CMS Energy Corporation — Q2 2021 Form 10-Q
Business context and reporting period. This combined quarterly filing covers the three and six months ended June 30, 2021. CMS Energy is a Michigan-focused energy holding company whose principal business is Consumers Energy, a regulated electric and gas utility; CMS also has non-utility generation businesses. EnerBank is classified as discontinued operations following an agreed sale to Regions Bank.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| CMS operating revenue | $1.558 billion | $1.382 billion | $3.571 billion | $3.184 billion |
| CMS operating income | $252 million | $248 million | $682 million | $583 million |
| CMS net income available to common stockholders | $176 million | $136 million | $525 million | $379 million |
| CMS diluted EPS | $0.61 | $0.48 | $1.82 | $1.33 |
| Consumers net income available to common stockholder | $189 million | $159 million | $525 million | $394 million |
- CMS first-half operating margin was approximately 19.1%, versus 18.3% in the prior-year period. Second-quarter operating income increased only modestly despite higher revenue.
- First-half CMS earnings growth reflected electric and gas rate increases, higher electric sales, lower income tax expense, and lower service restoration costs. These benefits were partly offset by higher depreciation, property taxes, distribution and transmission costs, and forestry costs.
- CMS cash provided by operating activities was $1.367 billion for the first half, versus $796 million. Capital expenditures were $878 million, compared with $944 million. The cash-flow comparison benefited substantially from no pension contributions in 2021 versus $531 million in 2020; higher working-capital needs partly offset that benefit.
- At June 30, CMS reported $292 million of cash and cash equivalents, including restricted cash and cash held in assets classified as held for sale. Consumers reported $68 million, including restricted cash. Available revolving credit was $532 million at CMS and approximately $1.1 billion at Consumers; Consumers had no commercial paper outstanding.
- CMS balance-sheet long-term debt was $11.728 billion, plus $589 million current portion; Consumers reported $7.730 billion long-term debt, plus $381 million current portion. Both companies reported compliance with debt covenants.
Material changes and outlook
- CMS agreed to sell EnerBank to Regions Bank for a base purchase price of $960 million in cash, subject to adjustments and regulatory approvals; closing was expected in Q4 2021. EnerBank contributed $52 million of first-half discontinued-operations income, net of tax, including $5 million of transaction costs. The proceeds are intended to support core energy-business safety, reliability, and clean-energy initiatives.
- Consumers filed a 2021 Integrated Resource Plan (IRP), subject to Michigan Public Service Commission approval, proposing to end coal generation by 2025, acquire natural-gas generation assets, and add nearly 8,000 MW of solar capacity by 2040. Consumers targets net-zero electric-business carbon emissions by 2040.
- Consumers expects weather-normalized electric and gas deliveries to remain stable over the next five years relative to 2020. It expects $25 billion of capital investment over ten years and annual rate-base growth of 6% to 8%.
- Consumers sought a $225 million annual electric-rate increase, later reduced to $201 million, based on a requested 10.5% return on equity. The case remained pending. The MPSC staff recommended disallowing recovery of certain completed capital expenditures; Consumers had incurred $39 million in those categories at June 30.
- Consumers entered agreements to purchase the New Covert generating facility for $810 million in 2023 and CMS-related generating units for $515 million in 2025, subject to adjustments and regulatory approvals. CMS also agreed to sell those latter units to Consumers for $515 million, with the transaction planned for 2025 and subject to approvals.
Risks, contingencies, and unusual items
- The proposed IRP and plant acquisitions depend on regulatory approvals, execution, resource availability, and recovery of investment and retired-plant balances through customer rates. Failure or delay could affect costs, earnings, and the clean-energy plan.
- Environmental regulation, severe weather, utility-system reliability, commodity prices, customer collections, and regulatory rate recovery remain material risks. Consumers estimated $260 million of environmental compliance capital expenditures for 2021–2025; recovery in rates is expected but not assured.
- Consumers recorded a $56 million liability for former manufactured-gas-plant remediation, with a related $115 million regulatory asset. CMS recorded a $44 million Bay Harbor remediation liability. Other proceedings and claims include potential costs that the companies say they cannot currently estimate.
- CMS’s first-half cash flow benefited from sharply lower pension contributions compared with 2020, so the year-over-year increase should not be viewed as solely an improvement in recurring operating performance.
- CMS issued $224 million net proceeds of Series C preferred stock on July 1, 2021, after quarter-end; the preferred dividend rate is 4.2%. No formal earnings-per-share guidance is provided in the supplied filing text.
Most important facts for investors to verify
- Progress, approval conditions, final consideration, and use of proceeds for the EnerBank–Regions transaction.
- Outcome of Consumers’ electric rate case and treatment of the $39 million of challenged capital expenditures.
- Approval, cost, timing, and customer-rate recovery assumptions underlying the 2021 IRP and generating-plant acquisitions.
- Whether operating cash flow remains adequate as pension contributions and working-capital conditions normalize, alongside the planned capital program and debt requirements.
- Changes in environmental remediation estimates, regulatory recovery, and material litigation or permit outcomes.