | ||||||||||||
Long-term debt (a) |
6,937 | 6,979 | 6,326 | 5,962 | ||||||||||||
Long-term debt related parties |
34 | 27 | 178 | 107 | ||||||||||||
Consumers |
||||||||||||||||
Securities available for sale |
$ | 52 | $ | 67 | $ | 52 | $ | 63 | ||||||||
Long-term debt (b) |
4,573 | 4,575 | 4,291 | 4,073 | ||||||||||||
(a) | Includes current maturities of $581 million at June 30, 2009 and $489 million at December 31, 2008. | |
(b) | Includes current maturities of $492 million at June 30, 2009 and $383 million at December 31, 2008. |
Notes receivable, net consist of EnerBanks fixed-rate installment loans. EnerBank estimates the
fair value of these loans using a discounted cash flows technique that incorporates current market
interest rates as well as assumptions about the remaining life of the loans and credit risk. Fair
values for impaired loans are estimated using discounted cash flows or underlying collateral
values.
CMS Energy and Consumers estimate the fair value of their long-term debt using quoted prices from
market trades of the debt, if available. In the absence of quoted prices, CMS Energy and Consumers
calculate market yields and prices for the debt using a matrix method that incorporates market data
for similarly rated debt. Depending on the information available, other valuation techniques may
be used that
41
rely on internal assumptions and models. For its convertible securities, CMS Energy incorporates,
as appropriate, information on the market prices of CMS Energy common stock. CMS Energys
long-term debt includes $290 million principal amount that is supported by third-party insurance or
other credit enhancements. Of this amount, $273 million principal amount is at Consumers. The
effects of this third-party credit support were excluded from the measurement of fair value at June
30, 2009.
The following table summarizes CMS Energys and Consumers investment securities:
In Millions | ||||||||||||||||||||||||||||||||
June 30, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | Unrealized | |||||||||||||||||||||||||||||
Cost | Gains | Losses | Fair Value | Cost | Gains | Losses | Fair Value | |||||||||||||||||||||||||
CMS Energy, including Consumers |
||||||||||||||||||||||||||||||||
Available for sale: |
||||||||||||||||||||||||||||||||
SERP: |
||||||||||||||||||||||||||||||||
Equity securities |
$ | 40 | $ | 1 | $ | | $ | 41 | $ | 39 | $ | | $ | | $ | 39 | ||||||||||||||||
Debt securities |
27 | | | 27 | 29 | | | 29 | ||||||||||||||||||||||||
Held to maturity: |
||||||||||||||||||||||||||||||||
Debt securities |
3 | | | 3 | 3 | | | 3 | ||||||||||||||||||||||||
Consumers |
||||||||||||||||||||||||||||||||
Available for sale: |
||||||||||||||||||||||||||||||||
SERP: |
||||||||||||||||||||||||||||||||
Equity securities |
$ | 26 | $ | 1 | $ | | $ | 27 | $ | 25 | $ | | $ | | $ | 25 | ||||||||||||||||
Debt securities |
18 | | | 18 | 19 | | | 19 | ||||||||||||||||||||||||
Common stock of
CMS Energy |
8 | 14 | | 22 | 8 | 11 | | 19 | ||||||||||||||||||||||||
Equity securities classified as available for sale consist of an investment in a Standard & Poors
500 Index mutual fund. Debt securities classified as available for sale consist of
investment-grade municipal bonds. Debt securities classified as held to maturity consist of
municipal bonds and mortgage-backed securities held by EnerBank.
Derivative Instruments: In order to limit exposure to certain market risks, primarily changes in
commodity prices, interest rates, and foreign exchange rates, CMS Energy and Consumers may enter
into various risk management contracts, such as forward contracts, futures, and swaps. In entering
into these contracts, they follow established policies and procedures, under the direction of an
executive oversight committee consisting of senior management representatives and a risk committee
consisting of business unit managers. Neither CMS Energy nor Consumers holds any of its
derivatives for trading purposes.
The contracts used to manage market risks may qualify as derivative instruments. If a contract is
a derivative and does not qualify for the normal purchases and sales exception, the contract is
recorded on the balance sheet at its fair value. Each quarter, the resulting asset or liability is
adjusted to reflect any change in the fair value of the contract, a practice known as marking the
contract to market. Since none of CMS Energys or Consumers derivatives have been designated as
accounting hedges, all mark-to-market gains and losses are reported in earnings. For a discussion
of how CMS Energy and Consumers determine the fair value of their derivatives, see Note 3, Fair
Value Measurements.
