CMS Energy Corporation — Form 10-Q Summary
Business context and reporting period. This combined filing covers CMS Energy Corporation and its subsidiary Consumers Energy Company for the quarter and nine months ended September 30, 2016. CMS Energy operates regulated electric and gas utilities in Michigan and non-utility energy businesses; Consumers is its electric and gas utility. Amounts below are in millions of dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Operating revenue | $1,587 | $1,486 | $4,759 | $4,947 |
| Operating income | $386 | $317 | $1,007 | $918 |
| Net income available to common stockholders | $186 | $148 | $474 | $417 |
| Diluted EPS | $0.67 | $0.53 | $1.70 | $1.51 |
| Net cash from operating activities | Not stated for the quarter | $1,241 | $1,420 | |
| Capital expenditures | Not stated for the quarter | $1,224 | $1,102 |
Operating margin, calculated as operating income divided by operating revenue, was approximately 24.3% in Q3 2016 versus 21.3% in Q3 2015, and 21.2% for the first nine months of 2016 versus 18.6% in 2015. At September 30, CMS Energy reported $339 million of cash and cash equivalents plus $28 million restricted; Consumers reported $21 million plus $28 million restricted.
CMS Energy’s balance sheet reported $8,722 million of long-term debt and $1,005 million of current debt, capital leases, and financing obligations. Consumers reported $5,365 million of long-term debt and $296 million of current debt, leases, and financing obligations. CMS Energy had $549 million available under its revolving facility; Consumers had $893 million available and $75 million of commercial paper outstanding. Both companies reported compliance with financial covenants.
Material changes and drivers
- CMS Energy’s nine-month net income rose $57 million and diluted EPS increased $0.19. Electric utility earnings rose $53 million; gas utility earnings declined $13 million; enterprises increased $7 million; and corporate interest and other improved $10 million.
- Higher electric sales, rate increases, and warmer-than-normal summer weather supported earnings. Lower gas deliveries following a mild winter reduced gas revenue and earnings; nine-month gas deliveries were 196 bcf versus 223 bcf.
- Nine-month revenue fell $188 million, mainly reflecting lower gas revenue and commodity costs. Operating income nevertheless increased, supported by lower operating costs and improved utility earnings.
- Operating cash flow declined $179 million year over year, primarily due to lower customer collections and higher energy-optimization spending. Investing outflows increased, with capital expenditures up $122 million. Financing cash flow improved, including $775 million of debt issuance and $69 million of common stock issuance.
Outlook, regulatory matters, risks, and unusual items
- Consumers expects approximately $17 billion of capital investment from 2016 through 2025, including about $8.5 billion planned for 2016–2020. Management expects annual rate-base growth of 6%–8% and aims to keep base-rate increases, excluding recovery charges, at or below inflation.
- Consumers forecast weather-adjusted 2016 electric deliveries to rise 0.5%–1% and gas deliveries about 2%; longer-term planning assumes roughly 0.5% annual electric delivery growth and stable gas deliveries.
- Consumers requested a $225 million annual electric rate increase in March 2016 and self-implemented a $170 million increase in September, subject to refund with interest. Its August 2016 gas filing requested $90 million annually. The outcomes remain subject to MPSC proceedings.
- Consumers retired seven coal-fired generating units totaling 950 MW in April 2016. It stated that it expects to meet full-service customer capacity requirements through 2020 using existing and purchased resources, efficiency, demand management, renewables, and plant upgrades.
- Environmental compliance, regulatory decisions, weather, energy prices, infrastructure and project execution, credit and capital-market access, and legal proceedings are material uncertainties. Environmental spending may be substantial, and recovery in rates is not assured.
- Recorded environmental liabilities include $52 million for CMS Energy’s Bay Harbor obligations and $108 million for Consumers’ former manufactured-gas-plant sites. CMS Energy also faces an Equatorial Guinea tax claim of $152 million plus penalties and interest; the company contests the claim and cannot predict the outcome.
- CMS Energy and Consumers recorded an $11 million voluntary-separation charge in Q3 for a program expected to reduce staffing by a net 140 employees. Early adoption of share-based-payment accounting produced $7 million of excess tax benefits in earnings and a $33 million cumulative adjustment to CMS Energy’s opening accumulated deficit.
- A Michigan tax settlement provides Consumers a $60 million refund, including amounts to be collected in 2017 and 2018. Separately, Consumers recorded a $6 million charge after litigation costs were excluded from its 2016 power-supply cost recovery plan.
- Management stated that available cash, expected operating cash flows, and borrowing capacity should be sufficient for obligations and investment plans. No specific CMS Energy annual EPS guidance is stated in the supplied filing text.
Important facts for investors to verify
- Progress and final outcomes of the electric and gas rate cases, including possible refunds on self-implemented rates.
- Whether operating cash flow can support the investment program, dividends, and debt service as capital spending rises.
- Debt maturities, refinancing needs, credit-facility availability, and Consumers’ commercial-paper usage.
- Capacity procurement and reliability after the 950 MW of coal-unit retirements, including the status of the 2017 capacity auction and related approvals.
- Regulatory and litigation developments affecting environmental compliance costs, the Bay Harbor and MGP liabilities, the Equatorial Guinea claim, and other contingencies.
- Effects of weather, customer demand, energy prices, and pending Michigan and federal energy-policy changes on earnings and cash flows.