Consumers Energy Company — 2022 Form 10-K
Business context and reporting period. Consumers Energy is a regulated Michigan electric and natural-gas utility serving approximately 6.7 million residents. This combined filing covers the fiscal year ended December 31, 2022; the figures below are annual, not fourth-quarter results. CMS Energy is Consumers’ parent, and its consolidated results include non-utility operations and should not be confused with Consumers’ standalone results. Dollar amounts are in millions unless otherwise noted.
Key financial results
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Consumers revenue | $8,151 | $7,021 | +16.1% |
| Operating income | $1,233 | $1,175 | +4.9% |
| Net income available to common stockholder | $943 | $866 | +8.9% |
| Operating margin | 15.1% | 16.7% | Down 1.6 percentage points |
| Net margin | 11.6% | 12.3% | Down 0.8 percentage points |
| Cash from operating activities | $994 | $1,982 | −49.8% |
| Capital expenditures, including finance-lease assets | $2,280 | $2,144 | +$136 |
Revenue growth reflected higher gas sales and higher rates, including favorable gas weather and sales mix. Natural-gas costs and electric power-supply costs also rose materially. Consumers’ 2022 power-supply costs exceeded the level projected in its plan; the company reported a $401 million PSCR underrecovery at year-end, expected to be recovered from customers subject to regulatory processes.
Liquidity and debt at year-end: Consumers reported $60 million of cash and restricted cash, including $43 million of cash and cash equivalents and $17 million restricted. Current assets were $3,236 million and current liabilities $2,871 million, a current ratio of approximately 1.13. Long-term debt, including its current portion, totaled approximately $10.2 billion; the balance sheet also showed $20 million of notes payable and $75 million of notes payable to CMS Energy. Consumers had $1.3 billion available under revolving credit facilities, and was in compliance with its debt covenants.
Material changes and notable items
- Gas utility net income increased to $378 million from $302 million, principally due to favorable weather and sales mix and the 2022 gas-rate increase.
- Electric utility net income was nearly flat at $567 million versus $565 million. Rate increases and lower service-restoration costs were offset by refunds, weather and sales mix, and higher operating costs.
- Operating cash flow fell by $988 million. Management attributed the decline principally to working-capital needs from higher-priced gas purchases and underrecovered power-supply costs.
- Consumers recorded a $10 million impairment related to the Ray Compressor Station after agreeing not to seek recovery, at that time, of restoration and modification costs net of insurance proceeds.
- Consumers recorded $3.9 billion of long-term debt at year-end, up from $8.1 billion in 2021, and received $685 million in parent contributions. It paid $769 million in common-stock dividends to CMS Energy.
- CMS Energy’s consolidated common-stockholder income fell to $827 million from $1.348 billion, primarily because the 2021 result included a large gain on the sale of EnerBank. This parent-company comparison is not Consumers’ standalone earnings trend.
Outlook, management commentary and risks
- Capital plan: Consumers expects $15.5 billion of capital expenditures from 2023–2027, including $12.4 billion mainly for gas and electric infrastructure and $3.1 billion for clean generation. Planned 2023 capital expenditures are $3.7 billion. Management expects annual rate-base growth above 7%, subject to execution and regulatory outcomes.
- Energy transition: The MPSC approved Consumers’ updated integrated resource plan in June 2022. It calls for retiring the D.E. Karn coal units in 2023 and J.H. Campbell coal units in 2025, acquiring the 1,176-MW New Covert gas facility for approximately $815 million subject to adjustments, adding capacity through competitive procurements, and expanding renewables. The company targets net-zero carbon emissions from its electric business by 2040 and net-zero methane emissions from its gas delivery system by 2030.
- Rates and cost recovery: The 2021 gas-rate case produced an approved $170 million annual increase effective October 2022. A 2022 gas-rate request for $212 million remained pending at filing. In January 2023, the MPSC approved a $155 million annual electric-rate increase, below the revised $292 million request, and authorized a $6 million surcharge for specified prior distribution costs.
- Financing and commitments: Consumers’ purchase obligations totaled $11.9 billion, including $8.5 billion under power-purchase agreements. Estimated 2023 purchase obligations were $3.0 billion, alongside $1.4 billion of principal and interest payments on long-term debt. Management said expected operating cash flows and liquidity should fund requirements, while noting capital-market access is important.
- Principal risks: Regulatory decisions could limit rate increases or disallow cost recovery; power and gas prices, weather, inflation, supply-chain constraints, and outages can affect costs and cash flow. Other significant exposures include environmental remediation and compliance, climate-related physical risks, cybersecurity, large capital-project execution, and the outcome of litigation. The filing notes contested claims involving the Ludington overhaul contract and the proposed Campbell 3 retirement; potential results are uncertain.
- Consumers’ financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of year-end. The auditor identified accounting for new regulatory matters as a critical audit matter, reflecting judgment involved in assessing recovery of regulatory assets.
Important facts for investors to verify
- Whether the $401 million PSCR underrecovery is recovered on the requested schedule and how customer collections affect cash flow.
- Final outcomes and timing of the pending 2022 gas-rate case and other regulatory proceedings, including any cost disallowances.
- Progress, total costs, and financing for the $15.5 billion five-year investment plan and New Covert acquisition.
- Whether coal retirements and replacement capacity proceed on schedule, and whether renewable projects encounter permitting, equipment, tariff, or supply constraints.
- Debt maturities, refinancing costs, liquidity availability, and the effect of continued high capital spending on leverage and cash generation.
- Potential exposure from environmental obligations and litigation, including matters for which the company says it cannot estimate a loss range.