Commodity Price Risk: In order to support ongoing operations, CMS Energy and Consumers enter into
contracts for the future purchase and sale of various commodities, such as electricity, natural
gas, and coal. These forward contracts are generally long-term in nature and result in physical
delivery of the commodity at a contracted price. Most of these contracts are not subject to
derivative accounting because:
42
| they do not have a notional amount (that is, a number of units specified in a derivative instrument, such as MWh of electricity or bcf of natural gas); | ||
| they qualify for the normal purchases and sales exception; or | ||
| there is not an active market for the commodity. |
CMS Energys and Consumers coal purchase contracts are not derivatives because there is not an
active market for the coal they purchase. If an active market for coal develops in the future,
some of these contracts may qualify as derivatives. For Consumers, which is subject to regulatory
accounting, the resulting mark-to-market gains and losses would be offset by changes in regulatory
assets and liabilities and would not affect net income. For other subsidiaries, CMS Energy does
not believe the resulting mark-to-market impact on earnings would be material.
CMS ERM has not designated its contracts to purchase and sell electricity and natural gas as normal
purchases and sales and, therefore, CMS Energy accounts for those contracts as derivatives. At
June 30, 2009, CMS ERM held a forward contract for the physical sale of 889 GWh of electricity
through 2015 on behalf of one of CMS Energys non-utility generating plants. CMS ERM also held
futures contracts through 2011 as an economic hedge of 42 percent of the generating plants natural
gas requirements needed to serve a steam sales contract, for a total of 1.2 bcf of natural gas. In
its role as a marketer of natural gas for third-party producers, CMS ERM also held forward
contracts to purchase 9.6 bcf of natural gas and to sell 7.7 bcf of natural gas through 2010.
Interest rate risk: In order to mitigate its exposure to changes in interest rates, Grayling
executed an interest rate collar as an economic hedge of the variable interest rate charged on its
outstanding revenue bonds. At June 30, 2009, the notional amount of this contract was $17 million.
At June 30, 2009, the fair value of Consumers derivative instruments was immaterial. The
following table summarizes the fair values of CMS Energys derivative instruments:
In Millions | ||||||||||||||||
June 30, 2009 | Asset Derivatives | Liability Derivatives | ||||||||||||||
Balance Sheet | Balance Sheet | |||||||||||||||
Location | Fair Value | Location | Fair Value | |||||||||||||
CMS Energy
|
||||||||||||||||
Derivatives not designated
as hedging instruments: |
||||||||||||||||
Commodity contracts (a) |
Other assets | $ | 1 | Other liabilities | $ | (16 | ) | |||||||||
Interest rate contracts |
Other assets | | Other liabilities | (1 | ) | |||||||||||
Total CMS Energy Derivatives |
$ | 1 | $ | (17 | ) | |||||||||||
(a) | Assets and liabilities are presented gross and exclude the $1 million impact of offsetting derivative assets and liabilities under master netting arrangements. The liability also excludes the $3 million impact of offsetting cash margin deposits paid by CMS ERM to other parties. CMS Energy presents these assets and liabilities net of these impacts on its Consolidated Balance Sheets. |
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The following tables summarize the effect of CMS Energys and Consumers derivative instruments on
their Consolidated Statements of Income:
In Millions | ||||||
Amount of Gain | ||||||
Location of Gain (Loss) | (Loss) Recognized | |||||
Recognized in Income on | in Income on | |||||
Three months ended June 30, 2009 | Derivatives | Derivatives | ||||
CMS Energy, including Consumers |
||||||
Derivatives not designated as hedging instruments: |
||||||
Commodity contracts |
Operating Revenue | $ | (2 | ) | ||
Fuel for electric generation | | |||||
Cost of gas sold | | |||||
Other income | 1 | |||||
Interest rate contracts |
Other expense | | ||||
Total CMS Energy |
$ | (1 | ) | |||
Consumers |
||||||
Derivatives not designated as hedging instruments: |
||||||
Commodity contracts |
Other income | $ | 1 | |||
In Millions | ||||||
Amount of Gain | ||||||
Location of Gain (Loss) | (Loss) Recognized | |||||
Recognized in Income on | in Income on | |||||
Six months ended June 30, 2009 | Derivatives | Derivatives | ||||
CMS Energy, including Consumers |
||||||
Derivatives not designated as hedging instruments: |
||||||
Commodity contracts |
Operating Revenue | $ | 5 | |||
Fuel for electric generation | (2 | ) | ||||
Cost of gas sold | (3 | ) | ||||
Other income | 1 | |||||
Interest rate contracts |
Other expense | | ||||
Foreign exchange contracts (a) |
Other expense | (1 | ) | |||
Total CMS Energy |
$ | | ||||
Consumers |
||||||
Derivatives not designated as hedging instruments: |
||||||
Commodity contracts |
Other income | $ | 1 | |||
(a) | This derivative loss relates to a foreign-exchange forward contract CMS Energy held at December 31, 2008. CMS Energy settled this obligation and the related derivative in January 2009. |
At June 30, 2009, none of CMS Energys derivative liabilities was subject to credit-risk-related
contingent features. Therefore, there is no credit-risk-related circumstance in which CMS Energy
would have to post collateral or settle its derivative liabilities.
