Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

CMS Energy Consolidated Financial Statements						88
Consolidated Statements of Income						88
Consolidated Statements of Comprehensive Income						90
Consolidated Statements of Cash Flows						92
Consolidated Balance Sheets						94
Consolidated Statements of Changes in Equity						96
Consumers Consolidated Financial Statements						98
Consolidated Statements of Income						98
Consolidated Statements of Comprehensive Income						99
Consolidated Statements of Cash Flows						100
Consolidated Balance Sheets						102
Consolidated Statements of Changes in Equity						104
Notes to the Consolidated Financial Statements						105
1:			Significant Accounting Policies			105
2:			Regulatory Matters			108
3:			Contingencies and Commitments			115
4:			Financings and Capitalization			121
5:			Fair Value Measurements			127
6:			Financial Instruments			130
7:			Plant, Property, and Equipment			131
8:			Leases			135
9:			Asset Retirement Obligations			139
10:			Retirement Benefits			141
11:			Stock-based Compensation			151
12:			Income Taxes			155
13:			Earnings Per Share—CMS Energy			159
14:			Revenue			160
15:			Other Income and Other Expense			164
16:			Reportable Segments			165
17:			Related-Party Transactions—Consumers			170
18:			Variable Interest Entities			171
19:			Exit Activities and Discontinued Operations			173
Reports of Independent Registered Public Accounting Firm (PCAOB ID 238)						176
CMS Energy						176
Consumers						180

CMS Energy Corporation

Consolidated Statements of Income

In Millions, Except Per Share Amounts
Years Ended December 31												2022						2021						2020
Operating Revenue																					$	8,596					$	7,329					$	6,418
Operating Expenses
Fuel for electric generation																					905						593						375
Purchased and interchange power																					1,928						1,665						1,492
Purchased power – related parties																					76						77						64
Cost of gas sold																					1,256						735						577
Maintenance and other operating expenses																					1,669						1,610						1,280
Depreciation and amortization																					1,126						1,114						1,043
General taxes																					412						389						357
Total operating expenses																					7,372						6,183						5,188
Operating Income																					1,224						1,146						1,230
Other Income (Expense)
Non-operating retirement benefits, net																					205						165						118
Other income																					19						30						28
Other expense																					(27)						(18)						(62)
Total other income																					197						177						84
Interest Charges
Interest on long-term debt																					509						481						483
Interest expense – related parties																					12						12						12
Other interest expense																					—						10						12
Allowance for borrowed funds used during construction																					(2)						(3)						(2)
Total interest charges																					519						500						505
Income Before Income Taxes																					902						823						809
Income Tax Expense																					93						95						115
Income From Continuing Operations																					809						728						694
Income From Discontinued Operations, Net of Tax of $1, $170, and $18																					4						602						58
Net Income																					813						1,330						752
Loss Attributable to Noncontrolling Interests																					(24)						(23)						(3)
Net Income Attributable to CMS Energy																					837						1,353						755
Preferred Stock Dividends																					10						5						—
Net Income Available to Common Stockholders																					$	827					$	1,348					$	755

Table of Contents

In Millions, Except Per Share Amounts
Years Ended December 31												2022						2021						2020
Basic Earnings Per Average Common Share
Income from continuing operations per average common share available to common stockholders																					$	2.84					$	2.58					$	2.45
Income from discontinued operations per average common share available to common stockholders																					0.01						2.08						0.20
Basic earnings per average common share																					$	2.85					$	4.66					$	2.65
Diluted Earnings Per Average Common Share
Income from continuing operations per average common share available to common stockholders																					$	2.84					$	2.58					$	2.44
Income from discontinued operations per average common share available to common stockholders																					0.01						2.08						0.20
Diluted earnings per average common share																					$	2.85					$	4.66					$	2.64

The accompanying notes are an integral part of these statements.

Table of Contents

CMS Energy Corporation

Consolidated Statements of Comprehensive Income

In Millions
Years Ended December 31												2022						2021						2020
Net Income																					$	813					$	1,330					$	752
Retirement Benefits Liability
Net gain (loss) arising during the period, net of tax of $—, $6, and $(4)																					1						19						(15)
Settlement arising during the period, net of tax of $— for all periods																					—						1						1
Prior service credit adjustment, net of tax of $— for all periods																					—						—						(1)
Amortization of net actuarial loss, net of tax of $1, $2, and $1																					4						5						5
Amortization of prior service credit, net of tax of $— for all periods																					(1)						(1)						(1)
Derivatives
Unrealized gain (loss) on derivative instruments, net of tax of $1, $—, and $(2)																					2						2						(4)
Reclassification adjustments included in net income, net of tax of $—, $1, and $—																					1						1						2
Other Comprehensive Income (Loss)																					7						27						(13)
Comprehensive Income																					820						1,357						739
Comprehensive Loss Attributable to Noncontrolling Interests																					(24)						(23)						(3)
Comprehensive Income Attributable to CMS Energy																					$	844					$	1,380					$	742

The accompanying notes are an integral part of these statements.

Table of Contents

(This page intentionally left blank)

CMS Energy Corporation

Consolidated Statements of Cash Flows

In Millions
Years Ended December 31			2022						2021						2020
Cash Flows from Operating Activities
Net income						$	813					$	1,330					$	752
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization						1,126						1,114						1,043
Deferred income taxes and investment tax credits						89						249						170
Bad debt expense						50						22						30
Postretirement benefits contributions						(12)						(12)						(712)
Gain from sale of EnerBank						(5)						(657)						—
Other non‑cash operating activities and reconciling adjustments						(93)						(70)						(15)
Net cash provided by (used in) discontinued operations						—						(111)						33
Changes in assets and liabilities
Accounts receivable and accrued revenue						(677)						(103)						(5)
Inventories						(450)						(93)						28
Accounts payable and accrued rate refunds						4						153						56
Other current assets and liabilities						14						13						(68)
Other non‑current assets and liabilities						(4)						(16)						(36)
Net cash provided by operating activities						855						1,819						1,276
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under finance lease)						(2,374)						(2,076)						(2,311)
Net proceeds from sale of EnerBank						5						898						—
Proceeds from sale of transmission equipment						—						—						58
Net cash provided by (used in) discontinued operations						—						78						(485)
Cost to retire property and other investing activities						(107)						(133)						(129)
Net cash used in investing activities						(2,476)						(1,233)						(2,867)
Cash Flows from Financing Activities
Proceeds from issuance of debt						1,899						335						3,179
Retirement of debt						(106)						(235)						(2,010)
Increase (decrease) in notes payable						20						—						(90)
Issuance of common stock						69						26						253
Issuance of preferred stock, net of issuance costs						—						224						—
Payment of dividends on common and preferred stock						(546)						(509)						(467)
Debt prepayment costs						—						—						(59)
Proceeds from the sale of membership interest in VIE to tax equity investor						49						—						417
Contribution from noncontrolling interest						2						1						31
Net cash provided by (used in) discontinued operations						—						(84)						416
Other financing costs						(60)						(53)						(51)
Net cash provided by (used in) financing activities						1,327						(295)						1,619

Table of Contents

In Millions
Years Ended December 31			2022						2021						2020
Net Increase (Decrease) in Cash and Cash Equivalents, Including Restricted Amounts						(294)						291						28
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period						476						185						157
Cash and Cash Equivalents, Including Restricted Amounts, End of Period						$	182					$	476					$	185
Other Cash Flow Activities and Non‑cash Investing and Financing Activities
Cash transactions
Interest paid (net of amounts capitalized)						$	490					$	489					$	549
Income taxes paid (refunds received), net						1						16						(58)
Non‑cash transactions
Capital expenditures not paid						$	228					$	196					$	141

The accompanying notes are an integral part of these statements.

Table of Contents

CMS Energy Corporation

Consolidated Balance Sheets

ASSETS
In Millions
December 31			2022						2021
Current Assets
Cash and cash equivalents						$	164					$	452
Restricted cash and cash equivalents						18						24
Accounts receivable and accrued revenue, less allowance of $27 in 2022 and $20 in 2021						1,564						931
Accounts receivable – related parties						16						12
Inventories at average cost
Gas in underground storage						840						462
Materials and supplies						212						168
Generating plant fuel stock						65						37
Deferred property taxes						384						356
Regulatory assets						57						46
Prepayments and other current assets						113						139
Total current assets						3,433						2,627
Plant, Property, and Equipment
Plant, property, and equipment, gross						30,491						29,893
Less accumulated depreciation and amortization						8,960						8,502
Plant, property, and equipment, net						21,531						21,391
Construction work in progress						1,182						961
Total plant, property, and equipment						22,713						22,352
Other Non‑current Assets
Regulatory assets						3,595						2,259
Accounts receivable						23						30
Investments						71						71
Postretirement benefits						1,208						1,150
Other						310						264
Total other non‑current assets						5,207						3,774
Total Assets						$	31,353					$	28,753

Table of Contents

LIABILITIES AND EQUITY
In Millions
December 31			2022						2021
Current Liabilities
Current portion of long-term debt and finance leases						$	1,099					$	382
Notes payable						20						—
Accounts payable						928						875
Accounts payable – related parties						8						11
Accrued rate refunds						—						12
Accrued interest						122						107
Accrued taxes						538						515
Regulatory liabilities						104						146
Other current liabilities						166						156
Total current liabilities						2,985						2,204
Non‑current Liabilities
Long-term debt						13,122						12,046
Non-current portion of finance leases						68						46
Regulatory liabilities						3,796						3,802
Postretirement benefits						108						142
Asset retirement obligations						746						628
Deferred investment tax credit						129						112
Deferred income taxes						2,407						2,210
Other non‑current liabilities						397						375
Total non‑current liabilities						20,773						19,361
Commitments and Contingencies (Notes 2, 3, and 19)
Equity
Common stockholders’ equity
Common stock, authorized 350.0 shares; outstanding 291.3 shares in 2022 and 289.8 shares in 2021						3						3
Other paid-in capital						5,490						5,406
Accumulated other comprehensive loss						(52)						(59)
Retained earnings						1,350						1,057
Total common stockholders’ equity						6,791						6,407
Cumulative redeemable perpetual preferred stock, Series C, authorized 9.2 depositary shares; outstanding 9.2 depositary shares in both periods						224						224
Total stockholders’ equity						7,015						6,631
Noncontrolling interests						580						557
Total equity						7,595						7,188
Total Liabilities and Equity						$	31,353					$	28,753

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			2022			2021			2020												2022						2021						2020
Total Equity at Beginning of Period																														$	7,188					$	6,077					$	5,055
Common Stock
At beginning and end of period																														3						3						3
Other Paid-in Capital
At beginning of period			289,758			288,940			283,864																					5,406						5,365						5,113
Common stock issued			1,704			997			5,609																					93						50						265
Common stock repurchased			(151)			(157)			(216)																					(9)						(9)						(13)
Common stock reissued			—			—			12																					—						—						1
Common stock reacquired			(43)			(22)			(329)																					—						—						(1)
At end of period			291,268			289,758			288,940																					5,490						5,406						5,365
Accumulated Other Comprehensive Loss
At beginning of period																														(59)						(86)						(73)
Retirement benefits liability
At beginning of period																														(56)						(80)						(69)
Net gain (loss) arising during the period																														1						19						(15)
Settlement arising during the period																														—						1						1
Prior service credit adjustment																														—						—						(1)
Amortization of net actuarial loss																														4						5						5
Amortization of prior service credit																														(1)						(1)						(1)
At end of period																														(52)						(56)						(80)
Derivative instruments
At beginning of period																														(3)						(6)						(4)
Unrealized gain (loss) on derivative instruments																														2						2						(4)
Reclassification adjustments included in net income																														1						1						2
At end of period																														—						(3)						(6)
At end of period																														(52)						(59)						(86)
Retained Earnings
At beginning of period																														1,057						214						(25)
Cumulative effect of change in accounting principle																														—						—						(51)
Net income attributable to CMS Energy																														837						1,353						755
Dividends declared on common stock																														(534)						(505)						(465)
Dividends declared on preferred stock																														(10)						(5)						—
At end of period																														1,350						1,057						214

In Millions, Except Number of Shares in Thousands and Per Share Amounts
			Number of Shares
Years Ended December 31			2022			2021			2020												2022						2021						2020
Cumulative Redeemable Perpetual Preferred Stock, Series C
At beginning of period																														224						—						—
Preferred stock issued, net of issuance costs																														—						224						—
At end of period																														224						224						—
Noncontrolling Interests
At beginning of period																														557						581						37
Impact of purchase and consolidation of VIE																														—						—						101
Sale of membership interest in VIE to tax equity investor																														49						—						417
Contribution from noncontrolling interest																														2						1						31
Loss attributable to noncontrolling interests																														(24)						(23)						(3)
Distributions and other changes in noncontrolling interests																														(4)						(2)						(2)
At end of period																														580						557						581
Total Equity at End of Period																														$	7,595					$	7,188					$	6,077
Dividends declared per common share																														$	1.8400					$	1.7400					$	1.6300
Dividends declared per preferred stock Series C depositary share																														$	1.0500					$	0.5688					$	—

The accompanying notes are an integral part of these statements.

