Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

CMS Energy Consolidated Financial Statements		94
Consolidated Statements of Income		94
Consolidated Statements of Comprehensive Income		95
Consolidated Statements of Cash Flows		96
Consolidated Balance Sheets		98
Consolidated Statements of Changes in Equity		100
Consumers Consolidated Financial Statements		102
Consolidated Statements of Income		102
Consolidated Statements of Comprehensive Income		103
Consolidated Statements of Cash Flows		104
Consolidated Balance Sheets		106
Consolidated Statements of Changes in Equity		108
Notes to the Consolidated Financial Statements		109
1:	Significant Accounting Policies	109
2:	New Accounting Standards	111
3:	Regulatory Matters	113
4:	Contingencies and Commitments	119
5:	Financings and Capitalization	126
6:	Fair Value Measurements	132
7:	Financial Instruments	134
8:	Notes Receivable	137
9:	Plant, Property, and Equipment	139
10:	Leases and Palisades Financing	143
11:	Asset Retirement Obligations	145
12:	Retirement Benefits	146
13:	Stock-Based Compensation	157
14:	Income Taxes	161
15:	Earnings Per Share—CMS Energy	167
16:	Revenue	168
17:	Other Income and Other Expense	170
18:	Cash and Cash Equivalents	171
19:	Reportable Segments	171
20:	Related-Party Transactions—Consumers	175
21:	Variable Interest Entities	176
22:	Quarterly Financial and Common Stock Information (Unaudited)	177
23:	Subsequent Event	178
Reports of Independent Registered Public Accounting Firm		180
CMS Energy		180
Consumers		182

CMS Energy Corporation

Consolidated Statements of Income

In Millions
Years Ended December 31	2018				2017				2016
Operating Revenue		$	6,873			$	6,583			$	6,399
Operating Expenses
Fuel for electric generation		528				505				499
Purchased and interchange power		1,613				1,503				1,508
Purchased power – related parties		81				86				86
Cost of gas sold		836				750				710
Maintenance and other operating expenses		1,417				1,236				1,248
Depreciation and amortization		933				881				811
General taxes		303				284				281
Total operating expenses		5,711				5,245				5,143
Operating Income		1,162				1,338				1,256
Other Income (Expense)
Interest income		11				12				6
Allowance for equity funds used during construction		6				5				12
Income from equity method investees		9				15				13
Nonoperating retirement benefits, net		90				24				41
Other income		2				6				8
Other expense		(48		)		(76		)		(75		)
Total other income (expense)		70				(14		)		5
Interest Charges
Interest on long-term debt		412				406				411
Other interest expense		49				34				29
Allowance for borrowed funds used during construction		(3		)		(2		)		(5		)
Total interest charges		458				438				435
Income Before Income Taxes		774				886				826
Income Tax Expense		115				424				273
Net Income		659				462				553
Income Attributable to Noncontrolling Interests		2				2				2
Net Income Available to Common Stockholders		$	657			$	460			$	551
Basic Earnings Per Average Common Share		$	2.33			$	1.64			$	1.99
Diluted Earnings Per Average Common Share		$	2.32			$	1.64			$	1.98

The accompanying notes are an integral part of these statements.

CMS Energy Corporation

Consolidated Statements of Comprehensive Income

In Millions
Years Ended December 31	2018				2017				2016
Net Income		$	659			$	462			$	553
Retirement Benefits Liability
Net loss arising during the period, net of tax of $(1), $(4), and $(5)		(4		)		(5		)		(8		)
Prior service credit adjustment, net of tax of $-, $3, and $-		(1		)		4				—
Amortization of net actuarial loss, net of tax of $1, $1, and $-		4				2				2
Amortization of prior service credit, net of tax of $(1), $-, and $-		(1		)		(1		)		(1		)
Investments
Unrealized gain on investments, net of tax of $- for all periods		—				—				1
Other-than-temporary impairment included in net income, net of tax of $-, $-, and $2		—				—				3
Derivatives
Unrealized loss on derivative instruments, net of tax of $- for all periods		(2		)		—				—
Other Comprehensive Loss		(2		)		—				(3		)
Comprehensive Income		657				462				550
Comprehensive Income Attributable to Noncontrolling Interests		2				2				2
Comprehensive Income Attributable to CMS Energy		$	655			$	460			$	548

The accompanying notes are an integral part of these statements.

CMS Energy Corporation

Consolidated Statements of Cash Flows

In Millions
Years Ended December 31	2018				2017				2016
Cash Flows from Operating Activities
Net income		$	659			$	462			$	553
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		933				881				811
Deferred income taxes and investment tax credit		182				417				264
Bad debt expense		54				49				50
Other non-cash operating activities and reconciling adjustments		22				82				52
Postretirement benefits contributions		(252		)		(12		)		(108		)
Cash provided by (used in) changes in assets and liabilities
Accounts and notes receivable and accrued revenue		15				(66		)		(155		)
Inventories		14				(46		)		146
Accounts payable and accrued rate refunds		22				49				59
Other current and non-current assets and liabilities		54				(111		)		(43		)
Net cash provided by operating activities		1,703				1,705				1,629
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)		(2,074		)		(1,665		)		(1,672		)
Increase in EnerBank notes receivable		(307		)		(138		)		(136		)
Purchase of notes receivable by EnerBank		(225		)		—				—
Proceeds from DB SERP investments		146				—				—
Proceeds from the sale of EnerBank notes receivable		—				50				—
Cost to retire property and other investing activities		(146		)		(115		)		(107		)
Net cash used in investing activities		(2,606		)		(1,868		)		(1,915		)
Cash Flows from Financing Activities
Proceeds from issuance of debt		2,767				1,633				1,049
Retirement of debt		(1,870		)		(980		)		(728		)
Increase in EnerBank certificates of deposit		513				47				100
Increase (decrease) in notes payable		(73		)		(228		)		149
Issuance of common stock		41				83				72
Payment of dividends on common and preferred stock		(407		)		(377		)		(347		)
Debt prepayment costs		(36		)		(22		)		(18		)
Payment of capital lease obligations and other financing costs		(61		)		(46		)		(22		)
Net cash provided by financing activities		874				110				255
Net Decrease in Cash and Cash Equivalents, Including Restricted Amounts		(29		)		(53		)		(31		)
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period		204				257				288
Cash and Cash Equivalents, Including Restricted Amounts, End of Period		$	175			$	204			$	257

In Millions
Years Ended December 31	2018				2017				2016
Other cash flow activities and non-cash investing and financing activities
Cash transactions
Interest paid (net of amounts capitalized)		$	458			$	418			$	427
Income taxes paid (refunds received), net		(123		)		5				32
Non-cash transactions
Capital expenditures not paid		158				172				138
Note receivable recorded for future refund of use taxes paid and capitalized		—				—				29
Other assets placed under capital lease		—				3				13

The accompanying notes are an integral part of these statements.

CMS Energy Corporation

Consolidated Balance Sheets

ASSETS
In Millions
December 31	2018				2017
Current Assets
Cash and cash equivalents		$	153			$	182
Restricted cash and cash equivalents		21				17
Accounts receivable and accrued revenue, less allowances of $20 in both periods		964				1,032
Notes receivable, less allowances of $24 in 2018 and $20 in 2017		233				198
Notes receivable held for sale		—				2
Accounts receivable – related parties		14				12
Accrued gas revenue		16				—
Inventories at average cost
Gas in underground storage		450				458
Materials and supplies		143				133
Generating plant fuel stock		57				81
Deferred property taxes		279				257
Regulatory assets		37				20
Prepayments and other current assets		101				83
Total current assets		2,468				2,475
Plant, Property, and Equipment
Plant, property, and equipment, gross		24,400				22,506
Less accumulated depreciation and amortization		7,037				6,510
Plant, property, and equipment, net		17,363				15,996
Construction work in progress		763				765
Total plant, property, and equipment		18,126				16,761
Other Non-current Assets
Regulatory assets		1,743				1,764
Accounts and notes receivable		1,645				1,187
Investments		69				64
Other		478				799
Total other non-current assets		3,935				3,814
Total Assets		$	24,529			$	23,050

LIABILITIES AND EQUITY
In Millions
December 31	2018				2017
Current Liabilities
Current portion of long-term debt, capital leases, and financing obligation		$	996			$	1,103
Notes payable		97				170
Accounts payable		723				725
Accounts payable – related parties		10				15
Accrued rate refunds		4				33
Accrued interest		94				103
Accrued taxes		398				360
Regulatory liabilities		155				80
Other current liabilities		147				195
Total current liabilities		2,624				2,784
Non-current Liabilities
Long-term debt		10,615				9,123
Non-current portion of capital leases and financing obligation		69				91
Regulatory liabilities		3,681				3,715
Postretirement benefits		436				766
Asset retirement obligations		432				430
Deferred investment tax credit		99				87
Deferred income taxes		1,487				1,269
Other non-current liabilities		294				307
Total non-current liabilities		17,113				15,788
Commitments and Contingencies (Notes 3 and 4)
Equity
Common stockholders’ equity
Common stock, authorized 350.0 shares; outstanding 283.4 shares in 2018 and 281.6 shares in 2017		3				3
Other paid-in capital		5,088				5,019
Accumulated other comprehensive loss		(65		)		(50		)
Accumulated deficit		(271		)		(531		)
Total common stockholders’ equity		4,755				4,441
Noncontrolling interests		37				37
Total equity		4,792				4,478
Total Liabilities and Equity		$	24,529			$	23,050

The accompanying notes are an integral part of these statements.

CMS Energy Corporation

Consolidated Statements of Changes in Equity

In Millions, Except Number of Shares in Thousands and Per Share Amounts
	Number of Shares
Years Ended December 31	2018		2017		2016		2018				2017				2016
Total Equity at Beginning of Period								$	4,478			$	4,290			$	3,975
Common Stock
At beginning and end of period								3				3				3
Other Paid-in Capital
At beginning of period	281,647		279,206		277,163			5,019				4,916				4,837
Common stock issued	1,554		2,492		2,580			59				102				90
Common stock repurchased	(224	)	(317	)	(292	)		(10		)		(14		)		(11		)
Common stock reissued	423		360		—			20				15				—
Common stock reacquired	(26	)	(94	)	(245	)		—				—				—
At end of period	283,374		281,647		279,206			5,088				5,019				4,916
Accumulated Other Comprehensive Loss
At beginning of period								(50		)		(50		)		(47		)
Retirement benefits liability
At beginning of period								(50		)		(50		)		(43		)
Cumulative effect of change in accounting principle								(11		)		—				—
Net loss arising during the period								(4		)		(5		)		(8		)
Prior service credit adjustment								(1		)		4				—
Amortization of net actuarial loss								4				2				2
Amortization of prior service credit								(1		)		(1		)		(1		)
At end of period								(63		)		(50		)		(50		)
Investments
At beginning of period								—				—				(4		)
Unrealized gain on investments								—				—				1
Other-than-temporary impairment included in net income								—				—				3
At end of period								—				—				—
Derivative instruments
At beginning of period								—				—				—
Unrealized loss on derivative instruments								(2		)		—				—
At end of period								(2		)		—				—
At end of period								(65		)		(50		)		(50		)

In Millions, Except Number of Shares in Thousands and Per Share Amounts
	Number of Shares
Years Ended December 31	2018		2017		2016		2018				2017				2016
Accumulated Deficit
At beginning of period								(531		)		(616		)		(855		)
Cumulative effect of change in accounting principle								8				—				33
Net income attributable to CMS Energy								657				460				551
Dividends declared on common stock								(405		)		(375		)		(345		)
At end of period								(271		)		(531		)		(616		)
Noncontrolling Interests
At beginning of period								37				37				37
Income attributable to noncontrolling interests								2				2				2
Distributions and other changes in noncontrolling interests								(2		)		(2		)		(2		)
At end of period								37				37				37
Total Equity at End of Period								$	4,792			$	4,478			$	4,290
Dividends declared per common share								$	1.43			$	1.33			$	1.24

The accompanying notes are an integral part of these statements.

Consumers Energy Company

Consolidated Statements of Income

In Millions
Years Ended December 31	2018				2017				2016
Operating Revenue		$	6,464			$	6,222			$	6,064
Operating Expenses
Fuel for electric generation		407				398				393
Purchased and interchange power		1,587				1,491				1,486
Purchased power – related parties		83				90				88
Cost of gas sold		819				730				693
Maintenance and other operating expenses		1,287				1,113				1,127
Depreciation and amortization		921				872				803
General taxes		295				276				277
Total operating expenses		5,399				4,970				4,867
Operating Income		1,065				1,252				1,197
Other Income (Expense)
Interest income		8				9				4
Interest and dividend income – related parties		2				1				1
Allowance for equity funds used during construction		6				5				12
Nonoperating retirement benefits, net		83				21				37
Other income		2				17				8
Other expense		(30		)		(58		)		(55		)
Total other income (expense)		71				(5		)		7
Interest Charges
Interest on long-term debt		276				263				261
Other interest expense		16				15				12
Allowance for borrowed funds used during construction		(3		)		(2		)		(5		)
Total interest charges		289				276				268
Income Before Income Taxes		847				971				936
Income Tax Expense		142				339				320
Net Income		705				632				616
Preferred Stock Dividends		2				2				2
Net Income Available to Common Stockholder		$	703			$	630			$	614

The accompanying notes are an integral part of these statements.

Consumers Energy Company

Consolidated Statements of Comprehensive Income

In Millions
Years Ended December 31	2018				2017				2016
Net Income		$	705			$	632			$	616
Retirement Benefits Liability
Net gain (loss) arising during the period, net of tax of $2, $(1), and $(1)		6				(4		)		(3		)
Amortization of net actuarial loss, net of tax of $- for all periods		2				1				1
Investments
Unrealized gain (loss) on investments, net of tax of $-, $1, and $2		(1		)		3				3
Reclassification adjustments included in net income, net of tax of $-, $(6), and $-		1				(9		)		—
Other-than-temporary impairment included in net income, net of tax of $-, $-, and $2		—				—				2
Other Comprehensive Income (Loss)		8				(9		)		3
Comprehensive Income		$	713			$	623			$	619

The accompanying notes are an integral part of these statements.

Consumers Energy Company

Consolidated Statements of Cash Flows

In Millions
Years Ended December 31	2018				2017				2016
Cash Flows from Operating Activities
Net income		$	705			$	632			$	616
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		921				872				803
Deferred income taxes and investment tax credit		123				163				289
Bad debt expense		29				29				31
Other non-cash operating activities and reconciling adjustments		13				59				25
Postretirement benefits contributions		(242		)		(8		)		(98		)
Cash provided by (used in) changes in assets and liabilities
Accounts and notes receivable and accrued revenue		(26		)		(63		)		(138		)
Inventories		15				(45		)		145
Accounts payable and accrued rate refunds		12				43				57
Other current and non-current assets and liabilities		(101		)		33				(49		)
Net cash provided by operating activities		1,449				1,715				1,681
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under capital lease)		(1,822		)		(1,632		)		(1,656		)
Proceeds from DB SERP investments		106				—				—
DB SERP investment in note receivable – related party		(106		)		—				—
Cost to retire property and other investing activities		(149		)		(119		)		(112		)
Net cash used in investing activities		(1,971		)		(1,751		)		(1,768		)
Cash Flows from Financing Activities
Proceeds from issuance of debt		2,106				834				446
Retirement of debt		(1,193		)		(555		)		(198		)
Increase (decrease) in notes payable		(73		)		(228		)		149
Stockholder contribution		250				450				275
Payment of dividends on common and preferred stock		(533		)		(524		)		(501		)
Debt prepayment costs		(20		)		(4		)		—
Payment of capital lease obligations and other financing costs		(24		)		(24		)		(3		)
Net cash provided by (used in) financing activities		513				(51		)		168
Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts		(9		)		(87		)		81
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period		65				152				71
Cash and Cash Equivalents, Including Restricted Amounts, End of Period		$	56			$	65			$	152

In Millions
Years Ended December 31	2018				2017				2016
Other cash flow activities and non-cash investing and financing activities
Cash transactions
Interest paid (net of amounts capitalized)		$	287			$	266			$	256
Income taxes paid (refunds received), net		156				(1		)		50
Non-cash transactions
Capital expenditures not paid		143				160				127
Note receivable recorded for future refund of use taxes paid and capitalized		—				—				29
Other assets placed under capital lease		—				3				13

The accompanying notes are an integral part of these statements.

Consumers Energy Company

Consolidated Balance Sheets

ASSETS
In Millions
December 31	2018				2017
Current Assets
Cash and cash equivalents		$	39			$	44
Restricted cash and cash equivalents		17				17
Accounts receivable and accrued revenue, less allowances of $20 in both periods		855				885
Notes receivable		—				17
Accounts and notes receivable – related parties		15				2
Accrued gas revenue		16				—
Inventories at average cost
Gas in underground storage		450				458
Materials and supplies		137				128
Generating plant fuel stock		52				76
Deferred property taxes		279				257
Regulatory assets		37				20
Prepayments and other current assets		83				71
Total current assets		1,980				1,975
Plant, Property, and Equipment
Plant, property, and equipment, gross		23,963				22,318
Less accumulated depreciation and amortization		6,958				6,441
Plant, property, and equipment, net		17,005				15,877
Construction work in progress		756				753
Total plant, property, and equipment		17,761				16,630
Other Non-current Assets
Regulatory assets		1,743				1,764
Accounts receivable		27				22
Accounts and notes receivable – related parties		104				—
Other		410				708
Total other non-current assets		2,284				2,494
Total Assets		$	22,025			$	21,099

LIABILITIES AND EQUITY
In Millions
December 31	2018				2017
Current Liabilities
Current portion of long-term debt, capital leases, and financing obligation		$	48			$	365
Notes payable		97				170
Accounts payable		685				701
Accounts payable – related parties		14				19
Accrued rate refunds		4				33
Accrued interest		59				67
Accrued taxes		436				542
Regulatory liabilities		155				80
Other current liabilities		120				159
Total current liabilities		1,618				2,136
Non-current Liabilities
Long-term debt		6,779				5,561
Non-current portion of capital leases and financing obligation		69				91
Regulatory liabilities		3,681				3,715
Postretirement benefits		392				711
Asset retirement obligations		428				429
Deferred investment tax credit		99				87
Deferred income taxes		1,809				1,640
Other non-current liabilities		230				241
Total non-current liabilities		13,487				12,475
Commitments and Contingencies (Notes 3 and 4)
Equity
Common stockholder’s equity
Common stock, authorized 125.0 shares; outstanding 84.1 shares in both periods		841				841
Other paid-in capital		4,699				4,449
Accumulated other comprehensive loss		(21		)		(12		)
Retained earnings		1,364				1,173
Total common stockholder’s equity		6,883				6,451
Cumulative preferred stock, $4.50 series		37				37
Total equity		6,920				6,488
Total Liabilities and Equity		$	22,025			$	21,099

The accompanying notes are an integral part of these statements.

Consumers Energy Company

Consolidated Statements of Changes in Equity

In Millions
Years Ended December 31	2018				2017				2016
Total Equity at Beginning of Period		$	6,488			$	5,939			$	5,546
Common Stock
At beginning and end of period		841				841				841
Other Paid-in Capital
At beginning of period		4,449				3,999				3,724
Stockholder contribution		250				450				275
At end of period		4,699				4,449				3,999
Accumulated Other Comprehensive Loss
At beginning of period		(12		)		(3		)		(6		)
Retirement benefits liability
At beginning of period		(24		)		(21		)		(19		)
Cumulative effect of change in accounting principle		(5		)		—				—
Net gain (loss) arising during the period		6				(4		)		(3		)
Amortization of net actuarial loss		2				1				1
At end of period		(21		)		(24		)		(21		)
Investments
At beginning of period		12				18				13
Cumulative effect of change in accounting principle		(12		)		—				—
Unrealized gain (loss) on investments		(1		)		3				3
Reclassification adjustments included in net income		1				(9		)		—
Other-than-temporary impairment included in net income		—				—				2
At end of period		—				12				18
At end of period		(21		)		(12		)		(3		)
Retained Earnings
At beginning of period		1,173				1,065				950
Cumulative effect of change in accounting principle		19				—				—
Net income		705				632				616
Dividends declared on common stock		(531		)		(522		)		(499		)
Dividends declared on preferred stock		(2		)		(2		)		(2		)
At end of period		1,364				1,173				1,065
Cumulative Preferred Stock
At beginning and end of period		37				37				37
Total Equity at End of Period		$	6,920			$	6,488			$	5,939

The accompanying notes are an integral part of these statements.

CMS Energy Corporation

Consumers Energy Company

Notes to the Consolidated Financial Statements

1: Significant Accounting Policies

Principles of Consolidation: CMS Energy and Consumers prepare their consolidated financial statements in conformity with GAAP. CMS Energy’s consolidated financial statements comprise CMS Energy, Consumers, CMS Enterprises, and all other entities in which CMS Energy has a controlling financial interest or is the primary beneficiary. Consumers’ consolidated financial statements comprise Consumers and all other entities in which it has a controlling financial interest or is the primary beneficiary. CMS Energy uses the equity method of accounting for investments in companies and partnerships that are not consolidated, where they have significant influence over operations and financial policies but are not the primary beneficiary. CMS Energy and Consumers eliminate intercompany transactions and balances.

Use of Estimates: CMS Energy and Consumers are required to make estimates using assumptions that may affect reported amounts and disclosures. Actual results could differ from those estimates.

Contingencies: CMS Energy and Consumers record estimated liabilities for contingencies on their consolidated financial statements when it is probable that a liability has been incurred and when the amount of loss can be reasonably estimated. For environmental remediation projects in which the timing of estimated expenditures is considered reliably determinable, CMS Energy and Consumers record the liability at its net present value, using a discount rate equal to the interest rate on monetary assets that are essentially risk-free and have maturities comparable to that of the environmental liability. CMS Energy and Consumers expense legal fees as incurred; fees incurred but not yet billed are accrued based on estimates of work performed.

