Consumers Energy Company — Q1 2021 Form 10-Q
Business context and period. Consumers Energy is a regulated Michigan electric and natural gas utility and a wholly owned subsidiary of CMS Energy. This unaudited report covers the three months ended March 31, 2021; results are seasonal and not necessarily indicative of full-year performance.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Operating revenue | $1.937 billion | $1.744 billion |
| Operating income | $429 million | $329 million |
| Net income | $336 million | $235 million |
| Operating cash flow | $841 million | $238 million |
| Capital expenditures | $433 million | $520 million |
Revenue increased 11% and net income increased 43% year over year. Operating margin was approximately 22.1%, versus 18.9% in Q1 2020; net margin was approximately 17.3%, versus 13.5%. Higher electric and gas rates were major earnings contributors. Electric deliveries were 8.7 billion kWh versus 8.8 billion; gas deliveries were 124 bcf versus 120 bcf.
Operating cash flow rose substantially, principally because Consumers made no pension contributions in Q1 2021, compared with $518 million in Q1 2020. Investing cash outflow was $458 million, including $433 million of capital expenditures. Financing cash outflow was $384 million, including $276 million of dividends to CMS Energy and repayment of $250 million of related-party notes payable, partly offset by a $150 million stockholder contribution.
At March 31, 2021, cash and cash equivalents were $34 million, including $25 million restricted. Long-term debt was $7.743 billion and its current portion was $384 million; Consumers also had $57 million outstanding under a short-term loan from CMS Energy. Approximately $1.1 billion was available under revolving credit facilities; no commercial paper was outstanding. Consumers reported compliance with debt covenants, with a debt-to-capital ratio of 0.48 against a limit below 0.65.
Changes, outlook, and material matters
- Net income increased $101 million in the electric utility and $64 million in the gas utility. Rate increases contributed $40 million and $63 million, respectively, to pretax results. Higher depreciation and property taxes from increased capital investment partly offset gains.
- Management expects weather-normalized electric and gas deliveries to remain broadly stable over the next five years relative to 2020. Consumers plans $13.2 billion of capital spending during 2021–2025 and $25 billion over ten years; planned annual rate-base growth is 6%–8%.
- In March 2021, Consumers filed for a $225 million annual electric rate increase, based on a requested 10.5% return on equity, and separately requested a $43 million annual increase in depreciation expense. Both requests require regulatory approval.
- The clean-energy strategy targets net-zero carbon emissions from the electric business by 2040 and net-zero methane emissions from the gas delivery system by 2030. Planned actions include renewable generation, efficiency measures, and infrastructure replacement; execution, permitting, cost recovery, and future environmental rules present risks.
- COVID-19-related past-due customer accounts remained above pre-pandemic levels, although the long-term effects on collections and the Michigan economy were uncertain. EnerBank lending and credit risks are CMS Energy matters, not Consumers utility results.
- Contingencies include environmental remediation, including a $56 million recorded liability for gas-related sites, and the Ray Compressor Station matter. The MPSC disallowed $7 million of incremental gas purchases related to the 2019 fire; Consumers appealed. The filing does not provide a clear estimate of total potential loss for that matter.
Investor items to verify
- Progress and timing of the $225 million electric rate case and the separate depreciation request.
- Whether planned capital spending and 6%–8% rate-base growth are achieved, and the resulting financing and customer-rate impacts.
- Cash generation excluding the unusually large year-over-year effect of pension contributions, alongside capital spending and dividend requirements.
- COVID-19 customer arrears, collection trends, and any renewed increase in uncollectible accounts.
- Resolution and cost recovery for environmental obligations and the Ray Compressor Station appeal; the filing identifies uncertainty but does not quantify all potential exposure.