CMS Energy Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited combined filing for CMS Energy and its wholly owned regulated utility, Consumers Energy. CMS Energy also includes non-utility energy businesses. Amounts are in millions of dollars unless stated otherwise.
Financial performance
| Metric | CMS Energy | Consumers Energy | Comparison |
|---|---|---|---|
| Operating revenue | $2,374 | $2,283 | CMS +18%; Consumers +18% year over year |
| Operating income | $456 | $462 | CMS +6%; Consumers +8% |
| Operating margin | 19.2% | 20.2% | Down from 21.4% and 22.1%, respectively |
| Net income available to common stockholders | $351 | $383 | CMS +$2; Consumers +$47 |
| Diluted EPS | $1.21 | Not applicable | CMS unchanged; continuing-operations EPS rose to $1.20 from $1.09 |
| Operating cash flow | $707 | $745 | Down from $832 and $841, respectively |
| Capital expenditures | $520 | $506 | Excludes assets placed under finance lease |
CMS Energy’s operating cash flow less reported capital expenditures was $187 million; Consumers’ was $239 million. These are simple cash-flow comparisons, not company-reported free cash flow measures.
Revenue growth primarily reflected favorable weather and higher electric and gas deliveries. Gas cost of sales rose to $468 million from $279 million at CMS Energy, while fuel and purchased-power costs also increased. Higher utility earnings were partly offset by increased distribution, transmission, generation, compression, depreciation, property-tax, and forestry expenses. CMS Energy’s reported net income also included $4 million of discontinued-operations income in 2022, versus $34 million in Q1 2021, when EnerBank was still owned.
Financial position and liquidity
- At March 31, CMS Energy had $474 million of cash and restricted cash; Consumers had $38 million. Consumers’ cash balance included $26 million restricted.
- CMS Energy reported $12.045 billion of long-term debt and $382 million of current debt, finance leases, and other financing. Consumers reported $8.051 billion of long-term debt and $374 million of current debt, finance leases, and other financing.
- Available revolving credit was $526 million for CMS Energy and $1.1 billion for Consumers. Consumers had no commercial paper outstanding.
- Both companies said they expected sufficient liquidity for commitments and were in compliance with credit covenants. Debt-to-capital ratios were 0.54 for CMS Energy and 0.46 for Consumers, below respective limits of 0.70 and 0.65.
- Consumers paid $275 million in common dividends to CMS Energy during the quarter. CMS Energy declared common dividends of $0.46 per share, versus $0.435 in Q1 2021.
Material changes and outlook
- Consumers’ electric deliveries rose to 9.2 billion kWh from 8.7 billion; gas deliveries rose to 140 bcf from 124 bcf. Management attributed higher sales principally to favorable weather and sales mix.
- CMS Energy’s utility earnings improved, but Enterprises earnings fell to $8 million from $14 million. Corporate interest and other was a $44 million loss, compared with a $35 million loss.
- Management expects weather-normalized electric and gas deliveries to remain stable over the next five years compared with 2021, with energy-efficiency programs largely offset by modest demand growth.
- Consumers expects approximately $25 billion of capital investment over ten years and annual rate-base growth of 6%–8%. Its planned 2022–2026 investment includes $14.3 billion already expected, with nearly $1 billion of additional investment contemplated under the proposed IRP settlement. Priorities include $10.8 billion for gas and electric distribution infrastructure and $2.8 billion for new clean generation.
- An April 2022 settlement resolving Consumers’ 2021 integrated resource plan was pending MPSC approval. It proposes ending coal generation by 2025, acquiring the 1,176-MW New Covert gas plant for $815 million subject to adjustments, procuring about 700 MW of capacity, and adding nearly 8,000 MW of solar generation by 2040.
- Consumers’ April 2022 electric rate filing requested a $272 million increase, including a $266 million annual increase and a $6 million surcharge. Its gas rate request was reduced in April from $278 million to $233 million annually. Both requests remained subject to regulatory approval.
- Consumers’ stated targets include net-zero electric-business carbon emissions by 2040, net-zero methane emissions from gas delivery by 2030, and net-zero greenhouse gas emissions for its entire gas system by 2050. These plans depend on execution, regulatory outcomes, technology, and other factors.
Risks, contingencies, and unusual items
- Regulatory recovery: Regulators may disallow some capital costs. Consumers had incurred approximately $20 million for electric and gas programs subject to potential disallowance; management said a material disallowance could adversely affect results.
- IRP and generation transition: The proposed resource plan and related plant purchase, retirements, and renewable buildout depend on MPSC approval and successful execution. The planned Enterprises sale of three gas plants to Consumers for $515 million is not expected to proceed under the proposed settlement.
- Project and supply risk: A U.S. Department of Commerce inquiry into solar-module trade duties could restrict supply and affect pending and planned projects.
- Legal matter: Consumers and DTE Electric sued TAES and Toshiba in April 2022 over delayed and unsatisfactory work on the Ludington plant overhaul. The outcome and financial impact were not estimable; an unfavorable outcome could materially affect financial condition, results, or liquidity.
- Environmental obligations: CMS Energy recorded a $45 million Bay Harbor remediation liability. Consumers recorded a $57 million liability for gas environmental sites, including 23 former manufactured-gas-plant sites, and a $109 million related regulatory asset. Cost estimates and recovery depend on regulatory and other developments.
- Pension and workforce: A March remeasurement resulted in a $4 million pension settlement loss, deferred as a regulatory asset. An April voluntary separation program is expected to produce second-quarter expense; possible pension or OPEB plan curtailments remained under review.
- Other cash-flow item: Operating cash flow declined year over year, principally due to timing of collections on higher electric and gas deliveries. CMS Energy’s quarter-end cash included $28 million restricted.
- Management identified inflation, labor and supply-chain constraints, commodity prices, weather and severe storms, regulatory decisions, environmental requirements, cybersecurity, and capital-market access among risks. The filing reported no material changes to previously disclosed risk factors or market-risk disclosures.
Important facts for investors to verify
- Whether the MPSC approves the 2021 IRP settlement and the requested electric and gas rate increases, and how final orders affect allowed returns and cost recovery.
- Whether the proposed New Covert acquisition, coal retirements, capacity procurements, and renewable projects proceed on schedule and within expected costs.
- Whether solar-module availability, tariffs, inflation, or supply-chain delays change the renewable investment plan.
- How the Ludington contract litigation, capital-cost disallowance proceedings, and environmental contingencies develop, including any effect on cash flows or liquidity.
- Whether operating cash flow recovers as working-capital timing normalizes while the companies fund their substantial capital plans and maintain dividend and debt commitments.