Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

CMS Energy Consolidated Financial Statements						92
Consolidated Statements of Income						92
Consolidated Statements of Comprehensive Income						93
Consolidated Statements of Cash Flows						94
Consolidated Balance Sheets						96
Consolidated Statements of Changes in Equity						98
Consumers Consolidated Financial Statements						100
Consolidated Statements of Income						100
Consolidated Statements of Comprehensive Income						101
Consolidated Statements of Cash Flows						102
Consolidated Balance Sheets						104
Consolidated Statements of Changes in Equity						106
Notes to the Consolidated Financial Statements						107
1:			Significant Accounting Policies			107
2:			New Accounting Standards			110
3:			Regulatory Matters			111
4:			Contingencies and Commitments			117
5:			Financings and Capitalization			124
6:			Fair Value Measurements			131
7:			Financial Instruments			134
8:			Notes Receivable			135
9:			Plant, Property, and Equipment			138
10:			Leases and Palisades Financing			142
11:			Asset Retirement Obligations			147
12:			Retirement Benefits			149
13:			Stock-Based Compensation			159
14:			Income Taxes			163
15:			Earnings Per Share—CMS Energy			167
16:			Revenue			168
17:			Other Income and Other Expense			172
18:			Cash and Cash Equivalents			172
19:			Reportable Segments			173
20:			Related-Party Transactions—Consumers			177
21:			Variable Interest Entities			178
22:			Asset Sale and Exit Activities			180
23:			Quarterly Financial and Common Stock Information (Unaudited)			181
Reports of Independent Registered Public Accounting Firm						182
CMS Energy						182
Consumers						186

CMS Energy Corporation

Consolidated Statements of Income

In Millions, Except Per Share Amounts
Years Ended December 31			2020						2019						2018
Operating Revenue						$	6,680					$	6,845					$	6,873
Operating Expenses
Fuel for electric generation						375						493						528
Purchased and interchange power						1,492						1,496						1,613
Purchased power – related parties						64						75						81
Cost of gas sold						577						769						836
Maintenance and other operating expenses						1,403						1,448						1,417
Depreciation and amortization						1,048						992						933
General taxes						359						333						303
Total operating expenses						5,318						5,606						5,711
Operating Income						1,362						1,239						1,162
Other Income (Expense)
Interest income						4						7						11
Interest income – related parties						7						—						—
Allowance for equity funds used during construction						6						10						6
Income from equity method investees						5						10						9
Nonoperating retirement benefits, net						118						91						90
Other income						6						4						2
Other expense						(62)						(13)						(48)
Total other income						84						109						70
Interest Charges
Interest on long-term debt						483						439						412
Interest expense – related parties						12						9						—
Other interest expense						68						75						49
Allowance for borrowed funds used during construction						(2)						(4)						(3)
Total interest charges						561						519						458
Income Before Income Taxes						885						829						774
Income Tax Expense						133						147						115
Net Income						752						682						659
Income (Loss) Attributable to Noncontrolling Interests						(3)						2						2
Net Income Available to Common Stockholders						$	755					$	680					$	657
Basic Earnings Per Average Common Share						$	2.65					$	2.40					$	2.33
Diluted Earnings Per Average Common Share						2.64						2.39						2.32

The accompanying notes are an integral part of these statements.

CMS Energy Corporation

Consolidated Statements of Comprehensive Income

In Millions
Years Ended December 31			2020						2019						2018
Net Income						$	752					$	682					$	659
Retirement Benefits Liability
Net loss arising during the period, net of tax of $(4), $(3), and $(1)						(15)						(7)						(4)
Settlement arising during the period, net of tax of $— for all periods						1						—						—
Prior service credit adjustment, net of tax of $— for all periods						(1)						—						(1)
Amortization of net actuarial loss, net of tax of $1 for all periods						5						3						4
Amortization of prior service credit, net of tax of $—, $—, and $(1)						(1)						(2)						(1)
Derivatives
Unrealized loss on derivative instruments, net of tax of $(2), $(1), and $—						(4)						(3)						(2)
Reclassification adjustments included in net income, net of tax of $— for all periods						2						1						—
Other Comprehensive Loss						(13)						(8)						(4)
Comprehensive Income						739						674						655
Comprehensive Income (Loss) Attributable to Noncontrolling Interests						(3)						2						2
Comprehensive Income Attributable to CMS Energy						$	742					$	672					$	653

The accompanying notes are an integral part of these statements.

CMS Energy Corporation

Consolidated Statements of Cash Flows

In Millions
Years Ended December 31			2020						2019						2018
Cash Flows from Operating Activities
Net income						$	752					$	682					$	659
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization						1,048						992						933
Deferred income taxes and investment tax credits						170						150						182
Bad debt expense						90						67						54
Other non‑cash operating activities and reconciling adjustments						(22)						(58)						22
Postretirement benefits contributions						(712)						(10)						(252)
Cash provided by (used in) changes in assets and liabilities
Accounts and notes receivable and accrued revenue						(12)						45						15
Inventories						28						44						14
Accounts payable and accrued rate refunds						54						(69)						22
Other current and non‑current assets and liabilities						(120)						(53)						54
Net cash provided by operating activities						1,276						1,790						1,703
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under finance lease)						(2,317)						(2,104)						(2,074)
Increase in EnerBank notes receivable						(657)						(401)						(307)
Purchase of notes receivable by EnerBank						(17)						(343)						(225)
Proceeds from DB SERP investments						—						—						146
Proceeds from sale of EnerBank notes receivable						197						67						—
Proceeds from sale of transmission equipment						58						97						—
Cost to retire property and other investing activities						(131)						(132)						(146)
Net cash used in investing activities						(2,867)						(2,816)						(2,606)
Cash Flows from Financing Activities
Proceeds from issuance of debt						3,179						2,151						2,767
Retirement of debt						(2,010)						(1,285)						(1,870)
Increase in EnerBank certificates of deposit						416						631						513
Decrease in notes payable						(90)						(7)						(73)
Issuance of common stock, net of issuance costs						253						12						41
Payment of dividends on common and preferred stock						(467)						(436)						(407)
Debt prepayment costs						(59)						(8)						(36)
Proceeds from the sale of membership interest in VIE to tax equity investor						417						—						—
Contribution from noncontrolling interest						31						—						—
Other financing costs						(51)						(50)						(61)
Net cash provided by financing activities						1,619						1,008						874
Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts						28						(18)						(29)
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period						157						175						204
Cash and Cash Equivalents, Including Restricted Amounts, End of Period						$	185					$	157					$	175

In Millions
Years Ended December 31			2020						2019						2018
Other Cash Flow Activities and Non‑cash Investing and Financing Activities
Cash transactions
Interest paid (net of amounts capitalized)						$	549					$	498					$	458
Income taxes paid (refunds received), net						(58)						(58)						(123)
Non‑cash transactions
Capital expenditures not paid						141						170						158

The accompanying notes are an integral part of these statements.

CMS Energy Corporation

Consolidated Balance Sheets

ASSETS
In Millions
December 31			2020						2019
Current Assets
Cash and cash equivalents						$	168					$	140
Restricted cash and cash equivalents						17						17
Accounts receivable and accrued revenue, less allowance of $29 in 2020 and $20 in 2019						863						886
Notes receivable, less allowance of $32 in 2020 and $33 in 2019						275						242
Accounts receivable – related parties						19						17
Inventories at average cost
Gas in underground storage						353						399
Materials and supplies						155						140
Generating plant fuel stock						68						66
Deferred property taxes						332						305
Regulatory assets						42						33
Prepayments and other current assets						112						86
Total current assets						2,404						2,331
Plant, Property, and Equipment
Plant, property, and equipment, gross						27,907						25,390
Less accumulated depreciation and amortization						7,953						7,360
Plant, property, and equipment, net						19,954						18,030
Construction work in progress						1,085						896
Total plant, property, and equipment						21,039						18,926
Other Non‑current Assets
Regulatory assets						2,653						2,489
Accounts and notes receivable, less allowance of $91 in 2020 and $— in 2019						2,631						2,281
Investments						70						71
Other						869						739
Total other non‑current assets						6,223						5,580
Total Assets						$	29,666					$	26,837

LIABILITIES AND EQUITY
In Millions
December 31			2020						2019
Current Liabilities
Current portion of long-term debt, finance leases, and other financing						$	1,506					$	1,130
Notes payable						—						90
Accounts payable						671						622
Accounts payable – related parties						7						13
Accrued rate refunds						20						35
Accrued interest						106						104
Accrued taxes						457						437
Regulatory liabilities						151						87
Other current liabilities						156						186
Total current liabilities						3,074						2,704
Non‑current Liabilities
Long-term debt						13,634						11,951
Non-current portion of finance leases and other financing						56						76
Regulatory liabilities						3,744						3,742
Postretirement benefits						152						674
Asset retirement obligations						553						477
Deferred investment tax credit						115						120
Deferred income taxes						1,863						1,655
Other non‑current liabilities						398						383
Total non‑current liabilities						20,515						19,078
Commitments and Contingencies (Notes 3 and 4)
Equity
Common stockholders’ equity
Common stock, authorized 350.0 shares; outstanding 288.9 shares in 2020 and 283.9 shares in 2019						3						3
Other paid-in capital						5,365						5,113
Accumulated other comprehensive loss						(86)						(73)
Retained earnings (accumulated deficit)						214						(25)
Total common stockholders’ equity						5,496						5,018
Noncontrolling interests						581						37
Total equity						6,077						5,055
Total Liabilities and Equity						$	29,666					$	26,837

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			2020			2019			2018			2020						2019						2018
Total Equity at Beginning of Period															$	5,055					$	4,792					$	4,478
Common Stock
At beginning and end of period															3						3						3
Other Paid-in Capital
At beginning of period			283,864			283,374			281,647						5,113						5,088						5,019
Common stock issued			5,609			710			1,554						265						35						59
Common stock repurchased			(216)			(181)			(224)						(13)						(10)						(10)
Common stock reissued			12			8			423						1						—						20
Common stock reacquired			(329)			(47)			(26)						(1)						—						—
At end of period			288,940			283,864			283,374						5,365						5,113						5,088
Accumulated Other Comprehensive Loss
At beginning of period															(73)						(65)						(50)
Retirement benefits liability
At beginning of period															(69)						(63)						(50)
Cumulative effect of change in accounting principle															—						—						(11)
Net loss arising during the period															(15)						(7)						(4)
Settlement arising during the period															1						—						—
Prior service credit adjustment															(1)						—						(1)
Amortization of net actuarial loss															5						3						4
Amortization of prior service credit															(1)						(2)						(1)
At end of period															(80)						(69)						(63)
Derivative instruments
At beginning of period															(4)						(2)						—
Unrealized loss on derivative instruments															(4)						(3)						(2)
Reclassification adjustments included in net income															2						1						—
At end of period															(6)						(4)						(2)
At end of period															(86)						(73)						(65)

In Millions, Except Number of Shares in Thousands and Per Share Amounts
			Number of Shares
Years Ended December 31			2020			2019			2018			2020						2019						2018
Retained Earnings (Accumulated Deficit)
At beginning of period															(25)						(271)						(531)
Cumulative effect of change in accounting principle															(51)						—						8
Net income attributable to CMS Energy															755						680						657
Dividends declared on common stock															(465)						(434)						(405)
At end of period															214						(25)						(271)
Noncontrolling Interests
At beginning of period															37						37						37
Impact of purchase and consolidation of VIE															101						—						—
Sale of membership interest in VIE to tax equity investor															417						—						—
Contribution from noncontrolling interest															31						—						—
Income (loss) attributable to noncontrolling interests															(3)						2						2
Distributions and other changes in noncontrolling interests															(2)						(2)						(2)
At end of period															581						37						37
Total Equity at End of Period															$	6,077					$	5,055					$	4,792
Dividends declared per common share															$	1.63					$	1.53					$	1.43

The accompanying notes are an integral part of these statements.

Consumers Energy Company

Consolidated Statements of Income

In Millions
Years Ended December 31			2020						2019						2018
Operating Revenue						$	6,189					$	6,376					$	6,464
Operating Expenses
Fuel for electric generation						286						375						407
Purchased and interchange power						1,454						1,470						1,587
Purchased power – related parties						64						75						83
Cost of gas sold						568						754						819
Maintenance and other operating expenses						1,224						1,275						1,287
Depreciation and amortization						1,023						975						921
General taxes						349						322						295
Total operating expenses						4,968						5,246						5,399
Operating Income						1,221						1,130						1,065
Other Income (Expense)
Interest income						3						5						8
Interest and dividend income – related parties						5						5						2
Allowance for equity funds used during construction						6						10						6
Nonoperating retirement benefits, net						112						85						83
Other income						5						3						2
Other expense						(43)						(13)						(30)
Total other income						88						95						71
Interest Charges
Interest on long-term debt						299						277						276
Interest expense – related parties						12						9						—
Other interest expense						11						15						16
Allowance for borrowed funds used during construction						(2)						(4)						(3)
Total interest charges						320						297						289
Income Before Income Taxes						989						928						847
Income Tax Expense						173						185						142
Net Income						816						743						705
Preferred Stock Dividends						2						2						2
Net Income Available to Common Stockholder						$	814					$	741					$	703

The accompanying notes are an integral part of these statements.

Consumers Energy Company

Consolidated Statements of Comprehensive Income

In Millions
Years Ended December 31			2020						2019						2018
Net Income						$	816					$	743					$	705
Retirement Benefits Liability
Net gain (loss) arising during the period, net of tax of $(3), $(3), and $2						(9)						(8)						6
Amortization of net actuarial loss, net of tax of $1, $—, and $—						1						1						2
Investments
Unrealized loss on investments, net of tax of $— for all periods						—						—						(1)
Reclassification adjustments included in net income, net of tax of $— for all periods						—						—						1
Other Comprehensive Income (Loss)						(8)						(7)						8
Comprehensive Income						$	808					$	736					$	713

The accompanying notes are an integral part of these statements.

Consumers Energy Company

Consolidated Statements of Cash Flows

In Millions
Years Ended December 31			2020						2019						2018
Cash Flows from Operating Activities
Net income						$	816					$	743					$	705
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization						1,023						975						921
Deferred income taxes and investment tax credits						177						37						123
Bad debt expense						33						29						29
Other non‑cash operating activities and reconciling adjustments						(30)						(32)						13
Postretirement benefits contributions						(690)						(7)						(242)
Cash provided by (used in) changes in assets and liabilities
Accounts and notes receivable and accrued revenue						(46)						8						(26)
Inventories						26						40						15
Accounts payable and accrued rate refunds						45						(63)						12
Other current and non-current assets and liabilities						(136)						(129)						(101)
Net cash provided by operating activities						1,218						1,601						1,449
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under finance lease)						(2,170)						(2,085)						(1,822)
Proceeds from DB SERP investments						—						—						106
DB SERP investment in note receivable – related party						(5)						—						(106)
Proceeds from sale of transmission equipment						58						77						—
Cost to retire property and other investing activities						(129)						(129)						(149)
Net cash used in investing activities						(2,246)						(2,137)						(1,971)
Cash Flows from Financing Activities
Proceeds from issuance of debt						1,954						993						2,106
Retirement of debt						(1,086)						(541)						(1,193)
Decrease in notes payable						(90)						(7)						(73)
Increase in notes payable – related parties						307						—						—
Stockholder contribution						650						675						250
Payment of dividends on common and preferred stock						(639)						(594)						(533)
Debt prepayment costs						(43)						(8)						(20)
Other financing costs						(18)						(10)						(24)
Net cash provided by financing activities						1,035						508						513
Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts						7						(28)						(9)
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period						28						56						65
Cash and Cash Equivalents, Including Restricted Amounts, End of Period						$	35					$	28					$	56

In Millions
Years Ended December 31			2020						2019						2018
Other Cash Flow Activities and Non‑cash Investing and Financing Activities
Cash transactions
Interest paid (net of amounts capitalized)						$	305					$	279					$	287
Income taxes paid						51						132						156
Non‑cash transactions
Capital expenditures not paid						130						160						143

The accompanying notes are an integral part of these statements.