Table of Contents

Consumers Energy Company

Consolidated Statements of Income

In Millions
Years Ended December 31												2022						2021						2020
Operating Revenue																					$	8,151					$	7,021					$	6,189
Operating Expenses
Fuel for electric generation																					662						463						286
Purchased and interchange power																					1,867						1,599						1,454
Purchased power – related parties																					76						77						64
Cost of gas sold																					1,243						726						568
Maintenance and other operating expenses																					1,582						1,531						1,224
Depreciation and amortization																					1,088						1,077						1,023
General taxes																					400						373						349
Total operating expenses																					6,918						5,846						4,968
Operating Income																					1,233						1,175						1,221
Other Income (Expense)
Non-operating retirement benefits, net																					195						155						112
Other income																					17						23						19
Other expense																					(25)						(18)						(43)
Total other income																					187						160						88
Interest Charges
Interest on long-term debt																					325						294						299
Interest expense – related parties																					12						12						12
Other interest expense																					—						8						11
Allowance for borrowed funds used during construction																					(2)						(3)						(2)
Total interest charges																					335						311						320
Income Before Income Taxes																					1,085						1,024						989
Income Tax Expense																					140						156						173
Net Income																					945						868						816
Preferred Stock Dividends																					2						2						2
Net Income Available to Common Stockholder																					$	943					$	866					$	814

The accompanying notes are an integral part of these statements.

Table of Contents

Consumers Energy Company

Consolidated Statements of Comprehensive Income

In Millions
Years Ended December 31												2022						2021						2020
Net Income																					$	945					$	868					$	816
Retirement Benefits Liability
Net gain (loss) arising during the period, net of tax of $5, $1, and $(3)																					15						2						(9)
Amortization of net actuarial loss, net of tax of $—, $1, and $1																					2						2						1
Other Comprehensive Income (Loss)																					17						4						(8)
Comprehensive Income																					$	962					$	872					$	808

The accompanying notes are an integral part of these statements.

Consumers Energy Company

Consolidated Statements of Cash Flows

In Millions
Years Ended December 31			2022						2021						2020
Cash Flows from Operating Activities
Net income						$	945					$	868					$	816
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization						1,088						1,077						1,023
Deferred income taxes and investment tax credits						134						154						177
Bad debt expense						50						22						33
Postretirement benefits contributions						(9)						(9)						(690)
Other non‑cash operating activities and reconciling adjustments						(87)						(64)						(30)
Changes in assets and liabilities
Accounts and notes receivable and accrued revenue						(660)						(103)						(46)
Inventories						(447)						(90)						26
Accounts payable and accrued rate refunds						(9)						140						45
Other current assets and liabilities						18						27						(78)
Other non-current assets and liabilities						(29)						(40)						(58)
Net cash provided by operating activities						994						1,982						1,218
Cash Flows from Investing Activities
Capital expenditures (excludes assets placed under finance lease)						(2,239)						(2,052)						(2,170)
DB SERP investment in note receivable – related party						—						—						(5)
Proceeds from sale of transmission equipment						—						—						58
Cost to retire property and other investing activities						(105)						(133)						(129)
Net cash used in investing activities						(2,344)						(2,185)						(2,246)
Cash Flows from Financing Activities
Proceeds from issuance of debt						1,799						335						1,954
Retirement of debt						(28)						(27)						(1,086)
Increase (decrease) in notes payable						20						—						(90)
Increase (decrease) in notes payable – related parties						(317)						85						307
Stockholder contribution						685						575						650
Payment of dividends on common and preferred stock						(771)						(724)						(639)
Debt prepayment costs						—						—						(43)
Other financing costs						(22)						(32)						(18)
Net cash provided by financing activities						1,366						212						1,035
Net Increase in Cash and Cash Equivalents, Including Restricted Amounts						16						9						7
Cash and Cash Equivalents, Including Restricted Amounts, Beginning of Period						44						35						28
Cash and Cash Equivalents, Including Restricted Amounts, End of Period						$	60					$	44					$	35

In Millions
Years Ended December 31			2022						2021						2020
Other Cash Flow Activities and Non‑cash Investing and Financing Activities
Cash transactions
Interest paid (net of amounts capitalized)						$	309					$	298					$	305
Income taxes paid (refunds received), net						(2)						(10)						51
Non‑cash transactions
Capital expenditures not paid						$	210					$	192					$	130

The accompanying notes are an integral part of these statements.

Table of Contents

Consumers Energy Company

Consolidated Balance Sheets

ASSETS
In Millions
December 31			2022						2021
Current Assets
Cash and cash equivalents						$	43					$	22
Restricted cash and cash equivalents						17						22
Accounts receivable and accrued revenue, less allowance of $27 in 2022 and $20 in 2021						1,524						905
Accounts and notes receivable – related parties						10						9
Inventories at average cost
Gas in underground storage						840						462
Materials and supplies						206						163
Generating plant fuel stock						59						33
Deferred property taxes						384						356
Regulatory assets						57						46
Prepayments and other current assets						96						103
Total current assets						3,236						2,121
Plant, Property, and Equipment
Plant, property, and equipment, gross						29,342						28,771
Less accumulated depreciation and amortization						8,791						8,371
Plant, property, and equipment, net						20,551						20,400
Construction work in progress						994						915
Total plant, property, and equipment						21,545						21,315
Other Non-current Assets
Regulatory assets						3,595						2,259
Accounts receivable						29						36
Accounts and notes receivable – related parties						99						102
Postretirement benefits						1,126						1,056
Other						286						251
Total other non-current assets						5,135						3,704
Total Assets						$	29,916					$	27,140

Table of Contents

LIABILITIES AND EQUITY
In Millions
December 31			2022						2021
Current Liabilities
Current portion of long-term debt and finance leases						$	1,000					$	374
Notes payable						20						—
Notes payable – related parties						75						392
Accounts payable						864						835
Accounts payable – related parties						15						16
Accrued rate refunds						—						12
Accrued interest						90						75
Accrued taxes						556						529
Regulatory liabilities						104						146
Other current liabilities						147						109
Total current liabilities						2,871						2,488
Non-current Liabilities
Long-term debt						9,192						8,050
Non-current portion of finance leases						45						46
Regulatory liabilities						3,796						3,802
Postretirement benefits						79						104
Asset retirement obligations						722						605
Deferred investment tax credit						129						112
Deferred income taxes						2,585						2,340
Other non-current liabilities						342						314
Total non-current liabilities						16,890						15,373
Commitments and Contingencies (Notes 2 and 3)
Equity
Common stockholder’s equity
Common stock, authorized 125.0 shares; outstanding 84.1 shares in both periods						841						841
Other paid-in capital						7,284						6,599
Accumulated other comprehensive loss						(15)						(32)
Retained earnings						2,008						1,834
Total common stockholder’s equity						10,118						9,242
Cumulative preferred stock, $4.50 series, authorized 7.5 shares; outstanding 0.4 shares in both periods						37						37
Total equity						10,155						9,279
Total Liabilities and Equity						$	29,916					$	27,140

The accompanying notes are an integral part of these statements.

Table of Contents

Consumers Energy Company

Consolidated Statements of Changes in Equity

In Millions
Years Ended December 31												2022						2021						2020
Total Equity at Beginning of Period																					$	9,279					$	8,556					$	7,737
Common Stock
At beginning and end of period																					841						841						841
Other Paid-in Capital
At beginning of period																					6,599						6,024						5,374
Stockholder contribution																					685						575						650
At end of period																					7,284						6,599						6,024
Accumulated Other Comprehensive Loss
At beginning of period																					(32)						(36)						(28)
Retirement benefits liability
At beginning of period																					(32)						(36)						(28)
Net gain (loss) arising during the period																					15						2						(9)
Amortization of net actuarial loss																					2						2						1
At end of period																					(15)						(32)						(36)
At end of period																					(15)						(32)						(36)
Retained Earnings
At beginning of period																					1,834						1,690						1,513
Net income																					945						868						816
Dividends declared on common stock																					(769)						(722)						(637)
Dividends declared on preferred stock																					(2)						(2)						(2)
At end of period																					2,008						1,834						1,690
Cumulative Preferred Stock
At beginning and end of period																					37						37						37
Total Equity at End of Period																					$	10,155					$	9,279					$	8,556

The accompanying notes are an integral part of these statements.

Table of Contents

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, NorthStar Clean Energy, 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. 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.

Cash and Cash Equivalents and Restricted 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 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.

Contingencies: CMS Energy and Consumers record estimated loss contingencies on their consolidated financial statements when it is probable that a loss 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

Table of Contents

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 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 5, 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 13, 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 that indicate the carrying amount of an asset may not be recoverable or that 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.

Table of Contents

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 CMS Energy’s and Consumers’ real and personal property assessed by local taxing authorities. CMS Energy and Consumers record 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 CMS Energy’s and Consumers’ accrued property tax that will be recognized over future governmental fiscal periods.

Reclassifications: CMS Energy and Consumers have reclassified certain prior period amounts to conform to the presentation in the present period. The most significant of these reclassifications is related to CMS Energy’s sale of EnerBank to Regions Bank in October 2021. EnerBank’s results of operations through the date of the sale are presented as income from discontinued operations on CMS Energy’s consolidated statements of income for the years ended December 31, 2021 and 2020. For information regarding the sale of EnerBank, see Note 19, Exit Activities and Discontinued Operations.

CMS Energy and Consumers also reclassified certain prior period amounts relating to postretirement benefits. The asset balances for postretirement benefits are presented discretely within other non-current assets on CMS Energy’s and Consumers’ consolidated balance sheets for the years ended December 31, 2022 and 2021.

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

Table of Contents

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 7, Plant, Property, and Equipment

• Note 8, Leases

• Note 9, Asset Retirement Obligations

• Note 10, Retirement Benefits

• Note 12, Income Taxes

• Note 13, Earnings Per Share—CMS Energy

• Note 14, Revenue

• Note 18, Variable Interest Entities

2: Regulatory Matters

Regulatory matters are critical to Consumers. The Michigan Attorney General, ABATE, the MPSC Staff, residential customer advocacy groups, environmental organizations, 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 MPSC’s authority to approve voluntary revenue refunds, 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.

Table of Contents

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						2022						2021
Regulatory assets
Current
Energy waste reduction plan incentive1						2023						$	47					$	42
Other						2023						10						4
Total current regulatory assets												$	57					$	46
Non-current
Costs of coal-fueled electric generating units to be retired2						various						$	1,960					$	678
Postretirement benefits3						various						856						837
ARO4						various						281						247
Securitized costs2						2029						165						193
MGP sites4						various						108						112
Unamortized loss on reacquired debt4						various						100						104
Energy waste reduction plan incentive1						2024						55						46
Retention incentive program4						various						31						7
Demand response program4						various						12						10
Energy waste reduction plan4						various						10						13
Other						various						17						12
Total non-current regulatory assets												$	3,595					$	2,259
Total regulatory assets												$	3,652					$	2,305
Regulatory liabilities
Current
Income taxes, net						2023						$	48					$	138
Reserve for customer refunds						2023						47						2
Other						2023						9						6
Total current regulatory liabilities												$	104					$	146
Non-current
Cost of removal						various						$	2,426					$	2,375
Income taxes, net						various						1,267						1,297
Renewable energy grant						2043						45						47
Renewable energy plan						2028						32						13
Demand response program						various						12						7
Energy waste reduction plan						various						6						—
Postretirement benefits						various						—						54
Other						various						8						9
Total non-current regulatory liabilities												$	3,796					$	3,802
Total regulatory liabilities												$	3,900					$	3,948

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 provided a specific return on these regulatory assets.

Table of Contents

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

4These regulatory assets represent incurred costs for which the MPSC has provided 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 October 2022, the MPSC approved a settlement agreement authorizing Consumers to collect $46 million during 2023 as an incentive for exceeding its statutory savings targets in 2021. Consumers recognized incentive revenue under this program of $46 million in 2021.

Consumers also exceeded its statutory savings targets in 2022, achieved certain other goals, and will request the MPSC’s approval to collect $55 million, the maximum performance incentive, in the energy waste reduction reconciliation to be filed in May 2023. Consumers recognized incentive revenue under this program of $55 million in 2022.

Costs of Coal-fueled Electric Generating Units to be Retired: In 2019, the MPSC approved the settlement agreement reached in Consumers’ 2018 IRP, under which Consumers will retire the D.E. Karn 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. In 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. Until securitization, the book value of the generating units will remain in rate base and receive full regulatory returns in general rate cases.

In June 2022, the MPSC approved the settlement agreement reached in Consumers’ 2021 IRP, under which Consumers plans to retire the J.H. Campbell coal-fueled generating units in 2025. Under the 2021 IRP, upon the units’ retirement, Consumers will receive regulatory asset treatment to recover their remaining book value, as well as a 9.0‑percent return on equity, over their original design lives. Until retirement, the book value of the generating units will remain in rate base and receive full regulatory returns in general rate cases.

In June 2022, Consumers removed from total plant, property, and equipment an amount of $1.3 billion, representing the projected remaining book value of the electric generating units upon their retirement, and recorded it as a non-current regulatory asset on its consolidated balance sheets.

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 10, Retirement Benefits.

Table of Contents

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.

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 4, Financings and Capitalization.

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.

Retention Incentive Program: To ensure necessary staffing at the D.E. Karn and J.H. Campbell generating complexes through the anticipated retirement of the coal-fueled generating units, Consumers has established retention incentive programs. In 2020, the MPSC approved deferred accounting treatment for the retention and severance costs incurred under the D.E. Karn program, and Consumers began deferring these costs as a regulatory asset in 2021. In addition, under the 2021 IRP, the MPSC approved deferred accounting treatment for the retention and severance costs incurred under the J.H. Campbell program during 2022; deferral of costs beyond 2022 was approved as part of the 2022 electric rate case settlement. For additional details regarding the retention incentive program, see Note 19, Exit Activities and Discontinued Operations.

