Business context and reporting period
Consumers Energy Company’s combined 10-K with parent CMS Energy covers the fiscal year ended December 31, 2021, with comparisons to 2020. This is an annual report, not a standalone fourth-quarter filing. Consumers is a regulated Michigan electric and natural-gas utility serving about 6.8 million residents; CMS Energy’s parent-level results also include non-utility businesses and the EnerBank sale.
Financial performance and position
| Consumers Energy, $ millions unless noted | 2021 | 2020 |
|---|---|---|
| Operating revenue | 7,021 | 6,189 |
| Operating income | 1,175 | 1,221 |
| Net income | 868 | 816 |
| Net income available to common stockholder | 866 | 814 |
| Cash from operating activities | 1,982 | 1,218 |
| Capital expenditures, cash-flow statement | 2,052 | 2,170 |
| Cash and restricted cash at year-end | 44 | 35 |
| Long-term debt, balance-sheet carrying value | 8,050 | 7,742 |
- Revenue grew about 13%, while operating income declined about 4% and common-stockholder income rose about 6%. Operating margin was approximately 16.7%, compared with 19.7% in 2020.
- Operating cash flow increased substantially, principally reflecting the absence of the prior-year $682 million Consumers pension contribution, as well as higher net income. Cash flow less reported capital expenditures was approximately negative $70 million in 2021.
- At year-end, Consumers had $374 million of current long-term debt and $392 million borrowed from CMS Energy under a short-term related-party facility; that loan was repaid in January 2022. Its current assets were $2.121 billion and current liabilities $2.488 billion. Available revolving credit was approximately $1.08 billion; no commercial paper was outstanding.
- Consumers’ debt-to-capital covenant ratio was 0.48, below its 0.65 limit. The filing reports $29.3 billion of total contractual obligations, including $12.0 billion of purchase obligations and $8.5 billion of long-term debt principal.
Material changes versus the prior comparable period
- Electric utility revenue rose to $4.958 billion from $4.372 billion, reflecting rate increases, higher deliveries and favorable weather and sales mix. Electric utility net income increased to $565 million from $554 million.
- Gas utility revenue rose to $2.063 billion from $1.817 billion, primarily due to rate increases, partly offset by unfavorable weather and sales mix. Gas utility net income increased to $302 million from $261 million.
- Higher service restoration, distribution, transmission, generation, compression, depreciation and property-tax costs partly offset rate and sales benefits. Consumers recorded a $41 million impairment charge related to electric and gas capital-cost recovery disallowances and a separate $4 million fleet-asset impairment.
- Consumers’ operating cash flow benefited from $681 million lower postretirement-benefit contributions than in 2020. Capital expenditures were $2.052 billion, down from $2.170 billion.
- CMS Energy’s consolidated earnings were materially affected by the October 2021 EnerBank sale: the parent received over $1 billion in proceeds and recorded a $657 million pre-tax gain. This is not Consumers’ operating income; CMS reported $602 million of after-tax discontinued-operations income for 2021.
Outlook, commentary, risks and unusual items
- Management expects weather-normalized electric and gas deliveries to remain broadly stable over the next five years. Consumers expects $14.3 billion of capital expenditures, including lease commitments, in 2022–2026, and forecasts $25 billion of investment over ten years. The investment plan is subject to regulatory, market and execution conditions.
- Consumers’ 2021 integrated resource plan, pending MPSC approval, proposes ending coal generation by 2025, retiring D.E. Karn units in 2023 and J.H. Campbell units in 2025, expanding renewables and acquiring natural-gas generation. The plan targets net-zero electric-business carbon emissions by 2040 and 90% clean energy for customer needs by then.
- The MPSC approved a $27 million annual electric rate increase effective January 2022, but disallowed recovery of certain capital expenditures. Consumers recorded related impairments and said further disallowances remain possible. Its December 2021 gas-rate application seeks a $278 million annual increase and a revenue-decoupling mechanism; the request is not an approved increase.
- Long-term power-purchase agreements represent substantial commitments: approximately $8.0 billion through 2048, subject to plant availability and fuel costs. Environmental compliance, coal-ash requirements and infrastructure integrity also require continued spending; Consumers expects rate recovery but cannot assure it.
- Recorded environmental liabilities include $57 million for former manufactured-gas-plant sites at Consumers and $45 million for CMS Energy’s Bay Harbor obligations. CMS Energy also disclosed a disputed $36 million EnerBank sale price adjustment and an Equatorial Guinea tax claim of $152 million plus potential penalties and interest; management considers material loss on that tax claim remote, but the outcome is uncertain.
- Key risks include regulatory decisions and cost recovery, weather and severe storms, inflation and supply-chain constraints, commodity prices, capital-market access and credit ratings, customer demand changes, cyber incidents, environmental regulation, and pension assumptions. Auditors gave unmodified opinions and reported effective internal controls; regulatory accounting was identified as a critical audit matter.
Important facts for investors to verify
- Separate Consumers’ recurring utility earnings from CMS Energy’s one-time EnerBank sale gain; confirm the effects of discontinued-operations presentation and the disputed purchase-price adjustment.
- Track MPSC outcomes on the $278 million gas-rate request, electric capital-cost disallowances and any further rate recovery, as well as approval and execution of the 2021 integrated resource plan.
- Assess whether operating cash flow can fund the sizable capital program, debt service, purchase commitments and dividends, especially given low year-end unrestricted cash and dependence on credit facilities and capital markets.
- Monitor environmental remediation estimates, the potential for additional regulatory disallowances, and the timing and cost of coal retirements and replacement generation.