Consumers Energy Company

Consolidated Balance Sheets

ASSETS
In Millions
December 31			2020						2019
Current Assets
Cash and cash equivalents						$	20					$	11
Restricted cash and cash equivalents						15						17
Accounts receivable and accrued revenue, less allowance of $29 in 2020 and $20 in 2019						828						827
Accounts and notes receivable – related parties						18						9
Inventories at average cost
Gas in underground storage						353						399
Materials and supplies						149						135
Generating plant fuel stock						67						63
Deferred property taxes						332						305
Regulatory assets						42						33
Prepayments and other current assets						68						73
Total current assets						1,892						1,872
Plant, Property, and Equipment
Plant, property, and equipment, gross						26,757						24,963
Less accumulated depreciation and amortization						7,844						7,272
Plant, property, and equipment, net						18,913						17,691
Construction work in progress						1,058						879
Total plant, property, and equipment						19,971						18,570
Other Non-current Assets
Regulatory assets						2,653						2,489
Accounts receivable						25						29
Accounts and notes receivable – related parties						105						102
Other						753						637
Total other non-current assets						3,536						3,257
Total Assets						$	25,399					$	23,699

LIABILITIES AND EQUITY
In Millions
December 31			2020						2019
Current Liabilities
Current portion of long-term debt, finance leases, and other financing						$	384					$	221
Notes payable						—						90
Notes payable – related parties						307						—
Accounts payable						636						593
Accounts payable – related parties						7						20
Accrued rate refunds						20						35
Accrued interest						72						67
Accrued taxes						458						481
Regulatory liabilities						151						87
Other current liabilities						104						118
Total current liabilities						2,139						1,712
Non-current Liabilities
Long-term debt						7,742						7,048
Non-current portion of finance leases and other financing						56						76
Regulatory liabilities						3,744						3,742
Postretirement benefits						112						622
Asset retirement obligations						530						474
Deferred investment tax credit						115						120
Deferred income taxes						2,094						1,864
Other non-current liabilities						311						304
Total non-current liabilities						14,704						14,250
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						6,024						5,374
Accumulated other comprehensive loss						(36)						(28)
Retained earnings						1,690						1,513
Total common stockholder’s equity						8,519						7,700
Cumulative preferred stock, $4.50 series						37						37
Total equity						8,556						7,737
Total Liabilities and Equity						$	25,399					$	23,699

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												2020						2019						2018
Total Equity at Beginning of Period																					$	7,737					$	6,920					$	6,488
Common Stock
At beginning and end of period																					841						841						841
Other Paid-in Capital
At beginning of period																					5,374						4,699						4,449
Stockholder contribution																					650						675						250
At end of period																					6,024						5,374						4,699
Accumulated Other Comprehensive Loss
At beginning of period																					(28)						(21)						(12)
Retirement benefits liability
At beginning of period																					(28)						(21)						(24)
Cumulative effect of change in accounting principle																					—						—						(5)
Net gain (loss) arising during the period																					(9)						(8)						6
Amortization of net actuarial loss																					1						1						2
At end of period																					(36)						(28)						(21)
Investments
At beginning of period																					—						—						12
Cumulative effect of change in accounting principle																					—						—						(12)
Unrealized loss on investments																					—						—						(1)
Reclassification adjustments included in net income																					—						—						1
At end of period																					—						—						—
At end of period																					(36)						(28)						(21)
Retained Earnings
At beginning of period																					1,513						1,364						1,173
Cumulative effect of change in accounting principle																					—						—						19
Net income																					816						743						705
Dividends declared on common stock																					(637)						(592)						(531)
Dividends declared on preferred stock																					(2)						(2)						(2)
At end of period																					1,690						1,513						1,364
Cumulative Preferred Stock
At beginning and end of period																					37						37						37
Total Equity at End of Period																					$	8,556					$	7,737					$	6,920

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, EnerBank, 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

• they cannot be net settled due in part to the absence of 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 and notes receivable 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. At CMS Energy, if the derivative is accounted for as a cash flow hedge, unrealized gains and losses from changes in the fair value of the derivative are recognized in AOCI and subsequently recognized in earnings when the hedged transactions impact earnings. If the derivative is accounted for as a fair value hedge, changes in the fair value of the derivative and changes in the fair value of the hedged item due to the hedged risk are recognized in earnings. For the FTRs at Consumers, changes in fair value are deferred as regulatory assets or liabilities. 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. 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

• Note 21, Variable Interest Entities

2: New Accounting Standards

Implementation of New Accounting Standards

ASU 2016‑13, Measurement of Credit Losses on Financial Instruments: This standard, which was effective on January 1, 2020 for CMS Energy and Consumers, provides new guidance for measuring and recognizing credit losses on financial instruments. The standard applies to financial assets that are not measured at fair value through net income as well as to certain off‑balance-sheet credit exposures. CMS Energy and Consumers were required to apply the standard using a modified retrospective approach, under which the initial impacts of the standard are recorded through a cumulative-effect adjustment to beginning retained earnings on the effective date.

The standard required an increase to the allowance for loan losses at EnerBank. Prior to the standard, the allowance reflected expected credit losses over a 12‑month period, but the new guidance requires the allowance to reflect expected credit losses over the entire life of the loans. As a result, CMS Energy recorded a $65 million increase to its expected credit loss reserves on January 1, 2020, with the offsetting adjustment recorded to retained earnings, net of taxes of $14 million. The standard also requires an increase in the initial provision for loan losses recognized in net income for new loans originated in 2020 and beyond. The adoption of this standard resulted in a $21 million reduction to CMS Energy’s income before income taxes for the year ended December 31, 2020. For further information on EnerBank’s loans and the related allowance for loan losses see Note 8, Notes Receivable. At Consumers, the standard applies to the allowance for uncollectible accounts, but did not result in any significant changes to the allowance methodology and did not have a material impact on Consumers’ consolidated financial statements.

ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting: This standard, which was effective as of March 12, 2020 for CMS Energy and Consumers, provides optional guidance intended to ease the potential burden in accounting for the expected discontinuation of LIBOR as a reference rate in the financial markets. The guidance can be applied to modifications made to certain contracts to replace LIBOR with a new reference rate. The guidance, if elected, will permit entities to treat such modifications as the continuation of the original contract, without any required accounting reassessments or remeasurements. The guidance will also facilitate the continuation of hedge accounting for derivatives that may have to be modified to incorporate a new rate. The guidance is effective through December 31, 2022. CMS Energy and Consumers presently have various contracts that reference LIBOR and they are assessing how this standard may be applied to specific contract modifications.

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 of 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						2020						2019
Regulatory assets
Current
Energy waste reduction plan incentive1						2021						$	34					$	33
Deferred capital spending2						2021						6						—
Other						2021						2						—
Total current regulatory assets												$	42					$	33
Non-current
Postretirement benefits3						various						$	1,231					$	1,130
Costs of coal-fueled electric generating units to be retired2						various						678						667
Securitized costs2						2029						221						247
ARO4						various						216						191
MGP sites4						various						120						130
Unamortized loss on reacquired debt4						various						108						70
Energy waste reduction plan incentive1						2022						42						34
Energy waste reduction plan4						various						16						10
Demand response program4						various						10						1
COVID-19 costs accounting deferral4						various						4						—
Other						various						7						9
Total non-current regulatory assets												$	2,653					$	2,489
Total regulatory assets												$	2,695					$	2,522
Regulatory liabilities
Current
Income taxes, net						2021						$	105					$	65
Reserve for customer refunds						2021						28						2
Voluntary transmission asset sale gain share						2021						14						17
Other						2021						4						3
Total current regulatory liabilities												$	151					$	87
Non-current
Cost of removal						various						$	2,245					$	2,126
Income taxes, net						various						1,419						1,510
Renewable energy grant						2043						49						52
ARO						various						11						26
Renewable energy plan						2028						9						17
Other						various						11						11
Total non-current regulatory liabilities												$	3,744					$	3,742
Total regulatory liabilities												$	3,895					$	3,829

1These 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.

2The MPSC has historically authorized and Consumers expects the MPSC to authorize a specific return on these regulatory assets.

3This regulatory asset is included in rate base, thereby providing a return.

4These 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: The energy waste reduction incentive mechanism provides a financial incentive if the energy savings of Consumers’ customers exceed annual targets established by the MPSC. 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.

In November 2020, the MPSC approved a settlement agreement authorizing Consumers to collect $34 million during 2021 as an incentive for exceeding its statutory savings targets in 2019. Consumers recognized incentive revenue under this program of $34 million in 2019.

Consumers also exceeded its statutory savings targets in 2020, achieved certain other goals, and will request the MPSC’s approval to collect $42 million, the maximum performance incentive, in the energy waste reduction reconciliation to be filed in 2021. Consumers recognized incentive revenue under this program of $42 million in 2020.

Deferred Capital Spending: In January 2019, the MPSC approved a settlement agreement in Consumers’ 2018 electric rate case, which provided deferred accounting treatment for distribution-related capital investments exceeding certain threshold amounts. Thus, for actual capital spending above the threshold amounts detailed in the settlement agreement, Consumers has deferred as a regulatory asset the associated depreciation and property tax expense as well as the debt component of the overall rate of return on such spending.

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, prior service costs and credits, and settlements 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 settlements and the amortization periods, see Note 12, Retirement Benefits.

Costs of Coal-fueled Electric Generating Units to be Retired: In June 2019, the MPSC approved the settlement agreement reached in Consumers’ IRP, under which Consumers plans to retire the D.E. Karn 1 & 2 coal-fueled electric generating units in 2023. Under Michigan law, electric utilities have been permitted to use highly rated, low-cost securitization bonds to finance the recovery of qualified costs. In 2019, Consumers removed from total plant, property, and equipment an amount representing the projected remaining book value of the two coal-fueled electric generating units upon their retirement, and recorded it as a regulatory asset. Until securitization, the book value of the generating units will remain in rate base and receive full regulatory returns in general rate cases.

In December 2020, 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 the two coal-fueled electric generating units upon their retirement. An intervenor has appealed the order, contending that it should not have to pay the securitization surcharge.

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. The amount of surcharges collected in excess of spending incurred is recorded as a regulatory liability and amortized as costs are incurred.

Demand Response Program: In the IRP and in general electric rate cases, the MPSC has approved the recovery of demand response costs. Consumers annually files a reconciliation with the MPSC to review actual demand response costs against amounts approved. The method of recovery of demand response costs will be determined in a future rate case.

COVID‑19 Costs Accounting Deferral: In April 2020, the MPSC issued an order authorizing Consumers to defer uncollectible accounts expense incurred beginning March 24, 2020 that are in excess of the amount used to set existing rates.

Regulatory Liabilities

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 income tax expense. The majority of the net regulatory liability recorded related to income taxes is associated with plant assets that are subject to normalization, which is governed by the Internal Revenue Code, and will be returned to customers 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. For additional details on deferred income taxes, see Note 14, Income Taxes.

Reserve for Customer Refunds: In December 2020, the MPSC issued an order authorizing Consumers to refund $28 million voluntarily to utility customers. Consumers is required to submit another filing by the end of February 2021 proposing an appropriate method for making this refund.

Voluntary Transmission Asset Sale Gain Share: In October 2020, Consumers completed a sale of the electric utility’s remaining transmission equipment to METC. In December 2020, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with electric utility customers; this application was approved by the MPSC in February 2021. Consumers will share the gain through an offset to additional spending in 2021 or through a bill credit to electric utility customers in 2022. As a result, Consumers deferred $14 million of the gain in December 2020.

In September 2019, Consumers completed a sale of a portion of its electric utility’s substation transmission equipment to METC. In December 2019, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with customers; this application was approved by the MPSC in April 2020. As a result, Consumers deferred $17 million of the gain in December 2019 and shared that gain with customers in 2020.

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

2020 Electric Rate Case: In February 2020, Consumers filed an application with the MPSC seeking an annual rate increase of $244 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending December 31, 2021. In July 2020, Consumers reduced its requested annual rate increase to $230 million. In December 2020, the MPSC approved an annual rate increase of $90 million, based on a 9.9 percent authorized return on equity. This increase reflects a $36 million refund to customers of regulatory tax liabilities associated with the remeasurement of Consumers’ deferred income taxes as a result of the TCJA; excluding the impacts of this refund, the order resulted in a $126 million increase in annual rates.

The order also approved the recovery of $13 million associated with Consumers’ deferral of depreciation and property tax expense and the overall rate of return on distribution-related capital investments exceeding certain threshold amounts.

Additionally, the order approved the method of recovering amounts earned under the financial compensation mechanism approved by the MPSC in Consumers’ IRP. This mechanism allows Consumers to earn a return equal to Consumer’s weighted-average cost of capital on payments made under PPAs approved by the MPSC after January 1, 2019. The order authorizes Consumers to recover $3 million, beginning in January 2021, for incentives earned and to be earned on PPA payments during 2019 through 2021. Consumers accounts for this program as an alternative-revenue program that meets the criteria for recognizing revenue related to the mechanism as payments are made on MPSC-approved PPAs. Consumers recognized revenue under this mechanism of $1 million in 2020.

Consumers is also authorized in the order to replace the current net metering tariff with a new distributed generation tariff, pursuant to the 2016 Energy Law. The new distributed generation tariff is consistent with other distributed generation tariffs already approved by the MPSC and will reduce the subsidies paid by non-distributed generation customers under the current net metering program.

Consumers Gas Utility

2019 Gas Rate Case: In December 2019, Consumers filed an application with the MPSC seeking an annual rate increase of $245 million, based on a 10.5 percent authorized return on equity and a projected twelve-month period ending September 30, 2021. In May 2020, Consumers reduced its requested annual rate increase to $229 million. In September 2020, the MPSC approved a settlement agreement authorizing an annual rate increase of $144 million, based on a 9.9 percent authorized return on equity, effective October 1, 2020. As part of that agreement, Consumers agreed not to file a new gas rate case prior to December 2021. The MPSC also approved the continuation of a revenue decoupling mechanism, which annually reconciles Consumers’ actual weather-normalized non-fuel revenues with the revenues approved by the MPSC. This reconciliation would start in October 2021 and continue until the MPSC resets rates in a subsequent rate case.

Additionally, the MPSC authorized Consumers to accelerate:

• the refund of a regulatory liability associated with the unprotected, non‑property-related excess deferred income taxes resulting from the TCJA; Consumers was previously authorized to refund this through 2029

• the flow-through of certain income tax benefits associated primarily with the cost of removal of gas plant assets placed in service before 1993; Consumers was previously authorized to refund this through 2025

Under the settlement agreement approved by the MPSC, these benefits, which total $84 million, will now be passed through to customers by September 2022. For additional details, see Note 14, Income Taxes.