Demand Response Program: In Consumers’ 2018 IRP and general 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 amount of spending incurred in excess of amounts included in rates for recovery is recorded as a regulatory asset and amortized when it is collected from customers. The amount included in rates for recovery in excess of spending incurred is recorded as a regulatory liability to be refunded to customers.

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.

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

Table of Contents

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. For additional details on deferred income taxes, see Note 12, Income Taxes.

Reserve for Customer Refunds: In December 2022, the MPSC issued an order authorizing Consumers to refund $22 million voluntarily to utility customers. In January 2023, Consumers submitted a filing proposing that the refund take the form of incremental funding to cover the cost of, and return on, certain distribution capital investments above amounts included in rates and contributions to programs that assist vulnerable customers.

Additionally, in the settlement of its 2022 electric rate case, Consumers agreed to refund voluntarily $15 million of 2022 revenues to utility customers through a one-time bill credit and to fund $10 million in contributions to programs that directly assist vulnerable customers with utility bills.

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 are incurred to remove the assets at the end of their useful lives.

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

2021 Electric Rate Case: In December 2021, the MPSC issued a final order in Consumers’ 2021 electric rate case, disallowing cost recovery for fleet assets and certain other categories of recently completed capital expenditures incurred by Consumers. As a result, Consumers impaired certain of these capital expenditures, a portion of which were held by the gas utility, and recorded impairment charges totaling $45 million within maintenance and other operating expenses on its consolidated statements of income for the year ended December 31, 2021.

2022 Electric Rate Case: In April 2022, Consumers filed an application with the MPSC seeking a rate increase of $272 million, based on a 10.25-percent authorized return on equity for the projected twelve-month period ending December 31, 2023. In September 2022, Consumers revised its requested increase to $292 million. The filing requested authority to recover future investments associated with distribution system reliability, solar generation, environmental compliance, and enhanced technology.

Table of Contents

In January 2023, the MPSC approved a settlement agreement authorizing an annual rate increase of $155 million, based on a 9.9-percent authorized return on equity. The MPSC also approved a surcharge for the recovery of $6 million of depreciation, property tax, and interest expense related to distribution investments made in 2021 that exceeded what was authorized in rates in accordance with the December 2020 electric rate order. Additionally, the approved settlement provides for the following:

• a pension and OPEB tracker that will allow Consumers to defer the future recovery or refund of pension and OPEB expenses above or below the amounts used to set existing rates, respectively

• a refund of $15 million of 2022 revenues to utility customers through a one-time bill credit

• a commitment to fund $10 million in contributions to programs that directly assist vulnerable customers with utility bills

• deferred accounting treatment for depreciation and property tax expense as well as the debt component of the overall rate of return for distribution-related capital investments exceeding a certain threshold amount

• an increase to the distributed generation cap from two percent to four percent on Consumers’ system

There were no direct disallowances of historical capital expenditures within the approved settlement agreement. The new rates became effective January 20, 2023.

Voluntary Radio Tower Asset Sale Gain Share: In May 2022, Consumers completed a sale of various radio tower assets. In June 2022, Consumers filed an application with the MPSC requesting approval to share voluntarily half of the gain from the sale with its electric and gas utility customers; this application was approved by the MPSC in October 2022. During 2022, Consumers shared two-thirds with electric customers through additional spending for tree trimming and one-third with gas customers through a donation to nonprofit agencies that provide customer energy bill assistance.

Consumers Gas Utility

2021 Gas Rate Case: In December 2021, Consumers filed an application with the MPSC seeking an annual rate increase of $278 million, based on a 10.5-percent authorized return on equity for the projected twelve-month period ending September 30, 2023. In April 2022, Consumers reduced its requested annual rate increase to $233 million, based on a 10.25-percent authorized return on equity. In July 2022, the MPSC approved a settlement agreement authorizing an annual rate increase of $170 million, based on a 9.9-percent authorized return on equity, effective October 1, 2022. 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.

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, subject to ceiling factor limitations, 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.

Table of Contents

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

In Millions
December 31			2022						2021
Assets
PSCR underrecoveries						$	401					$	—
GCR underrecoveries						8						25
Accounts receivable and accrued revenue						$	409					$	25
Liabilities
PSCR overrecoveries						$	—					$	12
Accrued rate refunds						$	—					$	12

Due to spikes in fuel prices during 2022, the cost of electric generation increased, resulting in higher market prices for electricity. Accordingly, Consumers’ power supply costs for 2022 were significantly higher than those projected in its 2022 PSCR plan. Consumers included a projection of its full-year 2022 underrecovery in the 2023 PSCR plan filed with the MPSC in September 2022. In January 2023, Consumers filed a motion for a temporary order in its 2023 PSCR plan, requesting that the MPSC approve only a third of the 2022 underrecovery amount for recovery in 2023, with the remaining amount to be recovered equally during 2024 and 2025. Recovering the 2022 underrecovery over three years will provide immediate relief to electric customers, and the financial impact will be neutral to Consumers’ earnings.

PSCR Plans and Reconciliations: In August 2022, the MPSC issued an order in Consumers’ 2020 PSCR reconciliation, authorizing recovery of $1.8 billion of power costs and authorizing Consumers to reflect in its 2021 PSCR reconciliation the underrecovery of $1 million. In its order, the MPSC disallowed the recovery of $1 million of replacement power costs associated with an extended outage at Ludington. Consumers filed an appeal of the MPSC’s order with the Michigan Court of Appeals in September 2022.

In March 2022, Consumers filed its 2021 PSCR reconciliation, requesting full recovery of $2.1 billion of power costs and authorization to reflect in its 2022 PSCR reconciliation the overrecovery of $8 million.

Consumers submitted its 2022 PSCR plan to the MPSC in September 2021 and self-implemented its proposed 2022 PSCR charge in January 2022.

GCR Plans and Reconciliations: In April 2022, the MPSC approved a settlement agreement in Consumers’ 2020-2021 GCR reconciliation, authorizing recovery of $0.4 billion of gas costs and authorizing Consumers to reflect in its 2021-2022 GCR reconciliation the overrecovery of $2 million.

In June 2022, Consumers filed its 2021-2022 GCR reconciliation, requesting full recovery of $0.7 billion of gas costs and authorization to reflect in its 2022-2023 GCR reconciliation the underrecovery of $9 million.

Consumers submitted its 2022-2023 GCR plan to the MPSC in December 2021 and self-implemented its proposed 2022-2023 GCR charge in April 2022. In June 2022, Consumers filed with the MPSC a revised GCR plan requesting an increase to the GCR factor due to rising natural gas prices. Consumers self-implemented that increased factor in October 2022.

Table of Contents

3: 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 stating 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

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 establishing 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 renewed in January 2022 and is valid through 2025.

At December 31, 2022, 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
						2023						2024						2025						2026						2027
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.

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 its liability for NREPA sites for which it can estimate a range of loss to be between $2 million and $4 million. At December 31, 2022, Consumers had

Table of Contents

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 had 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 asked to participate in the removal action plan, including Consumers, 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 its share of the total liability for known CERCLA sites to 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, 2022, 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.

Ludington Plant Overhaul Contract Dispute: Consumers and DTE Electric, co-owners of Ludington, are parties to a 2010 engineering, procurement, and construction contract with TAES, under which TAES is charged with performing a major overhaul and upgrade of Ludington. TAES’ performance has been unsatisfactory and resulted in overhaul project delays. Consumers and DTE Electric have demanded that TAES provide a comprehensive plan to resolve quality control concerns, including adherence to its warranty commitments and other contractual obligations. Consumers and DTE Electric have taken extensive efforts to resolve these issues with TAES, including a formal demand to TAES’ parent, Toshiba Corporation, a non-affiliated company, under a parent guaranty it provided in the contract. TAES has not provided a comprehensive plan or otherwise met its performance obligations.

In order to enforce the contract, Consumers and DTE Electric filed a complaint against TAES and Toshiba Corporation in the U.S. District Court for the Eastern District of Michigan in April 2022. In June 2022, TAES and Toshiba Corporation filed a motion to dismiss the complaint, along with an answer and counterclaims seeking approximately $15 million in damages related to payments allegedly owed under the parties’ contract. As a co-owner of Ludington, Consumers would be liable for 51 percent of any such damages. In September 2022, the court denied the motion to dismiss filed by TAES and Toshiba Corporation. Consumers believes the counterclaims are without merit, but cannot predict the financial impact or outcome of this matter. An unfavorable outcome could have a material adverse effect on CMS Energy’s and Consumers’ financial condition, results of operations, or liquidity.

Table of Contents

In November 2022, Consumers and DTE Electric jointly filed an application with the MPSC, requesting authority to defer as a regulatory asset the costs associated with repairing or replacing the defective work performed by TAES while the litigation with TAES and Toshiba Corporation moves forward; such costs would be offset by potential future litigation proceeds received from TAES or Toshiba Corporation. If this application is approved by the MPSC, Consumers and DTE Electric will have the opportunity to seek appropriate recovery and ratemaking treatment for amounts recorded as a regulatory asset following resolution of the litigation.

J.H. Campbell 3 Plant Retirement Contract Dispute: In May 2022, Consumers filed a complaint against Wolverine Power Supply Cooperative, Inc. in the Ottawa County Circuit Court and requested a ruling that Consumers has sole authority to decide to retire the J.H. Campbell 3 coal-fueled generating unit under the unit’s Joint Ownership and Operating Agreement. In July 2022, Wolverine Power Supply Cooperative, Inc. filed an answer, affirmative defenses, and a counterclaim seeking approximately $37 million in damages allegedly caused by Consumers’ decision to retire the unit before the end of its useful life. In July 2022, Consumers filed a motion for summary disposition, which was heard in August 2022. In October 2022, the state circuit court judge found that Consumers may, in its sole discretion, retire the J.H. Campbell 3 coal-fueled generating unit, provided that Consumers continues to operate and make necessary improvements to the unit while the litigation concerning Wolverine Power Supply Cooperative, Inc.’s claim for damages is pending. Consumers believes Wolverine Power Supply Cooperative, Inc.’s claim has no merit, but cannot predict the final impact or outcome on this matter. An unfavorable outcome could have a material adverse effect on CMS Energy’s and Consumers’ financial condition, results of operations, or liquidity.

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, 2022, Consumers had a recorded liability of $62 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 $67 million. Consumers expects to pay the following amounts for remediation and other response activity costs in each of the next five years:

In Millions
						2023						2024						2025						2026						2027
Consumers
Remediation and other response activity costs												$	5					$	11					$	31					$	6					$	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, 2022, Consumers had a regulatory asset of $108 million related to the MGP sites.

Table of Contents

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, 2022, 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 February 2021, after the MPSC denied Consumers’ petition for rehearing challenging this disallowance, Consumers filed an appeal with the Michigan Court of Appeals. In December 2022, the Michigan Court of Appeals issued a decision rejecting Consumers’ appeal. Consumers plans to file an application for leave to appeal with the Michigan Supreme Court in February 2023.

In December 2021, Consumers filed a gas rate case with the MPSC that included a request for recovery of the capital expenditures incurred to restore and modify the compressor station. Consumers incurred capital expenditures of $17 million during 2020 and 2021 to restore and modify the compressor station.

During 2022, Consumers received insurance proceeds of $13 million, representing recovery of costs incurred to restore the compressor station and incremental gas purchases related to the fire. Consumers had recognized the insurance recovery during 2021.

In June 2022, Consumers, the MPSC Staff, and other intervenors reached a settlement of the gas rate case and the MPSC approved it in July 2022. As a part of the settlement agreement, Consumers agreed, at this time, to not seek recovery of the capital expenditures, net of insurance proceeds, related to restoring and modifying the Ray Compressor Station. As a result, Consumers recorded an impairment charge of $10 million within maintenance and other operating expenses on its consolidated statements of income in 2022.

Table of Contents

Guarantees

Presented in the following table are CMS Energy’s and Consumers’ guarantees at December 31, 2022:

In Millions
Guarantee Description			Issue Date			Expiration Date			Maximum Obligation						Carrying Amount
CMS Energy, including Consumers
Indemnity obligations from sale of membership interests in VIEs1			various			indefinite						$	325					$	—
Indemnity obligations from stock and asset sale agreements2			various			indefinite						226						3
Guarantee3			2011			indefinite						30						—
Consumers
Guarantee3			2011			indefinite						$	30					$	—

1These obligations arose from the sale of membership interests in NWO Holdco and Aviator Wind to tax equity investors. NorthStar Clean Energy provided certain indemnity obligations that protect the tax equity investors against losses incurred as a result of breaches of representations and warranties under the associated limited liability company agreements. 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. For any indemnity obligations related to Aviator Wind, NorthStar Clean Energy 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 NorthStar Clean Energy’s ownership interest in NWO Holdco and Aviator Wind, see Note 18, 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, including claims related to taxes and breaches of representations and warranties. The maximum obligation amount is mostly related to an Equatorial Guinea tax claim and an indemnity provided in connection with the sale of EnerBank to Regions Bank. For further details on the sale, see Note 19, Exit Activities and Discontinued Operations.

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. CMS Energy and Consumers consider the likelihood that they would be required to perform or incur substantial losses related to these indemnities and those disclosed in the table to be remote.

