Consumers Energy Company — Q1 2023 Form 10-Q
Business context and period. Consumers Energy is a Michigan-regulated electric and natural gas utility and a wholly owned subsidiary of CMS Energy. This summary covers the unaudited three months ended March 31, 2023; the filing is combined with CMS Energy’s report. Utility results are seasonal, so the quarter is not necessarily indicative of full-year results.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Operating revenue | $2.210 billion | $2.283 billion |
| Operating income | $321 million | $462 million |
| Net income | $232 million | $383 million |
| Operating margin | 14.5% | 20.2% |
| Net margin | 10.5% | 16.8% |
| Cash provided by operating activities | $1.070 billion | $745 million |
| Capital expenditures | $555 million | $506 million |
| Cash used in investing activities | $588 million | $529 million |
| Cash used in financing activities | $199 million | $222 million |
Revenue declined $73 million. Electric utility revenue fell $150 million, while gas utility revenue rose $77 million. Net income decreased $151 million. Management attributed the weaker results mainly to unfavorable weather and lower electric and gas deliveries, higher service-restoration costs from ice storms, and higher interest charges; rate increases partly offset these pressures. Electric deliveries were 8.8 billion kWh versus 9.2 billion kWh, and gas deliveries were 119 bcf versus 140 bcf.
Cash from operations increased largely because of favorable working-capital movements, including higher collections and higher gas prices, and recovery of prior-year power-supply costs. This increase occurred despite lower net income. Consumers reported $343 million of cash and cash equivalents, including $26 million restricted, at March 31, 2023. Available revolving credit capacity was approximately $1.296 billion; no commercial paper was outstanding.
At March 31, Consumers had $9.304 billion of long-term debt and $998 million of current long-term debt and finance leases. Debt and finance leases therefore totaled approximately $10.302 billion, compared with approximately $10.237 billion at year-end 2022. The quarter included $1.125 billion of first-mortgage bond issuance and repayment of a $1.000 billion term loan. The company reported compliance with debt covenants.
Outlook, developments, and risks
- Investment and operations: Consumers expects $15.5 billion of capital expenditures during 2023–2027, including $12.4 billion primarily for gas infrastructure and electric distribution and $3.1 billion for clean generation. It expects annual rate-base growth of more than 7%. Weather-normalized electric and gas deliveries are expected to remain relatively stable over the next five years.
- Rates: New electric rates took effect January 20, 2023, following MPSC approval of a $155 million annual increase and a 9.9% authorized return on equity. A $212 million annual gas-rate increase request, based on a requested 10.25% return on equity, remained pending.
- Generation transition: The Clean Energy Plan targets ending coal generation in 2025 and net-zero electric-business carbon emissions by 2040. Consumers planned to retire the D.E. Karn coal units in May 2023 and the J.H. Campbell coal units in 2025. It planned to purchase the 1,176-MW New Covert natural-gas facility for $815 million in 2023; the filing says the purchase was FERC-approved and the transaction was expected in May 2023.
- Other notable items: Consumers paid $287 million in common-stock dividends to CMS Energy during the quarter. In April 2023, the MPSC approved $5 million of a previously authorized $22 million voluntary customer refund and requested a more direct customer benefit proposal for the remaining $17 million. These are subsequent developments reported in the filing.
- Risks and contingencies: Results and investment plans depend on regulatory approvals and cost recovery, weather, energy prices, financing access and interest rates, supply-chain and construction execution, and environmental and climate-related requirements. Material legal matters include disputes over defective Ludington plant overhaul work and a claim seeking approximately $37 million related to the planned Campbell unit retirement; outcomes and potential impacts were not predictable. Consumers also reported environmental remediation obligations, including a $63 million recorded liability for former manufactured-gas-plant sites.
Investor verification priorities
- Track whether the pending gas-rate case is approved, and the timing and realized effect of the approved electric-rate increase.
- Assess whether Q1 operating cash-flow growth persists, given its dependence on working-capital changes and recovery of prior power-supply costs.
- Verify financing, final purchase cost, and completion of the New Covert acquisition, alongside the planned coal-unit retirements and replacement capacity.
- Monitor execution and funding of the $15.5 billion investment plan, including capital-market access, debt costs, and regulatory cost recovery.
- Follow developments in the Ludington and Campbell disputes, environmental remediation, and regulatory proceedings that could affect costs or customer rates.