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 liabilities for PSCR and GCR overrecoveries reflected on Consumers’ consolidated balance sheets:

In Millions
December 31			2020						2019
Liabilities
PSCR overrecoveries						$	5					$	33
GCR overrecoveries						15						2
Accrued rate refunds						$	20					$	35

PSCR Plans and Reconciliations: In October 2020, the MPSC issued an order in Consumers’ 2018 PSCR reconciliation, authorizing recovery of $2.0 billion of power costs and authorizing Consumers to reflect in its 2019 PSCR reconciliation the underrecovery of $28 million.

In April 2020, the MPSC issued an order in Consumers’ 2019 PSCR plan authorizing the 2019 PSCR charge that Consumers self-implemented beginning in January 2019. In March 2020, Consumers filed its 2019 PSCR reconciliation, requesting full recovery of $1.9 billion of power costs and authorization to reflect in its 2020 PSCR reconciliation the overrecovery of $21 million.

Consumers submitted its 2020 PSCR plan to the MPSC in September 2019 and, in accordance with its proposed plan, self-implemented the 2020 PSCR charge beginning in January 2020.

GCR Plans and Reconciliations: In September 2020, the MPSC issued an order in Consumers’ 2018-2019 GCR reconciliation, authorizing recovery of $0.6 billion of gas costs and authorizing Consumers to reflect in its 2019-2020 GCR reconciliation the underrecovery of $11 million. The MPSC disallowed the recovery of $7 million in incremental gas purchases related to the Ray Compressor Station fire. For additional details, see Note 4, Contingencies and Commitments—Consumers Gas Utility Contingencies.

In June 2020, Consumers filed its 2019-2020 GCR reconciliation, requesting full recovery of $0.5 billion of gas costs and authorization to reflect in its 2020-2021 GCR reconciliation the underrecovery of $1 million.

In September 2020, the MPSC approved a settlement agreement in Consumers’ 2020-2021 GCR plan authorizing the 2020-2021 GCR charge that Consumers self-implemented beginning in April 2020.

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 filed in Kansas, Missouri, and Wisconsin and one individual lawsuit filed in Kansas; these lawsuits arose as a result of alleged inaccurate natural gas price reporting to publications that report trade information. Allegations included price-fixing conspiracies, restraint of trade, and artificial inflation of natural gas retail prices. 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 2017, the federal district court approved the settlement.

In 2019, CMS Energy and the plaintiffs in the remaining Kansas individual lawsuit and the Wisconsin class action lawsuit engaged in settlement discussions and CMS Energy recorded a $30 million liability at December 31, 2019 as the probable estimate to settle the two cases. The parties executed a settlement

agreement in the Kansas case in February 2020, and that case is now complete. In the Wisconsin case, a settlement agreement was approved in August 2020 and that case is now complete.

Bay Harbor: CMS Land retained environmental remediation obligations for the collection and treatment of leachate 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 EGLE 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, which was valid through September 2020. CMS Land submitted a renewal request for the permit in April 2020. CMS Land is allowed to continue operating under the previous NPDES permit until a response is received from EGLE.

At December 31, 2020, CMS Energy had a recorded liability of $45 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 $57 million. CMS Energy expects to pay the following amounts for long-term leachate disposal and operating and maintenance costs in each of the next five years:

In Millions
			2021						2022						2023						2024						2025
CMS Energy
Long-term leachate 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 or exceed 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 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 $2 million and $4 million. At December 31, 2020, Consumers had a recorded liability of $2 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, 2020, 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 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. 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. In November 2020, the MCV Partnership and Consumers signed a settlement agreement resolving all outstanding disputes between the parties, and filed the settlement and associated agreements with the MPSC for approval. Once those are approved, the parties will dismiss this matter with prejudice. If settlement is not approved, the arbitration panel will issue an order. Consumers believes that the MCV Partnership’s 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 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. After collaborating with the State of Michigan, local Native American tribes, and other stakeholders, Consumers submitted a permit application and removal work plan with EGLE and the U.S. Army Corps of Engineers in December 2019 for partial removal of all Consumers-owned cables. In March 2020, EGLE issued a permit for the removal work and, as a result, Consumers recorded an ARO liability of $5 million for the cost to remove partially its cables. Removal work was completed in September 2020. Consumers recovers the cost of recorded AROs through MPSC-approved depreciation rates.

Consumers Gas Utility Contingencies

Gas Environmental Matters: Consumers expects to incur remediation and other response activity costs at a number of sites under 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, 2020, Consumers had a recorded liability of $56 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 $61 million. Consumers expects to pay the following amounts for remediation and other response activity costs in each of the next five years:

In Millions
			2021						2022						2023						2024						2025
Consumers
Remediation and other response activity costs						$	3					$	9					$	23					$	10					$	1

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, 2020, Consumers had a regulatory asset of $120 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, 2020, 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.

Ray Compressor Station: 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. The curtailment and request for voluntary reductions of customer loads were canceled as of midnight, February 1, 2019. Consumers investigated the cause of the incident, and filed a report on the incident with the MPSC in April 2019. In response, the MPSC issued an order in

July 2019, directing Consumers to file additional reports regarding the incident and to include detail of the resulting costs in a future rate proceeding. The compressor station is presently operating at full capacity.

In September 2020, the MPSC disallowed the recovery of $7 million in incremental gas purchases related to the fire. In January 2021, the MPSC denied Consumers’ petition for a rehearing challenging this disallowance. Consumers will file an appeal of the MPSC’s denial with the Michigan Court of Appeals. Consumers could also be subject to disallowances of costs associated with the repair and modification of the Ray Compressor Station. At December 31, 2020, Consumers had incurred capital expenditures of $17 million to restore and modify the compressor station.

In May 2020, the MPSC approved an administrative settlement agreement between Consumers and the MPSC Staff, which resulted in a $10,000 civil penalty in connection with the fire. Consumers may also be subject to various claims from impacted customers and claims for damages. At this time, Consumers cannot predict the outcome of these matters or other gas-related incidents and a reasonable estimate of a total loss cannot be made, 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.

Guarantees

Presented in the following table are CMS Energy’s and Consumers’ guarantees at December 31, 2020:

In Millions
Guarantee Description			Issue Date			Expiration Date			Maximum Obligation						Carrying Amount
CMS Energy, including Consumers
Indemnity obligations from purchase of VIE1			September 2020			indefinite						$	349					$	—
Indemnity obligations from stock and asset sale agreements2			various			indefinite						153						2
Guarantee3			July 2011			indefinite						30						—
Consumers
Guarantee3			July 2011			indefinite						$	30					$	—

1In conjunction with the purchase of its interest in Aviator Wind Equity Holdings, CMS Enterprises assumed certain indemnity obligations that protect the associated tax equity investor against losses incurred as a result of breaches of representations and warranties provided by Aviator Wind Equity Holdings and its subsidiaries. These obligations are generally capped at an amount equal to the tax equity investor’s capital contributions plus a specified return, less any distributions and tax benefits it receives, in connection with its membership interest in Aviator Wind. CMS Enterprises would recover 49 percent of any amounts paid to the tax equity investor from the other owner of Aviator Wind Equity Holdings. Additionally, Aviator Wind holds insurance coverage that would partially protect against losses incurred as a result of certain failures to qualify for production tax credits. For further details on CMS Enterprises’ ownership interest in Aviator Wind Equity Holdings, see Note 21, Variable Interest Entities.

2These 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. The maximum obligation amount is mostly related to the Equatorial Guinea tax claim discussed in the CMS Energy Contingencies section of this Note. CMS Energy believes the likelihood of material loss to be remote for the indemnity obligations not recorded as liabilities.

3This obligation comprises a guarantee provided by Consumers 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.

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, as well as unasserted claims that may result in such proceedings, arising in the ordinary course of business to which CMS Energy, Consumers, and certain other subsidiaries of CMS Energy are parties. These other lawsuits, proceedings, and unasserted claims 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 and potential claims 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, 2020 for each of the periods shown:

In Millions
			Payments Due
			Total						2021						2022						2023						2024						2025						Beyond 2025
CMS Energy, including Consumers
Total PPAs						$	8,898					$	1,057					$	791					$	731					$	784					$	732					$	4,803
Other						3,179						1,391						871						265						199						171						282
Consumers
PPAs
MCV PPA						$	2,815					$	349					$	340					$	358					$	376					$	329					$	1,063
Palisades PPA						517						398						119						—						—						—						—
Related-party PPAs						318						58						58						58						58						39						47
Other PPAs						5,248						252						274						315						350						364						3,693
Total PPAs						$	8,898					$	1,057					$	791					$	731					$	784					$	732					$	4,803
Other						2,605						1,333						777						207						154						130						4

MCV PPA: Consumers has a PPA with the MCV Partnership giving Consumers the right to purchase up to 1,240 MW of capacity and energy produced by the MCV Facility. The PPA was amended during 2020 and is pending MPSC approval. The amended and restated MCV PPA provides for:

• an extension of the termination date from March 2025 to May 2030

• a capacity charge of $10.14 per MWh of available capacity through March 2025 and $5.00 per MWh of available capacity from March 2025 through the termination date of the PPA

• a fixed energy charge of $6.30 per MWh for on-peak hours and $6.00 for off-peak hours

• a variable energy charge based on the MCV Partnership’s cost of production for energy delivered to Consumers

• a $5 million annual contribution by the MCV Partnership to a renewable resources program through March 2025

Capacity and energy charges under the MCV PPA were $298 million in 2020, $318 million in 2019, and $353 million in 2018.

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 $403 million in 2020, $395 million in 2019, and $375 million in 2018. For further details about Palisades, see Note 10, Leases and Palisades Financing.

Other PPAs: Consumers has PPAs expiring through 2040 with various counterparties. The majority of the PPAs have capacity and energy charges for delivered energy. In addition, CMS Energy and Consumers account for several of their PPAs as leases. Capacity and energy charges under these PPAs were $327 million in 2020, $336 million in 2019, and $350 million in 2018. See Note 10, Leases and Palisades Financing for more information about CMS Energy’s and Consumers’ lease obligations.

5: Financings and Capitalization

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

In Millions
			Interest Rate (%)						Maturity						2020						2019
CMS Energy, including Consumers
CMS Energy, parent only
Senior notes			5.050						2022									$	—					$	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
																		$	1,975					$	2,275
Term loan facility			variable			1			2021									200						—
Junior subordinated notes2			4.750						2050									500						—
			3.750						2050									400						—
			5.625						2078									200						200
			5.875						2078									280						280
			5.875						2079									630						630
																		$	2,010					$	1,110
Total CMS Energy, parent only																		$	4,185					$	3,385
Consumers																		8,197						7,322
CMS Enterprises, including subsidiaries
Term loan facility			variable			3			2025									85						92
EnerBank
Certificates of deposit			1.621			4			2021-2028									2,805						2,389
Total principal amount outstanding																		$	15,272					$	13,188
Current amounts																		(1,486)						(1,111)
Unamortized discounts																		(33)						(27)
Unamortized issuance costs																		(119)						(99)
Total long-term debt																		$	13,634					$	11,951

1At December 31, 2020, the interest rate on the balance of this term loan facility was 0.600 percent, based on an interest rate of one-week LIBOR plus 0.500 percent.

2These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness.

3A subsidiary of CMS Enterprises issued non‑recourse debt to finance the acquisition of a wind generation project in Northwest Ohio. The interest rate for the debt is three-month LIBOR plus 1.500 percent through October 2022 and three-month LIBOR plus 1.750 percent thereafter. At December 31, 2020 and 2019, the interest rate was 1.754 percent and 3.445 percent, respectively. 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 thereafter. Principal and interest payments are made quarterly. For information about the interest rate swaps, see Note 6, Fair Value Measurements.

4The weighted-average interest rate for EnerBank’s certificates of deposit was 1.621 percent at December 31, 2020 and 2.445 percent at December 31, 2019. 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						2020						2019
Consumers
First mortgage bonds			3.770						2020									$	—					$	100
			2.850						2022									—						375
			5.300						2022									—						250
			0.350						2023									300						—
			3.375						2023									325						325
			3.125						2024									250						250
			3.190						2024									52						52
			3.680						2027									100						100
			3.390						2027									35						35
			3.800						2028									300						300
			3.180						2032									100						100
			5.800						2035									175						175
			3.520						2037									335						335
			4.010						2038									215						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						550
			4.350						2049									550						550
			3.750						2050									300						300
			3.100						2050									550						550
			3.500						2051									575						—
			3.860						2052									50						50
			4.280						2057									185						185
			2.500						2060									525						—
			4.350						2064									250						250
			variable			1			2069									76						76
			variable			1			2070									134						—
			variable			1			2070									127						—
																		$	7,897					$	6,961
Tax-exempt revenue bonds			variable						2035									—						35
			1.800			2			2049									75						75
																		$	75					$	110
Securitization bonds			3.250			3			2025-2029			4						225						251
Total principal amount outstanding																		$	8,197					$	7,322
Current amounts																		(364)						(202)
Unamortized discounts																		(29)						(23)
Unamortized issuance costs																		(62)						(49)
Total long-term debt																		$	7,742					$	7,048

1The variable-rate bonds bear interest quarterly at a rate of three-month LIBOR minus 0.300 percent, subject to a zero-percent floor (zero percent at December 31, 2020). The holders of these variable-rate bonds may put them to Consumers for redemption on certain dates prior to their stated maturity, including dates within one year of December 31, 2020.

2The interest rate on these tax‑exempt revenue bonds will reset on October 1, 2024.

3The weighted-average interest rate for Consumers’ securitization bonds issued through its subsidiary, Consumers 2014 Securitization Funding, was 3.250 percent at December 31, 2020 and 3.220 percent at December 31, 2019.

4Principal and interest payments are made semiannually.

Financings: Presented in the following table is a summary of major long-term debt issuances during the year ended December 31, 2020:

			Principal (In Millions)						Interest Rate			Issuance Date			Maturity Date
CMS Energy, parent only
Term loan facility1						$	300		variable			February			February 2021
Junior subordinated notes2						500			4.750		%	May			June 2050
Junior subordinated notes3						400			3.750		%	November			December 2050
Total CMS Energy, parent only						$	1,200
Consumers
Term loan facility						$	300		variable			January			January 2021
First mortgage bonds						575			3.500		%	March			August 2051
First mortgage bonds						525			2.500		%	May			May 2060
First mortgage bonds						134			variable			May			May 2070
First mortgage bonds						127			variable			October			October 2070
First mortgage bonds						300			0.350		%	December			June 2023
Total Consumers						$	1,961
Total CMS Energy						$	3,161

1In December 2020, CMS Energy repaid $100 million of this facility and, in February 2021, amended the facility by extending its maturity date to November 2021.

2These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness. On June 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 4.116 percent.

3These unsecured obligations rank subordinate and junior in right of payment to all of CMS Energy’s existing and future senior indebtedness. On December 1, 2030, and every five years thereafter, the notes will reset to an interest rate equal to the five-year treasury rate plus 2.900 percent.