Other Contingencies

In addition to the matters disclosed in this Note and Note 2, 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,

Table of Contents

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, plant purchase commitments, 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 NorthStar Clean Energy. Presented in the following table are CMS Energy’s and Consumers’ contractual purchase obligations at December 31, 2022 for each of the periods shown:

In Millions
			Payments Due
			Total						2023						2024						2025						2026						2027						Beyond 2027
CMS Energy, including Consumers
Total PPAs						$	8,479					$	652					$	792					$	809					$	812					$	847					$	4,567
Other						4,042						2,513						903						335						41						31						219
Total purchase obligations						$	12,521					$	3,165					$	1,695					$	1,144					$	853					$	878					$	4,786
Consumers
PPAs
MCV PPA						$	2,317					$	286					$	369					$	357					$	384					$	406					$	515
Related-party PPAs						320						76						76						53						35						38						42
Other PPAs						5,842						290						347						399						393						403						4,010
Total PPAs						$	8,479					$	652					$	792					$	809					$	812					$	847					$	4,567
Other						3,422						2,394						836						177						11						1						3
Total purchase obligations						$	11,901					$	3,046					$	1,628					$	986					$	823					$	848					$	4,570

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 through May 2030. The MCV PPA provides for:

• 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 $519 million in 2022, $348 million in 2021, and $298 million in 2020.

Other PPAs: Consumers has PPAs expiring through 2050 with various counterparties. The majority of the PPAs have capacity and energy charges for delivered energy. Capacity and energy charges under these PPAs were $510 million in 2022, $338 million in 2021, and $327 million in 2020. In addition,

Table of Contents

CMS Energy and Consumers account for several of their PPAs as leases. See Note 8, Leases for more information about CMS Energy’s and Consumers’ lease obligations.

4: Financings and Capitalization

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

In Millions
			Interest Rate (%)						Maturity						2022						2021
CMS Energy, including Consumers
CMS Energy, parent only
Senior notes			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					$	1,975
Junior subordinated notes**1			4.750			2			2050									500						500
			3.750			3			2050									400						400
			5.625						2078									200						200
			5.875						2078									280						280
			5.875						2079									630						630
																		$	2,010					$	2,010
Total CMS Energy, parent only																		$	3,985					$	3,985
Consumers																		10,277						8,505
NorthStar Clean Energy, including subsidiaries
Term loan facility			variable						2025									—						78
Term loan facility			variable			4			2023									100						—
Total principal amount outstanding																		$	14,362					$	12,568
Current amounts																		(1,090)						(373)
Unamortized discounts																		(30)						(31)
Unamortized issuance costs																		(120)						(118)
Total long-term debt																		$	13,122					$	12,046

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

2On 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.

3On 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

4Funds borrowed under this facility have an interest rate of one-month Term SOFR plus a spread of one percent. At December 31, 2022, the interest rate for the loan issued under this facility was 5.423 percent.

Table of Contents

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

In Millions
			Interest Rate (%)						Maturity						2022						2021
Consumers
First mortgage bonds
			0.350						2023									$	300					$	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
			3.600						2032									350						—
			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						575
			2.650						2052									300						300
			4.200						2052									450						—
			3.860						2052									50						50
			4.280						2057									185						185
			2.500						2060									525						525
			4.350						2064									250						250
			variable			1			2069									76						76
			variable			1			2070									134						134
			variable			1			2070									127						127
																		$	8,997					$	8,197
Tax-exempt revenue bonds			0.875			2			2035									35						35
			1.800			3			2049									75						75
																		$	110					$	110
Securitization bonds			3.343			4			2025-2029			5						170						198
Term loan facility			variable			6			2024									1,000						—
Total principal amount outstanding																		$	10,277					$	8,505
Current amounts																		(991)						(365)
Unamortized discounts																		(27)						(28)
Unamortized issuance costs																		(67)						(62)
Total long-term debt																		$	9,192					$	8,050

1The variable-rate bonds bear interest quarterly at a rate of three-month LIBOR minus 0.300 percent, subject to a zero-percent floor. At December 31, 2022, the interest rates were 4.469 percent for bonds due

Table of Contents

September 2069, 4.375 percent for bonds due May 2070, and 3.484 percent for bonds due October 2070. The interest rate for all variable-rate bonds at December 31, 2021 was zero percent. 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, 2022.

2The interest rate on these tax-exempt revenue bonds will reset on October 8, 2026.

3The interest rate on these tax‑exempt revenue bonds will reset on October 1, 2024.

4The weighted-average interest rate for Consumers’ securitization bonds issued through its subsidiary, Consumers 2014 Securitization Funding, was 3.343 percent at December 31, 2022 and 3.290 percent at December 31, 2021.

5Principal and interest payments are made semiannually.

6Loans under this facility have an interest rate of one-month Term SOFR plus 0.650 percent. At December 31, 2022, the weighted-average interest rate for the loans issued under this facility was 4.975 percent at December 31, 2022.

Financings: Presented in the following table is a summary of major long-term debt issuances during 2022:

			Principal (In Millions)						Interest Rate			Issuance Date			Maturity Date
NorthStar Clean Energy, including subsidiaries
Term loan facility1						$	100		variable			December 2022			September 2023
Total NorthStar Clean Energy, including subsidiaries						$	100
Consumers
Term loan facility2						$	1,000		variable			July 2022			January 2024
First mortgage bonds						350			3.600		%	August 2022			August 2032
First mortgage bonds						450			4.200		%	August 2022			September 2052
Total Consumers						$	1,800
Total CMS Energy						$	1,900

1 In December 2022, a subsidiary of NorthStar Clean Energy entered into a $185 million unsecured term loan credit agreement. Under this credit agreement, $100 million of loans have been issued as of December 31, 2022. In January 2023, an additional $30 million was borrowed under the unsecured term loan credit agreement.

2 In July 2022, Consumers entered into a delayed-draw $1.0 billion unsecured term loan credit agreement. Under this credit agreement, Consumers issued loans of $550 million in September 2022 and $450 million in November 2022. In January 2023, Consumers repaid $500 million of the term loan credit agreement.

Table of Contents

In January 2023, Consumers entered into a bond purchase agreement to issue an aggregate principal amount of $400 million of first mortgage bonds through a private placement offering. The bonds, which were priced in November 2022, carry a weighted average interest rate of 5.251 percent and mature at varying dates between 2026 and 2037. The bonds are expected to be issued in May 2023. The proceeds of the bonds will be used to finance a portion of the purchase price of the New Covert Generating Facility and for general corporate purposes.

Also in January 2023, Consumers issued $425 million of first mortgage bonds that mature in March 2028 and bear interest at a rate of 4.650 percent. The proceeds of the bonds have been used to repay a portion of the $1.0 billion aggregate principal amount outstanding under Consumers’ term loan credit agreement and for general corporate purposes.

Presented in the following table is a summary of major long-term debt retirements during 2022:

			Principal (In Millions)						Interest Rate			Retirement Date			Maturity Date
NorthStar Clean Energy, including subsidiaries
Term loan facility						$	76		variable			June 2022			October 2025

In June 2022, NorthStar Clean Energy sold a Class A membership interest in NWO Holdco to a tax equity investor for $49 million. Proceeds from the sale were used to retire the non-recourse debt held by a subsidiary of NorthStar Clean Energy. For more information, see Note 18, 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 expires on March 31, 2024. Any long-term issuances during the authorization period are exempt from FERC’s competitive bidding and negotiated placement requirements. In December 2022, Consumers filed an application for authority to issue securities between April 1, 2023 and March 31 2025.

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.

Table of Contents

Debt Maturities: At December 31, 2022, the aggregate annual maturities for long-term debt for the next five years, based on stated maturities or earlier put dates, were:

In Millions
			2023						2024						2025						2026						2027
CMS Energy, including Consumers
Long-term debt
CMS Energy, parent only						$	—					$	250					$	250					$	300					$	625
Consumers						991						1,332						31						32						168
NorthStar Clean Energy, including subsidiaries						100						—						—						—						—
Total CMS Energy1						$	1,091					$	1,582					$	281					$	332					$	793
Consumers
Long-term debt						$	991					$	1,332					$	31					$	32					$	168

1 This amount excludes debt issuance costs, related to the term loan agreement of a subsidiary of NorthStar Clean Energy, of less than $1 million.

Credit Facilities: The following credit facilities with banks were available at December 31, 2022:

In Millions
Expiration Date			Amount of Facility						Amount Borrowed						Letters of Credit Outstanding						Amount Available
CMS Energy, parent only
December 14, 20271						$	550					$	—					$	18					$	532
September 22, 2024						50						—						50						—
NorthStar Clean Energy, including subsidiaries
September 25, 20252						$	37					$	—					$	37					$	—
Consumers3
December 14, 2027						$	1,100					$	—					$	29					$	1,071
November 18, 2024						250						—						27						223

1There were no borrowings under this facility during the year ended December 31, 2022.

2This letter of credit facility is available to Aviator Wind Equity Holdings. For more information regarding Aviator Wind Equity Holdings, see Note 18, Variable Interest Entities.

3Obligations under these facilities are secured by first mortgage bonds of Consumers. There were no borrowings under these facilities during the year ended December 31, 2022.

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, 2022, there were $20 million of commercial paper notes outstanding under this program at an annual interest rate of 4.710 percent, recorded as current notes payable on the consolidated balance sheets of CMS Energy and Consumers.

Table of Contents

In December 2022, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $500 million. At December 31, 2022, outstanding borrowings under the agreement were $75 million bearing the maximum interest rate authorized by FERC for this short-term credit agreement of 3.500 percent.

Dividend Restrictions: At December 31, 2022, payment of dividends by CMS Energy on its common stock was limited to $6.8 billion under provisions of the Michigan Business Corporation Act of 1972.

Under the provisions of its articles of incorporation, at December 31, 2022, Consumers had $1.9 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.

During the year ended December 31, 2022, Consumers paid $769 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: Under an existing equity offering program, CMS Energy may sell shares of its common stock having an aggregate sales price of up to $500 million in privately negotiated transactions, in “at the market” offerings, through forward sales transactions, or otherwise. In 2022, CMS Energy settled forward contracts under this program by issuing 962,354 shares of common stock at a weighted-average price of $57.36 per share, resulting in net proceeds of $55 million.

Presented in the following table are details of CMS Energy’s forward sales contracts under this program at December 31, 2022:

									Forward Price Per Share
Contract Date			Maturity Date			Number of Shares			Initial						December 31, 2022
August 3, 2022			February 1, 2024			2,944,207						67.59						67.83
August 24, 2022			February 26, 2024			1,677,938						69.46						69.69
August 29, 2022			February 26, 2024			1,783,388						68.18						68.38

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.

Table of Contents

If CMS Energy had elected to net share settle or net cash settle the contracts as of December 31, 2022, CMS Energy would not have been required to deliver shares or pay cash.

Preferred Stock: CMS Energy’s Series C preferred stock is traded on the New York Stock Exchange under the symbol CMS PRC. Depositary shares represent a 1/1000th interest in a share of its Series C preferred stock. The Series C preferred stock has no maturity or mandatory redemption date and is not redeemable at the option of the holders. CMS Energy may, at its option, redeem the Series C preferred stock, in whole or in part, at any time on or after July 15, 2026. The Series C preferred stock ranks senior to CMS Energy’s common stock with respect to dividend rights and distribution rights upon liquidation. Presented in the following table are details of CMS Energy’s Series C preferred stock at December 31, 2022 and 2021:

			Depositary Share Par Value						Depositary Share Optional Redemption Price						Number of Depositary Shares Authorized			Number of Depositary Shares Outstanding
Cumulative, redeemable perpetual						$	25					$	25		9,200,000			9,200,000

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, 2022 and 2021:

			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

5: 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.

Table of Contents

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			2022						2021									2022						2021
Assets1
Restricted cash equivalents						$	18					$	24								$	17					$	22
Nonqualified deferred compensation plan assets						24						27									18						21
Derivative instruments						2						2									2						2
Total assets						$	44					$	53								$	37					$	45
Liabilities1
Nonqualified deferred compensation plan liabilities						$	24					$	27								$	18					$	21
Derivative instruments						—						7									—						—
Total liabilities						$	24					$	34								$	18					$	21

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 1, Significant Accounting Policies.

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 were interest rate swaps at CMS Energy, which were valued using market-based inputs. CMS Energy used interest rate swaps to manage its interest rate risk on certain long‑term debt obligations.

A subsidiary of NorthStar Clean Energy used 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 were accounted for as cash flow hedges of the future variability of interest payments on the debt. In June 2022, NorthStar Clean Energy repaid the hedged debt and terminated the related interest rate swaps. As a result, the associated unrecognized losses recorded in other comprehensive income were recognized in interest on long-term debt on CMS Energy’s consolidated statements of income; this amount was immaterial. NorthStar Clean Energy also had other interest rate swaps that economically hedged interest rate risk on debt, but that did not qualify for cash flow hedge

Table of Contents

accounting. These swaps were also terminated in June 2022; the amounts associated with these swaps were not material for the periods presented.

