Business context and reporting period
CMS Energy Corporation filed this combined Form 10-Q for the three months ended March 31, 2012. CMS Energy is the parent of Consumers Energy, a Michigan electric and gas utility, and non-utility energy businesses. Unless specified, amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Operating revenue | $1,743 | $2,055 |
| Operating income | $188 | $306 |
| Net income available to common stockholders | $67 | $135 |
| Diluted EPS | $0.25 | $0.52 |
| Net cash from operating activities | $635 | $841 |
| Capital expenditures | $294 | $191 |
- Operating margin was approximately 10.8% versus 14.9% a year earlier; net margin was approximately 3.8% versus 6.6%.
- CMS Energy reported $358 million of unrestricted cash and $29 million of restricted cash at quarter-end. Consumers reported $173 million and $28 million, respectively.
- CMS Energy had $547 million available under its $550 million revolving facility. Consumers had $679 million available across its facilities. The filing states both companies complied with debt covenants and had no defaults.
- CMS Energy reported $6.193 billion of long-term debt and $837 million of current debt and lease obligations. Consumers reported $3.977 billion of long-term debt and $63 million of current debt and lease obligations.
- CMS Energy’s total assets were $16.160 billion and total equity $3.093 billion at March 31, 2012.
Material changes versus the prior comparable period
- Net income fell $68 million, or about 50%, and diluted EPS declined $0.27. Operating revenue fell $312 million, while operating income decreased $118 million.
- Management attributed weaker results principally to milder weather and reduced gas and electric deliveries, plus a $59 million write-off of Consumers’ electric revenue-decoupling regulatory asset. The write-off reduced after-tax earnings by $36 million.
- Consumers’ electric utility net income was $21 million, down $44 million; gas utility net income was $55 million, down $33 million. Enterprises net income increased $2 million to $5 million.
- Consumers’ gas deliveries fell 20.5% to 106.4 bcf; electric deliveries were 9.2 billion kWh versus 9.3 billion kWh.
- Operating cash flow decreased $206 million, primarily because of lower gas sales and a smaller working-capital benefit. Investing outflows rose with higher capital expenditures. Financing outflows reflected increased debt retirements.
Outlook, risks, contingencies, and unusual items
- Consumers expected weather-adjusted electric deliveries to rise 2% in 2012 and average roughly 1% annual growth over five years; gas deliveries were expected to remain stable. CMS Energy and Consumers said expected operating cash flows and available liquidity should fund obligations and planned investment.
- Consumers planned $6.6 billion of capital investment from 2012 through 2016. It estimated $1.5 billion of environmental expenditures from 2012 through 2018 and expected rate recovery, but could not guarantee it.
- Consumers’ electric rate case sought a $195 million annual increase; it had self-implemented $118 million subject to refund, while an administrative law judge recommended $43 million. Its gas case sought $49 million; Consumers self-implemented a $23 million annual increase subject to refund.
- An April 2012 Michigan Court of Appeals ruling questioned the MPSC’s authority to approve electric revenue decoupling. Consumers wrote off its $59 million regulatory asset and continued to pursue recovery. Its separate gas decoupling recovery request of $16 million remained pending.
- Environmental compliance rules and litigation may drive substantial costs or changes in generation. Consumers planned to mothball seven smaller coal units in 2015 and canceled a planned 830-MW coal plant. It was developing wind projects and expected a 100-MW wind park to operate in late 2012.
- Notable contingencies include CMS Energy’s $71 million recorded Bay Harbor remediation liability ($95 million undiscounted), Consumers’ $128 million liability for former manufactured-gas-plant sites, and CMS Energy’s contested $142 million Equatorial Guinea tax claim plus interest. The possible loss from certain gas-price-reporting litigation was not estimable.
- Consumers had agreed to a $120 million DOE settlement over spent nuclear fuel; regulatory treatment of the proceeds remained pending. CMS Energy also recognized a $7 million after-tax discontinued-operations benefit after a Panhandle indemnification liability expired.
- EnerBank had a $477 million loan portfolio, funded primarily by $476 million of deposits; its rolling average loan default rate was 0.8%, down from 1.3% a year earlier. CMS Energy is required to support the bank’s capital and liquidity needs.
Most important facts for investors to verify
- Whether final MPSC decisions differ materially from the self-implemented electric and gas rate increases, and whether any amounts must be refunded.
- The legal and regulatory outcome for electric decoupling, and the recoverability of the gas decoupling asset and pending requests.
- Actual environmental compliance spending, customer rate recovery, and the operational consequences of emissions rules and coal-unit plans.
- Updated estimates and timing for Bay Harbor remediation, the manufactured-gas-plant sites, and other unresolved legal or tax matters.
- Whether operating cash flow, capital spending, debt maturities, and liquidity remain consistent with management’s funding expectations.
- Seasonality matters: management cautioned that first-quarter results are not necessarily indicative of full-year performance.