Presented in the following table is a summary of major long-term debt retirements during the year ended December 31, 2020:

			Principal (In Millions)						Interest Rate			Retirement Date			Maturity Date
CMS Energy, parent only
Senior notes1						$	300		5.050		%	December			March 2022
Total CMS Energy, parent only						$	300
Consumers
First mortgage bonds						$	100		3.770		%	April			October 2020
First mortgage bonds						250			5.300		%	June			September 2022
First mortgage bonds						375			2.850		%	September			May 2022
Term loan facility						300			variable			December			January 2021
Total Consumers						$	1,025
Total CMS Energy						$	1,325

1CMS Energy retired these senior notes at a premium and recorded a loss on extinguishment of $16 million in other expense on its consolidated statements of income.

In July 2020, Consumers purchased, in lieu of redemption, $35 million of variable-rate tax-exempt revenue bonds due April 2035. At December 31, 2020, Consumers held the variable-rate tax-exempt revenue bonds and may remarket the bonds or replace them with debt instruments of an equivalent value.

In September 2020, proceeds from the sale of a Class A membership interest in Aviator Wind to a tax equity investor and additional contributions from the Class B membership interest (of which CMS Enterprises owns 51 percent) were used to retire $492 million of debt assumed through the purchase of the VIE. For more information, see Note 21, Variable Interest Entities.

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 July 31, 2022. 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, 2020, the aggregate annual maturities for long-term debt for the next five years, based on stated maturities or earlier put dates, were:

In Millions
			2021						2022						2023						2024						2025
CMS Energy, including Consumers
Long-term debt
CMS Energy, parent only						$	200					$	—					$	—					$	250					$	250
Consumers						364						28						654						332						31
CMS Enterprises, including subsidiaries						7						8						9						10						51
EnerBank						915						572						477						325						244
Total CMS Energy						$	1,486					$	608					$	1,140					$	917					$	576
Consumers
Long-term debt						$	364					$	28					$	654					$	332					$	31

Credit Facilities: The following credit facilities with banks were available at December 31, 2020:

In Millions
Expiration Date			Amount of Facility						Amount Borrowed						Letters of Credit Outstanding						Amount Available
CMS Energy, parent only
June 5, 20231						$	550					$	—					$	18					$	532
CMS Enterprises, including subsidiaries
September 25, 20252						$	39					$	—					$	39					$	—
September 30, 20253						18						—						8						10
Consumers4
June 5, 2023						$	850					$	—					$	7					$	843
November 19, 2022						250						—						1						249
April 18, 2022						30						—						30						—

1During the year ended December 31, 2020, CMS Energy’s average borrowings totaled $1 million with a weighted-average interest rate of 1.888 percent.

2This letter of credit facility is available to Aviator Wind Equity Holdings. For more information regarding the acquisition of Aviator Wind Equity Holdings, see Note 21, Variable Interest Entities.

3Under 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. There were no borrowings under this facility during the year ended December 31, 2020.

4Obligations under these facilities are secured by first mortgage bonds of Consumers. During the year ended December 31, 2020, Consumers’ average borrowings totaled less than $1 million with a weighted-average interest rate of 1.425 percent.

Short-term Borrowings: Under Consumers’ commercial paper program, Consumers may issue, in one or more placements, investment-grade commercial paper notes with maturities of up to 365 days at market interest 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, 2020, there were no commercial paper notes outstanding under this program.

In December 2020, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $350 million. For more information on the intercompany credit agreement between CMS Energy and Consumers, see Note 20, Related-Party Transactions—Consumers.

Dividend Restrictions: At December 31, 2020, payment of dividends by CMS Energy on its common stock was limited to $5.5 billion under provisions of the Michigan Business Corporation Act of 1972.

Under the provisions of its articles of incorporation, at December 31, 2020, Consumers had $1.6 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, 2020, Consumers paid $637 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 2018 and 2020, CMS Energy entered into equity offering programs under which it may sell, from time to time, shares of CMS Energy common stock. Under both programs, CMS Energy may sell its common stock in privately negotiated transactions, in “at the market” offerings, through forward sales transactions, or otherwise.

During 2018 and 2019, CMS Energy entered into forward sales contracts having an aggregate sales price of $250 million, the maximum allowed under the 2018 program. In 2020, CMS Energy settled the forward contracts under this program by issuing 4,879,022 shares of common stock at a weighted-average price of $48.86 per share, resulting in net proceeds of $238 million.

Under the 2020 program, CMS Energy may sell shares of its common stock having an aggregate sales price of up to $500 million. Presented in the following table are details of CMS Energy’s forward sales contracts under this program at December 31, 2020:

									Forward Price Per Share
Contract Date			Maturity Date			Number of Shares			Initial						December 31, 2020
September 15, 2020			December 31, 2021			846,759						$	61.04					$	60.53
December 22, 2020			June 22, 2022			115,595						61.81						61.81

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 agreement or net settle the contracts through the delivery or receipt of cash or shares. CMS Energy may settle the contracts at any time through their maturity dates, and presently intends to physically settle the contracts by delivering shares of its common stock.

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 are recorded on 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, 2020, CMS Energy would have been required to deliver 6,666 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, 2020 and 2019:

			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			2020						2019									2020						2019
Assets1
Restricted cash equivalents						$	17					$	17								$	15					$	17
CMS Energy common stock						—						—									—						1
Nonqualified deferred compensation plan assets						23						18									18						14
Derivative instruments						1						1									1						1
Total assets						$	41					$	36								$	34					$	33
Liabilities1
Nonqualified deferred compensation plan liabilities						$	23					$	18								$	18					$	14
Derivative instruments						17						8									—						—
Total liabilities						$	40					$	26								$	18					$	14

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

Restricted Cash Equivalents: Restricted cash equivalents consist of money market funds with daily liquidity. For further details, see Note 18, Cash and Cash Equivalents.

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.

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. CMS Energy uses interest rate swaps to manage its interest rate risk on certain long‑term debt obligations and certain notes receivable at EnerBank.

A subsidiary of CMS Enterprises uses floating-to-fixed interest rate swaps to reduce the impact of interest rate fluctuations associated with future interest payments on certain long‑term variable-rate debt. The interest rate swaps are accounted for as cash flow hedges of the future variability of interest payments on debt with a notional amount of $85 million at December 31, 2020. Gains or losses on these swaps are initially reported in other comprehensive income (loss) and then, as interest payments are made on the hedged debt, are recognized in earnings within other interest expense on CMS Energy’s consolidated statements of income. The amount of losses recorded in other comprehensive loss was $6 million for the

year ended December 31, 2020, $4 million for the year ended December 31, 2019 and $2 million for the year ended December 31, 2018. There were no material impacts on other interest expense associated with these swaps during the years presented. The fair value of these swaps recorded in other liabilities on CMS Energy’s consolidated balance sheets totaled $9 million at December 31, 2020 and $5 million at December 31, 2019. CMS Energy also has other interest rate swaps that economically hedge interest rate risk on debt, but that do not qualify for cash flow hedge accounting; the amounts associated with these swaps were not material for the years presented.

EnerBank uses fixed-to-floating interest rate swaps to manage interest rate risk exposure associated with changes in the fair value of certain long‑term fixed‑rate loans. The interest rate swaps qualify as fair value hedges of long‑term, fixed‑rate notes receivable with a notional amount of $134 million at December 31, 2020 and 2019. The fair value of these interest rate swaps recorded in other liabilities was $6 million at December 31, 2020 and $1 million at December 31, 2019. CMS Energy is adjusting the carrying value of the hedged notes receivable for the change in their fair value due to the hedged risk. For the year ended December 31, 2020, CMS Energy recorded a $5 million loss within operating revenue for the change in the fair value of the interest rate swaps and a $5 million gain within operating revenue for the change in the carrying value of the hedged notes receivable notes. Amounts recognized within operating revenue for the year ended December 31, 2019 were immaterial.

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, 2020																																	December 31, 2019
			Carrying Amount						Fair Value																											Carrying Amount						Fair Value
			Total						Level																					Total						Level
			1						2						3									1						2						3
CMS Energy, including Consumers
Assets
Long-term receivables1						$	17					$	17					$	—					$	—					$	17								$	20					$	20					$	—					$	—					$	20
Notes receivable2						2,887						3,248						—						—						3,248									2,500						2,652						—						—						2,652
Securities held to maturity3						28						29						—						29						—									26						26						—						26						—
Liabilities
Long-term debt4						15,120						17,512						1,249						14,178						2,085									13,062						14,185						1,197						11,048						1,940
Long-term payables5						33						35						—						—						35									30						32						—						—						32
Consumers
Assets
Long-term receivables1						$	17					$	17					$	—					$	—					$	17								$	20					$	20					$	—					$	—					$	20
Notes receivable – related party6						107						107						—						—						107									103						103						—						—						103
Liabilities
Long-term debt7						8,106						9,801						—						7,716						2,085									7,250						8,010						—						6,070						1,940

1Includes current portion of long-term accounts receivable of $12 million at December 31, 2020 and $13 million at December 31, 2019.

2Includes current portion of notes receivable of $275 million at December 31, 2020 and $242 million at December 31, 2019. For further details, see Note 8, Notes Receivable.

3These investment securities consist primarily of mortgage-backed securities and Utah Housing Corporation bonds held by EnerBank. There were $1 million of unrealized gains in 2020 and no unrealized gains or losses in 2019.

4Includes current portion of long-term debt of $1.5 billion at December 31, 2020 and $1.1 billion at December 31, 2019.

5Includes current portion of long-term payables of $6 million at December 31, 2020 and $1 million at December 31, 2019.

6Includes current portion of notes receivable – related party of $7 million at December 31, 2020 and 2019. For further details on this note receivable, see Note 8, Notes Receivable.

7Includes current portion of long-term debt of $364 million at December 31, 2020 and $202 million at December 31, 2019.

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, 2019. The entirety of this amount was at Consumers.

DB SERP Securities: In 2018, CMS Energy and Consumers sold available-for-sale investment securities held within the DB SERP, receiving proceeds of $142 million, $103 million of which was related to Consumers.

8: Notes Receivable

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

In Millions
December 31			2020						2019
CMS Energy, including Consumers
Current
EnerBank notes receivable, net of allowance for loan losses						$	275					$	242
Non‑current
EnerBank notes receivable, net of allowance for loan losses						2,612						2,258
Total notes receivable						$	2,887					$	2,500
Consumers
Current
DB SERP note receivable – related party						$	7					$	7
Non‑current
DB SERP note receivable – related party						100						96
Total notes receivable						$	107					$	103

EnerBank Notes Receivable

EnerBank notes receivable are primarily unsecured, fixed-rate installment loans provided throughout the U.S. to finance home improvements. EnerBank records its notes receivable at cost, less an allowance for loan losses.

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 $128 million at December 31, 2020 and $134 million at December 31, 2019.

During 2020, EnerBank purchased portfolios of secured and unsecured consumer installment loans with a principal value of $90 million. During 2020, EnerBank completed sales of notes receivable with a principal value of $246 million and recorded gains of $6 million.

EnerBank utilizes FICO scores as a key credit quality indicator when underwriting new loans and in assessing the credit exposures in its loan portfolio. The score is determined at the time of a borrower’s application and is generally not updated since the average duration of loans is about two years. At December 31, 2020, 86 percent of EnerBank’s loans had a FICO score rating between good and excellent. At December 31, 2020, 97 percent of EnerBank’s loan portfolio was originated within the past five years.

The allowance for loan losses at December 31, 2020 reflects expected credit losses over the entire lifetime of the loan portfolio. EnerBank estimates the allowance by using the “weighted-average remaining maturity” methodology for their term loans, and the “probability of default and loss given default” methodology for their same-as-cash loans. These methodologies consider historical loan loss experience, prepayment expectations, and credit quality indicators. EnerBank considers current and projected economic conditions, and other reasonable and supportable forecast information to determine if adjustments to the allowance are necessary. The allowance is increased by the provision for loan losses and decreased by loan charge‑offs net of recoveries. 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			2020						2019
Balance at beginning of period						$	33					$	24
Effects of new accounting standard1						62						—
Provision for loan losses						60						38
Charge-offs						(39)						(35)
Recoveries						7						6
Balance at end of period						$	123					$	33

1The allowance for loan losses at December 31, 2019 reflected expected credit losses over a 12-month period. On January 1, 2020, in accordance with ASU 2016-13, Measurement of Credit Losses on Financial Instruments, the allowance for loan losses was adjusted to reflect expected credit losses over the life of the loan. Additionally, EnerBank recorded $3 million for expected credit losses related to unfunded loan commitments. For further details, see Note 2, New Accounting Standards.

Loans that are 30 days or more past due are considered delinquent. The balance of EnerBank’s delinquent loans was $32 million at December 31, 2020 and $33 million at December 31, 2019. At December 31, 2020 and 2019, EnerBank’s loans that had been modified as troubled debt restructurings were immaterial.

In response to the COVID-19 pandemic, and consistent with FDIC guidance, EnerBank offered new payment accommodations for current qualifying customers. At December 31, 2020, EnerBank had not experienced increased delinquent loans, charge-offs, or increased loan modifications due to the COVID-19 pandemic. EnerBank did not make any material adjustments to their allowance for loan losses at December 31, 2020 due to the COVID-19 pandemic. EnerBank cannot predict the longer-term impacts of the pandemic, but could experience slower lending growth, higher loan write-offs, and increased loan modifications.

EnerBank issues loan commitments to meet customer-financing needs. These commitments are agreements to provide credit as long as certain conditions are met and expire after 120 days. EnerBank uses the same credit policies in making these commitments as it uses for loans. EnerBank had $348 million of off-balance-sheet unfunded loan commitments at December 31, 2020, and had recorded a liability of $6 million for expected credit losses on those commitments.

EnerBank has entered into interest rate swaps on $134 million of its loans (notes receivable). For information about interest rate swaps, see Note 6, Fair Value Measurements.

DB SERP Note Receivable – Related Party

The DB SERP note receivable – related party is Consumers’ portion of a demand note payable issued by CMS Energy 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.

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			2020						2019
CMS Energy, including Consumers
Plant, property, and equipment, gross
Consumers			3 - 125						$	26,757					$	24,963
Enterprises
Independent power production1			3 - 40						1,112						403
Other			3 - 5						1						2
EnerBank			1 - 7						37						22
Plant, property, and equipment, gross									$	27,907					$	25,390
Construction work in progress									1,085						896
Accumulated depreciation and amortization									(7,953)						(7,360)
Total plant, property, and equipment2									$	21,039					$	18,926
Consumers
Plant, property, and equipment, gross
Electric
Generation			22 - 125						$	6,376					$	5,942
Distribution			20 - 75						9,130						8,519
Transmission			46 - 75						—						113
Other			5 - 50						1,326						1,258
Assets under finance leases and other financing3									323						326
Gas
Distribution			20 - 85						5,702						5,235
Transmission			17 - 75						2,003						1,752
Underground storage facilities4			27 - 75						1,046						987
Other			5 - 50						817						797
Assets under finance leases3									13						14
Other non-utility property			3 - 51						21						20
Plant, property, and equipment, gross									$	26,757					$	24,963
Construction work in progress									1,058						879
Accumulated depreciation and amortization									(7,844)						(7,272)
Total plant, property, and equipment2									$	19,971					$	18,570

1A significant portion of independent power production assets are leased to others under operating leases. For information regarding CMS Energy’s operating leases of owned assets, see Note 10, Leases and Palisades Financing.

