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(EDGAR Online via COMTEX) -- Management's Discussion and Analysis of Financial Condition and Results of Operations This MD&A is a combined report of CMS Energy and Consumers. Executive Overview CMS Energy is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers, an electric and gas utility; CMS Enterprises, primarily a domestic independent power producer and marketer; and EnerBank, an industrial bank located in Utah. Consumers' electric utility operations include the generation, purchase, transmission, distribution, and sale of electricity, and Consumers' gas utility operations include the purchase, transmission, storage, distribution, and sale of natural gas. Consumers' customer base consists of a mix of residential, commercial, and diversified industrial customers. CMS Enterprises, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production. EnerBank provides primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements. CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in four business segments: electric utility; gas utility; enterprises, its non�utility operations and investments; and EnerBank. Consumers operates principally in two business segments: electric utility and gas utility. CMS Energy's and Consumers' businesses are affected primarily by: regulation and regulatory matters

state and federal legislation

economic conditions

weather

energy commodity prices

interest rates

their securities' credit ratings

COVID�19 Pandemic

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increase in deliveries to residential customers. It has also experienced an increase in uncollectible accounts and workforce-related expenses, among other cost increases directly attributable to the pandemic. Consumers anticipates that these trends will continue in the near term. In April 2020, the MPSC issued an order authorizing Consumers to defer incremental uncollectible accounts expense associated with the pandemic.

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protect their employees, customers, and contractors to ensure the continued delivery of critical energy services. To align with, and in addition to, these guidelines, CMS Energy and Consumers have:

when necessary, sequestered employees with critical roles at generating plants, gas compression facilities, and electric control rooms

implemented a 14�day paid self-quarantine requirement for employees who are exhibiting symptoms of COVID-19 or who have come into contact with a person suspected to have COVID�19

prohibited business-related international travel and instituted a mandatory 14�day work remote period for employees who return from personal travel to impacted areas

required employees to work remotely when possible

when necessary, reduced service at 13 direct payment offices to drop box and drive-through services only

initially adjusted work to focus on emergent and critical activities such as electric outages, gas leaks, and other public safety and reliability work; as work restrictions have gradually lifted in Michigan, the companies have resumed normal work with safety measures in place

contracted a chief medical officer to guide the companies' response and provide rapid support and supplies for the workforce

limited access to company facilities, enhanced cleaning protocols, and established a mask-wearing policy

offered additional paid leave to employees to alleviate child care-related burdens and implemented other interim workforce policies to offer flexibility and reduce employee concerns

CMS Energy and Consumers also suspended shut-offs of service for non-payment and extended payment protection plans for low-income and senior customers. CMS Energy and Consumers remain committed to assisting customers who are experiencing difficulty paying their energy bill due to the pandemic. CMS Energy and Consumers also place a high priority on customer value and on providing a hometown customer experience. Consumers' customer-driven investment program is aimed at improving safety and increasing electric and gas reliability, which has resulted in measurable improvements in customer satisfaction.

targeted infrastructure investment to improve reliability and safety and to reduce maintenance costs

information and control system efficiencies

employee and retiree health care cost sharing

workforce productivity enhancements

In addition, Consumers' gas commodity costs declined by 62 percent from 2009 through 2019, due not only to a decrease in market prices but also to Consumers' improvements to its gas infrastructure and optimization of its gas purchasing and storage strategy. These gas commodity savings are passed on to customers. Planet: The planet element of the triple bottom line represents CMS Energy's and Consumers' commitment to protect the environment. This commitment extends beyond compliance with various state and federal environmental, health, and safety laws and regulations. Management considers climate change

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and other environmental risks in the companies' strategy development, business planning, and enterprise risk management processes.

reduced carbon dioxide emissions by over 35 percent since 2005

reduced the amount of water used to generate electricity by over 35 percent since 2012

reduced landfill waste disposal by over 1.3 million tons since 1992

reduced methane emissions by 12 percent since 2012

Additionally, over the last 20 years, Consumers has reduced its sulfur dioxide, nitrogen oxide, particulate matter, and mercury emissions by over 90 percent. The 2016 Energy Law:

established a goal of 35 percent combined renewable energy and energy waste reduction by 2025; Consumers has achieved 22 percent of the combined renewable energy and energy waste reduction goal through 2019