Debt Issuance Costs, Discounts, Premiums, and Refinancing Costs: Upon the issuance of long-term debt, CMS Energy and Consumers defer issuance costs, discounts, and premiums and amortize those amounts over the terms of the associated debt. Debt issuance costs are presented as a direct deduction from the carrying amount of long-term debt on the balance sheet. Upon the refinancing of long-term debt, Consumers, as a regulated entity, defers any remaining unamortized issuance costs, discounts, and premiums associated with the refinanced debt and amortizes those amounts over the term of the newly issued debt. For the non‑regulated portions of CMS Energy’s business, any remaining unamortized issuance costs, discounts, and premiums associated with extinguished debt are charged to earnings.

Derivative Instruments: In order to support ongoing operations, CMS Energy and Consumers enter into contracts for the future purchase and sale of various commodities, such as electricity, natural gas, and coal. These forward contracts are generally long-term in nature and result in physical delivery of the commodity at a contracted price. Most of these contracts are not subject to derivative accounting for one or more of the following reasons:

•	they do not have a notional amount (that is, a number of units specified in a derivative instrument, such as MWh of electricity or bcf of natural gas)

•	they qualify for the normal purchases and sales exception

•	there is not an active market for the commodity

Consumers also uses FTRs to manage price risk related to electricity transmission congestion. An FTR is a financial instrument that entitles its holder to receive compensation or requires its holder to remit payment for congestion-related transmission charges. Consumers accounts for FTRs as derivatives.

Additionally, CMS Energy uses interest rate swaps to manage its interest rate risk on certain long-term debt transactions.

CMS Energy and Consumers record derivative contracts that do not qualify for the normal purchases and sales exception at fair value on their consolidated balance sheets. Each reporting period, the resulting asset or liability is adjusted to reflect any change in the fair value of the contract. At Consumers, changes in fair value are deferred as regulatory assets or liabilities. At CMS Energy, the changes are reported in earnings or, if the derivative qualifies for cash flow hedge accounting, in AOCI. For details regarding CMS Energy’s and Consumers’ derivative instruments recorded at fair value, see Note 6, Fair Value Measurements.

EPS: CMS Energy calculates basic and diluted EPS using the weighted-average number of shares of common stock and dilutive potential common stock outstanding during the period. Potential common stock, for purposes of determining diluted EPS, includes the effects of nonvested stock awards and forward equity sales. CMS Energy computes the effect on potential common stock using the treasury stock method. Diluted EPS excludes the impact of antidilutive securities, which are those securities resulting in an increase in EPS or a decrease in loss per share. For EPS computations, see Note 15, Earnings Per Share—CMS Energy.

Impairment of Long-Lived Assets and Equity Method Investments: CMS Energy and Consumers perform tests of impairment if certain triggering events occur or if there has been a decline in value that may be other than temporary.

CMS Energy and Consumers evaluate long-lived assets held in use for impairment by calculating the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the undiscounted future cash flows are less than the carrying amount, CMS Energy and Consumers recognize an impairment loss equal to the amount by which the carrying amount exceeds the fair value. CMS Energy and Consumers estimate the fair value of the asset using quoted market prices, market prices of similar assets, or discounted future cash flow analyses.

CMS Energy also assesses equity method investments for impairment whenever there has been a decline in value that is other than temporary. This assessment requires CMS Energy to determine the fair value of the equity method investment. CMS Energy determines fair value using valuation methodologies, including discounted cash flows, and assesses the ability of the investee to sustain an earnings capacity that justifies the carrying amount of the investment. CMS Energy records an impairment if the fair value is less than the carrying amount and the decline in value is considered to be other than temporary.

Investment Tax Credits: Consumers amortizes its investment tax credits over the life of the related property in accordance with regulatory treatment. CMS Energy’s non‑regulated businesses use the deferral method of accounting for investment tax credits. In 2018, CMS Enterprises qualified for $13 million of investment tax credits from placing solar generation projects in service. Under the deferral method, the book basis of the associated assets is reduced by the amount of the credit, resulting in lower depreciation expense over the life of the assets. Furthermore, the tax basis of the assets is reduced by 50 percent of the related credit, resulting in a net deferred tax asset. CMS Energy recognizes the tax benefit of this basis difference as a reduction to income tax expense in the year in which the plant reaches commercial operation.

Inventory: CMS Energy and Consumers use the weighted-average cost method for valuing working gas, recoverable base gas in underground storage facilities, and materials and supplies inventory. CMS Energy and Consumers also use this method for valuing coal inventory, and they classify these amounts as generating plant fuel stock on their consolidated balance sheets.

CMS Energy and Consumers account for RECs and emission allowances as inventory and use the weighted-average cost method to remove amounts from inventory. RECs and emission allowances are used to satisfy compliance obligations related to the generation of power. CMS Energy and Consumers classify these amounts within other assets on their consolidated balance sheets.

CMS Energy and Consumers evaluate inventory for impairment as required to ensure that its carrying value does not exceed the lower of cost or net realizable value.

MISO Transactions: MISO requires the submission of hourly day-ahead and real-time bids and offers for energy at locations across the MISO region. CMS Energy and Consumers account for MISO transactions on a net hourly basis in each of the real-time and day-ahead markets, netted across all MISO energy market locations. CMS Energy and Consumers record net hourly purchases in purchased and interchange power and net hourly sales in operating revenue on their consolidated statements of income. They record net billing adjustments upon receipt of settlement statements, record accruals for future net purchases and sales adjustments based on historical experience, and reconcile accruals to actual expenses and sales upon receipt of settlement statements.

Property Taxes: Property taxes are based on the taxable value of Consumers’ real and personal property assessed by local taxing authorities. Consumers records property tax expense over the fiscal year of the taxing authority for which the taxes are levied. The deferred property tax balance represents the amount of Consumers’ accrued property tax that will be recognized over future governmental fiscal periods.

Renewable Energy Grant: In 2013, Consumers received a renewable energy cash grant for Lake Winds® Energy Park under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009. Upon receipt of the grant, Consumers recorded a regulatory liability, which Consumers is amortizing over the life of Lake Winds® Energy Park. Consumers presents the amortization as a reduction to maintenance and other operating expenses on its consolidated statements of income. Consumers recorded the deferred income taxes related to the grant as a reduction of the book basis of Lake Winds® Energy Park.

Other: For additional accounting policies, see:

•	Note 8, Notes Receivable

•	Note 9, Plant, Property, and Equipment

•	Note 11, Asset Retirement Obligations

•	Note 12, Retirement Benefits

•	Note 14, Income Taxes

•	Note 15, Earnings Per Share—CMS Energy

•	Note 16, Revenue

•	Note 18, Cash and Cash Equivalents

2: New Accounting Standards

Implementation of New Accounting Standards

ASU 2014-09, Revenue from Contracts with Customers: This standard, which was effective on January 1, 2018 for CMS Energy and Consumers, provides new guidance for recognizing revenue from

contracts with customers. A primary objective of the standard is to provide a single, comprehensive revenue recognition model that will be applied across entities, industries, and capital markets. The new guidance replaced most of the previous revenue recognition requirements in GAAP, although certain guidance specific to rate-regulated utilities was retained. CMS Energy and Consumers had the option to apply the standard retrospectively to all prior periods presented or retrospectively with the cumulative effect of the standard recorded as an adjustment to beginning retained earnings. They also had the option to apply the standard only to contracts existing on the effective date. CMS Energy and Consumers applied the standard retrospectively to contracts existing on the effective date, and recorded an immaterial cumulative-effect reduction to beginning retained earnings for certain contract costs that can no longer be deferred under the new guidance.

The implementation of this standard did not have a material impact on CMS Energy’s or Consumers’ consolidated net income, cash flows, or financial position. CMS Energy and Consumers did not identify any significant changes to their revenue recognition practices that were required by the new guidance, but in accordance with the standard, they have provided additional disclosures about their revenues in Note 16, Revenue.

ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities: This standard, which was effective on January 1, 2018 for CMS Energy and Consumers, is intended to improve the accounting for financial instruments. The standard requires investments in equity securities to be measured at fair value, with changes in fair value recognized in net income, except for certain investments such as those that qualify for equity-method accounting. The standard no longer permits unrealized gains and losses for certain equity investments to be recorded in AOCI. There are other targeted changes as well. Entities must apply the standard using a modified retrospective approach, with the cumulative effect of the standard recorded as an adjustment to beginning retained earnings.

The implementation of the standard had no impact on CMS Energy’s consolidated financial statements. In accordance with the standard, as of January 1, 2018, Consumers removed a $19 million unrealized gain and the associated deferred taxes on its investment in CMS Energy common stock from AOCI and recorded the gain in retained earnings. In January 2018, Consumers transferred substantially all of its shares in CMS Energy common stock to a related charitable foundation and, in accordance with this standard, recognized all unrealized gains and losses on its remaining shares in net income for the year ended December 31, 2018. The accounting treatment for this investment is reflected in Consumers’ consolidated financial statements only, and had no impact on CMS Energy’s consolidated financial statements. For further details on CMS Energy’s and Consumers’ investments in debt and equity securities, see Note 7, Financial Instruments.

ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income: This standard addresses the income tax effects stranded in AOCI as a result of the TCJA. Existing GAAP requires that the remeasurement of deferred tax assets and liabilities resulting from a change in tax laws or rates be presented in net income from continuing operations, even if the deferred taxes were associated with items that were originally recognized in AOCI. As a result, upon recognizing the effects of the TCJA, the tax effects of items in AOCI (referred to as stranded tax effects) no longer reflected the current income tax rate. To address this matter, this standard permits companies to reclassify to retained earnings the stranded tax effects of the TCJA. The standard is effective on January 1, 2019 for CMS Energy and Consumers, but early adoption is permitted. The new guidance is to be applied either in the period of adoption or retrospectively to each prior period in which the effect of the TCJA was recognized. CMS Energy and Consumers elected to adopt this standard early. Accordingly, as of January 1, 2018, CMS Energy reclassified $11 million of stranded tax effects from AOCI to retained earnings, which included $5 million reclassified at Consumers. At December 31, 2018, CMS Energy and Consumers did not have any material stranded tax effects remaining in AOCI.

New Accounting Standards Not Yet Effective

ASU 2016-02, Leases: This standard establishes a new accounting model for leases. The standard requires entities to recognize lease assets and liabilities on the balance sheet for all leases with a term of more than one year, including operating leases, which are not recorded on the balance sheet under existing standards. The new guidance also amends the definition of a lease to require that a lessee control the use of a specified asset, and not simply control or take the output of the asset. On the statement of income, leases that meet existing capital lease criteria will generally be accounted for under a financing model, while operating leases will generally be accounted for under a straight-line expense model. The standard is effective on January 1, 2019 for CMS Energy and Consumers, but early adoption is permitted.

CMS Energy and Consumers did not adopt the standard early and will elect certain practical expedients permitted by the standard, under which they will not be required to perform lease assessments or reassessments for agreements existing on the effective date. They also will elect a transition method under which they will initially apply the standard on January 1, 2019, without adjusting amounts presented for prior periods. Under this method, the cumulative effect of applying the standard must be recorded as an adjustment to beginning retained earnings. Under the standard, CMS Energy and Consumers will recognize additional lease assets and liabilities on their consolidated balance sheets as of January 1, 2019 for their operating leases. CMS Energy and Consumers are finalizing their implementation of the standard and do not expect it to have a material impact on their consolidated net income or cash flows. See Note 10, Leases and Palisades Financing, for more information on CMS Energy’s and Consumers’ operating lease obligations.

ASU 2016-13, Measurement of Credit Losses on Financial Instruments: This standard, which will be effective January 1, 2020 for CMS Energy and Consumers, provides new guidance for estimating and recording credit losses on financial instruments. The standard will apply to the recognition of loan losses at EnerBank as well as to the recognition of uncollectible accounts expense at Consumers. Entities will apply the standard using a modified retrospective approach, with a cumulative-effect adjustment recorded to beginning retained earnings on the effective date. CMS Energy and Consumers are evaluating the impact of the standard on their consolidated financial statements.

3: Regulatory Matters

Regulatory matters are critical to Consumers. The Michigan Attorney General, ABATE, the MPSC Staff, and certain other parties typically participate in MPSC proceedings concerning Consumers, such as Consumers’ rate cases and PSCR and GCR processes. These parties often challenge various aspects of those proceedings, including the prudence of Consumers’ policies and practices, and seek cost disallowances and other relief. The parties also have appealed significant MPSC orders. Depending upon the specific issues, the outcomes of rate cases and proceedings, including judicial proceedings challenging MPSC orders or other actions, could negatively affect CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. Consumers cannot predict the outcome of these proceedings.

There are multiple appeals pending that involve various issues concerning cost recovery from customers, the adequacy of the record evidence supporting the recovery of Smart Energy investments, and other matters. Consumers is unable to predict the outcome of these appeals.

Regulatory Assets and Liabilities

Consumers is subject to the actions of the MPSC and FERC and therefore prepares its consolidated financial statements in accordance with the provisions of regulatory accounting. A utility must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated

services. Under regulatory accounting, Consumers records regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue by non‑regulated businesses.

Presented in the following table are the regulatory assets and liabilities on Consumers’ consolidated balance sheets:

In Millions
December 31	End of Recovery or Refund Period		2018				2017
Regulatory assets
Current
Energy waste reduction plan incentive1		2019		$	32			$	18
Other		2019		5				2
Total current regulatory assets				$	37			$	20
Non-current
Postretirement benefits2		various		$	1,028			$	1,028
Securitized costs3		2029		273				298
ARO4		various		175				161
MGP sites4		various		133				142
Unamortized loss on reacquired debt4		various		68				53
Energy waste reduction plan incentive1		2020		34				31
Energy waste reduction plan4		various		26				39
Gas storage inventory adjustments4		various		4				10
Other		various		2				2
Total non-current regulatory assets				$	1,743			$	1,764
Total regulatory assets				$	1,780			$	1,784
Regulatory liabilities
Current
TCJA reserve for refund		2019		$	98			$	—
Reserve for customer refunds		2019		36				25
Income taxes, net		2019		18				52
Other		2019		3				3
Total current regulatory liabilities				$	155			$	80
Non-current
Cost of removal		various		$	1,966			$	1,844
Income taxes, net		various		1,537				1,564
Renewable energy grant		2043		54				56
Renewable energy plan		2028		42				56
ARO		various		38				50
TCJA reserve for refund		various		35				—
Postretirement benefits		various		—				135
Other		various		9				10
Total non-current regulatory liabilities				$	3,681			$	3,715
Total regulatory liabilities				$	3,836			$	3,795

1	These regulatory assets have arisen from an alternative revenue program and are not associated with incurred costs or capital investments. Therefore, the MPSC has provided for recovery without a return.

2	This regulatory asset is offset partially by liabilities. The net amount is included in rate base, thereby providing a return.

3	The MPSC has authorized a specific return on this regulatory asset.

4	These regulatory assets represent incurred costs for which the MPSC has provided, or Consumers expects, recovery without a return on investment.

Regulatory Assets

Energy Waste Reduction Plan Incentive: In December 2018, the MPSC approved a settlement agreement authorizing Consumers to collect $31 million during 2019 as an incentive for exceeding its statutory savings targets in 2017. Consumers recognized incentive revenue under this program of $31 million in 2017.

Consumers also exceeded its statutory savings targets in 2018, achieved certain other goals, and will request the MPSC’s approval to collect $34 million, the maximum performance incentive, in the energy waste reduction reconciliation to be filed in 2019. Consumers recognized incentive revenue under this program of $34 million in 2018.

Postretirement Benefits: As part of the ratemaking process, the MPSC allows Consumers to recover the costs of postretirement benefits. Accordingly, Consumers defers the net impact of actuarial losses and gains as well as prior service costs and credits associated with postretirement benefits as a regulatory asset or liability. The asset or liability will decrease as the deferred items are amortized and recognized as components of net periodic benefit cost. For details about the amortization periods, see Note 12, Retirement Benefits.

Securitized Costs: In 2013, the MPSC issued a securitization financing order authorizing Consumers to issue securitization bonds in order to finance the recovery of the remaining book value of seven smaller coal-fueled electric generating units that Consumers retired in 2016 and three smaller natural gas-fueled electric generating units that Consumers retired in 2015. Upon receipt of the MPSC’s order, Consumers removed the book value of the ten units from plant, property, and equipment and recorded this amount as a regulatory asset. Consumers is amortizing the regulatory asset over the life of the related securitization bonds, which it issued through a subsidiary in 2014. For additional details regarding the securitization bonds, see Note 5, Financings and Capitalization.

ARO: The recovery of the underlying asset investments and related removal and monitoring costs of recorded AROs is approved by the MPSC in depreciation rate cases. Consumers records a regulatory asset and a regulatory liability for timing differences between the recognition of AROs for financial reporting purposes and the recovery of these costs from customers. The recovery period approximates the useful life of the assets to be removed.

MGP Sites: Consumers is incurring environmental remediation and other response activity costs at 23 former MGP facilities. The MPSC allows Consumers to recover from its natural gas customers over a ten-year period the costs incurred to remediate the MGP sites.

Unamortized Loss on Reacquired Debt: Under regulatory accounting, any unamortized discount, premium, or expense related to debt redeemed with the proceeds of new debt is capitalized and amortized over the life of the new debt.

Energy Waste Reduction Plan: The MPSC allows Consumers to collect surcharges from customers to fund its energy waste reduction plan. The amount of spending incurred in excess of surcharges collected is recorded as a regulatory asset and amortized as surcharges are collected from customers over the plan period.

Gas Storage Inventory Adjustments: Consumers incurs inventory expenses related to the loss of gas from its natural gas storage fields. The MPSC allows Consumers to recover these costs from its natural gas customers over a five-year period.

Regulatory Liabilities

TCJA Reserve for Refund: In February 2018, the MPSC ordered Consumers to file various proceedings to determine the reduction in its electric and gas revenue requirements as a result of the TCJA. For further information on the various TCJA proceedings, see the Consumers Electric Utility and Gas Utility—Tax Cuts and Jobs Act section below.

Reserve for Customer Refunds: The 2016 Energy Law eliminated utilities’ self-implementation of rates under general rate cases, but provided for more timely processing of general rate cases. Consumers filed an electric rate case in March 2017, prior to the effective date of that law, and as result was allowed to self-implement new energy rates in October 2017, subject to refund with interest and potential penalties. Consumers recognized revenue associated with self-implemented rates, but recorded a provision for revenue subject to refund because it considered it probable that it would be required to refund a portion of its self-implemented rates.

Income Taxes, Net: Consumers records regulatory assets and liabilities to reflect the difference between deferred income taxes recognized for financial reporting purposes and amounts previously reflected in Consumers’ rates. This net balance will decrease over the remaining life of the related temporary differences and flow through current income tax benefit. For additional details on deferred income taxes, see Note 14, Income Taxes.

At December 31, 2017, Consumers measured its deferred tax assets and liabilities using the 21 percent federal tax rate enacted in the TCJA. Due to the lower corporate tax rate, Consumers reduced its net deferred tax liabilities associated with its utility book-tax temporary differences by $1.6 billion and recorded an offsetting regulatory liability. For further information on Consumers’ proposal to return this to customers, see the Consumers Electric Utility and Gas Utility—Tax Cuts and Jobs Act section below.

Cost of Removal: The MPSC allows Consumers to collect amounts from customers to fund future asset removal activities. This regulatory liability is reduced as costs of removal are incurred. The refund period of this regulatory liability approximates the useful life of the assets to be removed.

Renewable Energy Grant: In 2013, Consumers received a $69 million renewable energy grant for Lake Winds® Energy Park, which began operations in 2012. This grant reduces Consumers’ cost of complying with Michigan’s renewable portfolio standard and, accordingly, reduces the overall renewable energy surcharge to be collected from customers. The regulatory liability recorded for the grant will be amortized over the life of Lake Winds® Energy Park.

Renewable Energy Plan: Consumers has collected surcharges to fund its renewable energy plan. Amounts not yet spent under the plan are recorded as a regulatory liability, which is amortized as incremental costs are incurred to operate and depreciate Consumers’ renewable generation facilities and to purchase RECs under renewable energy purchase agreements. Incremental costs represent costs incurred in excess of amounts recovered through the PSCR process.

Consumers Electric Utility and Gas Utility

Tax Cuts and Jobs Act: The TCJA, which changed existing federal tax law and included numerous provisions that affect businesses, was signed into law in December 2017. In February 2018, the MPSC ordered Consumers to file various proceedings to determine the reduction in its electric and gas revenue

requirements as a result of the TCJA. The MPSC also ordered Consumers to implement bill credits to reflect that reduction until customer rates are adjusted through Consumers’ general rate cases. Consumers filed the first of these proceedings in March 2018, requesting a $49 million reduction in its annual gas revenue requirement. The MPSC approved this reduction in June 2018, with credits to customer bills beginning in July 2018; this credit ended with the settlement of the gas rate case in August 2018. Consumers filed the second proceeding in April 2018, requesting a $113 million reduction in its annual electric revenue requirement. The MPSC approved this reduction in July 2018, with credits to customer bills beginning in August 2018; this credit ended with the settlement of the electric rate case in January 2019. These credits reduced rates prospectively for the impact of the TCJA but did not include potential refunds associated with Consumers’ remeasurement of its deferred income taxes.

Consumers filed two more proceedings to address amounts collected from customers during 2018 through the implementation of the first two proceedings. Consumers filed the first of these proceedings in August 2018, requesting to refund $31 million to gas customers over six months beginning in December 2018. The MPSC approved this refund in November 2018. Consumers filed the second proceeding in September 2018, requesting to refund $70 million to electric customers over six months beginning in January 2019. The MPSC approved this refund in December 2018. Consumers has recorded a current regulatory liability in an amount reflecting these approved refunds.

In October 2018, Consumers filed an application to address the December 31, 2017 remeasurement of its deferred income taxes and other base rate impacts of the TCJA on customers. The application requested approval to begin returning $0.4 billion of net regulatory tax liabilities through rates to be determined in a future gas proceeding and $1.2 billion through the rates determined in Consumers’ next-filed electric rate case. Consumers’ total $1.6 billion of net regulatory tax liabilities comprises:

•	A regulatory tax liability of $1.7 billion associated with plant assets that are subject to normalization, which is governed by the Internal Revenue Code. This requires that the regulatory tax liability be returned over the remaining book life of the related plant assets, the average of which is 44 years for gas plant assets and 27 years for electric plant assets.