2Consumers’ plant additions were $2.0 billion for the years ended December 31, 2020 and 2019. Consumers’ plant retirements were $220 million for the year ended December 31, 2020 and $380 million for the year ended December 31, 2019. Consumers plans to retire the D.E. Karn 1 & 2 coal-fueled electric generating units in 2023. Accordingly, in 2019, Consumers removed from total plant, property, and

equipment $667 million, representing the projected remaining book value of the two units upon their retirement, and recorded it as a regulatory asset. For additional details, see Note 3, Regulatory Matters.

3For information regarding the amortization terms of Consumers’ assets under finance leases and other financing, see Note 10, Leases and Palisades Financing.

4Underground storage includes base natural gas of $26 million at December 31, 2020 and 2019. Base natural gas is not subject to depreciation.

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
Description			Amortization Life in Years			December 31, 2020															December 31, 2019
Gross Cost1						Accumulated Amortization									Gross Cost1						Accumulated Amortization
CMS Energy, including Consumers
Software development			1 - 15						$	883					$	577								$	882					$	529
Rights of way			50 - 85						197						57									180						55
Franchises and consents			5 - 50						16						10									16						9
Leasehold improvements			various2						10						7									9						7
Other intangibles			various						28						16									27						15
Total									$	1,134					$	667								$	1,114					$	615
Consumers
Software development			3 - 15						$	856					$	568								$	869					$	521
Rights of way			50 - 85						197						57									180						55
Franchises and consents			5 - 50						16						10									16						9
Leasehold improvements			various2						10						7									9						7
Other intangibles			various						25						16									26						15
Total									$	1,104					$	658								$	1,100					$	607

1Consumers’ intangible asset additions were $69 million for the year ended December 31, 2020 and $67 million for the year ended December 31, 2019. Consumers’ intangible asset retirements were $65 million for the year ended December 31, 2020 and $193 million for the year ended December 31, 2019.

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

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 ratemaking 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			2020			2019			2018
Electric			6.9		%	6.4		%	6.9		%
Gas			5.7			5.8			5.9

Assets Under Finance Leases and Other Financing: Presented in the following table are further details about changes in Consumers’ assets under finance leases and other financing:

In Millions
Years Ended December 31			2020						2019
Consumers
Balance at beginning of period						$	340					$	309
Additions						—						26
Net retirements and other adjustments						(4)						5
Balance at end of period						$	336					$	340

Assets under finance leases and other financing are presented as gross amounts. Consumers’ accumulated amortization of assets under finance leases and other financing was $254 million at December 31, 2020 and $239 million at December 31, 2019.

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

In Millions
Years Ended December 31			2020						2019
CMS Energy, including Consumers
Utility plant assets						$	7,841					$	7,269
Non-utility plant assets						112						91
Consumers
Utility plant assets						$	7,841					$	7,269
Non-utility plant assets						3						3

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			2020			2019			2018
Electric utility property			3.9		%	3.9		%	3.9		%
Gas utility property			2.9			2.9			2.9
Other property			9.8			10.0			10.1

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			2020						2019						2018
CMS Energy, including Consumers
Depreciation expense – plant, property, and equipment						$	902					$	842					$	778
Amortization expense
Software						116						121						127
Other intangible assets						4						3						3
Securitized regulatory assets						26						26						25
Total depreciation and amortization expense						$	1,048					$	992					$	933
Consumers
Depreciation expense – plant, property, and equipment						$	881					$	827					$	768
Amortization expense
Software						112						119						125
Other intangible assets						4						3						3
Securitized regulatory assets						26						26						25
Total depreciation and amortization expense						$	1,023					$	975					$	921

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
			2021						2022						2023						2024						2025
CMS Energy, including Consumers
Intangible asset amortization expense						$	120					$	115					$	100					$	89					$	86
Consumers
Intangible asset amortization expense						$	115					$	111					$	97					$	86					$	85

Jointly Owned Regulated Utility Facilities

Presented in the following table are Consumers’ investments in jointly owned regulated utility facilities at December 31, 2020:

In Millions, Except Ownership Share
			J.H. Campbell Unit 3						Ludington						Other
Ownership share						93.3		%				51.0		%				various
Utility plant in service						$	1,743					$	489					$	381
Accumulated depreciation						(822)						(188)						(107)
Construction work in progress						12						78						12
Net investment						$	933					$	379					$	286

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

Lessee

CMS Energy and Consumers lease various assets from third parties, including coal-carrying railcars, real estate, service vehicles, and gas pipeline capacity. In addition, CMS Energy and Consumers account for several of their PPAs as leases.

CMS Energy and Consumers do not record right-of-use assets or lease liabilities on their consolidated balance sheets for rentals with lease terms of 12 months or less, most of which are for the lease of real estate and service vehicles. Lease expense for these rentals is recognized on a straight-line basis over the lease term.

CMS Energy and Consumers include future payments for all renewal options, fair market value extensions, and buyout provisions reasonably certain of exercise in their measurement of lease right-of-use assets and lease liabilities. In addition, certain leases for service vehicles contain end-of-lease adjustment clauses based on proceeds received from the sale or disposition of the vehicles. CMS Energy and Consumers also include executory costs in the measurement of their right-of-use assets and lease liabilities, except for maintenance costs related to their coal-carrying railcar leases.

Most of Consumers’ PPAs contain provisions at the end of the initial contract terms to renew the agreements annually under mutually agreed‑upon terms at the time of renewal. Energy and capacity payments that vary depending on quantities delivered are recognized as variable lease costs when incurred. Consumers accounts for a PPA with one of CMS Energy’s equity method subsidiaries as a finance lease.

Presented in the following table is information about CMS Energy’s and Consumers’ lease right-of-use assets and lease liabilities:

In Millions, Except as Noted
			CMS Energy, including Consumers															Consumers
December 31			2020						2019									2020						2019
Operating leases
Right-of-use assets1						$	34					$	47								$	28					$	40
Lease liabilities
Current lease liabilities2						9						9									7						8
Non-current lease liabilities3						25						37									21						32
Finance leases
Right-of-use assets						$	65					$	71								$	65					$	71
Lease liabilities4
Current lease liabilities						7						6									7						6
Non-current lease liabilities						53						60									53						60
Weighted-average remaining lease term (in years)
Operating leases						19						17									18						14
Finance leases						12						12									12						12
Weighted-average discount rate
Operating leases						3.9		%				3.8		%							3.8		%				3.7		%
Finance leases5						1.8		%				1.9		%							1.8		%				1.9		%

1CMS Energy’s and Consumers’ operating right-of-use lease assets are reported as other non‑current assets on their consolidated balance sheets.

2The current portion of CMS Energy’s and Consumers’ operating lease liabilities are reported as other current liabilities on their consolidated balance sheets.

3The non‑current portion of CMS Energy’s and Consumers’ operating lease liabilities are reported as other non‑current liabilities on their consolidated balance sheets.

4Includes related-party lease liabilities of $25 million, of which less than $1 million was current, at December 31, 2020 and December 31, 2019.

5This rate excludes the impact of Consumers’ pipeline agreements and long-term PPAs accounted for as finance leases. The required capacity payments under these agreements, when compared to the underlying fair value of the leased assets, result in effective interest rates that exceed market rates for leases with similar terms.

CMS Energy and Consumers report operating, variable, and short-term lease costs as operating expenses on their consolidated statements of income, except for certain amounts that may be capitalized to other assets. Presented in the following table is a summary of CMS Energy’s and Consumers’ total lease costs:

In Millions
Years Ended December 31			2020						2019
CMS Energy, including Consumers
Operating lease costs						$	10					$	11
Finance lease costs
Amortization of right-of-use assets						6						6
Interest on lease liabilities						17						18
Variable lease costs						94						95
Short-term lease costs						17						16
Total lease costs						$	144					$	146
Consumers
Operating lease costs						$	9					$	9
Finance lease costs
Amortization of right-of-use assets						6						6
Interest on lease liabilities						17						18
Variable lease costs						94						95
Short-term lease costs						16						16
Total lease costs						$	142					$	144

Presented in the following table is cash flow information related to amounts paid on CMS Energy’s and Consumers’ lease liabilities:

In Millions
Years Ended December 31			2020						2019
CMS Energy, including Consumers
Cash paid for amounts included in the measurement of lease liabilities
Cash used in operating activities for operating leases						$	11					$	11
Cash used in operating activities for finance leases						17						18
Cash used in financing activities for finance leases						6						7
Consumers
Cash paid for amounts included in the measurement of lease liabilities
Cash used in operating activities for operating leases						$	9					$	9
Cash used in operating activities for finance leases						17						18
Cash used in financing activities for finance leases						6						7

Presented in the following table are the minimum rental commitments under CMS Energy’s and Consumers’ non-cancelable leases:

In Millions
									Finance Leases
December 31, 2020			Operating Leases						Pipelines and PPAs						Other						Total
CMS Energy, including Consumers
2021						$	10					$	17					$	5					$	22
2022						4						14						5						19
2023						2						13						5						18
2024						1						13						3						16
2025						1						13						1						14
2026 and thereafter						34						66						11						77
Total minimum lease payments						$	52					$	136					$	30					$	166
Less discount						18						103						3						106
Present value of minimum lease payments						$	34					$	33					$	27					$	60
Consumers
2021						$	8					$	17					$	5					$	22
2022						4						14						5						19
2023						2						13						5						18
2024						1						13						3						16
2025						1						13						1						14
2026 and thereafter						27						66						11						77
Total minimum lease payments						$	43					$	136					$	30					$	166
Less discount						15						103						3						106
Present value of minimum lease payments						$	28					$	33					$	27					$	60

Lessor

CMS Energy and Consumers are the lessor under power sales and natural gas delivery agreements that are accounted for as leases.

CMS Energy has power sales agreements that are accounted for as operating leases. In addition to fixed payments, these agreements have variable payments based on energy delivered. For the year ended December 31, 2020, lease revenue from these power sales agreements was $148 million, which included variable lease payments of $93 million. For the year ended December 31, 2019, lease revenue from these power sales agreements was $174 million, which included variable lease payments of $119 million.

Presented in the following table are the minimum rental payments to be received under CMS Energy’s non‑cancelable operating leases:

In Millions
December 31, 2020
2021						$	54
2022						48
2023						43
2024						43
2025						44
2026 and thereafter						18
Total minimum lease payments						$	250

Consumers has an agreement to build, own, operate, and maintain a compressed natural gas fueling station through December 2038. This agreement is accounted for as a direct finance lease, under which the lessee has the option to purchase the natural gas fueling station at the end of the lease term. Fixed monthly payments escalate annually with inflation.

In December 2018, Consumers and a subsidiary of CMS Energy executed a 20‑year natural gas transportation agreement, related to a pipeline owned by Consumers. This agreement is accounted for as a direct finance lease and will automatically extend annually unless terminated by either party. The effects of the lease are eliminated on CMS Energy’s consolidated financial statements.

Minimum rental payments to be received under Consumers’ direct financing leases are $1 million for each of the next five years and $18 million for the years thereafter. The lease receivable was $10 million as of December 31, 2020, which does not include unearned income of $13 million.

Minimum rental payments to be received under CMS Energy’s direct finance lease are less than $1 million for each of the next five years and $10 million for the years thereafter. The lease receivable was $5 million as of December 31, 2020, which does not include unearned income of $5 million.

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 $14 million for the year ended December 31, 2020, $15 million for the year ended December 31, 2019, and $16 million for the year ended December 31, 2018. At December 31, 2020, the Palisades asset and financing obligation both had a balance of $16 million.

Presented in the following table are the minimum Palisades PPA payments included in the financing obligation:

In Millions
December 31, 2020
2021						$	14
2022						3
Total minimum payments						$	17
Less discount						1
Financing obligation						$	16
Less current portion						13
Non-current portion						$	3

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 associated with the closure of certain gas wells that have an indeterminate life. 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.

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 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
Gas wells plug and abandon			various			Gas transmission and storage
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
Gas wells plug and abandon			various			Gas transmission and storage

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
Company and ARO Description			ARO Liability 12/31/2019						Incurred						Settled						Accretion						Cash Flow Revisions						ARO Liability 12/31/2020
CMS Energy, including Consumers
Consumers						$	474					$	46					$	(41)					$	23					$	28					$	530
Renewable generation assets						3						19						—						1						—						23
Total CMS Energy						$	477					$	65					$	(41)					$	24					$	28					$	553
Consumers
Coal ash disposal areas						$	166					$	—					$	(24)					$	6					$	—					$	148
Gas distribution cut, purge, and cap						231						1						(5)						13						—						240
Asbestos abatement						34						—						—						2						—						36
Renewable generation assets						21						24						—						1						28						74
Gas wells plug and abandon						22						16						(7)						1						—						32
Cable under Straits of Mackinac1						—						5						(5)						—						—						—
Total Consumers						$	474					$	46					$	(41)					$	23					$	28					$	530

1 For further details, see Note 4, Contingencies and Commitments—Consumers Electric Utility Contingencies.

In Millions
Company and ARO Description			ARO Liability 12/31/2018						Incurred						Settled						Accretion						Cash Flow Revisions						ARO Liability 12/31/2019
CMS Energy, including Consumers
Consumers						$	428					$	55					$	(37)					$	21					$	7					$	474
Gas treating plant and gas wells						1						—						(1)						—						—						—
Renewable generation assets						3						—						—						—						—						3
Total CMS Energy						$	432					$	55					$	(38)					$	21					$	7					$	477
Consumers
Coal ash disposal areas						$	179					$	—					$	(27)					$	7					$	7					$	166
Gas distribution cut, purge, and cap						205						22						(8)						12						—						231
Asbestos abatement						33						—						(1)						2						—						34
Renewable generation assets						11						10						—						—						—						21
Gas wells plug and abandon						—						23						(1)						—						—						22
Total Consumers						$	428					$	55					$	(37)					$	21					$	7					$	474

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 allows CMS Energy and Consumers to employ a more targeted investment strategy and provides additional opportunities to mitigate risk and volatility.

In September 2020, CMS Energy and Consumers determined it was probable that 2020 lump-sum payments to retired employees under DB Pension Plan A would exceed the plan’s service cost and interest cost components of net periodic cost for the year. These lump-sum payments constitute pension plan liability settlements; once such settlements meet the service and interest cost threshold, recognition in earnings is required. As a result, in accordance with GAAP, CMS Energy, including Consumers, performed a remeasurement of DB Pension Plan A as of August 31, 2020 and recognized a settlement loss of $36 million; $35 million of this amount was recognized by Consumers and deferred as a regulatory asset. At December 31, 2020, CMS Energy, including Consumers, recognized an additional settlement loss of $10 million for the period September 1, 2020 to December 31, 2020; $10 million of this amount was recognized by Consumers and deferred as a regulatory asset. CMS Energy and Consumers will amortize the regulatory asset over nine years.

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 percent 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 $33 million for the year ended December 31, 2020, $30 million for the year ended December 31, 2019, and $26 million for the year ended December 31, 2018. DCCP expense for Consumers was $31 million for the year ended December 31, 2020, $28 million for the year ended December 31, 2019, and $25 million for the year ended December 31, 2018.