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

established an integrated planning process for new generation resources

In 2019, the MPSC approved the IRP that Consumers filed in 2018, which details its Clean Energy Plan. Under its Clean Energy Plan, Consumers will meet the requirements of the 2016 Energy Law using its clean and lean strategy, which focuses on increasing the generation of renewable energy, helping customers use less energy, and offering demand response programs to reduce demand during critical peak times. Further, Consumers plans to replace its coal-fueled generation predominantly with investment in renewable energy, which will enable Consumers to meet and exceed the 2016 Energy Law renewable energy requirements and fulfill increasing customer demand for renewable energy. Through its Clean Energy Plan, Consumers expects to reduce carbon emissions of its owned generation by more than 90 percent from its 2005 levels by 2040. Additionally, the Clean Energy Plan will allow Consumers to achieve a breakthrough goal of at least 50 percent combined renewable energy and energy waste reduction by 2030.

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Presented in the following illustration is Consumers' 2019 capacity portfolio and its future capacity portfolio as projected in the IRP. This illustration includes the effects of purchased capacity and energy waste reduction and uses the nameplate capacity of renewable energy sources:

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Additionally, to advance its environmental stewardship in Michigan and to minimize the impact of future regulations, Consumers announced the following five�year targets during 2018:

to reduce the amount of waste taken to landfills by 35 percent; during 2018 and 2019, Consumers reduced its waste to landfills by ten percent

to enhance, restore, or protect 5,000 acres of land; during 2018 and 2019, Consumers enhanced, restored, or protected over 2,200 acres of land

CMS Energy, through CMS Enterprises, continues to pursue further opportunities for the development of renewable generation projects. In June 2020, CMS Enterprises purchased development rights for a solar project in Hart Township, Michigan with a potential to develop up to 100 MW of solar capacity. In July 2020, CMS Enterprises purchased a 51-percent ownership interest in a 525-MW wind generation project being constructed in Coke County, Texas; the project is expected to become operational in August 2020.

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Performance: Impacting the Triple Bottom Line CMS Energy and Consumers remain committed to achieving world class performance while delivering hometown service. Leveraging the Consumers Energy Way, CMS Energy and Consumers accomplished the following during 2019:

launched a three-year electric vehicle pilot program

committed to spend $7.5 billion with Michigan businesses over the next five years; of that amount, $1.5 billion will be spent with diverse suppliers

completed the deployment of automated gas meters in areas where Consumers provides only natural gas to customers, allowing for drive-by meter reading

ranked the highest in customer satisfaction among large natural gas providers in the Midwest, according to a residential customer satisfaction study conducted by J.D. Power, a global marketing information company

CMS Energy and Consumers will continue to utilize the Consumers Energy Way to enable them to achieve world class performance and positively impact the triple bottom line. Consumers' investment plan and the regulatory environment in which it operates also drive its ability to impact the triple bottom line. Investment Plan: Consumers expects to make capital investments of $25 billion over the next ten years. Over the next five years, Consumers expects to make significant expenditures on infrastructure upgrades and replacements and electric supply projects. While it has a large number of potential investment opportunities that would add customer value, Consumers has prioritized its spending based on the criteria of enhancing public safety, increasing reliability, maintaining affordability for its customers, and advancing its environmental stewardship. Consumers' investment program is expected to result in annual rate-base growth of six to eight percent. This rate-base growth, together with cost-control measures, should allow Consumers to maintain affordable customer prices.

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Presented in the following illustration are planned capital expenditures of $12.2 billion that Consumers expects to make from 2020 through 2024:

2020 Electric Rate Case: In February 2020, Consumers filed an application with the MPSC seeking an annual rate increase of $244 million, based on a 10.5 percent authorized return on equity. In July 2020, Consumers reduced its requested annual rate increase to $230 million. The filing also seeks approval to recover $13 million associated with Consumers' deferral of depreciation and property tax expense and the overall rate of return on distribution-related capital

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investments exceeding certain threshold amounts. Additionally, the filing seeks approval of a method of recovering amounts earned under the financial compensation mechanism approved by the MPSC in Consumers' IRP. This mechanism allows Consumers to earn a financial incentive on PPAs approved by the MPSC after January 1, 2019. Consumers also proposes in the filing a new distributed generation tariff to replace the current net metering tariff, pursuant to the 2016 Energy Law.

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Aug 03, 2020

COMTEX_368805432/2041/2020-08-03T11:02:00

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