•	A regulatory tax asset of $0.3 billion associated with plant assets that are not subject to normalization. Consumers proposed to collect this over 44 years from gas customers and over 27 years from electric customers.

•	A regulatory tax liability of $0.2 billion, which is primarily related to employee benefits. Consumers proposed to refund this amount to customers over 15 years.

In January 2018, Consumers began to reduce this net regulatory tax liability by crediting income tax expense. Consumers has fully reserved for the eventual refund of these excess deferred taxes that it has credited to income tax expense in a separate non‑current regulatory liability established by reducing revenue, and will continue to do so until these benefits are passed on to customers in accordance with an MPSC order. For additional details on the remeasurement, see Note 14, Income Taxes.

Consumers Electric Utility

2017 Electric Rate Case: In March 2017, Consumers filed an application with the MPSC seeking an annual rate increase of $173 million, based on a 10.5 percent authorized return on equity. The filing requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements. In September 2017, Consumers reduced its requested annual rate increase to $148 million. In October 2017, Consumers self-implemented an annual rate increase of $130 million, subject to refund with interest and potential penalties. The MPSC issued an order in March 2018, authorizing an annual rate increase of $66 million, based on a 10.0 percent authorized return on equity. In

June 2018, as a result of a petition for rehearing filed by Consumers, the MPSC issued an order adjusting the authorized annual rate increase to $72 million by allowing recovery of additional retirement benefit plan costs. In July 2018, Consumers filed a reconciliation of total revenues collected during self-implementation to those that would have been collected under final rates. The reconciliation indicated that a $36 million refund would be required, which was recorded on Consumers’ consolidated balance sheets as a current regulatory liability at December 31, 2018. In its filing, Consumers proposed refunding this amount to customers in February 2019.

2018 Electric Rate Case: In May 2018, Consumers filed an application with the MPSC seeking an annual rate increase of $58 million, based on a 10.75 percent authorized return on equity. In October 2018, Consumers reduced its requested annual rate increase to $44 million. The filing requested authority to recover new investment in system reliability, environmental compliance, and technology enhancements. In January 2019, the MPSC approved a settlement agreement authorizing an annual rate decrease of $24 million, based on a 10.0 percent authorized return of equity. With the elimination of the $113 million TCJA credit to customer bills, the approved settlement agreement results in an $89 million increase in annual rates. In lieu of the investment recovery mechanism requested by Consumers, the settlement agreement provides for deferred accounting treatment for distribution-related capital investments exceeding certain amounts. Consumers also agreed to not file a new electric rate case prior to January 2020.

Consumers Gas Utility

Gas Rate Case: In October 2017, Consumers filed an application with the MPSC seeking an annual rate increase of $178 million, based on a 10.5 percent authorized return on equity. In March 2018, Consumers reduced its requested revenue requirement to $145 million, before taking into consideration any impact of the TCJA. Consumers further reduced its requested revenue requirement to $83 million to reflect the impact of the TCJA, offset partially by an increase in the authorized return of equity to 10.75 percent to compensate for the anticipated negative effects of tax reform on Consumers’ cash flows from operating activities. In July 2018, Consumers reduced its requested revenue requirement to $60 million, based on a 10.0 percent authorized return on equity.

In August 2018, the MPSC approved a settlement agreement authorizing an annual rate increase of $11 million, based on a 10.0 percent authorized return on equity. With the elimination of the $49 million TCJA credit to customer bills, the approved settlement agreement results in a $60 million increase in annual rates. The MPSC also approved two rate adjustment mechanisms: a revenue decoupling mechanism and an investment recovery mechanism. The revenue decoupling mechanism will annually reconcile Consumers’ actual weather-normalized non‑fuel revenues with the revenues approved by the MPSC. The investment recovery mechanism will provide for an additional annual rate increase of $9 million beginning in July 2019 and another $10 million beginning in July 2020 for incremental investments that Consumers plans to make in those years, subject to reconciliation. The investment recovery surcharge will remain in effect until rates are reset in a subsequent general rate case.

Power Supply Cost Recovery and Gas Cost Recovery

The PSCR and GCR ratemaking processes are designed to allow Consumers to recover all of its power supply and purchased natural gas costs if incurred under reasonable and prudent policies and practices. The MPSC reviews these costs, policies, and practices in annual plan and reconciliation proceedings. Consumers adjusts its PSCR and GCR billing charges monthly in order to minimize the underrecovery or overrecovery amount in the annual reconciliations. Underrecoveries represent probable future revenues that will be recovered from customers; overrecoveries represent previously collected revenues that will be refunded to customers.

Presented in the following table are the assets and liabilities for PSCR and GCR underrecoveries and overrecoveries reflected on Consumers’ consolidated balance sheets:

In Millions
December 31	2018				2017
Assets
GCR underrecoveries		16				—
Accrued gas revenue		$	16			$	—
Liabilities
PSCR overrecoveries		$	4			$	27
GCR overrecoveries		—				6
Accrued rate refunds		$	4			$	33

PSCR Plans and Reconciliations: In June 2018, the MPSC approved a settlement agreement in Consumers’ 2016 PSCR reconciliation, authorizing recovery of $1.9 billion of power costs and authorizing Consumers to reflect in its 2017 PSCR reconciliation the overrecovery of $12 million.

In March 2018, Consumers filed its 2017 PSCR reconciliation, requesting full recovery of $1.9 billion of power costs and authorization to reflect in its 2018 PSCR reconciliation the overrecovery of $32 million.

Consumers submitted its 2018 PSCR plan to the MPSC in September 2017 and, in accordance with its proposed plan, self-implemented the 2018 PSCR charge beginning in January 2018.

GCR Plans and Reconciliations: In May 2018, the MPSC approved a settlement agreement in Consumers’ 2016-2017 GCR reconciliation, authorizing full recovery of $0.5 billion of gas costs and authorizing Consumers to reflect in its 2017-2018 GCR reconciliation the overrecovery of $2 million.

In June 2018, Consumers filed its 2017-2018 GCR reconciliation, requesting full recovery of $0.6 billion of gas costs and authorization to reflect in its 2018-2019 GCR reconciliation the overrecovery of $1 million.

In October 2018, the MPSC approved a settlement agreement in Consumers’ 2018-2019 GCR plan, authorizing the 2018-2019 GCR factor that Consumers self-implemented beginning in April 2018.

4: Contingencies and Commitments

CMS Energy and Consumers are involved in various matters that give rise to contingent liabilities. Depending on the specific issues, the resolution of these contingencies could negatively affect CMS Energy’s and Consumers’ liquidity, financial condition, and results of operations. In their disclosures of these matters, CMS Energy and Consumers provide an estimate of the possible loss or range of loss when such an estimate can be made. Disclosures that state that CMS Energy or Consumers cannot predict the outcome of a matter indicate that they are unable to estimate a possible loss or range of loss for the matter.

CMS Energy Contingencies

Gas Index Price Reporting Litigation: CMS Energy, along with CMS MST, CMS Field Services, Cantera Natural Gas, Inc., and Cantera Gas Company, were named as defendants in four class action lawsuits and one individual lawsuit arising as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations include price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices in Kansas, Missouri, and Wisconsin. In 2016,

CMS Energy entities reached a settlement with the plaintiffs in the Kansas and Missouri class action cases for an amount that was not material to CMS Energy. In August 2017, the federal district court approved the settlement. The following provides more detail on the remaining cases in which CMS Energy or its affiliates were named as parties:

•

In 2006, a class action complaint, Arandell Corp., et al. v. XCEL Energy Inc., et al., was filed in Wisconsin state court on behalf of Wisconsin commercial entities that purchased natural gas between January 2000 and October 2002. The defendants, including CMS Energy, CMS ERM, and Cantera Gas Company, are alleged to have violated Wisconsin’s antitrust statute. The plaintiffs are seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.

•	In 2009, a class action complaint, Newpage Wisconsin System v. CMS ERM, et al., was filed in circuit court in Wood County, Wisconsin, against CMS Energy, CMS ERM, Cantera Gas Company, and others. The plaintiff is seeking full consideration damages, treble damages, costs, interest, and attorneys’ fees.

•

In 2005, J.P. Morgan Trust Company, N.A., in its capacity as trustee of the FLI Liquidating Trust, filed an action in Kansas state court against CMS Energy, CMS MST, CMS Field Services, and others. The complaint alleges various claims under the Kansas Restraint of Trade Act. The plaintiff is seeking statutory full consideration damages for its purchases of natural gas in 2000 and 2001, costs, and attorneys’ fees.

After removal to federal court, all of the cases were transferred to a single federal district court pursuant to the multidistrict litigation process. In 2010 and 2011, all claims against CMS Energy defendants were dismissed by the district court based on FERC preemption.

In 2013, the U.S. Court of Appeals for the Ninth Circuit reversed the district court decision. The appellate court found that FERC preemption does not apply under the facts of these cases. The appellate court affirmed the district court’s denial of leave to amend to add federal antitrust claims. The matter was appealed to the U.S. Supreme Court, which in 2015 upheld the Ninth Circuit’s decision. The cases were remanded back to the federal district court.

In 2016, the federal district court granted the defendants’ motion for summary judgment in the individual lawsuit filed in Kansas based on a release in a prior settlement involving similar allegations; the order of summary judgment was subsequently appealed. In March 2018, the U.S. Court of Appeals for the Ninth Circuit reversed the lower court’s ruling and remanded the case back to the federal district court.

In March 2017, the federal district court denied plaintiffs’ motion for class certification in the two pending class action cases in Wisconsin. The plaintiffs appealed that decision to the U.S. Court of Appeals for the Ninth Circuit and in August 2018, the Ninth Circuit Court of Appeals reversed and remanded the matter back to the federal district court for further consideration.

In January 2019, the judge in the multidistrict litigation granted motions filed by plaintiffs for Suggestion of Remand of the actions back to the respective transferor courts in Wisconsin and Kansas for further handling. The matter will go to the Judicial Panel on Multidistrict Litigation who will determine if remand is appropriate.

These cases involve complex facts, a large number of similarly situated defendants with different factual positions, and multiple jurisdictions. Presently, any estimate of liability would be highly speculative; the amount of CMS Energy’s reasonably possible loss would be based on widely varying models previously

untested in this context. If the outcome after appeals is unfavorable, these cases could negatively affect CMS Energy’s liquidity, financial condition, and results of operations.

Bay Harbor: CMS Land retained environmental remediation obligations for the collection and treatment of leachate, a liquid consisting of water and other substances, at Bay Harbor after selling its interests in the development in 2002. Leachate is produced when water enters into cement kiln dust piles left over from former cement plant operations at the site. In 2012, CMS Land and the MDEQ finalized an agreement that established the final remedies and the future water quality criteria at the site. CMS Land completed all construction necessary to implement the remedies required by the agreement and will continue to maintain and operate a system to discharge treated leachate into Little Traverse Bay under an NPDES permit issued in 2010 and renewed in 2016. The renewed NPDES permit is valid through September 2020.

Various claims have been brought against CMS Land or its affiliates, including CMS Energy, alleging environmental damage to property, loss of property value, insufficient disclosure of environmental matters, breach of agreement relating to access, or other matters. CMS Land and other parties received a demand for payment from the EPA of over $8 million, plus interest and costs. The EPA was seeking recovery under CERCLA of response costs allegedly incurred at Bay Harbor and filed a lawsuit to collect these costs. In December 2018, an agreement was reached to settle the lawsuit for an agreed-upon amount. This payment did not have a material impact on CMS Energy’s financial condition or results of operations.

At December 31, 2018, CMS Energy had a recorded liability of $46 million for its remaining obligations for environmental remediation. CMS Energy calculated this liability based on discounted projected costs, using a discount rate of 4.34 percent and an inflation rate of one percent on annual operating and maintenance costs. The undiscounted amount of the remaining obligation is $58 million. CMS Energy expects to pay the following amounts for long-term liquid disposal and operating and maintenance costs in each of the next five years:

In Millions
	2019				2020				2021				2022				2023
CMS Energy
Long-term liquid disposal and operating and maintenance costs		$	4			$	4			$	4			$	4			$	4

CMS Energy’s estimate of response activity costs and the timing of expenditures could change if there are changes in circumstances or assumptions used in calculating the liability. Although a liability for its present estimate of remaining response activity costs has been recorded, CMS Energy cannot predict the ultimate financial impact or outcome of this matter.

Equatorial Guinea Tax Claim: In 2002, CMS Energy sold its oil, gas, and methanol investments in Equatorial Guinea. The government of Equatorial Guinea claims that, in connection with the sale, CMS Energy owes $152 million in taxes, plus substantial penalties and interest that could be up to the amount of the taxes claimed. In 2015, the matter was proceeding to formal arbitration; however, since then, the government of Equatorial Guinea has stopped communicating. CMS Energy has concluded that the government’s tax claim is without merit and will continue to contest the claim, but cannot predict the financial impact or outcome of the matter. An unfavorable outcome could have a material adverse effect on CMS Energy’s liquidity, financial condition, and results of operations.

Consumers Electric Utility Contingencies

Electric Environmental Matters: Consumers’ operations are subject to environmental laws and regulations. Historically, Consumers has generally been able to recover, in customer rates, the costs to operate its facilities in compliance with these laws and regulations.

Cleanup and Solid Waste: Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA. Consumers believes that these costs should be recoverable in rates, but cannot guarantee that outcome. Consumers estimates that its liability for NREPA sites for which it can estimate a range of loss will be between $3 million and $4 million. At December 31, 2018, Consumers had a recorded liability of $3 million, the minimum amount in the range of its estimated probable NREPA liability, as no amount in the range was considered a better estimate than any other amount.

Consumers is a potentially responsible party at a number of contaminated sites administered under CERCLA. CERCLA liability is joint and several. In 2010, Consumers received official notification from the EPA that identified Consumers as a potentially responsible party for cleanup of PCBs at the Kalamazoo River CERCLA site. The notification claimed that the EPA has reason to believe that Consumers disposed of PCBs and arranged for the disposal and treatment of PCB-containing materials at portions of the site. In 2011, Consumers received a follow-up letter from the EPA requesting that Consumers agree to participate in a removal action plan along with several other companies for an area of lower Portage Creek, which is connected to the Kalamazoo River. All parties, including Consumers, that were asked to participate in the removal action plan declined to accept liability. Until further information is received from the EPA, Consumers is unable to estimate a range of potential liability for cleanup of the river.

Based on its experience, Consumers estimates that its share of the total liability for known CERCLA sites will be between $3 million and $8 million. Various factors, including the number and creditworthiness of potentially responsible parties involved with each site, affect Consumers’ share of the total liability. At December 31, 2018, Consumers had a recorded liability of $3 million for its share of the total liability at these sites, the minimum amount in the range of its estimated probable CERCLA liability, as no amount in the range was considered a better estimate than any other amount.

The timing of payments related to Consumers’ remediation and other response activities at its CERCLA and NREPA sites is uncertain. Consumers periodically reviews these cost estimates. A change in the underlying assumptions, such as an increase in the number of sites, different remediation techniques, the nature and extent of contamination, and legal and regulatory requirements, could affect its estimates of NREPA and CERCLA liability.

Ludington PCB: In 1998, during routine maintenance activities, Consumers identified PCB as a component in certain paint, grout, and sealant materials at Ludington. Consumers removed part of the PCB material and replaced it with non‑PCB material. Consumers has had several communications with the EPA regarding this matter, but cannot predict the financial impact or outcome.

MCV PPA: In December 2017, the MCV Partnership initiated arbitration against Consumers, asserting a breach of contract associated with the MCV PPA. Under this PPA, Consumers pays the MCV Partnership a fixed energy charge based on Consumers’ annual average baseload coal generating plant operating and maintenance cost, fuel inventory, and administrative and general expenses. The MCV Partnership asserts that, under the Clean Air Act, Consumers should have installed pollution control equipment on coal-fueled electric generating units years before they were retired. The MCV Partnership also asserts that Consumers should have installed pollution control equipment earlier on its remaining coal-fueled electric generating units. The assertion claims that these changes would have increased Consumers’ costs to operate and maintain the facilities and, thereby, the fixed energy charge paid to the MCV Partnership.

Additionally, the MCV Partnership claims that Consumers improperly characterized certain costs included in the calculation of the fixed energy charge.

In January 2019, an arbitration panel issued an order concluding that the MCV Partnership is not entitled to any damages associated with its claim against Consumers related to the Clean Air Act; the majority of the MCV Partnership’s claim, which estimated damages and interest in excess of $270 million, was related to this dismissed claim. Consumers believes that the MCV Partnership’s remaining claims are without merit, but cannot predict the financial impact or outcome of the matter.

Underwater Cables in Straits of Mackinac: Consumers owns certain underwater electric cables in the Straits of Mackinac, which were de-energized and retired in 1990. Consumers was notified that some of these cables were damaged as a result of vessel activity in April 2018. Following the notification, Consumers located, inspected, sampled, capped, and returned the damaged retired cables to their original location on the lake bottom, and did not find any substantive evidence of environmental contamination. Consumers is collaborating with the State of Michigan, local Native American tribes, and other stakeholders to evaluate the status of the cables and to determine if any additional action is advisable. Consumers cannot predict the outcome of this matter, but if Consumers is required to remove all the cables, it could incur additional costs of up to $10 million. Consumers has filed suit against the companies that own the vessels that allegedly caused the damage. Consumers will seek recovery from customers of any costs incurred.

Consumers Gas Utility Contingencies

Gas Environmental Matters: Consumers expects to incur remediation and other response activity costs at a number of sites under the NREPA. These sites include 23 former MGP facilities. Consumers operated the facilities on these sites for some part of their operating lives. For some of these sites, Consumers has no present ownership interest or may own only a portion of the original site.

At December 31, 2018, Consumers had a recorded liability of $73 million for its remaining obligations for these sites. This amount represents the present value of long-term projected costs, using a discount rate of 2.57 percent and an inflation rate of 2.5 percent. The undiscounted amount of the remaining obligation is $77 million. Consumers expects to pay the following amounts for remediation and other response activity costs in each of the next five years:

In Millions
	2019				2020				2021				2022				2023
Consumers
Remediation and other response activity costs		$	12			$	16			$	21			$	7			$	2

Consumers periodically reviews these cost estimates. Any significant change in the underlying assumptions, such as an increase in the number of sites, changes in remediation techniques, or legal and regulatory requirements, could affect Consumers’ estimates of annual response activity costs and the MGP liability.

Pursuant to orders issued by the MPSC, Consumers defers its MGP-related remediation costs and recovers them from its customers over a ten-year period. At December 31, 2018, Consumers had a regulatory asset of $133 million related to the MGP sites.

Consumers estimates that its liability to perform remediation and other response activities at NREPA sites other than the MGP sites could reach $3 million. At December 31, 2018, Consumers had a recorded

liability of less than $1 million, the minimum amount in the range of its estimated probable liability, as no amount in the range was considered a better estimate than any other amount.

Guarantees

Presented in the following table are CMS Energy’s and Consumers’ guarantees at December 31, 2018:

In Millions
Guarantee Description	Issue Date	Expiration Date	Maximum Obligation				Carrying Amount
CMS Energy, including Consumers
Indemnity obligations from stock and asset sale agreements1	various	indefinite		$	153			$	3
Guarantees2	various	indefinite		39				—
Consumers
Guarantee2	July 2011	indefinite		$	30			$	—

1	These obligations arose from stock and asset sale agreements under which CMS Energy or a subsidiary of CMS Energy indemnified the purchaser for losses resulting from various matters, primarily claims related to taxes. CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.

2

At Consumers, this obligation comprises a guarantee provided to the U.S. Department of Energy in connection with a settlement agreement regarding damages resulting from the department’s failure to accept spent nuclear fuel from nuclear power plants formerly owned by Consumers. At CMS Energy, the guarantee obligations comprise Consumers’ guarantee to the U.S. Department of Energy and CMS Energy’s 1994 guarantee of non‑recourse revenue bonds issued by Genesee. For additional details on this guarantee, see Note 21, Variable Interest Entities.

Additionally, in the normal course of business, CMS Energy, Consumers, and certain other subsidiaries of CMS Energy have entered into various agreements containing tax and other indemnity provisions for which they are unable to estimate the maximum potential obligation. The carrying value of these indemnity obligations is $1 million. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities to be remote.

Other Contingencies

In addition to the matters disclosed in this Note and Note 3, Regulatory Matters, there are certain other lawsuits and administrative proceedings before various courts and governmental agencies arising in the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These other lawsuits and proceedings may involve personal injury, property damage, contracts, environmental matters, federal and state taxes, rates, licensing, employment, and other matters. Further, CMS Energy and Consumers occasionally self-report certain regulatory non‑compliance matters that may or may not eventually result in administrative proceedings. CMS Energy and Consumers believe that the outcome of any one of these proceedings will not have a material negative effect on their consolidated results of operations, financial condition, or liquidity.

Contractual Commitments

Purchase Obligations: Purchase obligations arise from long-term contracts for the purchase of commodities and related services, and construction and service agreements. The commodities and related services include long-term PPAs, natural gas and associated transportation, and coal and associated

transportation. Related-party PPAs are between Consumers and certain affiliates of CMS Enterprises. Presented in the following table are CMS Energy’s and Consumers’ contractual purchase obligations at December 31, 2018 for each of the periods shown:

In Millions
	Payments Due
	Total				2019				2020				2021				2022				2023				Beyond 2023
CMS Energy, including Consumers
Total PPAs		$	9,930			$	1,049			$	1,051			$	1,043			$	744			$	638			$	5,405
Other		2,341				1,276				405				163				137				117				243
Consumers
PPAs
MCV PPA		$	3,880			$	330			$	318			$	289			$	275			$	279			$	2,389
Palisades PPA		1,280				378				388				400				114				—				—
Related-party PPAs		692				85				85				86				86				87				263
Other PPAs		4,078				256				260				268				269				272				2,753
Total PPAs		$	9,930			$	1,049			$	1,051			$	1,043			$	744			$	638			$	5,405
Other		2,075				1,237				373				148				124				103				90

MCV PPA: Consumers has a 35-year PPA that began in 1990 with the MCV Partnership to purchase 1,240 MW of electricity. The MCV PPA, as amended and restated, provides for:

•	a capacity charge of $10.14 per MWh of available capacity

•	a fixed energy charge based on Consumers’ annual average baseload coal generating plant operating and maintenance cost, fuel inventory, and administrative and general expenses

•	a variable energy charge based on the MCV Partnership’s cost of production when the plant is dispatched

•	a $5 million annual contribution by the MCV Partnership to a renewable resources program

•	an option for Consumers to extend the MCV PPA for five years or purchase the MCV Facility at the conclusion of the MCV PPA’s term in March 2025

Capacity and energy charges under the MCV PPA were $353 million in 2018, $321 million in 2017, and $305 million in 2016.