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			2020						2019
CMS Energy, including Consumers
Trust assets						$	146					$	143
ABO						159						149
Contributions						8						—
Consumers
Trust assets						$	107					$	104
ABO						115						107
Contributions						5						—

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 five 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 $11 million at December 31, 2020 and $8 million at December 31, 2019. 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 $2 million for the years ended December 31, 2020 and 2019, and $1 million for the year ended December 31, 2018.

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 $30 million for the year ended December 31, 2020, $28 million for the year ended December 31, 2019, and $27 million for the year ended December 31, 2018. The total 401(k) plan cost for Consumers was $29 million for the year ended December 31, 2020, $27 million for the year ended December 31, 2019, and $26 million for the year ended December 31, 2018.

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 6.50 percent in 2021 and 6.75 percent in 2020 for those under 65 and would increase 7.00 percent in 2021 and 7.25 percent in 2020 for those over 65. The rate of increase was assumed to decline to 4.75 percent by 2027 and thereafter for all retirees.

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			2020			2019			2018
CMS Energy, including Consumers
Weighted average for benefit obligations1
Discount rate2
DB Pension Plan A			2.73		%	3.37		%	4.48		%
DB Pension Plan B			2.41			3.17			4.32
DB SERP			2.40			3.15			4.32
OPEB Plan			2.69			3.32			4.42
Rate of compensation increase
DB Pension Plan A			3.70			3.50			3.50
DB SERP			5.50			5.50			5.50
Weighted average for net periodic benefit cost1
Service cost discount rate2,3
DB Pension Plan A			3.44		%	4.55		%	3.85		%
DB SERP			3.46			4.58			3.83
OPEB Plan			3.57			4.63			3.93
Interest cost discount rate2,3
DB Pension Plan A			2.92			4.08			3.39
DB Pension Plan B			2.74			3.93			3.24
DB SERP			2.74			3.94			3.26
OPEB Plan			2.88			4.03			3.35
Expected long-term rate of return on plan assets4
DB Pension Plans			6.75			7.00			7.00
OPEB Plan			6.75			7.00			7.00
Rate of compensation increase
DB Pension Plan A			3.50			3.50			3.50
DB SERP			5.50			5.50			5.50

1The mortality assumption for benefit obligations was based on the Pri-2012 Mortality Table for 2020 and 2019 and the RP-2014 Mortality Table for 2018, with improvement scales MP-2020 for 2020, MP-2019 for 2019, and MP-2018 for 2018. The mortality assumption for net periodic benefit cost was based on the Pri-2012 Mortality Table for 2020 and the RP-2014 Mortality Table for 2019 and 2018, with improvement scales MP-2019 for 2020, MP-2018 for 2019, and MP-2017 for 2018.

2The 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.

3CMS Energy and Consumers have elected to use a full-yield-curve approach in the estimation of service cost and interest cost; this approach applies individual spot rates along the yield curve to future projected benefit payments based on the time of payment.

4CMS 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 6.75 percent in 2020. The actual return (loss) on the assets of the DB Pension Plans was 13.6 percent in 2020, 21.0 percent in 2019, and (6.7) percent in 2018.

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			2020						2019						2018									2020						2019						2018
CMS Energy, including Consumers
Net periodic cost (credit)
Service cost						$	50					$	41					$	48								$	16					$	14					$	17
Interest cost						83						103						95									33						41						34
Settlement loss						1						—						—									—						—						—
Expected return on plan assets						(191)						(162)						(149)									(100)						(88)						(97)
Amortization of:
Net loss						95						50						76									15						26						15
Prior service cost (credit)						1						1						3									(56)						(62)						(67)
Settlement loss						2						—						—									—						—						—
Net periodic cost (credit)						$	41					$	33					$	73								$	(92)					$	(69)					$	(98)
Consumers
Net periodic cost (credit)
Service cost						$	49					$	40					$	47								$	15					$	13					$	16
Interest cost						78						97						88									31						40						33
Expected return on plan assets						(181)						(153)						(139)									(93)						(82)						(91)
Amortization of:
Net loss						90						47						73									15						26						16
Prior service cost (credit)						1						1						3									(54)						(61)						(65)
Settlement loss						2						—						—									—						—						—
Net periodic cost (credit)						$	39					$	32					$	72								$	(86)					$	(64)					$	(91)

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 eight years for the year ended December 31, 2020, and nine years for the years ended December 31, 2019 and 2018. For DB Pension Plan B, the estimated period of amortization of gains and losses was 19 years for the year ended December 31, 2020, and 20 years for the years ended December 31, 2019 and 2018. For the OPEB Plan, the estimated amortization period was nine years for the year ended December 31, 2020, and ten years for the years ended December 31, 2019 and 2018.

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 for DB Pension Plan A in 2020. The estimated period of amortization of these new prior service costs is eight years. CMS Energy and Consumers had new prior service credits for OPEB in 2018. The estimated period of amortization of these new prior service credits 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			2020						2019									2020						2019									2020						2019
CMS Energy, including Consumers
Benefit obligation at beginning of period						$	2,973					$	2,512								$	150					$	140								$	1,165					$	1,045
Service cost						50						41									—						—									16						14
Interest cost						79						98									4						5									33						41
Plan amendments						24						—									—						—									—						—
Actuarial loss						355			1			476			1						16						15									39			1			110			1
Benefits paid						(215)						(154)									(10)						(10)									(48)						(45)
Benefit obligation at end of period						$	3,266					$	2,973								$	160					$	150								$	1,205					$	1,165
Plan assets at fair value at beginning of period						$	2,546					$	2,247								$	—					$	—								$	1,509					$	1,280
Actual return on plan assets						371						453									—						—									182						273
Company contribution						700						—									10						10									1						—
Actual benefits paid						(215)						(154)									(10)						(10)									(47)						(44)
Plan assets at fair value at end of period						$	3,402					$	2,546								$	—					$	—								$	1,645					$	1,509
Funded status						$	136		2			$	(427)		2						$	(160)					$	(150)								$	440					$	344
Consumers
Benefit obligation at beginning of period																					$	109					$	101								$	1,120					$	1,004
Service cost																					—						—									15						13
Interest cost																					3						4									31						40
Actuarial loss																					12						11									37			1			106			1
Benefits paid																					(7)						(7)									(45)						(43)
Benefit obligation at end of period																					$	117					$	109								$	1,158					$	1,120
Plan assets at fair value at beginning of period																					$	—					$	—								$	1,410					$	1,197
Actual return on plan assets																					—						—									169						255
Company contribution																					7						7									1						—
Actual benefits paid																					(7)						(7)									(45)						(42)
Plan assets at fair value at end of period																					$	—					$	—								$	1,535					$	1,410
Funded status																					$	(117)					$	(109)								$	377					$	290

1The actuarial loss for 2020 and 2019 for the DB Pension Plans was primarily the result of lower discount rates and lower interest rates used to calculate the value of lump-sum payments. The actuarial loss for 2020 and 2019 for the OPEB Plan was primarily the result of lower discount rates.

2The total funded status of the DB Pension Plans attributable to Consumers, based on an allocation of expenses, was $138 million at December 31, 2020 and $(408) million at December 31, 2019.

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

In Millions
December 31			2020						2019
CMS Energy, including Consumers
Non-current assets
DB Pension Plans						$	136					$	104
OPEB Plan						440						344
Current liabilities
DB SERP						10						10
Non-current liabilities
DB Pension Plans						—						531
DB SERP						150						140
Consumers
Non-current assets
DB Pension Plans						$	138					$	109
OPEB Plan						377						290
Current liabilities
DB SERP						7						7
Non-current liabilities
DB Pension Plans						—						517
DB SERP						110						102

The ABO for the DB Pension Plans was $2.9 billion at December 31, 2020 and $2.6 billion at December 31, 2019. At December 31, 2019, the PBO and ABO for one of the defined benefit pension plans exceeded plan assets; presented in the following table is information related to that plan:

In Millions
December 31			2019
CMS Energy, including Consumers
PBO						$	1,736
ABO						1,398
Fair value of plan assets						1,205

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

In Millions
			DB Pension Plans and DB SERP															OPEB Plan
December 31			2020						2019									2020						2019
CMS Energy, including Consumers
Regulatory assets
Net loss						$	1,194					$	1,114								$	254					$	308
Prior service cost (credit)						29						8									(246)						(300)
Regulatory assets						$	1,223					$	1,122								$	8					$	8
AOCI
Net loss (gain)						120						105									(10)						(6)
Prior service cost (credit)						1						—									(6)						(8)
Total amounts recognized in regulatory assets and AOCI						$	1,344					$	1,227								$	(8)					$	(6)
Consumers
Regulatory assets
Net loss						$	1,194					$	1,114								$	254					$	308
Prior service cost (credit)						29						8									(246)						(300)
Regulatory assets						$	1,223					$	1,122								$	8					$	8
AOCI
Net loss						47						36									—						—
Total amounts recognized in regulatory assets and AOCI						$	1,270					$	1,158								$	8					$	8

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, 2020																					December 31, 2019
			Total						Level 1						Level 2									Total						Level 1						Level 2
CMS Energy, including Consumers
Cash and short-term investments						$	115					$	115					$	—								$	44					$	44					$	—
U.S. government and agencies securities						150						—						150									66						—						66
Corporate debt						540						—						540									493						—						493
State and municipal bonds						11						—						11									17						—						17
Foreign corporate bonds						41						—						41									33						—						33
Mutual funds						971						971						—									640						640						—
						$	1,828					$	1,086					$	742								$	1,293					$	684					$	609
Pooled funds						1,574																					1,253
Total						$	3,402																				$	2,546

In Millions
			OPEB Plan
			December 31, 2020																					December 31, 2019
			Total						Level 1						Level 2									Total						Level 1						Level 2
CMS Energy, including Consumers
Cash and short-term investments						$	33					$	33					$	—								$	9					$	9					$	—
U.S. government and agencies securities						18						—						18									10						—						10
Corporate debt						64						—						64									71						—						71
State and municipal bonds						2						—						2									2						—						2
Foreign corporate bonds						5						—						5									5						—						5
Common stocks						66						66						—									55						55						—
Mutual funds						807						807						—									713						713						—
						$	995					$	906					$	89								$	865					$	777					$	88
Pooled funds						650																					644
Total						$	1,645																				$	1,509

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, 2020:

			DB Pension Plans						OPEB Plan
Equity securities						55.0		%				50.0		%
Fixed-income securities						34.0						30.0
Multi-asset investments						11.0						20.0
						100.0		%				100.0		%

CMS Energy’s target 2020 asset allocation for the assets of the DB Pension Plans was 53 percent equity, 35 percent fixed income, and 12 percent multi-asset investments. The goal of this target asset allocation was 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 2020 asset allocation for the health trusts was 50 percent equity, 30 percent fixed income, and 20 percent multi-asset investments. CMS Energy’s target asset allocation for the life trusts was 42 percent equity, 28 percent fixed income, and 30 percent multi-asset investments. The goal of these target allocations was 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’ DB Pension Plans and OPEB Plan:

In Millions
Years Ended December 31			2020						2019
CMS Energy, including Consumers
DB Pension Plans						$	700					$	—
OPEB Plan						1						—
Consumers
DB Pension Plans						$	682					$	—
OPEB Plan						1						—

Contributions comprise required amounts and discretionary contributions. Neither CMS Energy nor Consumers plans to contribute to the DB Pension Plans or OPEB Plan in 2021. 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
2021						$	191					$	10					$	52
2022						188						10						54
2023						184						10						56
2024						182						10						57
2025						182						10						58
2026-2030						890						46						299
Consumers
2021						$	181					$	7					$	50
2022						178						7						52
2023						175						7						53
2024						173						7						55
2025						172						7						56
2026-2030						845						32						286

Collective Bargaining Agreements: At December 31, 2020, unions represented 41 percent of CMS Energy’s employees and 44 percent of Consumers’ employees. The UWUA represents Consumers’ operating, maintenance, construction, and customer contact center employees. The USW represents Zeeland plant employees. The UWUA and USW agreements expired and new agreements were ratified in 2020. These union contracts expire in 2025.

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 2030.

In 2020, 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 2020, 2019, or 2018.

Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6.5 million shares from June 2020 through May 2030. CMS Energy and Consumers may issue awards of up to 6,477,579 shares of common stock under the PISP as of December 31, 2020. 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 2020, 2019, and 2018 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 2020, 2019, and 2018, 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 2020.

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, 2020			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			1,186,962						$	44.56					1,138,182						$	44.57
Granted
Restricted stock			512,326						45.56						490,346						45.53
Restricted stock units			15,074						49.76						14,409						49.70
Vested
Restricted stock			(551,897)						30.98						(532,833)						31.04
Restricted stock units			(15,234)						49.24						(14,517)						49.50
Forfeited – restricted stock			(329,874)						51.22						(314,056)						51.22
Nonvested at end of period			817,357						$	51.68					781,531						$	51.73

Year Ended December 31, 2020			CMS Energy, including Consumers			Consumers
Granted
Time-lapse awards			106,520			101,439
Market-based awards			123,246			118,011
Performance-based awards			123,246			118,011
Restricted stock units			13,405			12,800
Dividends on market-based awards			17,937			17,152
Dividends on performance-based awards			17,505			16,736
Dividends on restricted stock units			1,669			1,609
Additional market-based shares based on achievement of condition			71,678			68,857
Additional performance-based shares based on achievement of condition			52,194			50,140
Total granted			527,400			504,755

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 significant assumptions used to estimate the fair value of the market-based restricted stock awards:

Years Ended December 31			2020			2019			2018
Expected volatility			14.2		%	14.9		%	16.7		%
Expected dividend yield			2.4			2.8			2.8
Risk-free rate			1.6			2.5			2.1

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

In Millions
Years Ended December 31			2020						2019						2018
CMS Energy, including Consumers
Weighted-average grant-date fair value per share
Restricted stock granted						$	45.56					$	43.57					$	26.49
Restricted stock units granted						49.76						50.35						41.77
Consumers
Weighted-average grant-date fair value per share
Restricted stock granted						$	45.53					$	43.57					$	26.51
Restricted stock units granted						49.70						51.15						42.01

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

In Millions
Years Ended December 31			2020						2019						2018
CMS Energy, including Consumers
Fair value of shares that vested during the year						$	22					$	26					$	27
Compensation expense recognized						11						22						17
Income tax benefit recognized						3						1						1
Consumers
Fair value of shares that vested during the year						$	21					$	25					$	26
Compensation expense recognized						10						21						16
Income tax benefit recognized						3						1						1

At December 31, 2020, $18.5 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $17.7 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.

