Consumers Energy Company — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019; filed February 6, 2020. The filing is a combined annual report for Consumers Energy and its parent, CMS Energy. Annual figures are full-year results; fourth-quarter figures below are unaudited.
Business context
Consumers is a regulated Michigan electric and gas utility serving approximately 1.8 million electric and 1.8 million gas customers. Its results are principally affected by MPSC rate decisions, weather, operating costs, investment needs, and energy supply costs.
Key financial metrics
| Consumers Energy, $ millions unless noted | 2019 | 2018 |
|---|---|---|
| Operating revenue | 6,376 | 6,464 |
| Operating income | 1,130 | 1,065 |
| Net income | 743 | 705 |
| Net income available to common stockholder | 741 | 703 |
| Cash from operating activities | 1,601 | 1,449 |
| Capital expenditures, excluding assets under finance leases | 2,085 | 1,822 |
| Cash and cash equivalents, including restricted cash | 28 | 56 |
| Long-term debt, excluding current portion | 7,048 | 6,779 |
| Total assets | 23,699 | 22,025 |
Operating margin was approximately 17.7% in 2019 versus 16.5% in 2018; net margin was approximately 11.7% versus 10.9%. At year-end, current assets were $1.872 billion and current liabilities were $1.712 billion (current ratio approximately 1.09). Consumers also had $90 million of commercial paper outstanding and $1.1 billion available under revolving credit facilities. Cash after capital expenditures was negative approximately $484 million, before financing and other investing activities.
Fourth quarter: Consumers reported revenue of $1.670 billion, operating income of $308 million, and net income of $206 million, compared with $1.712 billion, $231 million, and $131 million, respectively, in Q4 2018.
Material changes versus the prior comparable period
- Annual revenue declined $88 million (about 1.4%), while net income increased $38 million (about 5.4%).
- Electric utility revenue fell to $4.439 billion from $4.561 billion; gas utility revenue rose to $1.937 billion from $1.903 billion. Electric deliveries were lower, primarily due to unfavorable weather; gas sales benefited from colder weather and rate increases.
- Operating cash flow increased $152 million, helped by lower postretirement benefit contributions and higher earnings. Investing cash outflow increased to $2.137 billion, mainly reflecting higher capital expenditures.
- Long-term debt excluding the current portion increased $269 million. Capital expenditures exceeded operating cash flow by about $484 million, contributing to ongoing external financing needs.
Outlook, management commentary, risks, and unusual items
- Consumers expects weather-normalized electric deliveries to decrease slightly and gas deliveries to remain stable through 2024. It plans approximately $12.2 billion of capital expenditures, including leases, during 2020–2024, within a stated $25 billion ten-year investment program. Management expects annual rate-base growth of 6%–8%.
- The Clean Energy Plan targets elimination of coal-fired generation by 2040 and a reduction of more than 90% in owned-generation carbon emissions from 2005 levels by 2040. D.E. Karn units 1 and 2 are planned for retirement in 2023; retirement timing for J.H. Campbell units 1 and 2 remains under assessment.
- The MPSC approved a $144 million annual gas rate increase in 2019. Consumers filed for a further $245 million annual gas rate increase in December 2019; approval was pending at filing. The next electric rate case was expected after January 2020.
- Key risks include adverse rate or cost-recovery decisions, construction and financing needs, severe weather, fuel and purchased-power costs, environmental compliance and remediation, cyber incidents, and changing customer demand. Consumers expects environmental costs to be recovered in rates but cannot assure recovery.
- Consumers recorded a $68 million liability for remediation at former manufactured gas plant sites. Separately, CMS Energy recorded a $30 million estimated liability for ongoing gas-price-reporting litigation; this is a parent-company matter, not a Consumers-specific liability. A separate Equatorial Guinea tax claim against CMS Energy is $152 million plus potentially substantial penalties and interest; the company contests the claim.
- A January 2019 fire at Consumers’ Ray Compressor Station caused temporary gas supply constraints. The station returned to full capacity; the MPSC requested further reporting, and potential cost disallowances, customer claims, or penalties remained unresolved. Consumers reported $7 million of incremental gas purchases and $12 million of restoration capital expenditures.
- Consumers recorded a $17 million regulatory liability related to sharing part of a gain on a transmission-equipment sale with customers. A new expected-credit-loss standard was expected to increase EnerBank reserves by $65 million in January 2020; this affects CMS Energy’s banking subsidiary rather than Consumers’ utility results.
- No specific Consumers earnings or EPS guidance for 2020 is stated in the provided filing text.
Important facts for investors to verify
- Progress and final outcomes of Consumers’ pending $245 million gas rate case and subsequent electric rate proceedings.
- Funding plans for the capital program, debt maturities, liquidity availability, and the effect of capital spending on cash flow and leverage.
- Regulatory approvals, cost recovery, and execution risks for planned generation transitions, renewable projects, and coal-unit retirements.
- Final costs and regulatory or customer claims arising from the Ray Compressor Station incident.
- Changes in estimated environmental remediation liabilities and the resolution of significant parent-company litigation and tax contingencies.