Consumers Energy Company — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is a combined filing with parent CMS Energy; figures below are for Consumers unless otherwise noted. Consumers is a Michigan-regulated electric and gas utility serving approximately 6.8 million residents.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Operating revenue | $7.166 billion | $8.151 billion |
| Operating income | $1.268 billion | $1.233 billion |
| Net income | $867 million | $945 million |
| Net income available to common stockholder | $865 million | $943 million |
| Cash from operations | $2.430 billion | $994 million |
| Cash used in investing activities | $3.201 billion | $2.344 billion |
| Cash from financing activities | $767 million | $1.366 billion |
Operating margin, calculated as operating income divided by revenue, was approximately 17.7%, up from 15.1%. Operating cash flow increased substantially, driven mainly by working-capital movements, including higher collections and lower gas purchase prices; it should not be read as an equivalent increase in recurring earnings. Capital expenditures excluding assets placed under finance leases were $2.248 billion, and the Covert Generating Station acquisition used $812 million of cash.
At year-end, Consumers reported $56 million of cash and cash equivalents, including $21 million restricted; $10.037 billion of long-term debt, $424 million of long-term related-party debt, $731 million of current long-term debt and finance leases, and $93 million of notes payable. Total principal debt outstanding was $11.294 billion. Available revolving credit capacity was approximately $1.275 billion. Total assets were $31.852 billion and equity was $10.800 billion.
Material changes versus 2022
- Revenue fell about 12%, with electric and gas utility revenue lower, primarily reflecting unfavorable weather and lower deliveries; electric deliveries to end-use customers declined to 36.3 billion kWh from 37.3 billion, and gas deliveries fell to 282 bcf from 315 bcf.
- Net income declined $78 million. Rate increases and lower maintenance and operating expenses were more than offset by lower sales, higher service-restoration costs, depreciation, property taxes, interest charges, and higher income tax expense.
- Interest charges rose to $448 million from $335 million. Consumers acquired the 1,200-MW Covert gas-fired generating station for approximately $812 million in May 2023.
- Consumers retired the D.E. Karn coal units in June 2023 and issued $646 million of securitization bonds in December to finance associated costs.
Outlook, risks and significant items
- Management expects weather-normalized electric and gas deliveries to remain relatively stable over the next five years. Consumers forecasts $17.0 billion of capital expenditures for 2024–2028 and annual rate-base growth of more than 7%, subject to regulatory approval and execution.
- The 2023 Michigan Energy Law raises renewable-energy requirements to 50% by 2030 and 60% by 2035, and sets a clean-energy standard of 80% by 2035 and 100% by 2040. Consumers plans to eliminate coal-fired generation by 2025 and targets net-zero carbon emissions from its electric business by 2040.
- Consumers filed for a $169 million annual electric rate increase after revising its original request, and for a $136 million annual gas rate increase. Both requests remained subject to MPSC review. The approved 2022 electric and gas rate cases provided annual increases of $155 million and $95 million, respectively.
- Major exposures include regulatory decisions and cost recovery, large capital requirements, financing access and interest costs, extreme weather and outages, fuel and power-market prices, environmental compliance and remediation, and cybersecurity. Management reported no material cybersecurity incidents to date.
- Key contingencies include a $62 million recorded liability for former manufactured-gas-plant sites; litigation over defective Ludington overhaul work and the J.H. Campbell unit retirement; and regulatory proceedings that could affect recovery of costs. Recovery of environmental and other regulated costs from customers is not assured.
- Consumers recorded a $33 million pre-tax charge for a voluntary employee separation program. The 2022 power-supply-cost underrecovery was authorized for recovery over three years; it was a significant prior-period cash and regulatory item.
- Management stated that expected operating cash flows and available liquidity should fund obligations and planned investment. The independent auditor issued an unqualified opinion and identified accounting for regulatory matters as a critical audit matter, citing judgment involved in assessing recovery of regulatory assets and pending proceedings.
Important facts for investors to verify
- Progress and final outcomes of the electric and gas rate cases, and whether planned investment receives timely recovery in rates.
- Cash-flow sustainability after separating working-capital changes from recurring operating performance, alongside the funding needs of the $17.0 billion capital plan.
- Debt maturities, borrowing costs, credit-facility availability, and the company’s ability to finance capital spending while maintaining liquidity.
- Execution and cost of the coal-retirement and clean-energy plans, including replacement capacity, renewable projects, storage, and compliance with the new state standards.
- Potential outcomes and additional costs from the Ludington and J.H. Campbell disputes, environmental remediation, and other regulatory proceedings.