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			2020						2019						2018
CMS Energy, including Consumers
Income from continuing operations before income taxes						$	885					$	829					$	774
Income tax expense at statutory rate						186						174						163
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect						46						48						46
TCJA excess deferred taxes1						(35)						(31)						(26)
Production tax credits						(28)						(20)						(14)
Accelerated flow-through of regulatory tax benefits2						(13)						(13)						(39)
Research and development tax credits, net3						(11)						(2)						(11)
Refund of alternative minimum tax sequestration4						(9)						—						—
Other, net						(3)						(9)						(4)
Income tax expense						$	133					$	147					$	115
Effective tax rate						15.0		%				17.7		%				14.9		%
Consumers
Income from continuing operations before income taxes						$	989					$	928					$	847
Income tax expense at statutory rate						208						195						178
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect						47						53						51
TCJA excess deferred taxes1						(35)						(31)						(26)
Accelerated flow-through of regulatory tax benefits2						(13)						(13)						(39)
Production tax credits						(19)						(12)						(12)
Research and development tax credits, net3						(11)						(2)						(11)
Other, net						(4)						(5)						1
Income tax expense						$	173					$	185					$	142
Effective tax rate						17.5		%				19.9		%				16.8		%

1In December 2017, Consumers remeasured its deferred tax assets and liabilities at the new federal tax rate enacted by the TCJA and recorded a net $1.6 billion regulatory liability. As a result of an order received in September 2019, Consumers began refunding these excess deferred taxes to customers. In September 2020, the MPSC approved a settlement agreement in Consumers’ 2019 gas rate case including Consumers’ request to accelerate the amortization of its regulatory liability associated with the unprotected, non‑property-related excess deferred income taxes resulting from the TCJA. Consumers will increase its TCJA amortization to fully refund this regulatory liability during the period October 2021 through September 2022 instead of the previous amortization schedule through 2029.

2In 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, with the electric portion ending in 2018 and the gas portion expected to continue through 2025. In September 2020, the MPSC approved a settlement agreement in Consumers’ 2019 gas rate case including Consumers’ request to accelerate the amortization of this income tax benefit to fully amortize the balance during the period October 2021 through September 2022 instead of the previous amortization schedule through 2025.

3In March 2020, CMS Energy finalized a study of research and development tax credits for tax years 2012 through 2018. As a result, in 2020, CMS Energy, including Consumers, recognized a $9 million increase in the credit, net of reserves for uncertain tax positions. Of this amount, $8 million was recognized at Consumers. Also, in March 2018, Consumers finalized a study of research and development tax credits for the tax years 2012 through 2016. As a result, CMS Energy and Consumers recognized an $8 million increase in the credit, net of reserves for uncertain tax positions, at that time.

4In January 2020, the IRS issued a decision restoring alternative minimum tax credit refunds sequestered in years prior to 2018. As a result, in 2020, CMS Energy recognized a $9 million income tax benefit for sequestered amounts related to its 2017 tax return. CMS Energy received the refund in April 2020.

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

In Millions
Years Ended December 31			2020						2019						2018
CMS Energy, including Consumers
Current income taxes
Federal						$	(35)					$	(31)					$	(67)
State and local						(2)						28						—
						$	(37)					$	(3)					$	(67)
Deferred income taxes
Federal						115						97						112
State and local						60						32						58
						$	175					$	129					$	170
Deferred income tax credit						(5)						21						12
Tax expense						$	133					$	147					$	115
Consumers
Current income taxes
Federal						$	3					$	107					$	6
State and local						(7)						41						13
						$	(4)					$	148					$	19
Deferred income taxes
Federal						115						(10)						60
State and local						67						26						51
						$	182					$	16					$	111
Deferred income tax credit						(5)						21						12
Tax expense						$	173					$	185					$	142

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

In Millions
December 31			2020						2019
CMS Energy, including Consumers
Deferred income tax assets
Tax loss and credit carryforwards						$	483					$	239
Net regulatory tax liability						372						385
Reserves and accruals						62						43
Total deferred income tax assets						$	917					$	667
Valuation allowance						(1)						(2)
Total deferred income tax assets, net of valuation allowance						$	916					$	665
Deferred income tax liabilities
Plant, property, and equipment						$	(2,287)					$	(2,033)
Employee benefits						(364)						(172)
Securitized costs						(53)						(59)
Gas inventory						(24)						(32)
Other						(51)						(24)
Total deferred income tax liabilities						$	(2,779)					$	(2,320)
Total net deferred income tax liabilities						$	(1,863)					$	(1,655)
Consumers
Deferred income tax assets
Net regulatory tax liability						$	372					$	385
Tax loss and credit carryforwards						216						20
Reserves and accruals						24						24
Total deferred income tax assets						$	612					$	429
Deferred income tax liabilities
Plant, property, and equipment						$	(2,230)					$	(1,995)
Employee benefits						(365)						(178)
Securitized costs						(53)						(59)
Gas inventory						(24)						(32)
Other						(34)						(29)
Total deferred income tax liabilities						$	(2,706)					$	(2,293)
Total net deferred income tax liabilities						$	(2,094)					$	(1,864)

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.

Presented in the following table are the tax loss and credit carryforwards at December 31, 2020:

In Millions
			Gross Amount						Tax Attribute						Expiration
CMS Energy, including Consumers
Federal net operating loss carryforwards						$	747					$	157		None
State net operating loss carryforwards						1,241						78			2030
Local net operating loss carryforwards						346						3			2024 – 2040
General business credits						245						245			2026 – 2040
Total tax attributes												$	483
Consumers
Federal net operating loss carryforwards						$	505					$	106		None
State net operating loss carryforwards						1,026						61			2030
General business credits						49						49			2027 – 2040
Total tax attributes												$	216

CMS Energy has provided a valuation allowance of $1 million for the local tax loss carryforward. 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.

As a result of a provision in the TCJA, as amended by the CARES Act, CMS Energy recovered all of its remaining alternative minimum tax credits in 2020. CMS Energy utilized $7 million of these credits on its 2019 consolidated tax return, and received the remaining $69 million through a cash refund.

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

In Millions
Years Ended December 31			2020						2019						2018
CMS Energy, including Consumers
Balance at beginning of period						$	23					$	19					$	14
Additions for current-year tax positions						1						1						1
Additions for prior-year tax positions						3						3						4
Reductions for prior-year tax positions						(2)						—						—
Balance at end of period						$	25					$	23					$	19
Consumers
Balance at beginning of period						$	34					$	28					$	21
Additions for current-year tax positions						1						1						2
Additions for prior-year tax positions						4						5						5
Reductions for prior-year tax positions						(8)						—						—
Balance at end of period						$	31					$	34					$	28

If recognized, all of these uncertain tax benefits would affect CMS Energy’s and Consumers’ annual effective tax rates in future years. A trial is anticipated in 2021 with the Michigan Tax Tribunal related to the methodology of state apportionment for Consumers’ electricity sales to MISO. A favorable outcome

of the court case or a potential settlement could result in a tax benefit of up to $9 million in the next 12 months.

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, 2020, 2019, or 2018.

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 2017 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, 2020 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			2020						2019						2018
Income available to common stockholders
Net income						$	752					$	682					$	659
Less income (loss) attributable to noncontrolling interests						(3)						2						2
Net income available to common stockholders – basic and diluted						$	755					$	680					$	657
Average common shares outstanding
Weighted-average shares – basic						285.0						283.0						282.2
Add dilutive nonvested stock awards						0.7						0.7						0.7
Add dilutive forward equity sale contracts						0.6						0.6						—
Weighted-average shares – diluted						286.3						284.3						282.9
Net income per average common share available to common stockholders
Basic						$	2.65					$	2.40					$	2.33
Diluted						2.64						2.39						2.32

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

CMS Energy has 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 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, 2020			Electric Utility						Gas Utility						Enterprises1						EnerBank									Consolidated
CMS Energy, including Consumers
Consumers utility revenue						$	4,348					$	1,809					$	—					$	—											$	6,157
Other						—						—						81						—												81
Revenue recognized from contracts with customers						$	4,348					$	1,809					$	81					$	—											$	6,238
Leasing income						—						—						148						—												148
Financing income						11						6						—						262												279
Consumers alternative-revenue programs						29						14						—						—												43
Consumers revenues to be refunded						(16)						(12)						—						—												(28)
Total operating revenue – CMS Energy						$	4,372					$	1,817					$	229					$	262											$	6,680
Consumers
Consumers utility revenue
Residential						$	2,109					$	1,232																							$	3,341
Commercial						1,444						337																								1,781
Industrial						570						46																								616
Other						225						194																								419
Revenue recognized from contracts with customers						$	4,348					$	1,809																							$	6,157
Financing income						11						6																								17
Alternative-revenue programs						29						14																								43
Revenues to be refunded						(16)						(12)																								(28)
Total operating revenue – Consumers						$	4,372					$	1,817																							$	6,189

1Amounts represent the enterprises segment’s operating revenue from independent power production and its sales of energy commodities.

In Millions
Year Ended December 31, 2019			Electric Utility						Gas Utility						Enterprises1						EnerBank									Consolidated
CMS Energy, including Consumers
Consumers utility revenue						$	4,407					$	1,922					$	—					$	—											$	6,329
Other						—						—						74						—												74
Revenue recognized from contracts with customers						$	4,407					$	1,922					$	74					$	—											$	6,403
Leasing income						—						—						174						—												174
Financing income						9						5						—						221												235
Consumers alternative-revenue programs						23						10						—						—												33
Total operating revenue – CMS Energy						$	4,439					$	1,937					$	248					$	221											$	6,845
Consumers
Consumers utility revenue
Residential						$	1,988					$	1,316																							$	3,304
Commercial						1,502						372																								1,874
Industrial						669						51																								720
Other						248						183																								431
Revenue recognized from contracts with customers						$	4,407					$	1,922																							$	6,329
Financing income						9						5																								14
Alternative-revenue programs						23						10																								33
Total operating revenue – Consumers						$	4,439					$	1,937																							$	6,376

1Amounts represent the enterprises segment’s operating revenue from independent power production and its sales of energy commodities.

In Millions
Year Ended December 31, 2018			Electric Utility						Gas Utility						Enterprises1						EnerBank									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
Financing income						10						5																								15
Alternative-revenue programs						23						16																								39
Total operating revenue – Consumers						$	4,561					$	1,903																							$	6,464

1Amounts represent the enterprises segment’s operating revenue from independent power production and its sales of energy commodities.

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.

Accounts Receivable and Unbilled Revenues: Accounts receivable comprise trade receivables and unbilled receivables. CMS Energy and Consumers record their accounts receivable at cost less an allowance for uncollectible accounts. The allowance is increased for uncollectible accounts expense and decreased for account write-offs net of recoveries. CMS Energy and Consumers establish the allowance based on historical losses, management’s assessment of existing economic conditions, customer payment trends, and reasonable and supported forecast information. CMS Energy and Consumers assess late payment fees on trade receivables based on contractual past-due terms established with customers. Accounts are written off when deemed uncollectible, which is generally when they become six months past due.

CMS Energy and Consumers recorded uncollectible accounts expense of $33 million for the year ended December 31, 2020, and $29 million for the years ended December 31, 2019 and 2018. At December 31, 2020, Consumers had deferred $4 million of uncollectible accounts expense as a non-current regulatory asset. For additional information, see Note 3, Regulatory Matters.

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 and accrued revenue on CMS Energy’s and Consumers’ consolidated balance sheets, were $437 million at December 31, 2020 and $426 million at December 31, 2019.

Alternative‑Revenue Programs: Consumers accounts for its energy waste reduction incentive mechanism and financial compensation mechanism as alternative-revenue programs. Consumers recognizes revenue related to the energy waste reduction incentive as soon as energy savings exceed the annual targets established by the MPSC and recognizes revenue related to the financial compensation mechanism as payments are made on MPSC-approved PPAs. For additional information on these mechanisms, see Note 3, Regulatory Matters.

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

Revenues to Be Refunded: In December 2020, the MPSC issued an order authorizing Consumers to refund $28 million voluntarily to utility customers. For additional information, see Note 3, Regulatory Matters.

17: Other Income and Other Expense

Other income was not significant for any of the periods presented. Presented in the following table are the components of other expense at CMS Energy and Consumers:

In Millions
Years Ended December 31			2020						2019						2018
CMS Energy, including Consumers
Other expense
Donations						$	(35)					$	(3)					$	(13)
Civic and political expenditures						(5)						(6)						(6)
Loss on reacquired and extinguished debt						(16)						—						(16)
All other						(6)						(4)						(13)
Total other expense – CMS Energy						$	(62)					$	(13)					$	(48)
Consumers
Other expense
Donations						$	(33)					$	(3)					$	(13)
Civic and political expenditures						(5)						(6)						(6)
All other						(5)						(4)						(11)
Total other expense – Consumers						$	(43)					$	(13)					$	(30)

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			2020						2019
CMS Energy, including Consumers
Cash and cash equivalents						$	168					$	140
Restricted cash and cash equivalents						17						17
Cash and cash equivalents, including restricted amounts						$	185					$	157
Consumers
Cash and cash equivalents						$	20					$	11
Restricted cash and cash equivalents						15						17
Cash and cash equivalents, including restricted amounts						$	35					$	28

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.

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 segments reported for CMS Energy are:

• electric utility, consisting of regulated activities associated with the generation, purchase, 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

• EnerBank, a Utah state-chartered, FDIC-insured industrial bank providing primarily unsecured, fixed-rate installment loans throughout the U.S. to finance home improvements

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

Consumers

The segments reported for Consumers are:

• electric utility, consisting of regulated activities associated with the generation, purchase, 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 segment:

In Millions
Years Ended December 31			2020						2019						2018
CMS Energy, including Consumers
Operating revenue
Electric utility						$	4,372					$	4,439					$	4,561
Gas utility						1,817						1,937						1,903
Enterprises						229						248						252
EnerBank						262						221						157
Total operating revenue – CMS Energy						$	6,680					$	6,845					$	6,873
Consumers
Operating revenue
Electric utility						$	4,372					$	4,439					$	4,561
Gas utility						1,817						1,937						1,903
Total operating revenue – Consumers						$	6,189					$	6,376					$	6,464
CMS Energy, including Consumers
Depreciation and amortization
Electric utility						$	739					$	713					$	682
Gas utility						283						261						239
Enterprises						20						14						8
EnerBank						5						3						4
Other reconciling items						1						1						—
Total depreciation and amortization – CMS Energy						$	1,048					$	992					$	933
Consumers
Depreciation and amortization
Electric utility						$	739					$	713					$	682
Gas utility						283						261						239
Other reconciling items						1						1						—
Total depreciation and amortization – Consumers						$	1,023					$	975					$	921
CMS Energy, including Consumers
Income from equity method investees1
Enterprises						$	5					$	10					$	9
Total income from equity method investees – CMS Energy						$	5					$	10					$	9
CMS Energy, including Consumers
Interest charges
Electric utility						$	217					$	213					$	209
Gas utility						102						83						79
Enterprises						7						7						2
EnerBank						56						59						32
Other reconciling items						179						157						136
Total interest charges – CMS Energy						$	561					$	519					$	458

