CMS Energy Corporation — 2012 Form 10-K Summary
Business context and reporting period. The filing covers the fiscal year ended December 31, 2012; it is a combined annual report for CMS Energy and its wholly owned utility subsidiary, Consumers Energy. CMS operates primarily in Michigan, with regulated electric and gas utilities comprising most of the business and a smaller non-utility generation and investment segment. Consumers served approximately 6.6 million Michigan residents.
Financial performance and condition
| Metric | CMS Energy, 2012 | 2011 |
|---|---|---|
| Operating revenue | $6.253 billion | $6.503 billion |
| Operating income | $1.003 billion | $1.003 billion |
| Net income available to common stockholders | $382 million | $415 million |
| Diluted EPS | $1.42 | $1.58 |
| Cash provided by operations | $1.241 billion | $1.169 billion |
| Capital expenditures | $1.227 billion | $882 million |
| Long-term debt, excluding current portion | $6.710 billion | $6.040 billion |
CMS reported cash and cash equivalents of $93 million plus $29 million restricted cash at year-end. Its $550 million revolving facility had $548 million available. CMS and Consumers reported aggregate principal indebtedness of $7.245 billion. CMS operating margin was approximately 16.0% of revenue; net income available to common holders was approximately 6.1% of revenue.
Consumers reported 2012 revenue of $6.013 billion, net income of $439 million, and operating cash flow of $1.353 billion. Consumers had $5 million cash and $28 million restricted cash, plus $648 million available under revolving facilities. Its long-term debt excluding current portion was $4.297 billion.
Material changes versus 2011
- CMS revenue fell about 4%, while operating income was unchanged; common net income declined $33 million and diluted EPS fell from $1.58 to $1.42.
- Key earnings drags included the $59 million write-off of Consumers’ electric revenue-decoupling regulatory asset and the absence of a $32 million tax benefit recorded in 2011 after Michigan tax-law changes. Improved utility operating results partly offset these items.
- Consumers’ electric utility net income declined $8 million to $325 million; gas utility net income declined $20 million to $110 million, primarily reflecting milder weather and lower gas deliveries. Enterprises net income declined $16 million to $16 million.
- Operating cash flow rose $72 million at CMS, but capital spending rose $345 million; the two nearly offset before other investing items. Debt increased, and CMS issued and retired significant amounts of debt during the year.
- CMS common dividends declared increased to $0.96 per share from $0.84.
Outlook, commentary, risks and unusual items
- Management said Michigan economic conditions were improving. Consumers expected weather-adjusted electric deliveries to be stable in 2013 and average electric delivery growth of 0.5%–1.0% annually through 2017; gas deliveries were expected to grow about 2% in 2013 and remain broadly stable over five years. The filing does not provide a specific CMS EPS forecast.
- CMS and Consumers planned approximately $7 billion of investment from 2013–2017, primarily at Consumers. Plans include a proposed 700-MW gas plant costing an estimated $750 million, subject to regulatory and environmental approvals; grid modernization; reliability projects; and environmental compliance. Management projected rate-base growth of 5%–7% annually and aimed to keep base-rate increases at or below inflation, excluding recovery mechanisms.
- Consumers estimated $1.1 billion of environmental expenditures from 2013–2018, including preliminary estimates of $835 million for air controls, $125 million for ash disposal, and $180 million for wastewater compliance. Cost estimates and customer-rate recovery remain uncertain.
- Consumers planned to mothball seven smaller coal units in 2015; potential lost capacity could reach 1,500 MW. Its coal-heavy generation mix faces evolving air, water, greenhouse-gas and coal-ash requirements, as well as potential retirement, conversion, or additional-control costs.
- Regulatory and market risks include pending electric and gas rate cases, appeals and cost-recovery uncertainty, and proposed legislation that could raise the 10% retail-access cap. An increase could expose Consumers to greater customer switching. A proposed Trunkline pipeline abandonment could also affect Michigan gas prices and availability.
- Contingencies include CMS’s Bay Harbor remediation liability of $61 million recorded at year-end ($80 million undiscounted), Consumers’ $122 million recorded liability for former manufactured-gas-plant sites, and a disputed $142 million Equatorial Guinea tax claim plus interest. Legacy gas-price-index litigation remains subject to appeal, with potential losses not estimable from the filing.
- Other notable items: a $12 million charge for a voluntary separation program; a $7 million after-tax discontinued-operations benefit from eliminating a Panhandle-sale indemnity liability; and a $59 million electric-decoupling asset write-off. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Investor verification priorities
- Review the full audited statements and notes for debt maturities, cash restrictions, refinancing needs, and the terms and availability of liquidity facilities.
- Track outcomes of pending rate cases, rate-refund reconciliations, regulatory appeals, and any change to Michigan’s retail-access limit or utility cost-recovery rules.
- Test the feasibility, timing, approvals, and funding of the proposed gas plant and the broader $7 billion capital plan against projected cash flow and rate-base returns.
- Assess environmental cost estimates, coal-unit plans, and the extent to which compliance and remediation spending will be recovered from customers.
- Monitor the Bay Harbor and MGP remediation assumptions, the Equatorial Guinea claim, and appeals in legacy gas-index litigation, including any new estimable exposure.