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9: RETIREMENT BENEFITS
CMS Energy and Consumers provide pension, OPEB, and other retirement benefit plans to their
employees.
The following tables show the costs and other changes in plan assets and benefit obligations
incurred in CMS Energys and Consumers retirement benefits plans:
In Millions | ||||||||||||||||
Pension | ||||||||||||||||
Three months ended | Six months ended | |||||||||||||||
June 30 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Service cost |
$ | 10 | $ | 10 | $ | 20 | $ | 21 | ||||||||
Interest expense |
24 | 24 | 48 | 48 | ||||||||||||
Expected return on plan assets |
(22 | ) | (21 | ) | (43 | ) | (41 | ) | ||||||||
Amortization of: |
||||||||||||||||
Net loss |
11 | 11 | 21 | 21 | ||||||||||||
Prior service cost |
1 | 2 | 3 | 3 | ||||||||||||
Net periodic cost |
24 | 26 | 49 | 52 | ||||||||||||
Regulatory adjustment |
| 8 | | 4 | ||||||||||||
Net periodic cost after regulatory adjustment |
$ | 24 | $ | 34 | $ | 49 | $ | 56 | ||||||||
Consumers |
||||||||||||||||
Service cost |
$ | 10 | $ | 10 | $ | 20 | $ | 20 | ||||||||
Interest expense |
23 | 23 | 46 | 46 | ||||||||||||
Expected return on plan assets |
(22 | ) | (20 | ) | (42 | ) | (39 | ) | ||||||||
Amortization of: |
||||||||||||||||
Net loss |
10 | 10 | 20 | 20 | ||||||||||||
Prior service cost |
2 | 2 | 3 | 3 | ||||||||||||
Net periodic cost |
23 | 25 | 47 | 50 | ||||||||||||
Regulatory adjustment |
| 8 | | 4 | ||||||||||||
Net periodic cost after regulatory adjustment |
$ | 23 | $ | 33 | $ | 47 | $ | 54 | ||||||||
CMS Energys and Consumers expected long-term rate of return on plan assets is 8.25 percent. For
the six months ended June 30, 2009, the actual return on pension plan assets was 4.8 percent, and
for 2008 the actual return was a negative 23.2 percent. The expected rate of return is an
assumption about long-term asset performance that CMS Energy and Consumers review annually for
reasonableness and appropriateness.
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In Millions | ||||||||||||||||
OPEB | ||||||||||||||||
Three months ended | Six months ended | |||||||||||||||
June 30 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Service cost |
$ | 7 | $ | 5 | $ | 13 | $ | 11 | ||||||||
Interest expense |
20 | 18 | 40 | 36 | ||||||||||||
Expected return on plan assets |
(13 | ) | (17 | ) | (26 | ) | (33 | ) | ||||||||
Amortization of: |
||||||||||||||||
Net loss |
9 | 2 | 17 | 4 | ||||||||||||
Prior service credit |
(3 | ) | (2 | ) | (5 | ) | (5 | ) | ||||||||
Net periodic cost |
20 | 6 | 39 | 13 | ||||||||||||
Regulatory adjustment |
| 2 | | 3 | ||||||||||||
Net periodic cost after regulatory adjustment |
$ | 20 | $ | 8 | $ | 39 | $ | 16 | ||||||||
Consumers |
||||||||||||||||
Service cost |
$ | 6 | $ | 5 | $ | 12 | $ | 11 | ||||||||
Interest expense |
19 | 18 | 39 | 36 | ||||||||||||
Expected return on plan assets |
(12 | ) | (17 | ) | (24 | ) | (33 | ) | ||||||||
Amortization of: |
||||||||||||||||
Net loss |
9 | 3 | 17 | 5 | ||||||||||||
Prior service credit |
(3 | ) | (2 | ) | (5 | ) | (5 | ) | ||||||||
Net periodic cost |
19 | 7 | 39 | 14 | ||||||||||||
Regulatory adjustment |
| 2 | | 3 | ||||||||||||
Net periodic cost after regulatory adjustment |
$ | 19 | $ | 9 | $ | 39 | $ | 17 | ||||||||
10: INCOME TAXES
The actual income tax expense on continuing operations differs from the amount computed by applying
the statutory federal tax rate of 35 percent to income before income taxes, as follows:
In Millions | ||||||||
Six months ended June 30 | 2009 | 2008 | ||||||
Income from continuing operations before income taxes
less income attributable to noncontrolling interests |
$ | 201 | $ | 240 | ||||
Statutory federal income tax rate |
x | 35 | % | x | 35 | % | ||
Expected income tax expense |
70 | 84 | ||||||
Increase (decrease) in taxes from: |
||||||||
State and local income taxes, net of federal benefit |
12 | 4 | ||||||
Medicare Part D exempt income |
(3 | ) | (3 | ) | ||||
Other, net |
| 2 | ||||||
Recorded income tax expense |
$ | 79 | $ | 87 | ||||
Effective tax rate |
39.3 | % | 36.3 | % | ||||
The increase in the effective tax rate for the six months ended June 30, 2009 was due to increases
in the MBT from legislative changes that increased the tax, as well as the recognition of deferred
MBT for the electric utility segment of Consumers, beginning with the second quarter of 2009.
