CMS Energy Corp. & Consumers Energy Co. - Q2 2009 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2009, for CMS Energy Corporation (CMS Energy) and its primary subsidiary, Consumers Energy Company (Consumers). CMS Energy is a holding company operating primarily in Michigan through three segments: Electric Utility, Gas Utility, and Enterprises (non-utility investments). Consumers is a regulated combination electric and gas utility serving Michigan's Lower Peninsula. The reporting period reflects significant economic headwinds in Michigan, particularly in the automotive sector, and ongoing regulatory proceedings regarding rate increases and environmental compliance.
Key Financial Metrics (Six Months Ended June 30, 2009)
| Metric | CMS Energy (Consolidated) | Consumers Energy |
|---|---|---|
| Operating Revenue | $3,334 million | $3,218 million |
| Net Income Available to Common Stockholders | $143 million | $168 million |
| Diluted Earnings Per Share (CMS Energy) | $0.61 | N/A |
| Operating Cash Flow | $803 million | $856 million |
| Capital Expenditures | $412 million | $407 million |
| Cash and Cash Equivalents (End of Period) | $1.025 billion | $737 million |
| Long-Term Debt | $6.356 billion | $4.081 billion |
Material Changes vs. Prior Period
- Net Income: CMS Energy's net income available to common stockholders decreased slightly by $3 million ($143 million vs. $146 million in 2008). This was driven by a $20 million decline in Electric Utility earnings and a $25 million decline in Enterprises earnings, partially offset by a $30 million gain from discontinued operations and a $12 million improvement in corporate interest/other.
- Revenue Decline: Consolidated operating revenue decreased by $215 million year-over-year, primarily due to lower gas commodity costs and decreased electric and gas deliveries reflecting unfavorable economic conditions in Michigan.
- Enterprises Segment Loss: The Enterprises segment recorded a net loss of $17 million, compared to $8 million income in 2008. This was primarily due to a $22 million after-tax charge for increased projected environmental remediation costs at the Bay Harbor site.
- Discontinued Operations: A significant positive impact of $30 million came from discontinued operations, largely due to the expiration of an indemnity obligation related to a 2007 asset sale.
- Rate Increases: Consumers self-implemented an annual electric rate increase of $179 million in May 2009, subject to potential refund, and a one-time refund of $36 million to customers.
Guidance, Outlook, and Risks
- Outlook: Consumers expects weather-adjusted electric sales to decline 3.5% in 2009 and gas sales to decline 5%. The company anticipates modest growth in deliveries beginning in 2010 as economic conditions stabilize.
- Capital Plan: Consumers forecasts capital investments exceeding $6 billion from 2009 through 2013, focusing on the "Balanced Energy Initiative" (renewables, efficiency, and new generation).
- Regulatory Risks:
- Rate Cases: Consumers is awaiting final orders on its electric rate case (seeking $214 million increase) and gas rate case (seeking $114 million increase). Self-implemented rates are subject to refund if regulators disallow them.
- Environmental: Significant uncertainty exists regarding federal greenhouse gas regulations (cap and trade or carbon tax) and state-level mercury and coal ash rules. Consumers estimates $1.36 billion in environmental compliance costs from 2009-2017.
- Bay Harbor: Ongoing remediation costs at the Bay Harbor site remain a material contingency, with a recorded liability of $90 million as of June 30, 2009.
- Liquidity: The company maintains access to capital markets and has $550 million in revolving credit facilities available. Management believes current cash and operating cash flows are sufficient to meet requirements, though they monitor credit market volatility closely.
Investor Verification Checklist
- Rate Case Outcomes: Verify the final MPSC orders regarding the self-implemented $179 million electric rate increase and the pending $114 million gas rate increase to confirm revenue recovery.
- Bay Harbor Liability: Monitor updates on the Bay Harbor remediation project, as cost estimates have increased significantly and could impact future earnings.
- Michigan Economic Recovery: Assess the impact of the automotive industry's recovery on electric and gas delivery volumes, which are currently depressed.
- Environmental Legislation: Track federal and state legislative developments regarding carbon dioxide and mercury emissions, which could necessitate unplanned capital expenditures.
- Debt Maturities: Review the schedule of debt maturities and refinancing needs, particularly given the company's recent debt issuances and tender offers.