Palisades PPA: Consumers has a PPA expiring in 2022 with Entergy to purchase virtually all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW. For all delivered energy, the Palisades PPA has escalating capacity and variable energy charges. Total capacity and energy charges under the Palisades PPA were $375 million in 2018, $366 million in 2017, and $363 million in 2016. For further details about Palisades, see Note 10, Leases and Palisades Financing.

Other PPAs: Consumers has PPAs expiring through 2036 with various counterparties. The majority of the PPAs have capacity and energy charges for delivered energy. Capacity and energy charges under these PPAs were $350 million in 2018, $349 million in 2017, and $348 million in 2016.

5: Financings and Capitalization

Presented in the following table is CMS Energy’s long-term debt at December 31:

In Millions
	Interest Rate (%)		Maturity		2018				2017
CMS Energy, including Consumers
CMS Energy, parent only
Senior notes	8.750		2019			$	—			$	100
	6.250		2020			—				300
	5.050		2022			300				300
	3.875		2024			250				250
	3.600		2025			250				250
	3.000		2026			300				300
	2.950		2027			275				275
	3.450		2027			350				350
	4.700		2043			250				250
	4.875		2044			300				300
Total senior notes						$	2,275			$	2,675
Term loans and revolving credit agreements	variable	1	2019			180				405
	variable	2	2023			30				—
						$	210			$	405
Junior subordinated notes	5.625		2078			200				—
	5.875		2078			280				—
						$	480			$	—
Total CMS Energy, parent only						$	2,965			$	3,080
CMS Energy subsidiaries
CMS Enterprises, including subsidiaries
Term loan facility	variable	3	2025	3		$	98			$	—
EnerBank
Certificates of deposit	2.440	4	2019-2026			1,758				1,245
Consumers						6,862				5,940
Total principal amount outstanding						$	11,683			$	10,265
Current amounts						(974		)		(1,081		)
Net unamortized discounts						(21		)		(14		)
Unamortized issuance costs						(73		)		(47		)
Total long-term debt						$	10,615			$	9,123

1	Outstanding borrowings bear interest at an annual interest rate of LIBOR plus 0.800 percent (3.322 percent at December 31, 2018).

2	Outstanding borrowings bear interest at an annual interest rate of LIBOR plus 0.125 percent (3.669 percent at December 31, 2018).

3

A subsidiary of CMS Enterprises issued non‑recourse debt to finance the acquisition of a wind generation project in northwest Ohio. The debt bears interest at an annual interest rate of LIBOR plus 1.500 percent through October 2022 (4.303 percent at December 31, 2018). Beginning in October 2022, the debt will bear interest at an annual interest rate of LIBOR plus 1.750 percent. The same subsidiary of CMS Enterprises entered into interest rate swaps with the lending banks to fix the interest charges associated with the debt, at a rate of 4.702 percent

through October 2022 and 4.952 percent beginning in October 2022. Principal and interest payments are made quarterly.

4	The weighted-average interest rate for EnerBank’s certificates of deposit was 2.440 percent at December 31, 2018 and 1.758 percent at December 31, 2017. EnerBank’s primary deposit product consists of brokered certificates of deposit with varying maturities and having a face value of $1,000.

Presented in the following table is Consumers’ long-term debt at December 31:

In Millions
	Interest Rate (%)		Maturity		2018				2017
Consumers
First mortgage bonds	5.650		2018			$	—			$	250
	6.125		2019			—				350
	6.700		2019			—				500
	5.650		2020			300				300
	3.770		2020			100				100
	2.850		2022			375				375
	5.300		2022			250				250
	3.375		2023			325				325
	3.125		2024			250				250
	3.190		2024			52				52
	3.680		2027			100				—
	3.390		2027			35				35
	3.800		2028			300				—
	3.180		2032			100				100
	5.800		2035			175				175
	3.520		2037			335				335
	4.010		2038			215				—
	6.170		2040			50				50
	4.970		2040			50				50
	4.310		2042			263				263
	3.950		2043			425				425
	4.100		2045			250				250
	3.250		2046			450				450
	3.950		2047			350				350
	4.050		2048			550				—
	4.350		2049			550				—
	3.860		2052			50				50
	4.280		2057			185				—
	4.350		2064			250				250
Total first mortgage bonds						$	6,335			$	5,535
Securitization bonds	3.057	1	2020-2029	2		277				302
Revolving credit agreements	variable	3	2020-2023			215				—
Tax-exempt pollution control revenue bond	variable		2035			35				103
Total principal amount outstanding						$	6,862			$	5,940
Current amounts						(26		)		(343		)
Net unamortized discounts						(16		)		(8		)
Unamortized issuance costs						(41		)		(28		)
Total long-term debt						$	6,779			$	5,561

1	The weighted-average interest rate for Consumers’ securitization bonds issued through its subsidiary Consumers 2014 Securitization Funding was 3.057 percent at December 31, 2018 and 2.913 percent at December 31, 2017.

2	Principal and interest payments are made semiannually.

3	The weighted-average interest rate for Consumers’ revolving credit facilities was 3.331 percent at December 31, 2018. There were no outstanding borrowings at December 31, 2017.

Financings: Presented in the following table is a summary of major long-term debt transactions during the year ended December 31, 2018:

	Principal (In Millions)				Interest Rate (%)	Issue/Retirement Date	Maturity Date
Debt issuances
CMS Energy, parent only
Junior subordinated notes1		$	200		5.625	March 2018	March 2078
Junior subordinated notes1		250			5.875	September 2018	October 2078
Junior subordinated notes1		30			5.875	October 2018	October 2078
Total CMS Energy, parent only		$	480
CMS Enterprises, including subsidiaries
Term loan facility		$	100		variable2	October 2018	September 2025
Total CMS Enterprises, including subsidiaries		$	100
Consumers
First mortgage bonds		$	550		4.050	May 2018	May 2048
First mortgage bonds		100			3.680	October 2018	October 2027
First mortgage bonds		215			4.010	October 2018	October 2038
First mortgage bonds		185			4.280	October 2018	October 2057
First mortgage bonds		300			3.800	November 2018	November 2028
First mortgage bonds		550			4.350	November 2018	April 2049
Total Consumers		$	1,900
Total CMS Energy		$	2,480
Debt retirements
CMS Energy, parent only
Term loan facility		$	180		variable	March 2018	December 2018
Senior notes3		100			8.750	June 2018	June 2019
Term loan facility		45			variable	August 2018	December 2018
Senior notes4		300			6.250	October 2018	February 2020
Total CMS Energy, parent only		$	625
Consumers
Tax-exempt pollution control revenue bonds		$	68		variable	April 2018	April 2018
First mortgage bonds		250			5.650	May 2018	September 2018
First mortgage bonds		350			6.125	November 2018	March 2019
First mortgage bonds		500			6.700	November 2018	September 2019
Total Consumers		$	1,168
Total CMS Energy		$	1,793

1	These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness.

2	A subsidiary of CMS Enterprises entered into interest rate swaps with the lending banks to fix the interest charges associated with the debt.

3	CMS Energy retired these senior notes at a premium and recorded a loss on extinguishment of $5 million in other expense on its consolidated statements of income.

4	CMS Energy retired these senior notes at a premium and recorded a loss on extinguishment of $11 million in other expense on its consolidated statements of income.

Term Loan Credit Agreement: In December 2018, CMS Energy entered into a $300 million term loan credit agreement. CMS Energy drew the entire amount of the term loan in January 2019.

First Mortgage Bonds: Consumers secures its first mortgage bonds by a mortgage and lien on substantially all of its property. Consumers’ ability to issue first mortgage bonds is restricted by certain provisions in the First Mortgage Bond Indenture and the need for regulatory approvals under federal law. Restrictive issuance provisions in the First Mortgage Bond Indenture include achieving a two-times interest coverage ratio and having sufficient unfunded net property additions.

Regulatory Authorization for Financings: Consumers is required to maintain FERC authorization for financings. Its current authorization terminates on June 30, 2020. Any long-term issuances during the authorization period are exempt from FERC’s competitive bidding and negotiated placement requirements.

Securitization Bonds: Certain regulatory assets held by Consumers’ subsidiary, Consumers 2014 Securitization Funding, collateralize Consumers’ securitization bonds. The bondholders have no recourse to Consumers’ assets except for those held by the subsidiary that issued the bonds. Consumers collects securitization surcharges to cover the principal and interest on the bonds as well as certain other qualified costs. The surcharges collected are remitted to a trustee and are not available to creditors of Consumers or creditors of Consumers’ affiliates other than the subsidiary that issued the bonds.

Debt Maturities: At December 31, 2018, the aggregate annual contractual maturities for long-term debt for the next five years were:

In Millions
	2019				2020				2021				2022				2023
CMS Energy, including Consumers
Long-term debt		$	974			$	1,007			$	310			$	1,146			$	546
Consumers
Long-term debt		$	26			$	626			$	27			$	653			$	369

Revolving Credit Facilities: The following revolving credit facilities with banks were available at December 31, 2018:

In Millions
Expiration Date	Amount of Facility				Amount Borrowed				Letters of Credit Outstanding				Amount Available
CMS Energy, parent only
June 5, 20231,2		$	550			$	30			$	1			$	519
CMS Enterprises, including subsidiaries
September 30, 20253		$	18			$	—			$	8			$	10
Consumers4
June 5, 20235		$	850			$	15			$	7			$	828
November 19, 20206		250				200				35				15
September 9, 2019		30				—				30				—

1	During the year ended December 31, 2018, CMS Energy’s average borrowings totaled $15 million with a weighted-average interest rate of 2.997 percent. In January 2019, CMS Energy increased its borrowings under this facility to $73 million.

2	In June 2018, CMS Energy amended its $550 million revolving credit facility, eliminating the security provided by Consumers common stock, and extending the expiration date to June 2023.

3	Under this facility, $8 million is available solely for the purpose of issuing letters of credit. Obligations under this facility are secured by the collateral accounts with the lending bank.

4	Obligations under these facilities are secured by first mortgage bonds of Consumers. During the year ended December 31, 2018, Consumers’ average borrowings totaled $3 million with a weighted-average interest rate of 3.505 percent.

5	In June 2018, Consumers amended this revolving credit facility by increasing its borrowing capacity to $850 million and extending the expiration date to June 2023. In January 2019, Consumers repaid $15 million of borrowings under this facility.

6	In November 2018, Consumers amended this revolving credit facility by extending the expiration date to November 2020. In January 2019, Consumers repaid $200 million of borrowings under this facility.

Short-term Borrowings: Under Consumers’ commercial paper program, Consumers may issue, in one or more placements, commercial paper notes with maturities of up to 365 days and that bear interest at fixed or floating rates. These issuances are supported by Consumers’ revolving credit facilities and may have an aggregate principal amount outstanding of up to $500 million. While the amount of outstanding commercial paper does not reduce the available capacity of the revolving credit facilities, Consumers does not intend to issue commercial paper in an amount exceeding the available capacity of the facilities. At December 31, 2018, $97 million of commercial paper notes with a weighted-average annual interest rate of 2.913 percent were outstanding under this program and were recorded as current notes payable on the consolidated balance sheets of CMS Energy and Consumers.

Dividend Restrictions: At December 31, 2018, payment of dividends by CMS Energy on its common stock was limited to $4.8 billion under provisions of the Michigan Business Corporation Act of 1972.

Under the provisions of its articles of incorporation, at December 31, 2018, Consumers had $1.3 billion of unrestricted retained earnings available to pay dividends on its common stock to CMS Energy. Provisions of the Federal Power Act and the Natural Gas Act appear to restrict dividends payable by Consumers to the amount of Consumers’ retained earnings. Several decisions from FERC suggest that, under a variety of circumstances, dividends from Consumers on its common stock would not be limited to amounts in Consumers’ retained earnings. Any decision by Consumers to pay dividends on its common stock in excess of retained earnings would be based on specific facts and circumstances and would be subject to a formal regulatory filing process.

For the year ended December 31, 2018, Consumers paid $531 million in dividends on its common stock to CMS Energy.

Capitalization: The authorized capital stock of CMS Energy consists of:

•	350 million shares of CMS Energy Common Stock, par value $0.01 per share

•	10 million shares of CMS Energy Preferred Stock, par value $0.01 per share

Issuance of Common Stock: In March 2017, CMS Energy entered into a continuous equity offering program permitting it to sell, from time to time in “at the market” offerings, common stock having an aggregate sales price of up to $100 million. Presented in the following table are the transactions that CMS Energy entered into under the program:

	Number of Shares Issued		Net Proceeds (In Millions)
May 2018	638,898			$	29
June 2017	1,494,371			70

In August 2018, CMS Energy entered into an equity offering program under which it may sell, from time to time, shares of CMS Energy common stock having an aggregate sales price of up to $250 million. Under this program, CMS Energy may sell its common stock in privately negotiated “at the market” offerings, through forward sales transactions or otherwise.

In November 2018, CMS Energy entered into forward equity sale contracts under this program. These contracts allow CMS Energy to either physically settle the contracts by issuing shares of its common stock at the then-applicable forward sale price specified by the agreements or net settle through the delivery or receipt of cash or shares. CMS Energy may settle the contracts at any time through May 2020, and presently intends to physically settle the contracts by delivering shares of its common stock. Presented in the following table are the details of the forward equity sale contracts:

Maturity Date	Number of Shares		Initial Forward Price Per Share
May 16, 2020	2,017,783			$	49.06
May 20, 2020	777,899			50.91

The initial forward price in the forward equity sale contracts includes a deduction for commissions and will be adjusted on a daily basis over the term based on an interest rate factor and decreased on certain dates by certain predetermined amounts to reflect expected dividend payments.

No amounts have or will be recorded in CMS Energy’s consolidated balance sheets until settlements of the forward equity sale contracts occur. If CMS Energy had elected to net share settle the contracts as of December 31, 2018, CMS Energy would have been required to deliver 463 shares.

Preferred Stock of Subsidiary: Consumers’ preferred stock is traded on the New York Stock Exchange under the symbol CMS-PB. Presented in the following table are details of Consumers’ preferred stock at December 31, 2018 and 2017:

	Par Value				Optional Redemption Price				Number of Shares Authorized		Number of Shares Outstanding
Cumulative, with no mandatory redemption		$	100			$	110		7,500,000		373,148

6: Fair Value Measurements

Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. When measuring fair value, CMS Energy and Consumers are required to incorporate all assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. A fair value hierarchy prioritizes inputs used to measure fair value according to their observability in the market. The three levels of the fair value hierarchy are as follows:

•	Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

•	Level 2 inputs are observable, market-based inputs, other than Level 1 prices. Level 2 inputs may include quoted prices for similar assets or liabilities in active markets, quoted prices in inactive markets, and inputs derived from or corroborated by observable market data.

•	Level 3 inputs are unobservable inputs that reflect CMS Energy’s or Consumers’ own assumptions about how market participants would value their assets and liabilities.

CMS Energy and Consumers classify fair value measurements within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement in its entirety.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Presented in the following table are CMS Energy’s and Consumers’ assets and liabilities recorded at fair value on a recurring basis:

In Millions
	CMS Energy, including Consumers									Consumers
December 31		2018				2017					2018				2017
Assets1
Cash equivalents		$	27			$	74				$	—			$	—
Restricted cash equivalents		21				17					17				17
CMS Energy common stock		—				—					1				21
Nonqualified deferred compensation plan assets		14				14					10				10
DB SERP
Cash equivalents		1				5					—				4
Debt securities		—				141					—				102
Derivative instruments		1				1					1				1
Total		$	64			$	252				$	29			$	155
Liabilities1
Nonqualified deferred compensation plan liabilities		$	14			$	14				$	10			$	10
Derivative instruments		3				1					—				—
Total		$	17			$	15				$	10			$	10

1	All assets and liabilities were classified as Level 1 with the exception of derivative contracts, which were classified as Level 2 or Level 3.

Cash Equivalents: Cash equivalents and restricted cash equivalents consist of money market funds with daily liquidity.

Nonqualified Deferred Compensation Plan Assets and Liabilities: The nonqualified deferred compensation plan assets consist of mutual funds, which are valued using the daily quoted net asset values. CMS Energy and Consumers value their nonqualified deferred compensation plan liabilities based on the fair values of the plan assets, as they reflect the amount owed to the plan participants in accordance with their investment elections. CMS Energy and Consumers report the assets in other non‑current assets and the liabilities in other non‑current liabilities on their consolidated balance sheets.

DB SERP Assets: The DB SERP cash equivalents consist of a money market fund with daily liquidity and are reported in other non‑current assets on CMS Energy and Consumers’ consolidated balance sheets. The DB SERP debt securities at December 31, 2017 consisted of U.S. Treasury debt securities that were valued at their daily quoted market prices. These debt securities were reported in other non‑current assets on CMS Energy’s and Consumers’ consolidated balance sheets. In July 2018, CMS Energy and Consumers sold the DB SERP debt securities. For additional details about this sale, see Note 7, Financial Instruments.

Derivative Instruments: CMS Energy and Consumers value their derivative instruments using either a market approach that incorporates information from market transactions, or an income approach that discounts future expected cash flows to a present value amount. CMS Energy’s and Consumers’ derivatives are classified as Level 2 or Level 3.

The derivatives classified as Level 2 are interest rate swaps at CMS Energy, which are valued using market-based inputs. The majority of derivatives classified as Level 3 are FTRs held by Consumers. Due to the lack of quoted pricing information, Consumers determines the fair value of its FTRs based on Consumers’ average historical settlements. There was no material activity within the Level 3 categories of assets and liabilities during the years presented.

7: Financial Instruments

Presented in the following table are the carrying amounts and fair values, by level within the fair value hierarchy, of CMS Energy’s and Consumers’ financial instruments that are not recorded at fair value. The table excludes cash, cash equivalents, short-term financial instruments, and trade accounts receivable and payable whose carrying amounts approximate their fair values. For information about assets and liabilities recorded at fair value and for additional details regarding the fair value hierarchy, see Note 6, Fair Value Measurements.

In Millions
	December 31, 2018																					December 31, 2017
					Fair Value																					Fair Value
	Carrying								Level													Carrying								Level
	Amount				Total				1				2				3					Amount				Total				1				2				3
CMS Energy, including Consumers
Assets
Long-term receivables1		$	22			$	22			$	—			$	—			$	22				$	21			$	21			$	—			$	—			$	21
Notes receivable2		1,857				1,967				—				—				1,967					1,371				1,464				—				—				1,464
Securities held to maturity		22				21				—				21				—					16				16				—				16				—
Liabilities
Long-term debt3		11,589				11,630				459				9,404				1,767					10,204				10,715				—				9,363				1,352
Long-term payables4		27				27				—				—				27					27				26				—				—				26
Consumers
Assets
Long-term receivables1		$	22			$	22			$	—			$	—			$	22				$	21			$	21			$	—			$	—			$	21
Notes receivable5		—				—				—				—				—					17				17				—				—				17
Notes receivable – related party6		106				106				—				—				106					—				—				—				—				—
Liabilities
Long-term debt7		6,805				6,833				—				5,066				1,767					5,904				6,236				—				4,883				1,353

1	Includes current accounts receivable of $14 million at December 31, 2018 and $14 million at December 31, 2017.

2	Includes current portion of notes receivable of $233 million at December 31, 2018 and $200 million at December 31, 2017. For further details, see Note 8, Notes Receivable.

3	Includes current portion of long-term debt of $1.0 billion at December 31, 2018 and $1.1 billion at December 31, 2017.

4	Includes current portion of long-term payables of $1 million at December 31, 2018 and $3 million at December 31, 2017.

5	Includes current portion of notes receivable of $17 million at December 31, 2017.

6	Includes current portion of notes receivable – related party of $7 million at December 31, 2018. For further details on this note receivable, see the DB SERP discussion below.

7	Includes current portion of long-term debt of $26 million at December 31, 2018 and $343 million at December 31, 2017.

The effects of third-party credit enhancements were excluded from the fair value measurements of long-term debt. The principal amount of CMS Energy’s long-term debt supported by third-party credit enhancements was $35 million at December 31, 2018 and $103 million at December 31, 2017. The entirety of these amounts was at Consumers.

Presented in the following table are CMS Energy’s and Consumers’ investment securities classified as available for sale or held to maturity:

In Millions
	December 31, 2018																	December 31, 2017
	Cost				Unrealized Gains				Unrealized Losses				Fair Value					Cost				Unrealized Gains				Unrealized Losses				Fair Value
CMS Energy, including Consumers
Available for sale
DB SERP securities		$	—			$	—			—				$	—				$	141			$	—			$	—			$	141
Held to maturity
Debt securities		22				—				1				21					16				—				—				16
Consumers
Available for sale
DB SERP securities		$	—			$	—			$	—			$	—				$	102			$	—			$	—			$	102
CMS Energy common stock		—				—				—				—					2				19				—				21

DB SERP Securities: The DB SERP securities classified as available for sale at December 31, 2017 were U.S. Treasury debt securities with maturities ranging from one to ten years. Presented in the following table is a summary of the sales activity for investment securities held within the DB SERP and classified as available for sale:

In Millions
Years Ended December 31	2018				2017				2016
CMS Energy, including Consumers
Proceeds from sales of investment securities		$	142			$	145			$	6
Consumers
Proceeds from sales of investment securities		$	103			$	105			$	4

In July 2018, CMS Energy and Consumers sold the DB SERP debt securities and CMS Energy issued a $146 million demand note payable to the DB SERP rabbi trust. The demand note bears interest at an annual rate of 4.10 percent and has a maturity date of 2028. The demand note payable and associated DB SERP investment were eliminated on CMS Energy’s consolidated balance sheets. The portion of the demand note attributable to Consumers was recorded as a note receivable – related party on Consumers’ consolidated balance sheets at December 31, 2018.