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11: REPORTABLE SEGMENTS
Reportable segments consist of business units defined by the products and services they offer. CMS
Energy and Consumers evaluate performance based on the net income of each segment. The reportable
segments for CMS Energy and Consumers are:
CMS Energy:
| electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan; | ||
| gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; | ||
| enterprises, consisting of various subsidiaries engaging primarily in domestic independent power production; and | ||
| other, including corporate interest and other expenses and discontinued operations. |
Consumers:
| electric utility, consisting of regulated activities associated with the generation and distribution of electricity in Michigan; | ||
| gas utility, consisting of regulated activities associated with the transportation, storage, and distribution of natural gas in Michigan; and | ||
| other, including a consolidated special-purpose entity for the sale of accounts receivable. |
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The following tables show financial information by reportable segment:
In Millions | ||||||||||||||||
Three months ended | Six months ended | |||||||||||||||
June 30 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Operating Revenue |
||||||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Electric utility |
$ | 848 | $ | 841 | $ | 1,660 | $ | 1,701 | ||||||||
Gas utility |
334 | 422 | 1,556 | 1,653 | ||||||||||||
Enterprises |
38 | 97 | 104 | 185 | ||||||||||||
Other |
6 | 5 | 12 | 10 | ||||||||||||
Total Operating Revenue CMS Energy |
$ | 1,226 | $ | 1,365 | $ | 3,332 | $ | 3,549 | ||||||||
Consumers |
||||||||||||||||
Electric utility |
$ | 848 | $ | 841 | $ | 1,660 | $ | 1,701 | ||||||||
Gas utility |
334 | 422 | 1,556 | 1,653 | ||||||||||||
Total Operating Revenue Consumers |
$ | 1,182 | $ | 1,263 | $ | 3,216 | $ | 3,354 | ||||||||
Net Income Available to Common
Stockholders |
||||||||||||||||
CMS Energy, including Consumers |
||||||||||||||||
Electric utility |
$ | 67 | $ | 57 | $ | 106 | $ | 124 | ||||||||
Gas utility |
5 | 2 | 64 | 64 | ||||||||||||
Enterprises |
(17 | ) | 10 | (17 | ) | 8 | ||||||||||
Other |
20 | (25 | ) | (8 | ) | (50 | ) | |||||||||
Total Net Income Available to Common
Stockholders CMS Energy |
$ | 75 | $ | 44 | $ | 145 | $ | 146 | ||||||||
Consumers |
||||||||||||||||
Electric utility |
$ | 67 | $ | 57 | $ | 106 | $ | 124 | ||||||||
Gas utility |
5 | 2 | 64 | 64 | ||||||||||||
Other |
| 1 | | 1 | ||||||||||||
Total Net Income Available to Common
Stockholder Consumers |
$ | 72 | $ | 60 | $ | 170 | $ | 189 | ||||||||
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In Millions | ||||||||
June 30, 2009 | December 31, 2008 | |||||||
Assets |
||||||||
CMS Energy, including Consumers |
||||||||
Electric utility (a) |
$ | 9,352 | $ | 8,904 | ||||
Gas utility (a) |
4,396 | 4,565 | ||||||
Enterprises |
301 | 313 | ||||||
Other |
1,234 | 1,119 | ||||||
Total Assets CMS Energy |
$ | 15,283 | $ | 14,901 | ||||
Consumers |
||||||||
Electric utility (a) |
$ | 9,352 | $ | 8,904 | ||||
Gas utility (a) |
4,396 | 4,565 | ||||||
Other |
735 | 777 | ||||||
Total Assets Consumers |
$ | 14,483 | $ | 14,246 | ||||
(a) | Amounts include a portion of Consumers other common assets attributable to both the electric and the gas utility businesses. |
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