CMS Energy Corporation and Consumers Energy Company — Q1 2023 Form 10-Q
Business context and reporting period. The combined, unaudited filing covers the three months ended March 31, 2023, with comparisons to Q1 2022. CMS Energy is a Michigan-focused holding company whose principal businesses are Consumers Energy, a regulated electric and gas utility, and NorthStar Clean Energy, a non-utility power producer. Consumers is wholly owned by CMS Energy; their results should be considered separately when assessing claims on cash flows and debt.
Financial performance and liquidity
| Metric | CMS Energy, Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Operating revenue | $2.284 billion | $2.374 billion | Down $90 million |
| Operating income | $314 million | $456 million | Down $142 million |
| Net income available to common stockholders | $202 million | $351 million | Down $149 million |
| Diluted EPS | $0.69 | $1.21 | Down $0.52 |
| Net cash from operating activities | $1.040 billion | $707 million | Up $333 million |
| Capital expenditures | $617 million | $520 million | Up $97 million |
Operating margin was approximately 13.7%, versus 19.2% in Q1 2022; common-stockholder net income margin was approximately 8.8%, versus 14.8%. These are calculated from reported figures. Consumers separately reported revenue of $2.210 billion (down from $2.283 billion), net income of $232 million (down from $383 million), and operating cash flow of $1.070 billion (up from $745 million).
Drivers of the earnings decline. Management attributed lower results primarily to unfavorable weather and lower electric and gas sales, plus higher service-restoration costs following 2023 ice storms. For Consumers’ utility businesses, electric deliveries fell to 8.8 billion kWh from 9.2 billion; gas deliveries fell to 119 bcf from 140 bcf. Rate increases partly offset the sales declines. Higher interest expense and operating costs also weighed on results.
Cash, debt, and funding. CMS Energy reported $598 million of cash and cash equivalents, including $27 million restricted; Consumers reported $343 million, including $26 million restricted. CMS Energy’s balance sheet showed $1.433 billion of current maturities of long-term debt and $12.985 billion of long-term debt. Consumers reported $998 million current and $9.304 billion long-term debt. CMS Energy generated $1.040 billion of operating cash and used $651 million in investing activities. The operating-cash increase reflected favorable working-capital movements, notably collections and higher prices on gas sold, and should not be assumed to represent a recurring improvement in earnings or cash generation.
At quarter-end, available revolving credit was $529 million for CMS Energy and approximately $1.3 billion for Consumers; Consumers had no commercial paper outstanding. Both complied with debt-to-capital covenants: 0.58 against a 0.70 limit for CMS Energy and 0.50 against a 0.65 limit for Consumers. Consumers issued $1.125 billion of first mortgage bonds during the quarter and retired $1.0 billion of variable-rate term debt. CMS Energy had forward equity-sale contracts with an aggregate sales price of $440 million, which it presently intended to physically settle by issuing shares.
Material changes and outlook
- Consumers’ electric rate settlement took effect January 20, 2023, authorizing a $155 million annual increase and a 9.9% authorized return on equity. Its pending gas rate case seeks a $212 million annual increase and a 10.25% return on equity; the request was not yet approved.
- Consumers expects weather-normalized electric and gas deliveries to remain relatively stable over the next five years compared with 2022. No specific full-year 2023 earnings or EPS guidance is provided in the supplied filing text.
- Consumers plans approximately $15.5 billion of capital expenditures in 2023–2027, including $12.4 billion primarily for gas and electric infrastructure and $3.1 billion for clean generation. Management expects annual rate-base growth above 7%, subject to execution and regulatory recovery.
- The Clean Energy Plan calls for ending coal generation in 2025, retiring D.E. Karn coal units in May 2023 and J.H. Campbell coal units in 2025, purchasing the 1,176-MW New Covert gas facility for $815 million (subject to adjustments), and adding renewable resources. New Covert was expected to be acquired in May 2023. Consumers targets net-zero electric-business carbon emissions by 2040 and net-zero methane emissions from its gas delivery system by 2030.
- Consumers’ $400 million private-placement bond issue, priced at a weighted-average 5.251% rate, was expected in May 2023; proceeds were intended partly for the New Covert purchase. In April 2023, CMS Energy and Consumers announced a voluntary employee-separation program, expected to create second-quarter expense and future savings.
Risks, contingencies, and unusual items
- Regulatory approvals, rate recovery, and appeals could affect earnings, liquidity, and customer costs. The MPSC denied Consumers’ request to defer certain pension and OPEB expense differences, indicating the matter should be considered in the gas rate case.
- Consumers’ $22 million voluntary customer refund remained under regulatory consideration: the MPSC approved $5 million for customer-assistance programs and asked for a more direct customer benefit for the remaining $17 million; Consumers proposed forestry work and bill assistance.
- Material operating and legal exposures include the disputed Ludington plant overhaul work and related litigation, with TAES and Toshiba seeking approximately $15 million in counterclaims, and Wolverine’s approximately $37 million claim concerning the planned J.H. Campbell 3 retirement. The company says it cannot predict outcomes; unfavorable results could be material.
- Environmental remediation liabilities include $45 million recorded by CMS Energy for Bay Harbor and $63 million recorded by Consumers for former manufactured-gas-plant sites. Environmental compliance and remediation costs may change, and recovery in customer rates is not assured in all cases.
- Solar-module import restrictions and tariff inquiries may affect project availability and timing. Other key risks include severe weather, inflation and supply-chain constraints, commodity and interest-rate movements, cyber incidents, environmental regulation, and access to capital markets. Management reported no material change to previously disclosed risk factors or market-risk disclosures.
Most important facts for investors to verify
- Whether the sharp Q1 earnings decline reverses as weather normalizes, and how much operating cash flow depends on working-capital timing.
- Final outcomes and timing of the pending gas rate case, customer refund proposal, and other regulatory proceedings.
- Completion, final cost, and financing of the New Covert acquisition, alongside planned capital spending and debt maturities.
- Execution of the coal retirements and renewable buildout, including solar-module availability, permitting, and recovery of related costs in rates.
- Developments in the Ludington and J.H. Campbell disputes, environmental obligations, and other contingencies that could affect cash needs or earnings.
- CMS Energy’s intended settlement of its $440 million forward equity contracts and the resulting dilution, if physically settled.