During 2017, CMS Energy and Consumers sold mutual fund securities held within the DB SERP and used the proceeds to purchase the debt securities, which were later sold in 2018. CMS Energy reclassified gains of $2 million ($1 million, net of tax) from AOCI and included this amount in other income on the consolidated statements of income. This amount included Consumers’ gains of $2 million ($1 million, net of tax). During 2016, realized gains and losses on the sales were immaterial for CMS Energy and Consumers.

Held-to-maturity Debt Securities: Debt securities classified as held to maturity consisted primarily of mortgage-backed securities and Utah Housing Corporation bonds held by EnerBank.

CMS Energy Common Stock: In January 2018, Consumers implemented ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. In accordance with the standard, as of January 1, 2018, Consumers removed a $19 million unrealized gain on its investment in CMS Energy common stock from AOCI and recorded the gain in retained earnings.

In January 2018, Consumers transferred substantially all of its shares in CMS Energy common stock to a related charitable foundation. Consumers’ remaining equity investment in CMS Energy common stock was $1 million at December 31, 2018. In accordance with the new standard, as of January 1, 2018, Consumers’ investment in CMS Energy common stock was no longer classified as available for sale. Therefore, this amount is not presented in the table above. There were no material changes in the fair value of Consumers’ investment in CMS Energy common stock during the year ended December 31, 2018. For further details on CMS Energy’s and Consumers’ accounting for this new standard, see Note 2, New Accounting Standards.

Consumers recognized a gain of $14 million in 2017 from transferring shares of CMS Energy common stock to a related charitable foundation. The gains reflected the excess of fair value over cost of the stock donated and were recorded in other income on Consumers’ consolidated statements of income. The gains were eliminated on CMS Energy’s consolidated statements of income.

8: Notes Receivable

Presented in the following table are details of CMS Energy’s and Consumers’ current and non‑current notes receivable:

In Millions
December 31	2018				2017
CMS Energy, including Consumers
Current
EnerBank notes receivable, net of allowance for loan losses		$	233			$	178
EnerBank notes receivable held for sale		—				2
Michigan tax settlement		—				20
Non-current
EnerBank notes receivable		1,624				1,171
Total notes receivable		$	1,857			$	1,371
Consumers
Current
Michigan tax settlement		$	—			$	17
DB SERP note receivable – related party		7				—
Non-current
DB SERP note receivable – related party		99				—
Total notes receivable		$	106			$	17

EnerBank notes receivable are primarily unsecured consumer installment loans for financing home improvements. EnerBank records its notes receivable at cost, less an allowance for loan losses. During 2017, EnerBank completed sales of notes receivable, receiving proceeds of $52 million and recording immaterial gains.

During 2018, EnerBank purchased a portfolio of secured and unsecured consumer retail installment contracts with a principal value of $205 million at December 31, 2018.

Authorized contractors pay fees to EnerBank to provide borrowers with same-as-cash, zero interest, or reduced interest loans. Unearned income associated with the loan fees, which is recorded as a reduction to notes receivable on CMS Energy’s consolidated balance sheets, was $102 million at December 31, 2018 and $84 million at December 31, 2017.

The allowance for loan losses is a valuation allowance to reflect estimated credit losses. The allowance is increased by the provision for loan losses and decreased by loan charge-offs net of recoveries. Management estimates the allowance balance required by taking into consideration historical loan loss experience, the nature and volume of the portfolio, economic conditions, and other factors. Loan losses are charged against the allowance when the loss is confirmed, but no later than the point at which a loan becomes 120 days past due.

Presented in the following table are the changes in the allowance for loan losses:

In Millions
Years Ended December 31	2018				2017
Balance at beginning of period		$	20			$	16
Charge-offs		(24		)		(19		)
Recoveries		3				3
Provision for loan losses		25				20
Balance at end of period		$	24			$	20

Loans that are 30 days or more past due are considered delinquent. The balance of EnerBank’s delinquent consumer loans was $21 million at December 31, 2018 and $14 million at December 31, 2017.

At December 31, 2018 and December 31, 2017, $1 million of EnerBank’s loans had been modified as troubled debt restructurings.

For additional details about the DB SERP note receivable – related party, see Note 7, Financial Instruments.

9: Plant, Property, and Equipment

Presented in the following table are details of CMS Energy’s and Consumers’ plant, property, and equipment:

In Millions
December 31	Estimated Depreciable Life in Years			2018				2017
CMS Energy, including Consumers
Plant, property, and equipment, gross
Consumers	3	—	125		$	23,963			$	22,318
Enterprises
Independent power production	3	—	35		410				163
Other	3	—	5		2				4
Other	1	—	7		25				21
Plant, property, and equipment, gross					$	24,400			$	22,506
Construction work in progress					763				765
Accumulated depreciation and amortization					(7,037		)		(6,510		)
Total plant, property, and equipment					$	18,126			$	16,761
Consumers
Plant, property, and equipment, gross
Electric
Generation	22	—	125		$	6,305			$	6,025
Distribution	20	—	75		7,957				7,603
Transmission	46	—	75		154				66
Other	5	—	50		1,316				1,229
Assets under capital leases and financing obligation1					295				298
Gas
Distribution	20	—	85		4,651				4,182
Transmission	17	—	75		1,521				1,278
Underground storage facilities2	27	—	75		910				842
Other	5	—	50		823				764
Capital leases1					14				14
Other non‑utility property	3	—	51		17				17
Plant, property, and equipment, gross					$	23,963			$	22,318
Construction work in progress					756				753
Accumulated depreciation and amortization					(6,958		)		(6,441		)
Total plant, property, and equipment3					$	17,761			$	16,630

1	For information regarding the amortization terms of Consumers’ assets under capital leases and financing obligation, see Note 10, Leases and Palisades Financing.

2	Underground storage includes base natural gas of $26 million at December 31, 2018 and 2017. Base natural gas is not subject to depreciation.

3	For the year ended December 31, 2018, Consumers’ plant additions were $1.8 billion and plant retirements were $190 million. For the year ended December 31, 2017, Consumers’ plant additions were $1.7 billion and plant retirements were $214 million.

Capitalization: CMS Energy and Consumers record plant, property, and equipment at original cost when placed into service. The cost includes labor, material, applicable taxes, overhead such as pension and other benefits, and AFUDC, if applicable. Consumers’ plant, property, and equipment is generally recoverable through its general rate making process.

With the exception of utility property for which the remaining book value has been securitized, mothballed utility property stays in rate base and continues to be depreciated at the same rate as before the mothball period. When utility property is retired or otherwise disposed of in the ordinary course of business, Consumers records the original cost to accumulated depreciation, along with associated cost of removal, net of salvage. CMS Energy and Consumers recognize gains or losses on the retirement or disposal of non‑regulated assets in income. Consumers records cost of removal collected from customers, but not spent, as a regulatory liability.

Software: CMS Energy and Consumers capitalize the costs to purchase and develop internal-use computer software. These costs are expensed evenly over the estimated useful life of the internal-use computer software. If computer software is integral to computer hardware, then its cost is capitalized and depreciated with the hardware.

AFUDC: Consumers capitalizes AFUDC on regulated major construction projects, except pollution control facilities on its fossil-fuel-fired power plants. AFUDC represents the estimated cost of debt and authorized return-on-equity funds used to finance construction additions. Consumers records the offsetting credit as a reduction of interest for the amount representing the borrowed funds component and as other income for the equity funds component on the consolidated statements of income. When construction is completed and the property is placed in service, Consumers depreciates and recovers the capitalized AFUDC from customers over the life of the related asset. Presented in the following table are Consumers’ average AFUDC capitalization rates:

Years Ended December 31	2018		2017		2016
Electric	6.9	%	6.8	%	7.3	%
Gas	5.9		6.0		6.2

Assets Under Capital Leases and Financing Obligation: Presented in the following table are further details about changes in Consumers’ assets under capital leases and financing obligation:

In Millions
Years Ended December 31	2018				2017
Consumers
Balance at beginning of period		$	312			$	310
Additions		—				3
Net retirements and other adjustments		(3		)		(1		)
Balance at end of period		$	309			$	312

Assets under capital leases and financing obligation are presented as gross amounts. Accumulated amortization of assets under capital leases and financing obligation was $212 million at December 31, 2018 and $193 million at December 31, 2017 for Consumers.

Depreciation and Amortization: Presented in the following table are further details about CMS Energy’s and Consumers’ accumulated depreciation and amortization:

In Millions
December 31	2018				2017
CMS Energy, including Consumers
Utility plant assets		$	6,956			$	6,439
Non-utility plant assets		81				71
Consumers
Utility plant assets		$	6,956			$	6,439
Non-utility plant assets		2				2

Consumers depreciates utility property on an asset-group basis, in which it applies a single MPSC-approved depreciation rate to the gross investment in a particular class of property within the electric and gas segments. Consumers performs depreciation studies periodically to determine appropriate group lives. Presented in the following table are the composite depreciation rates for Consumers’ segment properties:

Years Ended December 31	2018			2017			2016
Electric utility property		3.9	%		3.9	%		3.9	%
Gas utility property		2.9			2.9			2.9
Other property		10.1			10.0			9.8

CMS Energy and Consumers record property repairs and minor property replacement as maintenance expense. CMS Energy and Consumers record planned major maintenance activities as operating expense unless the cost represents the acquisition of additional long-lived assets or the replacement of an existing long-lived asset.

Presented in the following table are the components of CMS Energy’s and Consumers’ depreciation and amortization expense:

In Millions
Years Ended December 31	2018				2017				2016
CMS Energy, including Consumers
Depreciation expense – plant, property, and equipment		$	778			$	739			$	687
Amortization expense
Software		127				114				96
Other intangible assets		3				3				3
Securitized regulatory assets		25				25				25
Total depreciation and amortization expense		$	933			$	881			$	811
Consumers
Depreciation expense – plant, property, and equipment		$	768			$	732			$	680
Amortization expense
Software		125				112				95
Other intangible assets		3				3				3
Securitized regulatory assets		25				25				25
Total depreciation and amortization expense		$	921			$	872			$	803

Presented in the following table is CMS Energy’s and Consumers’ estimated amortization expense on intangible assets for each of the next five years:

In Millions
	2019				2020				2021				2022				2023
CMS Energy, including Consumers
Intangible asset amortization expense		$	132			$	122			$	108			$	95			$	74
Consumers
Intangible asset amortization expense		$	130			$	120			$	106			$	94			$	74

Intangible Assets: Included in net plant, property, and equipment are intangible assets. Presented in the following table are details about CMS Energy’s and Consumers’ intangible assets:

In Millions
				December 31, 2018									December 31, 2017
Description	Amortization Life in Years			Gross Cost1				Accumulated Amortization					Gross Cost1				Accumulated Amortization
CMS Energy, including Consumers
Software development	1	—	15		$	1,024			$	603				$	950			$	481
Rights of way	50	—	85		167				52					162				50
Franchises and consents	5	—	30		15				9					14				8
Leasehold improvements	various2				9				7					9				7
Other intangibles	various				27				15					23				15
Total					$	1,242			$	686				$	1,158			$	561
Consumers
Software development	3	—	15		$	1,009			$	595				$	937			$	475
Rights of way	50	—	85		167				52					162				50
Franchises and consents	5	—	30		15				9					14				8
Leasehold improvements	various2				9				7					9				7
Other intangibles	various				26				15					21				15
Total					$	1,226			$	678				$	1,143			$	555

1	For the year ended December 31, 2018, Consumers’ intangible asset additions were $90 million and intangible asset retirements were $7 million. For the year ended December 31, 2017, Consumers’ intangible asset additions were $100 million and there were no intangible asset retirements.

2	Leasehold improvements are amortized over the life of the lease, which may change whenever the lease is renewed or extended.

Jointly Owned Regulated Utility Facilities

Presented in the following table are Consumers’ investments in jointly owned regulated utility facilities at December 31, 2018:

In Millions, Except Ownership Share
J.H. Campbell Unit 3					Ludington					Other
Ownership share		93.3		%		51.0		%		various
Utility plant in service		$	1,688			$	411			$	226
Accumulated depreciation		(670		)		(155		)		(70		)
Construction work in progress		23				110				16
Net investment		$	1,041			$	366			$	172

Consumers includes its share of the direct expenses of the jointly owned plants in operating expenses. Consumers shares operation, maintenance, and other expenses of these jointly owned utility facilities in proportion to each participant’s undivided ownership interest. Consumers is required to provide only its share of financing for the jointly owned utility facilities.

10: Leases and Palisades Financing

CMS Energy and Consumers lease various assets, including railcars, service vehicles, gas pipeline capacity, and buildings. In addition, CMS Energy and Consumers account for a number of their PPAs as capital and operating leases.

Operating leases for coal-carrying railcars have original lease terms ranging from seven to 15 years, expiring without extension provisions over the next five years and with extension provisions over the next eight years. These leases contain fair market value extension and buyout provisions. Capital leases for Consumers’ vehicle fleet operations have a maximum term of 120 months with some having end-of-lease rental adjustment clauses based on the proceeds received from the sale or disposition of the vehicles, and others having fair market value purchase options.

Consumers has capital leases for gas transportation pipelines to the D.E. Karn generating complex and Zeeland. The capital lease for the gas transportation pipeline into the generating complex has a term of 15 years with a provision to extend the contract from month to month. The remaining term of the contract was three years at December 31, 2018. The capital lease for the gas transportation pipeline to Zeeland was extended in 2017 for five years pursuant to a renewal provision in the contract, with additional renewal provisions of five to ten years. The remaining terms of Consumers’ long-term PPAs accounted for as leases range between one and 15 years. Most of these PPAs contain provisions at the end of the initial contract terms to renew the agreements annually.

Presented in the following table are Consumers’ minimum lease expense and contingent rental expense. For each of the years ended December 31, 2018, 2017, and 2016, all of CMS Energy’s minimum lease expense and contingent rental expense were attributable to Consumers.

In Millions
Years Ended December 31	2018				2017				2016
Consumers
Minimum operating lease expense
PPAs		$	4			$	5			$	6
Other agreements		11				15				14
Contingent rental expense1		101				96				82

1	Contingent rental expense is related to capital and operating lease PPAs and is based on delivery of energy and capacity in excess of minimum lease payments.

Consumers is authorized by the MPSC to record operating lease payments as operating expense and recover the total cost from customers.

Presented in the following table are the minimum annual rental commitments under Consumers’ non‑cancelable leases at December 31, 2018.

In Millions
	Capital Leases				Palisades Financing				Operating Leases
CMS Energy, including Consumers
2019		$	14			$	15			$	16
2020		11				14				15
2021		11				14				15
2022		8				3				8
2023		6				—				5
2024 and thereafter		21				—				38
Total minimum lease payments		$	71			$	46			$	97
Less imputed interest		22				4
Present value of net minimum lease payments		$	49			$	42
Less current portion		9				13
Non-current portion		$	40			$	29
Consumers
2019		$	14			$	15			$	14
2020		11				14				14
2021		11				14				13
2022		8				3				7
2023		6				—				5
2024 and thereafter		21				—				32
Total minimum lease payments		$	71			$	46			$	85
Less imputed interest		22				4
Present value of net minimum lease payments		$	49			$	42
Less current portion		9				13
Non-current portion		$	40			$	29

Palisades Financing

In 2007, Consumers sold Palisades to Entergy and entered into a 15-year PPA to purchase virtually all of the capacity and energy produced by Palisades, up to the annual average capacity of 798 MW. Consumers accounted for this transaction as a financing because of its continuing involvement with Palisades through security provided to Entergy for the PPA obligation and other arrangements. Palisades has therefore remained on Consumers’ consolidated balance sheets and Consumers has continued to depreciate it. At the time of the sale, Consumers recorded the sales proceeds as a financing obligation, and has subsequently recorded a portion of the payments under the PPA as interest expense and as a reduction of the financing obligation. Total amortization and interest charges under the financing were $16 million for the year ended December 31, 2018, $17 million for the year ended December 31, 2017, and $17 million for the year ended December 31, 2016. At December 31, 2018, the Palisades asset and financing obligation both had a balance of $42 million.

11: Asset Retirement Obligations

CMS Energy and Consumers record the fair value of the cost to remove assets at the end of their useful lives, if there is a legal obligation to remove them. If a reasonable estimate of fair value cannot be made in the period in which the ARO is incurred, such as for assets with indeterminate lives, the liability is recognized when a reasonable estimate of fair value can be made. CMS Energy and Consumers have not recorded liabilities for assets that have immaterial cumulative disposal costs, such as substation batteries.

CMS Energy and Consumers calculate the fair value of ARO liabilities using an expected present-value technique that reflects assumptions about costs and inflation, and uses a credit-adjusted risk-free rate to discount the expected cash flows. CMS Energy’s ARO liabilities are primarily at Consumers. As a regulated entity, Consumers defers the effects of any changes in assumptions on the fair values of its ARO liabilities, adjusting the associated regulatory assets or liabilities rather than recognizing such effects in earnings.

Presented below are the categories of assets that CMS Energy and Consumers have legal obligations to remove at the end of their useful lives and for which they have an ARO liability recorded:

Company and ARO Description	In-Service Date	Long-Lived Assets
CMS Energy, including Consumers
Closure of gas treating plant and gas wells	various	Gas transmission and storage
Closure of coal ash disposal areas	various	Generating plants coal ash areas
Gas distribution cut, purge, and cap	various	Gas distribution mains and services
Asbestos abatement	1973	Electric and gas utility plant
Closure of renewable generation assets	various	Wind and solar generation facilities
Consumers
Closure of coal ash disposal areas	various	Generating plants coal ash areas
Gas distribution cut, purge, and cap	various	Gas distribution mains and services
Asbestos abatement	1973	Electric and gas utility plant
Closure of renewable generation assets	various	Wind and solar generation facilities

No assets have been restricted for purposes of settling AROs.

Presented in the following tables are the changes in CMS Energy’s and Consumers’ ARO liabilities:

In Millions
	ARO Liability																Cash Flow Revisions				ARO Liability
Company and ARO Description	12/31/2017				Incurred				Settled				Accretion				12/31/2018
CMS Energy, including Consumers
Consumers		$	429			$	17			$	(40	)		$	22			$	—			$	428
Gas treating plant and gas wells		1				—				—				—				—				1
Renewable generation assets		—				3				—				—				—				3
Total CMS Energy		$	430			$	20			$	(40	)		$	22			$	—			$	432
Consumers
Coal ash disposal areas		$	191			$	—			$	(20	)		$	8			$	—			$	179
Gas distribution cut, purge, and cap		186				17				(9		)		11				—				205
Asbestos abatement		42				—				(11		)		2				—				33
Renewable generation assets		10				—				—				1				—				11
Total Consumers		$	429			$	17			$	(40	)		$	22			$	—			$	428

In Millions
	ARO Liability																Cash Flow Revisions			ARO Liability
Company and ARO Description	12/31/2016				Incurred				Settled				Accretion				12/31/2017
CMS Energy, including Consumers
Consumers		$	446			$	5			$	(45	)		$	23			—			$	429
Gas treating plant and gas wells		1				—				—				—				—			1
Total CMS Energy		$	447			$	5			$	(45	)		$	23			—			$	430
Consumers
Coal ash disposal areas		$	201			$	—			$	(18	)		$	8			—			$	191
Gas distribution cut, purge, and cap		182				3				(11		)		12				—			186
Asbestos abatement		56				—				(16		)		2				—			42
Renewable generation assets		7				2				—				1				—			10
Total Consumers		$	446			$	5			$	(45	)		$	23			—			$	429

12: Retirement Benefits

Benefit Plans: CMS Energy and Consumers provide pension, OPEB, and other retirement benefits to employees under a number of different plans. These plans include:

•	non‑contributory, qualified DB Pension Plans (closed to new non‑union participants as of July 1, 2003 and closed to new union participants as of September 1, 2005)

•	a non‑contributory, qualified DCCP for employees hired on or after July 1, 2003

•	benefits to certain management employees under a non‑contributory, nonqualified DB SERP (closed to new participants as of March 31, 2006)

•	a non‑contributory, nonqualified DC SERP for certain management employees hired or promoted on or after April 1, 2006

•	a contributory, qualified defined contribution 401(k) plan

•	health care and life insurance benefits under an OPEB Plan

DB Pension Plans: Participants in the pension plans include present and former employees of CMS Energy and Consumers, including certain present and former affiliates and subsidiaries. Pension plan trust assets are not distinguishable by company. Effective December 31, 2017, CMS Energy’s and Consumers’ then-existing pension plan was amended to include only retired and former employees already covered; this amended plan is referred to as DB Pension Plan B. Also effective December 31, 2017, active employees were moved to a newly created pension plan, referred to as DB Pension Plan A, whose benefits mirror those provided under DB Pension Plan B. Maintaining separate plans for the two groups will allow CMS Energy and Consumers to employ a more targeted investment strategy and will provide additional opportunities to mitigate risk and volatility.

DCCP: CMS Energy and Consumers provide an employer contribution to the DCCP 401(k) plan for employees hired on or after July 1, 2003. The contribution ranges from five to seven percent of base pay, depending on years of service. Employees are not required to contribute in order to receive the plan’s employer contribution. DCCP expense for CMS Energy, including Consumers, was $26 million for the year ended December 31, 2018, $23 million for the year ended December 31, 2017, and $20 million for the year ended December 31, 2016. DCCP expense for Consumers was $25 million for the year ended December 31, 2018, $22 million for the year ended December 31, 2017, and $19 million for the year ended December 31, 2016.

