CMS Energy Corporation 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. Although the request identifies 2013 Q4, this is an annual Form 10-K; selected fourth-quarter results are included below. The combined filing reports CMS Energy Corporation and its wholly owned utility subsidiary, Consumers Energy Company. Unless noted, amounts are in millions of dollars.
Business context and financial performance
CMS Energy operates primarily in Michigan through Consumers, a regulated electric and gas utility serving about 6.5 million residents, and CMS Enterprises, which holds non-utility power-generation interests. Consumers accounts for substantially all of CMS Energy’s assets, income, and revenue.
| Metric | CMS Energy 2013 | 2012 | Consumers 2013 | 2012 |
|---|---|---|---|---|
| Operating revenue | $6,566 | $6,253 | $6,321 | $6,013 |
| Operating income | $1,142 | $1,003 | $1,118 | $984 |
| Net income available to common stockholders | $452 | $382 | $532 | $437 |
| Diluted EPS | $1.66 | $1.42 | Not applicable; wholly owned subsidiary | Not applicable |
| Cash from operating activities | $1,421 | $1,241 | $1,351 | $1,353 |
| Capital expenditures, excluding assets under capital lease | $1,325 | $1,227 | $1,320 | $1,222 |
CMS Energy’s operating margin was approximately 17.4% in 2013 versus 16.0% in 2012; net income margin was approximately 6.9% versus 6.1%. Consumers’ operating margin was approximately 17.7% versus 16.4%; net income margin was approximately 8.4% versus 7.3%.
Fourth quarter: CMS Energy reported revenue of $1,736, operating income of $264, net income available to common stockholders of $102, and diluted EPS of $0.37, compared with $1,670, $212, $67, and $0.25, respectively, in Q4 2012. Consumers reported revenue of $1,674 and net income of $119, compared with $1,608 and $78.
Financial position, debt, and liquidity
- At year-end, CMS Energy had total assets of $17.4 billion and equity of $3.5 billion. Long-term debt, excluding current maturities, was $7.1 billion; aggregate principal indebtedness was $7.7 billion. Consumers had total assets of $16.2 billion, long-term debt excluding current maturities of $4.6 billion, and aggregate principal indebtedness of $4.6 billion.
- CMS Energy’s reported cash and cash equivalents were $172 million, plus $32 million restricted. Consumers had $18 million of cash and cash equivalents, plus $31 million restricted.
- Available revolving credit was $548 million for CMS Energy and $650 million for Consumers. Consumers also had $80 million of additional eligible receivables capacity under its $250 million receivables program. Both companies reported compliance with financial covenants and no defaults.
- CMS Energy generated $1.4 billion of operating cash flow against $1.3 billion of capital expenditures. Consumers generated $1.35 billion against $1.32 billion of capital expenditures. CMS Energy’s cash flow improved year over year; Consumers’ was broadly flat.
Material changes versus the prior year
- CMS Energy net income available to common stockholders rose $70 million and diluted EPS increased from $1.42 to $1.66. Management attributed the improvement principally to higher gas deliveries, rate-order benefits, and the absence of a 2012 write-off of Consumers’ electric decoupling regulatory asset.
- Consumers’ electric utility income increased $38 million, supported by rate increases and the absence of the 2012 decoupling write-off; milder summer weather reduced high-margin sales, while storm restoration costs increased.
- Consumers’ gas utility income rose $58 million, primarily because colder weather increased gas deliveries. The filing reports end-use gas deliveries of 307 bcf in 2013 versus 259 bcf in 2012.
- Enterprises segment income declined from $16 million to $2 million. CMS Energy’s revenue increased 5.0%, while Consumers’ revenue increased 5.1%.
- Debt increased: CMS Energy aggregate principal indebtedness rose from $7.2 billion to $7.7 billion, while Consumers’ rose from $4.3 billion to $4.6 billion.
Guidance, management commentary, risks, and unusual items
- Management expected Consumers to avoid electric and gas base-rate increases through 2014, subject to its economic and other assumptions. The company forecast 2014 weather-adjusted electric deliveries up 1.5% and average annual growth of 0.5%–1.0% through 2018; gas deliveries were expected to remain broadly stable.
- Consumers planned about $7.1 billion of capital investments for 2014–2018, including grid reliability, gas infrastructure, environmental compliance, Smart Energy, and renewables. The program was expected to support annual rate-base growth of 5%–7%.
- Consumers planned to issue up to $389 million of securitization bonds, subject to market conditions, to recover costs associated with retiring seven smaller coal units and three gas units by April 2016. A proposed purchase of a 540-MW gas plant for $155 million was subject to regulatory approvals; Consumers deferred development of a proposed 700-MW plant estimated to cost $700 million.
- Consumers estimated environmental expenditures of about $0.8 billion from 2014–2018. Separately, it preliminarily estimated $204 million for coal-ash compliance and $131 million for wastewater rules over that period. Recovery through rates was expected but not assured.
- Long-term purchase obligations were substantial: CMS Energy reported $12.1 billion of purchase obligations, including commodity and related-service contracts, plus $1.2 billion of related-party purchase obligations. Consumers’ corresponding amounts were $11.8 billion and $1.2 billion. Annual payments under long-term power purchase agreements may vary with plant availability and fuel costs.
- A July 2013 OPEB plan amendment and remeasurement reduced CMS Energy’s OPEB liability by $638 million, eliminated a $580 million OPEB regulatory asset, and established a $34 million regulatory liability. This was a significant accounting and benefit-plan change.
- Consumers received a $69 million renewable-energy grant for Lake Winds Energy Park. Severe storms in November and December increased service-restoration costs; Consumers reported a $51 million increase, partly offset by $16 million of estimated insurance proceeds.
- Key risks include MPSC and FERC rate and cost-recovery decisions; possible changes to Michigan’s 10% retail open-access limit; environmental rules and coal-unit retirements; weather and Michigan economic conditions; fuel and power-market exposure; financing access and leverage; pension and OPEB assumptions; cybersecurity and operational reliability.
- Contingencies include environmental remediation at 23 former manufactured-gas-plant sites, with a recorded Consumers liability of $117 million; CMS Energy’s Bay Harbor remediation liability of $52 million; and an Equatorial Guinea tax claim of $142 million plus penalties and interest. CMS Energy could not estimate potential losses in the gas-price-reporting litigation, which could be material. The filing states no outcome for these matters can be assured.
- CMS Energy and Consumers received unmodified audit opinions, and the auditors reported effective internal control over financial reporting at year-end.
Most important facts for investors to verify
- Whether regulatory approvals and market conditions enable the planned securitization, plant acquisition, and retirement schedule, and whether the projected customer savings materialize.
- Whether planned capital spending and environmental costs are recovered promptly and fully through customer rates.
- Debt maturities, refinancing needs, cash available after restricted balances, and the sustainability of operating cash flow relative to capital spending and dividends.
- The eventual scope and cost of MGP, Bay Harbor, coal-ash, air, and water remediation, as well as outcomes of material legal and tax contingencies.
- How much of 2013 earnings improvement reflects durable rate and operating performance versus weather and the absence of prior-year charges.