Consumers Energy Company — Q1 2022 Form 10-Q
Business context and reporting period. Consumers Energy is a regulated Michigan electric and natural gas utility and a wholly owned subsidiary of CMS Energy. This unaudited filing covers the three months ended March 31, 2022; results are seasonal and are not necessarily indicative of full-year performance. Amounts below are in U.S. dollars unless stated otherwise.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Operating revenue | $2.283 billion | $1.937 billion | +17.9% |
| Operating expenses | $1.821 billion | $1.508 billion | +20.8% |
| Operating income | $462 million | $429 million | +7.7% |
| Net income | $383 million | $336 million | +14.0% |
| Operating margin | 20.2% | 22.2% | Down 2.0 percentage points |
| Net cash from operating activities | $745 million | $841 million | Down $96 million |
| Capital expenditures | $506 million | $433 million | Up $73 million |
Electric utility revenue was $1.241 billion, versus $1.134 billion; gas utility revenue was $1.042 billion, versus $803 million. Electric deliveries rose to 9.2 billion kWh from 8.7 billion kWh, and gas deliveries increased to 140 bcf from 124 bcf. Management attributed higher revenues primarily to favorable weather and sales mix. Higher purchased power, fuel, and gas costs contributed to the faster rise in operating expenses. Lower income tax expense also supported earnings.
Liquidity and debt. At March 31, Consumers reported $38 million of cash and cash equivalents, including $26 million restricted. Current assets were $1.947 billion and current liabilities $1.724 billion (current ratio approximately 1.13). Long-term debt was $8.051 billion and current maturities were $374 million. Consumers had approximately $1.08 billion available under revolving credit facilities and no commercial paper outstanding. Its debt-to-capital ratio under the applicable credit covenant was 0.46, below the 0.65 limit.
Operating cash flow declined mainly because of working-capital timing, including collections on higher utility deliveries. Investing cash outflow was $529 million, compared with $458 million. Financing cash outflow was $222 million; Consumers received a $450 million contribution from CMS Energy and paid $275 million in dividends to its parent. Operating cash flow less reported capital expenditures was approximately $239 million, versus $408 million in Q1 2021.
Material changes and outlook
- Gas utility net income increased to $216 million from $181 million; electric utility net income rose to $167 million from $155 million.
- Consumers expects weather-normalized electric and gas deliveries to remain broadly stable over the next five years compared with 2021, with energy-efficiency programs largely offset by modest demand growth.
- Consumers expects $25 billion of capital investment over ten years and annual rate-base growth of 6% to 8%. Its plan for 2022–2026 included $14.3 billion of expected investment; the pending 2021 IRP settlement could add nearly $1 billion.
- An April 2022 settlement resolving the 2021 integrated resource plan, subject to MPSC approval, proposes ending coal generation by 2025, purchasing a 1,176-MW natural-gas facility for $815 million subject to adjustments, soliciting about 700 MW of additional capacity, and adding nearly 8,000 MW of solar generation by 2040.
- Also after quarter-end, Consumers filed an electric rate request totaling $272 million annually, including a $266 million increase and a $6 million surcharge. It reduced its pending gas-rate request from $278 million to $233 million annually. Both requests require MPSC approval.
Risks, contingencies, and unusual items
- Regulatory recovery is uncertain: the MPSC has disallowed some capital costs in prior proceedings, and the company disclosed approximately $20 million of electric and gas program expenditures for which some or all recovery could be disallowed.
- Consumers and DTE Electric filed suit in April 2022 against contractors over delays and performance issues in the Ludington plant overhaul. The financial outcome cannot be predicted; an adverse result could materially affect financial condition, results, or liquidity.
- Solar module supply and project timing may be affected by a U.S. Department of Commerce inquiry into potential circumvention of duties on modules linked to China.
- Environmental rules, pipeline safety requirements, remediation obligations, severe weather, inflation, labor and supply-chain constraints, and regulatory decisions could raise costs or affect operations. Cost recovery in rates is not assured in every instance.
- Consumers recorded a $4 million pension settlement loss in Q1, deferred as a regulatory asset. An employee separation program announced in April is expected to create additional Q2 2022 expense; participation could also lead to further pension or benefit-plan impacts.
- Gas environmental obligations included a recorded $57 million liability for remediation at sites including 23 former manufactured-gas-plant locations; Consumers has a related $109 million regulatory asset.
Important facts for investors to verify
- Whether the MPSC approves the 2021 IRP settlement and the requested electric and gas rate increases, and on what terms.
- Actual capital spending, rate-base growth, and the company’s ability to fund investment while maintaining cash flow and credit metrics.
- Whether higher operating costs, weather, and working-capital movements persist or materially affect margins and cash generation.
- Progress and cost implications of coal retirements, the proposed gas-plant purchase, renewable additions, and solar supply constraints.
- Developments in the Ludington litigation, regulatory cost-recovery proceedings, environmental remediation, and the employee separation and pension matters.