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 periods presented.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Presented in the following table are Consumers’ assets, by level within the fair value hierarchy, reported at fair value on a nonrecurring basis during the year ended December 31, 2021:

In Millions
			Level 1						Level 2						Level 3									Gains (Losses)
Assets held for sale						$	—					$	15					$	—					$	(4)

In 2021, Consumers wrote down fleet assets held for sale from their carrying amount of $19 million to their fair value, less selling costs, of $15 million, resulting in an impairment charge of $4 million, which was recorded within maintenance and other operating expenses on its consolidated statements of income for the year ended December 31, 2021. The fair value was determined based on the market prices of similar fleet vehicles at the time of measurement. These vehicles were subsequently sold at an amount exceeding their recorded fair value in 2022. For additional information, see Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 2, Regulatory Matters.

Table of Contents

6: 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 5, Fair Value Measurements.

In Millions
			December 31, 2022																																	December 31, 2021
			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						$	14					$	14					$	—					$	—					$	14								$	14					$	14					$	—					$	—					$	14
Liabilities
Long-term debt2						14,212						12,384						987						8,741						2,656									12,419						13,800						1,189						10,656						1,955
Long-term payables3						9						7						—						—						7									31						32						—						—						32
Consumers
Assets
Long-term receivables1						$	14					$	14					$	—					$	—					$	14								$	14					$	14					$	—					$	—					$	14
Notes receivable – related party4						101						101						—						—						101									104						104						—						—						104
Liabilities
Long-term debt5						10,183						8,728						—						6,172						2,556									8,415						9,410						—						7,455						1,955

1Includes current portion of long-term accounts receivable and notes receivable of $7 million at December 31, 2022 and $9 million at December 31, 2021.

2Includes current portion of long-term debt of $1,090 million at December 31, 2022 and $373 million at December 31, 2021.

3Includes current portion of long-term payables of $2 million at December 31, 2022 and $23 million at December 31, 2021.

4Includes current portion of notes receivable – related party of $7 million at December 31, 2022 and 2021.

5Includes current portion of long-term debt of $991 million at December 31, 2022 and $365 million at December 31, 2021.

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.

Table of Contents

7: 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			2022						2021
CMS Energy, including Consumers
Plant, property, and equipment, gross
Consumers			3 - 125						$	29,342					$	28,771
NorthStar Clean Energy
Independent power production1			3 - 40						1,124						1,121
Assets under finance leases2									24						—
Other			3 - 5						1						1
Plant, property, and equipment, gross									$	30,491					$	29,893
Construction work in progress									1,182						961
Accumulated depreciation and amortization									(8,960)						(8,502)
Total plant, property, and equipment3									$	22,713					$	22,352
Consumers
Plant, property, and equipment, gross
Electric
Generation			15 - 125						$	5,780					$	6,704
Distribution			15 - 75						10,590						9,815
Other			5 - 55						1,374						1,309
Assets under finance leases2									126						319
Gas
Distribution			20 - 85						6,951						6,338
Transmission			17 - 75						2,440						2,319
Underground storage facilities4			27 - 75						1,197						1,117
Other			5 - 55						835						814
Assets under finance leases2									20						13
Other non-utility property			3 - 51						29						23
Plant, property, and equipment, gross									$	29,342					$	28,771
Construction work in progress									994						915
Accumulated depreciation and amortization									(8,791)						(8,371)
Total plant, property, and equipment2									$	21,545					$	21,315

1A 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 8, Leases.

2For information regarding the amortization terms of CMS Energy’s and Consumers’ assets under finance leases, see Note 8, Leases.

3Consumers’ plant additions were $2.3 billion for the year ended December 31, 2022 and $2.4 billion for the year ended December 31, 2021. Consumers’ plant retirements, which include the impact of disallowances and transfers to held for sale, were $290 million for the year ended December 31, 2022 and $361 million

Table of Contents

for the year ended December 31, 2021. Consumers plans to retire the J.H. Campbell 1, 2, & 3 coal-fueled electric generating units in 2025. Accordingly, in 2022, Consumers removed from total plant, property, and equipment $1.3 billion, representing the remaining book value of the three units upon their retirement, and recorded it as a regulatory asset. For additional details, see Note 2, Regulatory Matters.

4Underground storage includes base natural gas of $26 million at December 31, 2022 and 2021. 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 Consumers’ intangible assets:

In Millions
Description			Amortization Life in Years			December 31, 2022															December 31, 2021
Gross Cost1						Accumulated Amortization									Gross Cost1						Accumulated Amortization
Consumers
Software development			3 - 15						$	846					$	593								$	840					$	592
Rights of way			50 - 85						218						61									211						60
Franchises and consents			5 - 50						16						10									16						10
Leasehold improvements			various2						9						6									9						6
Other intangibles			various						25						16									26						16
Total									$	1,114					$	686								$	1,102					$	684

1Consumers’ intangible asset additions were $116 million for the year ended December 31, 2022 and $88 million for the year ended December 31, 2021. Consumers’ intangible asset retirements were $104 million for the year ended December 31, 2022 and $91 million for the year ended December 31, 2021.

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. 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

Table of Contents

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			2022			2021			2020
Electric			6.2		%	6.2		%	6.9		%
Gas			5.6			5.6			5.7

Assets Under Finance Leases: Presented in the following table are further details about changes in CMS Energy’s and Consumers’ assets under finance leases:

In Millions
Years Ended December 31			2022						2021
CMS Energy, including Consumers
Balance at beginning of period						$	332					$	336
Additions						44						—
Net retirements and other adjustments						(206)						(4)
Balance at end of period						$	170					$	332
Consumers
Balance at beginning of period						$	332					$	336
Additions						20						—
Net retirements and other adjustments						(206)						(4)
Balance at end of period						$	146					$	332

Assets under finance leases are presented as gross amounts. CMS Energy and Consumers’ accumulated amortization of assets under finance leases was $88 million at December 31, 2022 and $272 million at December 31, 2021.

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			2022						2021
CMS Energy, including Consumers
Utility plant assets						$	8,785					$	8,366
Non-utility plant assets						175						136
Consumers
Utility plant assets						$	8,785					$	8,366
Non-utility plant assets						6						5

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

Table of Contents

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			2022			2021			2020
Electric utility property			3.7		%	3.9		%	3.9		%
Gas utility property			2.9			2.9			2.9
Other property			8.9			9.4			9.8

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

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

In Millions
Years Ended December 31			2022						2021						2020
CMS Energy, including Consumers
Depreciation expense – plant, property, and equipment						$	990					$	975					$	901
Amortization expense
Software						103						108						112
Other intangible assets						5						4						4
Securitized regulatory assets						28						27						26
Total depreciation and amortization expense						$	1,126					$	1,114					$	1,043
Consumers
Depreciation expense – plant, property, and equipment						$	952					$	938					$	881
Amortization expense
Software						103						108						112
Other intangible assets						5						4						4
Securitized regulatory assets						28						27						26
Total depreciation and amortization expense						$	1,088					$	1,077					$	1,023

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

In Millions
			2023						2024						2025						2026						2027
Consumers
Intangible asset amortization expense						$	96					$	82					$	80					$	76					$	64

Table of Contents

Jointly Owned Regulated Utility Facilities

Presented in the following table are Consumers’ investments in jointly owned regulated utility facilities at December 31, 2022:

In Millions, Except Ownership Share
			J.H. Campbell Unit 3						Ludington						Other
Ownership share						93.3		%				51.0		%				various
Utility plant in service						$	1,767					$	591					$	412
Accumulated depreciation						(816)						(210)						(93)
Construction work in progress						10						21						21
Net investment						$	961					$	402					$	340

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.

8: Leases

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.

Table of Contents

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			2022						2021									2022						2021
Operating leases
Right-of-use assets1						$	31					$	26								$	27					$	22
Lease liabilities
Current lease liabilities2						4						3									4						3
Non-current lease liabilities3						27						25									23						19
Finance leases
Right-of-use assets						82						57									58						57
Lease liabilities4
Current lease liabilities						9						6									9						6
Non-current lease liabilities						68						46									45						46
Weighted-average remaining lease term (in years)
Operating leases						20						23									18						21
Finance leases						18						12									10						12
Weighted-average discount rate
Operating leases						4.0		%				4.0		%							3.9		%				3.9		%
Finance leases5						5.2						1.7									1.6						1.7

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, 2022 and 2021.

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.

Table of Contents

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			2022						2021
CMS Energy, including Consumers
Operating lease costs						$	6					$	8
Finance lease costs
Amortization of right-of-use assets						12						7
Interest on lease liabilities						14						16
Variable lease costs						93						90
Short-term lease costs						23						22
Total lease costs						$	148					$	143
Consumers
Operating lease costs						$	6					$	8
Finance lease costs
Amortization of right-of-use assets						12						7
Interest on lease liabilities						14						16
Variable lease costs						93						90
Short-term lease costs						22						21
Total lease costs						$	147					$	142

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

In Millions
Years Ended December 31			2022						2021
CMS Energy, including Consumers
Cash paid for amounts included in the measurement of lease liabilities
Cash used in operating activities for operating leases						$	6					$	8
Cash used in operating activities for finance leases						14						16
Cash used in financing activities for finance leases						13						7
Lease liabilities arising from obtaining right-of-use assets
Operating leases						10						2
Finance leases						36						—
Consumers
Cash paid for amounts included in the measurement of lease liabilities
Cash used in operating activities for operating leases						$	6					$	8
Cash used in operating activities for finance leases						14						16
Cash used in financing activities for finance leases						12						7
Lease liabilities arising from obtaining right-of-use assets
Operating leases						10						2
Finance leases						12						—

Table of Contents

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, 2022			Operating Leases						Pipelines and PPAs						Other						Total
CMS Energy, including Consumers
2023						$	5					$	15					$	8					$	23
2024						5						13						6						19
2025						3						13						3						16
2026						2						13						4						17
2027						2						13						2						15
2028 and thereafter						31						39						67						106
Total minimum lease payments						$	48					$	106					$	90					$	196
Less discount						17						75						44						119
Present value of minimum lease payments						$	31					$	31					$	46					$	77
Consumers
2023						$	5					$	15					$	7					$	22
2024						4						13						5						18
2025						3						13						2						15
2026						2						13						2						15
2027						1						13						1						14
2028 and thereafter						26						39						8						47
Total minimum lease payments						$	41					$	106					$	25					$	131
Less discount						14						75						2						77
Present value of minimum lease payments						$	27					$	31					$	23					$	54

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, 2022, lease revenue from these power sales agreements was $240 million, which included variable lease payments of $191 million. For the year ended December 31, 2021, lease revenue from these power sales agreements was $194 million, which included variable lease payments of $138 million.

Table of Contents

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, 2022
2023						$	43
2024						43
2025						44
2026						18
Total minimum lease payments						$	148

Consumers has a natural gas transportation agreement with a subsidiary of CMS Energy that extends through 2038, 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 less than $1 million for each of the next five years and $8 million for the years thereafter. The lease receivable was $6 million as of December 31, 2022, which does not include unearned income of $7 million.

9: 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:

ARO Description			In-Service Date			Long-Lived Assets
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

Table of Contents

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

In Millions
Company and ARO Description			ARO Liability 12/31/2021						Incurred						Settled						Accretion						Cash Flow Revisions1						ARO Liability 12/31/2022
CMS Energy, including Consumers
Consumers						$	605					$	1					$	(39)					$	27					$	128					$	722
Renewable generation assets						23						—						—						1						—						24
Total CMS Energy						$	628					$	1					$	(39)					$	28					$	128					$	746
Consumers
Coal ash disposal areas						$	157					$	—					$	(20)					$	7					$	128					$	272
Gas distribution cut, purge, and cap						282						1						(11)						15						—						287
Asbestos abatement						38						—						(1)						2						—						39
Renewable generation assets						93						—						—						2						—						95
Gas wells plug and abandon						35						—						(7)						1						—						29
Total Consumers						$	605					$	1					$	(39)					$	27					$	128					$	722

1Increase was attributable to a proposed change for closure work at the J.H. Campbell 3 ash disposal landfill and an updated cost estimate for other coal ash disposal areas.

In Millions
Company and ARO Description			ARO Liability 12/31/2020						Incurred						Settled						Accretion						Cash Flow Revisions						ARO Liability 12/31/2021
CMS Energy, including Consumers
Consumers						$	530					$	71					$	(53)					$	24					$	33					$	605
Renewable generation assets						23						—						—						—						—						23
Total CMS Energy						$	553					$	71					$	(53)					$	24					$	33					$	628
Consumers
Coal ash disposal areas						$	148					$	—					$	(34)					$	5					$	38					$	157
Gas distribution cut, purge, and cap						240						39						(10)						13						—						282
Asbestos abatement						36						—						—						2						—						38
Renewable generation assets						74						16						—						3						—						93
Gas wells plug and abandon						32						16						(9)						1						(5)						35
Total Consumers						$	530					$	71					$	(53)					$	24					$	33					$	605

Table of Contents

10: 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 March 2022, CMS Energy and Consumers determined that 2022 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 at the end of each quarter in 2022. For the year ended December 31, 2022, CMS Energy, including Consumers, recognized a settlement loss of $22 million; $21 million of this amount was deferred as a regulatory asset. Consumers recognized a settlement loss of $21 million, all of which was deferred as a regulatory asset. CMS Energy and Consumers will amortize the regulatory asset over eight 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 ten percent of base pay, depending on years of service and employee class. Employees are not required to contribute in order to receive the plan’s employer contribution. DCCP expense for CMS Energy, including Consumers, was $48 million for the year ended December 31, 2022, $41 million for the year ended December 31, 2021, and $31 million for the year ended December 31, 2020. DCCP expense for Consumers was $48 million for the year ended December 31, 2022, $41 million for the year ended December 31, 2021, and $31 million for the year ended December 31, 2020.