DB SERP: The DB SERP is a nonqualified plan as defined by the Internal Revenue Code. DB SERP benefits are paid from a rabbi trust established in 1988. The trust assets are not considered plan assets under ASC 715. DB SERP rabbi trust earnings are taxable. Presented in the following table are the fair values of trust assets, ABO, and contributions for CMS Energy’s and Consumers’ DB SERP:

In Millions
Years Ended December 31	2018				2017
CMS Energy, including Consumers
Trust assets		$	147			$	146
ABO		137				149
Contributions		8				7
Consumers
Trust assets		$	106			$	106
ABO		98				107
Contributions		5				6

DC SERP: On April 1, 2006, CMS Energy and Consumers implemented a DC SERP and froze further new participation in the DB SERP. The DC SERP provides participants benefits ranging from 5 percent to 15 percent of total compensation. The DC SERP requires a minimum of five years of participation before vesting. CMS Energy’s and Consumers’ contributions to the plan, if any, are placed in a grantor trust. For CMS Energy and Consumers, trust assets were $5 million at December 31, 2018 and $5 million at December 31, 2017. DC SERP assets are included in other non‑current assets on CMS Energy’s and Consumers’ consolidated balance sheets. CMS Energy’s and Consumers’ DC SERP expense was $1 million for each of the years ended December 31, 2018 and 2017 and less than $1 million for the year ended December 31, 2016.

401(k) Plan: The 401(k) plan employer match equals 100 percent of eligible contributions up to the first three percent of an employee’s wages and 50 percent of eligible contributions up to the next two percent of an employee’s wages. The total 401(k) plan cost for CMS Energy, including Consumers, was $27 million for the year ended December 31, 2018, $26 million for the year ended December 31, 2017, and $24 million for the year ended December 31, 2016. The total 401(k) plan cost for Consumers was

$26 million for the year ended December 31, 2018, $25 million for the year ended December 31, 2017, and $23 million for the year ended December 31, 2016.

OPEB Plan: Participants in the OPEB Plan include all regular full-time employees covered by the employee health care plan on the day before retirement from either CMS Energy or Consumers at age 55 or older with at least ten full years of applicable continuous service. Regular full-time employees who qualify for disability retirement under the DB Pension Plans or are disabled and covered by the DCCP and who have 15 years of applicable continuous service may also participate in the OPEB Plan. Retiree health care costs were based on the assumption that costs would increase 7.00 percent in 2019 and 7.50 percent in 2018 for those under 65 and would increase 7.75 percent in 2019 and 8.00 percent in 2018 for those over 65. The rate of increase was assumed to decline to 4.75 percent by 2027 and thereafter for all retirees.

In November 2017, CMS Energy and Consumers approved certain amendments to the OPEB Plan. Under these amendments, effective January 1, 2019, certain Medicare-eligible retirees will purchase health care plans from private Medicare exchanges. CMS Energy and Consumers performed a remeasurement of the OPEB Plan as of October 31, 2017, resulting in a significant reduction in the benefit obligation. In July 2018, CMS Energy and Consumers approved an amendment to the OPEB Plan to improve survivor benefits for certain Medicare-eligible retirees, effective January 1, 2019, resulting in a $26 million increase in the benefit obligation.

The assumptions used in the health care cost-trend rate affect service cost, interest cost, and the PBO. Presented in the following table are the effects of a one-percentage-point change in the health care cost-trend assumption:

In Millions
Year Ended December 31, 2018	One Percentage Point Increase				One Percentage Point Decrease
CMS Energy, including Consumers
Effect on total service and interest cost component		$	2			$	(2	)
Effect on PBO		30				(26		)
Consumers
Effect on total service and interest cost component		$	2			$	(2	)
Effect on PBO		28				(25		)

Assumptions: Presented in the following table are the weighted-average assumptions used in CMS Energy’s and Consumers’ retirement benefits plans to determine benefit obligations and net periodic benefit cost:

December 31	2018		2017		2016
CMS Energy, including Consumers
Weighted average for benefit obligations1
Discount rate2
DB Pension Plan A3	4.48	%	3.78	%
DB Pension Plan B3	4.32		3.64
DB SERP	4.32		3.65		4.16	%
OPEB Plan	4.42		3.74		4.49
Rate of compensation increase
DB Pension Plan A3	3.50		3.50
DB SERP	5.50		5.50		5.50
Weighted average for net periodic benefit cost1
Service cost discount rate2,4
DB Pension Plan A3	3.85
DB SERP	3.83		4.51		4.87
OPEB Plan	3.93		4.89		4.75
Interest cost discount rate2,4
DB Pension Plan A3	3.39
DB Pension Plan B3	3.24
DB SERP	3.26		3.51		3.64
OPEB Plan	3.35		3.79		3.89
Expected long-term rate of return on plan assets5
DB Pension Plans	7.00		7.25		7.25
OPEB Plan	7.00		7.25		7.25
Rate of compensation increase
DB Pension Plan A3	3.50
DB SERP	5.50		5.50		5.50

1	The mortality assumption for benefit obligations was based on the RP-2014 mortality table, with projection scales MP-2018 for 2018, MP-2017 for 2017, and MP-2016 for 2016. The mortality assumption for net periodic benefit cost for 2018, 2017, and 2016 was based on the RP-2014 mortality table, with projection scales MP-2017 for 2018, MP-2016 for 2017, and MP-2015 for 2016.

2	The discount rate reflects the rate at which benefits could be effectively settled and is equal to the equivalent single rate resulting from a yield-curve analysis. This analysis incorporated the projected benefit payments specific to CMS Energy’s and Consumers’ DB Pension Plans and OPEB Plan and the yields on high-quality corporate bonds rated Aa or better.

3	Effective December 31, 2017, CMS Energy’s and Consumers’ existing defined benefit pension plan was amended to include only retired or inactive employees; this amended plan is referred to as DB Pension Plan B. Active employees were moved to a newly created pension plan, referred to as DB Pension Plan A.

The assumptions used to measure the plan obligation of the previous defined benefit pension plan at December 31, 2016 were:

•	discount rate of 4.30 percent

•	weighted-average rate of compensation increase of 3.60 percent

The assumptions used to measure the plan cost of the previous defined benefit pension plan were:

•	service cost discount rate of 4.53 percent at December 31, 2017 and 4.79 percent at December 31, 2016

•	interest cost discount rate of 3.56 percent at December 31, 2017 and 3.66 percent at December 31, 2016

•	weighted-average rate of compensation increase of 3.60 percent at December 31, 2017 and 3.00 percent at December 31, 2016

4

In 2016, CMS Energy and Consumers changed the method they use to determine the discount rate used to calculate the service cost and interest cost components of net periodic benefit costs for the DB Pension and OPEB Plans. Historically, the discount rate used for this purpose represented a single weighted-average rate derived from the yield curve used to determine the benefit obligation. CMS Energy and Consumers have elected to use instead a full-yield-curve approach in the estimation of service cost and interest cost; this approach is more accurate in that it applies individual spot rates along the yield curve to future projected benefit payments based on the time of payment.

5

CMS Energy and Consumers determined the long-term rate of return using historical market returns, the present and expected future economic environment, the capital market principles of risk and return, and the expert opinions of individuals and firms with financial market knowledge. CMS Energy and Consumers considered the asset allocation of the portfolio in forecasting the future expected total return of the portfolio. The goal was to determine a long-term rate of return that could be incorporated into the planning of future cash flow requirements in conjunction with the change in the liability. Annually, CMS Energy and Consumers review for reasonableness and appropriateness the forecasted returns for various classes of assets used to construct an expected return model. CMS Energy’s and Consumers’ expected long-term rate of return on the assets of the DB Pension Plans was 7.00 percent in 2018. The actual return (loss) on the assets of the DB Pension Plans was (6.7) percent in 2018, 18.0 percent in 2017, and 8.0 percent in 2016.

Costs: Presented in the following table are the costs (credits) and other changes in plan assets and benefit obligations incurred in CMS Energy’s and Consumers’ retirement benefits plans:

In Millions
	DB Pension Plans and DB SERP													OPEB Plan
Years Ended December 31	2018				2017				2016					2018				2017				2016
CMS Energy, including Consumers
Net periodic cost (credit)
Service cost		$	48			$	45			$	42				$	17			$	19			$	18
Interest cost		95				93				90					34				51				46
Expected return on plan assets		(149		)		(153		)		(147		)			(97		)		(90		)		(85		)
Amortization of:
Net loss		76				82				71					15				29				21
Prior service cost (credit)		3				5				4					(67		)		(40		)		(41		)
Net periodic cost (credit)		$	73			$	72			$	60				$	(98	)		$	(31	)		$	(41	)
Consumers
Net periodic cost (credit)
Service cost		$	47			$	44			$	41				$	16			$	19			$	17
Interest cost		88				90				87					33				49				45
Expected return on plan assets		(139		)		(149		)		(143		)			(91		)		(84		)		(80		)
Amortization of:
Net loss		73				79				68					16				29				22
Prior service cost (credit)		3				4				4					(65		)		(39		)		(40		)
Net periodic cost (credit)		$	72			$	68			$	57				$	(91	)		$	(26	)		$	(36	)

Presented in the following table are the estimated net loss and prior service cost (credit) that will be amortized into net periodic benefit cost in 2019 from or to the associated regulatory asset and AOCI:

In Millions
	DB Pension Plans				OPEB Plan
CMS Energy, including Consumers
Regulatory asset		$	47			$	(35	)
AOCI		3				(1		)
Consumers
Regulatory asset		$	47			$	(35	)

CMS Energy and Consumers amortize net gains and losses in excess of ten percent of the greater of the PBO or the MRV over the average remaining service period for DB Pension Plan A and the OPEB Plan and over the average remaining life expectancy of participants for DB Pension Plan B. For DB Pension Plan A, the estimated period of amortization of gains and losses was nine years for the years ended December 31, 2018 and 2017. For DB Pension Plan B, the estimated period of amortization of gains and losses was 20 years for the years ended December 31, 2018 and 2017. For the year ended December 31, 2016, the estimated period of amortization of gains and losses for both DB Pension Plans was ten years. For the OPEB Plan, the estimated amortization period was ten years for the year ended December 31, 2018 and 11 years for the years ended December 31, 2017 and 2016.

Prior service cost (credit) amortization is established in the year in which the prior service cost (credit) first occurred, and is based on the same amortization period for all future years until the prior service cost (credit) is fully amortized. CMS Energy and Consumers had new prior service costs (credits) for OPEB in 2018 and 2017. The estimated period of amortization of these new prior service costs (credits) for CMS Energy and Consumers is nine years.

CMS Energy and Consumers determine the MRV for the assets of the DB Pension Plans as the fair value of plan assets on the measurement date, adjusted by the gains or losses that will not be admitted into the MRV until future years. CMS Energy and Consumers reflect each year’s gain or loss in the MRV in equal amounts over a five-year period beginning on the date the original amount was determined. CMS Energy and Consumers determine the MRV for OPEB Plan assets as the fair value of assets on the measurement date.

Reconciliations: Presented in the following table are reconciliations of the funded status of CMS Energy’s and Consumers’ retirement benefits plans with their retirement benefits plans’ liabilities:

In Millions
	DB Pension Plans									DB SERP									OPEB Plan
Years Ended December 31	2018				2017					2018				2017					2018				2017
CMS Energy, including Consumers
Benefit obligation at beginning of period		$	2,780			$	2,562				$	154			$	151				$	1,097			$	1,408
Service cost		48				45					—				—					17				19
Interest cost		90				88					5				5					34				51
Plan amendments		—				—					—				—					26				(309		)
Actuarial (gain) loss		(258		)	1	241			1		(10		)		7					(74		)	1	(24		)	1
Benefits paid		(148		)		(156		)			(9		)		(9		)			(55		)		(48		)
Benefit obligation at end of period		$	2,512			$	2,780				$	140			$	154				$	1,045			$	1,097
Plan assets at fair value at beginning of period		$	2,305			$	2,101				$	—			$	—				$	1,420			$	1,264
Actual return on plan assets		(150		)		360					—				—					(86		)		203
Company contribution		240				—					9				9					—				—
Actual benefits paid		(148		)		(156		)			(9		)		(9		)			(54		)		(47		)
Plan assets at fair value at end of period		$	2,247			$	2,305				$	—			$	—				$	1,280			$	1,420
Funded status		$	(265	)	2	$	(475	)	2		$	(140	)		$	(154	)			$	235			$	323
Consumers
Benefit obligation at beginning of period											$	112			$	109				$	1,053			$	1,365
Service cost											—				—					16				19
Interest cost											4				4					33				49
Plan amendments											—				—					25				(303		)
Actuarial (gain) loss											(8		)		5					(70		)	1	(31		)	1
Benefits paid											(7		)		(6		)			(53		)		(46		)
Benefit obligation at end of period											$	101			$	112				$	1,004			$	1,053
Plan assets at fair value at beginning of period											$	—			$	—				$	1,329			$	1,184
Actual return on plan assets											—				—					(80		)		190
Company contribution											7				6					—				—
Actual benefits paid											(7		)		(6		)			(52		)		(45		)
Plan assets at fair value at end of period											$	—			$	—				$	1,197			$	1,329
Funded status											$	(101	)		$	(112	)			$	193			$	276

1	The actuarial gain for 2018 for the DB Pension Plans was primarily the result of higher discount rates. The actuarial loss for 2017 was primarily the result of lower discount rates. The actuarial gain for 2018 for the OPEB Plan was primarily the result of higher discount rates. The actuarial gain for 2017 was primarily the result of better claim experience in calculating the plan’s funded status.

2	At December 31, 2018, $246 million of the total funded status of the DB Pension Plans was attributable to Consumers, based on an allocation of expenses. At December 31, 2017, $455 million of the total funded status of the DB Pension Plans was attributable to Consumers, based on an allocation of expenses.

Presented in the following table is the classification of CMS Energy’s and Consumers’ retirement benefit plans’ assets and liabilities:

In Millions
December 31	2018				2017
CMS Energy, including Consumers
Non-current assets
DB Pension Plans		$	38			$	143
OPEB Plan		235				323
Current liabilities
DB SERP		10				9
Non-current liabilities
DB Pension Plans		303				618
DB SERP		130				145
Consumers
Non-current assets
DB Pension Plans		$	49			$	147
OPEB Plan		193				276
Current liabilities
DB SERP		7				7
Non-current liabilities
DB Pension Plans		295				602
DB SERP		94				105

The ABO for the DB Pension Plans was $2.2 billion at December 31, 2018 and $2.4 billion at December 31, 2017. Presented in the following table is information related to the defined benefit pension plan for which the PBO and the ABO exceed plan assets:

In Millions
December 31		2018				2017
CMS Energy, including Consumers
PBO		$	1,363			$	1,511
ABO		1,091				1,164
Fair value of plan assets		1,059				893

Items Not Yet Recognized as a Component of Net Periodic Benefit Cost: Presented in the following table are the amounts recognized in regulatory assets, regulatory liabilities, and AOCI that have not been recognized as components of net periodic benefit cost. For additional details on regulatory assets and liabilities, see Note 3, Regulatory Matters.

In Millions
	DB Pension Plans and DB SERP									OPEB Plan
Years Ended December 31	2018				2017					2018				2017
CMS Energy, including Consumers
Regulatory assets (liabilities)
Net loss		$	978			$	1,017				$	402			$	316
Prior service cost (credit)		9				11					(361		)		(451		)
Regulatory assets (liabilities)		$	987			$	1,028				$	41			$	(135	)
AOCI
Net loss (gain)		90				97					2				(6		)
Prior service cost (credit)		—				1					(9		)		(12		)
Total amounts recognized in regulatory assets (liabilities) and AOCI		$	1,077			$	1,126				$	34			$	(153	)
Consumers
Regulatory assets (liabilities)
Net loss		$	978			$	1,017				$	402			$	316
Prior service cost (credit)		9				11					(361		)		(451		)
Regulatory assets (liabilities)		$	987			$	1,028				$	41			$	(135	)
AOCI
Net loss		27				36					—				—
Total amounts recognized in regulatory assets (liabilities) and AOCI		$	1,014			$	1,064				$	41			$	(135	)

Plan Assets: Presented in the following tables are the fair values of the assets of CMS Energy’s DB Pension Plans and OPEB Plan, by asset category and by level within the fair value hierarchy. For additional details regarding the fair value hierarchy, see Note 6, Fair Value Measurements.

In Millions
	DB Pension Plans
	December 31, 2018													December 31, 2017
	Total				Level 1				Level 2					Total				Level 1				Level 2
CMS Energy, including Consumers
Cash and short-term investments		$	242			$	242			$	—				$	21			$	21			$	—
U.S. government and agencies securities		11				—				11					4				—				4
Corporate debt		400				—				400					336				—				336
State and municipal bonds		6				—				6					9				—				9
Foreign corporate bonds		35				—				35					31				—				31
Mutual funds		552				552				—					662				662				—
		$	1,246			$	794			$	452				$	1,063			$	683			$	380
Pooled funds		1,001													1,242
Total		$	2,247												$	2,305

In Millions
	OPEB Plan
	December 31, 2018													December 31, 2017
	Total				Level 1				Level 2					Total				Level 1				Level 2
CMS Energy, including Consumers
Cash and short-term investments		$	36			$	36			$	—				$	16			$	16			$	—
U.S. government and agencies securities		2				—				2					1				—				1
Corporate debt		55				—				55					50				—				50
State and municipal bonds		1				—				1					1				—				1
Foreign corporate bonds		5				—				5					4				—				4
Common stocks		41				41				—					40				40				—
Mutual funds		594				594				—					647				647				—
		$	734			$	671			$	63				$	759			$	703			$	56
Pooled funds		546													661
Total		$	1,280												$	1,420

Cash and Short-Term Investments: Cash and short-term investments consist of money market funds with daily liquidity.

U.S. Government and Agencies Securities: U.S. government and agencies securities consist of U.S. Treasury notes and other debt securities backed by the U.S. government and related agencies. These securities are valued based on quoted market prices.

Corporate Debt: Corporate debt investments consist of investment grade bonds of U.S. issuers from diverse industries. These securities are valued based on quoted market prices, when available, or yields available on comparable securities of issuers with similar credit ratings.

State and Municipal Bonds: State and municipal bonds are valued using a matrix-pricing model that incorporates Level 2 market-based information. The fair value of the bonds is derived from various observable inputs, including benchmark yields, reported securities trades, broker/dealer quotes, bond ratings, and general information on market movements for investment grade state and municipal securities normally considered by market participants when pricing such debt securities.

Foreign Corporate Bonds: Foreign corporate debt securities are valued based on quoted market prices, when available, or on yields available on comparable securities of issuers with similar credit ratings.

Common Stocks: Common stocks in the OPEB Plan consist of equity securities that are actively managed and tracked to the S&P 500 Index. These securities are valued at their quoted closing prices.

Mutual Funds: Mutual funds represent shares in registered investment companies that are priced based on the daily quoted net asset values that are publicly available and are the basis for transactions to buy or sell shares in the funds.

Pooled Funds: Pooled funds include both common and collective trust funds as well as special funds that contain only employee benefit plan assets from two or more unrelated benefit plans. These funds primarily consist of U.S. and foreign equity securities, but also include U.S. and foreign fixed-income securities and multi-asset investments. Since these investments are valued at their net asset value as a practical expedient, they are not classified in the fair value hierarchy.

Asset Allocations: Presented in the following table are the investment components of the assets of CMS Energy’s DB Pension Plans and OPEB Plan as of December 31, 2018:

	DB Pension Plans			OPEB Plan
Equity securities		52	%		50	%
Fixed-income securities		42			31
Multi-asset investments		6			19
		100	%		100	%

CMS Energy’s target asset allocation for the assets of the DB Pension Plans is 53 percent equity, 41 percent fixed income, and 6 percent multi-asset investments. This target asset allocation is expected to continue to maximize the long-term return on plan assets, while maintaining a prudent level of risk. The level of acceptable risk is a function of the liabilities of the plan. Equity investments are diversified mostly across the S&P 500 Index, with lesser allocations to the S&P MidCap and SmallCap Indexes and Foreign Equity Funds. Fixed-income investments are diversified across investment grade instruments of government and corporate issuers as well as high-yield and global bond funds. Multi-assets are diversified across absolute return investment approaches and global tactical asset allocation, such as inflation protected securities, real estate investment trusts, commodities, currency, and preferred stock. CMS Energy uses annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocation.

CMS Energy established union and non‑union VEBA trusts to fund future retiree health and life insurance benefits. These trusts are funded through the ratemaking process for Consumers and through direct contributions from the non‑utility subsidiaries. CMS Energy’s target asset allocation for the health trusts is 50 percent equity, 30 percent fixed income, and 20 percent multi-asset investments. CMS Energy’s target asset allocation for the life trusts is 42 percent equity, 28 percent fixed income, and 30 percent multi-asset investments. These target allocations are expected to continue to maximize the long-term return on plan assets, while maintaining a prudent level of risk. The level of acceptable risk is a function of the liabilities of the plans. Equity investments are diversified mostly across the S&P 500 Index, with lesser allocations to the S&P SmallCap Index and Foreign Equity Funds. Fixed-income investments are diversified across investment grade instruments of government and corporate issuers. Multi-assets are diversified across absolute return investment approaches and global tactical asset allocation, such as inflation protected securities, real estate investment trusts, commodities, currency and preferred stock. CMS Energy uses annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocation.

Contributions: Presented in the following table are the contributions to CMS Energy’s and Consumers’ OPEB Plan and DB Pension Plans:

In Millions
Years Ended December 31	2018				2017
CMS Energy, including Consumers
OPEB Plan		$	—			$	—
DB Pension Plans		240				—
Consumers
OPEB Plan		$	—			$	—
DB Pension Plans		234				—

Contributions comprise required amounts and discretionary contributions. Neither CMS Energy nor Consumers plans to contribute to the OPEB Plan or DB Pension Plans in 2019. Actual future

contributions will depend on future investment performance, discount rates, and various factors related to the participants of the DB Pension Plans and OPEB Plan. CMS Energy and Consumers will, at a minimum, contribute to the plans as needed to comply with federal funding requirements.

Benefit Payments: Presented in the following table are the expected benefit payments for each of the next five years and the five-year period thereafter:

In Millions
	DB Pension Plans				DB SERP				OPEB Plan
CMS Energy, including Consumers
2019		$	159			$	10			$	59
2020		162				10				61
2021		164				10				64
2022		165				10				65
2023		165				10				66
2024-2028		823				46				328
Consumers
2019		$	149			$	7			$	57
2020		152				7				59
2021		154				7				61
2022		155				7				62
2023		155				7				63
2024-2028		777				31				315

Collective Bargaining Agreements: At December 31, 2018, unions represented 35 percent of CMS Energy’s employees and 37 percent of Consumers’ employees. The UWUA represents Consumers’ operating, maintenance, construction, and call center employees. The USW represents Zeeland employees. Union contracts expire in 2020.

