Consumers Energy Company — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Consumers is a Michigan-regulated electric and natural gas utility and a wholly owned subsidiary of CMS Energy. The filing is a combined report for CMS Energy and Consumers; figures below refer to Consumers unless identified otherwise.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Operating revenue | $1.437 billion | $1.498 billion | $4.536 billion | $4.514 billion |
| Operating income | $308 million | $356 million | $889 million | $918 million |
| Net income available to common stockholder | $181 million | $195 million | $495 million | $498 million |
| Operating margin | 21.4% | 23.8% | 19.6% | 20.3% |
| Net cash from operating activities | Not separately provided | Not separately provided | $1.209 billion | $1.288 billion |
| Capital expenditures | Not separately provided | Not separately provided | $1.196 billion | $1.214 billion |
- Q3 revenue declined 4.1% and operating income declined 13.5% year over year; nine-month revenue rose 0.5%, while operating income fell 3.2%.
- Lower Q3 electric sales due primarily to milder summer weather reduced electric delivery revenue by $61 million, partly offset by rate increases. Nine-month electric deliveries were 28.2 billion kWh versus 28.9 billion; gas deliveries were 189 bcf versus 196 bcf, with milder winter weather contributing to lower gas sales.
- Higher depreciation from increased plant in service weighed on results. Nine-month maintenance and operating costs also reflected $17 million of storm restoration costs, partly offset by lower postretirement costs and other savings. A $16 million state income tax benefit supported 2017 earnings.
Financial position and liquidity
- At September 30, Consumers reported $85 million in cash and cash equivalents, including $27 million restricted; cash excluding restricted amounts was $55 million.
- Long-term debt was $5.275 billion, with $464 million of current maturities and $230 million of commercial paper outstanding. Consumers reported $6.532 billion of total equity.
- Available revolving credit capacity was $893 million: $643 million on one facility and $250 million on another. Consumers also had a $500 million commercial paper program. Its debt-to-capital ratio was 0.47, below the covenant limit of 0.65; the filing reported covenant compliance.
- Nine-month financing cash flow was $2 million, including $534 million of debt issuance, $443 million of debt retirement, and a $450 million contribution from CMS Energy. Consumers paid $347 million in common dividends to its parent.
Outlook, developments and risks
- Consumers expects average electric delivery growth of about 0.5% annually through 2021, net of energy-efficiency effects, and gas deliveries to remain broadly stable. It expects continued strong operating cash flows and sufficient borrowing capacity.
- Consumers plans approximately $9 billion of capital spending from 2017 through 2021, including $4 billion each for gas and electric distribution and $1 billion for electric supply. Its longer-term plan calls for $18 billion of infrastructure and electric-supply investment from 2017 through 2026.
- In its electric rate case, Consumers reduced its requested annual increase to $148 million; in October 2017, after quarter-end, it self-implemented a $130 million annual increase, subject to refund, interest and potential penalties. Separately, the MPSC authorized a $29 million annual gas-rate increase beginning August 2017 and future investment surcharges of $18 million in each of 2018 and 2019, subject to reconciliation.
- The MPSC authorized recovery of only $137 million of the $172 million negotiated Palisades PPA termination payment. Consumers and Entergy consequently did not terminate the agreement; the PPA is expected to continue until April 2022. Consumers rescinded related capacity contracts and was assessing whether to pursue generation-plant proposals.
- Consumers completed the sale of its retired B.C. Cobb and J.R. Whiting coal units in October 2017 and recorded a $63 million decommissioning and cleanup liability. It estimates the transaction will save customers $30 million in decommissioning costs.
- Key uncertainties include regulatory decisions and rate recovery, weather and energy demand, environmental compliance and remediation costs, generation-resource needs, and litigation. Consumers recorded $93 million for gas environmental remediation at former manufactured-gas-plant sites; CMS Energy separately recorded $49 million for Bay Harbor remediation. CMS Energy also disclosed an unresolved Equatorial Guinea tax claim of $152 million plus possible penalties and interest.
Most important facts to verify
- Whether the $130 million electric rate increase and the pending rate case ultimately result in durable revenues or customer refunds.
- How the Palisades PPA continuation affects capacity procurement, costs, and future generation plans.
- Consumers’ ability to fund its substantial capital program while maintaining liquidity and covenant compliance.
- Whether environmental remediation estimates, including the $93 million gas-site liability and the $63 million coal-site obligation, change or receive the expected rate recovery.
- Whether milder weather, storm-restoration spending, and higher depreciation continue to pressure earnings and cash flow.