Table of Contents

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 and ABO for CMS Energy’s and Consumers’ DB SERP:

In Millions
Years Ended December 31			2022						2021
CMS Energy, including Consumers
Trust assets						$	137					$	142
ABO						118						149
Consumers
Trust assets						$	101					$	104
ABO						85						108

Neither CMS Energy nor Consumers made any contributions to the DB SERP in 2022 or 2021.

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 $12 million at December 31, 2022 and $13 million at December 31, 2021. DC SERP assets are included in other non‑current assets on CMS Energy’s and Consumers’ consolidated balance sheets. CMS Energy’s and Consumers’ DC SERP expense was $1 million for the year ended December 31, 2022, and $2 million for the years ended December 31, 2021 and 2020.

401(k) Plan: The 401(k) plan employer match equals four to six percent of employee eligible contributions based on an employee’s wages and class. The total 401(k) plan cost for CMS Energy, including Consumers, was $44 million for the year ended December 31, 2022, $31 million for the year ended December 31, 2021, and $29 million for the year ended December 31, 2020. The total 401(k) plan cost for Consumers was $43 million for the year ended December 31, 2022, $31 million for the year ended December 31, 2021, and $29 million for the year ended December 31, 2020.

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 2023 and 6.25 percent in 2022 for those under 65 and would increase 6.75 percent in 2023 and 2022 for those over 65. The rate of increase was assumed to decline to 4.75 percent by 2032 and thereafter for all retirees.

Table of Contents

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

December 31			2022			2021			2020
CMS Energy, including Consumers
Weighted average for benefit obligations1
Discount rate2
DB Pension Plan A			5.24		%	3.02		%	2.73		%
DB Pension Plan B			5.14			2.79			2.41
DB SERP			5.13			2.78			2.40
OPEB Plan			5.21			2.99			2.69
Rate of compensation increase
DB Pension Plan A			3.60			3.60			3.70
DB SERP			5.50			5.50			5.50
Weighted average for net periodic benefit cost1
Service cost discount rate2,3
DB Pension Plan A			3.09		%	2.83		%	3.44		%
DB SERP			3.09			2.84			3.46
OPEB Plan			3.23			3.03			3.57
Interest cost discount rate2,3
DB Pension Plan A			2.44			1.97			2.92
DB Pension Plan B			2.21			1.70			2.74
DB SERP			2.21			1.72			2.74
OPEB Plan			2.45			1.99			2.88
Expected long-term rate of return on plan assets4
DB Pension Plans			6.50			6.75			6.75
OPEB Plan			6.50			6.75			6.75
Rate of compensation increase
DB Pension Plan A			3.60			3.70			3.50
DB SERP			5.50			5.50			5.50

1The mortality assumption for benefit obligations was based on the Pri-2012 Mortality Table, with improvement scale MP-2021 for 2022 and 2021 and improvement scale MP-2020 for 2020. The mortality assumption for net periodic benefit cost was based on the Pri-2012 Mortality Table, with improvement scales MP-2021 for 2022, MP-2020 for 2021, and MP-2019 for 2020.

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

Table of Contents

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 6.50 percent in 2022. The actual return (loss) on the assets of the DB Pension Plans was (15.9) percent in 2022, 12.0 percent in 2021, and 13.6 percent in 2020.

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 benefit plans:

In Millions
																		DB Pension Plans and DB SERP																																				OPEB Plan
Years Ended December 31												2022						2021						2020																		2022						2021						2020
CMS Energy, including Consumers
Net periodic cost (credit)
Service cost																					$	41					$	53					$	50																							$	17					$	18					$	16
Interest cost																					84						63						83																								28						23						33
Settlement loss																					1						1						1																								—						—						—
Expected return on plan assets																					(206)						(208)						(191)																								(115)						(109)						(100)
Amortization of:
Net loss																					40						100						95																								1						8						15
Prior service cost (credit)																					4						4						1																								(51)						(53)						(56)
Settlement loss																					9						6						2																								—						—						—
Net periodic cost (credit)																					$	(27)					$	19					$	41																							$	(120)					$	(113)					$	(92)
Consumers
Net periodic cost (credit)
Service cost																					$	39					$	51					$	49																							$	17					$	17					$	15
Interest cost																					79						59						78																								27						23						31
Expected return on plan assets																					(194)						(197)						(181)																								(107)						(102)						(93)
Amortization of:
Net loss																					37						96						90																								—						8						15
Prior service cost (credit)																					4						4						1																								(50)						(51)						(54)
Settlement loss																					9						6						2																								—						—						—
Net periodic cost (credit)																					$	(26)					$	19					$	39																							$	(113)					$	(105)					$	(86)

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 years ended December 31, 2022, 2021, and 2020. For DB Pension Plan B, the estimated period of amortization of gains and losses was 18 years for the years ended December 31, 2022 and 2021, and 19 years for the year ended December 31, 2020. For the OPEB Plan, the estimated amortization period was nine years for the years ended December 31, 2022, 2021, and 2020.

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.

Table of Contents

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.

Table of Contents

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

In Millions
			DB Pension Plans															DB SERP															OPEB Plan
Years Ended December 31			2022						2021									2022						2021									2022						2021
CMS Energy, including Consumers
Benefit obligation at beginning of period						$	3,070					$	3,266								$	149					$	160								$	1,166					$	1,205
Service cost						41						53									—						—									17						18
Interest cost						81						60									3						3									28						23
Plan amendments						—						—									—						—									—						5
Actuarial gain						(811)			1			(108)			1						(25)						(4)									(274)			1			(32)			1
Benefits paid						(212)						(201)									(10)						(10)									(48)						(53)
Benefit obligation at end of period						$	2,169					$	3,070								$	117					$	149								$	889					$	1,166
Plan assets at fair value at beginning of period						$	3,599					$	3,402								$	—					$	—								$	1,787					$	1,645
Actual return on plan assets						(567)						398									—						—									(294)						194
Company contribution						—						—									10						10									—						—
Actual benefits paid						(212)						(201)									(10)						(10)									(47)						(52)
Plan assets at fair value at end of period						$	2,820					$	3,599								$	—					$	—								$	1,446					$	1,787
Funded status						$	651		2			$	529		2						$	(117)					$	(149)								$	557					$	621
Consumers
Benefit obligation at beginning of period																					$	109					$	117								$	1,122					$	1,158
Service cost																					—						—									17						17
Interest cost																					2						2									27						23
Plan amendments																					—						—									—						5
Actuarial gain																					(19)						(3)									(265)			1			(30)			1
Benefits paid																					(7)						(7)									(45)						(51)
Benefit obligation at end of period																					$	85					$	109								$	856					$	1,122
Plan assets at fair value at beginning of period																					$	—					$	—								$	1,668					$	1,535
Actual return on plan assets																					—						—									(273)						182
Company contribution																					7						7									—						—
Actual benefits paid																					(7)						(7)									(45)						(49)
Plan assets at fair value at end of period																					$	—					$	—								$	1,350					$	1,668
Funded status																					$	(85)					$	(109)								$	494					$	546

1The actuarial gains for 2022 and 2021 for the DB Pension Plans and OPEB Plan were primarily the result of higher discount rates.

2The total funded status of the DB Pension Plans attributable to Consumers, based on an allocation of expenses, was $632 million at December 31, 2022 and $510 million at December 31, 2021.

Table of Contents

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

In Millions
December 31			2022						2021
CMS Energy, including Consumers
Non-current assets
DB Pension Plans						$	651					$	529
OPEB Plan						557						621
Current liabilities
DB SERP						10						10
Non-current liabilities
DB SERP						107						139
Consumers
Non-current assets
DB Pension Plans						$	632					$	510
OPEB Plan						494						546
Current liabilities
DB SERP						7						7
Non-current liabilities
DB SERP						78						102

The ABO for the DB Pension Plans was $2.0 billion at December 31, 2022 and $2.7 billion at December 31, 2021. At December 31, 2022 and 2021, the PBO and ABO did not exceed plan assets for any of the defined benefit pension plans.

Table of Contents

Items Not Yet Recognized as a Component of Net Periodic Benefit Cost: Presented in the following table are the amounts recognized in regulatory assets, regulatory liabilities, and AOCI that have not been recognized as components of net periodic benefit cost. For additional details on regulatory assets and regulatory liabilities, see Note 2, Regulatory Matters.

In Millions
			DB Pension Plans and DB SERP															OPEB Plan
December 31			2022						2021									2022						2021
CMS Energy, including Consumers
Regulatory assets (liabilities)
Net loss						$	724					$	812								$	251					$	136
Prior service cost (credit)						21						25									(140)						(190)
Regulatory assets (liabilities)						$	745					$	837								$	111					$	(54)
AOCI
Net loss (gain)						69						94									2						(17)
Prior service cost (credit)						1						—									(3)						(5)
Total amounts recognized in regulatory assets (liabilities) and AOCI						$	815					$	931								$	110					$	(76)
Consumers
Regulatory assets (liabilities)
Net loss						$	724					$	812								$	251					$	136
Prior service cost (credit)						21						25									(140)						(190)
Regulatory assets (liabilities)						$	745					$	837								$	111					$	(54)
AOCI
Net loss						20						41									—						—
Total amounts recognized in regulatory assets (liabilities) and AOCI						$	765					$	878								$	111					$	(54)

Table of Contents

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 5, Fair Value Measurements.

In Millions
			DB Pension Plans
			December 31, 2022															December 31, 2021
			Total						Level 1												Total						Level 1						Level 2
CMS Energy, including Consumers
Cash and short-term investments						$	122					$	122														$	30					$	30					$	—
U.S. government and agencies securities						—						—															209						—						209
Corporate debt						—						—															595						—						595
State and municipal bonds						—						—															13						—						13
Foreign corporate bonds						—						—															66						—						66
Mutual funds						263						263															785						785						—
						$	385					$	385														$	1,698					$	815					$	883
Pooled funds						2,435																					1,901
Total						$	2,820																				$	3,599

In Millions
			OPEB Plan
			December 31, 2022															December 31, 2021
			Total						Level 1												Total						Level 1						Level 2
CMS Energy, including Consumers
Cash and short-term investments						$	28					$	28														$	21					$	21					$	—
U.S. government and agencies securities						—						—															25						—						25
Corporate debt						—						—															73						—						73
State and municipal bonds						—						—															2						—						2
Foreign corporate bonds						—						—															8						—						8
Common stocks						69						69															85						85						—
Mutual funds						754						754															941						941						—
						$	851					$	851														$	1,155					$	1,047					$	108
Pooled funds						595																					632
Total						$	1,446																				$	1,787

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.

Table of Contents

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, 2022:

			DB Pension Plans						OPEB Plan
Equity securities						38.0		%				55.0		%
Fixed-income securities						47.0						38.0
Real asset investments						11.0						5.0
Cash and cash equivalents						4.0						2.0
						100.0		%				100.0		%

CMS Energy’s target 2022 asset allocation for the assets of the DB Pension Plans was 50‑percent equity, 40‑percent fixed income, and ten‑percent real assets.

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 2022 asset allocation for the health trusts was 51‑percent equity, 39‑percent fixed income, and ten‑percent real assets. CMS Energy’s target asset allocation for the life trusts was 53‑percent equity, 32‑percent fixed income, and 15‑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 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. Real asset investments are diversified across real estate investment trusts, public infrastructure, and public resource equity. Multi-asset investments are global tactical asset allocations. CMS Energy uses annual liability measurements, quarterly portfolio reviews, and periodic asset/liability studies to evaluate the need for adjustments to the portfolio allocations.

Table of Contents

Contributions: Contributions comprise required amounts and discretionary contributions. Neither CMS Energy nor Consumers made any contributions in 2022 or 2021, or plans to contribute to the DB Pension Plans or OPEB Plan in 2023. 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
2023						$	160					$	10					$	55
2024						158						10						57
2025						161						10						58
2026						160						10						59
2027						159						10						60
2028-2032						790						45						312
Consumers
2023						$	150					$	7					$	52
2024						149						7						54
2025						151						7						55
2026						151						7						56
2027						150						7						58
2028-2032						745						30						298

Collective Bargaining Agreements: At December 31, 2022, unions represented 41 percent of CMS Energy’s employees and 42 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 expire in 2025.

11: 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 2022, 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 2022, 2021, or 2020.

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 5,417,727 shares of common stock under the PISP as of December 31, 2022. 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.

Table of Contents

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 2022, 2021, and 2020 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 2022, 2021, and 2020, 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 2022.

Table of Contents

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, 2022			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			932,573						$	56.56					887,085						$	56.56
Granted
Restricted stock			534,386						48.69						506,911						48.57
Restricted stock units			14,255						56.13						13,611						56.07
Vested
Restricted stock			(395,069)						36.27						(378,759)						36.28
Restricted stock units			(14,170)						52.95						(13,377)						52.79
Forfeited – restricted stock			(42,452)						60.75						(37,325)						60.87
Nonvested at end of period			1,029,523						$	60.13					978,146						$	60.15

Year Ended December 31, 2022			CMS Energy, including Consumers			Consumers
Granted
Time-lapse awards			123,067			116,881
Market-based awards			141,287			133,450
Performance-based awards			141,287			133,450
Restricted stock units			11,810			11,265
Dividends on market-based awards			15,864			15,085
Dividends on performance-based awards			16,216			15,423
Dividends on restricted stock units			2,445			2,346
Additional market-based shares based on achievement of condition			52,627			50,428
Additional performance-based shares based on achievement of condition			44,038			42,194
Total granted			548,641			520,522

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.