13: Stock-Based Compensation

CMS Energy and Consumers provide a PISP to officers, employees, and non‑employee directors based on their contributions to the successful management of the company. The PISP has a ten-year term, expiring in May 2024.

In 2018, all awards were in the form of restricted stock or restricted stock units. The PISP also allows for unrestricted common stock, stock options, stock appreciation rights, phantom shares, performance units, and incentive options, none of which was granted in 2018, 2017, or 2016.

Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6.5 million shares from June 2014 through May 2024, nor may such awards to any recipient exceed 500,000 shares in any calendar year. CMS Energy and Consumers may issue awards of up to 3,714,544 shares of common stock under the PISP as of December 31, 2018. Shares for which payment or exercise is in cash, as well as shares that expire, terminate, or are canceled or forfeited, may be awarded or granted again under the PISP.

All awards under the PISP vest fully upon death. Upon a change of control of CMS Energy or termination under an officer separation agreement, the awards will vest in accordance with specific officer agreements. If stated in the award, for restricted stock recipients who terminate employment due to

retirement or disability, a pro-rata portion of the award will vest upon termination, with any market-based award also contingent upon the outcome of the market condition and any performance-based award contingent upon the outcome of the performance condition. The pro-rata portion is equal to the portion of the service period served between the award grant date and the employee’s termination date. The remaining portion of the awards will be forfeited. All awards for directors vest fully upon retirement. Restricted shares may be forfeited if employment terminates for any other reason or if the minimum service requirements are not met, as described in the award document.

Restricted Stock Awards: Restricted stock awards for employees under the PISP are in the form of performance-based, market-based, and time-lapse restricted stock. Award recipients receive shares of CMS Energy common stock that have dividend and voting rights. The dividends on time-lapse restricted stock are paid in cash or in CMS Energy common stock. The dividends on performance-based and market-based restricted stock are paid in restricted shares equal to the value of the dividends. These additional restricted shares are subject to the same vesting conditions as the underlying restricted stock shares.

Performance-based restricted stock vesting is contingent on meeting at least a 36-month service requirement and a performance condition. The performance condition is based on an adjusted measure of CMS Energy’s EPS growth relative to a peer group over a three-year period. The awards granted in 2018, 2017, and 2016 require a 38-month service period. Market-based restricted stock vesting is generally contingent on meeting a three-year service requirement and a market condition. The market condition is based on a comparison of CMS Energy’s total shareholder return with the median total shareholder return of a peer group over the same three-year period. Depending on the outcome of the performance condition or the market condition, a recipient may earn a total award ranging from zero to 200 percent of the initial grant. Time-lapse restricted stock generally vests after a service period of three years.

Restricted Stock Units: In 2018, 2017, and 2016, CMS Energy and Consumers granted restricted stock units to certain non‑employee directors who elected to defer their restricted stock awards. The restricted stock units generally vest after a service period of one year or, if earlier, at the next annual meeting. The restricted stock units will be distributed to the recipients as shares in accordance with the directors’ deferral agreements. Restricted stock units do not have voting rights, but do have dividend rights. In lieu of cash dividend payments, the dividends on restricted stock units are paid in additional units equal to the value of the dividends. These additional restricted stock units are subject to the same vesting and distribution conditions as the underlying restricted stock units. No restricted stock units were forfeited during 2018.

Presented in the following tables is the activity for restricted stock and restricted stock units under the PISP:

	CMS Energy, including Consumers								Consumers
Year Ended December 31, 2018		Number of Shares		Weighted-Average Grant Date Fair Value per Share					Number of Shares		Weighted-Average Grant Date Fair Value per Share
Nonvested at beginning of period		1,193,266			$	38.48			1,145,122			$	38.50
Granted
Restricted stock		642,390			26.49				607,749			26.51
Restricted stock units		12,450			41.77				11,934			42.01
Vested
Restricted stock		(597,636	)		23.08				(567,154	)		23.15
Restricted stock units		(12,686	)		40.99				(12,260	)		40.98
Forfeited – restricted stock		(26,555	)		39.73				(26,555	)		39.73
Nonvested at end of period		1,211,229			$	39.70			1,158,836			$	39.71

Year Ended December 31, 2018	CMS Energy, including Consumers		Consumers
Granted
Time-lapse awards	122,615		117,029
Market-based awards	134,179		126,558
Performance-based awards	134,179		126,558
Restricted stock units	11,196		10,792
Dividend equivalents on market-based awards	21,154		20,077
Dividend equivalents on performance-based awards	25,925		24,583
Dividend equivalents on restricted stock units	1,254		1,142
Additional market-based shares based on achievement of condition	88,987		84,025
Additional performance-based shares based on achievement of condition	115,351		108,919
Total granted	654,840		619,683

CMS Energy and Consumers charge the fair value of the restricted stock awards to expense over the required service period and charge the fair value of the restricted stock units to expense immediately. For performance-based awards, CMS Energy and Consumers estimate the number of shares expected to vest at the end of the performance period based on the probable achievement of the performance objective. Performance-based and market-based restricted stock awards have graded vesting features for retirement-eligible employees, and CMS Energy and Consumers recognize expense for those awards on a graded vesting schedule over the required service period. Expense for performance-based and market-based restricted stock awards for non‑retirement-eligible employees and time-lapse awards is recognized on a straight-line basis over the required service period.

The fair value of performance-based and time-lapse restricted stock and restricted stock units is based on the price of CMS Energy’s common stock on the grant date. The fair value of market-based restricted stock awards is calculated on the grant date using a Monte Carlo simulation. CMS Energy and Consumers base expected volatilities on the historical volatility of the price of CMS Energy common stock. The risk-free rate for valuation of the market-based restricted stock awards was based on the three-year U.S. Treasury yield at the award grant date.

Presented in the following table are the most important assumptions used to estimate the fair value of the market-based restricted stock awards:

Years Ended December 31	2018		2017		2016
Expected volatility	16.7	%	18.0	%	16.7	%
Expected dividend yield	2.8		3.0		3.2
Risk-free rate	2.1		1.5		1.0

Presented in the following table is the weighted-average grant-date fair value of all awards under the PISP:

Years Ended December 31	2018				2017				2016
CMS Energy, including Consumers
Weighted-average grant-date fair value per share
Restricted stock granted		$	26.49			$	28.61			$	31.74
Restricted stock units granted		41.77				41.98				39.12
Consumers
Weighted-average grant-date fair value per share
Restricted stock granted		$	26.51			$	28.67			$	31.77
Restricted stock units granted		42.01				41.97				39.12

Presented in the following table are amounts related to restricted stock awards and restricted stock units:

In Millions
Years Ended December 31		2018				2017				2016
CMS Energy, including Consumers
Fair value of shares that vested during the year		$	27			$	37			$	31
Compensation expense recognized		17				17				16
Income tax benefit recognized		1				7				7
Consumers
Fair value of shares that vested during the year		$	26			$	35			$	30
Compensation expense recognized		16				16				16
Income tax benefit recognized		1				7				6

At December 31, 2018, $19.4 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $18.6 million of total unrecognized compensation cost was related to restricted stock for Consumers. CMS Energy and Consumers expect to recognize this cost over a weighted-average period of two years.

14: Income Taxes

CMS Energy and its subsidiaries file a consolidated U.S. federal income tax return as well as a Michigan Corporate Income Tax return for the unitary business group and various other state unitary group combined income tax returns. Income taxes are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing agreement.

In December 2017, President Trump signed the TCJA, which changed existing federal tax law and included numerous provisions that affect businesses. Provisions significantly impacting CMS Energy and Consumers include:

•	Reduction of the corporate income tax rate from 35 percent to 21 percent

•	Repeal of the alternative minimum tax along with a provision requiring companies to recover alternative minimum tax credit carryforwards over the four-year period ending in 2021

•	Limitation on the use of net operating loss carryforwards arising after December 31, 2017 to 80 percent of a company’s taxable income with an indefinite carryforward

•	A provision allowing companies to expense 100 percent of the cost of certain property when placed in service

•	Limitation on the deduction for net interest expense to 30 percent of adjusted taxable income

•	A requirement to use a normalization method of accounting for excess tax reserves associated with public utility property

As a rate-regulated utility, in taxable years beginning after 2017, Consumers is excluded from certain provisions of the TCJA, including those allowing companies to expense 100 percent of the cost of certain property and those limiting the amount of interest expense companies may deduct.

In November 2018, the IRS issued proposed regulations that allow all interest expense of a consolidated group to be deductible as long as a public utility comprises at least 90 percent of the total consolidated business. Under these proposed regulations, CMS Energy expects to meet the de minimis safe harbor rule in 2018 and therefore, the full amount of CMS Energy’s 2018 consolidated interest expense would be deductible.

Substantially all of the tax law changes enacted by the TCJA were effective for taxable years beginning after December 31, 2017. Under GAAP (ASC 740), companies must recognize the effects of a tax law change in the period of enactment. The staff of the SEC issued guidance in Staff Accounting Bulletin No. 118 that clarified accounting for income taxes under ASC 740 if information is not yet available or complete and provided for up to a one-year period in which to complete the required analyses and accounting. CMS Energy and Consumers made reasonable estimates in measuring and accounting for the effects of the TCJA in the December 31, 2017 financial statements. The measurement period provided by Staff Accounting Bulletin No. 118 is now complete. CMS Energy recorded a $5 million increase to income tax expense, including a $1 million increase at Consumers, representing a true-up of their estimates during the year ended December 31, 2018.

Presented in the following table is the difference between actual income tax expense on continuing operations and income tax expense computed by applying the statutory U.S. federal income tax rate:

In Millions, Except Tax Rate
Years Ended December 31	2018				2017				2016
CMS Energy, including Consumers
Income from continuing operations before income taxes		$	774			$	886			$	826
Income tax expense at statutory rate		163				310				289
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect1		46				26				37
Accelerated flow-through of regulatory tax benefits2		(39		)		(39		)		(39		)
TCJA excess deferred taxes3		(26		)		—				—
Production tax credits		(14		)		(8		)		(9		)
Research and development tax credits, net4		(11		)		(1		)		(2		)
Impact of the TCJA5		(4		)		148				—
Other, net		—				(12		)		(3		)
Income tax expense		$	115			$	424			$	273
Effective tax rate		14.9		%		47.9		%		33.1		%
Consumers
Income from continuing operations before income taxes		$	847			$	971			$	936
Income tax expense at statutory rate		178				340				328
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect1		51				30				44
Accelerated flow-through of regulatory tax benefits2		(39		)		(39		)		(39		)
TCJA excess deferred taxes3		(26		)		—				—
Production tax credits		(12		)		(8		)		(9		)
Research and development tax credits, net4		(11		)		(1		)		(2		)
Impact of the TCJA5		1				33				—
Other, net		—				(16		)		(2		)
Income tax expense		$	142			$	339			$	320
Effective tax rate		16.8		%		34.9		%		34.2		%

1

In September 2017, CMS Energy completed the evaluation of its methodology for the state apportionment of Consumers’ electricity sales to MISO, taking into account recent state tax law developments in the electric utility sector. To recognize the anticipated refund and the impact of the expected lower effective tax rate on their deferred state tax liabilities, CMS Energy, including Consumers, recorded a $14 million income tax benefit in 2017. These tax benefits were net of reserves for uncertain tax positions and primarily attributable to Consumers. In April 2018, CMS Energy amended its 2013 Michigan Corporate Income Tax return and submitted a refund claim for taxes previously paid. In November 2018, the refund claim was denied by the State of Michigan. CMS Energy has submitted a petition for informal conference.

2

In 2013, the MPSC issued an order authorizing Consumers to accelerate the flow-through to electric and gas customers of certain income tax benefits associated primarily with the cost of removal of plant placed in service before 1993. Consumers implemented this regulatory treatment beginning in 2014. This change, which also accelerates Consumers’ recognition of the income tax benefits, reduced Consumers’ income tax expense by $39 million for each of the years ended December 31, 2018, 2017, and 2016.

3

In December 2017, Consumers remeasured its deferred tax assets and liabilities at the new federal tax rate enacted by the TCJA and recorded a $1.8 billion regulatory liability. This regulatory liability relates to the excess deferred taxes arising from accelerated tax depreciation on assets in rate base that are governed by normalization provisions of the Internal Revenue Code. The normalization provisions require that the

excess deferred taxes be refunded to customers over the remaining average service life of the associated assets. In January 2018, Consumers began to reduce this regulatory liability by crediting income tax expense. Consumers has fully reserved for the eventual refund of these excess deferred taxes that it has credited to income tax expense in a separate regulatory liability established by reducing revenue, and will continue to do so until these benefits are passed on to customers in accordance with an MPSC order, expected to be issued in 2019. At December 31, 2018, this reserve for refund of these excess deferred taxes totaled $35 million.

4	In March 2018, Consumers finalized a study of research and development tax credits for the tax years 2012 through 2016. As a result, Consumers recognized an $8 million increase in the credit, net of reserves for uncertain tax positions.

5	In December 2017, CMS Energy and Consumers recorded a reasonable estimate to measure and account for the impact of the TCJA. The 2018 amount includes the true-up of their estimate and elimination of $9 million valuation allowance on the sequestration of alternative minimum tax credits.

Presented in the following table are the significant components of income tax expense on continuing operations:

In Millions
Years Ended December 31	2018				2017				2016
CMS Energy, including Consumers
Current income taxes
Federal		$	(67	)		$	—			$	—
State and local		—				6				9
		$	(67	)		$	6			$	9
Deferred income taxes
Federal		$	112			$	368			$	200
State and local		58				36				47
		$	170			$	404			$	247
Deferred income tax credit		12				14				17
Tax expense		$	115			$	424			$	273
Consumers
Current income taxes
Federal		$	6			$	159			$	9
State and local		13				17				22
		$	19			$	176			$	31
Deferred income taxes
Federal		$	60			$	120			$	227
State and local		51				29				45
		$	111			$	149			$	272
Deferred income tax credit		12				14				17
Tax expense		$	142			$	339			$	320

For the year ended December 31, 2017, the impact of the TCJA was a $148 million increase in deferred income tax expense at CMS Energy, including Consumers, and a $33 million increase in deferred income tax expense at Consumers. The TCJA had no impact on current income tax expense in 2017.

Presented in the following table are the principal components of deferred income tax assets (liabilities) recognized:

In Millions
December 31	2018				2017
CMS Energy, including Consumers
Deferred income tax assets
Tax loss and credit carryforwards		$	385			$	453
Net regulatory tax liability		395				411
Reserves and accruals		39				40
Total deferred income tax assets		$	819			$	904
Valuation allowance		(8		)		(15		)
Total deferred income tax assets, net of valuation allowance		$	811			$	889
Deferred income tax liabilities
Plant, property, and equipment		$	(1,955	)		$	(1,891	)
Employee benefits		(165		)		(96		)
Securitized costs		(65		)		(71		)
Gas inventory		(35		)		(37		)
Other		(78		)		(63		)
Total deferred income tax liabilities		$	(2,298	)		$	(2,158	)
Total net deferred income tax liabilities		$	(1,487	)		$	(1,269	)
Consumers
Deferred income tax assets
Net regulatory tax liability		$	395			$	411
Tax loss and credit carryforwards		64				101
Reserves and accruals		21				21
Total deferred income tax assets		$	480			$	533
Deferred income tax liabilities
Plant, property, and equipment		$	(1,943	)		$	(1,901	)
Employee benefits		(172		)		(105		)
Securitized costs		(65		)		(71		)
Gas inventory		(35		)		(37		)
Other		(74		)		(59		)
Total deferred income tax liabilities		$	(2,289	)		$	(2,173	)
Total net deferred income tax liabilities		$	(1,809	)		$	(1,640	)

Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts on CMS Energy’s and Consumers’ consolidated financial statements. At December 31, 2017, CMS Energy and Consumers remeasured their deferred tax assets and liabilities and related valuation allowances using the 21 percent federal tax rate enacted in the TCJA. To reflect the lower income tax rate, Consumers reduced its net deferred tax liabilities associated with its utility book-tax temporary differences by $1.6 billion for the year ended December 31, 2017. Of this amount, Consumers recognized deferred tax expense of $33 million related to nonrecoverable net deferred tax assets, with the remaining amount being recorded as a net regulatory tax liability. For further details on Consumers’ net regulatory tax liability, see Note 3, Regulatory Matters.

In addition to the amounts recorded at Consumers at December 31, 2017, CMS Energy reduced its net deferred tax assets associated with its non‑utility book-tax temporary differences by $239 million. In total, CMS Energy, including Consumers, reduced its net deferred tax liabilities by $1.3 billion for the year ended December 31, 2017.

Presented in the following table are the tax loss and credit carryforwards at December 31, 2018:

In Millions
	Gross Amount				Tax Attribute				Expiration
CMS Energy, including Consumers
Federal net operating loss carryforward		$	603			$	126		2034 – 2036
Local net operating loss carryforwards		406				4			2023 – 2036
General business credits		184				184			2018 – 2038
Alternative minimum tax credits		68				68			Not applicable
Federal capital loss carryover		12				2			2023
State capital loss carryover		10				1			2023
Total tax attributes						$	385
Consumers
Federal net operating loss carryforward		$	222			$	47		2034 – 2036
General business credits		17				17			2032 – 2038
Total tax attributes						$	64

CMS Energy has provided a valuation allowance of $2 million for the local tax loss carryforward, $3 million for federal and state capital loss carryforward, and $3 million for general business credits. The TCJA repealed the corporate alternative minimum tax and requires companies to recover (through offsets of regular tax and through cash refunds) all alternative minimum tax credits over the four-year period ending in 2021. In December 2018, the Office of Management and Budget announced such recovery will not be subject to sequestration for taxable years beginning after December 31, 2017. As a result, CMS Energy eliminated a valuation allowance of $9 million for sequestration of cash refunds of alternative minimum tax credits at December 31, 2018. Additionally, CMS Energy reclassified $68 million of alternative minimum tax credits to a current receivable.

CMS Energy and Consumers expect to utilize fully their tax loss and credit carryforwards for which no valuation allowance has been provided. It is reasonably possible that further adjustments will be made to the valuation allowances within one year.

Presented in the following table is a reconciliation of the beginning and ending amount of uncertain tax benefits:

In Millions
Years Ended December 31	2018				2017				2016
CMS Energy, including Consumers
Balance at beginning of period		$	14			$	5			$	6
Additions for current-year tax positions		1				10				—
Additions for prior-year tax positions		4				—				—
Reductions for prior-year tax positions		—				(1		)		—
Settlements		—				—				(1		)
Balance at end of period		$	19			$	14			$	5
Consumers
Balance at beginning of period		$	21			$	5			$	6
Additions for current-year tax positions		2				17				—
Additions for prior-year tax positions		5				—				—
Reductions for prior-year tax positions		—				(1		)		—
Settlements		—				—				(1		)
Balance at end of period		$	28			$	21			$	5

If recognized, all of these uncertain tax benefits would affect CMS Energy’s and Consumers’ annual effective tax rates in future years.

CMS Energy and Consumers recognize accrued interest and penalties, where applicable, as part of income tax expense. CMS Energy, including Consumers, recognized no interest or penalties for the years ended December 31, 2018, 2017, or 2016.

In 2018, the Michigan Department of Treasury completed its audit of the Michigan business tax returns of CMS Energy and its subsidiaries for 2008 through 2011. The audit resulted in a $1 million refund of tax.

The amount of income taxes paid is subject to ongoing audits by federal, state, local, and foreign tax authorities, which can result in proposed assessments. CMS Energy’s federal income tax returns for 2015 and subsequent years remain subject to examination by the IRS. CMS Energy’s Michigan Corporate Income Tax returns for 2013 and subsequent years remain subject to examination by the State of Michigan. CMS Energy’s and Consumers’ estimate of the potential outcome for any uncertain tax issue is highly judgmental. CMS Energy and Consumers believe that their accrued tax liabilities at December 31, 2018 were adequate for all years.

15: Earnings Per Share—CMS Energy

Presented in the following table are CMS Energy’s basic and diluted EPS computations based on net income:

In Millions, Except Per Share Amounts
Years Ended December 31	2018				2017				2016
Income available to common stockholders
Net income		$	659			$	462			$	553
Less income attributable to noncontrolling interests		2				2				2
Net income available to common stockholders – basic and diluted		$	657			$	460			$	551
Average common shares outstanding
Weighted-average shares – basic		282.2				280.0				277.9
Add dilutive nonvested stock awards		0.7				0.8				1.0
Weighted-average shares – diluted		282.9				280.8				278.9
Net income per average common share available to common stockholders
Basic		$	2.33			$	1.64			$	1.99
Diluted		2.32				1.64				1.98

Nonvested Stock Awards

CMS Energy’s nonvested stock awards are composed of participating and non‑participating securities. The participating securities accrue cash dividends when common stockholders receive dividends. Since the recipient is not required to return the dividends to CMS Energy if the recipient forfeits the award, the nonvested stock awards are considered participating securities. As such, the participating nonvested stock awards were included in the computation of basic EPS. The non‑participating securities accrue stock dividends that vest concurrently with the stock award. If the recipient forfeits the award, the stock dividends accrued on the non‑participating securities are also forfeited. Accordingly, the non‑participating awards and stock dividends were included in the computation of diluted EPS, but not in the computation of basic EPS.

Forward Equity Sale Contracts

In November 2018, CMS Energy entered into forward equity sale contracts. These forward equity sale contracts are non‑participating securities. While the forward sale price in the forward equity sale contract is decreased on certain dates by certain predetermined amounts to reflect expected dividend payments, these price adjustments were set upon inception of the agreement and the forward contract does not give the owner the right to participate in undistributed earnings. Accordingly, the forward equity sale contracts were included in the computation of diluted EPS, but not in the computation of basic EPS. For the year ended December 31, 2018, the forward equity sale contracts had an immaterial impact on diluted EPS. For further details on the forward equity sale contracts, see Note 5, Financings and Capitalization.