In Millions
Years Ended December 31			2020						2019						2018
Consumers
Interest charges
Electric utility						$	217					$	213					$	209
Gas utility						102						83						79
Other reconciling items						1						1						1
Total interest charges – Consumers						$	320					$	297					$	289
CMS Energy, including Consumers
Income tax expense (benefit)
Electric utility						$	115					$	134					$	109
Gas utility						58						51						33
Enterprises						(4)						2						2
EnerBank						17						16						12
Other reconciling items						(53)						(56)						(41)
Total income tax expense – CMS Energy						$	133					$	147					$	115
Consumers
Income tax expense
Electric utility						$	115					$	134					$	109
Gas utility						58						51						33
Total income tax expense – Consumers						$	173					$	185					$	142
CMS Energy, including Consumers
Net income (loss) available to common stockholders
Electric utility						$	554					$	509					$	535
Gas utility						261						233						169
Enterprises						36						33						34
EnerBank						58						49						38
Other reconciling items						(154)						(144)						(119)
Total net income available to common stockholders – CMS Energy						$	755					$	680					$	657
Consumers
Net income (loss) available to common stockholder
Electric utility						$	554					$	509					$	535
Gas utility						261						233						169
Other reconciling items						(1)						(1)						(1)
Total net income available to common stockholder – Consumers						$	814					$	741					$	703
CMS Energy, including Consumers
Plant, property, and equipment, gross
Electric utility2,3						$	17,155					$	16,158					$	16,027
Gas utility2						9,581						8,785						7,919
Enterprises						1,113						405						412
EnerBank						37						22						25
Other reconciling items						21						20						17
Total plant, property, and equipment, gross – CMS Energy						$	27,907					$	25,390					$	24,400

In Millions
Years Ended December 31			2020						2019						2018
Consumers
Plant, property, and equipment, gross
Electric utility2,3						$	17,155					$	16,158					$	16,027
Gas utility2						9,581						8,785						7,919
Other reconciling items						21						20						17
Total plant, property, and equipment, gross – Consumers						$	26,757					$	24,963					$	23,963
CMS Energy, including Consumers
Investments in equity method investees1
Enterprises						$	70					$	71					$	69
Total investments in equity method investees – CMS Energy						$	70					$	71					$	69
CMS Energy, including Consumers
Total assets
Electric utility2						$	15,829					$	14,911					$	14,079
Gas utility2						9,429						8,659						7,806
Enterprises						1,276						527						540
EnerBank						3,109						2,692						2,006
Other reconciling items						23						48						98
Total assets – CMS Energy						$	29,666					$	26,837					$	24,529
Consumers
Total assets
Electric utility2						$	15,893					$	14,973					$	14,143
Gas utility2						9,477						8,706						7,853
Other reconciling items						29						20						29
Total assets – Consumers						$	25,399					$	23,699					$	22,025
CMS Energy, including Consumers
Capital expenditures4
Electric utility5						$	1,281					$	1,162					$	865
Gas utility5						885						971						958
Enterprises						108						5						246
EnerBank						5						8						10
Other reconciling items						1						1						2
Total capital expenditures – CMS Energy						$	2,280					$	2,147					$	2,081
Consumers
Capital expenditures4
Electric utility5						$	1,281					$	1,162					$	865
Gas utility5						885						971						958
Other reconciling items						1						1						2
Total capital expenditures – Consumers						$	2,167					$	2,134					$	1,825

1Consumers had no significant equity method investments.

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

3Costs related to coal-fueled electric generating units to be retired in 2023 were removed and recorded as a regulatory asset in June 2019. For additional details, see Note 3, Regulatory Matters.

4Amounts include assets placed under finance lease.

5Amounts 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 in the normal course of business. These transactions include but are not limited to:

• purchases of electricity from affiliates of CMS Enterprises

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

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			2020						2019						2018
Purchases of capacity and energy			Affiliates of CMS Enterprises						$	64					$	75					$	83

Amounts payable to related parties for purchased power and other services were $13 million at December 31, 2020 and $26 million at December 31, 2019. Accounts receivable from related parties were $16 million at December 31, 2020 and $8 million at December 31, 2019.

In 2018, CMS Energy and Consumers sold the DB SERP debt securities and CMS Energy issued a 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, 2020 and December 31, 2019. For additional details about the note receivable – related party, see Note 8, Notes Receivable.

In December 2018, Consumers and a subsidiary of CMS Energy executed a 20‑year natural gas transportation agreement, related to a pipeline owned by Consumers. For additional details about the agreement, see Note 10, Leases and Palisades Financing.

Consumers owned no shares of CMS Energy common stock at December 31, 2020 and CMS Energy common stock with a fair value of $1 million at December 31, 2019.

In December 2020, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $350 million. As of December 31, 2020, $307 million was outstanding under the agreement with an interest rate of 0.042 percent.

21: Variable Interest Entities

In July 2020, CMS Enterprises purchased a 51-percent ownership interest in Aviator Wind Equity Holdings. At that time, Aviator Wind Equity Holdings owned 100 percent of Aviator Wind, a 525-MW wind generation project being developed and constructed in Coke County, Texas. Of Aviator Wind’s 525-MW nameplate capacity, 420 MW has been committed under long-term PPAs.

Aviator Wind became operational in September 2020 and, at that time, Aviator Wind Equity Holdings sold a Class A membership interest in Aviator Wind to a tax equity investor, BHE Renewables, LLC, a subsidiary of Berkshire Hathaway Energy Company. Aviator Wind Equity Holdings retained a Class B membership interest in Aviator Wind. Earnings, tax attributes, and cash flows generated by Aviator Wind are allocated among and distributed to the membership classes in accordance with the ratios specified in the associated limited liability company operating agreement; these ratios change over time and are not representative of the ownership interest percentages of each membership class.

Since Aviator Wind’s income and cash flows are not distributed among its investors based on ownership interest percentages, CMS Enterprises allocates Aviator Wind’s income (loss) among its investors by applying the hypothetical liquidation at book value method. This method calculates each investor’s earnings based on a hypothetical liquidation of Aviator Wind at the net book value of its underlying net assets as of the balance sheet date. The liquidation tax gain (loss) is allocated to each investor’s capital account, resulting in income (loss) equal to the period change in the investor’s capital account balance. CMS Enterprises then receives 51 percent of the earnings, tax attributes, and cash flows that were allocated to Aviator Wind Equity Holdings.

Aviator Wind Equity Holdings and Aviator Wind represent VIEs. In accordance with the associated limited liability company operating agreement, the tax equity investor is guaranteed preferred returns from Aviator Wind. However, CMS Enterprises manages and controls the operating activities of Aviator Wind Equity Holdings and, ultimately, Aviator Wind. As a result, CMS Enterprises is the primary beneficiary of Aviator Wind Equity Holdings and Aviator Wind, as it has the power to direct the activities that most significantly impact the economic performance of the companies, as well as the obligation to absorb losses or the right to receive benefits from the companies. CMS Enterprises consolidates Aviator Wind Equity Holdings and Aviator Wind and presents the Class A membership interest and 49 percent of the Class B membership interest in Aviator Wind as noncontrolling interests. No gain or loss was recognized upon initial consolidation of Aviator Wind Equity Holdings and Aviator Wind.

Presented in the following table are the carrying values of the VIEs’ assets and liabilities included in CMS Energy’s consolidated balance sheets:

In Millions
December 31			2020
Current
Cash and cash equivalents						$	7
Accounts receivable						5
Prepayments and other current assets						1
Non-current
Plant, property, and equipment, net						692
Total assets1						$	705
Current
Accounts payable						$	3
Non-current
Asset retirement obligations						19
Total liabilities						$	22

1Assets may be used only to meet VIEs’ obligations and commitments.

Other VIEs: CMS Energy has variable interests in T.E.S. Filer City, Grayling, Genesee, and Craven. While CMS Energy owns 50 percent of each partnership, it 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 the activities that most significantly impact the entities’ economic performance, such as operations and maintenance, plant dispatch, and fuel strategy. The partners must agree on all major decisions for each of the partnerships.

Presented in the following table is information about these partnerships:

Name			Nature of the Entity			Nature of CMS Energy’s Involvement
T.E.S. Filer City			Coal-fueled power generator			Long-term PPA between partnership and Consumers
Employee assignment agreement
Grayling			Wood waste-fueled power generator			Long-term PPA between partnership and Consumers
Reduced dispatch agreement with Consumers1
Operating and management contract
Genesee			Wood waste-fueled power generator			Long-term PPA between partnership and Consumers
Reduced dispatch agreement with Consumers1
Operating and management contract
Craven			Wood waste-fueled power generator			Operating and management contract

1Reduced dispatch agreements allow the 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.

The creditors of these partnerships do not have recourse to the general credit of CMS Energy or Consumers. Consumers has not provided any financial or other support during the periods presented that was not previously contractually required.

CMS Energy’s investment in these partnerships is included in investments on its consolidated balance sheets in the amount of $70 million as of December 31, 2020 and $71 million as of December 31, 2019.

22: Asset Sale and Exit Activities

Asset Sale: In October 2020, Consumers completed a sale of the electric utility’s remaining transmission equipment to METC. In December 2020, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with electric utility customers; this application was approved by the MPSC in February 2021. As a result, during 2020, Consumers recorded a regulatory liability of $14 million and recognized a pre-tax gain of $14 million within maintenance and other operating expenses on its consolidated statements of income. For additional details on the sharing of the gain with customers, see Note 3, Regulatory Matters.

Exit Activities: Under its Clean Energy Plan, Consumers plans to retire the D.E. Karn 1 & 2 coal-fueled electric generating units in 2023. For additional details on Consumers’ plans to recover the remaining book value of the two units upon their retirement, see Note 3, Regulatory Matters.

In October 2019, Consumers announced a retention incentive program to ensure necessary staffing at the D.E. Karn generating complex through the anticipated retirement of the coal-fueled generating units. Based on the number of employees that have chosen to participate, the aggregate cost of the program through 2023 is estimated to be $35 million. In its order in Consumers’ 2020 electric rate case, the MPSC approved deferred accounting treatment for these costs; Consumers will begin deferring these costs as a regulatory asset in 2021.

As of December 31, 2020, the cumulative cost incurred and charged to expense related to this program was $16 million; an amount of $3 million has been capitalized as a cost of plant, property, and equipment. Presented in the following table is a reconciliation of the retention benefit liability recorded in other liabilities on Consumers’ consolidated balance sheets:

In Millions
Years Ended December 31			2020						2019
Retention benefit liability at beginning of period						$	4					$	—
Costs incurred and charged to maintenance and other operating expenses						13						3
Costs incurred and capitalized						2						1
Costs paid or settled						(8)						—
Retention benefit liability at the end of the period1						$	11					$	4

1Includes current portion of other liabilities of $3 million at December 31, 2020 and $2 million at December 31, 2019.

23: Quarterly Financial and Common Stock Information (Unaudited)

In Millions, Except Per Share Amounts
			2020
Three Months Ended			March 31						June 30						September 30						December 31
CMS Energy, including Consumers
Operating revenue						$	1,864					$	1,443					$	1,575					$	1,798
Operating income						368						273						369						352
Net income						243						137						210						162
Income (loss) attributable to noncontrolling interests						—						1						(8)						4
Net income available to common stockholders						243						136						218						158
Basic earnings per average common share1						0.86						0.48						0.76						0.55
Diluted earnings per average common share1						0.85						0.48						0.76						0.55
Consumers
Operating revenue						$	1,744					$	1,330					$	1,450					$	1,665
Operating income						329						246						338						308
Net income						235						160						230						191
Preferred stock dividends						—						1						—						1
Net income available to common stockholder						235						159						230						190

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

In Millions, Except Per Share Amounts
			2019
Three Months Ended			March 31						June 30						September 30						December 31
CMS Energy, including Consumers
Operating revenue						$	2,059					$	1,445					$	1,546					$	1,795
Operating income						359						218						351						311
Net income						213						94						207						168
Income attributable to noncontrolling interests						—						1						—						1
Net income available to common stockholders						213						93						207						167
Basic earnings per average common share1						0.75						0.33						0.73						0.59
Diluted earnings per average common share1						0.75						0.33						0.73						0.58
Consumers
Operating revenue						$	1,943					$	1,334					$	1,429					$	1,670
Operating income						328						175						319						308
Net income						226						98						213						206
Preferred stock dividends						—						1						—						1
Net income available to common stockholder						226						97						213						205

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

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, 2020 and 2019, 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, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 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, 2020, 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.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for the Effects of New Regulatory Matters

As described in Note 3 to the consolidated financial statements, the Company is a utility and must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated services. Under regulatory accounting, the Company records regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue by a non*-*regulated business. As of December 31, 2020, the Company has recognized a total of $2,695 million of regulatory assets and $3,895 million of regulatory liabilities. As described by management, there are multiple participants to rate case proceedings who often challenge various aspects of those proceedings, including the prudence of the Company’s policies and practices. These participants often seek cost disallowances and other relief and have appealed significant decisions reached by the regulators. The recovery of regulatory assets and the settlement of regulatory liabilities are contingent upon the outcomes of rate cases and regulatory proceedings.

The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of new regulatory matters is a critical audit matter are (i) the high degree of auditor judgment and subjectivity applied to evaluate management’s assessment of the potential outcomes and related accounting impacts associated with pending rate case proceedings, (ii) in some cases, the significant audit effort necessary to assess contrary evidence from various parties involved in rate case proceedings, and (iii) the significant audit effort necessary to evaluate audit evidence related to the recovery of regulatory assets and the settlement of regulatory liabilities.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of regulatory proceedings, including the probability of recovering incurred costs and the related accounting and disclosure impacts. These procedures also included, among others, obtaining and evaluating the Company’s correspondence with regulators, evaluating the reasonableness of management’s assessment regarding whether recovery of regulatory assets and settlement of regulatory liabilities is probable and evaluating the sufficiency of the disclosures in the consolidated financial statements. Procedures were performed to evaluate the regulatory assets and liabilities, including those subject to pending rate cases, based on provisions and formulas outlined in rate orders, other regulatory correspondence, or application of relevant regulatory precedents.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

February 11, 2021

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

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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, 2020 and 2019, 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, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 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, 2020, 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.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for the Effects of New Regulatory Matters

As described in Note 3 to the consolidated financial statements, the Company is a utility and must apply regulatory accounting when its rates are designed to recover specific costs of providing regulated services. Under regulatory accounting, the Company records regulatory assets or liabilities for certain transactions that would have been treated as expense or revenue by a non*-*regulated business. As of December 31, 2020, the Company has recognized a total of $2,695 million of regulatory assets and $3,895 million of regulatory liabilities. As described by management, there are multiple participants to rate case proceedings who often challenge various aspects of those proceedings, including the prudence of the Company’s policies and practices. These participants often seek cost disallowances and other relief and have appealed significant decisions reached by the regulators. The recovery of regulatory assets and the settlement of regulatory liabilities are contingent upon the outcomes of rate cases and regulatory proceedings.

The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of new regulatory matters is a critical audit matter are (i) the high degree of auditor judgment and subjectivity applied to evaluate management’s assessment of the potential outcomes and related accounting impacts associated with pending rate case proceedings, (ii) in some cases, the significant audit effort necessary to assess contrary evidence from various parties involved in rate case proceedings, and (iii) the significant audit effort necessary to evaluate audit evidence related to the recovery of regulatory assets and the settlement of regulatory liabilities.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of regulatory proceedings, including the probability of recovering incurred costs and the related accounting and disclosure impacts. These procedures also included, among others, obtaining and evaluating the Company’s correspondence with regulators, evaluating the reasonableness of management’s assessment regarding whether recovery of regulatory assets and settlement of regulatory liabilities is probable and evaluating the sufficiency of the disclosures in the consolidated financial statements. Procedures were performed to evaluate the regulatory assets and liabilities, including those subject to pending rate cases, based on provisions and formulas outlined in rate orders, other regulatory correspondence, or application of relevant regulatory precedents.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

February 11, 2021

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