Table of Contents

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			2022			2021			2020
Expected volatility			27.3		%	27.6		%	14.2		%
Expected dividend yield			2.8			2.8			2.4
Risk-free rate			1.4			0.2			1.6

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			2022						2021						2020
CMS Energy, including Consumers
Weighted-average grant-date fair value per share
Restricted stock granted						$	48.69					$	43.52					$	45.56
Restricted stock units granted						56.13						54.11						49.76
Consumers
Weighted-average grant-date fair value per share
Restricted stock granted						$	48.57					$	42.85					$	45.53
Restricted stock units granted						56.07						53.93						49.70

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

In Millions
Years Ended December 31			2022						2021						2020
CMS Energy, including Consumers
Fair value of shares that vested during the year						$	27					$	25					$	22
Compensation expense recognized						26						22						11
Income tax benefit recognized						—						1						3
Consumers
Fair value of shares that vested during the year						$	25					$	24					$	21
Compensation expense recognized						25						21						10
Income tax benefit recognized						—						1						3

At December 31, 2022, $28 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $27 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.

Table of Contents

12: 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						2022									2021						2020
CMS Energy, including Consumers
Income from continuing operations before income taxes												$	902											$	823					$	809
Income tax expense at statutory rate												189												173						170
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect												51												39						44
TCJA excess deferred taxes1												(65)												(50)						(35)
Production tax credits												(45)												(40)						(28)
Accelerated flow-through of regulatory tax benefits2												(39)												(28)						(13)
Research and development tax credits, net3												(2)												(3)						(11)
Refund of alternative minimum tax sequestration4												—												—						(9)
Other, net												4												4						(3)
Income tax expense												$	93											$	95					$	115
Effective tax rate												10.3		%										11.5		%				14.2		%
Consumers
Income from continuing operations before income taxes												$	1,085											$	1,024					$	989
Income tax expense at statutory rate												228												215						208
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect												59												54						47
TCJA excess deferred taxes1												(65)												(50)						(35)
Accelerated flow-through of regulatory tax benefits2												(39)												(28)						(13)
Production tax credits												(40)												(33)						(19)
Research and development tax credits, net3												(1)												(3)						(11)
Other, net												(2)												1						(4)
Income tax expense												$	140											$	156					$	173
Effective tax rate												12.9		%										15.2		%				17.5		%

1In 2020, the MPSC authorized Consumers to accelerate the amortization of a gas regulatory liability associated with unprotected, non‑property-related excess deferred income taxes resulting from the TCJA. The regulatory liability, which was previously scheduled to be amortized through 2029, has now been fully amortized.

2In 2020, the MPSC authorized Consumers to accelerate the amortization of income tax benefits associated with the cost to remove gas plant assets. These tax benefits, which were previously scheduled to be amortized through 2025, have now been fully amortized.

Table of Contents

3In 2022, CMS Energy finalized a study of research and development tax credits for tax years 2019 through 2021. As a result, Consumers recognized a $1 million decrease in the credit, net of reserves for uncertain tax positions. There was no impact at the consolidated level. In 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.

4In 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			2022						2021						2020
CMS Energy, including Consumers
Current income taxes
Federal						$	6					$	(1)					$	(35)
State and local						—						1						(2)
						$	6					$	—					$	(37)
Deferred income taxes
Federal						4						49						100
State and local						65						49						57
						$	69					$	98					$	157
Deferred income tax credit						18						(3)						(5)
Tax expense						$	93					$	95					$	115
Consumers
Current income taxes
Federal						$	(2)					$	(13)					$	3
State and local						8						15						(7)
						$	6					$	2					$	(4)
Deferred income taxes
Federal						50						103						115
State and local						66						54						67
						$	116					$	157					$	182
Deferred income tax credit						18						(3)						(5)
Tax expense						$	140					$	156					$	173

Table of Contents

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

In Millions
December 31			2022						2021
CMS Energy, including Consumers
Deferred income tax assets
Tax loss and credit carryforwards						$	385					$	332
Net regulatory tax liability						318						349
Reserves and accruals						35						32
Total deferred income tax assets						$	738					$	713
Valuation allowance						(2)						(2)
Total deferred income tax assets, net of valuation allowance						$	736					$	711
Deferred income tax liabilities
Plant, property, and equipment						$	(2,515)					$	(2,395)
Employee benefits						(433)						(399)
Gas inventory						(53)						(22)
Securitized costs						(39)						(46)
Other						(103)						(59)
Total deferred income tax liabilities						$	(3,143)					$	(2,921)
Total net deferred income tax liabilities						$	(2,407)					$	(2,210)
Consumers
Deferred income tax assets
Net regulatory tax liability						$	318					$	349
Tax loss and credit carryforwards						145						134
Reserves and accruals						28						24
Total deferred income tax assets						$	491					$	507
Deferred income tax liabilities
Plant, property, and equipment						$	(2,458)					$	(2,341)
Employee benefits						(423)						(388)
Gas inventory						(53)						(22)
Securitized costs						(39)						(46)
Other						(103)						(50)
Total deferred income tax liabilities						$	(3,076)					$	(2,847)
Total net deferred income tax liabilities						$	(2,585)					$	(2,340)

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.

Table of Contents

Presented in the following table are the tax loss and credit carryforwards at December 31, 2022:

In Millions
						Tax Attribute						Expiration
CMS Energy, including Consumers
State net operating loss carryforwards												$	60		2030 – 2032
Local net operating loss carryforwards												3			2024 – 2040
General business credits												320			2035 – 2042
Federal charitable contribution carryforwards												2			2025
Total tax attributes												$	385
Consumers
State net operating loss carryforwards												$	46		2030
General business credits												99			2035 – 2042
Total tax attributes												$	145

CMS Energy has provided a valuation allowance of $2 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.

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

In Millions
Years Ended December 31			2022						2021						2020
CMS Energy, including Consumers
Balance at beginning of period						$	27					$	25					$	23
Additions for current-year tax positions						1						2						1
Additions for prior-year tax positions						1						—						3
Reductions for prior-year tax positions						(1)						—						(2)
Balance at end of period						$	28					$	27					$	25
Consumers
Balance at beginning of period						$	34					$	31					$	34
Additions for current-year tax positions						3						3						1
Additions for prior-year tax positions						1						—						4
Reductions for prior-year tax positions						(2)						—						(8)
Balance at end of period						$	36					$	34					$	31

If recognized, all of these uncertain tax benefits would affect CMS Energy’s and Consumers’ annual effective tax rates in future years. One uncertain tax benefit relates to the methodology of state apportionment for Consumers’ electricity sales to MISO. The Michigan Tax Tribunal heard oral arguments on this methodology during 2022. A final conclusion is not anticipated 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 each of the years ended December 31, 2022, 2021, or 2020.

Table of Contents

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 2019 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, 2022 were adequate for all years.

13: Earnings Per Share—CMS Energy

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

In Millions, Except Per Share Amounts
Years Ended December 31												2022						2021						2020
Income available to common stockholders
Income from continuing operations																					$	809					$	728					$	694
Less loss attributable to noncontrolling interests																					(24)						(23)						(3)
Less preferred stock dividends																					10						5						—
Income from continuing operations available to common stockholders – basic and diluted																					$	823					$	746					$	697
Average common shares outstanding
Weighted-average shares – basic																					289.5						289.0						285.0
Add dilutive nonvested stock awards																					0.3						0.5						0.7
Add dilutive forward equity sale contracts																					0.2						—						0.6
Weighted-average shares – diluted																					290.0						289.5						286.3
Income from continuing operations per average common share available to common stockholders
Basic																					$	2.84					$	2.58					$	2.45
Diluted																					2.84						2.58						2.44

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

Table of Contents

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 4, Financings and Capitalization.

14: Revenue

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

In Millions
Year Ended December 31, 2022			Electric Utility						Gas Utility						NorthStar Clean Energy1									Consolidated
CMS Energy, including Consumers
Consumers utility revenue						$	5,395					$	2,720					$	—											$	8,115
Other						—						—						205												205
Revenue recognized from contracts with customers						$	5,395					$	2,720					$	205											$	8,320
Leasing income						—						—						240												240
Financing income						10						6						—												16
Consumers alternative-revenue programs						43						14						—												57
Consumers revenues to be refunded						(29)						(8)						—												(37)
Total operating revenue – CMS Energy						$	5,419					$	2,732					$	445											$	8,596
Consumers
Consumers utility revenue
Residential						$	2,523					$	1,879																	$	4,402
Commercial						1,733						559																		2,292
Industrial						792						75																		867
Other						347						207																		554
Revenue recognized from contracts with customers						$	5,395					$	2,720																	$	8,115
Financing income						10						6																		16
Alternative-revenue programs						43						14																		57
Revenues to be refunded						(29)						(8)																		(37)
Total operating revenue – Consumers						$	5,419					$	2,732																	$	8,151

1Amounts represent NorthStar Clean Energy’s operating revenue from independent power production and its sales of energy commodities.

Table of Contents

In Millions
Year Ended December 31, 2021			Electric Utility						Gas Utility						NorthStar Clean Energy1									Consolidated
CMS Energy, including Consumers
Consumers utility revenue						$	4,915					$	2,046					$	—											$	6,961
Other						—						—						114												114
Revenue recognized from contracts with customers						$	4,915					$	2,046					$	114											$	7,075
Leasing income						—						—						194												194
Financing income						10						5						—												15
Consumers alternative-revenue programs						33						12						—												45
Total operating revenue – CMS Energy						$	4,958					$	2,063					$	308											$	7,329
Consumers
Consumers utility revenue
Residential						$	2,402					$	1,396																	$	3,798
Commercial						1,573						396																		1,969
Industrial						624						54																		678
Other						316						200																		516
Revenue recognized from contracts with customers						$	4,915					$	2,046																	$	6,961
Financing income						10						5																		15
Alternative-revenue programs						33						12																		45
Total operating revenue – Consumers						$	4,958					$	2,063																	$	7,021

1Amounts represent NorthStar Clean Energy’s operating revenue from independent power production and its sales of energy commodities.

Table of Contents

In Millions
Year Ended December 31, 2020			Electric Utility						Gas Utility						NorthStar Clean Energy1												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						—																		17
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																	$	6,418
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 NorthStar Clean Energy’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

Table of Contents

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.

For the year ended December 31, 2022, CMS Energy and Consumers recorded uncollectible accounts expense of $50 million, which included a commitment to contribute $10 million to directly assist vulnerable customers with utility bills. CMS Energy and Consumers recorded uncollectible accounts expense of $22 million for the year ended December 31, 2021 and $33 million for the year ended December 31, 2020.

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 $663 million at December 31, 2022 and $486 million at December 31, 2021.

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 2, Regulatory Matters.

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

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

Table of Contents

Revenues to Be Refunded: In 2020, the MPSC issued an order authorizing Consumers to refund $28 million voluntarily to utility customers. This amount was refunded to customers during 2021 and 2022 in the form of incremental spending above amounts included in rates on various programs.

In December 2022, the MPSC issued an order authorizing Consumers to refund $22 million voluntarily to utility customers. Additionally, in the settlement of its 2022 electric rate case, Consumers agreed to refund voluntarily $15 million of 2022 revenues to utility customers through a one-time bill credit. For additional information, see Note 2, Regulatory Matters.

15: Other Income and Other Expense

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

In Millions
Years Ended December 31			2022						2021						2020
CMS Energy, including Consumers
Other income
Interest income						$	5					$	3					$	4
Interest income - related parties						—						—						7
Allowance for equity funds used during construction						6						8						6
Income from equity method investees						3						10						5
All other						5						9						6
Total other income – CMS Energy						$	19					$	30					$	28
Consumers
Other income
Interest income						$	2					$	2					$	3
Interest income - related parties						5						5						5
Allowance for equity funds used during construction						6						8						6
All other						4						8						5
Total other income – Consumers						$	17					$	23					$	19
CMS Energy, including Consumers
Other expense
Donations						$	(9)					$	(6)					$	(35)
Civic and political expenditures						(6)						(5)						(5)
Loss on reacquired and extinguished debt						—						—						(16)
All other						(12)						(7)						(6)
Total other expense – CMS Energy						$	(27)					$	(18)					$	(62)
Consumers
Other expense
Donations						$	(9)					$	(6)					$	(33)
Civic and political expenditures						(6)						(5)						(5)
All other						(10)						(7)						(5)
Total other expense – Consumers						$	(25)					$	(18)					$	(43)

Table of Contents

16: 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. Inter-segment sales and transfers were immaterial for all periods presented.

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

• NorthStar Clean Energy (formerly known as the enterprises segment), 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

In August 2022, CMS Enterprises Company changed its legal name to NorthStar Clean Energy Company. To align the segment reporting with the legal organizational structure and the internal reporting of CMS Energy, the enterprises segment will now be referred to as NorthStar Clean Energy. There were no changes to CMS Energy’s reportable segment composition as a result of this name change.

In October 2021, EnerBank was acquired by Regions Bank. As a result, EnerBank was removed from the composition of CMS Energy’s reportable segments. EnerBank’s results of operations through the date of the sale are presented as income from discontinued operations on CMS Energy’s consolidated statements of income. For information regarding the sale of EnerBank, see Note 19, Exit Activities and Discontinued Operations.

