CMS-PB

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2025, for CMS Energy Corporation (CMS Energy) and its wholly-owned subsidiary, Consumers Energy Company (Consumers). CMS Energy is a Michigan-based holding company operating primarily through its electric and gas utility subsidiary, Consumers, and its non-utility subsidiary, NorthStar Clean Energy. The company operates under the regulatory oversight of the Michigan Public Service Commission (MPSC) and the Federal Energy Regulatory Commission (FERC).

Key Financial Metrics (Six Months Ended June 30, 2025)

Material Changes vs. Prior Period

• Revenue Growth: Consolidated operating revenue increased by $502 million (13.3%) compared to the first half of 2024, driven primarily by higher gas sales due to favorable weather and approved rate increases.
• Profitability: Net income available to common stockholders rose by $20 million (4.2%) to $500 million. Diluted EPS increased from $1.61 to $1.67.
• Segment Performance:
  • Electric Utility: Net income increased by $24 million, aided by rate increases and lower service restoration costs, partially offset by higher depreciation and property taxes.
  • Gas Utility: Net income surged by $54 million, driven by significantly higher gas deliveries (184 Bcf vs. 158 Bcf) and rate increases.
  • NorthStar Clean Energy: Net income declined sharply by $43 million to $4 million, attributed to lower earnings from renewable projects and a planned major outage at the Dearborn Industrial Generation (DIG) facility.
• Cost Pressures: Operating expenses increased due to higher fuel costs, depreciation, property taxes, and IT expenses related to ERP implementation.

Guidance, Outlook, and Material Events

• J.H. Campbell Emergency Order: In May 2025, the U.S. Secretary of Energy issued an emergency order requiring the J.H. Campbell coal-fired generating station to remain operational through August 20, 2025, to address an energy emergency. Consumers incurred a net financial impact of $29 million through June 30, 2025, and has filed a complaint at FERC to seek cost recovery. The long-term impact on the Clean Energy Plan remains uncertain.
• Rate Cases:
  • 2025 Electric Rate Case: Filed in June 2025, seeking a $460 million annual increase (including a $24 million surcharge) based on a 10.25% return on equity. A final order is expected by April 2026.
  • 2024 Gas Rate Case: Revised request in July 2025 to $217 million annual increase. A final order is expected by October 2025.
• Capital Plan: Consumers plans to spend $20.0 billion through 2029, with $14.8 billion allocated over the next five years for infrastructure upgrades and $5.2 billion for clean generation.
• Regulatory & Environmental: The company is navigating the 2023 Energy Law, which mandates 60% renewable energy by 2035 and 100% clean energy by 2040. Consumers aims to end coal use in owned generation in 2025.
• Tax Legislation: The "One Big Beautiful Bill Act" (OBBBA) signed in July 2025 restores 100% bonus depreciation but allows utilities to deduct interest expense in lieu thereof. Management does not anticipate a material impact on financial statements.

Investor Verification Checklist

• J.H. Campbell Cost Recovery: Verify the outcome of the FERC complaint regarding the $29 million cost recovery for the emergency operation of the J.H. Campbell plant.
• Rate Case Outcomes: Monitor the MPSC's final orders for the 2025 Electric and 2024 Gas rate cases to confirm approved rate increases and return on equity.
• NorthStar Clean Energy Performance: Assess the duration and financial impact of the DIG facility outage and the timing of commercial operations for new renewable projects.
• Capital Expenditure Execution: Track the $20 billion capital plan execution, specifically the transition from coal to renewable and storage assets.
• Environmental Compliance Costs: Review potential cost increases related to the EPA's Good Neighbor Plan, CCR regulations, and methane reduction targets.