16: Revenue

Presented in the following tables are the components of operating revenue:

In Millions
Year Ended December 31, 2018	Electric Utility				Gas Utility				Enterprises1				Other Reconciling2				Consolidated
CMS Energy, including Consumers
Consumers utility revenue		$	4,528			$	1,882			$	—			$	—			$	6,410
Other		—				—				92				—				92
Revenue recognized from contracts with customers		4,528				1,882				92				—				6,502
Leasing income		—				—				160				—				160
Financing income		10				5				—				157				172
Consumers alternative revenue programs		23				16				—				—				39
Total operating revenue – CMS Energy		$	4,561			$	1,903			$	252			$	157			$	6,873
Consumers
Consumers utility revenue
Residential		$	2,049			$	1,284			$	—			$	—			$	3,333
Commercial		1,545				367				—				—				1,912
Industrial		674				55				—				—				729
Other		260				176				—				—				436
Revenue recognized from contracts with customers		4,528				1,882				—				—				6,410
Leasing income		—				—				—				—				—
Financing income		10				5				—				—				15
Alternative revenue programs		23				16				—				—				39
Total operating revenue – Consumers		$	4,561			$	1,903			$	—			$	—			$	6,464

1	Amounts represent the enterprises segment’s operating revenue from independent power production and CMS ERM’s sales of energy commodities in support of the independent power production portfolio.

2	Amount represents EnerBank’s operating revenue from providing primarily unsecured consumer installment loans for financing home improvements.

Electric and Gas Utilities

Consumers Utility Revenue: Consumers recognizes revenue primarily from the sale of electric and gas utility services at tariff-based rates regulated by the MPSC. Consumers’ customer base consists of a mix of residential, commercial, and diversified industrial customers. Consumers’ tariff-based sales performance obligations are described below.

•

Consumers has performance obligations for the service of standing ready to deliver electricity or natural gas to customers, and it satisfies these performance obligations over time. Consumers recognizes revenue at a fixed rate as it provides these services. These arrangements generally do not have fixed terms and remain in effect as long as the customer consumes the utility service. The rates are set by the MPSC through the rate-making process and represent the stand-alone selling price of Consumers’ service to stand ready to deliver.

•	Consumers has performance obligations for the service of delivering the commodity of electricity or natural gas to customers, and it satisfies these performance obligations upon delivery.

Consumers recognizes revenue at a price per unit of electricity or natural gas delivered, based on the tariffs established by the MPSC. These arrangements generally do not have fixed terms and remain in effect as long as the customer consumes the utility service. The rates are set by the MPSC through the rate-making process and represent the stand-alone selling price of a bundled product comprising the commodity, electricity or natural gas, and the service of delivering such commodity.

In some instances, Consumers has specific fixed-term contracts with large commercial and industrial customers to provide electricity or gas at certain tariff rates or to provide gas transportation services at contracted rates. The amount of electricity and gas to be delivered under these contracts and the associated future revenue to be received are generally dependent on the customers’ needs. Accordingly, Consumers recognizes revenues at the tariff or contracted rate as electricity or gas is delivered to the customer. Consumers also has other miscellaneous contracts with customers related to pole and other property rentals, appliance service plans, and utility contract work. Generally, these contracts are short term or evergreen in nature.

EnerBank: EnerBank provides four types of unsecured consumer installment loans: same-as-cash, zero interest, reduced interest, and traditional. Under EnerBank’s same-as-cash programs, authorized contractors pay EnerBank a fee to provide a borrower with the option to pay off the loan interest-free during the same-as-cash period. EnerBank recognizes the fee on a straight-line basis over the same-as-cash period, which typically ranges from three to 24 months. If a borrower does not exercise its option to pay off its loan interest-free during the same-as-cash period, EnerBank charges the borrower accrued interest at the loan’s contractual rate on the outstanding balance from the origination date. Under the zero interest and reduced interest programs, authorized contractors pay EnerBank a fee to provide a borrower with no interest or reduced rates of interest for the entire term of the loan. EnerBank recognizes the fee using the interest method over the term of the loan, which ranges from one to 12 years.

EnerBank recognizes interest income using the interest method and amortizes loan origination fees, net of certain direct origination costs, over the loan term. EnerBank ceases recognizing interest income when a loan loss is confirmed or when a loan becomes 120 days past due, at which time the loan principal is charged against the allowance for loan losses. At that time, EnerBank recognizes any interest accrued but not received for such loan losses as a reversal of interest income.

Alternative-Revenue Programs: The energy waste reduction incentive mechanism provides a financial incentive if the energy savings of Consumers’ customers exceed annual targets established by the MPSC. The maximum incentive that Consumers may earn under this mechanism is 20 percent of the amount it spends on energy waste reduction programs. Consumers accounts for this program as an alternative-revenue program that meets the criteria for recognizing revenue related to the incentive as soon as energy savings exceed the annual targets established by the MPSC.

Under a gas revenue decoupling mechanism authorized by the MPSC, Consumers is allowed to adjust future gas rates for differences between Consumers’ actual weather-normalized non‑fuel revenues and the revenues approved by the MPSC. Consumers accounts for this program as an alternative-revenue program that meets the criteria for recognizing the effects of decoupling adjustments on revenue as gas is delivered.

Consumers does not reclassify revenue from its alternative-revenue programs to revenue from contracts with customers at the time the amounts are collected from customers.

Accounts Receivable and Unbilled Revenues: Accounts receivable comprise trade receivables and unbilled receivables. CMS Energy and Consumers record their accounts receivable at cost, which approximates fair value. CMS Energy and Consumers establish an allowance for uncollectible accounts

based on historical losses, management’s assessment of existing economic conditions, customer payment trends, and other factors. CMS Energy and Consumers assess late payment fees on trade receivables based on contractual past-due terms established with customers. CMS Energy and Consumers charge off accounts deemed uncollectible to operating expense. Uncollectible expense for CMS Energy, including Consumers, was $29 million for the year ended December 31, 2018. Uncollectible expense for Consumers was $29 million for the year ended December 31, 2018.

Consumers’ customers are billed monthly in cycles having billing dates that do not generally coincide with the end of a calendar month. This results in customers having received electricity or natural gas that they have not been billed for as of the month-end. Consumers estimates its unbilled revenues by applying an average billed rate to total unbilled deliveries for each customer class. Unbilled revenues, which are recorded as accounts receivable on CMS Energy’s and Consumers’ consolidated balance sheets, were $409 million at December 31, 2018 and $481 million at December 31, 2017.

17: Other Income and Other Expense

Presented in the following table are the components of other income and other expense at CMS Energy and Consumers:

In Millions
Years Ended December 31	2018				2017				2016
CMS Energy, including Consumers
Other income
Fee income		$	—			$	—			$	6
All other		2				6				2
Total other income – CMS Energy		$	2			$	6			$	8
Consumers
Other income
Gain on CMS Energy common stock		$	—			$	14			$	—
Fee income		—				—				6
All other		2				3				2
Total other income – Consumers		$	2			$	17			$	8
CMS Energy, including Consumers
Other expense
Donations		$	(13	)		$	(31	)		$	(23	)
Civic and political expenditures		(6		)		(27		)		(21		)
Loss on reacquired and extinguished debt		(16		)		(18		)		(18		)
Unrealized investment loss		—				—				(5		)
All other		(13		)		—				(8		)
Total other expense – CMS Energy		$	(48	)		$	(76	)		$	(75	)
Consumers
Other expense
Donations		$	(13	)		$	(31	)		$	(23	)
Civic and political expenditures		(6		)		(27		)		(21		)
Unrealized investment loss		—				—				(4		)
All other		(11		)		—				(7		)
Total other expense – Consumers		$	(30	)		$	(58	)		$	(55	)

18: Cash and Cash Equivalents

Presented in the following table are the components of total cash and cash equivalents, including restricted amounts, and their location on CMS Energy’s and Consumers’ consolidated balance sheets:

In Millions
December 31	2018				2017
CMS Energy, including Consumers
Cash and cash equivalents		$	153			$	182
Restricted cash and cash equivalents		21				17
Other non‑current assets		1				5
Cash and cash equivalents, including restricted amounts		$	175			$	204
Consumers
Cash and cash equivalents		$	39			$	44
Restricted cash and cash equivalents		17				17
Other non‑current assets		—				4
Cash and cash equivalents, including restricted amounts		$	56			$	65

Cash and Cash Equivalents: Cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less.

Restricted Cash and Cash Equivalents: Restricted cash and cash equivalents are held primarily for the repayment of securitization bonds and funds held in escrow. Cash and cash equivalents may also be restricted to pay other contractual obligations such as leasing of coal railcars. These amounts are classified as current assets since they relate to payments that could or will occur within one year.

Other Non-current Assets: The cash equivalents classified as other non‑current assets represent an investment in a money market fund held in the DB SERP rabbi trust. See Note 6, Fair Value Measurements and Note 12, Retirement Benefits for more information regarding the DB SERP.

19: Reportable Segments

Reportable segments consist of business units defined by the products and services they offer. CMS Energy and Consumers evaluate the performance of each segment based on its contribution to net income available to CMS Energy’s common stockholders.

Accounting policies for CMS Energy’s and Consumers’ segments are as described in Note 1, Significant Accounting Policies. The consolidated financial statements reflect the assets, liabilities, revenues, and expenses of the individual segments when appropriate. Accounts are allocated among the segments when common accounts are attributable to more than one segment. The allocations are based on certain measures of business activities, such as revenue, labor dollars, customers, other operating and maintenance expense, construction expense, leased property, taxes, or functional surveys. For example, customer receivables are allocated based on revenue, and pension provisions are allocated based on labor dollars.

Inter-segment sales and transfers are accounted for at current market prices and are eliminated in consolidated net income available to common stockholders by segment.

CMS Energy

The reportable segments for CMS Energy are:

•	electric utility, consisting of regulated activities associated with the generation, purchase, transmission, distribution, and sale of electricity in Michigan

•	gas utility, consisting of regulated activities associated with the purchase, transmission, storage, distribution, and sale of natural gas in Michigan

•	enterprises, consisting of various subsidiaries engaging in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production.

CMS Energy presents EnerBank, corporate interest and other expenses, and Consumers’ other consolidated entities within other reconciling items.

Consumers

The reportable segments for Consumers are:

•	electric utility, consisting of regulated activities associated with the generation, purchase, transmission, distribution, and sale of electricity in Michigan

•	gas utility, consisting of regulated activities associated with the purchase, transmission, storage, distribution, and sale of natural gas in Michigan

Consumers’ other consolidated entities are presented within other reconciling items.

Presented in the following tables is financial information by reportable segment:

In Millions
Years Ended December 31	2018				2017				2016
CMS Energy, including Consumers
Operating revenue
Electric utility		$	4,561			$	4,448			$	4,379
Gas utility		1,903				1,774				1,685
Enterprises		252				229				215
Other reconciling items		157				132				120
Total operating revenue – CMS Energy		$	6,873			$	6,583			$	6,399
Consumers
Operating revenue
Electric utility		$	4,561			$	4,448			$	4,379
Gas utility		1,903				1,774				1,685
Total operating revenue – Consumers		$	6,464			$	6,222			$	6,064
CMS Energy, including Consumers
Depreciation and amortization
Electric utility		$	682			$	654			$	603
Gas utility		239				218				200
Enterprises		8				6				5
Other reconciling items		4				3				3
Total depreciation and amortization – CMS Energy		$	933			$	881			$	811

In Millions
Years Ended December 31	2018				2017				2016
Consumers
Depreciation and amortization
Electric utility		$	682			$	654			$	603
Gas utility		239				218				200
Total depreciation and amortization – Consumers		$	921			$	872			$	803
CMS Energy, including Consumers
Income from equity method investees1
Enterprises		$	9			$	15			$	13
Total income from equity method investees – CMS Energy		$	9			$	15			$	13
CMS Energy, including Consumers
Interest charges
Electric utility		$	209			$	201			$	196
Gas utility		79				74				72
Enterprises		2				—				1
Other reconciling items		168				163				166
Total interest charges – CMS Energy		$	458			$	438			$	435
Consumers
Interest charges
Electric utility		$	209			$	201			$	196
Gas utility		79				74				72
Other reconciling items		1				1				—
Total interest charges – Consumers		$	289			$	276			$	268
CMS Energy, including Consumers
Income tax expense (benefit)
Electric utility		$	109			$	245			$	246
Gas utility		33				96				74
Enterprises		2				72				10
Other reconciling items		(29		)		11				(57		)
Total income tax expense – CMS Energy		$	115			$	424			$	273
Consumers
Income tax expense (benefit)
Electric utility		$	109			$	245			$	246
Gas utility		33				96				74
Other reconciling items		—				(2		)		—
Total income tax expense – Consumers		$	142			$	339			$	320
CMS Energy, including Consumers
Net income (loss) available to common stockholders
Electric utility		$	535			$	455			$	458
Gas utility		169				173				155
Enterprises		34				(27		)		17
Other reconciling items		(81		)		(141		)		(79		)
Total net income available to common stockholders – CMS Energy		$	657			$	460			$	551

In Millions
Years Ended December 31	2018				2017				2016
Consumers
Net income available to common stockholder
Electric utility		$	535			$	455			$	458
Gas utility		169				173				155
Other reconciling items		(1		)		2				1
Total net income available to common stockholder – Consumers		$	703			$	630			$	614
CMS Energy, including Consumers
Plant, property, and equipment, gross
Electric utility2		$	16,027			$	15,221			$	14,540
Gas utility2		7,919				7,080				6,283
Enterprises		412				167				157
Other reconciling items		42				38				30
Total plant, property, and equipment, gross – CMS Energy		$	24,400			$	22,506			$	21,010
Consumers
Plant, property, and equipment, gross
Electric utility2		$	16,027			$	15,221			$	14,540
Gas utility2		7,919				7,080				6,283
Other reconciling items		17				17				15
Total plant, property, and equipment, gross – Consumers		$	23,963			$	22,318			$	20,838
CMS Energy, including Consumers
Investments in equity method investees1
Enterprises		$	69			$	64			$	62
Other reconciling items		—				—				3
Total investments in equity method investees – CMS Energy		$	69			$	64			$	65
CMS Energy, including Consumers
Total assets
Electric utility2		$	14,079			$	13,906			$	13,429
Gas utility2		7,806				7,139				6,446
Enterprises		540				342				269
Other reconciling items		2,104				1,663				1,478
Total assets – CMS Energy		$	24,529			$	23,050			$	21,622
Consumers
Total assets
Electric utility2		$	14,143			$	13,907			$	13,430
Gas utility2		7,853				7,139				6,446
Other reconciling items		29				53				70
Total assets – Consumers		$	22,025			$	21,099			$	19,946
CMS Energy, including Consumers
Capital expenditures3
Electric utility		$	865			$	882			$	1,007
Gas utility		958				800				611
Enterprises		246				33				10
Other reconciling items		12				7				5
Total capital expenditures – CMS Energy		$	2,081			$	1,722			$	1,633

In Millions
Years Ended December 31	2018				2017				2016
Consumers
Capital expenditures3
Electric utility		$	865			$	882			$	1,007
Gas utility		958				800				611
Other reconciling items		2				1				—
Total capital expenditures – Consumers		$	1,825			$	1,683			$	1,618

1	Consumers had no significant equity method investments.

2	Amounts include a portion of Consumers’ other common assets attributable to both the electric and gas utility businesses.

3	Amounts include purchase of capital lease additions. Amounts also include a portion of Consumers’ capital expenditures for plant and equipment attributable to both the electric and gas utility businesses.

20: Related-Party Transactions—Consumers

Consumers enters into a number of transactions with related parties. These transactions include:

•	purchases of electricity from affiliates of CMS Enterprises

•	payments to and from CMS Energy related to parent company overhead costs

•	investment in CMS Energy common stock

Transactions involving power supply purchases from certain affiliates of CMS Enterprises are based on avoided costs under PURPA, state law, and competitive bidding. The payment of parent company overhead costs is based on the use of accepted industry allocation methodologies. These payments are for costs that occur in the normal course of business.

Presented in the following table is Consumers’ expense recorded from related-party transactions for the years ended December 31:

In Millions
Description	Related Party	2018				2017				2016
Purchases of capacity and energy	Affiliates of CMS Enterprises		$	83			$	90			$	88

Amounts payable to related parties for purchased power and other services were $20 million at December 31, 2018 and $27 million at December 31, 2017. Accounts receivable from related parties were $13 million at December 31, 2018 and $2 million at December 31, 2017.

In July 2018, CMS Energy and Consumers sold the DB SERP debt securities and CMS Energy issued a $146 million demand note payable to the DB SERP rabbi trust. The portion of the demand note attributable to Consumers was recorded as a note receivable – related party on Consumers’ consolidated balance sheets at December 31, 2018. For additional details about the note receivable – related party, see Note 7, Financial Instruments and Note 8, Notes Receivable.

Consumers owned shares of CMS Energy common stock with a fair value of $1 million at December 31, 2018 and $21 million at December 31, 2017. For additional details on Consumers’ investment in CMS Energy common stock, see Note 7, Financial Instruments.

In January 2019, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $300 million. At December 31, 2018, there were no outstanding loans under the agreement.

21: Variable Interest Entities

CMS Energy has variable interests in T.E.S. Filer City, Grayling, Genesee, and Craven. CMS Energy is not the primary beneficiary of any of these partnerships because decision making is shared among unrelated parties, and no one party has the ability to direct activities, such as operations and maintenance, plant dispatch, and fuel strategy, that most significantly impact the entities’ economic performance. The partners must agree on all major decisions for each of the partnerships.

Presented in the following table is information about these partnerships:

Name (Ownership Interest)	Nature of the Entity	Financing of Partnership
T.E.S. Filer City (50%)	Coal-fueled power generator	Line of credit secured by T.E.S. Filer City’s coal inventory.
Grayling (50%)	Wood waste-fueled power generator	The partnership has no debt.
Genesee (50%)	Wood waste-fueled power generator	Sale of revenue bonds that mature in 2021 and bear interest at fixed rates. The debt is non-recourse to the partners and secured by a CMS Energy guarantee capped at $3 million annually.
Craven (50%)	Wood waste-fueled power generator	Line of credit secured by Craven’s property, plant, and equipment.

CMS Energy has operating and management contracts with Grayling, Genesee, and Craven. Additionally, Consumers is the primary purchaser of power from T.E.S. Filer City, Grayling, and Genesee through long-term PPAs. Consumers also has reduced dispatch agreements with Grayling and Genesee, which allow these facilities to be dispatched based on the market price of power compared with the cost of production of the plants. This results in fuel cost savings that each partnership shares with Consumers’ customers.

CMS Energy’s investment in these partnerships is included in investments on its consolidated balance sheets in the amount of $69 million as of December 31, 2018 and $64 million as of December 31, 2017. The creditors of these partnerships do not have recourse to the general credit of CMS Energy or Consumers, except through a guarantee provided by CMS Energy of $3 million annually on behalf of Genesee. Additionally, CMS Energy has deferred collections on certain receivables owed by Genesee. CMS Energy’s maximum exposure to loss from these receivables is $9 million. Consumers has not provided any financial or other support during the periods presented that was not previously contractually required.

22:	Quarterly Financial and Common Stock Information (Unaudited)

In Millions, Except Per Share Amounts
	2018
Quarters Ended	March 31				June 30				Sept 30				Dec 31
CMS Energy, including Consumers
Operating revenue		$	1,953			$	1,492			$	1,599			$	1,829
Operating income		363				255				294				250
Net income		241				140				169				109
Income attributable to noncontrolling interests		—				1				—				1
Net income available to common stockholders		241				139				169				108
Basic earnings per average common share1		0.86				0.49				0.60				0.38
Diluted earnings per average common share1		0.86				0.49				0.59				0.38
Consumers
Operating revenue		$	1,855			$	1,395			$	1,502			$	1,712
Operating income		334				229				271				231
Net income		242				152				180				131
Preferred stock dividends		—				1				—				1
Net income available to common stockholder		242				151				180				130

In Millions, Except Per Share Amounts
	2017
Quarters Ended	March 31				June 30				Sept 30				Dec 31
CMS Energy, including Consumers
Operating revenue		$	1,829			$	1,449			$	1,527			$	1,778
Operating income		388				241				330				379
Net income (loss)		199				93				172				(2		)
Income attributable to noncontrolling interests		—				1				—				1
Net income (loss) available to common stockholders		199				92				172				(3		)
Basic earnings (loss) per average common share1		0.71				0.33				0.61				(0.01		)
Diluted earnings (loss) per average common share1		0.71				0.33				0.61				(0.01		)
Consumers
Operating revenue		$	1,737			$	1,362			$	1,437			$	1,686
Operating income		359				222				308				363
Net income		211				104				181				136
Preferred stock dividends		—				1				—				1
Net income available to common stockholder		211				103				181				135

1	The sum of the quarters may not equal annual EPS due to changes in the number of shares outstanding.

23: Subsequent Event

On January 30, 2019, Consumers experienced a fire at the Ray Compressor Station, which resulted in the Ray Storage Field being off-line or operating at significantly reduced capacity, which negatively affected Consumers’ natural gas supply and delivery capacity. This incident, which occurred during the extreme polar vortex weather condition, required Consumers to request voluntary reductions in customer load, to implement contingency gas supply purchases, and to implement a curtailment of natural gas deliveries for industrial and large commercial customers pursuant to Consumers’ MPSC curtailment tariff. Consumers is investigating the incident. The curtailment and request for voluntary reductions of customer loads were canceled as of midnight, February 1. At this time, Consumers cannot predict the ultimate financial impact of the incident or other gas-related incidents, but they could have a material adverse effect on Consumers’ results of operations, financial condition, or liquidity, and could subject Consumers’ gas utility to increased regulatory scrutiny.

(This page intentionally left blank)

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of CMS Energy Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of CMS Energy Corporation and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes and financial statement schedules listed in the index appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

February 5, 2019

We have served as the Company’s auditor since 2007.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder of Consumers Energy Company

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Consumers Energy Company and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes and financial statement schedule listed in the index appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

February 5, 2019

We have served as the Company’s auditor since 2007.