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

Table of Contents

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			2022						2021						2020
CMS Energy, including Consumers
Operating revenue
Electric utility						$	5,419					$	4,958					$	4,372
Gas utility						2,732						2,063						1,817
NorthStar Clean Energy						445						308						229
Total operating revenue – CMS Energy						$	8,596					$	7,329					$	6,418
Consumers
Operating revenue
Electric utility						$	5,419					$	4,958					$	4,372
Gas utility						2,732						2,063						1,817
Total operating revenue – Consumers						$	8,151					$	7,021					$	6,189
CMS Energy, including Consumers
Depreciation and amortization
Electric utility						$	757					$	772					$	739
Gas utility						330						304						283
NorthStar Clean Energy						38						37						20
Other reconciling items						1						1						1
Total depreciation and amortization – CMS Energy						$	1,126					$	1,114					$	1,043
Consumers
Depreciation and amortization
Electric utility						$	757					$	772					$	739
Gas utility						330						304						283
Other reconciling items						1						1						1
Total depreciation and amortization – Consumers						$	1,088					$	1,077					$	1,023

Table of Contents

In Millions
Years Ended December 31			2022						2021						2020
CMS Energy, including Consumers
Income from equity method investees1
NorthStar Clean Energy						$	3					$	10					$	5
Total income from equity method investees – CMS Energy						$	3					$	10					$	5
CMS Energy, including Consumers
Interest charges
Electric utility						$	218					$	207					$	217
Gas utility						116						104						102
NorthStar Clean Energy						3						6						7
Other reconciling items						182						183						179
Total interest charges – CMS Energy						$	519					$	500					$	505
Consumers
Interest charges
Electric utility						$	218					$	207					$	217
Gas utility						116						104						102
Other reconciling items						1						—						1
Total interest charges – Consumers						$	335					$	311					$	320
CMS Energy, including Consumers
Income tax expense (benefit)
Electric utility						$	109					$	117					$	115
Gas utility						32						39						58
NorthStar Clean Energy						3						(2)						(4)
Other reconciling items						(51)						(59)						(54)
Total income tax expense – CMS Energy						$	93					$	95					$	115
Consumers
Income tax expense (benefit)
Electric utility						$	109					$	117					$	115
Gas utility						32						39						58
Other reconciling items						(1)						—						—
Total income tax expense – Consumers						$	140					$	156					$	173

Table of Contents

In Millions
Years Ended December 31			2022						2021						2020
CMS Energy, including Consumers
Net income (loss) available to common stockholders
Electric utility						$	567					$	565					$	554
Gas utility						378						302						261
NorthStar Clean Energy						34						23						36
Other reconciling items						(152)						458						(96)
Total net income available to common stockholders – CMS Energy						$	827					$	1,348					$	755
Consumers
Net income (loss) available to common stockholder
Electric utility						$	567					$	565					$	554
Gas utility						378						302						261
Other reconciling items						(2)						(1)						(1)
Total net income available to common stockholder – Consumers						$	943					$	866					$	814
CMS Energy, including Consumers
Plant, property, and equipment, gross
Electric utility2						$	17,870					$	18,147					$	17,155
Gas utility2						11,443						10,601						9,581
NorthStar Clean Energy						1,148						1,122						1,113
Other reconciling items						30						23						21
Total plant, property, and equipment, gross – CMS Energy						$	30,491					$	29,893					$	27,870
Consumers
Plant, property, and equipment, gross
Electric utility2						$	17,870					$	18,147					$	17,155
Gas utility2						11,443						10,601						9,581
Other reconciling items						29						23						21
Total plant, property, and equipment, gross – Consumers						$	29,342					$	28,771					$	26,757
CMS Energy, including Consumers
Investments in equity method investees1
NorthStar Clean Energy						$	71					$	71					$	70
Total investments in equity method investees – CMS Energy						$	71					$	71					$	70

Table of Contents

In Millions
Years Ended December 31			2022						2021						2020
CMS Energy, including Consumers
Total assets
Electric utility2						$	17,907					$	16,493					$	15,829
Gas utility2						11,873						10,517						9,429
NorthStar Clean Energy						1,464						1,312						1,276
Other reconciling items						109						431						3,132
Total assets – CMS Energy						$	31,353					$	28,753					$	29,666
Consumers
Total assets
Electric utility2						$	17,968					$	16,555					$	15,893
Gas utility2						11,918						10,564						9,477
Other reconciling items						30						21						29
Total assets – Consumers						$	29,916					$	27,140					$	25,399
CMS Energy, including Consumers
Capital expenditures3
Electric utility4						$	1,265					$	1,153					$	1,281
Gas utility4						1,008						989						885
NorthStar Clean Energy						113						17						108
Other reconciling items						7						2						1
Total capital expenditures – CMS Energy						$	2,393					$	2,161					$	2,275
Consumers
Capital expenditures3
Electric utility4						$	1,265					$	1,153					$	1,281
Gas utility4						1,008						989						885
Other reconciling items						7						2						1
Total capital expenditures – Consumers						$	2,280					$	2,144					$	2,167

1Consumers had no equity method investments.

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

3Amounts include assets placed under finance lease.

4Amounts include a portion of Consumers’ capital expenditures for plant and equipment attributable to both the electric and gas utility businesses.

Table of Contents

17: 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 NorthStar Clean Energy

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

Transactions involving power supply purchases from certain affiliates of NorthStar Clean Energy 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			2022						2021						2020
Purchases of capacity and energy			Affiliates of NorthStar Clean Energy						$	76					$	77					$	64

Amounts payable to related parties for purchased power and other services were $20 million at December 31, 2022 and $22 million at December 31, 2021. Accounts receivable from related parties were $8 million at December 31, 2022 and $7 million at December 31, 2021.

CMS Energy has a demand note payable to the DB SERP rabbi trust. The demand note bears interest at an annual rate of 4.10 percent and has a maturity date of 2028. The portion of the demand note attributable to Consumers was recorded as a note receivable – related party on Consumers’ consolidated balance sheets at December 31, 2022 and 2021.

Consumers has a natural gas transportation agreement with a subsidiary of CMS Energy that extends through 2038, related to a pipeline owned by Consumers. For additional details about the agreement, see Note 8, Leases.

In June 2021, Consumers entered into an agreement with DIG, CMS Generation Michigan Power, and CMS ERM to purchase NorthStar Clean Energy’s three natural gas-fueled generating units for $515 million, subject to certain adjustments. Consumers had proposed purchasing these generating units as part of its 2021 IRP. However, in accordance with the terms of the settlement agreement of its 2021 IRP, which was approved by the MPSC in June 2022, Consumers will not purchase these generating units.

In December 2022, Consumers renewed a short-term credit agreement with CMS Energy, permitting Consumers to borrow up to $500 million. For additional details about the agreement, see Note 4, Financings and Capitalization.

Table of Contents

18: Variable Interest Entities

In June 2022, NorthStar Clean Energy sold a Class A membership interest in NWO Holdco to a tax equity investor for $49 million. NWO Holdco owns 100 percent of Northwest Ohio Wind, LLC, a 100‑MW wind generation project in Paulding County, Ohio. NorthStar Clean Energy retained a Class B membership interest in NWO Holdco.

NorthStar Clean Energy has a 51‑percent ownership interest in Aviator Wind Equity Holdings, which holds a Class B membership interest in Aviator Wind, the holding company of a 525‑MW wind generation project in Coke County, Texas. The Class A membership interest in Aviator Wind is held by a tax equity investor.

Earnings, tax attributes, and cash flows generated by NWO Holdco and Aviator Wind are allocated among and distributed to the membership classes in accordance with the ratios specified in the associated limited liability company agreements; these ratios change over time and are not representative of the ownership interest percentages of each membership class. Since NWO Holdco’s and Aviator Wind’s income and cash flows are not distributed among their investors based on ownership interest percentages, NorthStar Clean Energy allocates the entities’ income (loss) among the investors by applying the hypothetical liquidation at book value method. This method calculates each investor’s earnings based on a hypothetical liquidation of the entities at the net book value of underlying 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.

NWO Holdco, Aviator Wind Equity Holdings, and Aviator Wind are VIEs. In accordance with the associated limited liability company agreements, the tax equity investors are guaranteed preferred returns from NWO Holdco and Aviator Wind. However, NorthStar Clean Energy manages and controls the operating activities of NWO Holdco and Aviator Wind Equity Holdings (and, thereby, Aviator Wind). As a result, NorthStar Clean Energy is the primary beneficiary, 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. NorthStar Clean Energy consolidates NWO Holdco, Aviator Wind Equity Holdings, and Aviator Wind and presents the Class A membership interests and 49 percent of the Class B membership interest in Aviator Wind as noncontrolling interests.

Table of Contents

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

In Millions
December 31			2022						2021
Current
Cash and cash equivalents						$	28					$	21
Restricted cash and cash equivalents						—						1
Accounts receivable						7						3
Prepayments and other current assets						3						2
Non-current
Plant, property, and equipment, net						825						856
Total assets1						$	863					$	883
Current
Accounts payable						$	15					$	17
Other current liabilities						—						2
Non-current
Asset retirement obligations						24						23
Other non-current liabilities						—						4
Total liabilities						$	39					$	46

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

NorthStar Clean Energy is obligated under certain indemnities that protect the tax equity investors against losses incurred as a result of breaches of representations and warranties under the associated limited liability company agreements. For additional details on these indemnity obligations, see Note 3, Contingencies and Commitments—Guarantees.

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.

Table of Contents

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. CMS Energy’s maximum risk exposure to these partnerships is generally limited to its investment in the partnerships, which is included in investments on its consolidated balance sheets in the amount of $71 million at December 31, 2022 and 2021.

19: Exit Activities and Discontinued Operations

Exit Activities: Under its Clean Energy Plan, Consumers will retire the D.E. Karn coal-fueled electric generating units in 2023. In 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 began deferring these costs as a regulatory asset in 2021.

Under the 2021 IRP, Consumers will retire the J.H. Campbell coal-fueled generating units in 2025. Similar to the D.E. Karn program, Consumers is providing a retention incentive program to ensure necessary staffing at the J.H. Campbell generating complex through retirement. Based on the number of employees that have chosen to participate, the aggregate cost of the program through 2025 is estimated to be $50 million. Additionally, Consumers recognized $4 million related to severance benefits during the year ended December 31, 2022. This amount was recorded in other non-current liabilities on its consolidated balance sheets at December 31, 2022. The 2021 IRP provides deferred accounting treatment for the retention and severance costs recognized during 2022; deferral of costs beyond 2022 was approved as part of the 2022 electric rate case settlement.

Table of Contents

As of December 31, 2022, the cumulative cost incurred and charged to expense related to the D.E. Karn retention incentive program was $16 million. Additionally, an amount of $4 million has been capitalized as a cost of plant, property, and equipment and an amount of $11 million has been deferred as a regulatory asset. The cumulative cost incurred and deferred as a regulatory asset related to the J.H. Campbell retention incentive program was $20 million.

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												2022						2021
Retention benefit liability at beginning of period																					$	14					$	11
Costs deferred as a regulatory asset																					24						7
Costs incurred and capitalized																					—						1
Costs paid or settled																					(17)						(5)
Retention benefit liability at the end of the period1																					$	21					$	14

1Includes current portion of other liabilities of $13 million at December 31, 2022 and $5 million at December 31, 2021.

Discontinued Operations: In October 2021, EnerBank was acquired by Regions Bank. CMS Energy received proceeds of over $1.0 billion from the transaction and recognized a pre-tax gain of $657 million in 2021. In March 2022, CMS Energy received $6 million of additional proceeds as the result of a post-closing adjustment. Net of related transaction costs, CMS Energy recognized a pre-tax gain of $5 million during 2022.

In December 2021, CMS Energy submitted a notice of disagreement to Regions Bank relating to a $36 million negative post-closing purchase price adjustment that it believed was inconsistent with the merger agreement. In accordance with the merger agreement, the disputed adjustment was submitted to a mutually agreed upon independent accounting firm for final determination. In June 2022, the accounting firm rendered a determination on the disputed items entirely in favor of CMS Energy. As a result, no further adjustment was required in 2022.

EnerBank’s results of operations through the date of the sale are presented as income from discontinued operations on CMS Energy’s consolidated statements of income for the year ended December 31, 2021. The table below presents the financial results of EnerBank included in income from discontinued operations:

In Millions
Years Ended December 31												2022						2021						2020
Operating revenue																					$	—					$	209					$	262
Expenses
Operating expenses																					—						60						130
Interest expense																					—						34						56
Income before income taxes																					$	—					$	115					$	76
Gain on sale																					5						657						—
Income from discontinued operations before income taxes																					$	5					$	772					$	76
Income tax expense																					1						170						18
Income from discontinued operations, net of tax																					$	4					$	602					$	58

Table of Contents

(This page intentionally left blank)

Table of Contents

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, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 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, 2022, 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.

Table of Contents

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 2 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, 2022, the Company has recognized a total of $3,652 million of regulatory assets, $3,900 million of regulatory liabilities, and $409 million of accrued revenue. 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.

Table of Contents

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 9, 2023

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

Table of Contents

(This page intentionally left blank)

Table of Contents

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, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 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, 2022, 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.

Table of Contents

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 2 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, 2022, the Company has recognized a total of $3,652 million of regulatory assets, $3,900 million of regulatory liabilities, and $409 million of accrued revenue. 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.

Table of Contents

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 9, 2023

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

Table of Contents